Form 10-K

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-K 1 d642403d10k.htm FORM 10-K Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2013

Commission File No. 0-24624

CHINDEX INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

13-3097642

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

4340 East West Highway, Suite 1100

Bethesda, Maryland 20814

(301) 215-7777

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value and associated

Preferred Stock Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (& 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in a definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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.

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

The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of June 30, 2013 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $246,209,625.

The number of shares outstanding of each of the registrant’s class of common equity, as of March 11, 2014, was 16,934,753, shares of Common Stock and 1,162,500 shares of Class B Common Stock.

Documents Incorporated by Reference: Part III: Proxy Statement with respect to the Registrant’s 2014 annual meeting of shareholders.

CHINDEX INTERNATIONAL, INC.

TABLE OF CONTENTS


*PART I*			4
ITEM 1. BUSINESS			4
General			4
Healthcare Services Business			7
Medical Equipment Distribution Joint Venture			11
Competition			12
Employees			12
Internet Information and SEC Documents			12
ITEM 1A. RISK FACTORS			13
ITEM 1B. UNRESOLVED STAFF COMMENTS			27
ITEM 2. PROPERTIES			27
ITEM 3. LEGAL PROCEEDINGS			28
ITEM 4. MINE SAFETY DISCLOSURE			28
PART II			28
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES			28
ITEM 6. SELECTED FINANCIAL DATA			31
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			31
Overview			31
Critical Accounting Policies			36
Fiscal year ended December 31, 2013 compared to fiscal year ended December 31, 2012			37
Fiscal year ended December 31, 2012 compared to fiscal year ended December 31, 2011			39
Liquidity and Capital Resources			41
Timing of Revenue			45
Foreign Currency Exchange and Impact of Inflation			45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			80
ITEM 9A. CONTROLS AND PROCEDURES			80
ITEM 9B. OTHER INFORMATION			82
PART III			82
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.			82
ITEM 11. EXECUTIVE COMPENSATION			82
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			82
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			82
PART IV			82
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			82

PART I

ITEM 1.

BUSINESS

General

Chindex International, Inc. (which we refer to as “Chindex” or “the Company,” “we” or “us”), founded in 1981, is an American health care company providing premium quality healthcare services in China through the operations of United Family Healthcare (“United Family” or “UFH”), a network of private primary care hospitals and affiliated ambulatory clinics. United Family currently operates in Beijing, Shanghai, Tianjin and Guangzhou with a future facility under construction in Qingdao. This is the only multi-city, multi-facility, foreign owned and operated hospital network in China. Our hospitals and clinics are staffed by a mix of Western and Chinese physicians. For the year ended December 31, 2013, our healthcare services business reported revenue of $179 million, a growth of 18% over the prior year. Our strategy is to continue our growth as a leading integrated healthcare provider in Greater China.

The Company historically also engaged in the distribution of western medical equipment to Chinese hospital purchasers through its former Medical Products division (“MPD”). The Company’s MPD business was restructured at the end of 2010 as described below.

Merger Agreement

On February 17, 2014, Chindex International, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger with Healthy Harmony Holdings, L.P., a Cayman Islands limited partnership (“Merger Parent”), and Healthy Harmony Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Merger Parent (the “Merger Sub”), dated as of that date (the “Merger Agreement”). Merger Parent is indirectly owned by TPG Asia VI, L.P., a Cayman Islands limited partnership (“TPG”), and, upon the closing, Fosun Industrial Co., Limited (“Fosun”) will also become a limited partnership interest holder of Merger Parent. Under the terms of the Merger Agreement, Merger Sub will be merged (the “Merger”) with and into the Company, as a result of which the Company will continue as the surviving corporation and a wholly-owned subsidiary of Merger Parent.

Under the terms of the Merger Agreement, which has been unanimously approved by the Company’s Board of Directors (the “Board of Directors” or “Board”) upon the recommendation of the Board’s Transaction Committee comprised of independent and disinterested directors (the “Transaction Committee”), at the effective time of the Merger each outstanding share of the Company’s common stock, other than shares owned by Merger Parent, Merger Sub and other affiliates of Merger Parent, including TPG, shares contributed to Merger Parent by rollover stockholders, including Fosun, Ms. Lipson (the Company’s Chief Executive Officer) and her affiliated trusts and any additional rollover stockholders, shares held in the Company’s treasury; and shares owned by any stockholders who properly exercise appraisal rights under Delaware law, will be cancelled and converted into the right to receive $19.50 per share in cash without interest (the “Merger Consideration”). Each option to purchase the Company’s common stock that is outstanding as of the effective time of the Merger (other than certain options that will be converted into options to acquire Merger Parent equity) will be cancelled in exchange for the right to receive the excess of $19.50 over the exercise price of such option, less applicable taxes required to be withheld. Restricted stock and restricted stock units that are not vested immediately prior to the effective time shall be fully vested and free of any forfeiture restrictions immediately prior to the effective time, whereupon the shares represented thereby (net of any shares withheld to cover applicable withholding and excise taxes) shall be converted into the right to receive in cash the Merger Consideration per share. The Merger Consideration represents an implied premium of approximately 14% over the current market price per share, 17% over the volume weighted average trading price per share for the last 30 days, and 86% over the closing price per share since the formation of the Transaction Committee on December 26, 2012. The transaction will result in the Company becoming a private company.

In the Merger Agreement, the Company has made customary representations and warranties that expire at the effective time of the Merger, as well as customary covenants, including, without limitation, covenants regarding the conduct of the business of the Company prior to the consummation of the Merger and the use of commercially reasonable efforts to cause the Merger to be consummated as promptly as practicable.

Under the terms of the Merger Agreement, the Company and its advisors are permitted to actively solicit and consider alternative acquisition proposals from third parties for the period commencing February 17, 2014 through 11:59 p.m., New York City time, on April 3, 2014 (the “Solicitation Period End Time”). The Company’s management and Fosun, as current stockholders of the Company, are permitted to initiate, solicit and encourage, whether publicly or otherwise, alternative acquisition proposals, and enter into and maintain or continue substantive discussions or negotiations with respect to any such alternative acquisition proposals or otherwise cooperate with or assist or participate in, or encourage, any inquiries, proposals, substantive discussions or negotiations regarding any such alternative acquisition proposals. Beginning on the Solicitation Period End Time, the Company will become subject to customary “no shop” restrictions on its, its subsidiaries’ and their respective representatives’ ability to initiate, solicit or encourage alternative acquisition proposals from third parties and to provide information to or participate in discussions or negotiations with third parties regarding alternative acquisition proposals. However, for the period commencing from the Solicitation Period End Time through 11:59 p.m., New York City time, on the 15th day following the Solicitation Period End Time (the “Cut Off Date”), the Company may continue to engage in the foregoing activities with any third party that has made an alternative acquisition proposal prior to the Solicitation Period End Time that the Transaction Committee has determined in good faith, after consultation with outside counsel and its financial advisors, constitutes or is reasonably likely to lead to a superior acquisition proposal (each such person, an “Excluded Person”), but only for so long as such third party is an Excluded Person. The Company does not anticipate disclosing developments with respect to this process unless and until the Transaction Committee and the Board make a decision regarding a potential superior acquisition proposal or the expiration of that period. There can be no assurances that this process will result in a superior acquisition proposal. In addition, Merger Parent may, subject to the terms of the Merger Agreement, respond to such proposals.

Notwithstanding the limitations applicable after the Solicitation Period End Time, prior to the receipt of the Company’s stockholder approval, the Company may under certain circumstances provide information to and participate in discussions or negotiations with third parties with respect to unsolicited alternative acquisition proposals that the Transaction Committee has in good faith determined constitutes or is reasonably likely to lead to a superior acquisition proposal.

The Merger Agreement may be terminated by the Company or Merger Parent under certain circumstances, including in specified circumstances in connection with superior acquisition proposals. Upon the termination of the Merger Agreement, under specified circumstances, the Company will be required to pay a termination fee, the amount of which would depend on the circumstances under which the Merger Agreement is terminated. If the Merger Agreement is terminated as a result from or in connection with the Company’s approval of a superior acquisition proposal that was first received at or prior to the Solicitation Period End Time or, with respect to an Excluded Person, the Cut Off Date, the termination fee payable by the Company to Merger Parent will be $3,690,000. If the termination fee becomes payable by the Company under any other circumstances, the amount of the termination fee will be $11,992,500. Under other specified circumstances under which the Merger Agreement is terminated, Merger Parent will be required to pay the Company a termination fee of $29,520,000.

approval by stockholders of Shanghai Fosun Pharmaceutical (Group) Co., Ltd., which is an affiliate of Fosun, the approval under Chinese antitrust laws and customary other closing conditions. A special meeting of the Company’s stockholders will be held following the filing of a definitive proxy statement with the U.S. Securities and Exchange Commission (the “SEC”) and subsequent mailing of the proxy statement to stockholders. The transaction will be financed through cash contributed by TPG, a combination of cash and equity contributed by Fosun and equity contributed by Ms. Lipson and her affiliated trusts and other additional rollover stockholders (if any). The transaction is not subject to a financing condition. Assuming the satisfaction of conditions, the Company expects the transaction to close in the second half of the 2014 calendar year.

Additional information about the Merger Agreement is set forth in our current report on Form 8-K filed with the SEC on February 18, 2014.

Existing Facilities

We opened our first hospital facility in Beijing in 1997 and since inception have continuously pursued a strategy of expansion and market penetration. Our current operations consist of:

•

Our flagship Beijing hospital, which was the first private international-standards hospital in Beijing, recently was expanded to 120 licensed beds.

•

The 101 licensed bed United Family Rehabilitation Hospital, which opened in Beijing in the Summer of 2013, offering state of the art in-patient and day care rehabilitation services for post operative, neurological, orthopedic and cardiac patients.

•

Five separate freestanding clinics in Beijing that coordinate services with our flagship hospital in Beijing.

•

A freestanding outpatient comprehensive cancer treatment center in Beijing.

•

Our Shanghai hospital, which offers 50 licensed beds and made us the only foreign-invested, multi-facility hospital network in China.

•

Three medical clinics and one dental clinic in Shanghai that coordinate services with our hospital in Shanghai.

•

Our Tianjin hospital, which offers 26 licensed beds.

•

Our Guangzhou clinic, which offers a broad scope of clinical services.

Expansion Projects

The Chinese Government’s ongoing healthcare reform program encourages private investment, as the primary source for development of specialty and premium healthcare services within the Chinese healthcare system. We are one of the largest and most experienced operators of premium healthcare services in China. As such, we have developed a strategy of expansion of services and facilities within cities where we are already operating, as well as expansion projects for facilities in other economically-thriving, second tier cities:

•

In Beijing, continued expansion at our flagship hospital campus to significantly increase outpatient service capacity. Further free-standing clinic development in order to achieve better geographic coverage within the city.

•

In Shanghai, continued expansion at our hospital campus in Puxi and at our managed clinic in the Pudong district. We have identified a hospital site in Pudong and have initiated the development process.

•

In Guangzhou, development and opening of a new hospital expected in the 2015-2016 period.

•

New hospital facilities are planned to be built over the next few years in several other second tier cities. In Qingdao, we have secured a location and begun design work on the project which is planned to be a comprehensive care facility of approximately 50 beds, currently estimated to open over the 2015-2016 period.

•

We have begun to roll out management services leveraging the brand value of United Family Healthcare. Managed clinics in Wuxi and Pudong allow us to expand the UFH market penetration rapidly and in both cases have supplemented our UFH facilities in metropolitan Shanghai. We are currently exploring opportunities for managed service facilities in the large second tier cities of Chengdu, Nanjing, Xiamen and Hangzhou.

Our Healthcare Services Business

The United Family network is a leading international-standard healthcare provider committed to providing comprehensive and integrated healthcare services in a warm and caring patient and family service-oriented environment to the largest urban centers in China. Our patient base includes the expatriate communities and China’s own rapidly growing upper-middle class. United Family generally transacts business in local Chinese currency. Services provided to patients who are not covered by insurance are on a fee-for-services cash basis.

In 1997, we opened the first private, international standard hospital in Beijing, which constituted our entry into the healthcare services arena. The development of the United Family network has continued in Beijing with increasing clinical services, opening of freestanding outpatient clinics and the recent completion of an expansion of the original hospital campus to offer 120 licensed beds. In 2004, we opened our second United Family hospital in the Puxi district of Shanghai. This made United Family the only foreign-invested, multi-facility hospital network in China. In 2008, we expanded the network to include operations at a facility in the southern China market of Guangzhou. That initial Guangzhou facility was opened in advance of our planned hospital facility in Guangzhou, which we expect to open in the 2015-2016 period. Also in 2008, we expanded our network to include a managed clinic in the city of Wuxi, west of Shanghai. In 2010, we expanded network operations with the opening of a managed clinic in the Pudong district of Shanghai and two additional clinics in Beijing. In 2011, we expanded the network to include a hospital facility offering 26 licensed beds in Tianjin, a city southeast of Beijing. Also in 2011, we expanded our managed clinic in the Pudong district of Shanghai, further increased service offerings in other existing facilities and opened a new dental clinic in Puxi Shanghai near our existing hospital campus. In 2012, we completed the expansion of our main hospital campus in Beijing which included the opening of four new state of the art operating theatres equipped for cardiac and neurosurgical services. In 2013, we opened in Beijing the United Family Rehabilitation Hospital, a new 101 licensed bed, 124,000 square foot facility adjacent to a large park in east Beijing. Our facilities are managed through a corporate level shared administrative network allowing cost and clinical efficiencies. In addition, we have recently begun a multi-phase expansion into the west side of Beijing. This expansion is planned to include a large outpatient clinic in the financial center of west Beijing and a planned 80 bed comprehensive care hospital to be brought into operation over the 2015-2016 period in the affluent Haidian district.

Emphasizing the need for a full spectrum of healthcare services, United Family facilities engage patients with services in well-care, including check-ups and preventive services (routine visits in the absence of illness), diagnostics, and patient-centered care (involving the patient in healthcare decisions) for chronic

and acute diseases, both in-patient and ambulatory, as well as rehabilitation medicine and home health. United Family offers a full range of premium quality healthcare services throughout its hospital inpatient departments and integrated outpatient clinics as well as in satellite feeder clinics. These services include 24/7 emergency rooms, intensive care units and neonatal intensive care units, operating rooms, clinical laboratories, radiology and blood banking services. As an international-standard healthcare network, we not only provide healthcare services at a level generally recognized and accepted internationally in the developed world, but we also manage our operations according to generally accepted international principles, such as those related to transparency, infection control, medical records, patient confidentiality and peer review. Our hospitals and clinics are staffed by a mix of Western and Chinese physicians. Our facilities are committed to community outreach programs and offer healthcare education classes, including CPR, Lamaze and Stress Management. The United Family facilities in Beijing, Shanghai and Guangzhou are accredited by the Joint Commission International (“JCI”).

The United Family flagship hospitals in both Beijing and Shanghai were originally licensed as 50-bed facilities with affiliated satellite clinics strategically located to expand geographical reach and service offerings into our target patient markets in those cities. In all markets, we establish direct billing relationships with most insurers covering care provided in China. Premium health insurance products are only recently becoming available to our Chinese patient base. We continue to work toward facilitating more comprehensive insurance products to serve the increasing demand by the affluent Chinese population for high quality healthcare services. In 2008, the Chinese government announced a broad-based plan for reform of the Chinese healthcare system, including increasing investment such as a three-year $120 billion stimulus program, and development of health insurance products for the Chinese population. More recent reform policies announced by the Chinese government have emphasized the importance of developing policies friendly to the development of private medical facilities to cater to the varying needs of different strata of society beyond the basic care offered by the government. These reform and investment programs for the Chinese healthcare system remain a high priority for the Chinese government and we believe provide an advantageous environment for the development of our healthcare network. In December 2010, the Ministry of Health and the National Development and Reform Commission issued an opinion statement setting favorable policy in healthcare and specifically liberalizing and supporting investment in private healthcare in China. In early 2012, the State Council also promulgated the roadmap and implementation plan on health care reform for the 12th Five-Year Plan period (2011–15), which sets forth the objectives and benchmarks of the reform, as well as the goals to be accomplished during 2012–2015. According to the roadmap, the Chinese Government will continue to encourage the establishment of non-public medical facilities and strives to achieve the goal of having non-public medical facilities provide 20 percent of the total hospital beds and medical services in China by 2015.

Our more long-term expansion plans include the development of additional United Family facilities in the more affluent Chinese cities of Chengdu, Ningbo, Qingdao, and others, as well as additional facilities in our existing markets of Beijing, Shanghai, Tianjin and Guangzhou. Our plans also include the continued expansion of services at existing facilities and the opening of additional satellite clinics and hospitals.

We recognize that the rapid growth of our system will require a continuous source of well-trained administrative and medical leadership as well as nursing and medical staff. With the goal of consistently maintaining the highest quality standards, UFH has developed training and teaching programs for medical, nursing and administrative staff.

Our proposed expansion will also require capital resources, including the availability of financing and/or equity partners, as to which there can be no assurances. See “Risk Factors,” “Liquidity and Capital Resources” and Note 7 and 8 to the consolidated financial statements.

United Family Beijing Service Area—Beijing United Family Hospital (BJU) and Clinics

BJU is housed in a modern facility in the eastern section of Beijing, amidst a concentration of high

income communities. It was the first officially-approved healthcare joint venture to provide international-standard inpatient and outpatient healthcare services in China. The original entity was a contractual joint venture between Chindex and the Chinese Academy of Medical Sciences, with Chindex entitled to 90% of the net profits of the enterprise. In conjunction with the facility expansion from 50 to 120 licensed beds, a new contractual joint venture was established entitling Chindex to continue its 90% profit share. BJU received initial national level approvals from the Chinese Ministry of Health and Ministry of Foreign Trade and Economic Cooperation in 1995.

There are currently five satellite clinics affiliated with BJU. The first, which opened in 2002, is Beijing United Family Clinic – Shunyi. The Shunyi Clinic is located in the high-rent residential suburb of Shunyi County, which is also home to the International School of Beijing. The second clinic, which opened in June of 2005, is Beijing United Jianguomen Clinic. It is in downtown Beijing in a prestigious luxury hotel complex in the heart of the diplomatic district. In 2010, we opened the third Beijing United Family Clinic – Landmark, located in a high-rent diplomatic neighborhood, and a fourth, the Beijing United CBD Clinic, located in the Central Business District of Beijing. The Beijing United Family New Hope Oncology Center, located close to the main hospital campus, opened in late 2011.

The expansion projects opening in Beijing over the 2012-2013 period included a variety of increased services including comprehensive cancer care, neurosurgery, orthopedic surgery, cath lab and cardiovascular surgery. In addition, in 2013 we opened our latest hospital facility, the United Family Rehabilitation Hospital in Beijing, which is a new 101 licensed bed, 124,000 square foot facility adjacent to a large park in east Beijing. Our expansion of services into the premium rehabilitation market targets an existing inadequacy in China’s health care system for those seeking quality premium care when recovering from surgeries or debilitating illnesses in the neurological, cardiac and orthopedic areas.

BJU received accreditation from the JCI in 2004, its first reaccreditation in 2008 and its second reaccreditation in 2011. BJU is one of the few JCI-accredited hospitals in China. As a cornerstone component of the quality standard that is the hallmark of United Family, it is our goal that all of our facilities be JCI-accredited or eligible for such accreditation.

United Family Shanghai Service Area – Shanghai United Family Hospital (SHU) and Clinics

In 2002, we received approval to open a hospital venture in Shanghai. This second United Family hospital is located in the Changning District of Shanghai, which is a center of the expatriate community and an affluent Chinese residential district in Puxi, the western side of the Huangpu River. This facility is a contractual joint venture with our local partner, Shanghai Changning District Central Hospital, who provided the building site. Chindex is entitled to 70% of the net profits of the enterprise.

There are two satellite clinics affiliated with SHU in the Puxi district, an affiliated outpatient clinic close to the main hospital campus and the Shanghai Racquet Club Clinic, which also is geographically located in a luxury expatriate residential district. In 2011, we expanded into the Pudong district with an affiliated clinic established through a strategic joint venture management initiative. The Pudong district, on the eastern side of the Huangpu River, is another major residential concentration of expatriate and affluent Chinese populations. In 2013, we continued to expand service offerings at the main Puxi campus and nearby clinics. We have identified a hospital site in Pudong and have initiated the development process.

The United Family hospital in Shanghai received its first JCI accreditation in 2008 and its first reaccreditation in 2011. It is one of only two JCI-accredited facilities in the Shanghai metropolitan area.

United Family Tianjin Service Area – Tianjin United Family Hospital (TJU)

In 2011, we opened our first hospital facility in the northern city of Tianjin, which is 150 kilometers southeast of Beijing. Tianjin is China’s fifth largest city with a population of over 10 million and one of the

fastest growing cities in China. Tianjin’s gross domestic product growth rates have been in the double digits in recent years. It is a Special Municipality administered directly by the Chinese Central Government. Tianjin United Family Hospital is located in the Hexi district of the city, one of the most affluent areas. Through close proximity to Beijing, the United Family brand and quality standards were already well known in Tianjin. Our facility is licensed for 26 beds and is designed to focus on primary care services. Expansion in the Tianjin market is planned through development of a satellite clinic in another affluent district of the city.

United Family Guangzhou Service Area – Guangzhou United Family Clinic (GZC)

In 2008, we opened our first clinic in the southern city of Guangzhou. The Guangzhou United Family Clinic is located in the Yuexiu District of Guangzhou, a centrally located district in the affluent Chinese and international business and diplomatic community. In contrast to our clinics in Beijing and Shanghai, which were opened in support of a hospital facility, the Guangzhou clinic is a stand-alone facility offering a broad scope of clinical services. This allows for United Family brand development and market penetration in Guangzhou in advance of the planned main hospital currently scheduled for development and opening in the 2015-2016 period. We believe that the demand for United Family services in Guangzhou is growing rapidly. Our Guangzhou clinic received its first JCI accreditation in 2011.

United Family – The Investment Environment and New Service Area Development

In 2008, the Chinese government announced a broad-based plan for reform of the Chinese healthcare system, including increasing investment such as a three-year $120 billion stimulus program, and development of health insurance products for the Chinese population. More recent reform policies announced by the Chinese government have emphasized the importance of developing policies friendly to the development of private medical facilities to cater to the varying needs of different strata of society beyond the basic care offered by the government. These reform and investment programs for the Chinese healthcare system remain a high priority for the Chinese government and we believe provide an advantageous environment for the development of our healthcare network. In December 2010, the Ministry of Health and the National Development and Reform Commission issued an opinion statement setting favorable policy in healthcare and specifically liberalizing and supporting investment in private healthcare in China. In early 2012, the State Council also promulgated the roadmap and implementation plan on health care reform for the 12th Five-Year Plan period (2011–2015), which sets forth the objectives and benchmarks of the reform, as well as the goals to be accomplished during 2012–2015. According to the roadmap, the Chinese Government will continue to encourage the establishment of non-public medical facilities and strives to achieve the goal of having non-public medical facilities provide 20 percent of the total hospital beds and medical services in China by 2015.

In December 2010, the Chinese government’s National Development and Reform Commission and Ministry of Health issued an opinion which delineated a series of policies which we believe are favorable to and will benefit us and our proposed development of new service areas for the United Family Healthcare network. This opinion included the following points:

•

The Chinese government encourages private capital investment in hospitals.

•

Healthcare projects have been moved from “restricted” to “permitted” in the Investment Catalog which may decrease the time it take to get projects approved.

•

The government has begun to eliminate the 30% domestic ownership requirement and allow wholly-foreign owned (WFOE) hospitals on a pilot basis.

•

For-profit hospitals will be exempt from business tax and allowed to set pricing independently.

These opinions from the highest levels of the Chinese government may be seen as indicators of a continuing favorable environment for our investment in premium healthcare services through our United Family healthcare network, although many of the specific changes cannot be implemented until attendant laws and regulations are issued pursuant to this opinion.

These opinions are in the context of China’s economic environment, which continues to be one of the most robust and positive in the world. The favorable investment environment for healthcare services in China supports the strategic growth plan for future development of the United Family network. Future facility development will target expansion into largely Chinese populated markets in cities such as Chengdu, Qingdao and others which have economies consistently achieving double digit growth. We will also continue to develop additional facilities in our existing service areas of Beijing, Shanghai, Tianjin and Guangzhou, where there is already proven growing demand for United Family Healthcare services. This strategy is based on the following factors:

•

China’s macro environment remained strong in 2013, poised for same growth in 2014 with GDP growing approximately 7.5% (Xinhua News, 2014).

•

Affluent sectors of Chinese society are extremely under-served by the Chinese domestic healthcare system.

•

UFH’s strategic growth plans now target top 5% in the 10 most affluent cities – over 2.5 million people.

•

There are now 1.05 million millionaires in China, 3% up on the previous year’s figure (1.02 million) – the slowest increase in five years (Hurun. net, 2013).

•

Healthcare is second only to education in surveys of this demographic relative to disposable income.

•

Future health insurance products in China will facilitate broad based access to premium care.

Like foreign investment in other Chinese industries, a health care foreign investment project will be subject to complicated layers of regulation on foreign investment activities, which China established along with its rapid economic development. These regulations mainly include industry access review, foreign investment review and approval, antitrust review, national security review, tax and foreign exchange regulation or supervision of the sale of state-owned assets, depending on the specific conditions of the deal structures and the nature of the specific target businesses or JV partners.

The principal government agencies responsible for reviewing and approving a health care foreign investment project may include the Ministry of Health (MOH), Ministry of Commerce (MOFCOM); Ministry of Human Resources and Social Security (MOHRSS); the State Administrations of Industry and Commerce (SAIC) of Foreign Exchange (SAFE) and of Taxation (SAT); the State-Owned Assets Supervision and Administration Commission (SASAC); and the China Securities Regulatory Commission (CSRC). It is ordinarily difficult for a foreign investor to navigate the red tape for a variety of approvals and also the ambiguities of the law as well as the contradictory views and practices of different government agencies, which result from a combination of fast-changing and unclear laws and regulations and a lack of unified and detailed implementation rules. Further, in practice the relevant governmental authorities, including MOH and MOFCOM, are reluctant to approve direct equity acquisition of the existing medical institutions by foreign investors.

Medical Equipment Distribution Joint Venture

Effective December 31, 2010, the Company and Shanghai Fosun Pharmaceutical (Group) Co., Ltd

(“FosunPharma”) and its subsidiary Fosun Industrial Co., Limited (“Fosun Industrial” and, with Fosun Pharmaceutical, the “Fosun Entities”) and certain of their respective subsidiaries formed a joint venture created and consolidated under Chindex Medical Limited (“CML”), a Hong Kong company, for the purpose of engaging in (i) the manufacturing, marketing, sales and distribution of medical devices and medical equipment and consumables (the “Medical Products Business”) and (ii) the marketing, distribution and servicing of medical equipment in China and Hong Kong (except that sales and distribution related activities in relation to sales and servicing in China and Hong Kong may take place in other jurisdictions), including our former Medical Products division, which was transferred to the joint venture effective at the end of fiscal 2010. Consequently, the business and results of operations of our former division were deconsolidated from our financial statements, treated under the equity method of accounting, and retained by us only on a minority (currently 30%) equity interest basis. (See Note 3 to the consolidated financial statements appearing elsewhere herein.)

CML combines our former Medical Products division, which sold medical capital equipment, instrumentation and other medical products for use in hospitals in China and Hong Kong on the basis of both exclusive and non-exclusive agreements with the manufacturers of these products, and selected medical device companies of FosunPharma. The Chindex contributed businesses included distribution rights in China and Hong Kong for major imported brands in the areas of diagnostic ultrasound systems, robotic surgical systems and aesthetic laser systems. The FosunPharma contributed businesses included research and development and manufacturing in the areas of blood transfusion consumables and viral inactivation systems, surgical consumables and dental products and materials. In 2013, CML acquired Alma Lasers, Inc (Alma). Alma is a leading global medical energy-based (including lights, laser, radio frequency and ultrasonic) device manufacturer, with a comprehensive product offering and international sales network. CML’s growth strategy includes expansion of sales of existing products in the China market, new product introductions focusing on surgery, cardiology, dermatology, orthopedics, neurology/neurosurgery, and expansion of its current manufacturing base. CML also sells products in a variety of international markets and will seek to expand export sales in overseas markets. The joint venture will also seek to grow through mergers and acquisition strategies targeting both Chinese domestic and Western technologies.

Competition

There are no foreign investor-owned and operated hospital networks in China that compete with the United Family Healthcare network in serving the expatriate, diplomatic and affluent local Chinese service areas through a comprehensive healthcare service delivery system. Although plans for several foreign-invested hospitals had been previously announced, we do not know of any that have successfully opened. Although several local owners have opened specialty private hospitals, we understand that none are as comprehensive or would offer the same full scope and quality of services to the same patient base as United Family Healthcare. There are also, several Western-style outpatient clinics funded and controlled by foreign and/or domestic investors.

Employees

At December 31, 2013, the Company had 2,134 full-time salaried employees. Of the full time salaried employees, 2,117 are located in China, of which 173 are expatriates and 1,944 are Chinese or third country nationals. Neither the Company nor its subsidiaries is subject to any labor union contracts. Employees’ compensation is usually indexed to local inflation statistics. The Company’s relations with its employees are good.

Internet Information and SEC Documents

Our internet site is located at www.chindex.com. Copies of our reports and amendments thereto filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including Annual Reports

filed on Form 10-K, Quarterly Reports filed on Form 10-Q and Current Reports filed on Form 8-K, may be accessed from the Company’s website, free of charge, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission (SEC). The information found on our internet site is not part of this or any other report or statement Chindex files with or furnishes to the SEC.

The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A.

RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this Annual Report on Form 10-K. The following risks and uncertainties are not the only ones we face. However, these are the risks our management believes are material. If any of the following risks actually materialize, our business, financial condition or results of operations could be harmed. This report contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties such as those listed below and elsewhere in this report, which, among others, should be considered in evaluating our future performance.

Risks Related to the Merger

If our proposed Merger does not close, our operations after any termination of the Merger Agreement may suffer from the effects of business uncertainties resulting from announcement of the transaction, contractual restrictions on our activities during the period in which we are subject to the Merger Agreement and costs associated with the proposed transaction.

Uncertainty about the effect of the proposed Merger on our employees, customers and other parties may have an adverse effect on our business. Such uncertainty may impair our ability to attract, retain and motivate key personnel, including our executive leadership, and could cause customers, suppliers, financial counterparties and others to seek to change existing business relationships with us.

The Merger Agreement restricts us, without the consent of Merger Parent, from making certain investments, from accessing the debt and capital markets and from taking other specified actions until the proposed Merger occurs or the Merger Agreement terminates. The restrictions may prevent us from pursuing otherwise attractive business opportunities and taking other actions with respect to our business that we may consider advantageous.

The Merger Agreement contains provisions that restrict our ability to entertain an alternative proposal to acquire us. These provisions include a 45-day “go shop” period and the requirement that, under certain specified circumstances under which the Merger Agreement is terminated, we pay a termination fee.

Lawsuits related to the Merger may be filed against us, Merger Parent and our respective affiliates and directors. If dismissals are not obtained or a settlement is not reached, these lawsuits could prevent or delay completion of the Merger and/or result in substantial costs to us, including any costs associated with the indemnification of our directors.

We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger. Many of the fees and costs will be payable by us even if the Merger is not completed.

If the Merger is not completed, the Board may review and consider various alternatives available to us, including, among others, continuing as a standalone public company with no material changes to our business or seeking an alternate transaction. These strategic or other alternatives available to us may involve various additional risks to our business, including, among others, distraction of our management team and associated expenses as described above in connection with the proposed Merger, and risks and uncertainties related to our ability to complete any such alternatives and other variables which may adversely affect our operations.

Risks Related to Our Business and Financial Condition

Global financial upheaval and credit restrictions may have a negative impact on operations.

During the year ended December 31, 2013, significant disruptions in the world financial and credit markets continued, including those in China, which have continued through the filing of this report. These events have been prolifically reported in the media. Should there be a catastrophic collapse of the global financial structure or continued downturns in China, we could lose our asset base and daily business operations, which could result in us being unable to operate the Company.

Our Healthcare Services business is dependent on foreign residents in Beijing, Shanghai, Tianjin and Guangzhou for the majority of its patients. Should foreign businesses significantly reduce their China operations, our hospitals could sustain a reduction in business, which may result in losses. To a lesser extent, our hospitals are dependent on affluent Chinese citizens for a portion of their patients. Should a slowdown in the Chinese economy continue or worsen, our hospitals could sustain a reduction in business which may result in losses.

The business units of our joint venture, CML, are somewhat dependent upon credit availability for operations and development activities. These include the opening of bid and performance bonds, working capital credit lines and the extension of credit terms to Chinese customers through government-backed financing packages. Should there be a lack of sufficient credit availability, it may result in negative impact to our business.

Our business, including our ongoing expansion projects, is capital intensive and we may not be able to access the capital markets or other sources of financing when we would like or need to raise capital.

We currently do not have and may not be able to raise adequate capital to complete some or all of our business strategies, including our ongoing expansion projects, or to react rapidly to changes in technology, products, services or the competitive landscape. We currently do not expect cash flow from operations to be sufficient to fund all of our currently existing and proposed expansion projects. Healthcare service and medical product providers in China often face high capital requirements in order to take advantage of new market opportunities, respond to rigorous competitive pressures and react quickly to changes in technology. Many of our competitors are committing substantial capital and, in many instances, are forming alliances to acquire or maintain market leadership. There can be no assurance that we will be able to satisfy our capital requirements in the future. In particular, our strategy of expanding our healthcare facilities and services includes the establishment and maintenance of healthcare facilities, which require particularly significant capital. With the strategy and goal of capitalizing on immediate opportunities in the evolving healthcare environment in China, we have in the past and likely in the future will consider and commence expansion projects that require and depend on the availability of significant capital, not all of which is available at the time of such consideration or commencement. Further, certain planned expansion projects, including in particular the planned hospital facility in Guangzhou, are dependent upon significant funding that we understand has been arranged upon closing the Merger, but is not currently available or preliminarily arranged. In the absence of sufficient available or obtainable capital, including such capital that would only be available or obtainable upon closing the Merger, we would be unable to establish or

maintain healthcare facilities as planned or commenced, we may incur costs for projects that may not be completed as projected (if at all) and we may be required to seek capital in financings under circumstances and at times that limit the optimization of the terms of such financings.

If we fail to manage our growth or maintain adequate internal accounting, disclosure and other controls, we would lose the ability to manage our business effectively and/or experience errors or information lapses affecting public reporting.

We have expanded our operations rapidly in recent years and continue to explore ways to extend our service and product offerings. Our growth may place a strain on our management systems, information systems, resources and internal controls. Our ability to successfully offer services and provide products requires adequate information systems and resources and oversight from senior management. We will need to modify and improve our financial and managerial controls, reporting systems and procedures and other internal control and compliance procedures as we continue to grow and expand our business. If we are unable to manage our growth and improve our controls, systems and procedures, they may become ineffective, we may be unable to operate efficiently and we may lose the ability to manage many other aspects of our business effectively and/or experience errors or information lapses affecting public reporting.

A control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues have been detected. If we are not successful in discovering and eliminating weaknesses in internal controls, we will lose the ability to manage our business effectively.

If we lost the services of our key personnel, our leadership, expertise, experience, business relationships, strategic and operational planning and other important business attributes would be diminished.

Our success to a large extent depends upon the continued services of certain executive officers, particularly Roberta Lipson, our Chief Executive Officer, Lawrence Pemble, our Chief Operating Officer and Treasurer (as well as the Chief Financial Officer of CML), Elyse Beth Silverberg, our Executive Vice President and Secretary (as well as the Chief Operating Officer of CML) and Robert C. Low, our Senior Vice President for Finance and Chief Financial Officer. We have entered into an employment agreement with each of Ms. Lipson, Mr. Pemble, Ms. Silverberg and Mr. Low containing non-competition, non-solicitation and confidentiality provisions. The loss of service of any of our key employees could diminish our leadership, expertise, experience, business relationships, strategic and operating planning and other important business attributes, thus materially harming our business. In addition, the devotion of certain executives time and effort to CML may reduce the services they are able to devote to the business of the Company.

Our business could be adversely affected by inflation or foreign currency fluctuation.

Because we receive 100% of our revenue and generate approximately 96% of our expenses within China, we have foreign currency exchange risk. The Chinese currency (RMB) is not freely traded and is closely controlled by the Chinese Government. The U.S. dollar (USD) has experienced volatility in world markets recently. During the year ended December 31, 2013, the RMB appreciated approximately 3% against the USD, resulting in an exchange gain of $639,000.

As part of our risk management program, we also perform sensitivity analyses to assess potential changes in revenue, operating results, cash flows and financial position relating to hypothetical movements in currency exchange rates. Our sensitivity analysis of changes in the fair value of the RMB to the USD at December 31, 2013, indicated that if the USD uniformly increased in value by 10% relative to the RMB, we would have experienced a 3% increase in net loss. Conversely, a 10% increase in the value of the RMB relative to the USD at December 31, 2013, would have resulted in a 4% decrease in net loss.

Based on the Consumer Price Index, for the year ended December 31, 2013, inflation in China was 2.6% and inflation in the United States was 1.5%. The average annual rate of inflation over the three-year period from 2011 to 2013 was 3.6% in China and 2.3% in the United States.

We have entered into loan arrangements that could impair our financial condition and prevent us from fulfilling our business obligations.

The Company has entered into financings with certain institutions pursuant to which we incurred indebtedness, which will require principal and interest payments. As of December 31, 2013, our total indebtedness was approximately $30.4 million. Our indebtedness could affect our future operations, for example by:

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requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on indebtedness instead of funding working capital, capital expenditures, acquisitions and other business purposes;

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making it more difficult for us to satisfy all of our debt obligations, thereby increasing the risk of triggering a cross-default provision;

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increasing our vulnerability to economic downturns or other adverse developments relative to less leveraged competitors;

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limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other corporate purposes in the future; and

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increasing our cost of borrowing to satisfy business needs.

We may be unable to service or refinance our debt.

Our ability to make scheduled payments on, or to reduce or refinance, our indebtedness will depend on our future financial and operating performance. To a certain extent, our future performance will be affected by the impact of general economic, financial, competitive and other factors beyond our control, including the availability of financing in the banking and capital markets. We cannot be certain that our business will generate sufficient cash flow from operations to service our debt. If we are unable to meet our debt obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt to avoid defaulting on our debt obligations or to meet other business needs. A refinancing of any of our indebtedness could be at higher interest rates, could require us to comply with more onerous covenants that further restrict our business operations, could be restricted by another of our debt instruments outstanding, or refinancing opportunities may not be available at all.

The terms of our indebtedness impose significant restrictions on our operating and financial flexibility.

The agreements relating to our indebtedness contain various covenants that limit our (and our subsidiaries’) ability to, among other things:

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incur or guarantee additional indebtedness;

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make restricted payments, including dividends and management fees;

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create or permit certain liens;

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enter into business combinations and asset sale transactions;

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make investments;

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enter into transactions with affiliates;

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incur certain expenditures; and

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enter into new businesses.

Our Chindex Medical Limited joint venture with FosunPharma involves numerous risks.

There can be no assurance that we will achieve the expected benefits of the joint venture. CML and future joint ventures or acquisitions that we complete may result in unexpected costs, expenses, and liabilities, which may have a material adverse effect on our business, financial condition or results of operations. We may encounter difficulties in developing and expanding the business of CML, funding any future capital contributions to the business and exercising influence over the management and activities of the joint venture, which is controlled by FosunPharma. In addition, we may encounter quality control concerns regarding CML products and services and potential conflicts of interest with the joint venture and FosunPharma, our joint venture partner. Also, we could be disadvantaged in the event of disputes and controversies with our joint venture partner, since they are a significant stockholder of the Company.

CML is also subject to, and exposes us to, various additional risks that could adversely affect our results of operations. These risks include the following:

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we currently own 30% of the total equity interests in CML, so there are certain decisions affecting the business of CML that we cannot control or influence;

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difficulties associated with preserving relationships with our customers, partners and vendors;

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difficulties in retaining and integrating key sales, marketing and other personnel, the possible loss of such employees and costs associated with their loss;

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risks that any technology, business plan or business model developed by CML may not perform as well as we had anticipated;

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the diversion of management’s attention and other resources from other business operations and related concerns;

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potential impairment of goodwill and intangible assets;

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the requirement to maintain uniform standards, controls and procedures, including as required under applicable U.S. securities laws and accounting requirements;

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the divergence of our interests from FosunPharma’s interests in the future, disagreements with FosunPharma on ongoing operational activities, or the amount, timing or nature of further investments in CML;

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the terms of our joint venture arrangements may turn out to be unfavorable to us;

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we may not be able to realize the operating efficiencies, cost savings or other benefits that we expect from the joint venture; and

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CML profits and cash flows may prove inadequate to fund cash dividends from CML to the joint venture partners.

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If CML is not successful, our results of operations will be adversely affected.

Risks Relating to our Healthcare Services Business

If we do not attract and retain qualified physicians, administrators or other hospital personnel, our hospital operations would be adversely affected.

The United Family Healthcare network is a pioneering, international standard healthcare organization, whose mission is to provide comprehensive and integrated healthcare services in a warm and caring patient and family service-oriented environment to the largest urban centers in China. Our success in operating our hospitals and clinics will be, in part, dependent upon the number and quality of physicians on the medical staff of these hospitals and clinics and our ability to maintain good relations with our physicians. As we offer international standard healthcare at our hospitals and clinics, we are further dependent on attracting a limited number of qualified Western healthcare professionals, not all of whom have long-term relationships with China or intend to remain in China for extended periods of time. Physicians may terminate their affiliation with our hospitals at any time. If we are unable to successfully maintain good relationships with physicians, our results of operations may be adversely affected. In addition, the failure to recruit and retain qualified management, nurses and other medical support personnel, or to control labor costs, could have an adverse effect on our business and results of operations.

Our business is heavily regulated and failure to comply with those regulations could result in penalties, loss of licensure, additional compliance costs or other adverse consequences.

Healthcare providers in China, as in most other populous countries, are required to comply with many laws and regulations at the national and local government levels. These laws and regulations relate to: licensing; the conduct of operations; the relationships among hospitals and their affiliated providers; the ownership of facilities; the addition of facilities and services; confidentiality, maintenance and security issues associated with medical records; billing for services; and prices for services. If we fail to comply with applicable laws and regulations, we could suffer penalties, including the loss of our licenses to operate. We lease our healthcare facilities, including buildings that may be owned by government entities, and in those circumstances, we may be subject to unfavorable terms, such as an early termination clause. For example, our Shanghai hospital has been informed that the local authorities intend to utilize the building in the future and, accordingly, they will require our Shanghai hospital operation to relocate. While the authorities have informed us of their intention to keep us financially “whole”, negotiations are at a very early stage, and there is a financial risk that the authorities will not fully compensate us for moving costs, design and construction costs at a new location, and other incremental costs. In addition, further healthcare legislative reform is likely, and could materially adversely affect our business and results of operations in the event we do not comply or if the cost of compliance is expensive. The above list of certain regulated areas is not exhaustive and it is not possible to anticipate the exact nature of future healthcare legislative reform in China. Depending on the priorities determined by the Chinese Ministry of Health, the political climate at any given time, the continued development of the Chinese healthcare system and many other factors, future legislative reforms may be highly diverse, including stringent infection control policies, improved rural healthcare facilities, introduction of health insurance policies, regulation of reimbursement rates for healthcare services, increased regulation of the distribution of pharmaceuticals and numerous other policy matters. Consequently, the implications of these future reforms could result in penalties, loss of licensure, additional compliance costs or other adverse consequences.

Our operations could be adversely affected by the high cost of malpractice insurance.

In recent years, physicians, hospitals and other healthcare providers in the U.S. have become subject to an increasing number of legal actions alleging malpractice or related legal theories. Many of these actions involve large claims and significant legal costs. While similar lawsuits are not common in China, to protect us from the cost of any such claims, we generally maintain professional malpractice liability insurance and general liability insurance coverage in amounts and with deductibles that we believe to be appropriate for our operations. However, our insurance coverage may not cover all claims against us or continue to be available at a reasonable cost for us to maintain adequate levels of insurance.

We depend on information systems, which if not implemented and maintained, could adversely affect our operations.

Our business is dependent on effective information systems that assist us in, among other things, monitoring, utilization and other cost factors, supporting our healthcare management techniques, processing billing and providing data to regulators. If we experience a reduction in the performance, reliability or availability of our information systems, our operations and ability to produce timely and accurate reports could be adversely impacted.

Our information systems and applications require continual maintenance, upgrading and enhancement to meet operational needs. Moreover, the proposed expansion of facilities and similar activities requires transitions to or from, and the integration of, various information systems. We regularly upgrade and expand our information systems capabilities throughout our healthcare services operations. Upgrades, expansions of capabilities, and other potential system-wide improvements in information systems may require large capital expenditures. If we experience difficulties with the transition to or from information systems or are unable to properly implement, finance, maintain or expand our systems, we could suffer, among other things, from operational disruptions, which could adversely affect our prospects or results of operations.

Our operations face competition that could adversely affect our results of operations.

Our Beijing, Shanghai, Tianjin and Guangzhou healthcare facilities compete with a large number and variety of healthcare facilities in their respective markets. There are numerous Chinese hospitals, many with VIP wards catering to the affluent Chinese market, available to the general populace, as well as international clinics serving the expatriate business, diplomatic community and affluent Chinese population. There can be no assurance that these or other clinics, hospitals or other facilities will not commence or expand such operations, which would increase their competitive position and potentially erode our market position. Further, there can be no assurance that a qualified Western or other healthcare organization, having greater resources in the provision or management of healthcare services, will not decide to begin operations similar to those being conducted by us in Beijing, Shanghai, Tianjin or Guangzhou.

Expansion of healthcare services to reach the Chinese population depends to some extent on the development of insurance products that are not available now.

Medical insurance is not generally available to much of the Chinese population and reimbursement under Chinese government healthcare coverage is not allowed to our healthcare network. Consequently, visits to our hospital facilities by the local population normally must be paid for in cash. This limitation may impede the attractiveness of our services as compared to services for which government benefits are allowed, especially during challenging economic circumstances. Our expansion plans call for increasing the number of local Chinese who use our facilities. If we are not able to achieve this increase, our ability to continue to grow our business would be materially adversely affected.

Timing of revenues due to seasonality and fluctuations in financial performance vary from quarter to quarter and are not necessarily indicative of our performance over longer periods.

Our revenue is dependent on seasonal fluctuations related to epidemiology factors and the lifestyles of the expatriate community. For example, many expatriate families traditionally take annual home leave outside of China during the summer months. As a result of these factors impacting the timing of revenues, our operating results have varied and are expected to continue to vary from period to period and year to year.

We may not be able to complete our ongoing expansion projects on budget if at all, which would materially and adversely affect our financial condition and proposed expansion.

The JPM and other financings were designed to provide a portion of required funds for our proposed new and/or expanded healthcare facility projects. As presently budgeted, such projects will require more financing than we currently have obtained. Such projects are in various early stages and will take significant time to complete, which completion cannot be assured. If we are unable to obtain sufficient financing, our budgeted costs are incorrect, the Merger is not consummated or other factors occur, such as Chinese government regulations or global economic circumstances for example, which interfere with our ability to complete such projects, we may not be able to complete the projects as planned, which would result in the incurrence of debt and other costs that are not necessarily offset by the anticipated revenues from the projects. Further, certain healthcare facility projects, including in particular the planned hospital facility in Guangzhou, are dependent upon significant funding that we understand has been arranged upon closing the Merger, but is not currently available or preliminarily arranged. The risks described above for our projects are particularly great with respect to the Guangzhou and Qingdao facilities.

Our proposed healthcare facilities expansion plans and related capital expenditures could adversely affect our financial condition and results of operations.

Our long-term expansion plans include targeted expansion into largely Chinese populated markets through the development of additional United Family facilities in the more affluent Chinese cities such as Chengdu, Ningbo, Qingdao, and others as well as additional facilities in our existing markets of Beijing, Shanghai, Tianjin and Guangzhou. Our plans also include the continued expansion of services in existing facilities and the opening of additional affiliated satellite clinics and hospitals. Market expansion projects are contemplated or underway in each geographic market. Therefore, we expect to continue to make substantial capital expenditures over several years in total amounts that have not yet been determined in connection with these expansion plans.

The profitability or success of future healthcare facilities and similar capital projects and investments are subject to numerous factors, conditions and assumptions, many of which are beyond our control. Significant negative or unfavorable outcomes could reduce our available cash and cash investments resulting in lower investment interest or earnings, offset income to the extent resulting in net losses, reduce our ability to service current or future indebtedness, require additional borrowings resulting in higher debt service and interest costs (which borrowings may not be available on acceptable terms, if at all), result in higher borrowing costs or increased difficulties in borrowing additional amounts, result in higher than anticipated depreciation expense, among other negative consequences, and could have a material adverse effect on our future financial condition or results of operations.

Commencement of facility construction is subject to governmental approval and permitting processes, which could materially affect the ultimate cost and timing of construction. Numerous factors, many of which are beyond our control, may influence the ultimate costs and timing of various projects or capital improvements at our facilities, including:

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delays in mandatory governmental approvals;

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additional land or facilities acquisition costs;

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increases in the cost of construction materials and labor;

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unforeseen changes in design or delays in construction permits;

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litigation, accidents or natural disasters affecting the construction site; and

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national or regional economic, regulatory or geopolitical changes.

In addition, actual costs could vary materially from our estimates if those factors or our assumptions about the quality of materials or workmanship required or the cost of financing such construction were to change. Should healthcare facility projects be abandoned or substantially decreased in scope due to the inability to obtain necessary permits or other governmental approvals or other unforeseen negative factors, we could be required to expense some or all previously capitalized costs, which could have a material adverse effect on our future financial condition or results of operations.

Risks Relating to Our Investment in CML

Future losses in CML.

We experienced losses after corporate allocations in our Medical Products division over most of five fiscal years prior to the formation of the joint venture due to a variety of factors, including delays in product registration approvals from the Chinese government, delays in renegotiating the trade agreements between the United States and China allowing the use of U.S. Export-Import Bank backed financings and other factors. Although the results of operations of the business comprising that division (the “Medical Products Business”) were transferred to the CML joint venture effective December 31, 2010, were deconsolidated from our financial statements, are treated under the equity method of accounting, and are retained by us only on a minority (currently 30%) equity interest basis (see Note 3 to the consolidated financial statements appearing elsewhere herein), there can be no assurance that we will not experience losses in the future from the operation of that business, which would have a negative impact on our results of operations and us generally.

The CML business depends on relations with suppliers and would be adversely affected by the termination of arrangements with, or shortage or loss of any significant product line from them.

The CML business relies on a limited number of suppliers that account for a significant portion of its revenues. During the years ended December 31, 2013, 2012 and 2011, Siemens Medical Solutions (Siemens) represented 12%, 23% and 36% of product revenue, respectively. Although a substantial number of relationships with that business’ capital equipment suppliers, including Siemens, have been pursuant to exclusive contracts, the relationships are based substantially on specific sales quotas and mutual satisfaction in addition to the other terms of the contractual arrangements. The agreement with Siemens was renewed by CML with secondary financial guarantees provided by FosunPharma (for 70% of CML liability) and the Company (for 30% of CML liability) on September 30, 2012 for a 15-month term and is expected to be renewed in the future with sales quotas established annually. Agreements with other suppliers have been, or are expected to be, renewed by CML under similar terms requiring parent investor guarantees by FosunPharma and the Company to secure trade payment terms. The agreement with Siemens and contracts with other suppliers often contain short-term cancellation provisions permitting the contracts to be terminated, substantially amended on short notice (from 30 days to six months), minimum sales quantity requirements or targets and provisions triggering termination upon the occurrence of certain events. From time to time, suppliers terminate or revise these distribution arrangements. Effective December 31, 2012, the distribution agreement between CML and Hologic was terminated through a termination service agreement which compensated CML for transition services. There can be no assurance that cancellations of, or other material adverse effects on, such agreements will not occur. There can be no assurance that suppliers will not elect to change their method of distribution into the Chinese marketplace to a form that does not use the services of CML.

The CML business depends to some extent on suppliers continuing to improve their products and introduce new models. If a supplier fails to upgrade its product line as quickly as competitive manufacturers have done, CML’s revenues could be adversely impacted.

The market for medical equipment in China is highly competitive and buyers are very interested in purchasing the latest technology. In operating under exclusive agreements with certain manufacturers, the CML business is tied to a single source in each product area and is dependent on the acceptance of the manufacturers’ products in the market place. If there is a delay in the introduction of new products or technology, this could influence buyers to choose competitive offerings from other sources. In addition, if the new product or technology fails to operate properly after product launch, results may suffer due to delays caused by the time required for the manufacturer to correct the initial product defects.

The sales of the CML business depend to some extent on suppliers maintaining the required product registrations required to sell their products in China. If a supplier fails to maintain or renew such product registrations in a timely manner, the joint venture would be unable to sell its products.

The Chinese government requires all medical devices to be registered for sale by the Chinese State Food and Drug Administration (SFDA) and other Chinese government organizations. For the products of the Medical Products Business, some of these registrations are handled by such business and some of them are handled by the original equipment manufacturer. If the manufacturers are not timely with their registrations or let them expire prior to renewal, CML would be unable to sell its products.

Timing of revenues and fluctuations in financial performance vary significantly from quarter to quarter and are not necessarily indicative of CML’s performance over longer periods.

Sales of capital equipment often require protracted sales efforts, long lead times, financing arrangements and other time-consuming steps. For example, many end-users are required to purchase capital equipment through a formal public tendering process, which often entails an extended period of waiting time before the sale can be completed. Further, in light of the dependence by purchasers of capital equipment on the availability of credit, the timing of sales may depend upon the timing of CML’s or our purchasers’ abilities to arrange for credit sources, including loans from local Chinese banks or financing from international loan programs such as those offered by the U.S. Export-Import Bank and the German KfW Development Bank. In addition, a relatively limited number of orders and shipments may constitute a meaningful percentage of CML’s revenue in any one period. As a result of these factors impacting the timing of revenues, CML operating results have varied and are expected to continue to vary from period to period and year to year.

We and the joint venture may be subject to product liability claims and product recalls, and in the future the joint venture may not be able to obtain insurance against these claims at a reasonable cost or at all.

The nature of CML’s business creates exposure to potential product liability risks, which are inherent in the distribution of medical equipment and healthcare products. This product liability exposure may not be avoidable, since third parties develop and manufacture the equipment and products sold in such business. If a product liability claim is successfully brought against CML, us, or any of these third party manufacturers, or if a significant product recall occurs, there would be adverse reputational consequences, damages may be awarded, insurance, legal and other expenses would increase, customers and/or suppliers might be lost and there may be other adverse results.

We did not and CML does not maintain product liability insurance, but in the past we had requested that we be named as an “additional insured” on policies held by our suppliers. There can be no assurance that one or more liability claims will not exceed the coverage limits of any of such or future policies. The

CML business currently represents 15 manufacturers and CML is named as an additional insured on seven of those manufacturers’ product liability policies and are otherwise protected from substantial liability risk through language inserted in agency agreements with an additional six of those manufacturers. Two other manufactures supply products that are software or training-based which do not come into contact with patients and therefore pose no significant liability risk.

If we, CML or our manufacturers fail to comply with regulatory laws and regulations, we, the joint venture and/or such manufacturers may be subject to enforcement actions, which could affect the manufacturer’s ability to develop market and sell products successfully. This could harm our and/or CML’s reputation and lead to less acceptance of such products by the market. These enforcement actions may include:

•

product seizures;

•

voluntary or mandatory recalls;

•

voluntary or mandatory patient or physician notification; and

•

restrictions on or prohibitions against marketing the products.

The CML business faces competition that may adversely impact that business, which impact may be increased as a result of China’s inclusion in the World Trade Organization.

The CML business competes with other independent distributors of medical products in China. Given the rapid pace of technological advancement, particularly in the medical products field, other independent distributors may introduce products that compete directly with the products distributed by that business. In addition to other independent distributors, that business faces significant competition from direct distribution by established manufacturers. In the medical products field, for example, that business competes with certain major manufacturers that maintain their own direct sales forces in China. In addition, to the extent that certain manufacturers market a wide variety of products in China to different market sectors (including non-medical) under one brand name, those manufacturers may be better able than CML to establish brand name recognition across industry lines.

As a result of China becoming a member of the World Trade Organization (WTO), tariffs on medical products have been lowered. In addition, the investment environment has improved for companies interested in establishing manufacturing operations in China. These developments may lead to increased imports of foreign medical products and increased domestic production of such products and therefore lead to increased competition in the domestic medical products markets. There can be no assurance that the Medical Products Business will be able to compete effectively with such manufacturers and distributors.

If the Chinese Government tightens controls or policies on purchases of medical equipment or implements reforms which disrupt the market for medical devices, including eliminating value added tax (VAT) and duty exemptions for procurement under KfW Development Bank or U.S. Export-Import Bank financings, sales of medical products could be adversely affected.

The Chinese Government has adopted a number of policies relating to purchase of medical products that affect how such products can be marketed and sold. For example, for most high value products, the Chinese Government requires that a public tendering process be utilized instead of direct sale negotiations between suppliers and customers. To the extent that requirements such as the tendering regulations continue to be required, sales by the Medical Products Business could be adversely affected due to delays or changes in the implementation of those regulations. In addition, the Chinese Government’s attempt at instituting reform programs directed at the procurement processes for medical devices, including potentially eliminating VAT and import duty exemptions for procurement under government-backed financings, such

as the KfW Development Bank or U.S. Export-Import Bank financings, have from time-to-time resulted in disruptions in the marketplace that have adversely affected sales in that business. Elimination of VAT and import duty exemptions related to procurement under government-backed financings could render such programs uncompetitive and such sales could be adversely affected. There can be no assurances as to when or if such reform programs will be initiated in the future or how long they will last.

Risks Relating to Doing Business in China

Substantially all of our assets are located in China, and all of our revenue is derived from our operations in China. Accordingly, our business, financial condition and results of operations are subject, to a significant degree, to economic, political and legal developments in China. The economic system of China differs from the economies of most developed countries in many respects, including government investment, the level of development, control of capital investment, control of foreign exchange and allocation of resources.

The economic policies of the Chinese Government and economic growth of China could adversely affect us.

Since the late 1970s, the Chinese Government has been reforming the Chinese economic system from a planned economy to a market-oriented economy. In recent years, the Chinese Government has implemented economic reform measures emphasizing decentralization, utilization of market forces in the development of the Chinese economy and a higher level of management autonomy. These reforms have resulted in significant economic growth and social progress, but the growth has been uneven both geographically and among various sectors of the economy. Economic growth has also been accompanied by periods of high inflation. The Chinese Government has implemented various policies from time to time to restrain the rate of such economic growth, address issues of corruption, control inflation, regulate the exchange rate of the RMB and otherwise regulate economic expansion. In addition, the Chinese Government has attempted to control inflation by controlling the prices of basic commodities. The Chinese Government has also from time-to-time mandated changes in the Chinese tax law affecting Company operations. Although we believe that the economic reforms, changes and macroeconomic policies and measures adopted by the Chinese Government will continue to have a positive effect on economic development in China, these policies and measures may, from time to time, be modified or reversed. Adverse changes in economic and social conditions in China, in the policies of the Chinese Government or in the laws and regulations in China, could have a material adverse effect on the overall economic growth of China and on infrastructure investment in China. These developments could adversely affect our financial condition, results of operations and business by, for example, reducing the demand for our services and/or products.

The Chinese legal system is relatively new and may not provide protections to us or our investors.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the Chinese Government began to promulgate a comprehensive system of laws and regulations governing economic matters in general, including corporate organization and governance, foreign investments, commerce, taxation and trade. Legislation over the past 25 years has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system and these laws, regulations and legal requirements are relatively recent, and their interpretation and enforcement involves uncertainties, which may limit the legal protections available to foreign investors and may not sufficiently cover all aspects of economic activities in China.

The Chinese Government has often reiterated its policy of furthering reforms in the socialist market economy. No assurance can be given that these changes will not have an adverse effect on business conditions in China generally or on our business in particular.

The Chinese government has taken steps to strengthen labor law and labor contract law, and to enforce compliance with these laws. These actions, designed to improve protection of employees’ rights, often serve to increase the responsibilities and labor costs of employers. The most significant recent changes include a requirement to offer permanent employment at the conclusion of an initial fixed-term employment contract; a requirement to make severance payments in all cases of termination except for extreme breach of contract by employee or voluntary resignation; and requirement for financial compensation in return for non-compete agreements. No assurance can be given that these changes will not have an adverse effect on business conditions in China generally or on our business in particular.

The conversion of Renminbi (RMB) into foreign currency is regulated, and these regulations could adversely affect us.

All of our revenues and a significant portion of our operating expenses are denominated in RMB. A portion of our earnings are typically transferred from China and converted into USD for the payment of expenses. The transmission of foreign currency in and out of China is subject to regulation by China’s State Administration for Foreign Exchange, or SAFE. It is possible that SAFE could impose new or increase existing restrictions on such currency uses or otherwise impose exchange controls that adversely affect our practices. Adverse actions by SAFE also could affect our ability to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions.

A New SARS or similar outbreak, such as Avian flu or Swine Flu, could further adversely affect our operations.

In March 2003, several countries, including China, experienced an outbreak of a new and highly contagious form of atypical pneumonia now commonly known as Severe Acute Respiratory Syndrome, or SARS. The severity of the outbreak in certain municipalities, such as Beijing, and provinces, such as Guangdong Province, materially affected general commercial activity. Since the SARS epidemic in China had conflicting impacts on our healthcare businesses, the extent of the adverse impact that any future SARS outbreak or similar epidemic such as Avian flu or Swine flu, could have on the Chinese economy and on us cannot be predicted at this time. Any further epidemic outbreak could significantly disrupt our ability to adequately staff our facilities and may generally disrupt operations. In particular, a large percentage of the expatriate community that uses our healthcare services left China during the height of the SARS epidemic and could be expected to do so again under similar circumstances. Although no one is able to predict the future impact of SARS, the Chinese Government and the Chinese healthcare industry have taken measures to prepare in the event of another SARS outbreak. The Chinese Government has indicated that any future outbreak would be contained and not present the same magnitude of social and economic disruption as experienced in the first outbreak. Recently, there have been cases of Swine flu and influenza in the human population. While the risk of sustained human-to-human transmission is low, the possibility of new virus outbreaks and related adverse impact on our ability to conduct normal business operations cannot be discounted. Any further such outbreak could severely restrict the level of economic activity in affected areas, which could have a material adverse effect on us as previously experienced.

Natural disasters, such as the earthquakes in Sichuan Province in May 2008 and in Qinghai Province in April 2010, could adversely affect our business operations.

In May 2008, a major earthquake struck the southwestern Province of Sichuan. This event and the subsequent disaster relief efforts were widely reported by the international press. As a result of the catastrophe, many tens of thousands were killed and the lives of millions of Chinese citizens were impacted. This event significantly disrupted our ability to conduct the normal business operations of our former Medical Products division in the southwest region during the period of disaster recovery operations. Qinghai Province is in a remote area of China and the earthquake there had a lesser impact on our business operations. In both situations, our Healthcare Services business donated resources to assist the disaster recovery efforts. Similar natural disasters could have a similar adverse effect on our operations.

The Chinese Government could change its policies toward, or even nationalize, private enterprise, which could harm our operations.

Over the past several years, the Chinese Government has pursued economic reform policies, including the encouragement of private economic activities and decentralization of economic regulation and substantial reforms of the healthcare system in China. The Chinese Government may not continue to pursue these policies or may significantly alter them to our detriment from time to time without notice. Changes in policies by the Chinese Government resulting in changes in laws, regulations, their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion or imports and sources of supply could materially and adversely affect our business and operating results. The nationalization or other expropriation of private enterprises by the Chinese Government could result in the total loss of our investment in China.

The Chinese tax system is subject to substantial uncertainties in both interpretation and enforcement of the laws. In the past, following the Chinese Government’s program of privatizing many state owned enterprises, the Chinese Government attempted to augment its revenues through heightened tax collection efforts. Continued efforts by the Chinese Government to increase tax revenues could result in other decisions or interpretations of the tax laws by the taxing authorities that increase our future tax liabilities or deny us expected refunds.

We are subject to safety and health laws and regulations in China, and any failure to comply could adversely affect our operations.

Our operations and facilities are subject to extensive safety and health laws and regulations. We must ensure that our operations and facilities comply with standards and requirements in the People’s Republic of China. We cannot eliminate the risk of accidental injury and, if we fail to prevent injury, we could be liable for any resulting damages, which may materially and adversely impact our business, financial condition, results of operations and prospects.

Risks Related to our Corporate Structure

Control by insiders and their ownership of shares having disproportionate voting rights could have a depressive effect on the price of common stock, impede a change in control and impede management replacement.

Certain of our present management stockholders own 1,162,500 shares of our Class B common stock, which vote as a single class with the common stock on all matters except as otherwise required by law. The Class B common stock and the common stock are identical on a share-for-share basis, except that the holders of Class B common stock have six votes per share on each matter considered by our stockholders. As of December 31, 2013 the three management holders of our outstanding Class B common stock represented approximately 6% of our outstanding capital stock and were deemed to beneficially own capital stock representing approximately 29% of total voting power and may be able to cause the election of all of our directors. These management stockholders have sufficient voting power to determine, in general, the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets. The disproportionate vote afforded the Class B common stock could serve to impede or prevent a change of control. As a result, potential acquirers will be discouraged from seeking to acquire control through the purchase of common stock, which could have a depressive effect on the price of our securities. In addition, the effective control by these management stockholders could have the effect of preventing or frustrating attempts to influence, replace or remove management.

Our unissued preferred stock could be issued to impede a change in control.

Our certificate of incorporation authorizes the issuance of 500,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our Board of Directors. Accordingly, the Board is empowered, without stockholder approval (but subject to applicable government regulatory restrictions), to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control.

We have a Stockholder Rights Plan (the “Rights Plan”). The Rights Plan was designed to preserve long-term values and protect stockholders against inadequate offers and other unfair tactics to acquire control of the Company. Under the Rights Plan, each stockholder of record at the close of business on June 14, 2007 received a dividend distribution of one right to purchase from the Company one one-hundredth of a share of Series A junior participating preferred stock at a price of $38.67. The rights will become exercisable only if a person, other than certain current founders of the Company and their affiliates and certain existing investor pursuant to existing investment agreements, or group acquires 15% or more of the Company’s common stock or commences a tender or exchange offer which, if consummated, would result in that person or group owning at least 15% of our common stock (the “acquiring person or group”). In such case, all stockholders other than the acquiring person or group will be entitled to purchase, by paying the $38.67 exercise price, common stock (or a common stock equivalent) with a value of twice the exercise price. In addition, at any time after such event, and prior to the acquisition by any person or group of 50% or more of our common stock, the Board may, at its option, require each outstanding right (other than rights held by the acquiring person or group) to be exchanged for one share of our common stock (or one common stock equivalent). If a person or group becomes an acquiring person and the Company is acquired in a merger or other business combination or sells more than 50% of its assets or earning power, each right will entitle all other holders to purchase, by payment of $38.67 exercise price, common stock of the acquiring company with a value of twice the exercise price. The Rights Plan expires on June 14, 2017.

The Rights Plan may have anti-takeover effects by discouraging potential proxy contests and other takeover attempts, particularly those that have not been negotiated with the Board. The Rights Plan may also prevent or inhibit the acquisition of a controlling position in our common stock and may prevent or inhibit takeover attempts that certain stockholders may deem to be in their or other stockholders’ interest or in the interest of the Company, or in which stockholders may receive a substantial premium for their shares over then current market prices. The Rights Plan may also increase the cost of, and thus discourage, any such future acquisition or attempted acquisition, and would render the removal of the current Board of Directors or management of the Company more difficult.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Our executive and administrative offices of approximately 4,000 square feet are located in Bethesda, Maryland, which provides access to nearby Washington, D.C. The lease on this space expires in 2017. This facility is used primarily by corporate administration.

We lease approximately 289,000 square feet in Beijing for hospital and clinic operations as well as for administrative departments. In addition, we also leased additional space of approximately 124,000 square feet for the Rehabilitation Hospital and 12,013 square feet for the Financial Street clinic as a part of our expansion plan in the Beijing service area. These leases expire between 2013 and 2030 and include a right of first refusal for renewal.

We lease approximately 74,000 square feet in Tianjin for hospital operations as well as for administrative departments. The lease for our hospital facility in Tianjin expires in 2030.

We lease approximately 323,000 square feet in Qingdao for future hospital operations as well as for administrative departments. The lease for our hospital facility in Qingdao expires in 2032.

We lease approximately 97,000 square feet in Shanghai for hospital and clinic operations as well as for administrative departments. The lease for our hospital facility in Shanghai expires in 2029.

We lease approximately 8,000 square feet in Guangzhou for clinic operations. The lease for our clinic facility in Guangzhou expires in 2017.

Our current facilities are suitable for our current operating needs.

ITEM 3.

LEGAL PROCEEDINGS

None.

ITEM 4.

MINE SAFETY DISCLOSURE

Not Applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

Our common stock is listed on The NASDAQ Global Market under the symbol “CHDX.” The following table shows the high and low common stock closing prices as quoted on the NASDAQ Global Market. Such quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.


	High		Low
Year Ended December 31, 2013:
First Quarter	$	13.78	$	10.50
Second Quarter		16.74		12.73
Third Quarter		18.87		16.29
Fourth Quarter		17.43		14.70
Year Ended December 31, 2012:
First Quarter	$	10.40	$	7.90
Second Quarter		10.36		8.60
Third Quarter		11.08		10.03
Fourth Quarter		10.55		9.73

As of February 20, 2014, there were 201 record holders of our common stock and six record holders of our Class B common stock. We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying dividends in the foreseeable future. We did not repurchase any shares of common stock in the year ended December 31, 2013.

Equity compensation plan information as of December 31, 2013 is as follows:


	(a)		(b)		(c)
Plan Category	Number of Securities to Be Issued Upon Exercise of Outstanding Options, and Rights		Weighted Average Exercise Price of Outstanding Options, and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
Equity Compensation Plans Approved By Security Holders
1994 Stock Option Plan		77,101	$	8.33		—
2004 Stock Incentive Plan		262,724	$	4.19		—
2007 Stock Incentive Plan		734,664	$	13.25		494,149
Equity Compensation Plans Not Approved By Security Holders		None		None		None

Total		1,074,489				494,149

Other information required by this Item can be found in Note 8 to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

CHINDEX INTERNATIONAL, INC.

COMPARISON OF SIXTY-NINE MONTH CUMULATIVE TOTAL RETURN

The graph below matches the cumulative total return to holders of the Company’s Common Stock for the sixty-nine months ended December 31, 2013 with the cumulative total returns of the National Association of Securities Dealers Automated Quotation System Composite Index and a randomly selected peer group of fourteen companies that includes: Abraxas Petroleum Corp., Alliance Healthcare Services Inc., Carter Bank & Trust, Erickson Air-Crane Inc., Homestreet Inc., Motorcar Parts Of America, MV Oil Trust, Regulus Therapeutics Inc., Rigel Pharmaceuticals Inc., Saga Communications Inc., Shiloh Industries Inc., Sparton Corp., Sun Bancorp Inc. and Supertex Inc. The peer group was randomly selected for us by a qualified independent firm based solely on such companies having the closest market capitalizations to that of the Company for the same period. Due to its unique operations in China, the Company does not use a published industry or line-of-business basis for identifying a peer group, and does not believe it could reasonably identify a different peer group. The graph assumes that the value of the investment in the Company’s Common Stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on March 31, 2008 and tracks it through December 31, 2013.

LOGO

Total Return to Shareholders

(includes reinvestment of dividends)

Base
Period

INDEXED RETURNS Years Ended

Company Name / Index

3/31/08

3/31/09

3/31/10

12/31/10

12/31/11

12/31/12

12/31/13

Chindex International Inc

100.00

19.74

46.91

65.51

33.85

41.71

69.24

NASDAQ Composite

100.00

66.57

105.33

117.46

117.98

137.74

195.16

Peer Group

100.00

51.96

70.69

89.84

74.07

71.17

89.80

ITEM 6. SELECTED FINANCIAL DATA

(in thousands, except for per share data)


	Year ended December 31,							Nine months ended December 31,					Year ended March 31,
	2013			2012		2011		2010			2009		2010
Statement of Operations Data:
Revenue	$	179,388		$	152,442	$	114,397	$	136,676		$	129,934	$	171,191
Net (loss) income		(6,133	)		4,092		3,201		5,814			7,689		8,204

Note: Periods prior to 2011 included results of both healthcare services and medical products divisions.

Net (loss) income per common share—basic		(0.36	)		0.25		.20		.38			.53		.56
Net (loss) income per common share—diluted		(0.36	)		0.24		.20		.36			.48		.52
Market closing price per share—end of period		17.43			10.50		8.52		16.49			14.13		11.81
Book value per share—end of period		9.17			8.79		8.47		8.02			7.18		7.30
Balance Sheet Data (at end of period):
Total assets	$	244,568		$	222,450	$	199,392	$	174,173		$	169,279	$	170,843
Long term debt and capitalized leases		26,715			32,812		23,818		23,070			21,578		22,593
Total stockholders’ equity		166,019			150,066		142,501		132,072			106,882		108,911

	Year ended December 31,							Nine months ended December 31,					Year ended March 31,
	2013			2012		2011		2010			2009		2010
Segment information:
Healthcare Services division-revenue	$	179,388		$	152,442	$	114,397	$	74,224		$	64,610	$	85,778
Healthcare Services division -operating income		2,681			9,510		5,668		11,898			12,043		14,393
Medical Products division-revenue		—			—		—		62,452			65,324		85,413
Medical Products division -operating (loss) income		—			—		—		(1,806	)		25		(366	)

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Statements contained in this Annual Report on Form 10-K relating to plans, strategies, objectives, economic performance and trends and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, the factors set forth under the heading “Risk Factors” and elsewhere in this Annual Report, and in other documents filed by the Company with the Securities and Exchange Commission from time to time.

Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or similar terms or the negative of these terms. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto.

Chindex was founded in 1981, is an American health care company providing healthcare services in China through the operations of United Family Healthcare (“United Family”), a network of private primary care hospitals and affiliated ambulatory clinics. United Family currently operates in Beijing, Shanghai, Tianjin and Guangzhou. For the year ended December 31, 2013, our healthcare services business reported revenue of $179 million, a growth of 18% over the year ended December 31, 2012. Our strategy is to continue our growth as a leading integrated healthcare provider in Greater China.

We historically also engaged in the distribution of western medical equipment to Chinese hospital purchasers through our former Medical Products division (“MPD”). MPD was restructured at the end of 2010 as described below. Consequently, our healthcare services business currently comprises substantially all of our operations and is subject to challenges and risks associated with operating in China, including the laws, policies and regulations of the Chinese Government concerning healthcare facilities and dependence upon the healthcare professionals staffing our hospital and clinic facilities. Our operating results vary from period to period as a result of a variety of social and epidemiological factors in the patient base served by our hospital network and the investment and development cycle related to the opening of new facilities.

Substantially all of our non-cash assets are located in China, and all of our revenues are derived from our operations in China. Accordingly, our business, financial condition and results of operations are subject, to a significant degree, to economic, political and legal developments in China. The economic system in China differs from the economies of most developed countries in many respects, including government investment, level of development, control of capital investment, control of foreign exchange and allocation of resources.

Merger Agreement

On February 17, 2014, the Company entered into the Merger Agreement. Merger Parent is indirectly owned by TPG, and, upon the closing, Fosun will also become a limited partnership interest holder of Merger Parent. Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, as a result of which the Company will continue as the surviving corporation and a wholly-owned subsidiary of Merger Parent.

Under the terms of the Merger Agreement, which has been unanimously approved by the Board upon the recommendation of the Transaction Committee, at the effective time of the Merger each outstanding share of the Company’s common stock, other than shares owned by Merger Parent, Merger Sub and other affiliates of Merger Parent, including TPG, shares contributed to Merger Parent by rollover stockholders, including Fosun, Ms. Lipson (the Company’s Chief Executive Officer) and her affiliated trusts and any additional rollover stockholders, shares held in the Company’s treasury; and shares owned by any stockholders who properly exercise appraisal rights under Delaware law, will be cancelled and converted into the right to receive the Merger Consideration. Each option to purchase the Company’s common stock that is outstanding as of the effective time of the Merger (other than certain options that will be converted into options to acquire Merger Parent equity) will be cancelled in exchange for the right to receive the excess of $19.50 over the exercise price of such option, less applicable taxes required to be withheld. Restricted stock and restricted stock units that are not vested immediately prior to the effective time shall be fully vested and free of any forfeiture restrictions immediately prior to the effective time, whereupon the

shares represented thereby (net of any shares withheld to cover applicable withholding and excise taxes) shall be converted into the right to receive in cash the Merger Consideration per share. The Merger Consideration represents an implied premium of approximately 14% over the current market price per share, 17% over the volume weighted average trading price per share for the last 30 days, and 86% over the closing price per share since the formation of the Transaction Committee on December 26, 2012. The transaction will result in the Company becoming a private company.

Under the terms of the Merger Agreement, the Company and its advisors are permitted to actively solicit and consider alternative acquisition proposals from third parties for the period commencing February 17, 2014 through the Solicitation Period End Time. The Company’s management and Fosun, as current stockholders of the Company, are permitted to initiate, solicit and encourage, whether publicly or otherwise, alternative acquisition proposals, and enter into and maintain or continue substantive discussions or negotiations with respect to any such alternative acquisition proposals or otherwise cooperate with or assist or participate in, or encourage, any inquiries, proposals, substantive discussions or negotiations regarding any such alternative acquisition proposals. Beginning on the Solicitation Period End Time, the Company will become subject to customary “no shop” restrictions on its, its subsidiaries’ and their respective representatives’ ability to initiate, solicit or encourage alternative acquisition proposals from third parties and to provide information to or participate in discussions or negotiations with third parties regarding alternative acquisition proposals. However, for the period commencing from the Solicitation Period End Time through the Cut Off Date, the Company may continue to engage in the foregoing activities with any third party that has made an alternative acquisition proposal prior to the Solicitation Period End Time that the Transaction Committee has determined in good faith, after consultation with outside counsel and its financial advisors, constitutes or is reasonably likely to lead to a superior acquisition proposal, but only for so long as such third party is an Excluded Person. The Company does not anticipate disclosing developments with respect to this process unless and until the Transaction Committee and the Board make a decision regarding a potential superior acquisition proposal or the expiration of that period. There can be no assurances that this process will result in a superior acquisition proposal. In addition, Merger Parent may, subject to the terms of the Merger Agreement, respond to such proposals.

The Merger Agreement may be terminated by the Company or Merger Parent under certain circumstances, including in specified circumstances in connection with superior acquisition proposals. Upon the termination of the Merger Agreement, under specified circumstances, the Company will be required to pay a termination fee, the amount of which would depend on the circumstances under which the Merger Agreement is terminated. If the Merger Agreement is terminated as a result from or in connection with the Company’s approval of a superior acquisition proposal that was first received at or prior to the Solicitation Period End Time or, with respect to an Excluded Person, the Cut-Off Date, the termination fee payable by the Company to Merger Parent will be $3,690,000. If the termination fee becomes payable by the Company under any other circumstances, the amount of the termination fee will be $11,992,500. Under other specified circumstances under which the Merger Agreement is terminated, Merger Parent will be required to pay the Company a termination fee of $29,520,000.

Completion of the transaction is subject to certain conditions, including, among others, the approval by the Company’s stockholders, the approval by a majority of the Company’s disinterested stockholders, the approval by stockholders of Shanghai Fosun Pharmaceutical (Group) Co., Ltd., which is an affiliate of Fosun, the approval under Chinese antitrust laws and customary other closing conditions. A special meeting of the Company’s stockholders will be held following the filing of a definitive proxy statement with the SEC and subsequent mailing of the proxy statement to stockholders. The transaction will be financed through cash contributed by TPG, a combination of cash and equity contributed by Fosun and equity contributed by Ms. Lipson and her affiliated trusts and other additional rollover stockholders (if any). The transaction is not subject to a financing condition. Assuming the satisfaction of conditions, the Company expects the transaction to close in the second half of the 2014 calendar year.

Additional information about the Merger Agreement is set forth in our current report on Form 8-K filed with the SEC on February 18, 2014.

Existing Facilities

We opened our first hospital facility in Beijing in 1997 and since inception have continuously pursued a strategy of expansion and market penetration. Our current operations consist of:

•

Our flagship Beijing hospital, which was the first private international-standards hospital in Beijing, recently was expanded to 120 licensed beds.

•

Five separate freestanding clinics in Beijing that coordinate services with our flagship hospital in Beijing.

•

A freestanding outpatient comprehensive cancer treatment center in Beijing.

•

Our Shanghai hospital, which offers 50 licensed beds and made us the only foreign-invested, multi-facility hospital network in China.

•

Three medical clinics and one dental clinic in Shanghai that coordinate services with our hospital in Shanghai.

•

Our Tianjin hospital, which offers 26 licensed beds.

•

Our Guangzhou clinic, which offers its own broad scope of clinical services.

Expansion Projects

The Chinese Government’s ongoing healthcare reform program encourages private investment, as the primary source for development of specialty and premium healthcare services within the Chinese healthcare system. We are one of the largest and most experienced operator of premium healthcare services in China. As such, we have developed a strategy of expansion of services and facilities within cities where we are already operating, as well as expansion projects for facilities in other economically-thriving, second tier cities:

•

In Guangzhou, development and opening of a new hospital expected in the 2015-2016 period.

•

Beijing. Our expansion projects in Beijing opened in 2013 and continue to develop. These projects consist of a variety of increased services, including comprehensive cancer care, neurosurgery, orthopedic surgery, cath lab and cardiovascular surgery. In June 2013, we opened in Beijing the United Family Rehabilitation Hospital, which is a new 101 licensed bed, 124,000 square foot facility adjacent to a large park in east Beijing. Our expansion of services into the premium rehabilitation market targets an existing inadequacy in China’s health care system for those seeking quality premium care when recovering from surgeries or debilitating illnesses in the neurological, cardiac and orthopedic areas. In addition, we have recently begun a multi-phase expansion into the west side of Beijing. This expansion is planned to include a large outpatient clinic in the financial center of west Beijing and a planned 80 bed comprehensive care hospital to be brought into operation over the 2015-2016 period in the affluent Haidian district.

Shanghai. In Shanghai in 2013, we continued to expand service offerings at our main Puxi campus and operations in Pudong. In Puxi in July 2013, we opened the United Family Quankou Clinic, a large expansion adjacent to our main Shanghai United Family Hospital which provides space for continuing growth in both inpatient and outpatient services at our Puxi campus.

Tianjin. In 2011, we opened our first United Family Hospital in a second tier city, Tianjin. The facility is licensed for 26 beds and is designed to focus on primary care services. Expansion in the Tianjin service area is planned through development of a satellite clinic in another affluent district of the city.

Guangzhou. In the southern tier one city of Guangzhou, we are developing plans for a new comprehensive care United Family hospital of approximately 200 beds, with a 2016 targeted opening (see “Liquidity and Capital Resources – Capital Resources and Financing Requirements”).

Qingdao. Following Tianjin, our expansion into second tier Chinese cities is planned for the affluent port city of Qingdao in Shandong Provence. We have secured a location and begun design work on the project which is planned to be a comprehensive care facility of approximately 50 beds, currently estimated to open over the 2015-2016 period.

Managed Services. We have begun to roll out management services leveraging the brand value of United Family Healthcare. Managed clinics in Wuxi and Pudong allow us to expand the UFH market penetration rapidly and in both cases have supplemented our UFH facilities in metropolitan Shanghai. We are currently exploring opportunities for managed service facilities in the large second tier cities of Chengdu, Nanjing, Xiamen and Hangzhou.

In connection with the expansion plans outlined above, over the next twelve months we have planned capital expenditures of up to $37 million for construction, equipment and information systems (see “Liquidity and Capital Resources”). During the year ended December 31, 2013, development, pre-opening and start-up expenses, including post-opening expenses, for these projects were $13,416,000 compared to $11,236,000 in the prior period, reflecting primarily expenses incurred for the Beijing, Pudong,Tianjin and Qingdao projects.

The Chinese Government’s healthcare reform program encourages private development, such as our United Family network, as the primary source for providing specialty and premium healthcare services within the Chinese healthcare system. Nevertheless, expansions of our existing facilities as well as new hospital and affiliated clinic projects are complex and require several phases over extended periods of time. The projects are subject to delays routinely encountered in complex construction projects in regulated industries and are subject to, among other things, the receipt of (i) medical-related approvals from local health authorities and in some cases the Ministry of Health at the national level, (ii) foreign invested joint venture health facility approvals from the local Bureau of Commerce and Trade, and (iii) local construction and safety approvals. Accordingly, we give windows of expected completion of our expansion projects, the exact timing of which are subject to the actual receipt of the various government licenses and permits.

CML Joint Venture

Effective December 31, 2010, the Company and Shanghai Fosun Pharmaceutical (Group) Co., Ltd (“FosunPharma”) and its subsidiary Fosun Industrial Co., Limited (“Fosun Industrial” and, with Fosun Pharmaceutical, the “Fosun Entities”) and certain of their respective subsidiaries formed a joint venture created and consolidated under Chindex Medical Limited (“CML”), a Hong Kong company, for the purpose of engaging in (i) the manufacturing, marketing, sales and distribution of medical devices and medical equipment and consumables (the “Medical Products Business”) and (ii) the marketing, distribution and servicing of medical equipment in China and Hong Kong (except that sales and distribution related activities in relation to sales and servicing in China and Hong Kong may take place in other jurisdictions), including the Medical Products Business, which was transferred to the joint venture effective at the end of fiscal 2010. Consequently the business and results of operations of our former division were deconsolidated from our financial statements, treated under the equity method of accounting, and retained by us only on a minority (currently 30%) equity interest basis. (See Note 3 to the consolidated financial statements appearing elsewhere herein.)

Critical Accounting Policies

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Areas in which significant judgments and estimates are used include revenue recognition, receivable collectibility and deferred tax valuation allowances.

Revenue Recognition

Revenue related to services provided is net of contractual adjustments or discounts and is recognized in the period services are provided. An estimate is made at the end of the month for certain inpatients that have not completed service.

Our revenue is dependent on seasonal fluctuations related to epidemiology factors and the life styles of the expatriate community. As a result of these factors impacting the timing of revenues, our operating results have varied and are expected to continue to vary from period to period and year to year.

Accounts Receivable

Accounts receivable are customer obligations due under normal trade terms. Subsequent to the deconsolidation of the Medical Products division, accounts receivable consists of patient obligations for healthcare services. Accounts receivable are reviewed on a quarterly basis to determine if any receivables will potentially be uncollectible based on the aging of the receivable and historical cash collections. Any accounts receivable balances that are determined to be uncollectible, along with a percentage allowance for each aging category of receivables are included in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Final write-offs of receivables in China require approval from Chinese tax authorities. Such approvals require substantial historical documentation of collection efforts and are not normally granted until several years have passed. As a result, the allowance for doubtful accounts is relatively high when compared to account receivable balances. Management believes that the allowance for doubtful accounts as of December 31, 2013 and 2012 is adequate; however, actual write-offs might exceed the recorded allowance.

Deferred Tax Valuation Allowances

Our operations are taxed in various jurisdictions including the United States and China. In certain jurisdictions, individual subsidiaries are taxed separately. We have identified deferred tax assets resulting from cumulative temporary differences at each balance sheet date. A valuation allowance is provided for those deferred tax assets for which we are unable to conclude that it is more likely than not that the tax benefit will be realized.

We have provided deferred tax valuation allowances for certain deferred tax assets related to various subsidiaries in China and the U.S. as of December 31, 2013 because we are not able to conclude that it is more likely than not that those assets will be realized. The U.S. net operating loss carryforwards expire at varying dates through 2033 and the China net operating loss carryforwards expire at varying dates through 2018.

Overview of Consolidated Results

Year ended December 31, 2013 compared to year ended December 31, 2012

Net Revenue

(in thousands)


	Year ended December 31,
	2013		2012		Change
Healthcare services net revenue	$	179,388	$	152,442		18	%

Our healthcare services revenue for the year ended December 31, 2013 was $179,388,000, an 18% increase from the year ended December 31, 2012 revenue of $152,442,000. The increase in revenue is attributable to growth in both inpatient and outpatient services, primarily generated by our existing facilities.

The table below identifies the relative contribution of inpatient and outpatient services to gross revenue.


	Year ended December 31,
	2013			2012
Inpatient/Outpatient gross revenue percentages
Inpatient services as percent of gross revenue		43	%		42	%
Outpatient services as percent of gross revenue		57	%		58	%

		100	%		100	%

The table below identifies the primary service lines contributing to gross revenue.


	Year ended December 31,
	2013			2012
Gross revenue by service line:
Surgical services		19.6	%		18.8	%
OB/GYN		13.9	%		14.7	%
Pediatrics		8.2	%		8.0	%
Ancillary services
Laboratory		8.5	%		8.9	%
Radiology		9.5	%		9.9	%
Pharmacy		11.0	%		11.4	%
Internal Medicine		3.4	%		4.2	%
Emergency Room		3.5	%		3.8	%
Dental		2.6	%		2.5	%
Family Medicine		1.9	%		1.8	%
All other services		17.9	%		16.0	%

		100	%		100	%

Operating expenses

(in thousands)


	Year ended December 31,
	2013		2012		Change
Salaries, wages and benefits	$	102,885	$	83,264		24	%
Other operating expenses		26,993		22,287		21	%
Supplies and purchased medical services		22,012		18,807		17	%
Bad debt expense		4,211		3,179		32	%
Depreciation and amortization		10,468		7,458		40	%
Lease and rental expense		10,138		7,937		28	%

	$	176,707	$	142,932		24	%

Salaries, wages and benefits increased 24% for the year ended December 31, 2013 compared to the prior year period primarily due to the increase in average headcount of 19% from 1,629 in December 31, 2012 to 1,937 in December 31, 2013, associated with the revenue increases mostly associated with our expansion and with development activities. The increase in headcount was due to both increased activities in our existing facilities as well as for hiring new personnel to staff our expanded Beijing, primarily the new Rehabilitation Hospital.

Other operating expenses increased by $4,706,000 or 21%, primarily due to increased legal fees of $1,911,000, professional fees of $1,418,000, office supplies and noncapitalized furniture of $599,000 at our Rehabilitation Hospital, marketing and advertising expense of $566,000, maintenance fees of $466,000, building utilities of $126,000, training of $244,000, contributions of $166,000 and travel of $138,000, partially offset by the foreign exchange gain of $1,012,000 and the decrease of investor service fee of

$741,000. The increase in our legal fees was primarily related to the work of the Transaction Committee of the Board in connection with the Merger, see Note 16 to the consolidated financial statements appearing elsewhere herein.

Supplies and purchased medical services increased over the periods by $3,205,000 or 17%, due to increased usage of medical supplies of $3,358,000 or 20% offset by decreased pharmaceuticals related to an increased number of patient procedures of approximately $153,000 or 8%.

Bad debt expense increased by $1,032,000 and, as a percentage of revenue, 2.3% in 2013 and 2.1% in the prior year, which percentages are in line with our historic averages.

Depreciation and amortization increased by $3,010,000, or 40% to $10,468,000 for the year ended December 31, 2013, primarily due to the opening of expanded facilities, which are now being depreciated.

Lease and rental expense increased to $10,138,000 for the year ended December 31, 2013 compared to $7,937,000 in the prior year period, primarily due to the increase in the total building space utilized in the expanded operations of our hospital and clinic network.

Other Income and Expenses

Interest income during the year ended December 31, 2013 and prior year was $963,000 and $811,000, respectively, primarily due to additional funds earning interest during the period.

Interest expense during the year ended December 31, 2013 and 2012 was $2,252,000 and $456,000, respectively, primarily due to the amortization of JPM debt discount, including the expense for the remaining debt discount upon conversion of the debt in October 2013.

Equity in (loss) income of unconsolidated affiliates, in the amounts of $(1,154,000) and $1,016,000 represents our 30% and 49%, respectively, interest in the (loss) income of CML for the years ended December 31, 2013 and 2012, respectively.

Taxes

We recorded a provision for taxes of $6,505,000 for the year ended December 31, 2013, compared to a provision for taxes of $6,799,000 for the year ended December 31, 2012. The effective tax rate for our operating entities was 29% compared to 31% in the comparable prior year period. The remaining portion of the variance in the effective tax rate for the years ended December 31, 2013 and 2012 is primarily due to the effect of losses in start-up entities and corporate entities for which we cannot recognize tax benefit.

Year ended December 31, 2012 compared to year ended December 31, 2011

Net Revenue

(in thousands)


	Year ended December 31,
	2012		2011		Change
Healthcare services net revenue	$	152,442	$	114,397		33	%

Our healthcare services revenue for the year ended December 31, 2012 was $152,442,000, a 33% increase from the year ended December 31, 2011 revenue of $114,397,000. The increase in net revenue is attributable to growth in both inpatient and outpatient services, primarily generated by our existing facilities.

The table below identifies the relative contribution of inpatient and outpatient services to gross revenue.


	Year ended December 31,
	2012			2011
Inpatient/Outpatient gross revenue percentages
Inpatient services as percent of gross revenue		42	%		41	%
Outpatient services as percent of gross revenue		58	%		59	%

		100	%		100	%

The table below identifies the primary service lines contributing to gross revenue.


	Year ended December 31,
	2012			2011
Gross revenue by service line (hospital facilities only):
Surgical services		18.8	%		18.4	%
OB/GYN		14.7	%		15.3	%
Pediatrics		8.0	%		8.1	%
Ancillary services
Laboratory		8.9	%		10.1	%
Radiology		9.9	%		10.8	%
Pharmacy		11.4	%		12.2	%
All other services		28.3	%		25.1	%

		100	%		100	%

Operating expenses

(in thousands)


	Year ended December 31,
	2012		2011		Change
Salaries, wages and benefits	$	83,264	$	64,074		30	%
Other operating expenses		22,287		17,947		24	%
Supplies and purchased medical services		18,807		13,233		42	%
Bad debt expense		3,179		2,131		49	%
Depreciation and amortization		7,458		5,145		45	%
Lease and rental expense		7,937		6,199		28	%

	$	142,932	$	108,729		31	%

Salaries, wages and benefits increased 30% in the year ended December 31, 2012 compared to the prior year period primarily due to the increase in average headcount up 34% from 1,220 in December 31, 2011 to 1,629 in December 31, 2012, associated with the revenue increases and development activities. The increase in headcount was due to both increased activities in our existing facilities as well as for hiring new personnel to staff our expanded Beijing and new Tianjin facilities.

Other operating expenses increased by $4,340,000 or 24%, primarily due to increased investor fees of $2,071,000 and building utilities and other services of $1,588,000, partially offset by decreased legal fees

of $492,000. In addition, the Company incurred a foreign exchange loss of $373,000 for the twelve months ended December 31, 2012 compared to a foreign exchange gain of $670,000 for the twelve months ended December 31, 2011.

Supplies and purchased medical services increased by $5,574,000 or 42%, due to increased usage of medical supplies of $2,073,000 or 45% and pharmaceuticals related to an increased number of patient procedures of approximately $2,413,000 or 41%.

Bad debt expense increased by $1,048,000 and, as a percentage of net revenue, bad debt expense was 2.1% in 2012 and 1.9% in the prior year, which are in line with our historic averages.

Depreciation and amortization expense increased by $2,313,000, or 45% to $7,458,000, primarily due to the opening of expanded facilities, which are now being depreciated.

Lease and rental expense increased to $7,937,000 in the year ended December 31, 2012 compared to $6,199,000 in the prior year period, primarily due to the increase in the total building space utilized in the expanded operations of our hospital and clinic network.

Other Income and Expenses

Interest income during the year ended December 31, 2012 and prior year was $811,000 and $803,000, respectively, as interest rates on cash balances continued to be very low.

Interest expense during the year ended December 31, 2012 and 2011 was $456,000 and $645,000, respectively, and the decrease was due to debt issuance costs of $260,000 related to the expiration of DEG’s loan commitment that were expensed in 2011.

Equity in income of unconsolidated affiliates, in the amounts of $1,016,000 and $1,121,000 represents our 49% interest in the income of CML for the years ended December 31, 2012 and 2011, respectively.

Taxes

We recorded a provision for taxes of $6,799,000 (an effective tax rate of approximately 62.4%) in the year ended December 31, 2012, compared to a provision for taxes of $3,688,000 (an effective tax rate of approximately 53.5%) in the year ended December 31, 2011. The effective tax rate for our operating entities was 31% compared to 30% in the comparable prior year period. The remaining portion of the variance in the effective tax rate in the year ended December 31, 2012 is primarily due to the effect of losses in start-up entities and corporate entities for which we cannot recognize tax benefit.

Liquidity and Capital Resources

The following table sets forth our unrestricted cash, short-term investments, and accounts receivable as of December 31, 2013 and 2012 (in thousands):


	December 31, 2013		December 31, 2012
Cash and cash equivalents	$	33,107	$	33,184
Receivables from affiliates		2,897		2,110
Accounts receivable		23,041		19,564

The following table sets forth a summary of our cash flows from operating activities for the years ended December 31, 2013, 2012 and 2011 (in thousands):


	Year ended December 31,
	2013			2012			2011
OPERATING ACTIVITIES
Net (loss) income	$	(6,133	)	$	4,092		$	3,201
Non cash items		19,705			13,861			8,069
Changes in operating assets and liabilities:
Restricted cash		—			—			300
Accounts receivable		(6,994	)		(8,736	)		(3,791	)
Receivable from affiliates		(787	)		8,873			(1,653	)
Inventories of supplies		(479	)		(63	)		(811	)
Accounts payable, accrued expenses and other current liabilities		1,092			11,333			4,557
Payable to affiliates		642			(8,070	)		1,669
Income tax payable		787			(623	)		110
Other current assets and other assets		(1,500	)		1,347			(1,092	)

Net cash provided by operating activities	$	6,333		$	22,014		$	10,559

Operating cash flow for the year ended December 31, 2013 was lower than the year ended December 31, 2012, primarily due to the net loss, decreases in accounts payable, accrued expenses and other current liabilities, and the increase of tax payments. Operating cash flow for the year ended December 31, 2012 was higher than the year ended December 31, 2011, primarily due to higher net income after adding back non cash items and the increase in accounts payable and decrease in accounts receivable from our unconsolidated affiliate.

The following table sets forth a summary of our cash flows used in investing activities for the years ended December 31, 2013, 2012 and 2011 (in thousands):


	Year ended December 31,
	2013			2012			2011
INVESTING ACTIVITIES
Purchases of short-term investments and CDs	$	—		$	—		$	(26,966	)
Proceeds from redemption of CDs		—			26,535			41,091
Purchases of property and equipment		(16,650	)		(39,278	)		(23,843	)

Net cash used in investing activities	$	(16,650	)	$	(12,743	)	$	(9,718	)

Investing activities during the years ended December 31, 2013 and 2012 included additions of property and equipment in connection with our ongoing development and expansion of the United Family Healthcare network of private hospitals and clinics. Investing activities for the year ended December 31, 2012 also included redemptions of Certificates of Deposit. Investing activities for the years ended December 31, 2012 and 2011 included expenditures for leasehold improvements and equipment in connection with our ongoing development and expansion of the United Family Healthcare network of private hospitals and clinics. The proceeds from redemptions of CDs for the year ended December 31, 2012 were reinvested in leasehold improvements, construction in progress and equipment, while for the year ended December 31, 2011, the proceeds from redemptions of CDs were reinvested in comparable instruments.

The following table sets forth a summary of our cash flows from financing activities for the years ended December 31, 2013, 2012 and 2011 (in thousands):


	Year ended December 31,
	2013			2012			2011
FINANCING ACTIVITIES
Restricted cash from (to) IFC RMB loan sinking funds	$	450		$	(11,036	)	$	—
Restricted cash from (to) China Exim debt collateral		760			(9,037	)		—
Proceeds from debt		11,000			11,109			—
Repayment of debt		(1,584	)		(802	)		—
Repurchase of restricted stock for income tax witholding		(1,006	)		(293	)		(233	)
Proceeds from exercise of stock options		533			112			175

Net cash (used in) provided by financing activities	$	10,153		$	(9,947	)	$	(58	)

For the year ended December 31, 2013, the Company received proceeds from the 2013 IFC and DEG loan of $11 million, and the Company also utilized cash to fund the IFC RMB loan sinking funds of $450,000 and Exim loan collateral of $760,000. The Company also made a principal payment for the Exim loan of $1,584,000 and withheld income tax of $1,006,000. For the year ended December 31, 2012, the Company utilized cash to fund the IFC RMB sinking funds of $11,036,000. The Company also received proceeds from the China Exim loan of $11,109,000 and utilized cash of $9,037,000 for collateral for the China Exim loan.

Capital Resources and Financing Requirements

Over the next twelve months, we anticipate total capital expenditures of up to approximately $37 million related to the maintenance and expansion of our business operations. Of this amount, up to approximately $15 million would be for maintenance and organic growth at our existing facilities in Beijing and Shanghai and up to approximately $5 million would be primarily related to network IT investment. Expansion projects would be expected to account for up to approximately $17 million of the remaining expenditures. These include final payments related to the opening of the Tianjin hospital of approximately $0.3 million, payments related to the Beijing Rehabilitation Hospital of approximately $1 million, payments related to clinic expansion in Beijing and Shanghai service areas of approximately $10 million, design and construction expenditures related to the Qingdao hospital project of up to $4 million, and design and construction expenditures for the Guangzhou hospital project of up to $1.5 million. We intend to fund these expenditures through corporate capital reserves, anticipated loan financings as described below and cash flow from operations. Registered foreign debt is expected to be secured by each operating foreign invested joint venture upon obtaining required governmental and credit approvals.

The expansion planning or projects in the Beijing, Shanghai, Tianjin, Qingdao and Guangzhou service areas are underway in various stages of progress. In particular, due to the timing of the development process for the planned joint venture hospitals in Guangzhou and Haidian, significant construction expenditures for those projects would not be incurred, if at all, until 2015 and beyond.

In March 2013, we entered into US Dollar loan facilities with International Finance Corporation (IFC) and Deutsche Investitions und Entwicklungsgesellschaft (DEG) for the financing of the expansion projects at our flagship hospital in Beijing. In June 2013, we drew down the entire $11 million in the aggregate from these facilities ($6 million from IFC and $5 million from DEG). The obligations of the borrower (our United Family Hospital) under both the IFC and DEG facilities are guaranteed by Chindex and secured by a pledge of Chindex’s ownership interest in the borrower.

In addition, we have submitted proposals to the IFC for additional loans of approximately $12 million related to the development of our Rehabilitation Hospital in Beijing. There can be no assurances as to the amounts, if any, that may be finally available under this loan or other facilities or whether such loan or other facilities will be finally achievable on terms acceptable to us and the lenders. If the ongoing negotiations are unsuccessful and this loan or other facilities are not obtained for expansion projects, then, in the absence of alternative sources of financing, there could result a material adverse effect on our operations and our ability to complete our proposed expansion projects on time or at all.

In addition, in October 2012, we completed the drawdown of $11.1 million in loans at our hospital facilities in Beijing secured in part by U.S. Export-Import Bank guarantees. The loans were used for the purchase of medical equipment at our newly expanded facilities in Beijing, allowing us to import equipment into China at substantial savings due to duty and value added tax (VAT) exemptions. The loans have terms of seven years, an interest rate of 2.15% and required a collateral cash deposit of approximately $8.6 million.

To provide long term capital resources for our development projects we are engaged in early negotiations with the IFC and other potential creditors or investors of debt or equity based financing. There can be no assurances as to the amounts, if any, that may be finally available as a result of these negotiations or whether financing resulting from these negotiations will be finally achievable on terms acceptable to us and the lenders or investors. If the ongoing negotiations are unsuccessful and this loan or other facilities are not obtained for expansion projects, then, in the absence of alternative sources of financing, there could result a material adverse effect on our operations and would adversely affect our ability to complete our proposed expansion projects on time or at all.

Since the financial events of 2007 and 2008, there have been continuing and significant disruptions in the world financial markets including those in China. We have not experienced significant negative impacts to operating activities as a result of these events. We have taken steps to ensure the security of our cash and investment holdings through deposits with highly liquid, global banking institutions. Our daily operations generate significant operating cash flows and have not been dependent upon credit availability. Our patient base in our current facilities are by and large considered to be in the wealthiest segment of society, for whom healthcare spending represents a very small percentage of their income and therefore is expected to be less impacted by an economic slowdown and to the extent their assets are affected, this will likely not impact their decision making on healthcare purchases. Our current expansion projects as described above are expected to be funded with corporate capital reserves, cash flow from operations and credit facilities provided that there can be no assurances that such facilities will be established, available or sufficient for our intended purposes or that the preconditions to disbursements under the facilities will be satisfied.

Based on the foregoing, we believe that our existing capital resources are sufficient to fund our working capital and capital expenditure requirements for the next 12 months, although there can be no assurances to this effect. We will require additional financing arrangements to meet our planned capital expenditures for expansion projects and otherwise beyond this period. We will continue to evaluate a wide range of possibilities, including both debt and equity-based financings in which we may borrow funds and/or share with one or more financial, institutional or strategic partners the ownership interest in one or more projects.

We currently do not have and may not be able to raise adequate capital to complete certain or all of our business strategies, including our ongoing expansion projects, or to react rapidly to changes in technology, products, services or the competitive landscape. We currently do not expect cash flow from operations to be sufficient to fund all of our currently existing and proposed expansion projects. Healthcare service and medical product providers in China often face high capital requirements in order to take advantage of new market opportunities, respond to rigorous competitive pressures and react quickly to changes in technology. Many of our competitors are committing substantial capital and, in many instances, are forming alliances to acquire or maintain market leadership. There can be no assurance that we will be able to satisfy our capital requirements in the future. In particular, our strategy of expanding our healthcare facilities and services includes the establishment and maintenance of healthcare facilities, which require particularly significant capital. With the strategy and goal of capitalizing on immediate opportunities in the evolving healthcare environment in China, we have in the past and likely in the future will consider and

commence expansion projects that require and depend on the availability of significant capital, not all of which is available at the time of such consideration or commencement. Further, certain planned expansion projects including in particular the planned hospital facility in Guangzhou, are dependent upon significant funding that we understand have been arranged upon closing the Merger, but is not currently available or preliminary arranged. In the absence of sufficient available or obtainable capital, including such capital that would only be available or obtainable upon closing the Merger, we would be unable to establish or maintain healthcare facilities as planned or commenced, we may incur costs for projects that may not be completed as projected (if at all) and we may be required to seek capital in financings under circumstances and at times that limit the optimization of the terms of such financings.

Contractual Arrangements

The following table sets forth our contractual obligations as of December 31, 2013:

(in thousands)


	Total			2014		2015			2016		2017		2018		Thereafter
Bank Loans (1)	$	32,967		$	4,931	$	15,665		$	4,709	$	4,535	$	2,325	$	802
IFC sinking fund assets (1)		(10,641	)		—		(10,641	)		—		—		—		—
Operating leases		101,783			9,789		9,143			7,668		7,190		6,856		61,137

Total contractual obligations	$	124,109		$	14,720	$	14,167		$	12,377	$	11,725	$	9,181	$	61,939

(1)

The bank loan payments in 2015 of $15,666,000 primarily represent the lump sum payment of the IFC RMB loan, China Exim loan, IFC 2013 loan and DEG 2013 loan, including interest. The table above includes an offset to the payment in 2015 because the contractual obligation has already been prefunded in a sinking fund account for the benefit of IFC.

Not included in the table above is our expected total capital expenditures for the expansion and maintenance of our United Family Healthcare network development over the five year period. For the next twelve months, see “Liquidity and Capital Resources.”

For information about these contractual obligations, see Notes 7 and 11 to the consolidated financial statements appearing elsewhere herein.

Timing of Revenue

Foreign Currency Exchange and Impact of Inflation

December 31, 2013, indicated that if the USD uniformly increased in value by 10% relative to the RMB, we would have experienced a 3% increase in net loss. Conversely, a 10% increase in the value of the RMB relative to the USD at December 31, 2013, would have resulted in a 4% decrease in net loss.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company holds the majority of all cash assets in 100% principal protected accounts. Therefore, the Company believes that its market risk exposures are immaterial and reasonable possible near-term changes in market interest rates will not result in material near-term reductions in other income, material changes in fair values or cash flows. The Company does not have instruments for trading purposes. Instruments for non-trading purposes are operating and development cash assets held in interest-bearing accounts. The Company is exposed to certain foreign currency exchange risk (See “Foreign Currency Exchange and Impact of Inflation”).

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Chindex International, Inc.

Bethesda, Maryland

We have audited Chindex International, Inc.’s (the Company) internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Chindex International, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and

directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Chindex International, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Chindex International, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 and our report dated March 17, 2014 expressed an unqualified opinion thereon. We did not audit the financial statements of Chindex Medical Limited, the joint venture or CML (which starting as of December 31, 2010, is being accounted for under the equity method of accounting by Chindex International, Inc.), and which statements reflect total assets (equity investment) of $378,778,000 and $110,929,000 as of December 31, 2013 and 2012, respectively, and income (equity method) of $467,000, $3,039,000, and $3,353,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for CML, is based solely on the report of the other auditors.

/S/ BDO USA, LLP

Bethesda, Maryland

March 17, 2014

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Chindex International, Inc.

Bethesda, Maryland

We have audited the accompanying consolidated balance sheets of Chindex International, Inc. (the Company) as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements of Chindex Medical Limited, the joint venture or CML (which starting as of December 31, 2010, is being accounted for under the equity method of accounting by Chindex International, Inc.), and which statements reflect total assets (equity investment) of $378,778,000 and $110,929,000 as of December 31, 2013 and 2012, respectively, and income (equity method) of $467,000, $3,039,000, and $3,353,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for CML, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chindex International, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Chindex International, Inc.‘s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 17, 2014 expressed an unqualified opinion thereon.

/S/ BDO USA, LLP

Bethesda, Maryland

March 17, 2014

CHINDEX INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)


	December 31, 2013		December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	33,107	$	33,184
Restricted cash		1,286		754
Accounts receivable, less allowance for doubtful accounts of $14,338 and $10,612, respectively		23,041		19,564
Receivables from affiliates		2,897		2,110
Inventories of supplies, net		2,781		2,328
Deferred income taxes		4,763		3,209
Other current assets		3,787		3,798

Total current assets		71,662		64,947
Restricted cash and sinking funds		19,262		20,351
Investment in unconsolidated affiliate		34,178		34,847
Property and equipment, net		113,838		97,952
Noncurrent deferred income taxes		811		925
Other assets		4,817		3,428

Total assets	$	244,568	$	222,450

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	3,648	$	1,586
Accounts payable		11,705		9,520
Payable to affiliates		1,977		1,334
Accrued expenses		17,984		14,712
Other current liabilities		11,408		8,558
Income taxes payable		3,658		2,772

Total current liabilities		50,380		38,482
Long-term debt and convertible debentures		26,715		32,812
Long-term deferred rent		1,223		828
Long-term deferred tax liability		231		262

Total liabilities		78,549		72,384

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 500,000 shares authorized, none issued		—		—
Common stock, $.01 par value, 28,200,000 shares authorized, including 3,200,000 designated Class B:
Common stock – 16,934,753 and 15,904,836 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively		169		159
Class B stock – 1,162,500 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively		12		12
Additional paid-in capital		140,809		122,109
Retained earnings		12,450		18,583
Accumulated other comprehensive income		12,579		9,203

Total stockholders’ equity		166,019		150,066

Total liabilities and stockholders’ equity	$	244,568	$	222,450

The accompanying notes are an integral part of these consolidated financial statements.

CHINDEX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share and per share data)


	Year ended December 31,
	2013			2012			2011
Healthcare services revenue	$	179,388		$	152,442		$	114,397

Operating expenses
Salaries, wages and benefits		102,885			83,264			64,074
Other operating expenses		26,993			22,287			17,947
Supplies and purchased medical services		22,012			18,807			13,233
Bad debt expense		4,211			3,179			2,131
Depreciation and amortization		10,468			7,458			5,145
Lease and rental expense		10,138			7,937			6,199

		176,707			142,932			108,729

Income from operations		2,681			9,510			5,668
Other income and (expenses)
Interest income		963			811			803
Interest expense		(2,252	)		(456	)		(645	)
Equity in (loss) income of unconsolidated affiliate		(1,154	)		1,016			1,121
Miscellaneous income (expense) - net		134			10			(58	)

Income before income taxes		372			10,891			6,889
Provision for income taxes		(6,505	)		(6,799	)		(3,688	)

Net (loss) income	$	(6,133	)	$	4,092		$	3,201

Net (loss) income per common share - basic	$	(.36	)	$	.25		$	.20

Weighted average shares outstanding - basic		16,805,718			16,374,054			16,141,063

Net (loss) income per common share - diluted	$	(.36	)	$	.24		$	.20

Weighted average shares outstanding - diluted		16,805,718			17,727,996			17,413,330

The accompanying notes are an integral part of these consolidated financial statements.

CHINDEX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands)


	Year ended December 31,
	2013			2012		2011
Net (loss) income	$	(6,133	)	$	4,092	$	3,201

Other comprehensive income:
Foreign currency translation adjustment		2,891			189		3,276
Share of other comprehensive income of unconsolidated affiliate		485			103		833

Other comprehensive (loss) income		3,376			292		4,109

Comprehensive (loss) income	$	(2,757	)	$	4,384	$	7,310

The accompanying notes are an integral part of these consolidated financial statements.

CHINDEX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2013, 2012 and 2011

(in thousands)


	Common Stock					Common Stock Class B				Additional Paid In			Retained			Accumulated Other Comprehensive
	Shares			Amount		Shares		Amount		Capital			Earnings			Income		Total
Balance at December 31, 2010		15,310,426		$	153		1,162,500	$	12	$	115,815		$	11,290		$	4,802	$	132,072
Net income		—			—		—		—		—			3,201			—		3,201
Foreign currency translation adjustment		—			—		—		—		—			—			3,276		3,276
Share of other comprehensive income of unconsolidated affiliate		—			—		—		—		—			—			833		833
Stock based compensation		—			—		—		—		3,177			—			—		3,177
Purchase and retirement of restricted stock for tax witholding		(24,077	)		—		—		—		(233	)		—			—		(233	)
Options exercised and issuance of restricted stock, net of restricted stock forfeited		366,568			4		—		—		171			—			—		175

Balance at December 31, 2011		15,652,917			157		1,162,500		12		118,930			14,491			8,911		142,501

Net income		—			—		—		—		—			4,092			—		4,092
Foreign currency translation adjustment		—			—		—		—		—			—			189		189
Share of other comprehensive income of unconsolidated affiliate		—			—		—		—		—			—			103		103
Stock based compensation		—			—		—		—		3,362			—			—		3,362
Purchase and retirement of restricted stock for tax witholding		(29,765	)		—		—		—		(293	)		—			—		(293	)
Options exercised and issuance of restricted stock, net of restricted stock forfeited		281,684			2		—		—		110			—			—		112

Balance at December 31, 2012		15,904,836			159		1,162,500		12		122,109			18,583			9,203		150,066

Net loss		—			—		—		—		—			(6,133	)		—		(6,133	)
Foreign currency translation adjustment		—			—		—		—		—			—			2,891		2,891
Share of other comprehensive loss of unconsolidated affiliate		—			—		—		—		—			—			485		485
Stock based compensation		—			—		—		—		4,183			—			—		4,183
Purchase and retirement of restricted stock and performance-based restricted stock units for tax witholding		(60,126	)		—		—		—		(1,006	)		—			—		(1,006	)
Conversion of JPM debt		808,189			8		—		—		14,992			—			—		15,000
Options exercised and issuance of restricted stock, net of restricted stock forfeited		281,854			2		—		—		531			—			—		533

Balance at December 31, 2013		16,934,753		$	169		1,162,500	$	12	$	140,809		$	12,450		$	12,579	$	166,019

The accompanying notes are an integral part of these consolidated financial statements.

CHINDEX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year ended December 31,
	2013			2012			2011
OPERATING ACTIVITIES
Net (loss) income	$	(6,133	)	$	4,092		$	3,201
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		10,468			7,458			5,145
Inventory write down		105			48			10
Provision for doubtful accounts		4,211			3,179			2,131
Loss on disposal of property and equipment		46			39			80
Equity in net loss (income) of unconsolidated affiliate		1,154			(1,016	)		(1,121	)
Deferred income taxes (benefit)		(1,327	)		162			(939	)
Stock based compensation		4,183			3,362			3,177
Foreign exchange (gain) loss		(639	)		373			(670	)
Amortization of debt issuance costs		272			9			9
Amortization of debt discount		1,232			247			247
Changes in operating assets and liabilities:
Restricted cash		—			—			300
Accounts receivable		(6,994	)		(8,736	)		(3,791	)
Receivables from affiliate		(787	)		8,873			(1,653	)
Inventories of supplies		(479	)		(63	)		(811	)
Other current assets and other assets		(1,500	)		101			(872	)
Accounts payable, accrued expenses, other current liabilities and deferred revenue		1,092			11,333			4,557
Payable to affiliate		642			(8,070	)		1,669
Income taxes payable		787			623			(110	)

Net cash provided by operating activities		6,333			22,014			10,559
INVESTING ACTIVITIES
Purchases of short-term investments and CDs		—			—			(26,966	)
Proceeds from redemption of CDs		—			26,535			41,091
Purchases of property and equipment		(16,650	)		(39,278	)		(23,843	)

Net cash used in investing activities		(16,650	)		(12,743	)		(9,718	)
FINANCING ACTIVITIES
Restricted cash from (to) IFC RMB loan sinking funds		450			(11,036	)		—
Restricted cash from (to) China Exim debt collateral		760			(9,037	)
Proceeds from debt		11,000			11,109			—
Repayment of debt		(1,584	)		(802	)		—
Repurchase of restricted stock for income tax witholding		(1,006	)		(293	)		(233	)
Proceeds from exercise of stock options		533			112			175

Net cash provided by (used in) financing activities		10,153			(9,947	)		(58	)
Effect of foreign exchange rate changes on cash and cash equivalents		87			105			965

Net (decrease) increase in cash and cash equivalents		(77	)		(571	)		1,748
Cash and cash equivalents at beginning of period		33,184			33,755			32,007

Cash and cash equivalents at end of period	$	33,107		$	33,184		$	33,755

Supplemental disclosures of cash flow information:
Cash paid for interest	$	917		$	551		$	670
Cash paid for taxes	$	7,118		$	6,094		$	4,751
Non-cash investing and financing activities consist of the following:
Change in property and equipment additions included in accounts payable and payable to affiliates	$	6,822		$	529		$	7,931
Conversion of JPM debt to equity	$	15,000		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

CHINDEX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Chindex International, Inc. (“Chindex” or “the Company”), is a Delaware corporation, operating in several healthcare service areas in China. Revenues are generated from the provision of healthcare services. The Company operates hospitals and clinics in Beijing, Shanghai, Tianjin and Guangzhou. These hospitals and clinics generally transact business in Chinese Renminbi. Until December 31, 2010, the Company operated in two business segments: the Medical Product Division and the Healthcare Services Division.

On December 31, 2010, the Medical Products division was contributed to Chindex Medical Limited (“CML”), a newly formed Hong Kong joint venture, in which the Company received a 49% ownership interest for its contribution (see Note 3 to the consolidated financial statements). Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“FosunPharma”) received a 51% interest in CML for its contribution of certain medical device and other businesses. Upon its contribution of the Medical Products division, the Company deconsolidated the business of that division. The investment in CML is recorded using the equity method of accounting, effective December 31, 2010, with Chindex’s 49% interest in the equity in the earnings of CML beginning January 1, 2011. Chindex’s interest in the earnings of CML was subsequently reduced to 30%, effective May 27, 2013 (see Note 3 to the consolidated financial statements).

Policies and procedures

Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries in which the Company has greater than 50 percent ownership, and variable interest entities in which the Company has controlling financial interest. All inter-company balances and transactions are eliminated in consolidation. Entities in which the Company has less than 50 percent ownership or does not have a controlling financial interest but is considered to have significant influence are accounted for on the equity method.

Revenue Recognition

Accounts Receivable

Accounts receivable are customer obligations due under normal trade terms. Accounts receivable are reviewed on a quarterly basis to determine if any receivables will potentially be uncollectible based on the aging of the receivable and historical cash collections. Any accounts receivable balances that are determined to be uncollectible, along with a percentage allowance for each aging category of receivables are included in the overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Final write-offs of receivables in China require approval from Chinese tax authorities. Such approvals require substantial historical documentation of collection efforts and are not normally granted until several years have passed. As a result, the allowance for doubtful

accounts is relatively high when compared to account receivable balances. Management believes that the allowance for doubtful accounts as of December 31, 2013 and 2012 is adequate; however, actual write-offs might exceed the recorded allowance.

Inventories

Inventory items held by the Company are purchased to fill hospital operating requirements and are stated at the lower of cost or net realizable value using the average cost method.

Property and Equipment

Property and equipment are stated at historical cost. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight line method over the estimated useful lives of the related assets. Useful lives for medical equipment deployed for clinical use in our hospitals is 10 years. Useful lives for office equipment, vehicles and furniture and fixtures range from 3 to 7 years. Major software projects are capitalized and amortized over 10 years. Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the improvements or the lease term.

The Company assesses the impairment of long-lived assets when indicators of impairment are identified. The Company records impairment charges based upon the difference between the fair value and carrying value of the original asset when undiscounted cash flows indicate the carrying value will not be recovered. No impairment losses have been recorded in the accompanying consolidated statements of operations.

Income Taxes

The Company’s provision for income taxes is computed for each entity in the consolidated group at applicable statutory rates based upon each entity’s income or loss, giving effect to temporary and permanent differences. The Company’s U.S. and foreign subsidiaries file separate income tax returns on a December 31 fiscal year.

In accordance with Accounting Standard Codification (“ASC”) 740, provisions for income taxes are based upon earnings reported for financial statement purposes and may differ from amounts currently payable or receivable because certain amounts may be recognized for financial reporting purposes in different periods than they are for income tax purposes. Deferred income taxes result from temporary differences between the financial statement amounts of assets and liabilities and their respective tax bases. A valuation allowance reduces the net deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company recognizes, in its consolidated financial statements, the impact of a tax position if that position is not more likely than not to be sustained upon examination, based on the technical merits of the position. It is our policy to recognize interest and penalties related to income tax matters in income tax expense.

Cash Equivalents and Restricted Cash

The Company considers unrestricted cash on hand, deposits in banks, certificates of deposit, money market funds and short-term marketable securities with an original or remaining maturity at the date of acquisition of three months or less to be cash and cash equivalents. Restricted cash is composed of collateral for the Company’s loans (see Note 4 to the consolidated financial statements).

Earnings (loss) Per Share

The Company follows ASC 260 whereby basic earnings (loss) per share excludes any dilutive effects of options, warrants and convertible securities and diluted earnings per share includes such effects. The Company does not include the effects of stock options, restricted stock and convertible securities when the effects would be antidilutive.

Stock-Based Compensation

ASC 718 requires that stock options and other share-based payments made to employees be accounted for as compensation expense and recorded at fair value. Under this Topic, companies are required to estimate the fair value of share-based payment awards on the date of the grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods in the Company’s consolidated statements of operations.

The Company generally grants stock options that vest over a three to four year period to senior, long-term employees. Option awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Stock options have up to 10-year contractual terms.

Options issued by the Company have grant-date fair values calculated using the Black-Scholes options pricing model. To calculate fair market value, this model utilizes certain information, such as the interest rate on a risk-free security maturing generally at the same time as the expected life of the option being valued and the exercise price of the option being valued. It also requires certain assumptions, such as the expected amount of time the option will be outstanding until it is exercised or it expires and the expected volatility of the Company’s common stock over the expected life of the option.

The Company did not grant any stock options for the years ended December 31, 2013 and 2012. The assumptions used to determine the value of the options at the grant date for options granted as of December 31, 2011 was:


		December 31, 2011
Volatility		70%
Dividend yield		0.00%
Risk-free interest rate		2.0%
Expected average life		7.0 years

Expected volatility is calculated based on the historical volatility of the Company’s common stock over the period which is approximately equal to the expected life of the options being valued. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The risk-free interest rate is derived from the yield of a U.S. Treasury Strip with a maturity date which corresponds with the expected life of the options being valued. The expected average life is based on the Company’s historical share option exercise experience along with the contractual term of the options being valued.

Based on historical experience, the Company has assumed a forfeiture rate of 0% for executive management and 10% for all other employees as of December 31, 2013 and 2012. In prior years, the Company used a blended forfeiture rate of 6% for the entire employee population receiving equity awards The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeitures are higher than estimated.

Debt Issuance Costs

Debt issuance costs incurred are capitalized and amortized based on the life of the debt obligations from which they arose, using the straight-line method. The amortization of these costs is included in interest expense in the consolidated statements of operations.

Foreign Currencies

Financial statements of the Company’s foreign subsidiaries are translated from the functional currency, generally the local currency, to U.S. dollars. Assets and liabilities are translated at the exchange rates on the balance sheet date. Results of operations are translated at average exchange rates. Accumulated other comprehensive income in the accompanying consolidated statements of comprehensive income (loss) consists primarily of the resulting exchange difference.

Use of Estimates

Reclassification

Certain balances as of December 31, 2013 and 2012 have been reclassified to conform to the 2013 presentation. The Company has reclassified the noncurrent portion of deferred rent as of December 31, 2012 to be consistent with 2013 presentation.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update 2013-02, a new accounting standard that adds new disclosure requirements for amounts reclassified out of accumulated other comprehensive income (“AOCI”). The total changes in AOCI must be disaggregated between reclassification adjustments and current period other comprehensive income. This new standard also requires an entity to present reclassification adjustments out of AOCI either on the face of the statement of operations or in the notes to the financial statements based on their source and the income statement line items affected by the reclassification. This standard is effective prospectively for the Company for interim and annual periods beginning on January 1, 2013. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

2. INVENTORIES, NET

Inventories consist of medical supplies and pharmaceuticals in the amounts of $2,781,000 at December 31, 2013 and $2,328,000 at December 31, 2012, respectively.

3. INVESTMENT IN UNCONSOLIDATED AFFILIATE

Background – Chindex Medical Limited

On December 31, 2010, Chindex and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“FosunPharma”), a leading manufacturer and distributor of Western and Chinese medicine and devices in China, completed the first closing (the “Initial Closing”) of the formation of Chindex Medical Limited (“CML”) to independently operate certain combined medical device businesses, including Chindex’s Medical Products division (“MPD”). The formation of CML represents a basis of the strategic alliance between the two companies, which aims to capitalize on the long-term opportunity presented by medical product sectors in China. CML is focused on marketing, distributing, selling and servicing medical devices in China, including Hong Kong, as well as activities in R&D and manufacturing of medical devices for the Chinese and export markets. At the time of formation, CML was owned 51% by FosunPharma and 49% by Chindex.

Upon the Initial Closing, CML became the owner of the Company’s former Medical Products division. On June 24, 2011, CML became the holder of legal title to the FosunPharma-contributed businesses. Notwithstanding this transfer, the registration with and approval of Shanghai Administration of Foreign Exchange (SAFE) was required in order for CML to exercise certain of the rights and benefits as shareholder of such businesses, but CML was entitled to such benefits on a contractual basis under an entrusted management agreement. The registration with and approval of SAFE was received on March 7, 2012, and all legal formalities related to the final closing of the joint venture formation were completed as of March 30, 2012.

Deconsolidation of Chindex MPD

FosunPharma has a controlling financial interest in CML. The Company was required to deconsolidate the MPD-contributed businesses when it ceased to have a controlling financial interest in the applicable subsidiaries. In its analysis, the Company concluded that CML was a voting interest entity, rather than a variable interest entity. Therefore, the reduction of the Company’s interest to 49% on December 31, 2010 indicated that it no longer had a controlling financial interest and needed to deconsolidate under Accounting Standards Codification (“ASC”) 810. Accordingly, Chindex deconsolidated its Medical Products division from its consolidated balance sheet, effective December 31, 2010.

CML Purchase of Interest in Alma Lasers, Inc.

On May 27, 2013, CML acquired approximately 36.17% of Alma Lasers, Inc. (“Alma”) as part of a purchase by a group of buyers for substantially all of Alma. The buying group, which consisted of CML, another subsidiary of FosunPharma, and the Pramerica-Fosun China Opportunity Fund, acquired 95.16% of Alma indirectly through a jointly-owned entity, Sisram Medical, Ltd. The total acquisition price by all buyers for Alma was approximately $221.6 million. Alma is a leading global medical energy-based (including lights, laser, radio frequency and ultrasonic) device manufacturer, with a comprehensive product offering and international sales network. Alma has developed leading R&D capabilities globally in the medical and aesthetic equipment manufacturing field and established a global brand in the market segment.

In order to help fund the acquisition by CML of its interest in Alma, FosunPharma invested approximately $41 million in cash into CML for additional equity in CML. Chindex waived its right to participate in the additional investment of capital into CML and also agreed to increase FosunPharma’s board seats at CML from four of seven to five of eight. Following such investment, the cumulative net assets contributed by each party to CML since inception were approximately 70% by FosunPharma and 30% by Chindex. After consideration of the relative net assets contributed to CML by each investor, the parties agreed that the equity interests should be revised to 70% for FosunPharma and 30% for Chindex. Since the resulting basis for Chindex approximated its minority equity interest in CML, there was no gain or loss recognized by Chindex on the revised equity percentages, as the amount was de minimis.

Summarized Financial Information for CML-Unconsolidated Affiliate

Chindex follows the equity method of accounting to recognize its interest in CML. The Chindex interest in CML at the time of formation on December 31, 2010 was 49% and, was subsequently reduced to 30%, effective May 27, 2013. Summarized financial information for the unconsolidated CML affiliate for which the equity method of accounting is used is presented below on a 100 percent basis.

The assets and liabilities of CML as of December 31, 2013 and December 31, 2012 were as follows (in thousands):


	December 31, 2013		December 31, 2012
Current assets	$	144,338	$	91,184
Noncurrent assets		234,440		19,745

Total assets	$	378,778	$	110,929

Current liabilities	$	141,053	$	43,287
Noncurrent liabilities		109,866		1,526

Total liabilities		250,919		44,813
Redeemable noncontrolling interests		10,001		—
Stockholders’ equity		117,858		66,116

Total liabilities and stockholders’ equity	$	378,778	$	110,929

The operating results of CML for the years ended December 31, 2013, 2012 and 2011 were as follows (in thousands):


	Year ended December 31,
	2013		2012		2011
Revenue	$	159,275	$	116,070	$	126,778
Income before income taxes		1,698		3,618		4,947
Net income		467		3,039		3,353

The operating results of CML in 2013 have thus far been significantly impacted by restructuring at the Ministry of Health, uncertainty surrounding proposed reforms and the disruption to normal hospital purchasing activity due to the government campaign to improve compliance in the public hospitals’ purchasing activities, all of which has led to an overall slowdown in business activity among capital medical equipment markets in China.

CML is a 70%-owned subsidiary of FosunPharma. The assets, liabilities and stockholders’ equity in the summarized financial data table presented above for CML have been prepared on a stand-alone basis, with the assets and liabilities of the entities contributed to CML by FosunPharma reported on a historical cost basis, while the assets and liabilities acquired from Chindex have been recorded on a fair value basis. In reporting its interest in the net assets and net (losses) income of CML using the equity method of accounting, Chindex includes its interest in the stand-alone financial statements of CML, and also records adjustments to reflect the amortization of basis differences attributable to the fair values in excess of net book values of identified tangible and intangible assets contributed by FosunPharma to CML at its formation date and also includes the amortization of acquisition accounting adjustment to reflect fair values in connection with CML’s investment in the net assets of Sisram (Alma). In addition, certain employees of CML participate in Chindex stock-based compensation programs. The total stock-based compensation expense recognized by CML for years ended December 31, 2013, 2012 and 2011 were $1,660,000, $968,000, and $1,224,000, respectively.

As of December 31, 2013 and December 31, 2012, Chindex had a receivable from CML entities of $2,897,000 and $2,110,000, respectively, primarily related to advance payments for procurement of medical equipment supplied under a logistics service agreement whereby CML serves as an agent for Chindex. As of December 31, 2013 and December 31, 2012, Chindex had a payable to CML entities of $1,977,000 and $1,334,000, respectively, which represented the actual purchases of medical equipment by CML on behalf of Chindex under the logistics service agreement.

Services Agreement

CML and Chindex entered into a services agreement (the “Services Agreement”), effective January 1, 2011. Under the Services Agreement, Chindex provides advice and support services as requested by CML. The services include management and administrative support services for marketing, sales and order fulfillment activities conducted in the United States and China, order processing and exporting of goods sold to customers in China, advice relating to the marketing of products sold in China by CML, analysis of sales opportunities and other assistance including services such as payroll, database administration, internal auditing, accounting and finance that will assist CML in carrying out its activities in the United States and China. For the years ended December 31, 2013, 2012 and 2011, total expenses recognized by CML under the services agreement were $3,385,000, $3,463,000 and $3,451,000, respectively, in addition to stock-based compensation.

4. RESTRICTED CASH AND SINKING FUNDS

Restricted cash and sinking funds at December 31, 2013 and December 31, 2012 consisted of the following:


(in thousands)	December 31, 2013		December 31, 2012
Current
IFC RMB loan interest collateral	$	450	$	436
China Exim loan collateral		836		318

	$	1,286	$	754

Noncurrent
IFC RMB loan sinking fund	$	11,542	$	12,069
China Exim loan collateral - Certificates of Deposit		7,720		8,282

	$	19,262	$	20,351

The China Exim loan collateral of $836,000 consists of a number of deposits for the China Exim loan with an interest rate of 3% per annum, and the term of the deposits is from July 2013 to August 2014. The IFC RMB loan interest collateral of $450,000 consists of a deposit for the IFC RMB loan with an interest rate of 4.4% per annum, and the term of the deposit is from March 2013 to March 2014.

The IFC RMB loan sinking fund consists of Certificates of Deposit (CDs) for the advance funding of the loan principal and interest for the Company’s IFC 2005 RMB loan from the International Finance Corporation (IFC). As of December 31, 2013, the CDs totaled $11,542,000, and are recorded in long-term restricted cash and sinking funds. The RMB debt is also classified as long-term and will be paid off as originally scheduled on October 15, 2015. The CDs in the amount of $11,542,000 have an interest rate of 5%, and the term of the CDs are from March 22, 2012 to March 22, 2015.

In June 2011, the Company entered into a contract for the purchase of $11.1 million of medical equipment to be used at our newly expanded hospital facilities in Beijing. The equipment was primarily sourced from the United States. Since the equipment is for qualified government-sponsored projects under financing agreements between the U.S. Export-Import Bank and China’s Ministry of Finance, the Company may import the equipment into China on a duty and VAT free basis. The Company entered into loan agreements for the principal amount of $11.1 million, with a term of seven years, an interest rate of 2.15%, and a collateral cash deposit of $7,720,000. Certificates of Deposit in a restricted account at a major bank in China were opened in June 2012 to provide the collateral for the expected draw of $11.1 million under the loan agreements. The Certificates of Deposit earn interest at a rate of 3.05% as of December 31, 2013, and the interest rate is reset every six months based on the bank’s standard rates. The remaining steps to draw the principal of the loan were completed and the entire $11.1 million was drawn on October 18, 2012.

5. PROPERTY AND EQUIPMENT, NET

(in thousands)


	December 31, 2013			December 31, 2012
Property and equipment, net consists of the following:
Furniture and equipment	$	53,281		$	44,089
Vehicles		361			355
Construction in progress		2,510			21,478
Leasehold improvements		91,166			54,907

		147,318			120,829
Less: accumulated depreciation and amortization		(33,480	)		(22,877	)

	$	113,838		$	97,952

Construction in progress relates to the development of the United Family Healthcare network of private hospitals and health clinics in China, including facilities and systems development. Additions incurred during the year pertained to the completion of the construction of the Beijing Rehabilitation Hospital and new clinics in Beijing and Shanghai. Remaining costs to complete major construction activities in progress are approximately $37 million. Capitalized interest on construction in progress was $224,000, $356,000 and $565,000 during the years ended December 31, 2013, 2012 and 2011, respectively. Depreciation and amortization expense for property and equipment for the years ended December 31, 2013, 2012 and 2011 were $10,468,000, $7,458,000 and $5,145,000, respectively.

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)


	December 31, 2013		December 31, 2012
Accrued expenses:
Accrued expenses - rent	$	7,158	$	5,297
Accrued compensation		8,063		7,007
Accrued expenses - other		2,763		2,408

	$	17,984	$	14,712

Other current liabilities:
Accrued other taxes payable - non-income	$	1,659	$	992
Customer deposits		6,430		4,754
Other current liabilities		3,319		2,812

	$	11,408	$	8,558

7. DEBT

The Company’s short-term and long-term debt balances are (in thousands):


	December 31, 2013				December 31, 2012
	Short term		Long term		Short term		Long term
IFC 2005 RMB loan	$	—	$	10,641	$	—	$	10,322
IFC 2013 loan		1,125		4,875		—		—
DEG 2013 loan		937		4,063		—		—
China Exim loans		1,586		7,136		1,586		8,722
Convertible notes JPM, net of debt discount		—		—		—		13,768

	$	3,648	$	26,715	$	1,586	$	32,812

IFC 2005 RMB loan

In October 2005, Beijing United Family Hospital (BJU) and Shanghai United Family Hospital (SHU), majority-owned subsidiaries of the Company, obtained long-term debt financing under a program with the International Finance Corporation (IFC) (a division of the World Bank) for 64,880,000 Chinese Renminbi (“RMB”) (approximately $8,000,000) (the “IFC 2005 RMB Loan”). The term of the loan was 10 years at an initial interest rate of 6.73% with the borrowers required to make annual payments into a sinking fund with the first payment in September 2010. Deposits into the sinking fund would have accumulated until a lump sum payment was made at maturity of the debt in October 2015. The interest rate would have reduced to 4.23% for any amount of the outstanding loan on deposit in the sinking fund.

Effective March 14, 2012, the Company entered into an Amendment and Restatement Agreement to the IFC 2005 RMB Loan Agreement, and a Certificate of Deposit Retention and Pledge Agreement. The agreements were necessary in order to incorporate the effects of the expansion of the Beijing hospital campus on the collateral and loan covenant provisions of the original IFC 2005 RMB Loan Agreement. The revised terms of the agreements provide for (1) advance funding by the Company of the full principal and interest amounts by the purchase of a series of Certificates of Deposit having a face amount equal to the full principal and interest amount and the subsequent pledge of such Certificates of Deposit to the IFC, and (2) significant reduction of loan covenants required under the original loan agreement. The advance funding of the loan principal and interest by the Company into restricted accounts rather than paying off the debt was necessary in order to avoid significant prepayment penalties. As of December 31, 2013, the Certificates of Deposit totaled $11,542,000 and are recorded in long-term restricted cash and sinking funds. The RMB debt is classified as long-term and will be paid off as originally scheduled on October 15, 2015.

As of December 31, 2013, the outstanding balance of this debt was 64,880,000 RMB (current translated value of $10,641,000) and was classified as long-term. As the advance funding of the sinking fund does not extinguish the long-term debt liability, the entire loan is expected to be classified as long-term until a financial reporting date that is less than one year from final maturity. The balance sheet classification of the sinking fund assets is similarly noncurrent, until a date that is less than one year from the lump sum payment.

IFC 2013 Loan

In March 2013, the Company entered into a $6,000,000 US Dollar loan facility with IFC for the financing of the expansion projects at our flagship hospital in Beijing. In June 2013, we drew down the entire $6,000,000 from this facility. The loan currently bears interest at the three-month LIBOR rate plus a spread of 4.95%. The loan duration is five years, with a one-year grace period. Principal payments will be made on a quarterly basis, beginning on June 15, 2014 through March 15, 2018. The obligations of the borrower (BJU) under the IFC facility is guaranteed by Chindex and secured by a pledge of Chindex’s indirect ownership interest in the borrower. The issuance costs of $1,111,000 were capitalized and are being amortized over the 5-year life of the loan. Amortization of the issuance cost was approximately $143,000 for

the year ended December 31, 2013. The IFC Facility contains customary financial covenants, including maintenance of a maximum ratio of liabilities to tangible net worth and a minimum debt service coverage ratio, and covenants that, among other things, place limits on the Company’s ability to incur debt, create liens, make investments and acquisitions, sell assets, pay dividends, engage in transactions with affiliates, and make capital expenditures. The Company was in compliance with the financial covenants as of December 31, 2013.

In addition, we are currently in the final stages of negotiations with IFC regarding a loan agreement pursuant to which IFC would lend the Company a principal amount of up to $12 million related to the development of our Rehabilitation Hospital in Beijing.

DEG 2013 Loan

In March 2013, the Company entered into a $5,000,000 loan facility with Deutsche Investitions und Entwicklungsgesellschaft (DEG) for the financing of the expansion projects at our flagship hospital in Beijing. In June 2013, we drew down the entire $5,000,000 from this facility. The loan currently bears interest at the three-month LIBOR rate plus a spread of 4.95%. The loan duration is five years, with a one-year grace period. Principal payments will be made on a quarterly basis, beginning on June 15, 2014 through March 15, 2018. The obligations of the borrower (BJU) under the DEG facility is guaranteed by Chindex and secured by a pledge of Chindex’s indirect ownership interest in the borrower. The issuance costs of $316,000 were capitalized and are being amortized over the 5-year life of the loan. Amortization of the issuance cost was approximately $37,000 for the year ended December 31, 2013. The DEG Facility contains customary financial covenants, including maintenance of a maximum ratio of liabilities to tangible net worth and a minimum debt service coverage ratio, and covenants that, among other things, place limits on the Company’s ability to incur debt, create liens, make investments and acquisitions, sell assets, pay dividends, engage in transactions with affiliates, and make capital expenditures. The DEG Facility also contains customary events of default. As of December 31, 2013, the Company was in compliance with the loan covenants.

China Exim Loans

In June 2011, the Company entered into a contract for the purchase of $11.1 million of medical equipment to be used at our newly expanded hospital facilities in Beijing. The equipment was primarily sourced from the United States. As qualified government-sponsored projects under financing agreements between the U.S. Export-Import Bank and China’s Ministry of Finance, this would allow the Company to import the equipment into China on a duty and VAT free basis. The Company entered into loan agreements with Export-Import Bank of China (“China Exim”) for the principal amount of $11.1 million, with a term of seven years, an interest rate of 2.15%, and a collateral cash deposit of approximately $8.6 million Certificates of Deposit in a restricted account were opened in June 2012 to provide the collateral for the expected draw of $11.1 million under the loan agreements. The remaining steps to draw the principal of the loan were completed and the entire $11.1 million was drawn on October 18, 2012. The issuance costs of $297,000 were capitalized and are being amortized over the 7-year lives of the loans. Amortization of the issuance was approximately $46,000 and $19,000 for the year ended December 31, 2013 and 2012, respectively.

Convertible Notes- JPM

On November 7, 2007, the Company entered into a securities purchase agreement with Magenta Magic Limited, a wholly owned subsidiary of J.P. Morgan Chase & Co organized under the laws of the British Virgin Islands (JPM), pursuant to which the Company agreed to issue and sell to JPM: (i) 538,793 shares (the “Tranche A Shares”) of the Company’s common stock; (ii) the Company’s Tranche B Convertible Notes due 2017 in the aggregate principal amount of $25 million (the “Tranche B Notes”) and (iii) the Company’s Tranche C Convertible Notes due 2017 in the aggregate principal amount of $15 million

(the “Tranche C Notes” and, with the Tranche B Notes, the “Notes”) at a price of $18.56 per Tranche A Share (for an aggregate price of $10 million for the Tranche A Shares) and at face amount for the Notes for a total purchase price of $50 million in gross proceeds (the “JPM Financing”).

The Tranche B Notes had a ten-year maturity, bore no interest of any kind and provided for conversion into shares of the Company’s common stock at an initial conversion price of $18.56 per share at any time and automatic conversion upon the Company entering into one or more newly committed financing facilities (the “Facilities”) making available to the Company at least $50 million, pursuant to which Facilities all conditions precedent (with certain exceptions) for initial disbursement had been satisfied, subject to compliance with certain JPM Financing provisions. The Facilities as required for conversion of the Tranche B Notes had to have a minimum final maturity of 9.25 years from the date of initial drawdown, a minimum moratorium on principal repayment of three years from such date, principal payments in equal or stepped up amounts no more frequently than twice in each 12-month period, no sinking fund obligations, and also limit the purchase price of any equity issued under the Facilities to at least equal to the initial conversion price of the Notes or higher amounts depending on the date of issuance thereof. In January 2008, the Tranche B Notes were converted into 1,346,984 shares of our common stock.

The Tranche C Notes had a ten-year maturity, bore no interest of any kind and provided for conversion into shares of the Company’s common stock at the same conversion price as the Tranche B Notes at any time and automatic conversion upon the (i) completion of two proposed new and/or expanded hospitals in China in Beijing and Guangzhou (the “JV Hospitals”), (ii) the first anniversary of commencement of operations at either of the JV Hospitals or (iii) the first anniversary of either of the JV Hospitals achieving break-even earnings before interest, taxes, depreciation and amortization for any 12-month period ending on the last day of a fiscal quarter, subject to compliance with certain JPM Financing provisions. The operations of the first JV hospital in Beijing commenced on October 15, 2012. On October 15, 2013, the Tranche C Notes were automatically converted. Accordingly, the $15 million debt was converted into 808,189 shares of the Company’s common stock, and the debt was extinguished.

The JPM Financing was completed in two closings. At the first closing, which took place on November 13, 2007, the Company issued (i) the Tranche A Shares, (ii) the Tranche B Notes and (iii) an initial portion of the Tranche C Notes in the aggregate principal amount of $6 million, with the closing of the balance of the Tranche C Notes in the aggregate principal amount of $9 million subject to, among other things, the approval of the Company’s stockholders. At the second closing, which took place on January 11, 2008, following such stockholder approval, the Company issued such balance of the Tranche C Notes.

In connection with the issuance of the Notes, the Company incurred issuance costs of $314,000, which primarily consisted of legal and other professional fees, which were capitalized. Of these costs, $61,000 was attributable to the Tranche A shares, $159,000 was attributable to Tranche B Notes which converted in January 2008 and the remaining $94,000 is attributable to the Tranche C Notes and has been capitalized to be amortized over the life of the Notes. As of December 31, 2013 and December 31, 2012, the unamortized financing cost was $0 and $45,000, respectively, and was included in Other Assets in the consolidated balance sheets.

The Company accounts for convertible debt in accordance with ASC 470-20. Accordingly, the Company recorded, as a discount to convertible debt, the intrinsic value of the conversion option based upon the differences between the fair value of the underlying common stock at the commitment date and the effective conversion price embedded in the note. Debt discounts under these arrangements are usually amortized over the term of the related debt to their stated date of redemption. So, in respect to the Notes, this debt discount would be amortized through interest expense over the 10 year term of the Notes unless earlier converted or repaid. In fiscal 2008, under this method, the Company recorded (i) a discount on the Tranche B Notes of $2,793,000 against the entire principal amount of the Notes; and (ii) a discount on the Tranche C Notes of $2,474,000 against the entire principal amount of the Notes.

The debt discount pursuant to the Notes as of December 31, 2013 and December 31, 2012 was $0 and $1,232,000, respectively. Amortization of the discount was approximately $1,232,000, $247,000 and $247,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Debt Payment Schedule

The following table sets forth the Company’s debt obligations as of December 31, 2013:

(in thousands)


	Total		2014		2015		2016		2017		2018		Thereafter
IFC 2005 loan	$	10,641	$	—	$	10,641	$	—	$	—	$	—	$	—
IFC 2013 loan		6,000		1,125		1,500		1,500		1,500		375		—
China Exim loans		8,722		1,586		1,586		1,586		1,586		1,586		792
DEG 2013 loan		5,000		937		1,250		1,250		1,250		313		—

Total	$	30,363	$	3,648	$	14,977	$	4,336	$	4,336	$	2,274	$	792

8. STOCKHOLDERS’ EQUITY

Common Stock

The Class B common stock and the common stock are substantially identical on a share-for-share basis, except that the holders of Class B common stock have six votes per share on each matter considered by stockholders and the holders of common stock have one vote per share on each matter considered by stockholders. Each share of Class B common stock will convert at any time at the option of the original holder thereof into one share of common stock and is automatically converted into one share of common stock upon (i) the death of the original holder thereof, or, if such stocks are subject to a stockholders agreement or voting trust granting the power to vote such shares to another original holder of Class B common stock, then upon the death of such original holder, or (ii) the sale or transfer to any person other than specified transferees.

Stock Option Plan

On September 1, 2004, the Company’s Board of Directors approved and on October 14, 2004, the Company’s shareholders approved the Company’s 2004 Incentive Stock Plan (2004 Plan). The 2004 Plan became effective upon the shareholders’ approval. The 2004 Plan provides for grants of: options to purchase common stock; restricted shares of common stock (which may be subject to both issuance and forfeiture conditions), which we refer to as restricted stock; deferred shares of common stock (which may be subject to the completion of a specified period of service and other issuance conditions), which we refer to as deferred stock; stock units (entitling the grantee to cash payments based on the value of the common stock on the date the payment is called for under the stock unit grant); and stock appreciation rights (entitling the grantee to receive the appreciation in value of the underlying common stock between the date of exercise and the date of grant), which are referred to as SARs. SARs may be either freestanding or granted in tandem with an option. Options to purchase the common stock may be either incentive stock options that are intended to satisfy the requirements of Section 422 of the Internal Revenue Code (the Code), or options that do not satisfy the requirements of Section 422 of the Code. Compensation costs for stock options and restricted stock are recognized ratably over the vesting period of the option or stock, which usually ranges from immediate to three years. All of the shares authorized under the 2004 Plan had been granted as of March 31, 2008.

On September 11, 2007, the Company adopted the 2007 Incentive Stock Plan (2007 Plan). The 2007 Plan provides for grants of: options to purchase common stock, restricted shares of common stock, deferred shares of common stock, stock units, and stock appreciation rights. Compensation costs for stock options and restricted stock are recognized ratably over the vesting period of the option or stock, which usually ranges from immediate to four years.

Compensation costs related to equity compensation, including stock options and restricted stock, for the years ended December 31, 2013, 2012 and 2011 were $4,183,000, $3,362,000 and $3,177,000, respectively, which are all included in salaries, wages and benefits on the consolidated statements of operations.

Stock-Based Compensation for Employees

During the years ended December 31, 2013, 2012 and 2011, the total intrinsic value of stock options exercised was $282,000, $454,000 and $285,000, respectively. The actual cash received upon exercise of stock options was $533,000, $112,000 and $175,000, respectively. The unamortized fair value of the stock options as of December 31, 2013 was $58,000, the majority of which is expected to be expensed over the weighted-average period of 1.43 years.

A summary of the status of the Company’s non-vested options as of December 31, 2013 and changes during the year is presented below:


	Number of Shares			Weighted Average Grant-Date Fair Value
Nonvested options outstanding, December 31, 2012		61,166		$	8.91
Granted		—			—
Vested		(50,692	)		8.42
Canceled		(1,475	)		8.96

Nonvested options outstanding, December 31, 2013		8,999		$	8.99

A summary of the status of the Company’s non-vested options as of December 31, 2012 and changes during the year is presented below:


	Number of Shares			Weighted Average Grant-Date Fair Value
Nonvested options outstanding, December 31, 2011		129,030		$	8.95
Granted		—			—
Vested		(63,564	)		8.99
Canceled		(4,300	)		8.92

Nonvested options outstanding, December 31, 2012		61,166		$	8.91

A summary of the status of the Company’s non-vested options as of December 31, 2011 and changes during the year is presented below:


	Number of Shares			Weighted Average Grant-Date Fair Value
Nonvested options outstanding, December 31, 2010		345,381		$	9.02
Granted		18,000			8.99
Vested		(227,104	)		9.06
Canceled		(7,247	)		8.96

Nonvested options outstanding, December 31, 2011		129,030		$	8.95

The total fair value of options vested for the year ended December 31, 2013 was $427,000.

The table below summarizes activity relating to restricted stock for the year ended December 31, 2013:


	Number of shares underlying restricted stock			Aggregate Intrinsic Value of Restricted Stock (in thousands) *
Outstanding at December 31, 2012		517,550
Granted		157,566
Vested		(240,799	)
Forfeited		(18,092	)

Outstanding at December 31, 2013		416,225		$	7,255

Expected to vest		380,779		$	6,637

The table below summarizes activity relating to restricted stock for the year ended December 31, 2012:


	Number of shares underlying restricted stock			Aggregate Intrinsic Value of Restricted Stock (in thousands) *
Outstanding at December 31, 2011		525,800
Granted		246,715
Vested		(235,910	)
Forfeited		(19,055	)

Outstanding at December 31, 2012		517,550		$	5,434

Expected to vest		481,087		$	5,051

The table below summarizes activity relating to restricted stock for the year ended December 31, 2011:


	Number of shares underlying restricted stock			Aggregate Intrinsic Value of Restricted Stock (in thousands) *
Outstanding at December 31, 2010		412,774
Granted		321,898
Vested		(200,017	)
Forfeited		(8,855	)

Outstanding at December 31, 2011		525,800		$	4,480

Expected to vest		499,995		$	4,260

The weighted average remaining contractual term of the restricted stock, calculated based on the service-based term of each grant, is approximately two years. As of December 31, 2013, the unamortized fair value of the restricted stock was $4,167,000. This unamortized fair value is expected to be expensed over the weighted-average period of 1.89 years. Restricted stock is valued at the stock price on the date of grant.

Long-Term Incentive Plans

The Company has two long-term incentive plans in progress. Each plan was adopted under the Company’s 2007 Stock Incentive Plan and has required performance, service and market conditions, as described below.

2013 LTIP

On March 27, 2013, the Company’s Compensation Committee, with the assistance of its independent executive compensation consultant, adopted the 2013 long-term incentive program (“2013 LTIP”), providing for 2013 grants of performance-based restricted stock units (“PRSUs”) to executive officers and other key employees. The awards under the 2013 LTIP are initially expressed as a target number of units, which will be adjusted to reflect the attainment of specified performance metrics during the applicable performance period. The performance period for the 2013 LTIP is the combined calendar years 2013 and 2014. The performance metrics used for these awards are Revenue and Adjusted EBITDA, with performance on each metric determined separately and applied to 50% of the target number of units. The number of target units earned is based on attainment of specified performance levels, up to a maximum of 150% of the target number of units. The number of units so determined will be increased or decreased by up to 25% based on the Company’s stock price performance during 2013 and 2014 relative to the performance of the NASDAQ Golden Dragon China Index. The number of units earned after this adjustment are subject to vesting based on continued employment, with one-half of the units vesting at the end of each of 2015 and 2016, subject to accelerated vesting in specified events. Upon the vesting of a unit (the completion of the service period), the award holder will receive one share of Chindex common stock in settlement of that unit. The target number of PRSUs awarded under the 2013 LTIP was 147,800 units. Compensation expense is based on the estimated fair value of the PRSUs at the grant date, using a Monte Carlo simulation and will be recognized over the combined performance and service periods of approximately 3.75 years, beginning on March 27, 2013. Expense for the year ended December 31, 2013, net of amount invoiced to CML, was $157,000.

There was no comparable expense in the prior year period. Based on our estimates as of December 31, 2013, the unamortized fair value of the PRSUs expected to be awarded was $1,690,000. This unamortized fair value is expected to be expensed over the period through December 31, 2016, as adjusted to reflect the actual number of PRSUs awarded.

2012 LTIP

The 2012 LTIP is similar to the 2013 LTIP, as both programs have four-year durations. However, the adjustment to the target number of units under the 2012 LTIP was based on a combination of the level of performance on the two metrics, and the 2012 LTIP has a one-year performance period and three-year service period subsequent to the performance period, whereas the 2013 LTIP has a two-year performance period and a two-year service period subsequent to the performance period. The one-year performance period for the 2012 LTIP was completed on December 31, 2012. Actual financial results in 2012 exceeded the targets, and the value of the Earned PRSUs will be amortized over the remaining service period through December 31, 2015. Expense for the 2012 LTIP in the years ended December 31, 2013 and 2012, net of amount invoiced to CML, was $931,000 and $537,000, respectively. Based on our estimates as of December 31, 2013, the unamortized fair value of the earned PRSUs subject to service-based vesting was $939,000. This unamortized fair value is expected to be expensed over the period through December 31, 2015, as adjusted to reflect the actual number of PRSUs settled.

The following is a summary of stock option activity during the years ended December 31, 2013, 2012 and 2011:


	December 31, 2013			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)*		December 31, 2012			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)*		December 31, 2011			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)*
Options outstanding, beginning of year		1,131,140		$	10.72				1,206,439		$	10.35				1,256,889		$	10.03
Granted		—			—				—			—				18,000			14.22
Exercised		(47,750	)		11.17				(54,024	)		2.09				(53,525	)		3.27
Canceled		(1,475	)		13.31				(4,300	)		13.26				(7,247	)		13.19
Expired		(7,425	)		13.31				(16,975	)		11.33				(7,678	)		13.22

Options outstanding, end of year		1,074,490		$	10.68	$	7,424		1,131,140		$	10.72	$	1,866		1,206,439		$	10.35	$	1,522

Weighted Average Remaining Contractual Term (Years)		3.73							4.74							5.58
Options exercisable at end of year		1,065,489		$	10.65	$	7,395		1,069,974		$	10.56	$	1,866		1,077,409		$	9.96	$	1,522

Options exercisable at end of year and expected to be exercisable**		1,074,489		$	10.68	$	7,424		1,125,023		$	10.71	$	1,866		1,193,536		$	10.32	$	1,522

*	The aggregate intrinsic value on this table was calculated based on the positive difference between the closing market price of the Company’s common stock on December 31, 2013, 2012 and 2011 ($17.43, $10.50 and $8.52, respectively) and the exercise price of the underlying options.

**	Options exercisable at December 31, 2013, 2012 and 2011 are expected to be exercisable include both vested options and non-vested options outstanding less our expected forfeiture rate.

Stock-Based Compensation for Nonemployees

On December 31, 2010, Chindex Medical Limited (“CML”) was formed (see Note 3 to the consolidated financial statements). In connection with the transaction, certain employees of the Company that transferred to CML retained their equity compensation previously issued by the Company. These employees continue to participate and vest in their nonvested equity compensation awards as they provide services to CML, which are accounted for on a mark-to-market basis. The cost of the equity compensation for nonemployees in 2013, 2012 and 2011 were $620,000, $147,000 and $311,000, respectively, which were charged to CML.

Stock Purchase Agreement– FosunPharma

On June 14, 2010, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Fosun Industrial Co., Limited (the “Investor”) and Shanghai Fosun Pharmaceutical (Group) Co., Ltd (“FosunPharma”). Pursuant to the Stock Purchase Agreement, the Company agreed to issue and sell to Investor a total of 1,990,447 shares (the “Shares”) of the Company’s common stock (representing approximately 10% of all outstanding common stock after such sale, based on the number of outstanding shares as of the date of the Stock Purchase Agreement) at a purchase price of $15 per share.

Pursuant to the Stock Purchase Agreement, the sale of the Shares would be completed in two closings. The initial closing occurred on August 27, 2010, at which the Company issued 933,022 Shares to Investor for an aggregate purchase price of $13,995,330 or $13,803,000 net of transaction costs. At the second closing (the “Second Closing”) under the Stock Purchase Agreement, the Company would sell the remaining 1,057,425 Shares to Investor for an aggregate purchase price of $15,861,375. The Second Closing has been subject to the consummation of CML, which was initially formed effective December 31, 2010 and recently fully consummated. CML engages in the businesses of, among other things, (i) the marketing, distribution and servicing of medical equipment in China and Hong Kong (except that sales and distribution related activities in relation to sales and servicing in China and Hong Kong may take place in other jurisdictions) and (ii) the manufacturing, marketing, sales and distribution of medical devices and medical equipment and consumables, including our former Medical Products division. CML is currently 70%-owned by FosunPharma and 30%-owned by the Company. The Stock Purchase Agreement further provides that in the event that CML were not consummated within a prescribed period, then the Stock Purchase Agreement may be terminated by either party solely with respect to the Second Closing, provided the absence of such consummation was not principally caused by the terminating party. Although the prescribed period elapsed prior to the consummation of CML, no party has terminated the Stock Purchase Agreement, which remains in full force and effect. Nonetheless, as a practical matter, as a result of such elapse, either party may elect such termination (subject to such proviso), and thus there may be no obligation to consummate the Second Closing.

At the initial closing under the Stock Purchase Agreement, the Company, Investor and FosunPharma also entered into a stockholder agreement (the “Stockholder Agreement”). Under the Stockholder Agreement, until the first to occur of (i) Investor holds 5% or less of the outstanding shares of common stock, (ii) there shall have been a change of control of the Company as defined in the Stockholder Agreement, and (iii) the seventh anniversary of the initial closing, Investor has agreed to vote its shares in accordance with the recommendation of the Company’s Board of Directors on any matters submitted to a vote of the stockholders of the Company relating to the election of directors and compensation matters and with respect to certain proxy or consent solicitations. The Stockholder Agreement also contains standstill restrictions on Investor generally prohibiting the purchase of additional securities of the Company. The standstill restrictions terminate on the same basis as does the voting agreement above, except that the 5% standard would increase to 10% upon the Second Closing. In addition, the Stockholder Agreement contains a lock-up restricting sales by Investor of its shares of the Company’s common stock for a period of five years following the date of the Stockholder Agreement, subject to certain exceptions.

Upon the Second Closing, Investor would have the right to, among other things, nominate two designees for election to the Company’s Board of Directors, which would be increased to nine members. Further, such final portion of the Shares to be purchased by FosunPharma would be subject to the terms of the Stockholder Agreement, which currently governs other shares of the Company’s common stock held by Fosun entities. In order to induce Investor to enter into the transaction and without any consideration therefore, each of the Company’s chief executive officer, secretary and chief financial officer holding such offices as of the date of the Stock Purchase Agreement, in their capacities as stockholders of the Company, agreed to certain limitations on his or her right to dispose of shares of the Company’s common stock and to vote for the Investor’s board nominees.

The Company evaluated whether this contingent Stock Purchase Agreement should be accounted for as a derivative instrument or whether it qualified for a scope exception under ASC 815-10. The Company concluded that the contract qualified for the scope exception because the contract was indexed to the Company’s own stock and was classified in stockholders’ equity.

Shares of Common Stock Reserved

As of December 31, 2013, the Company has reserved 3,487,305 shares of common stock for issuance upon exercise of stock options, unvested restricted stock and Class B common stock convertibility.

9. EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted Earnings per Share (EPS) computations for net loss income and other related disclosures:

(in thousands except share and per share data)


	Year ended December 31,
	2013			2012		2011
Basic net (loss) income per share computation:
Numerator:
Net (loss) income	$	(6,133	)	$	4,092	$	3,201
Denominator:
Weighted average shares outstanding- basic		16,805,718			16,374,054		16,141,063
Net (loss) income per common share—basic:	$	(.36	)	$	.25	$	.20

Diluted net (loss) income per share computation:
Numerator:
Net (loss) income	$	(6,133	)	$	4,092	$	3,201
Interest expense for convertible notes		—			247		247

Numerator for diluted (loss) earnings per share	$	(6,133	)	$	4,339	$	3,448

Denominator:
Weighted average shares outstanding- basic		16,805,718			16,374,054		16,141,063
Effect of dilutive securities:
Shares issuable upon exercise of dilutive outstanding stock options, conversion of convertible debentures, vesting of restricted stock and exercise of warrants, PRSUs:		—			1,353,942		1,272,267

Weighted average shares outstanding-diluted		16,805,718			17,727,996		17,413,330

Net (loss) income per common share - diluted:	$	(.36	)	$	.24	$	.20

The following shares are not included in the computation of diluted earnings per share because the assumed proceeds were greater than the average market price of the Company’s stock during the related periods and the effect of including such options in the computation would be antidilutive:


	Year ended December 31,
	2013		2012		2011
Number of shares considered antidulitive for calculating diluted net income per share:		1,897,726		1,098,621		139,911

During the first quarter of 2012, the Company granted performance-based restricted stock unit (“PRSU”) awards representing at target approximately 214,000 shares. The Company includes the shares underlying the PRSU awards in the calculation of diluted EPS when they become contingently issuable and excludes such shares when they are not contingently issuable. Based on the achievement of results in excess of targets, 286,760 PRSUs were earned on December 31, 2012 and were included in the calculation of diluted EPS on a prorated basis for the year ended December 31, 2013.

During the first quarter of 2013, the Company granted PRSU awards representing a target approximately 147,800 shares. The Company includes the shares underlying the PRSU awards in the calculation of diluted EPS when they become contingently issuable and excludes such shares when they are not contingently issuable. For the year ended December 31, 2013, the Company has excluded such shares when calculating the diluted EPS as the performance conditions underlying the awards have not yet been satisfied.

10. INCOME TAXES

We recorded a $6,505,000 provision for taxes for the year ended December 31, 2013 compared to a provision for taxes of $6,799,000 for the year ended December 31, 2012 and $3,688,000 for the year ended

December 31, 2011. The effective tax rate was calculated in accordance with ASC 740-270. Our tax expense includes the effect of losses in entities for which we cannot recognize a benefit in accordance with the provisions of ASC 270 and ASC 740-270 and the effect of valuation allowance for deferred tax assets.

The Company’s effective tax rate is higher for the year ended December 31, 2013 than for the years ended December 31, 2012 and 2011. The table below provides detail into our consolidated pretax income (loss) and provision for income tax by separating this information into three categories: operating entities, start-up entities and corporate entities. Our operating entities consist of our established hospitals and clinics in China, and which therefore record tax expense at the China statutory rate of approximately 25%. Our start up entities for the years ended December 31, 2013, 2012 and 2011 in the table below consist of our hospital in Tianjin and the Rehabilitation Hospital in Beijing, and no tax benefit has been recorded for the effect of the start-up losses for those entities. Our parent company and subsidiary holding companies, referred to as the corporate entities in the table below, have incurred losses for which no tax benefits were recorded.

(in thousands)


	Year ended December 31, 2013
	Income (loss) Before Income Taxes			Provision for Income Taxes		Effective Tax Rate
Operating Entities	$	22,142		$	6,411		29	%
Start-Up Entities		(13,371	)		—		0	%
Corporate Entities		(8,399	)		94		-1	%

Total	$	372		$	6,505		1749	%


	Year ended December 31, 2012
	Income (loss) Before Income Taxes			Provision for Income Taxes			Effective Tax Rate
Operating Entities	$	22,381		$	6,852			31	%
Start-Up Entities		(9,111	)		—			0	%
Corporate Entities		(2,379	)		(53	)		2	%

Total	$	10,891		$	6,799			62	%


	Year ended December 31, 2011
	Income (loss) Before Income Taxes			Provision for Income Taxes		Effective Tax Rate
Operating Entities	$	12,065		$	3,564		30	%
Start-Up Entities		(1,370	)		—		0	%
Corporate Entities		(3,806	)		124		-3	%

Total	$	6,889		$	3,688		54	%

We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2013, 2012 and 2011, we had no accrued interest or penalties related to uncertain tax positions.

U.S. and international components of income before income taxes were composed of the following for the years ended December 31, 2013, 2012 and 2011 (in thousands):


	December 31, 2013			December 31, 2012			December 31, 2011
U.S.	$	(7,198	)	$	(3,293	)	$	(5,738	)
Foreign		7,570			14,184			12,627

Total	$	372		$	10,891		$	6,889

For the years ended December 31, 2013, 2012 and 2011, the provision for income taxes consists of the following (in thousands):


	December 31, 2013			December 31, 2012			December 31, 2011
Current:
Federal	$	—		$	—		$	—
State		—			—			—
Foreign		(7,832	)		(6,637	)		(4,627	)

		(7,832	)		(6,637	)		(4,627	)

Deferred:
Federal		—			—			—
State		—			—			—
Foreign		1,327			(162	)		939

		1,327			(162	)		939

Total provision	$	(6,505	)	$	(6,799	)	$	(3,688	)

For the years ended December 31, 2013, 2012 and 2011, the provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to the Company’s income from operations before income taxes as follows:


	December 31, 2013			December 31, 2012			December 31, 2011
Income tax expense at federal statutory rate		34.0	%		34.0	%		34.0	%
State taxes (net of federal benefit)		(105	)%		(1.3	)%		(4.5	)%
Foreign rate differential		(286	)%		(14.3	)%		(17.8	)%
Change in valuation allowance (excluding assets transferred)		1,168	%		26.3	%		34.3	%
Equity in net income of unconsolidated affiliate		105.0	%		(3.2	)%		(5.5	)%
Non-deductible investor fees		0.0	%		11.1	%		7.2	%
Stock-based compensation		209.0	%		5.0	%		4.2	%
APB 23 Inclusion - Alma (subsidiary of CML)		68.0	%		0.0	%		0.0	%
Transaction Costs		266.0	%		0.0	%		0.0	%
Other permanent differences		293.0	%		4.8	%		1.6	%

		1,752	%		62.4	%		53.5	%

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows as of December 31, 2013 and 2012 (in thousands):


	December 31, 2013			December 31, 2012
Deferred tax assets, net:
Allowance for doubtful accounts	$	3,560		$	2,630
Accrued expenses		2,017			1,132
Net operating loss carryforwards		9,929			7,228
Alternative minimum tax		107			107
Start-up costs		2,012			1,129
Stock based compensation		1,796			1,763
Deferred rent		134			37

		19,555			14,026
Valuation allowance		(13,617	)		(9,120	)

Deferred tax assets, net of valuation allowance		5,938			4,906
Deferred tax liabilities:
Foreign income not indefinately reinvested		(252	)		—
Convertible debt beneficial conversion feature		—			(486	)
Subpart F Income Inclusion Limitation		—			(284	)
Depreciation		(266	)		(189	)
Other		(77	)		(75	)

Total deferred tax liabilities		(595	)		(1,034	)

Total net deferred taxes	$	5,343		$	3,872

The Company has U.S. federal net operating losses of approximately $13.0 million (including the windfall benefit from stock option exercise) which will expire between 2025 and 2033. The Company also has foreign losses from China of which approximately $22.6 million will expire between 2014 and 2018.

The exercise of stock options and certain stock grants generated an income tax deduction equal to the excess of the fair market value over the exercise price. In accordance with ASC 718, the Company will not recognize a deferred tax asset with respect to the excess stock compensation deductions until those deductions actually reduce our income tax liability. As such, the Company has not recorded a deferred tax asset related to the net operating losses resulting from the exercise of these stock options in the accompanying financial statements. At such time as the Company utilizes these net operating losses to reduce income tax payable, the tax benefit will be recorded as an increase in additional paid in capital. As of December 31, 2013, the cumulative amount of the unrecognized tax benefit related to such option exercises and certain stock grants was $2,984,000.

Management assessed the realization of its deferred tax assets throughout each of the quarters for the year ended December 31, 2013. Management records a valuation allowance when it determines based on available positive and negative evidence, that it is more likely than not that some portion or all of its deferred tax assets will not be realized.

The valuation allowance as of December 31, 2013 and 2012 was $13.6 million and $9.1 million, respectively.

The Company intends to indefinitely reinvest the undistributed earnings of its controlled foreign subsidiaries. There are certain foreign subsidiaries under the CML JV where distributions would cause the Company to recognize U.S. tax even if such distributions are not repatriated to the U.S. Since the Company does not control the decision on distributions from these entities, we cannot assert that there would be indefinite reinvestment of earnings. Accordingly, the annualized effective tax rate applied to the Company’s pre-tax income for the year ended December 31, 2013 did not include any provision for U.S. federal and state taxes on the projected amount of these undistributed 2013 foreign earnings except for the aforementioned non-controlled subsidiaries. The total amount of undistributed earnings as of December 31, 2013 for which no U.S. tax has been provided was approximately $75.3 million.

The Company’s tax expense reflects the impact of varying tax rates in the different jurisdictions in which it operates. It also includes changes to the valuation allowance as a result of management’s judgments and estimates concerning projections of domestic and foreign profitability and the extent of the utilization of net operating loss carry forwards. As a result, we have experienced significant fluctuations in our world-wide effective tax rate. Changes in the estimated level of annual pre-tax income, changes in tax laws particularly related to the utilization of net operating losses in various jurisdictions, and changes resulting from tax audits can all affect the overall effective income tax rate which, in turn, impacts the overall level of income tax expense and net income.

The Company and its subsidiaries file income tax returns for U.S. federal jurisdiction and various states and foreign jurisdictions. For income tax returns filed by the Company, the Company is no longer subject to U.S. federal, state and local tax examinations by tax authorities for years before 2010, although carryforward tax attributes that were generated prior to 2010 may still be adjusted upon examination by tax authorities if they either have been or will be utilized. For the foreign jurisdictions, the Company is no longer subject to local examinations by the tax authorities for years prior to 2009.

As of December 31, 2013 and 2012, the Company had no unrecognized tax benefits, nor did it have any that would have an effect on the effective tax rate. The Company’s policy is that it would recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to uncertain tax positions.

11. COMMITMENTS

Leases

The Company leases office space and space for hospital and clinic operations under operating leases. Future minimum payments under these noncancelable operating leases consist of the following: (in thousands):


Year ending December 31:
2014	$	9,789
2015		9,143
2016		7,668
2017		7,190
2018		6,856
Thereafter		61,137

Net minimum rental commitments	$	101,783

The above leases require the Company to pay certain pass through operating expenses and rental increases based on inflation.

Rental expense was approximately $10,138,000, $7,937,000 and $6,199,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Contingencies

The Company is involved in various claims arising from services provided to patients in the ordinary course of business. Management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company’s financial position or results of operations.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, which defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of these instruments.

The fair value of debt under ASC 820 is not the settlement amount of the debt, but is based on an estimate of what an entity might pay to transfer the obligation to another entity with a similar credit standing. Observable inputs for the Company’s debt such as quoted prices in active markets are not available, as the Company’s long-term debt is not publicly-traded. Accordingly, the Company has estimated the fair value amounts using available market information and commonly accepted valuation methodologies. However, it requires considerable judgment in interpreting market data to develop estimates of fair value. Accordingly, the fair value estimate presented is not necessarily indicative of the amount that the Company or holders of the debt instruments could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

The fair value of the Company’s long-term debt was based on an estimate of the present value of the debt payments. As of December 31, 2013, the carrying value of the Company’s debt outstanding for the IFC 2005 RMB Loan, IFC 2013 loan, DEG 2013 loan and Exim loan was $30.4 million, and the estimated fair value was $30.4 million. The carrying amounts of the remaining debt instruments approximate fair value, as the instruments are subject to variable rates of interest or have short maturities.

13. CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivables. Substantially all of the Company’s cash and cash equivalents at December 31, 2013 and December 31, 2012 were held by two U.S. financial institution, one Hong Kong financial institution and six Chinese financial institutions.

The medical services and products provided by United Family Hospitals and Clinics and the marketing of such services are performed exclusively for/to patients in China. The Company’s results of operations and its ability to obtain financing could be adversely affected if there was a deterioration in trade relations between the United States and China.

The Company’s assets, consisting principally of cash and cash equivalents, accounts receivable, inventories, investment in unconsolidated affiliate, property and equipment and other assets, are primarily located in China. As of December 31, 2013, the Company’s assets in China were approximately $234,050,000, and $211,237,000 as of December 31, 2013 and 2012, which includes the equity investment in CML.

14. ACCOUNTING FOR VARIABLE INTEREST ENTITIES (VIE)

ASC 810 requires a variable interest entity (VIE) to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.

As of December 31, 2013, the Company’s clinics in Beijing, Shanghai and Guangzhou were consolidated VIEs. These entities were founded for the express purpose of projecting United Family Healthcare general patient services closer to a large patient population for the convenience of the patients.

15. SELECTED QUARTERLY DATA (UNAUDITED)

(in thousands except per share data)


For the year ended December 31, 2013:	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Revenue	$	41,565		$	45,977		$	43,058		$	48,788
Income (loss) before income taxes		1,824			1,566			(2,790	)		(228	)
Net loss		(62	)		(122	)		(3,825	)		(2,124	)
Net loss per common share - basic		(.00	)		(.01	)		(.23	)		(.12	)
Net loss per common share - diluted		(.00	)		(.01	)		(.23	)		(.12	)

For the year ended December 31, 2012:	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Revenue	$	32,512		$	39,117		$	37,299		$	43,514
Income before income taxes		728			3,534			814			5,815
Net (loss) income		(531	)		1,810			(664	)		3,477
Net (loss) income per common share - basic		(.03	)		.11			(.04	)		.21
Net (loss) income per common share - diluted		(.03	)		.11			(.04	)		.20

16. SUBSEQUENT EVENTS

Merger Agreement

Under the terms of the Merger Agreement, which has been unanimously approved by the Board upon the recommendation of the Transaction Committee, at the effective time of the Merger each outstanding share of the Company’s common stock, other than shares owned by Merger Parent, Merger Sub and other affiliates of Merger Parent, including TPG, shares contributed to Merger Parent by rollover stockholders, including Fosun, Ms. Lipson (the Company’s chief executive officer) and her affiliated trusts and any additional rollover stockholders, shares held in the Company’s treasury; and shares owned by any stockholders who properly exercise appraisal rights under Delaware law, will be cancelled and converted into the right to receive the Merger Consideration. Each option to purchase the Company’s common stock that is outstanding as of the effective time of the Merger (other than certain options that will be converted into options to acquire Merger Parent equity) will be cancelled in exchange for the right to receive the excess of $19.50 over the exercise price of such option, less applicable taxes required to be withheld. Restricted stock and restricted stock units that are not vested immediately prior to the effective time shall be fully vested and free of any forfeiture restrictions immediately prior to the effective time, whereupon the shares represented thereby (net of any shares withheld to cover applicable withholding and excise taxes) shall be converted into the right to receive in cash the Merger Consideration per share. The Merger Consideration represents an implied premium of approximately 14% over the current market price per share, 17% over the volume weighted average trading price per share for the last 30 days, and 86% over the closing price per share since the formation of the Transaction Committee on December 26, 2012. The transaction will result in the Company becoming a private company.

Under the terms of the Merger Agreement, the Company and its advisors are permitted to actively solicit and consider alternative acquisition proposals from third parties for the period commencing February 17, 2014 through the Solicitation Period End Time. The Company’s management and Fosun, as current stockholders of the Company, are permitted to initiate, solicit and encourage, whether publicly or otherwise, alternative acquisition proposals, and enter into and maintain or continue substantive discussions or negotiations with respect to any such alternative acquisition proposals or otherwise cooperate with or assist or participate in, or encourage, any inquiries, proposals, substantive discussions or negotiations regarding any such alternative acquisition proposals. Beginning on the Solicitation Period End Time, the Company will become subject to customary “no shop” restrictions on its, its subsidiaries’ and their respective representatives’ ability to initiate, solicit or encourage alternative acquisition proposals from third parties and to provide information to or participate in discussions or negotiations with third parties regarding alternative acquisition proposals. However, for the period commencing from the Solicitation Period End Time through the Cut Off Date, the Company may continue to engage in the foregoing activities with any third party that has made an alternative acquisition proposal prior to the Solicitation Period End Time that the Transaction Committee has determined in good faith, after consultation with outside counsel and its financial advisors, constitutes or is reasonably likely to lead to a superior acquisition proposal, but only for so long as such third party is an Excluded Person. The Company does not anticipate disclosing developments with respect to this process unless and until the Transaction Committee and the Board make a decision regarding a potential superior acquisition proposal or the expiration of that period. There can be no assurances that this process will result in a superior acquisition proposal. In addition, Merger Parent may, subject to the terms of the Merger Agreement, respond to such proposals.

The terms of the Merger Agreement did not impact the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2013.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and

Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. A control deficiency exists when the design or operation of a control does not allow management or employees, in the ordinary course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP, such that there is a more than remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our CEO and CFO have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control of Financial Reporting During the Quarter

Our management, including our principal executive and principal financial officers have evaluated any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2013, and has concluded that there was no change that occurred during the quarter ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Management, including the CEO and CFO, has the responsibility for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act, Rule 13a-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions and influenced by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate or insufficient because of changes in operating conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed internal control over financial reporting of the Company and subsidiaries as of December 31, 2013. The Company’s management conducted its assessment in accordance with the Internal Control—1992 Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Chief Executive Officer and the Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2013.

BDO USA, LLP, the independent registered public accounting firm who also audited the Company’s consolidated financial statements, has issued its own attestation report on the effectiveness of internal controls over our financial reporting as of December 31, 2013, which is filed herewith.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required is set forth in the Proxy Statement with respect to our 2013 annual meeting of shareholders (the “Proxy Statement”), which is incorporated herein by reference.

ITEM 11.

EXECUTIVE COMPENSATION

Information required is set forth in the Proxy Statement, which is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required is set forth in the Proxy Statement, which is incorporated herein by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required is set forth in the Proxy Statement, which is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required is set forth in the Proxy Statement, which is incorporated herein by reference.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) The following consolidated financial statements of Chindex International, Inc. are included in Part II, Item 8:

Reports of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2013 and 2012.

Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011.

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2013, 2012 and 2011.

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2012 and 2011.

Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011.

Notes to Consolidated Financial Statements.

(a)(2) The following financial statement schedule of Chindex International is included in Item 15(d):

Schedule II Valuation and Qualifying Accounts.


Description (amounts in thousands)	Balance beginning of year		Additions expensed		Additions not expensed		Deductions		Balance end of year
For the year ended December 31, 2013:
Allowance for doubtful receivables	$	10,612		4,211		382		867	$	14,338
Deferred income tax valuation allowance	$	9,120		—		4,672		175	$	13,617
For the year ended December 31, 2012:
Allowance for doubtful receivables	$	8,300		3,179		30		897	$	10,612
Deferred income tax valuation allowance	$	6,242		—		2,921		43	$	9,120
For the year ended December 31, 2011:
Allowance for doubtful receivables	$	6,748		2,131		368		947	$	8,300
Deferred income tax valuation allowance	$	2,340		2,311		1,591		—	$	6,242

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

(b)

Exhibits

The exhibits listed below are filed as a part of this Annual Report:



2.1		Agreement and Plan of Merger, dated as of February 17, 2014, by and among Chindex International, Inc., Healthy Harmony Holdings, L.P. and Healthy Harmony Acquisition, Inc. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed February 18, 2014 (the “February 18, 2014 Form 8-K”).

3.1		Amended and Restated Certificate of Incorporation of the Company dated October 28, 2004. Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005.

3.2		Amendment to Certificate of Incorporation dated July 9, 2007. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 10, 2007.

3.3		Amended and Restated Bylaws of the Company dated as of December 19, 2012. Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed December 26, 2012.

3.4		Amendment to the Amended and Restated Bylaws of the Company dated as of February 17, 2014. Incorporated by reference to Exhibit 3.1 to the February 18, 2014 Form 8-K.

3.5		Certificate of Designations of Series A Junior Participating Preferred Stock of the Company. Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

4.1		Form of Specimen Certificate representing the Common Stock of the Company. Incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form SB-2 (No. 33-78446) (The “IPO Registration Statement”).

4.2		Form of Specimen Certificate representing the Class B Common Stock of the Company. Incorporated by reference to Exhibit 4.3 to the IPO Registration Statement.

4.3		Rights Agreement, dated as of June 7, 2007, between the Company and American Stock Transfer & Trust Company, as Rights Agent, which includes a form of Right Certificate as Exhibit B and a Summary of Rights to Purchase Preferred Stock as Exhibit C. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 7, 2007.

4.4		Amendment No. 1 to Rights Agreement, dated as of November 4, 2007, between the Company and American Stock Transfer & Trust Company, as Rights Agent. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November 7, 2007.

4.5		Amendment No. 2 to Rights Agreement, dated as of June 8, 2010, between the Company and American Stock Transfer & Trust Company, as Rights Agent. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 14, 2010 (the “June 14, 2010 Form 8-K”).

4.6		Amendment No. 3 to Rights Agreement, dated as of February 17, 2014, between the Company and American Stock Transfer & Trust Company, as Rights Agent. Incorporated by reference to Exhibit 4.1 to the February 18, 2014 Form 8-K.

10.1*		The Company’s 1994 Stock Option Plan, as amended as of July 17, 2001. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2001.

10.2*		The Company’s 2004 Stock Incentive Plan. Incorporated by reference to Annex B to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September 14, 2004.



10.3*		The Company’s 2007 Stock Incentive Plan, as amended and restated as of May 31, 2012. Incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 30, 2012.

10.4*		The Company’s Executive Management Incentive Plan (“EMIP”) for the fiscal year ended December 31, 2013 (filed herewith).

10.5*		Form of Outside Director Restricted Stock Grant Letter. Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed September 17, 2007 (the “September 17, 2007 Form 8-K”).

10.6*		Form of Employee Restricted Stock Grant Letter. Incorporated by reference to Exhibit 99.3 to the September 17, 2007 Form 8-K.

10.7*		Form of Employee Stock Option Grant Letter. Incorporated by reference to Exhibit 99.4 to the September 17, 2007 Form 8-K.

10.8*		Form of Stock Option Grant Letter for EMIP awards. Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

10.9*		Form of Employee Restricted Stock Grant Letter. Incorporated by reference to Exhibit 10.9 to the December 31, 2010 Form 10-K.

10.10*		Form of Executive Stock Option Grant Letter. Incorporated by reference to Exhibit 10.10 to the December 31, 2010 Form 10-K.

10.11*		Form of Executive Officer Performance-based Restricted Stock Unit (PRSU) Grant Letter. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 14, 2012.

10.12		Contractual Joint Venture Contract dated September 27, 1995 between Beijing Union Medical & Pharmaceutical General Corporation and the Company. Incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995.

10.13*		Amended and Restated Employment Agreement, dated as of December 15, 2008, between the Company and Roberta Lipson. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2008.

10.14*		Amendment, dated as of June 28, 2013, to Amended and Restated Employment Agreement, dated as of December 15, 2008, between the Company and Roberta Lipson. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2013 (the “June 30, 2013 Form 10-Q”).

10.15*		Amended and Restated Employment Agreement, dated as of December 15, 2008, between the Company and Elyse Beth Silverberg. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2008.

10.16*		Amendment, dated as of December 31, 2010, to Amended and Restated Employment Agreement, dated as of December 15, 2008, between the Company and Elyse Beth Silverberg. Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed January 6, 2011 (the “January 6, 2011 Form 8-K”).

10.17*		Amendment, dated as of June 28, 2013, to Amended and Restated Employment Agreement, dated as of December 15, 2008, between the Company and Elyse Beth Silverberg. Incorporated by reference to Exhibit 10.2 to the June 30, 2013 Form 10-Q.

10.18*		Amended and Restated Employment Agreement, dated as of December 22, 2008, between the Company and Lawrence Pemble. Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2008.

10.19*		Amendment, dated as of December 31, 2010, to Amended and Restated Employment Agreement, dated as of December 22, 2008, between the Company and Lawrence Pemble. Incorporated by reference to Exhibit 10.7 to the January 6, 2011 Form 8-K.

10.20*		Amendment, dated as of January 1, 2012, to Amended and Restated Employment Agreement, dated as of December 22, 2008, between the Company and Lawrence Pemble. Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “December 31, 2011 Form 10-K”).

10.21*		Amendment, dated as of June 28, 2013, to Amended and Restated Employment Agreement, dated as of December 22, 2008, between the Company and Lawrence Pemble. Incorporated by reference to Exhibit 10.3 to the June 30, 2013 Form 10-Q.

10.22*		Amended and Restated Employment Agreement, dated as of January 1, 2012, between the Company and Robert Low. Incorporated by reference to Exhibit 10.23 to the December 31, 2011 Form 10-K.

10.23*		Amendment, dated as of September 3, 2013, to Amended and Restated Employment Agreement, dated as of January 1, 2012, between the Company and Robert Low. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2013.

10.24		Securities Purchase Agreement dated November 7, 2007 between the Company and Magenta Magic Limited. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 7, 2007.

10.25		Amendment and Restatement Agreement to RMB Loan Agreement, dated as of November 30, 2011, among Beijing United Family Health Center, Shanghai United Family Hospital, Inc. and International Finance Corporation. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2012.



10.26		Guarantee Agreement dated October 11, 2005 between the Company and International Finance Corporation. Incorporated by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q for the six months ended September 30, 2005.

10.27		Loan Agreement dated December 10, 2007 between the Company and International Finance Corporation. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed December 13, 2007 (the “December 13, 2007 Form 8-K”).

10.28		Amendment to Loan Agreement, dated as of January 3, 2008, between Chindex China Healthcare Finance, LLC and International Finance Corporation. Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed January 14, 2008 (the “January 14, 2008 Form 8-K”).

10.29		Securities Purchase Agreement dated December 10, 2007 between the Company and International Finance Corporation. Incorporated by reference to Exhibit 10.1 to the December 13, 2007 Form 8-K.

10.30		Loan Agreement, dated as of January 8, 2008, between Chindex China Healthcare Finance, LLC and DEG-Deutsche Investitions-Und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 4.1 to the January 14, 2008 Form 8-K.

10.31		Amendment to Loan Agreement, dated as of May 27, 2009, between Chindex China Healthcare Finance, LLC and DEG-Deutsche Investitions-Und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

10.32		SPV Guarantee Agreement, dated as of January 8, 2008, between Chindex China Healthcare Finance, LLC and DEG-Deutsche Investitions und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 4.2 to the January 14, 2008 Form 8-K.

10.33		Contractual Joint Venture Contract dated February 9, 2002 between Shanghai Changning District Central Hospital and the Company. Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

10.34		Lease Agreement between Shanghai Changning District Hospital and the Company related to the lease of the building for Shanghai United Family Hospital. Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

10.35		Form of Common Stock Purchase Warrant issued to investors on March 24, 2005. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 22, 2005.

10.36		Amendatory Letter No.1 dated February 5, 2009 to Loan Agreement dated December 10, 2007 between the Company and International Finance Corporation. Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

10.37		Stock Purchase Agreement dated June 14, 2010 among the Company, Fosun Industrial Co., Limited and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. Incorporated by reference to Exhibit 10.1 to June 14, 2010 Form 8-K.

10.38		Stockholder Agreement dated June 14, 2010 among the Company, Fosun Industrial Co., Limited and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. Incorporated by reference to Exhibit 10.2 to the June 14, 2010 Form 8-K.

10.39		Formation Agreement dated December 28, 2010 among Fosun Industrial Co., Limited, Ample Up Limited, Shanghai Fosun Pharmaceutical (Group) Co., Ltd., the Company, Chindex Medical Holdings (BVI) Limited and Chindex Medical Limited. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 28, 2010 (the “December 28, 2010 Form 8-K”).

10.40		Share Transfer Agreement dated December 27, 2010 between Shanghai Fosun Pharmaceutical (Group) Co., Ltd. and Chindex Export Limited. Incorporated by reference to Exhibit 10.2 to the December 28, 2010 Form 8-K.

10.41		Entrusted Management Agreement dated December 31, 2010 among Shanghai Technology Innovation Co., Ltd., Shanghai Fosun Pharmaceutical (Group) Co., Ltd. and Chindex Export Limited. Incorporated by reference to Exhibit 10.1 to the January 6, 2011 Form 8-K.

10.42		Shareholder’s Voting Proxy Agreement dated December 31, 2010 among Shanghai Technology Innovation Co., Ltd., Shanghai Fosun Pharmaceutical (Group) Co., Ltd. and Chindex Export Limited. Incorporated by reference to Exhibit 10.2 to the January 6, 2011 Form 8-K.

10.43		Joint Venture Governance and Shareholders Agreement dated December 31, 2010 among Chindex Medical Holdings (BVI) Limited, Ample Up Limited, Chindex Medical Limited and certain subsidiaries of Chindex Medical Limited and Fosun Pharmaceutical (Group) Co., Ltd. Incorporated by reference to Exhibit 10.3 to the January 6, 2011 Form 8-K.

10.44		Trademark License Agreement dated December 31, 2010 between the Company and Chindex Medical Limited. Incorporated by reference to Exhibit 10.4 to the January 6, 2011Form 8-K.

10.45		Services Agreement dated December 31, 2010 between the Company and Chindex Export Medical Products, LLC. Incorporated by reference to Exhibit 10.5 to the January 6, 2011Form 8-K.

10.46		Chindex Medical Limited consolidated financial statements for the year ended December 31, 2013 (filed herewith).

10.47		Certificate of Deposit Retention and Pledge Agreement, dated March 14, 2012, between Beijing United Family Health Center, China Merchants Bank Co., Ltd., Beijing Chaoyangmen Sub-branch and International Finance Corporation. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2012.

10.48		Form of Indemnification Agreement between the Company and the Company’s directors and officers. Incorporated by reference to Exhibit 10.4 to the June 30, 2013 Form 10-Q.

10.49		Loan Agreement, dated as of March 7, 2013, between Beijing United Family Hospital Co., Ltd and International Finance Corporation. Incorporated by reference to Exhibit 10.5 to the June 30, 2013 Form 10-Q.



10.50		Guarantee Agreement, dated as of March 7, 2013, between Chindex International, Inc. and International Finance Corporation. Incorporated by reference to Exhibit 10.6 to the June 30, 2013 Form 10-Q.

10.51		Loan Agreement, dated as of March 7, 2013, between Beijing United Family Hospital Co., Ltd and DEG-Deutsche Investitions und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 10.7 to the June 30, 2013 Form 10-Q.

10.52		Guarantee Agreement, dated as of March 7, 2013, between Chindex International, Inc. and DEG-Deutsche Investitions und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 10.8 to the June 30, 2013 Form 10-Q.

10.53		Support Agreement, dated as of February 17, 2014, by and among Healthy Harmony Holdings, L.P., TPG Asia VI, L.P. and the Chindex International, Inc. stockholders named therein. Incorporated by reference to Exhibit 10.1 of the February 18, 2014 Form 8-K.

21.1		List of subsidiaries (filed herewith)

23.1		Consent of BDO USA, LLP (filed herewith)

23.2		Consent of Ernst & Young Hua Ming LLP (filed herewith)

31.1		Certification of the Company’s Chief Executive Officer Pursuant to Rule 13a-14(a) (filed herewith)

31.2		Certification of the Company’s Chief Financial Officer Pursuant to Rule 13a-14(a) (filed herewith)

31.3		Certification of the Company’s Principal Accounting Officer Pursuant to Rule 13a-14(a) (filed herewith)

32.1		Certification of the Company’s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 (furnished herewith)

32.2		Certification of the Company’s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (furnished herewith)

32.3		Certification of the Company’s Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 (furnished herewith)

101.INS		XBRL Instance Document (filed herewith)

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document (filed herewith)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)

*	Management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


	CHINDEX INTERNATIONAL, INC.

Dated: March 17, 2014		By:	/S/ Roberta Lipson Roberta Lipson Chief Executive Officer (principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Dated: March 17, 2014		By:	/S/ Kenneth A. Nilsson Kenneth A. Nilsson Chairman of the Board

Dated: March 17, 2014		By:	/S/ Roberta Lipson Roberta Lipson Chief Executive Officer and Director (principal executive officer)

Dated: March 17, 2014		By:	/S/ Lawrence Pemble Lawrence Pemble Chief Operating Officer and Director

Dated: March 17, 2014		By:	/S/ Elyse Beth Silverberg Elyse Beth Silverberg Executive Vice President, Secretary and Director



Dated: March 17, 2014	By:	/S/ Robert C. Low Robert C. Low Senior Vice President of Finance, Chief Financial Officer, and Corporate Controller (principal financial and accounting officer)

Dated: March 17, 2014	By:	/S/ Holli Harris Holli Harris Director

Dated: March 17, 2014	By:	/S/ Carol R. Kaufman Carol R. Kaufman Director

Dated: March 17, 2014	By:	/S/ Julius Y. Oestreicher Julius Y. Oestreicher Director