##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 
  o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934
 or
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2009
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 or
 o
    
    Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Date of event requiring this shell company report
 Commission file number 001-34563
 
 Concord Medical Services Holdings Limited
  
 (Jurisdiction of Incorporation or Organization)
 (Address of Principal Executive Offices)
 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredAmerican Depositary Shares, each
representing three ordinary
shares, par value US$0.0001 per share
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
 None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 None
 
  147,455,500 Ordinary Shares
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
 Yes o No þ
  Yes þ No o
 Yes o
No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued by the
International Accounting Standards Board o
    
    Other o
  o o
 o þ
  o o




---



##### 



TABLE OF CONTENTS
 PagePART I
    
    
    1ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    1ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1ITEM 3. KEY INFORMATION
    
    
    1ITEM 4. INFORMATION ON THE COMPANY
    
    
    31ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    55ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    82ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    92ITEM 8. FINANCIAL INFORMATION
    
    
    93ITEM 9. THE OFFER AND LISTING
    
    
    94ITEM 10. ADDITIONAL INFORMATION
    
    
    95ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    102ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    103PART II
    
    
    105ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    105ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    105ITEM 15. CONTROLS AND PROCEDURES
    
    
    105PART III
    
    
    108ITEM 17. FINANCIAL STATEMENTS
    
    
    108ITEM 18. FINANCIAL STATEMENTS
    
    
    108ITEM 19. EXHIBITS
    
    
    109EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2
  i




---



##### Table of Contents



CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F
  
    
    ADRs are to the American depositary receipts, which, if issued, evidence our ADSs;
    
    ADSs are to our American depositary shares, each of which represents three
ordinary shares;
    
    China and the PRC are to the Peoples Republic of China, excluding, for the
purposes of this annual report only, Taiwan and the special administrative regions of
Hong Kong and Macau;
    
    Concord Medical, we, us, our company and our are to Concord Medical
Services Holdings Limited, its predecessor entities and its consolidated subsidiaries;
    
    ordinary shares are to our ordinary shares, par value US$0.0001 per share;
    
    PRC subsidiaries are to our subsidiaries incorporated in the Peoples Republic of
China, including Aohua Medical, Aohua Leasing, Shanghai Medstar, CMS Hospital
Management Co., Ltd., or CMS Hospital Management, and Xing Heng Feng Medical;
    
    RMB and Renminbi are to the legal currency of China;
    
    US$ and U.S. dollars are to the legal currency of the United States; and
    
    £ is to the legal currency of the United Kingdom of Great Britain and Northern
Ireland.
   
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial Data
  1




---



##### Table of Contents



Predecessor
    
    
    Concord Medical (Successor)Period from
    
    
    Period fromJanuary 1,
    
    
    SeptemberYear Ended
    
    
    2007 to
    
    
    10, 2007 to
    
    
    Year Ended December 31,December
    
    
    October 30,
    
    
    December31, 2006
    
    
    2007
    
    
    31, 2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Selected Consolidated Statements of
Operations DataRevenues, net of business tax, value-added
tax and related surcharges:Lease and management services
    
    
    61,440
    
    
    
    63,082
    
    
    
    13,001
    
    
    
    155,061
    
    
    
    260,162
    
    
    
    38,114Management services
    
    
    876
    
    
    
    4,340
    
    
    
    982
    
    
    
    12,677
    
    
    
    28,739
    
    
    
    4,210Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,051
    
    
    
    3,535
    
    
    
    518Total net revenues
    
    
    62,316
    
    
    
    67,422
    
    
    
    13,983
    
    
    
    171,789
    
    
    
    292,436
    
    
    
    42,842Cost of revenues:Lease and management services
    
    
    (22,388
    )
    
    
    (20,396
    )
    
    
    (1,908
    )
    
    
    (25,046
    )
    
    
    (60,937
    )
    
    
    (8,928
    )Amortization of acquired intangibles
    
    
    
    
    
    
    
    
    
    
    (2,002
    )
    
    
    (20,497
    )
    
    
    (26,493
    )
    
    
    (3,881
    )Management services
    
    
    (24
    )
    
    
    (20
    )
    
    
    (4
    )
    
    
    (54
    )
    
    
    (131
    )
    
    
    (19
    )Total cost of revenues
    
    
    (22,412
    )
    
    
    (20,416
    )
    
    
    (3,914
    )
    
    
    (45,597
    )
    
    
    (87,561
    )
    
    
    (12,828
    )Gross profit
    
    
    39,904
    
    
    
    47,006
    
    
    
    10,069
    
    
    
    126,192
    
    
    
    204,875
    
    
    
    30,014Operating expenses:Selling expenses
    
    
    (1,267
    )
    
    
    (1,601
    )
    
    
    (757
    )
    
    
    (5,497
    )
    
    
    (7,675
    )
    
    
    (1,124
    )General and administrative expenses(1)
    
    
    (15,600
    )
    
    
    (8,467
    )
    
    
    (57,171
    )
    
    
    (18,869
    )
    
    
    (29,821
    )
    
    
    (4,369
    )Operating income (loss)
    
    
    23,037
    
    
    
    36,938
    
    
    
    (47,859
    )
    
    
    101,826
    
    
    
    167,379
    
    
    
    24,521Interest expense
    
    
    (1,710
    )
    
    
    (954
    )
    
    
    (279
    )
    
    
    (7,455
    )
    
    
    (6,891
    )
    
    
    (1,010
    )Change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    (341
    )
    
    
    (464
    )
    
    
    
    
    
    
    Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (325
    )
    
    
    (213
    )
    
    
    (31
    )(Loss) gain from disposal of equipment
    
    
    (469
    )
    
    
    (1,555
    )
    
    
    (25
    )
    
    
    658
    
    
    
    
    
    
    
    Interest income
    
    
    68
    
    
    
    15
    
    
    
    
    
    
    
    430
    
    
    
    948
    
    
    
    139Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,734
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    20,926
    
    
    
    34,444
    
    
    
    (48,508
    )
    
    
    102,404
    
    
    
    161,223
    
    
    
    23,619Income tax (expenses) benefit
    
    
    (4,097
    )
    
    
    (15,014
    )
    
    
    182
    
    
    
    (23,335
    )
    
    
    (36,396
    )
    
    
    (5,332
    )Net income (loss)
    
    
    16,829
    
    
    
    19,430
    
    
    
    (48,326
    )
    
    
    79,069
    
    
    
    124,827
    
    
    
    18,287Accretion of Series A contingently
redeemable convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270,343
    )
    
    
    (30,050
    )
    
    
    (4,402
    )
 2




---



##### Table of Contents



Predecessor
    
    
    Concord Medical (Successor)Period from
    
    
    Period fromJanuary 1,
    
    
    SeptemberYear Ended
    
    
    2007 to
    
    
    10, 2007 to
    
    
    Year Ended December 31,December
    
    
    October 30,
    
    
    December31, 2006
    
    
    2007
    
    
    31, 2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Accretion of Series B contingently
redeemable convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (304,763
    )
    
    
    (48,359
    )
    
    
    (7,085
    )Net income (loss) attributable to
ordinary shareholders
    
    
    16,829
    
    
    
    19,430
    
    
    
    (48,326
    )
    
    
    (496,037
    )
    
    
    46,418
    
    
    
    6,800Income (loss) per share  basic and
diluted(2)
    
    
    0.34
    
    
    
    0.39
    
    
    
    (0.97
    )
    
    
    (8.63
    )
    
    
    0.62
    
    
    
    0.09Income (loss) per ADS  basic and diluted
    
    
    1.02
    
    
    
    1.17
    
    
    
    (2.91
    )
    
    
    (25.89
    )
    
    
    1.86
    
    
    
    0.27Shares used in computation  basic and
diluted(2)
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    57,481,400
    
    
    
    74,648,779
    
    
    
    74,648,779ADSs used in computation  basic and
diluted
    
    
    16,666,667
    
    
    
    16,666,667
    
    
    
    16,666,667
    
    
    
    19,160,467
    
    
    
    24,882,926
    
    
    
    24,882,926
 
 (1)
    
    Our general and administrative expenses include share-based compensation expenses related to
certain share options granted in 2007 and 2009 that amounted to RMB49.5 million, RMB4.2
million and RMB1.0 million (US$0.1 million) in 2007, 2008 and 2009, respectively. We did not
recognize any share-based compensation expenses in 2006.(2)
    
    On November 17, 2009, we effected a share split whereby all of our issued and outstanding
704,281 ordinary shares of a par value of US$0.01 per share were split into 70,428,100
ordinary shares of US$0.0001 par value per share and the number of our authorized ordinary
shares was increased from 4,500,000 to 450,000,000. The share split has been retroactively
reflected in this annual report so that share numbers, per share price and par value data are
presented as if the share split had occurred from our inception. As of December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Selected Consolidated Balance Sheet DataCash
    
    
    606
    
    
    
    39,792
    
    
    
    353,991
    
    
    
    1,037,239
    (1)
    
    
    151,956Total current assets
    
    
    23,333
    
    
    
    66,135
    
    
    
    492,978
    
    
    
    1,252,512
    
    
    
    183,494Property, plant and equipment, net
    
    
    231,215
    
    
    
    54,703
    
    
    
    349,121
    
    
    
    573,042
    
    
    
    83,951Goodwill
    
    
    
    
    
    
    259,282
    
    
    
    300,163
    
    
    
    300,163
    
    
    
    43,974Acquired intangible assets, net
    
    
    
    
    
    
    129,998
    
    
    
    181,838
    
    
    
    155,345
    
    
    
    22,758Total assets
    
    
    256,330
    
    
    
    543,023
    
    
    
    1,514,395
    
    
    
    2,443,865
    
    
    
    358,028Long-term bank borrowings, current portion
    
    
    
    
    
    
    
    
    
    
    39,840
    
    
    
    57,487
    
    
    
    8,422Long-term bank borrowings, non-current portion
    
    
    
    
    
    
    
    
    
    
    52,120
    
    
    
    80,915
    
    
    
    11,854Series A contingently redeemable convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    254,358
    
    
    
    
    
    
    
    Series B contingently redeemable convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    411,101
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    134,264
    
    
    
    394,878
    
    
    
    565,020
    
    
    
    2,153,748
    
    
    
    315,526Total liabilities and shareholders equity
    
    
    256,330
    
    
    
    543,023
    
    
    
    1,514,395
    
    
    
    2,443,865
    
    
    
    358,028
 
 (1)
    
    The increase in cash as of the December 31, 2009 as compared to December 31, 2008 was
primarily the results of net proceeds received from our initial public offering in December
2009. ConcordMedicalPredecessor
    
    
    (Successor)Period from
    
    
    Period fromJanuary 1,
    
    
    September 10,2007 to
    
    
    2007 to
    
    
    Concord Medical (Successor)October 30,
    
    
    December 31,
    
    
    Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Selected Consolidated Statements of Cash
Flow DataNet cash generated from operating activities
    
    
    44,593
    
    
    
    6,103
    
    
    
    46,774
    
    
    
    135,883
    
    
    
    19,908Net cash used in investing activities (1)
    
    
    (50,452
    )
    
    
    (30,441
    )
    
    
    (376,371
    )
    
    
    (272,269
    )
    
    
    (39,887
    )Net cash generated from financing activities
    
    
    6,020
    
    
    
    63,225
    
    
    
    649,494
    
    
    
    819,846
    
    
    
    120,107Exchange rate effect on cash
    
    
    
    
    
    
    138
    
    
    
    (5,698
    )
    
    
    (212
    )
    
    
    (32
    )Net increase in cash
    
    
    161
    
    
    
    39,025
    
    
    
    314,199
    
    
    
    683,248
    
    
    
    100,096
 
 (1)
    
    Net cash used in investing activities in 2008 and 2009 includes acquisitions, net of cash
acquired, of RMB231.5 million and RMB32.2 million (US$4.7 million), respectively. 3




---



##### Table of Contents



ConcordMedicalPredecessor
    
    
    (Successor)Period from
    
    
    Period fromJanuary 1,
    
    
    September 1,2007 to
    
    
    2007 to
    
    
    Concord Medical (Successor)October 30,
    
    
    December 31,
    
    
    Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in RMB thousands)Total net revenues
generated by our primary
medical equipment under
lease and management
services arrangements:Linear accelerators
    
    
    3,206
    
    
    
    877
    
    
    
    40,506
    
    
    
    90,278
    
    
    
    13,226Head gamma knife systems
    
    
    40,408
    
    
    
    8,731
    
    
    
    65,365
    
    
    
    67,406
    
    
    
    9,875Body gamma knife systems
    
    
    13,537
    
    
    
    2,565
    
    
    
    20,071
    
    
    
    25,241
    
    
    
    3,698PET-CT scanners
    
    
    
    
    
    
    
    
    
    
    5,241
    
    
    
    24,196
    
    
    
    3,545MRI scanners
    
    
    2,899
    
    
    
    437
    
    
    
    15,123
    
    
    
    33,880
    
    
    
    4,963Others (1)
    
    
    3,032
    
    
    
    391
    
    
    
    8,755
    
    
    
    19,161
    
    
    
    2,807Total net revenues 
lease and management
services
    
    
    63,082
    
    
    
    13,001
    
    
    
    155,061
    
    
    
    260,162
    
    
    
    38,114
 
 (1)
    
    Other primary medical equipment used includes CT scanners and ECT scanners for diagnostic
imaging, electroencephalography for the diagnosis of epilepsy, thermotherapy to increase the
efficacy of and for pain relief after radiotherapy and chemotherapy, high intensity focused
ultrasound therapy for the treatment of cancer, stereotactic radiofrequency ablation for the
treatment of Parkinsons Disease and refraction and tonometry for the diagnosis of ophthalmic
conditions. Exchange Rate Information
   Exchange Rate (Renminbi per US Dollar)(1)Period
    
    Period End
    
    
    Average(2)
    
    
    Low
    
    
    High(RMB per US$1.00)2005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.6072
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9477
    
    
    
    7.2946
    
    
    
    6.78002009
    
    
    6.8259
    
    
    
    6.8307
    
    
    
    6.8470
    
    
    
    6.8176October
    
    
    6.8264
    
    
    
    6.8267
    
    
    
    6.8292
    
    
    
    6.8248November
    
    
    6.8265
    
    
    
    6.8271
    
    
    
    6.8300
    
    
    
    6.8255December
    
    
    6.8259
    
    
    
    6.8275
    
    
    
    6.8299
    
    
    
    6.8244
 4




---



##### Table of Contents



Exchange Rate (Renminbi per US Dollar)(1)Period
    
    Period End
    
    
    Average(2)
    
    
    Low
    
    
    High(RMB per US$1.00)2010January
    
    
    6.8268
    
    
    
    6.8269
    
    
    
    6.8295
    
    
    
    6.8258February
    
    
    6.8258
    
    
    
    6.8285
    
    
    
    6.8330
    
    
    
    6.8258March
    
    
    6.8258
    
    
    
    6.8262
    
    
    
    6.8270
    
    
    
    6.8254April
    
    
    6.8247
    
    
    
    6.8256
    
    
    
    6.8275
    
    
    
    6.8229May
    
    
    6.8305
    
    
    
    6.8275
    
    
    
    6.8305
    
    
    
    6.8245June (through June 18)
    
    
    6.8267
    
    
    
    6.8298
    
    
    
    6.8322
    
    
    
    6.8267
 
 (1)
    
    The source of the exchange rate is: (i) with respect to any period ending on or prior to
December 31, 2008, the Federal Reserve Bank of New York, and (ii) with respect to any period
ending on or after January 1, 2009, the H.10 statistical release of the Federal Reserve Board.(2)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period. Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
  Risk Factors
 Risks Related to Our Company
 We may encounter difficulties in successfully opening new centers or renewing agreements for
existing centers due to the limited number of suitable hospital partners and their potential
ability to finance the purchase of medical equipment directly.
  5




---



##### Table of Contents



We have historically derived a significant portion of our revenues from centers located at a
limited number of our hospital partners and regions in which we operate and our accounts receivable
are also concentrated with a few hospital partners.
  
    
    reduction in the number of patient cases at the centers located at these partner
hospitals;
    
    loss of key experienced medical professionals;
    
    decrease in the profitability of such centers;
    
    failure to maintain or renew our agreements with these hospital partners;
    
    any failure of these hospital partners to pay us our contracted percentage of any
such centers revenue net of specified operating expenses;
    
    any regulatory changes in the geographic areas where our hospital partners are
located; or
    
    any other disputes with these hospital partners.
  We conduct our business in a heavily regulated industry.
  6




---



##### Table of Contents



We depend on our hospital partners to recruit and retain qualified doctors and other medical
professionals to ensure the high quality of treatment services provided in our network of centers.
  Any failure by our hospital partners to make contracted payments to us or any disputes over, or
significant delays in receiving, such payments could have a material adverse effect on our business
and financial condition.
  We may not be able to effectively manage the expansion of our operations through new acquisitions
or joint ventures or to successfully realize the anticipated benefits of any such acquisition or
joint venture.
   7




---



##### Table of Contents



We may not be successful in negotiating the conversion of a few of our cooperation agreements with
our partner hospitals into lease and management agreements due to regulatory changes.
   We cannot assure you that government authorities will not interpret regulations differently from us
to find that our lease and management agreements are still not in compliance with relevant
regulations.
  8




---



##### Table of Contents



There may be corrupt practices in the healthcare industry in China, which may place us at a
competitive disadvantage if our competitors engage in such practices and may harm our reputation if
our hospital partners and the medical personnel who work in our centers, over whom we have limited
control, engage in such practices.
  We are planning to establish and operate specialty cancer hospitals that will be majority owned by
us and are subject to significant risks.
    9




---



##### Table of Contents



We rely on the doctors and other medical professionals providing services in our network of centers
to make proper clinical decisions and we rely on our hospital partners to maintain proper control
over the clinical aspects of the operation of our network of centers.
  Any failures or defects of the medical equipment in our network of centers or any failure of the
medical personnel who work at the centers in our network to properly operate our medical equipment
could subject us to liability claims and we may not have sufficient insurance to cover any
potential liability.
  Any downtime for maintenance and repair of our medical equipment could lead to business
interruptions that could be expensive and harmful to our reputation and to our business.
  10




---



##### Table of Contents



We rely on a limited number of equipment manufacturers.
  We may fail to protect our intellectual property rights or we may be exposed to misappropriation
and infringement claims by third parties, either of which may have a material adverse effect as to
our business.
    11




---



##### Table of Contents



Our business depends substantially on the continuing efforts of our executive officers and other
key personnel, and our business may be severely disrupted if we lose their services.
  Our reported earnings could decline if we recognize impairment losses on intangible assets and
goodwill relating to the OMS reorganization and other acquisitions.
  We do not have insurance coverage for some of our medical equipment and do not carry any business
interruption insurance.
  12




---



##### Table of Contents



Most of our radiotherapy and diagnostic imaging equipment contains radioactive materials or emits
radiation during operation.
  Any change in the regulations governing the use of medical data in China, which are still in
development, could adversely affect our ability to use our medical data and could potentially
subject us to liability for our past use of such medical data.
  Our directors, executive officers and significant shareholders have substantial influence over our
company and their interests may not be aligned with the interests of our other shareholders.
  Our articles of association contain anti-takeover provisions that could adversely affect the rights
of holders of our ordinary shares and ADSs.
  13




---



##### Table of Contents



We may be unable to establish and maintain an effective system of internal control over financial
reporting, and as a result we may be unable to accurately report our financial results or prevent
fraud.
    14




---



##### Table of Contents



We may require additional funding to finance our operations, which financing may not be available
on terms acceptable to us or at all, and if we are able to raise funds, the value of your
investment in us may be negatively impacted.
  
    
    our future financial condition, results of operations and cash flows;
    
    general market conditions for capital raising and debt financing activities; and
    
    economic, political and other conditions in China and elsewhere.
  We have granted security interests over certain of our medical equipment in order to secure bank
borrowings. Any failure to satisfy our obligations under such borrowings could lead to the forced
sale of such equipment.
  Our business may be adversely affected by fluctuations in the value of the Renminbi as a
significant portion of our capital expenditures relates to the purchase of medical equipment priced
in U.S. dollars.
  15




---



##### Table of Contents



If we grant employee share options, restricted shares or other equity incentives in the future, our
net income could be adversely affected.
 Share-Based Payment
 We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less
protection for your shareholder rights than you would under U.S. law.
   You may have difficulty enforcing judgments obtained against us.
  16




---



##### Table of Contents



We are exempt from certain corporate governance requirements of the New York Stock Exchange.
  
    
    have a majority of the board be independent (other than due to the requirements for
the audit committee under the United States Securities Exchange Act of 1934, as
amended, or the Exchange Act);
    
    have a minimum of three members in our audit committee;
    
    have a compensation committee, a nominating or corporate governance committee;
    
    provide annual certification by our chief executive officer that he or she is not
aware of any non-compliance with any corporate governance rules of the NYSE;
    
    have regularly scheduled executive sessions with only non-management directors;
    
    have at least one executive session of solely independent directors each year;
    
    seek shareholder approval for (i) the implementation and material revisions of the
terms of share incentive plans, (ii) the issuance of more than 1% of our outstanding
ordinary shares or 1% of the voting power outstanding to a related party, (iii) the
issuance of more than 20% of our outstanding ordinary shares, and (iv) an issuance that
would result in a change of control;
    
    adopt and disclose corporate governance guidelines; or
    
    adopt and disclose a code of business conduct and ethics for directors, officers and
employees.
  We may be classified as a passive foreign investment company, which could result in adverse United
States federal income tax consequences to United States Holders.
  17




---



##### Table of Contents



Risks Related to Our Industry
 Healthcare administrative authorities in China currently set procurement quotas for certain types
of medical equipment.
 on Procurement and Use of Large Medical Equipment
  18




---



##### Table of Contents



Certain of our hospital partners have not received large medical equipment procurement licenses or
interim procurement permits for some of the medical equipment in our network of centers which could
result in fines or the suspension from use of such medical equipment.
   Pricing for the services provided by our network of centers may be adversely affected by reductions
in treatment and examination fees set by the Chinese government.
  19




---



##### Table of Contents



Our business may be harmed by technological and therapeutic changes or by shifts in doctors or
patients preferences for alternative treatments.
  The technology used in some of our radiotherapy equipment, particularly our body gamma knife and
our proton beam therapy system, has been in use for a limited period of time and the international
medical community has not yet developed a large quantity of peer-reviewed literature that supports
their safe and effective use.
  Our business may be adversely affected by impending healthcare reforms in China.
   20




---



##### Table of Contents



We or our hospital partners may be unable to obtain various permits and authorizations from
regulatory authorities in China relating to our medical equipment, which could delay the
installation or interrupt the operation of our equipment.
   If the government and public insurers in the PRC do not continue to provide sufficient coverage and
reimbursement for the radiotherapy and diagnostic imaging services provided by our network of
centers, our revenues could be adversely affected.
  21




---



##### Table of Contents



Risks Related to Doing Business in China
 Adverse changes in political, economic and other policies of the Chinese government could have a
material adverse effect on the overall economic growth of China, which could materially and
adversely affect the growth of our business and our competitive position.
  
    
    the degree of government involvement;
    
    the level of development;
    
    the growth rate;
    
    the control of foreign exchange;
    
    the allocation of resources;
    
    an evolving regulatory system; and
    
    lack of sufficient transparency in the regulatory process.
   22




---



##### Table of Contents



Uncertainties with respect to the PRC legal system could have a material adverse effect on us.
  The M&A rule establishes more complex procedures for some acquisitions of Chinese companies by
foreign investors, which could make it more difficult for us to pursue growth through acquisitions
in China.
  Recent PRC regulations, particularly SAFE Circular No. 75 relating to acquisitions of PRC companies
by foreign entities, may limit our ability to acquire PRC companies and adversely affect the
implementation of our strategy as well as our business and prospects.
  23




---



##### Table of Contents



PRC regulation of loans and direct investment by offshore holding companies to PRC entities may
delay or prevent us from using the proceeds of our initial public offering to make loans or
additional capital contributions to our PRC subsidiaries.
   24




---



##### Table of Contents



Governmental control of currency conversion may limit our ability to use our revenues effectively
and the ability of our PRC subsidiaries to obtain financing.
     Fluctuations in the value of the Renminbi may have a material adverse effect on your investment.
   25




---



##### Table of Contents



The increase in the PRC enterprise income tax and the discontinuation of the preferential tax
treatment currently available to us could, in each case, result in a decrease of our net income and
materially and adversely affect our financial condition and results of operations.
    26




---



##### Table of Contents



We rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability
of our subsidiaries to make payments to us could have a material adverse effect on our ability to
conduct our business.
  Notice of the State Administration of Taxation on
Negotiated Reduction of Dividends and Interest Rates Arrangement between the PRC and the Hong Kong Special Administrative Region on the
Avoidance of Double Taxation and Prevention of Fiscal Evasion Notice of the State Administration
of Taxation Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties
 Dividends we receive from our operating subsidiaries located in the PRC may be subject to PRC
withholding tax.
   27




---



##### Table of Contents



We may be classified as a resident enterprise for PRC enterprise income tax purposes, which could
result in unfavorable tax consequences to us and our non-PRC shareholders.
  Dividends payable by us to our foreign investors and gains on the sale of our ADSs or ordinary
shares may become subject to taxes under PRC tax laws.
  28




---



##### Table of Contents



If we are found to have failed to comply with applicable laws, we may incur additional expenditures
or be subject to significant fines and penalties.
  We face risks related to natural disasters and health epidemics in China, which could have a
material adverse effect on our business and results of operations.
  Risks Related to Our Ordinary Shares and ADSs
 The market price for our ADSs may be volatile.
  
    
    announcements of technological or competitive developments;
    
    regulatory developments in China affecting us or our competitors;
    
    announcements of studies and reports relating to the effectiveness or safety of the
services provided in our network of centers or those of our competitors;
    
    actual or anticipated fluctuations in our quarterly operating results and changes or
revisions of our expected results;
    
    changes in financial estimates by securities research analysts;
    
    changes in the economic performance or market valuations of other medical services
companies;
    
    addition or departure of our senior management and other key personnel;
    
    release or expiry of lock-up or other transfer restrictions on our outstanding
ordinary shares or ADSs; and
    
    sales or perceived sales of additional ordinary shares or ADSs.
  29




---



##### Table of Contents



Substantial future sales or perceived sales of our ADSs in the public market could cause the price
of our ADSs to decline.
   Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise
those rights.
  You may be subject to limitations on transfers of your ADSs.
  30




---



##### Table of Contents



Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings and you may not receive cash dividends if it is impractical to make them available
to you.
   
 ITEM 4. INFORMATION ON THE COMPANY
 A.
    
    History and Development of the Company
     31




---



##### Table of Contents




    
    Shenzhen Aohua Medical Services Co., Ltd., our wholly owned subsidiary incorporated
in the PRC that engages in the provision of radiotherapy and diagnostic center
management services to hospitals in the PRC;
    
    Shenzhen Aohua Medical Leasing and Services Co., Ltd., our wholly owned subsidiary
incorporated in the PRC that engages in the provision of radiotherapy and diagnostic
equipment leasing services to hospitals in the PRC;
    
    Medstar (Shanghai) Leasing Co., Ltd., our wholly owned subsidiary incorporated in
the PRC that engages in the sale of medical equipment and the provision of radiotherapy
and diagnostic equipment leasing and management services to hospitals in the PRC;
    
    CMS Hospital Management Co., Ltd., our wholly owned subsidiary incorporated in the
PRC that engages in the provision of radiotherapy and diagnostic equipment management
services to hospitals in the PRC; and
    
    Beijing Xing Heng Feng Medical Technology Co., Ltd., our wholly owned subsidiary
incorporated in the PRC that engages in the provision of radiotherapy and diagnostic
equipment management services to hospitals in the PRC.
    B.
    
    Business Overview
 Overview
  32




---



##### Table of Contents



33




---



##### Table of Contents



Our Network of Centers and Specialty Cancer Hospitals
   Our Arrangements with Hospital Partners
 Lease and Management Services Arrangements
    34




---



##### Table of Contents



Service-Only Arrangements
   Specialty Cancer Hospitals
  Changan CMS International Cancer Center
  35




---



##### Table of Contents



Beijing Proton Medical Center
  36




---



##### Table of Contents



Other Business Arrangements
  Service Offerings in Our Network
  Linear Accelerators External Beam Radiotherapy
  Gamma Knife Radiosurgery
  37




---



##### Table of Contents



Head Gamma Knife Systems
  Body Gamma Knife Systems
  Proton Beam Therapy
  38




---



##### Table of Contents



Diagnostic Imaging
  Other Treatment and Diagnostic Modalities
  Medical Equipment Procurement
    39




---



##### Table of Contents



Operation of Radiotherapy and Diagnostic Imaging Centers in Our Network
  Management Structure
     Staffing
  40




---



##### Table of Contents



Medical Affairs
    Marketing
   41




---



##### Table of Contents



Accounting and Payment Collection
  Medical Equipment Maintenance and Repair
  Pricing of Medical Service
  Business Development
  
    
    population density, demographics and the level of economic development of the
regions or cities in which such new centers would be located; and
 42




---



##### Table of Contents




    
    the reputation of the potential hospital partner and its doctors, nurses and other
personnel and the number of licensed patient beds and patient volume.
  Competition
   Environmental Matters
  43




---



##### Table of Contents



Insurance
   Legal and Administrative Proceedings
   Regulation of Our Industry
  44




---



##### Table of Contents



General Regulatory Environment
  Permits Required by Our Company
 Medical Equipment Operating Enterprise Permits
  Radiation Safety Permits
   45




---



##### Table of Contents



Leasing Company Permit
  Regulation of Medical Institutions
 Distinction between For-Profit and Non-Profit Medical Institutions
   Medical Institution Practicing License
  Large Medical Equipment Procurement License
  46




---



##### Table of Contents



Radiotherapy Permit
  47




---



##### Table of Contents



Radiation Worker Permit
  Regulation of Military Hospitals
  Restrictions on Cooperation Agreements
  Regulation of Proton Treatment Centers
  Registration of Doctors
  48




---



##### Table of Contents



Pricing of Medical Services
  Medical Insurance Coverage
   49




---



##### Table of Contents



Urban Employees Basic Medical
    
    Urban Residents Basic Medical
    
    Rural Cooperative MedicalInsurance Program
    
    Insurance Program
    
    ProgramLaunch Time
    
    1998
    
    2007
    
    2003Participants
    
    Urban employees
    
    Urban non-employees
    
    Rural residentsParticipation
    
    Mandatory
    
    Voluntary
    
    VoluntaryNumber of People covered in 2008
    
    Approximately 200.0 million
(33.0% of Chinas urban
population)
    
    Approximately 118.3 million
(19.5% of Chinas urban
population)
    
    Approximately 815 million
(91.5% of Chinas rural
population)Total reimbursement amount in 2008
    
    RMB208.4 billion
    
    N/A
    
    RMB66.2 billionFunding
    
    Employers and employees:
    
    Households and the government:
    
    Individuals and the government:   employer contributes
approximately 6% of each
employees total salary; and    employee contributes
approximately 2% of such
employees total salary.
    
        monthly premium are
paid by each household; and    government subsidizes
no less than RMB80 per person
annually and RMB40 per person
annually for the mid/western
regions of China, with
greater subsidies provided to
low-income families and
disabled persons.
    
       individual pays no
less than RMB20 per year and
local government subsidizes no
less than RMB40 per person
annually; and    government subsidizes
RMB40 per person annually for
the middle and western regions
of the country and a smaller
amount for the eastern region.General Reimbursement Policy
    
    Reimbursement comes from two
sources  individuals
reimbursement account and the
social medical expense pool:    All of the employees
contribution and 30% of the
employers contribution are
allocated to the individuals
reimbursement account; the
reimbursement cap from the
individual account is the
balance of that account; and    The remaining 70% of the
employers contribution is
aggregated into a social medical
expense pool; the reimbursement
cap from the social medical
expense pool for an individual
participant in a calendar year
is around four times the
regional average annual salary.
    
    There is no specific
requirement or guidance from
the central government.
Reimbursement policy is
separately determined by
local governments.
    
    The central government
suggests that, beginning in
the second half of 2009, the
reimbursement cap for all
regions should be no less than
six times the average annual
per capita net income of rural
residents in the region.Examples of Local Reimbursement
Policy
    
    Shanghai: reimbursement cap from
the social medical expense pool
for an individual participant in
a calendar year is approximately
four times the average annual
salary in Shanghai from the
previous year.Inner Mongolia: reimbursement
cap from the social medical
expense pool for an individual
participant in a calendar year
is RMB25,000.
    
    Jiangsu Province:
approximately 50% to 60% of
medical expense can be
reimbursed by the program.Sichuan Province:
approximately 60% (and not
less than 50%) of medical
expense can be reimbursed by
the program.Guangdong Province:
approximately 40% to 60% of
medical expense can be
reimbursed by the program;
maximum reimbursement amount
is approximately two times
the average annual salary in
Guangdong province from the
previous year.
    
    Guangdong Province: maximum
reimbursement amount is
approximately RMB50,000 per
person per year.Hubei Province: maximum
reimbursement amount for
hospitalization is
approximately RMB30,000 per
person per year. Anhui Province: maximum
reimbursement amount for
hospitalization is
approximately RMB30,000 per
person per year.
 Sources: MOH, MHRSS, National Bureau of Statistics, and various other central and local PRC
government websites.
 50




---



##### Table of Contents



Foreign Exchange Control and Administration
     Dividend Distributions
  51




---



##### Table of Contents



Regulations Relating to Employee Share Options
   Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and Overseas Listings
  52




---



##### Table of Contents



Regulation of Loans between a Foreign Company and its Chinese Subsidiary
   Taxation
  Regulation on Employment
  C.
    
    Organizational Structure
  53




---



##### Table of Contents



D.
    
    Property, Plant and Equipment
  Location
    
    Size (in square meters)
    
    Expiration DateShanghai
    
    
    16
    
    
    November 2010Shanghai
    
    
    34
    
    
    May 2010Shanghai
    
    
    195
    
    
    January 2011Shenzhen
    
    
    522
    
    
    November 2012
   As of December 31,2007
    
    
    2008
    
    
    2009Number of primary medical equipment owned(1):Linear accelerators
    
    
    1
    
    
    
    12
    
    
    
    17
    (2)Head gamma knife systems
    
    
    15
    
    
    
    15
    
    
    
    17Body gamma knife systems
    
    
    8
    
    
    
    9
    
    
    
    11PET-CT scanners
    
    
    
    
    
    
    3
    
    
    
    7MRI scanners
    
    
    2
    
    
    
    10
    
    
    
    17Others(3)
    
    
    8
    
    
    
    15
    
    
    
    16Total
    
    
    34
    
    
    
    64
    
    
    
    85
 
 (1)
    
    Excluding data from seven, eight and three centers under service-only agreements as of
December 31, 2007, 2008 and 2009, respectively. 54




---



##### Table of Contents



(2)
    
    Including a MM50 intensity-modulated radiation therapy system.(3)
    
    Other primary medical equipment used includes CT scanners and ECT scanners for diagnostic
imaging, electroencephalography for the diagnosis of epilepsy, thermotherapy to increase the
efficacy of and for pain relief after radiotherapy and chemotherapy, high intensity focused
ultrasound therapy for the treatment of cancer, stereotactic radiofrequency ablation for the
treatment of Parkinsons Disease and refraction and tonometry for the diagnosis of ophthalmic
conditions. ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Operating Results
 Overview
    55




---



##### Table of Contents



Factors Affecting Our Results of Operations
    
    
    our ability to expand our network of centers;
    
    the number of patient cases treated in our network;
    
    the operational arrangements with our hospital partners;
    
    the range and mix of services provided in our network; and
    
    the cost of our medical equipment.
 Our Ability to Expand Our Network of Centers
  56




---



##### Table of Contents




    
    the reputation of our existing network of centers and doctors providing services in
our network of centers;
    
    our financial resources;
    
    our ability to timely establish and manage new centers in conjunction with our
hospital partners; and
    
    our relationship with our hospital partners.
  The Number of Patient Cases Treated in Our Network
  The Operational Arrangements with Our Hospital Partners
   
    
    the size and location of potential hospital partner;
    
    the length of the arrangement;
    
    the type of medical equipment to be installed in the hospitals center;
    
    the capabilities of the doctors that will provide services at the centers; and
 57




---



##### Table of Contents




    
    the potential growth of such center.
    The Range and Mix of Services Provided in Our Network
  The Cost of Our Medical Equipment
  58




---



##### Table of Contents



Financial Impact of Our Reorganization and Acquisitions
   
    
    China Medstar in July 2008 for approximately £17.1 million or approximately RMB238.7
million (US$35.0 million);
    
    Xing Heng Feng Medical in October 2008 for approximately RMB35.0 million (US$5.1
million);
    
    certain medical equipment located in Tianjin Peoples Liberation Army 272 Hospital
and the related business from a third party for RMB14.0 million (US$2.1 million); and
    
    certain medical equipment located in Peoples Liberation Army 254 Hospital and the
related business from another third party for RMB4.0 million (US$0.6 million).
   Revenues
  59




---



##### Table of Contents



Year Ended December 31,2007(1)
    
    
    2008
    
    
    2009% of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    
    
    
    
    % of TotalNet
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    US$
    
    
    Revenues(in thousands, except for percentages)Lease and management services
    
    
    76,083
    
    
    
    93.5
    
    
    
    155,061
    
    
    
    90.3
    
    
    
    260,162
    
    
    
    38,114
    
    
    
    89.0Management services
    
    
    5,322
    
    
    
    6.5
    
    
    
    12,677
    
    
    
    7.4
    
    
    
    28,739
    
    
    
    4,210
    
    
    
    9.8Other, net
    
    
    
    
    
    
    
    
    
    
    4,051
    
    
    
    2.3
    
    
    
    3,535
    
    
    
    518
    
    
    
    1.2Total net revenues
    
    
    81,405
    
    
    
    100.0
    
    
    
    171,789
    
    
    
    100.0
    
    
    
    292,436
    
    
    
    42,842
    
    
    
    100.0
 
 (1)
    
    Represent the addition of the amounts for the specific line items of OMS, our predecessor,
for the period from January 1, 2007 to October 30, 2007, and the amounts for the corresponding
line items of Concord Medical for the period from September 10, 2007 to December 31, 2007. For
the period from September 10, 2007, the date of inception of Ascendium, to October 30, 2007,
during which period the financial statements of our predecessor and those of Concord Medical
overlap, Ascendium did not engage in any business or operations. The unaudited combined
financial data for the year ended December 31, 2007 do not comply with U.S. GAAP. For
financial data that comply with U.S. GAAP, see Item 3. Key Information  A. Selected
Financial Data.  60




---



##### Table of Contents



Cost of Revenues and Operating Expenses
  61




---



##### Table of Contents



Year Ended December 31,2007 (1)
    
    
    2008
    
    
    2009% of Total Net
    
    
    
    
    
    
    % of Total Net
    
    
    
    
    
    
    
    
    
    
    % of Total NetRMB
    
    
    Revenues
    
    
    RMB
    
    
    Revenues
    
    
    RMB
    
    
    US$
    
    
    Revenues(in thousands, except for percentages)Cost of revenues:Lease and management services
    
    
    22,304
    
    
    
    27.4
    
    
    
    25,046
    
    
    
    14.6
    
    
    
    60,937
    
    
    
    8,928
    
    
    
    20.8Amortization of acquired intangibles
    
    
    2,002
    
    
    
    2.5
    
    
    
    20,497
    
    
    
    11.9
    
    
    
    26,493
    
    
    
    3,881
    
    
    
    9.1Management services
    
    
    24
    
    
    
    0.0
    
    
    
    54
    
    
    
    0.0
    
    
    
    131
    
    
    
    19
    
    
    
    0.0Total cost of revenues
    
    
    24,330
    
    
    
    29.9
    
    
    
    45,597
    
    
    
    26.5
    
    
    
    87,561
    
    
    
    12,828
    
    
    
    29.9Gross Profit
    
    
    57,075
    
    
    
    70.1
    
    
    
    126,192
    
    
    
    73.5
    
    
    
    204,875
    
    
    
    30,014
    
    
    
    70.1Operating expenses:Selling expenses
    
    
    2,358
    
    
    
    2.9
    
    
    
    5,497
    
    
    
    3.2
    
    
    
    7,675
    
    
    
    1,124
    
    
    
    2.6General and administrative expenses (2)
    
    
    65,638
    
    
    
    80.6
    
    
    
    18,869
    
    
    
    11.0
    
    
    
    29,821
    
    
    
    4,369
    
    
    
    10.2Total operating expenses
    
    
    67,996
    
    
    
    83.5
    
    
    
    24,366
    
    
    
    14.2
    
    
    
    37,496
    
    
    
    5,493
    
    
    
    12.8
 
 (1)
    
    Represent the addition of the amounts for the specific line items of OMS, our predecessor,
for the period from January 1, 2007 to October 30, 2007, and the amounts for the corresponding
line items of Concord Medical for the period from September 10, 2007 to December 31, 2007. For
the period from September 10, 2007, the date of inception of Ascendium, to October 30, 2007,
during which the financial statements of our predecessor and those of Concord Medical overlap,
Ascendium did not engage in any business or operations. The unaudited combined financial data
for the year ended December 31, 2007 do not comply with U.S. GAAP. For financial data that
comply with U.S. GAAP, see Item 3. Key Information  A. Selected Financial Data.(2)
    
    Our general and administrative expenses include share-based compensation expenses related to
certain share options granted in 2007 and 2009 that amounted to RMB49.5 million, RMB4.2
million and RMB0.7 million (US$0.1 million) in 2007, 2008 and 2009, respectively. Cost of Revenues
   Selling Expenses.
 62




---



##### Table of Contents



General and Administrative Expenses
 Share-based Compensation
    Accretion of Series A and Series B Contingently Redeemable Convertible Preferred Shares
  63




---



##### Table of Contents



Taxation
 Cayman Islands
  British Virgin Islands
  Hong Kong
  Singapore
  Peoples Republic of China
  64




---



##### Table of Contents



Critical Accounting Policies
  65




---



##### Table of Contents



Revenue
 Lease and Management Services.
 Leases, Overall, Determining Whether an Arrangement Contains a Lease Leases Accounting for Leases
 Leases, Overall, Recognition, Lessors Leases, Overall,
Recognition, General
  Management Services
 Medical Equipment Sales. Revenue Recognition, Principal Agent
Consideration, Reporting Revenue Gross as Principal versus Net
as an Agent
 66




---



##### Table of Contents



Accounts Receivable and Allowance for Doubtful Accounts
  Goodwill
 Intangibles,
Goodwill and Other Goodwill and Other Intangible Asset
  Acquired Intangible Asset, net
   Share-based Compensation
 Compensation, Stock Compensation Share-Based Payment
 67




---



##### Table of Contents



Business Combinations
  Assessing the Fair Value of the Companys Shares
    68




---



##### Table of Contents



Significant Factors, Assumptions and Methodologies Used in Determining the Fair Value of Series A
and B Contingently Redeemable Convertible Preferred Shares, Employee Share Options and Convertible
Notes
    Distinguishing Liabilities from Equity Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity
 69




---



##### Table of Contents



Internal Control Over Financial Reporting
   
    
    hiring additional qualified personnel with U.S. GAAP expertise and SEC reporting
experience to further build an internal financial reporting team and a dedicated
internal audit department;
    
    continue to conduct accounting and financial reporting training for our existing
personnel as part of our commitment to provide ongoing U.S. GAAP trainings to our
employees; and
    
    engaging external consultants to design, implement and strengthen the internal
control policies and procedures and remediate any material weaknesses and significant
deficiencies.
 Results of Operations
  70




---



##### Table of Contents



Concord Medical
    
    
    Concord MedicalPredecessor
    
    
    (Successor)
    
    
    (Successor)Period fromPeriod from
    
    
    September 10,January 1, 2007 to
    
    
    2007 to December
    
    
    Year Ended December 31,October 30, 2007
    
    
    31, 2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands, except for percentages)Summary Consolidated Statements of Operation DataRevenues, net of business tax, value-added tax and related surcharges:Lease and management services
    
    
    63,082
    
    
    
    93.6
    
    
    
    13,001
    
    
    
    93.0
    
    
    
    155,061
    
    
    
    90.3
    
    
    
    260,162
    
    
    
    38,114
    
    
    
    89.0Management services
    
    
    4,340
    
    
    
    6.4
    
    
    
    982
    
    
    
    7.0
    
    
    
    12,677
    
    
    
    7.4
    
    
    
    28,739
    
    
    
    4,210
    
    
    
    9.8Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,051
    
    
    
    2.3
    
    
    
    3,535
    
    
    
    518
    
    
    
    1.2Total net revenues
    
    
    67,422
    
    
    
    100.0
    
    
    
    13,983
    
    
    
    100.0
    
    
    
    171,789
    
    
    
    100.0
    
    
    
    292,436
    
    
    
    42,842
    
    
    
    100.0Cost of revenues:Lease and management services
    
    
    (20,396
    )
    
    
    (30.3
    )
    
    
    (1,908
    )
    
    
    (13.6
    )
    
    
    (25,046
    )
    
    
    (14.6
    )
    
    
    (60,937
    )
    
    
    (8,927
    )
    
    
    (20.8
    )Amortization of acquired intangibles
    
    
    
    
    
    
    
    
    
    
    (2,002
    )
    
    
    (14.3
    )
    
    
    (20,497
    )
    
    
    (11.9
    )
    
    
    (26,493
    )
    
    
    (3,881
    )
    
    
    (9.1
    )Management services
    
    
    (20
    )
    
    
    (0.0
    )
    
    
    (4
    )
    
    
    (0.1
    )
    
    
    (54
    )
    
    
    (0.0
    )
    
    
    (131
    )
    
    
    (19
    )
    
    
    (0.0
    )Total cost of revenues
    
    
    (20,416
    )
    
    
    (30.3
    )
    
    
    (3,914
    )
    
    
    (28.0
    )
    
    
    (45,597
    )
    
    
    (26.5
    )
    
    
    (87,561
    )
    
    
    (12,828
    )
    
    
    (29.9
    )Gross profit
    
    
    47,006
    
    
    
    69.7
    
    
    
    10,069
    
    
    
    72.0
    
    
    
    126,192
    
    
    
    73.5
    
    
    
    204,875
    
    
    
    30,014
    
    
    
    70.1Operating expenses:Selling expenses
    
    
    (1,601
    )
    
    
    (2.4
    )
    
    
    (757
    )
    
    
    (5.4
    )
    
    
    (5,497
    )
    
    
    (3.2
    )
    
    
    (7,675
    )
    
    
    (1,124
    )
    
    
    (2.6
    )General and administrative expenses (1)
    
    
    (8,467
    )
    
    
    (12.6
    )
    
    
    (57,171
    )
    
    
    (408.9
    )
    
    
    (18,869
    )
    
    
    (11.0
    )
    
    
    (29,821
    )
    
    
    (4,369
    )
    
    
    (10.2
    )Operating income (loss)
    
    
    36,938
    
    
    
    54.8
    
    
    
    (47,859
    )
    
    
    (342.3
    )
    
    
    101,826
    
    
    
    59.3
    
    
    
    167,379
    
    
    
    24,521
    
    
    
    57.2Interest expense
    
    
    (954
    )
    
    
    (1.4
    )
    
    
    (279
    )
    
    
    (2.0
    )
    
    
    (7,455
    )
    
    
    (4.3
    )
    
    
    (6,891
    )
    
    
    (1,010
    )
    
    
    (2.4
    )Change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    (341
    )
    
    
    (2.4
    )
    
    
    (464
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (0.0
    )
    
    
    (325
    )
    
    
    (0.2
    )
    
    
    (213
    )
    
    
    (31
    )
    
    
    (0.1
    )(Loss) gain from disposal of equipment
    
    
    (1,555
    )
    
    
    (2.3
    )
    
    
    (25
    )
    
    
    (0.2
    )
    
    
    658
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    Interest income
    
    
    15
    
    
    
    0.0
    
    
    
    
    
    
    
    
    
    
    
    430
    
    
    
    0.3
    
    
    
    948
    
    
    
    139
    
    
    
    0.3Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,734
    
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    34,444
    
    
    
    51.1
    
    
    
    (48,508
    )
    
    
    (346.9
    )
    
    
    102,404
    
    
    
    59.6
    
    
    
    161,223
    
    
    
    23,619
    
    
    
    55.1Income tax (expenses) benefit
    
    
    (15,014
    )
    
    
    (22.3
    )
    
    
    182
    
    
    
    1.3
    
    
    
    (23,335
    )
    
    
    (13.6
    )
    
    
    (36,396
    )
    
    
    (5,332
    )
    
    
    (12.4
    )Net income (loss)
    
    
    19,430
    
    
    
    28.8
    
    
    
    (48,326
    )
    
    
    (345.6
    )
    
    
    79,069
    
    
    
    46.0
    
    
    
    124,827
    
    
    
    18,287
    
    
    
    42.7
 
 (1)
    
    Our general and administrative expenses include share-based compensation expenses related to
certain share options granted in 2007 and 2009 that amounted to RMB49.5 million, RMB4.2
million and RMB0.7 million (US$0.1 million) in 2007, 2008 and 2009, respectively.  Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
 Total Net Revenues.
 Cost of Revenues.
 71




---



##### Table of Contents




    
    an increase in the number of new centers that are in operation and the higher cost
of revenues as a percentage of total net revenues associated with such centers during
their ramp-up period; and
    
    an increase in the number of new centers that offer diagnostic imaging services,
which have a higher cost of revenues as a percentage of total net revenues as compared
to radiotherapy treatments.
  Gross Profit and Gross Margin.
 Operating Expenses.
 
    
    Selling Expenses.Our selling expenses increased by 39.6% to RMB7.7 million (US$1.1
million) for the year ended December 31, 2009 from RMB5.5 million for the year ended
December 31, 2008. This increase in our selling expenses was due primarily to an
approximately 172.0% increase in travelling expenses and office expenses to
approximately RMB2.3 million (US$0.3 million) related to increased business development
efforts. Selling expenses as a percentage of our total net revenues decreased to 2.6%
for the year ended December 31, 2009 from 3.2% for the year ended December 31, 2008
mainly due to increased economies of scale.
    
    General and Administrative Expenses.Our general and administrative expenses
increased by 58.0% to RMB29.8 million (US$4.4 million) for the year ended December 31,
2009 from RMB18.9 million for the year ended December 31, 2008. This increase was due
primarily to (i) increases in salaries and benefits payment in connection with the
increased headcount of our personnel and their travel related expenses, and (ii)
increases in auditing expenses. Our share-based compensation charges in 2009 includes
options that we granted in November 2009 to our executive officers, directors and other
employees to purchase pursuant to our 2008 share incentive plan an aggregate of
4,765,800 ordinary shares. General and administrative expenses as a percentage of our
total net revenues decreased to 10.2% for the year ended December 31, 2009 from 11.0%
for the year ended December 31, 2008 mainly due to economies of scale.
 Operating Income.
 72




---



##### Table of Contents



Interest Expense.
 Change in Fair Value of Convertible Notes.
 Foreign Exchange Loss.
 Gain from Disposal of Equipment.
 Interest Income.
 Income Taxes.
 Net Income and Net Margin.
 The
Year Ended December 31, 2008 (Successor Period) Compared to the Period From January 1, 2007 to October 30, 2007 (Predecessor Period) and the Period from September 10, 2007 to December 31, 2007
(Successor Period)
 Total Net Revenues.
   Cost of Revenues.
 73




---



##### Table of Contents



Gross Profit and Gross Margin.
 Operating Expenses.
 
    
    Selling Expenses.Our selling expenses were RMB5.5 million in 2008. Our selling
expenses were RMB1.6 million for the period from January 1, 2007 to October 30, 2007
and RMB0.8 million for the period from September 10, 2007 to December 31, 2007. Our
selling expenses as a percentage of total net revenues were 3.2% in 2008. Our selling
expenses as a percentage of total net revenues were 2.4% for the period from January 1,
2007 to October 30, 2007 and 5.4% for the period from September 10, 2007 to December
31, 2007.
    
    General and Administrative Expenses.Our general and administrative expenses were
RMB18.9 million in 2008. Our general and administrative expenses were RMB8.5 million
for the period from January 1, 2007 to October 30, 2007 and RMB57.2 million for the
period from September 10, 2007 to December 31, 2007. Our general and administrative
expenses as a percentage of total net revenues were 11.0% in 2008. Our general and
administrative expenses as a percentage of total net revenues were 12.6% for the period
from January 1, 2007 to October 30, 2007 and 408.9% for the period from September 10,
2007 to December 31, 2007. The general and administrative expenses for the period from
September 10, 2007 to December 31, 2007 were affected by the share-based compensation
expenses from the grant of certain OMS share options, which amounted to RMB49.5
million. The general and administrative expenses in 2008 were also affected by the
share-based compensation expenses that amounted to RMB4.2 million (US$0.6 million) from
the transfer of vested options of certain OMS share options to three of our executive
directors.
 Operating Income.
 Interest Income.
 Change in Fair Value of Convertible Notes.
 74




---



##### Table of Contents



Foreign Exchange Loss.
 Gain from Disposal of Equipment.
 Interest Income.
 Other Income.
 Income Taxes.
 Net Income and Net Margin.
 Liquidity and Capital Resources
    75




---



##### Table of Contents



Predecessor
    
    
    SuccessorPeriod from
    
    
    Period fromJanuary 1,
    
    
    September 10,2007 to
    
    
    2007 to
    
    
    Concord Medical (Successor)October 30,
    
    
    December 31,
    
    
    Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Selected Consolidated Statements of Cash Flow DataNet cash generated from operating activities
    
    
    44,593
    
    
    
    6,103
    
    
    
    46,774
    
    
    
    135,883
    
    
    
    19,908Net cash used in investing activities (1)
    
    
    (50,452
    )
    
    
    (30,441
    )
    
    
    (376,371
    )
    
    
    (272,269
    )
    
    
    (39,887
    )Net cash generated from financing activities
    
    
    6,020
    
    
    
    63,225
    
    
    
    649,494
    
    
    
    819,846
    
    
    
    120,107Exchange rate effect on cash
    
    
    
    
    
    
    138
    
    
    
    (5,698
    )
    
    
    (212
    )
    
    
    (32
    )Net increase in cash
    
    
    161
    
    
    
    39,025
    
    
    
    314,199
    
    
    
    683,248
    
    
    
    100,096Cash at beginning of the period year
    
    
    606
    
    
    
    767
    
    
    
    39,792
    
    
    
    353,991
    
    
    
    51,860Cash at end of the period year
    
    
    767
    
    
    
    39,792
    
    
    
    353,991
    
    
    
    1,037,239
    
    
    
    151,956
 
 (1)
    
    Net cash used in investing activities in 2008 and 2009 includes acquisitions, net of cash
acquired, of RMB231.5 million and RMB32.2 million (US$4.7 million), respectively. Operating Activities
      Investing Activities
  76




---



##### Table of Contents



Financing Activities
     Acquisitions and Capital Expenditures
   77




---



##### Table of Contents



Recently Issued Accounting Pronouncements
  78




---



##### Table of Contents



C.
    
    Research and Development
  Intellectual Property
  D.
    
    Trend Information
  79




---



##### Table of Contents



E.
    
    Off Balance Sheet Arrangements
  F.
    
    Tabular Disclosure of Contractual Obligations
  Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(RMB in thousands)Short-term debt obligations
    
    
    12,103
    
    
    
    12,103
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt obligations
    
    
    145,588
    
    
    
    60,448
    
    
    
    85,140
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    13,954
    
    
    
    3,781
    
    
    
    7,562
    
    
    
    2,611
    
    
    
    Operating lease obligations
    
    
    12,487
    
    
    
    5,215
    
    
    
    7,272
    
    
    
    
    
    
    
    Purchase obligations
    
    
    170,657
    
    
    
    170,657
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    354,789
    
    
    
    252,204
    
    
    
    99,974
    
    
    
    2,611
    
    
    
    
      80




---



##### Table of Contents



G.
    
    Safe Harbor
  
    
    the risks, challenges and uncertainties in the radiotherapy and diagnostic imaging
industry and for our business generally;
 81




---



##### Table of Contents




    
    our current expansion strategy, including our ability to expand our network of
centers and to establish specialty cancer hospitals;
    
    our ability to maintain strong working relationships with our hospital partners;
    
    our expectations regarding patients and their referring doctors demand for and
acceptance of the radiotherapy and diagnostic imaging services offered by our centers;
    
    changes in the healthcare industry in China, including changes in the healthcare
policies and regulations of the PRC government;
    
    technological or therapeutic changes affecting the field of cancer treatment and
diagnostic imaging;
    
    our ability to comply with all relevant environmental, health and safety laws and
regulations;
    
    our ability to obtain and maintain permits, licenses and registrations to carry on
our business;
    
    our future prospects, business development, results of operations and financial
condition; and
    
    fluctuations in general economic and business conditions in China.
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A.
    
    Directors and Senior Management
 Directors and Executive Officers
  Name
    
    Age
    
    Position/ TitleJianyu Yang
    
    
    38
    
    
    Director, chief executive officer and presidentZheng Cheng
    
    
    45
    
    
    Co-chairman of the board of directors and chief operating officerSteve Sun
    
    
    48
    
    
    Co-chairman of the board of directors and chief financial officerJing Zhang
    
    
    45
    
    
    Director and executive presidentYaw Kong Yap
    
    
    45
    
    
    Director and financial controllerShirley Chen
    
    
    44
    
    
    DirectorFeng Xiao
    
    
    37
    
    
    DirectorElaine Zong
    
    
    38
    
    
    DirectorWai Hong Ku
    
    
    58
    
    
    DirectorDenny Lee
    
    
    41
    
    
    Independent directorHongbin Cai
    
    
    43
    
    
    Independent directorBoxun Zhang
    
    
    33
    
    
    Corporate vice president
 Dr. Jianyu Yang
 82




---



##### Table of Contents



Dr. Zheng Cheng
 Mr. Steve Sun
 Mr. Jing Zhang
 Mr. Yaw Kong Yap
 Ms. Shirley Chen
 Mr. Feng Xiao
 Ms. Elaine Zong
 83




---



##### Table of Contents



Mr. Wai Hong Ku
 Mr. Denny Lee
 Dr. Hongbin Cai
 Mr. Boxun Zhang
  B.
    
    Compensation of Directors and Executive Officers
 Compensation of Directors and Executive Officers
  84




---



##### Table of Contents



Share Incentive Plans
 OMS Share Option Plan
   2008 Share Incentive Plan
  Termination of Awards.
 Administration.
 85




---



##### Table of Contents



Option Exercise.
 Change in Control.
 Amendment and Termination of Plan.
   OrdinarySharesUnderlying
    
    Exercise PriceOutstanding
    
    UnderlyingOptions or
    
    OutstandingRestricted
    
    OptionsName
    
    Shares
    
    (US$/Share)
    
    Grant Date
    
    Expiration DateMr. Jianyu Yang
    
    
    288,700
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Mr. Zheng Cheng
    
    
    288,700
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Mr. Steve Sun
    
    
    264,400
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Mr. Jing Zhang
    
    
    250,000
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Mr. Yaw Kong Yap
    
    
    230,000
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Mr. Boxun Zhang
    
    
    264,400
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Mr. Denny Lee
    
    
    130,300
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017Other individuals as group
    
    
    3,049,300
    
    
    
    3.7
    
    
    November 27, 2009
    
    November 26, 2017
 86




---



##### Table of Contents



C.
    
    Board Practices
 Committees of the Board of Directors
 Board of Directors
  Audit Committee
  
    
    selecting our independent registered public accounting firm and pre-approving all
auditing and non-auditing services permitted to be performed by our independent
registered public accounting firm;
    
    reviewing with our independent registered public accounting firm any audit problems
or difficulties and managements response;
    
    reviewing and approving all proposed related-party transactions, as defined in Item
404 of Regulation S-K under the Securities Act;
    
    discussing the annual audited financial statements with management and our
independent registered public accounting firm;
    
    reviewing major issues as to the adequacy of our internal controls and any special
audit steps adopted in light of significant control deficiencies;
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
    
    such other matters that are specifically delegated to our audit committee by our
board of directors from time to time;
    
    meeting separately and periodically with management and our internal auditor and
independent registered public accounting firm; and
    
    reporting regularly to the full board of directors.
 Compensation Committee
  87




---



##### Table of Contents




    
    approving and overseeing the compensation package for our executive officers;
    
    reviewing and making recommendations to the board with respect to the compensation
of our directors;
    
    reviewing and approving corporate goals and objectives relevant to the compensation
of our chief executive officer, evaluating the performance of our chief executive
officer in light of those goals and objectives, and setting the compensation level of
our chief executive officer based on such evaluation; and
    
    reviewing periodically and making recommendations to the board regarding any
long-term incentive compensation or equity plans, programs or similar arrangements,
annual bonuses, employee pension and welfare benefit plans.
 Duties of Directors
   
    
    convening shareholders annual general meetings and reporting its work to
shareholders at such meetings;
    
    declaring dividends and other distributions;
    
    appointing officers and determining the term of office of officers;
    
    exercising the borrowing powers of our company and mortgaging the property of our
company; and
    
    approving the transfer of shares of our company, including the registration of such
 shares in our share register.
 Terms of Directors and Executive Officers
  Employment Agreements
  88




---



##### Table of Contents



Interested Transactions
  Remuneration and Borrowing
  Qualification
  D.
    
    Employees
  As of December 31, 2009Employees
    
    
    % of TotalAdministration
    
    
    34
    
    
    
    21.3
    %Financial control
    
    
    39
    
    
    
    24.4Operation
    
    
    66
    
    
    
    41.3Marketing
    
    
    9
    
    
    
    5.6Business development
    
    
    7
    
    
    
    4.4Medical development
    
    
    5
    
    
    
    3.1Total
    
    
    160
    
    
    
    100.0
    %
 89




---



##### Table of Contents



E.
    
    Share Ownership
  
    
    each of our directors and executive officers; and
    
    each person known to us to own beneficially more than 5.0% of our ordinary shares.
 Ordinary Shares Beneficially Owned(1)(2)Number
    
    
    %Directors and Executive Officers:Jianyu Yang (3)
    
    
    4,065,800
    
    
    
    2.8Zheng Cheng (4)
    
    
    7,319,900
    
    
    
    5.0Steve Sun (5)
    
    
    4,065,800
    
    
    
    2.8Jing Zhang (6)
    
    
    2,979,900
    
    
    
    2.0Yaw Kong Yap (7)
    
    
    *
    
    
    
    *Shirley Chen (8)
    
    
    7,533,800
    
    
    
    5.1Feng Xiao (9)
    
    
    26,172,700
    
    
    
    17.7Elaine Zong
    
    
    
    
    
    
    Wai Hong Ku (10)
    
    
    2,889,500
    
    
    
    2.0Boxun Zhang (11)
    
    
    *
    
    
    
    *All directors and executive officers as a group
    
    
    66,240,400
    
    
    
    44.9
 90




---



##### Table of Contents



Ordinary Shares Beneficially Owned(1)(2)Number
    
    
    %Principal and 5% Shareholders:Carlyle Entities (12)
    
    
    26,172,700
    
    
    
    17.7Notable Enterprise Limited (13)
    
    
    20,321,300
    
    
    
    13.8Starr Investments Cayman II, Inc. (14)
    
    
    10,418,000
    
    
    
    7.1Grand Best Group Limited (15)
    
    
    8,015,800
    
    
    
    5.4CZY Investments Limited (16)
    
    
    7,319,900
    
    
    
    5.0
 
 *
    
    Upon exercise of all options granted, would beneficially own less than 1.0% of our
outstanding ordinary shares.(1)
    
    Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and
Regulations under the Exchange Act, and includes voting or investment power with respect to
the securities and outstanding share options exercisable within 60 days of this annual report.(2)
    
    The number of ordinary shares outstanding in calculating the percentages for each listed
person includes the ordinary shares underlying options held by such person. Percentage of
beneficial ownership of each listed person is based on 147,455,500 ordinary shares outstanding
as of December 31, 2009, and includes the ordinary shares underlying share options exercisable
by such person within 60 days of this annual report.(3)
    
    Represents 4,065,800 ordinary shares held by Daketala International Investment Holdings Ltd.,
a limited liability company organized under the laws of the British Virgin Islands wholly
owned by Dr. Yang.(4)
    
    Represents 7,319,900 ordinary shares held by CZY Investment Ltd., a limited liability company
organized under the laws of the British Virgin Islands wholly owned by Mr. Cheng. 2,087,700 of
the ordinary shares held by CZY Investment Ltd. have been pledged to certain of our
shareholders as security for a loan.(5)
    
    Represents 4,065,800 ordinary shares held by Dragon Image Investment Ltd., a limited
liability company organized under the laws of the British Virgin Islands wholly owned by Mr.
Sun.(6)
    
    Represents 2,979,900 ordinary shares held by Thousand Ocean Group Limited, a limited
liability company organized under the laws of the British Virgin Islands wholly owned by Mr.
Zhang.(7)
    
    Represents ordinary shares held by Top Mount Group Limited, a limited liability company
organized under the laws of the British Virgin Islands wholly owned by Mr. Yap.(8)
    
    Represents 7,177,200 and 356,600 ordinary shares held by CICC Sun Company Limited and Perfect
Key Holdings Limited, respectively. For a description of the beneficial ownership of our
ordinary shares by CICC Sun Company Limited, see Note 16 below. Ms. Shirley Chen disclaims
beneficial ownership of our ordinary shares held by CICC Sun Company Limited except to the
extent of her pecuniary interest in these shares. Perfect Key Holdings Limited is a limited
liability company organized under the laws of the British Virgin Islands in which Ms. Shirley
Chen holds 47.4% beneficial ownership.(9)
    
    Represents 25,169,000 and 1,003,700 ordinary shares held by Carlyle Asia Growth Partners III,
L.P. and CAGP III Co-Investment, L.P., respectively. Carlyle Asia Growth Partners III, L.P.
and CAGP III Co-Investment, L.P. are collectively referred to in this annual report as the
Carlyle Entities. For a description of the beneficial ownership of our ordinary shares by the
Carlyle Entities, see Note 11 below. Mr. Feng Xiao disclaims beneficial ownership of our
ordinary shares held by the Carlyle Entities, except to the extent of his pecuniary interest
in these shares.(10)
    
    Represents 2,889,500 ordinary shares held by Grand Best Group Limited, a limited liability
company organized under the laws of the British Virgin Islands. For a description of the
beneficial ownership of our ordinary shares held by Grand Best Group Limited, see Note 14
below. Mr. Ku owns 31.4% of the equity interest in Grand Best Group Limited.(11)
    
    Represents ordinary shares held by Triumph Concept Investment Limited, a limited liability
company organized under the laws of the British Virgin Islands wholly owned by Mr. Zhang.(12)
    
    Represents 25,169,000 and 1,003,700 ordinary shares held by Carlyle Asia Growth Partners III,
L.P. and CAGP III Co-Investment, L.P., respectively. The general partner of each Carlyle
Entity is CAGP General Partner, L.P., which is in turn managed by its general partner, CAGP
Ltd. The directors of CAGP Ltd. are Mr. William E. Conway, Jr., Mr. Daniel A. DAniello, Mr.
David Rubenstein, Mr. Jeffery Ferguson and Mr. Curtis L. Buser. The address of the Carlyle
Entities is Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9002, Cayman Islands.(13)
    
    Notable Enterprise Limited is a limited liability company organized under the laws of the
British Virgin Islands wholly owned by Ms. Bona Lau. Ms. Lau is the daughter of Mr. Haifeng
Liu, the chairman of Aohua Medical from December 2005 to December 2007 and our director until
July 2009. Prior to serving as chairman of Aohua Medical, Mr. Liu was detained in March 2004
by the authorities of Luoyang city, Henan Province, for alleged misappropriation of funds
while serving as chairman of a company unrelated to Aohua Medical or us. Mr. Liu was released
in June 2005 by the local prosecutor without an indictment due to insufficient evidence.
Notable Enterprise Limited was originally owned by Mr. Liu, who irrevocably transferred all of
his interest in Notable Enterprise Limited to Ms. Lau in November 2007 for consideration not
significantly lower than the then fair market value. At the time of the transfer, Notable
Enterprise Limited indirectly held a 44.2% equity interest in OMS. The address of Notable
Enterprise Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola,
British Virgin Islands. 91




---



##### Table of Contents



(14)
    
    Represents 10,418,000 ordinary shares held by Starr Investments Cayman II, Inc. Starr
Investments Cayman II, Inc. is ultimately controlled by Starr International Company, Inc.
whose voting shareholders (none of whom control 10% or more individually) are Mr. Maurice R.
Greenberg, Mr. Edward E. Matthews, Mr. Howard I. Smith, Mr. John J. Roberts, Mr. Houghton
Freeman, Mr. Joseph C. H. Johnson, Mr. Cesar Zalamea, Mr. Peter Hammer, Mr. Michael Morrison,
Mr. Bertil P. Lundqvist and Ms. Florence Davis. The address of Starr Investments Cayman II,
Inc. is Avalon Management Limited, Landmark Square, 64 Earth Close, West Bay Beach, Grand
Cayman, KY1-1107, Cayman Islands.(15)
    
    Grand Best Group Limited is a limited liability company organized under the laws of the
British Virgin Islands. The shareholders of Grand Best Group Limited are Ku Wai Hong, Ever
Bounteous Group Limited, Iu Kong, Cheng Mai Yue, Wang Rong Kang, Brave Faith Development
Limited, Echolac Company Limited and Huang Pei Lin. The address of Grand Best Group Limited is
P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.(16)
    
    CZY Investments Limited is a limited liability company organized under the laws of the
British Virgin Islands wholly owned by Dr. Zheng Cheng. The address of CZY Investments Limited
is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
  
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A.
    
    Major ShareholdersPlease refer to Item 6. Directors, Senior Management and Employees  E. Share Ownership.B.
    
    Related Party Transactions
 Non-Interest Bearing Borrowings from Related Parties
     Medical Equipment Sale and Purchase Agreement
  92




---



##### Table of Contents



Reorganization and Private Placement
  Shareholders Agreement
  Share Incentives
  C.
    
    Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A.
    
    Consolidated Statements and Other Financial Information
  93




---



##### Table of Contents



Legal and Administrative Proceedings
   Dividend Policy
   B.
    
    Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
 A.
    
    Offering and Listing Details.
  94




---



##### Table of Contents



Market Price Per ADSHigh
    
    
    Low2009(from December 11)
    
    
    10.48
    
    
    
    8.30Quarterly Highs and LowsFourth Quarter 2009 (from December 11)
    
    
    10.48
    
    
    
    8.30First Quarter 2010
    
    
    10.70
    
    
    
    6.72Monthly Highs and Lows2009December (from December 11)
    
    
    10.48
    
    
    
    8.302010January
    
    
    10.70
    
    
    
    8.60February
    
    
    9.90
    
    
    
    8.16March
    
    
    9.41
    
    
    
    6.72April
    
    
    7.43
    
    
    
    6.76May
    
    
    7.26
    
    
    
    6.03June (through June 25)
    
    
    6.33
    
    
    
    5.63
  B.
    
    Plan of Distribution
  C.
    
    Markets
  D.
    
    Selling Shareholders
  E.
    
    Dilution
  F.
    
    Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 A.
    
    Share Capital
  B.
    
    Memorandum and Articles of Association
  95




---



##### Table of Contents



C.
    
    Material Contracts
  D.
    
    Exchange Controls
  E.
    
    Taxation
 Cayman Islands Taxation
  Peoples Republic of China Taxation
   96




---



##### Table of Contents



United States Federal Income Taxation
  
    
    an individual citizen or resident of the United States;
    
    a corporation (or other entity treated as a corporation
for United States federal income tax purposes) created or
organized in or under the laws of the United States, any
state thereof or the District of Columbia;
    
    an estate the income of which is subject to United States
federal income taxation regardless of its source; or
    
    a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United
States persons have the authority to control all
substantial decisions of the trust or (2) has a valid
election in effect under applicable United States Treasury
regulations to be treated as a United States person.
  
    
    a dealer in securities or currencies;
    
    a financial institution;
    
    a regulated investment company;
    
    a real estate investment trust;
    
    an insurance company;
    
    a tax exempt organization;
    
    a person holding our ordinary shares or ADSs as part of a hedging,
integrated or conversion transaction, a constructive sale or a
straddle;
    
    a trader in securities that has elected the mark-to-market method of
accounting for your securities;
 97




---



##### Table of Contents




    
    a person liable for alternative minimum tax;
    
    a person who owns or is deemed to own more than 10% of our voting stock;
    
    a partnership or other pass-through entity for United States federal
income tax purposes; or
    
    a person whose functional currency is not the United States dollar.
   If you are considering the purchase,
ownership or disposition of our ordinary shares or ADSs, you should consult your own tax advisors
concerning the United States federal income tax consequences to you in light of your particular
situation as well as any consequences arising under the laws of any other taxing jurisdiction.
  ADSs
  Taxation of Dividends
  98




---



##### Table of Contents



Passive Foreign Investment Company
   
    
    at least 75% of our gross income is passive income; or
    
    at least 50% of the value of our assets (based on an
average of the quarterly values) is attributable to
 99




---



##### Table of Contents



assets that produce or are held for the production of
passive income (which includes cash).
    
    
    the excess distribution or gain will be
allocated ratably over your holding period for
the ADSs or ordinary shares;
    
    the amount allocated to the current taxable
year, and any taxable year prior to the first
taxable year in which we were a PFIC, will be
treated as ordinary income; and
    
    the amount allocated to each other year will be
subject to tax at the highest tax rate in
effect for that year and the interest charge
generally applicable to underpayments of tax
will be imposed on the resulting tax
attributable to each such year.
    100




---



##### Table of Contents



Taxation of Capital Gains
  Information Reporting and Backup Withholding
   F.
    
    Dividends and Paying Agents
  G.
    
    Statement by Experts
  101




---



##### Table of Contents



H.
    
    Documents on Display
       I.
    
    Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange Risk
   102




---



##### Table of Contents



Interest Rate Risk
  Inflation
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 A.
    
    Debt SecuritiesNot applicableB.
    
    Warrants and RightsNot applicableC.
    
    Other SecuritiesNot applicableD.
    
    American Depositary Shares
  103




---



##### Table of Contents




    
    a fee of up to US$1.50 per ADR or ADRs for transfers of certificated or direct
registration ADRs;
    
    a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the
deposit agreement;
    
    a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services
performed by the depositary in administering the ADRs (which fee may be charged on a
periodic basis during each calendar year and shall be assessed against holders of ADRs
as of the record date or record dates set by the depositary during each calendar year
and shall be payable in the manner described in the next succeeding provision);
    
    reimbursement of such fees, charges and expenses as are incurred by the depositary
and/or any of the depositarys agents (including, without limitation, the custodian and
expenses incurred on behalf of holders in connection with compliance with foreign
exchange control regulations or any law or regulation relating to foreign investment)
in connection with the servicing of the shares or other deposited securities, the
delivery of deposited securities or otherwise in connection with the depositarys or
its custodians compliance with applicable law, rule or regulation (which charge shall
be assessed on a proportionate basis against holders as of the record date or dates set
by the depositary and shall be payable at the sole discretion of the depositary by
billing such holders or by deducting such charge from one or more cash dividends or
other cash distributions);
    
    a fee for the distribution of securities (or the sale of securities in connection
with a distribution), such fee being in an amount equal to the fee for the execution
and delivery of ADSs which would have been charged as a result of the deposit of such
securities (treating all such securities as if they were shares) but which securities
or the net cash proceeds from the sale thereof are instead distributed by the
depositary to those holders entitled thereto;
    
    stock transfer or other taxes and other governmental charges;
    
    cable, telex and facsimile transmission and delivery charges incurred at your
request in connection with the deposit or delivery of shares;
    
    transfer or registration fees for the registration of transfer of deposited
securities on any applicable register in connection with the deposit or withdrawal of
deposited securities; and
    
    expenses of the depositary in connection with the conversion of foreign currency
into U.S. dollars.
   104




---



##### Table of Contents



PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 Material Modifications to the Rights of Securities Holders
  Use of Proceeds
   
 ITEM 15. CONTROLS AND PROCEDURES
  Disclosure Controls and Procedures
   105




---



##### Table of Contents



Change in Internal Control Over Financial Reporting
  
    
    hiring additional qualified personnel with U.S. GAAP expertise and SEC reporting
experience to further build an internal financial reporting team and a dedicated
internal audit department;
    
    continue to conduct accounting and financial reporting training for our existing
personnel as part of our commitment to provide ongoing U.S. GAAP trainings to our
employees; and
    
    engaging external consultants to design, implement and strengthen the internal
control policies and procedures and remediate any material weaknesses and significant
deficiencies.
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  ITEM 16B. CODE OF ETHICS
  106




---



##### Table of Contents



ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Year EndedDecember 31,2008
    
    2009RMB
    
    RMB
    
    US$(in thousands)Audit Fees(1)
    
    
    
    
    
    
    7,031
    
    
    
    1,030
 
 (1)
    
    Audit fees include the aggregate fees billed in each of the fiscal periods listed for
professional services rendered by Ernst & Young for the audits of our annual consolidated
financial statements. Fees billed and incurred during fiscal 2009 also include other
professional services rendered in conjunction with our initial public offering.  ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  ITEM 16G. CORPORATE GOVERNANCE
  
    
    have a majority of the board be independent (other than due to the requirements for
the audit committee under the United States Securities Exchange Act of 1934, as
amended, or the Exchange Act);
    
    have a minimum of three members in our audit committee;
    
    have a compensation committee, a nominating or corporate governance committee;
    
    provide annual certification by our chief executive officer that he or she is not
aware of any non-compliance with any corporate governance rules of the NYSE;
    
    have regularly scheduled executive sessions with only non-management directors;
    
    have at least one executive session of solely independent directors each year;
 107




---



##### Table of Contents




    
    seek shareholder approval for (i) the implementation and material revisions of the
terms of share incentive plans, (ii) the issuance of more than 1% of our outstanding
ordinary shares or 1% of the voting power outstanding to a related party, (iii) the
issuance of more than 20% of our outstanding ordinary shares, and (iv) an issuance that
would result in a change of control;
    
    adopt and disclose corporate governance guidelines; or
    
    adopt and disclose a code of business conduct and ethics for directors, officers and
employees.
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  
    
    Audited Consolidated Financial Statements
    
    Report of Independent Registered Public Accounting Firm
    
    Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    Consolidated Statements of Operations for the period from January 1, 2007 to October
30, 2007 for Our Medical Services Limited and its subsidiaries (predecessor)
    
    Consolidated Statements of Operations for the period from September 10, 2007 to
December 31, 2007 and for the years ended December 31, 2008 and 2009 for Concord
Medical Services Holdings Limited (successor)
    
    Consolidated Statements of Cash Flows for the period from January 1, 2007 to October
30, 2007 for Our Medical Services Limited and its subsidiaries (predecessor)
    
    Consolidated Statements of Cash Flows for the period from September 10, 2007 to
December 31, 2007 and for the years ended December 31, 2008 and 2009 for Concord
Medical Services Holdings Limited (successor)
    
    Consolidated Statements of Changes in Shareholders Equity for the period from
January 1, 2007 to October 30, 2007 for Our Medical Services Limited and its
subsidiaries (predecessor)
    
    Consolidated Statements of Changes in Shareholders Equity for the period from
September 10, 2007 to December 31, 2007 and for the years ended December 31, 2008 and
2009 for Concord Medical Services Holdings Limited (successor)
 108




---



##### Table of Contents




    
    Notes to the Consolidated Financial Statements for the years ended December 31,
2007, 2008 and 2009
 
 ITEM 19. EXHIBITS
 ExhibitNumber
    
    Description of Document8.1*
    
    List of Subsidiaries12.1*
    
    CEO Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 200212.2*
    
    CFO Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 200213.1*
    
    CEO Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 200213.2*
    
    CFO Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 
 *
    
    Filed with this annual report 109




---



##### Table of Contents



SIGNATURES
  CONCORD MEDICAL SERVICES
HOLDINGS LIMITEDBy:
    /s/ Jianyu YangName:
    Jianyu YangTitle:
    Chief Executive Officer  110




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F - 1




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of Renminbi (RMB) and US dollar (US$), except for number of shares)
 As at December 31Note
    
    2008
    
    
    2009
    
    
    2009(successor)RMB
    
    
    RMB
    
    
    US$ASSETSCurrent assets:Cash
    
    
    
    
    353,991
    
    
    
    1,037,239
    
    
    
    151,956Restricted cash, current portion
    
    5
    
    
    
    
    
    
    293
    
    
    
    43Accounts receivable (net of allowance of RMB 3,830,
RMB 2,000 (US$293), for 2008 and 2009, respectively)
    
    6
    
    
    92,772
    
    
    
    111,328
    
    
    
    16,310Prepayments and other current assets
    
    7
    
    
    43,566
    
    
    
    100,484
    
    
    
    14,721Deferred tax assets, current portion
    
    18
    
    
    2,649
    
    
    
    3,168
    
    
    
    464Total current assets
    
    
    
    
    492,978
    
    
    
    1,252,512
    
    
    
    183,494Non-current assets:Property, plant and equipment, net
    
    8
    
    
    349,121
    
    
    
    573,042
    
    
    
    83,951Goodwill
    
    4,9
    
    
    300,163
    
    
    
    300,163
    
    
    
    43,974Acquired intangible assets, net
    
    9
    
    
    181,838
    
    
    
    155,345
    
    
    
    22,758Deposits for non-current assets
    
    10,21
    
    
    167,200
    
    
    
    127,150
    
    
    
    18,628Deferred tax assets, non-current portion
    
    18
    
    
    12,650
    
    
    
    19,700
    
    
    
    2,886Other non-current assets
    
    
    
    
    10,445
    
    
    
    11,532
    
    
    
    1,689Restricted cash, non-current portion
    
    5
    
    
    
    
    
    
    4,421
    
    
    
    648Total non-current assets
    
    
    
    
    1,021,417
    
    
    
    1,191,353
    
    
    
    174,534Total assets
    
    
    
    
    1,514,395
    
    
    
    2,443,865
    
    
    
    358,028LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term bank borrowing
    
    11
    
    
    20,800
    
    
    
    11,500
    
    
    
    1,685Long-term bank borrowings, current portion
    
    11
    
    
    39,840
    
    
    
    57,487
    
    
    
    8,422Accounts payable
    
    
    
    
    9,741
    
    
    
    9,759
    
    
    
    1,430Accrual for purchase of property, plant and equipment
    
    
    
    
    1,881
    
    
    
    12,043
    
    
    
    1,764Obligations under capital leases, current portion
    
    13
    
    
    3,719
    
    
    
    3,582
    
    
    
    525Accrued expenses and other liabilities
    
    12
    
    
    42,444
    
    
    
    48,663
    
    
    
    7,128Income tax payable
    
    
    
    
    17,041
    
    
    
    14,642
    
    
    
    2,145Deferred revenue, current portion
    
    
    
    
    12,656
    
    
    
    10,401
    
    
    
    1,524Payable for acquisition of a subsidiary and business
components
    
    4
    
    
    28,016
    
    
    
    
    
    
    
    Dividends payable
    
    15
    
    
    10,788
    
    
    
    
    
    
    
    Amounts due to related parties
    
    21
    
    
    3,607
    
    
    
    1,546
    
    
    
    226Total current liabilities
    
    
    
    
    190,533
    
    
    
    169,623
    
    
    
    24,849
 F - 2




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS  (Continued)
(Amounts in thousands of Renminbi (RMB) and US dollar (US$) except for number of shares)
 As at December 31Note
    
    2008
    
    
    2009
    
    
    2009(successor)RMB
    
    
    RMB
    
    
    US$Non-current liabilities:Long-term bank borrowings, non-current portion
    
    11
    
    
    52,120
    
    
    
    80,915
    
    
    
    11,854Deferred revenue, non-current portion
    
    
    
    
    6,314
    
    
    
    5,188
    
    
    
    760Obligations under capitalized leases, non-current portion
    
    13
    
    
    11,656
    
    
    
    8,074
    
    
    
    1,183Lease deposits
    
    
    
    
    3,215
    
    
    
    1,000
    
    
    
    147Deferred tax liabilities, non-current portion
    
    18
    
    
    20,078
    
    
    
    25,317
    
    
    
    3,709Total non-current liabilities
    
    
    
    
    93,383
    
    
    
    120,494
    
    
    
    17,653Total liabilities
    
    
    
    
    283,916
    
    
    
    290,117
    
    
    
    42,502Commitments and contingencies
    
    23Series A contingently redeemable convertible preferred
shares (par value of US$0.01 per share;
Authorized200,000 shares as at December 31, 2008 and
2009; Issued and outstanding176,942 and nil shares as
at December 31, 2008 and 2009, respectively. As at
December 31, 2009, aggregate liquidation preference and
redemption amounts were nil and nil, respectively
(2008: US$54,573 and US$38,147, respectively))
    
    15
    
    
    254,358
    
    
    
    
    
    
    
    Series B contingently redeemable convertible preferred
shares (par value of US$0.01 per share;
Authorized300,000 shares as at December 31, 2008 and
2009; Issued and outstanding233,332 and nil shares as
at December 31, 2008 and 2009, respectively. As at
December 31, 2009, aggregate liquidation preference and
redemption amounts were nil and nil, respectively
(2008: US$90,583 and US$61,390, respectively))
    
    15
    
    
    411,101
    
    
    
    
    
    
    
    Shareholders equity:Ordinary shares (par value of US$0.0001 per share at
December 31, 2008 and 2009; Authorized450,000,000
shares at December 31, 2008 and 2009; Issued and
outstanding70,428,100 and 147,455,500 shares at
December 31, 2008 and 2009, respectively)
    
    16
    
    
    55
    
    
    
    108
    
    
    
    16Additional paid-in capital
    
    
    
    
    1,113,150
    
    
    
    2,671,910
    
    
    
    391,437Accumulated other comprehensive loss
    
    
    
    
    (3,822
    )
    
    
    (3,987
    )
    
    
    (584
    )Accumulated deficit
    
    
    
    
    (544,363
    )
    
    
    (514,283
    )
    
    
    (75,343
    )Total shareholders equity
    
    
    
    
    565,020
    
    
    
    2,153,748
    
    
    
    315,526Total liabilities and shareholders equity
    
    
    
    
    1,514,395
    
    
    
    2,443,865
    
    
    
    358,028
  F - 3




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands of Renminbi (RMB) and US dollar (US$),
except for number of shares and per share data)
 January 1
    
    
    September 10to
    
    
    toNote

    
    
    October 30,
    
    
    December 31,
    
    
    For the Year Ended December 312007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Revenues, net of business tax,
value-added tax and related surcharges:Lease and management services
    
    
    
    
    
    
    63,082
    
    
    
    13,001
    
    
    
    155,061
    
    
    
    260,162
    
    
    
    38,114Management services
    
    
    
    
    
    
    4,340
    
    
    
    982
    
    
    
    12,677
    
    
    
    28,739
    
    
    
    4,210Others, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,051
    
    
    
    3,535
    
    
    
    518Total net revenues
    
    
    
    
    
    
    67,422
    
    
    
    13,983
    
    
    
    171,789
    
    
    
    292,436
    
    
    
    42,842Cost of revenues:Lease and management services
    
    
    
    
    
    
    (20,396
    )
    
    
    (1,908
    )
    
    
    (25,046
    )
    
    
    (60,937
    )
    
    
    (8,928
    )Amortization of acquired intangibles
    
    
    
    
    
    
    
    
    
    
    (2,002
    )
    
    
    (20,497
    )
    
    
    (26,493
    )
    
    
    (3,881
    )Management services
    
    
    
    
    
    
    (20
    )
    
    
    (4
    )
    
    
    (54
    )
    
    
    (131
    )
    
    
    (19
    )Total cost of revenues
    
    
    
    
    
    
    (20,416
    )
    
    
    (3,914
    )
    
    
    (45,597
    )
    
    
    (87,561
    )
    
    
    (12,828
    )Gross profit
    
    
    
    
    
    
    47,006
    
    
    
    10,069
    
    
    
    126,192
    
    
    
    204,875
    
    
    
    30,014Operating expenses:Selling expenses
    
    
    
    
    
    
    (1,601
    )
    
    
    (757
    )
    
    
    (5,497
    )
    
    
    (7,675
    )
    
    
    (1,124
    )General and administrative expenses
    
    
    
    
    
    
    (8,467
    )
    
    
    (57,171
    )
    
    
    (18,869
    )
    
    
    (29,821
    )
    
    
    (4,369
    )Operating income (loss)
    
    
    
    
    
    
    36,938
    
    
    
    (47,859
    )
    
    
    101,826
    
    
    
    167,379
    
    
    
    24,521Interest expense (including related
party amounts of RMB8, RMB96, RMB2,991
and RMB55 (US$8) for the period from
January 1 to October 30, 2007
(predecessor), September 10 to December
31, 2007 (successor) and the years ended
December 31, 2008 and 2009 (successor),
respectively)
    
    
    21
    
    
    
    (954
    )
    
    
    (279
    )
    
    
    (7,455
    )
    
    
    (6,891
    )
    
    
    (1,010
    )Change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    (341
    )
    
    
    (464
    )
    
    
    
    
    
    
    Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (325
    )
    
    
    (213
    )
    
    
    (31
    )(Loss) gain from disposal of equipment
    
    
    
    
    
    
    (1,555
    )
    
    
    (25
    )
    
    
    658
    
    
    
    
    
    
    
    Interest income
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    430
    
    
    
    948
    
    
    
    139Other income
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    7,734
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    
    
    
    
    34,444
    
    
    
    (48,508
    )
    
    
    102,404
    
    
    
    161,223
    
    
    
    23,619Income tax expense
    
    
    18
    
    
    
    (15,014
    )
    
    
    182
    
    
    
    (23,335
    )
    
    
    (36,396
    )
    
    
    (5,332
    )Net income (loss)
    
    
    
    
    
    
    19,430
    
    
    
    (48,326
    )
    
    
    79,069
    
    
    
    124,827
    
    
    
    18,287Accretion of Series A contingently
redeemable convertible preferred shares
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    (270,343
    )
    
    
    (30,050
    )
    
    
    (4,402
    )Accretion of Series B contingently
redeemable convertible preferred shares
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    (304,763
    )
    
    
    (48,359
    )
    
    
    (7,085
    )Net income (loss) attributable to
ordinary shareholders
    
    
    
    
    
    
    19,430
    
    
    
    (48,326
    )
    
    
    (496,037
    )
    
    
    46,418
    
    
    
    6,800Income (loss) per shareBasic and diluted
    
    
    25
    
    
    
    0.39
    
    
    
    (0.97
    )
    
    
    (8.63
    )
    
    
    0.62
    
    
    
    0.09Weighted average number of ordinary
shares outstanding:Basic and diluted shares
    
    
    25
    
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    57,481,400
    
    
    
    74,648,779
    
    
    
    74,648,779
  F - 4




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands of Renminbi (RMB) and US dollar
(US$))
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 312007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    
    19,430
    
    
    
    (48,326
    )
    
    
    79,069
    
    
    
    124,827
    
    
    
    18,287Adjustments to reconcile net income (loss) to net
cash generated from operating activities:Share-based compensation
    
    
    
    
    
    
    49,526
    
    
    
    4,215
    
    
    
    1,006
    
    
    
    147Imputed interest on amounts due to related
parties (note 21)
    
    
    8
    
    
    
    96
    
    
    
    2,991
    
    
    
    55
    
    
    
    8Depreciation of property, plant and equipment
    
    
    17,906
    
    
    
    1,084
    
    
    
    17,629
    
    
    
    51,681
    
    
    
    7,571Amortization of acquired intangible assets
    
    
    
    
    
    
    2,002
    
    
    
    20,497
    
    
    
    26,493
    
    
    
    3,881Loss (gain) on disposal of equipment
    
    
    1,555
    
    
    
    25
    
    
    
    (658
    )
    
    
    
    
    
    
    Deferred tax benefit
    
    
    9,472
    
    
    
    (1,608
    )
    
    
    (5,080
    )
    
    
    (2,330
    )
    
    
    (341
    )Change in fair value of convertible notes
    
    
    
    
    
    
    341
    
    
    
    464
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    895
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (5,416
    )
    
    
    (2,771
    )
    
    
    (19,283
    )
    
    
    (18,556
    )
    
    
    (2,718
    )(Increase) decrease in prepayments and other
current assets
    
    
    (4,782
    )
    
    
    2,723
    
    
    
    (23,043
    )
    
    
    (43,012
    )
    
    
    (6,301
    )(Increase) decrease in deposits for
non-current assets
    
    
    (280
    )
    
    
    
    
    
    
    (621
    )
    
    
    585
    
    
    
    86(Decrease) increase in accounts payable
    
    
    
    
    
    
    
    
    
    
    (20,221
    )
    
    
    18
    
    
    
    3Increase (decrease) in accrued expenses and
other liabilities
    
    
    4,095
    
    
    
    2,049
    
    
    
    (13,709
    )
    
    
    3,586
    
    
    
    525Decrease in deferred revenue
    
    
    
    
    
    
    
    
    
    
    (1,666
    )
    
    
    (3,856
    )
    
    
    (565
    )Increase (decrease) in lease deposits
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (2,215
    )
    
    
    (324
    )Increase (decrease) in income tax payable
    
    
    2,605
    
    
    
    962
    
    
    
    5,265
    
    
    
    (2,399
    )
    
    
    (351
    )Net cash generated from operating activities
    
    
    44,593
    
    
    
    6,103
    
    
    
    46,774
    
    
    
    135,883
    
    
    
    19,908CASH FLOWS FROM INVESTING ACTIVITIESPayments under arrangements with Changan
Hospital (note 26)
    
    
    
    
    
    
    
    
    
    
    (20,821
    )
    
    
    (11,800
    )
    
    
    (1,729
    )Acquisitions, net of cash acquired (note 4)
    
    
    
    
    
    
    
    
    
    
    (231,481
    )
    
    
    (32,205
    )
    
    
    (4,718
    )Acquisition of property, plant and equipment
    
    
    (43,398
    )
    
    
    (22,466
    )
    
    
    (31,575
    )
    
    
    (106,984
    )
    
    
    (15,673
    )Deposits for the purchase of non-current assets
    
    
    (13,031
    )
    
    
    (13,573
    )
    
    
    (95,110
    )
    
    
    (121,755
    )
    
    
    (17,837
    )Proceeds from disposal of property, plant and
equipment
    
    
    5,977
    
    
    
    5,598
    
    
    
    2,616
    
    
    
    475
    
    
    
    70Net cash used in investing activities
    
    
    (50,452
    )
    
    
    (30,441
    )
    
    
    (376,371
    )
    
    
    (272,269
    )
    
    
    (39,887
    )
 F - 5




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
(Amounts in thousands of Renminbi (RMB) and US dollar (US$))
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 312007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of convertible notes
    
    
    
    
    
    
    36,523
    
    
    
    140,241
    
    
    
    
    
    
    
    Proceeds from issuance of Series A contingently
redeemable convertible preferred shares (net of
paid issuance costs of RMB2,449)
    
    
    
    
    
    
    
    
    
    
    67,671
    
    
    
    
    
    
    
    Proceeds from issuance of Series B contingently
redeemable convertible preferred shares (net of
paid issuance costs of RMB5,664)
    
    
    
    
    
    
    
    
    
    
    405,331
    
    
    
    
    
    
    
    Proceeds from initial public offering (net of
underwriter commissions of RMB63,088 and
issuance cost of RMB17,296)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    820,872
    
    
    
    120,258Proceeds from exercise of share options
    
    
    
    
    
    
    
    
    
    
    114,606
    
    
    
    
    
    
    
    Proceeds from short-term bank borrowings
    
    
    
    
    
    
    
    
    
    
    20,800
    
    
    
    19,000
    
    
    
    2,784Proceeds from long-term bank borrowings
    
    
    
    
    
    
    
    
    
    
    7,460
    
    
    
    135,580
    
    
    
    19,863Repayment of obligations under capitalized leases
    
    
    (786
    )
    
    
    (5,698
    )
    
    
    (5,525
    )
    
    
    (3,719
    )
    
    
    (545
    )Repayment of long-term bank borrowings
    
    
    
    
    
    
    
    
    
    
    (37,890
    )
    
    
    (89,138
    )
    
    
    (13,059
    )Repayment of short-term bank borrowings
    
    
    
    
    
    
    
    
    
    
    (21,500
    )
    
    
    (28,300
    )
    
    
    (4,146
    )Increase in restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,714
    )
    
    
    (691
    )Dividends paid to preferred shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,867
    )
    
    
    (1,592
    )Dividends paid to ordinary shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,338
    )
    
    
    (2,394
    )Increase (decrease) in amounts due to related
parties
    
    
    6,806
    
    
    
    32,400
    
    
    
    (41,700
    )
    
    
    (2,000
    )
    
    
    (293
    )Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (530
    )
    
    
    (78
    )Net cash generated from financing activities
    
    
    6,020
    
    
    
    63,225
    
    
    
    649,494
    
    
    
    819,846
    
    
    
    120,107Exchange rate effect on cash
    
    
    
    
    
    
    138
    
    
    
    (5,698
    )
    
    
    (212
    )
    
    
    (32
    )Net increase in cash
    
    
    161
    
    
    
    39,025
    
    
    
    314,199
    
    
    
    683,248
    
    
    
    100,096Cash at beginning of year
    
    
    606
    
    
    
    767
    
    
    
    39,792
    
    
    
    353,991
    
    
    
    51,860Cash at end of year
    
    
    767
    
    
    
    39,792
    
    
    
    353,991
    
    
    
    1,037,239
    
    
    
    151,956Supplemental schedule of cash flows information:Income tax paid
    
    
    (737
    )
    
    
    
    
    
    
    (11,688
    )
    
    
    (37,740
    )
    
    
    (5,529
    )Interest paid
    
    
    (946
    )
    
    
    (184
    )
    
    
    (3,538
    )
    
    
    (5,371
    )
    
    
    (787
    )Supplemental schedule of non-cash activities:Acquisition of property, plant and equipment and
other intangible assets through utilization of
deposits
    
    
    
    
    
    
    1,961
    
    
    
    50,601
    
    
    
    153,153
    
    
    
    22,437Acquisition of property, plant and equipment under
capitalized lease
    
    
    
    
    
    
    
    
    
    
    14,520
    
    
    
    
    
    
    
    Acquisition of property, plant and equipment
included in accrual for purchase of property,
plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,137
    
    
    
    2,511Conversion of convertible notes into Series A
contingently redeemable convertible preferred
shares
    
    
    
    
    
    
    
    
    
    
    176,082
    
    
    
    
    
    
    
    Conversion of Series A and Series B contingently
redeemable convertible preferred shares to
ordinary shares upon initial public offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    704,276
    
    
    
    103,177
  F - 6




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 Accumulated OtherNumber of
    
    
    
    
    
    
    Additional Paid-in
    
    
    Comprehensive
    
    
    
    
    
    
    Total ShareholdersOrdinary Shares
    
    
    Ordinary Shares
    
    
    Capital
    
    
    Income (Loss)
    
    
    Accumulated Deficits
    
    
    EquityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBPredecessor  Our Medical Services LimitedBalance as of January 1, 2007
    
    
    50,000,000
    
    
    
    41
    
    
    
    45,779
    
    
    
    
    
    
    
    88,444
    
    
    
    134,264Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,430
    
    
    
    19,430Imputed interest on related parties loan (note 21)
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Balance as of October 30, 2007
    
    
    50,000,000
    
    
    
    41
    
    
    
    45,787
    
    
    
    
    
    
    
    107,874
    
    
    
    153,702Successor  Concord Medical Services Holdings LimitedReorganization (note 1)
    
    
    
    
    
    
    
    
    
    
    347,607
    
    
    
    
    
    
    
    (107,874
    )
    
    
    239,733Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,326
    )
    
    
    (48,326
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    147Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,179
    )Imputed interest on related parties loan (note 21)
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    96Share-based compensation
    
    
    
    
    
    
    
    
    
    
    49,526
    
    
    
    
    
    
    
    
    
    
    
    49,526Balance as of December 31, 2007
    
    
    50,000,000
    
    
    
    41
    
    
    
    443,016
    
    
    
    147
    
    
    
    (48,326
    )
    
    
    394,878Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,069
    
    
    
    79,069Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,969
    )
    
    
    
    
    
    
    (3,969
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,100Imputed interest on related parties loan (note 21)
    
    
    
    
    
    
    
    
    
    
    2,991
    
    
    
    
    
    
    
    
    
    
    
    2,991Exercise of share options
    
    
    21,184,600
    
    
    
    15
    
    
    
    114,591
    
    
    
    
    
    
    
    
    
    
    
    114,606Redesignation of 756,500 ordinary shares to Series A contingently redeemable
convertible preferred shares (note 16)
    
    
    (756,500
    )
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,215
    
    
    
    
    
    
    
    
    
    
    
    4,215Recognition of beneficial conversion feature upon issuance of Series A contingently
redeemable convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    253,317
    
    
    
    
    
    
    
    
    
    
    
    253,317Recognition of beneficial conversion feature upon issuance of Series B contingently
redeemable convertible preferred shares
    
    
    
    
    
    
    
    
    
    
    295,019
    
    
    
    
    
    
    
    
    
    
    
    295,019Accretion of Series A contingently redeemable convertible preferred shares (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270,343
    )
    
    
    (270,343
    )Accretion of Series B contingently redeemable convertible preferred shares (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (304,763
    )
    
    
    (304,763
    )Balance as of December 31, 2008
    
    
    70,428,100
    
    
    
    55
    
    
    
    1,113,150
    
    
    
    (3,822
    )
    
    
    (544,363
    )
    
    
    565,020
 F - 7




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 Accumulated OtherNumber of
    
    
    
    
    
    
    Additional Paid-in
    
    
    Comprehensive
    
    
    
    
    
    
    Total ShareholdersOrdinary Shares
    
    
    Ordinary Shares
    
    
    Capital
    
    
    Income (Loss)
    
    
    Accumulated Deficits
    
    
    EquityRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMBBalance as of January 1, 2009
    
    
    70,428,100
    
    
    
    55
    
    
    
    1,113,150
    
    
    
    (3,822
    )
    
    
    (544,363
    )
    
    
    565,020Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,827
    
    
    
    124,827Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165
    )
    
    
    
    
    
    
    (165
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,662Imputed interest on related parties loan (note 21)
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    55Accretion of Series A contingently redeemable convertible preferred shares (note 15 )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,050
    )
    
    
    (30,050
    )Accretion of Series B contingently redeemable convertible preferred shares (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,359
    )
    
    
    (48,359
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,338
    )
    
    
    (16,338
    )Initial public offering of ordinary shares
    
    
    36,000,000
    
    
    
    25
    
    
    
    813,938
    
    
    
    
    
    
    
    
    
    
    
    813,963Conversion of Series A contingently redeemable convertible preferred shares into
ordinary shares
    
    
    17,694,200
    
    
    
    12
    
    
    
    286,421
    
    
    
    
    
    
    
    
    
    
    
    286,433Conversion of Series B contingently redeemable convertible preferred shares into
ordinary shares
    
    
    23,333,200
    
    
    
    16
    
    
    
    457,340
    
    
    
    
    
    
    
    
    
    
    
    457,356Share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,006
    
    
    
    
    
    
    
    
    
    
    
    1,006Balance as of December 31,2009
    
    
    147,455,500
    
    
    
    108
    
    
    
    2,671,910
    
    
    
    (3,987
    )
    
    
    (514,283
    )
    
    
    2,153,748Balance as
of December 31,2009, in US$
    
    
    
    
    
    
    16
    
    
    
    391,437
    
    
    
    (584
    )
    
    
    (75,343
    )
    
    
    315,526
  F - 8




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 1. ORGANIZATION AND BASIS OF PRESENTATION
   Percentage ofDate of
    
    Place of
    
    Ownership by theCompany
    
    Establishment
    
    Establishment
    
    Company
    
    Principal ActivitiesAscendium
    
    September 10, 2007
    
    BVI
    
    
    100
    %
    
    Investment HoldingOMS
    
    August 22, 1996
    
    BVI
    
    
    100
    %
    
    Investment HoldingChina Medster
    
    August 8, 2003
    
    Singapore
    
    
    100
    %
    
    Investment HoldingCyber
    
    May 26, 2006
    
    Hong Kong
    
    
    100
    %
    
    Investment HoldingCMS Holdings
    
    July 18, 2008
    
    Hong Kong
    
    
    100
    %
    
    Investment HoldingKing Cheers
    
    May 18, 2001
    
    Hong Kong
    
    
    100
    %
    
    Investment HoldingAMS
    
    July 23, 1997
    
    PRC
    
    
    100
    %
    

Leasing of medical
equipment and
provision of
management servicesAML
    
    February 21, 2008
    
    PRC
    
    
    100
    %
    
    Leasing of medical
equipment and
provision of
management servicesMSC
    
    March 21, 2003
    
    PRC
    
    
    100
    %
    
    Leasing of medical
equipment and
provision of
management servicesCHM
    
    July 23, 2008
    
    PRC
    
    
    100
    %
    
    Provision of
management servicesXHF
    
    July 26, 2007
    
    PRC
    
    
    100
    %
    
    Provision of
management services
  F - 9




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
  RMB
    
    
    US$Goodwill
    
    
    259,282
    
    
    
    37,983Current assets
    
    
    37,253
    
    
    
    5,458Property, plant and equipment
    
    
    53,786
    
    
    
    7,879Other intangible assets  customer relationships and operating leases
    
    
    132,000
    
    
    
    19,337Deposit for property, plant and equipment
    
    
    13,753
    
    
    
    2,015Deferred tax assets, non-current portion
    
    
    41,199
    
    
    
    6,035Deferred tax liabilities, non-current portion
    
    
    (58,792
    )
    
    
    (8,612
    )Other non-current assets
    
    
    7,538
    
    
    
    1,104Liabilities assumed
    
    
    (92,584
    )
    
    
    (13,563
    )Total consideration
    
    
    393,435
    
    
    
    57,636
  Business
Combinations, Overall Business Combinations
 F - 10




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 1.
    
    ORGANIZATION AND BASIS OF PRESENTATION (continued)Shenzhen Aohua Medical Services (AMS) was incorporated by OMS on July 23, 1997 and OMS
contributed RMB 4,800 representing 90% equity interest in AMS. Since the incorporation of AMS,
10% of its equity interest was held by two third party nominees who acted as the custodians of
such equity interest. The two nominees did not maintain their required capital contributions
at any time subsequent to the incorporation of AMS. In December 2007, the Group entered into
an agreement with the two nominees to obtain title of their 10% equity interest. The two
nominees agreed to complete all legal procedures required to effect legal transfer of the
 shares to OMS on June 10, 2009 upon approval by the Shenzhen Industrial and Commercial
Administration Bureau in return for a fee of RMB 4,200.Due to the two nominees failure to complete their capital injection obligations as required by
PRC Company Law, it is in the Companys view that the two nominees never possessed any ordinary
shareholding rights, including dividend or voting rights. Consequently, OMS effectively
controlled 100% of the equity of AMS prior to the legal reacquisition of shares subsequent to
December 31, 2009. As such, the Groups consolidated financial statements do not present a
minority interest for the financial statement periods presented.On December 15, 2009, the Company acquired 100% equity interest of King Cheers at a
consideration of HK$2. King Cheers was incorporated in Hong Kong on May 18, 2001 under the Hong
Kong Companies Ordinance. It is an investment holding company and has no business operation of
its own.On December 16, 2009, the Company completed its initial public offering of 12,000,000 American
Depositary Shares (ADSs) at US$11.0 per ADS. Each ADS comprises three ordinary shares of the
Company. The net proceeds to the Company from the offering amounted to approximately RMB
813,938 (US$119,211), net of underwriter Commission and issuance costs paid and payable.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentation and use of estimatesThe accompanying consolidated financial statements have been prepared in accordance with United
States generally accepted accounting principles (U.S. GAAP).The preparation of consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenues and expenses during the reporting periods. Significant
estimates and assumptions reflected in the Companys financial statements include, but are not
limited to, purchase price allocation, revenue recognition, allowance for doubtful accounts,
useful lives of property, plant and equipment and acquired intangible assets, realization of
deferred tax assets, share-based compensation expense, and the valuation of the Companys
acquired tangible and intangible assets and liabilities and ordinary shares, Series A and B
contingently redeemable convertible preferred shares and convertible notes. Actual results
could materially differ from those estimates.The Predecessor financial information is presented on the historical basis of accounting
compared to the Successor financial information, which reflects the fair value of the net
assets acquired on the date of the Reorganization rather than their historical cost.
 F - 11




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Basis of presentation and use of estimates(continued)The financial position, results of operations, statement of cash flows and related disclosures
for periods prior to October 30, 2007, the effective date of the Reorganization are presented
as those of the Predecessor. The financial position, results of operations, statement of cash
flows and related disclosures subsequent to October 30, 2007 (September 10, 2007  December
31, 2007) are presented as those of the Successor, which was a shell company prior to October
30, 2007. The consolidated financial statements of the Successor as of December 31, 2007 and
for the period from September 10, 2007 reflect the new basis of accounting in accordance with
ASC 805-10. Accordingly, the fair value of net assets as of October 30, 2007 have been recorded
in the financial statements for the period commencing on September 10, 2007. The consolidated
financial statements of the Predecessor are presented using the Companys historic basis of
accounting. Therefore, the results of the Successor are not comparable to the results of the
Predecessor due to the difference in the new basis of presentation.Principles of consolidationThe consolidated financial statements of the group include the financial statements of the
Company and its subsidiaries. All transactions and balances between the Company and its
subsidiaries have been eliminated upon consolidation.Foreign currency translation and transactionsThe Companys PRC subsidiaries determine their functional currencies to be the Chinese Renminbi
(RMB) based on the criteria of ASC 830-10, Foreign Currency Matters, Overall
(Pre-Codification: SFAS No. 52, Foreign Currency Translation). The Company uses the RMB as its
reporting currency. The Company uses the monthly average exchange rate for the year and the
exchange rate at the balance sheet date to translate the operating results and financial
position, respectively. Translation differences are recorded in accumulated other comprehensive
loss, a component of shareholders equity. The functional currency of the Company and its
subsidiaries, Ascendium, CMS Holdings, OMS, Cyber, China Medstar and King Cheers is the United
States dollar (US$).Transactions denominated in foreign currencies are remeasured into the functional currency at
the exchange rates prevailing on the transaction dates. Foreign currency denominated financial
assets and liabilities are remeasured at the exchange rates prevailing at the balance sheet
date. Exchange gains and losses are included in the consolidated statements of operations.Convenience translationAmounts in U.S. dollars (US$) are presented for the convenience of the reader and are
translated at the noon buying rate of RMB6.8259 to US$1.00 on December 31, 2009 in the City of
New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve
Bank of New York. No representation is made that the RMB amounts could have been, or could be,
converted into US$ at such rate.CashCash consists of cash deposits, which are unrestricted as to withdrawal and use.
 F - 12




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Restricted cashShort-term and long-term restricted cash represent collateral required to be maintained
pursuant to certain contractual financing arrangements the Group entered into with certain
financial institutions (see note 5).Accounts receivable and allowance for doubtful accountsThe Group considers many factors in assessing the collectability of its receivables due from
its customers, such as, the age of the amounts due, the customers payment history and
credit-worthiness. An allowance for doubtful accounts is recorded in the period in which
uncollectability is determined to be probable. Accounts receivable balances are written off
after all collection efforts have been exhausted.LeasesIn accordance with ASC 840, Leases(Pre-Codification: SFAS No. 13, Accounting for Leases),
leases for a lessee are classified at the inception date as either a capital lease or an
operating lease. The Company assesses a lease to be a capital lease if any of the following
conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b)
there is a bargain purchase option, c) the lease term is at least 75% of the propertys
estimated remaining economic life or d) the present value of the minimum lease payments at the
beginning of the lease term is 90% or more of the fair value of the leased property to the
lessor at the inception date. A capital lease is accounted for as if there was an acquisition
of an asset and an incurrence of an obligation at the inception of the lease. The capitalized
lease obligation reflects the present value of future rental payments, discounted at the
appropriate interest rates. The cost of the asset is amortized over the lease term. However, if
ownership is transferred at the end of the lease term, the cost of the asset is amortized as
set out below under property, plant and equipment.Property, plant and equipment, netProperty, plant and equipment are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, as follows:
 Category
    
    Estimated useful life
    
    Estimated
residual valueMedical equipment*
    
    Shorter of customer contract or 6-20 years
    
    Electronic and office equipment
    
    5 years
    
    5-10%Motor vehicles
    
    5 years
    
    5-10%Leasehold improvement
    
    shorter of lease term or 5 years
    
    
 
 *
    
    The cost of the asset is amortized over the lease term. However, if ownership is
transferred at the end of the lease term, the cost of the asset is amortized over the
shorter of customer contract or the useful life of the asset which ranges from 6-20 years. Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals
and betterments that extends the useful lives of property, plant and equipment are capitalized
as additions to the related assets. Retirements, sales and disposals of assets are recorded by
removing the cost and accumulated depreciation from the asset and accumulated depreciation
accounts with any resulting gain or loss reflected in the consolidated statements of
operations.
 F - 13




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Property, plant and equipment, net(continued)Cost incurred in constructing new facilities, including progress payment, interest and other
costs relating to the construction are capitalized and transferred to fixed assets upon
completion. Total interest costs incurred and capitalized during the period from January 1 to
October 30, 2007 (predecessor), the period from September 10, 2007 to December 31, 2007
(successor) and the years ended December 31, 2008 and 2009 (successor) amounted to
approximately nil, nil, RMB2,179 and RMB1,310 (US$192), respectively.GoodwillGoodwill represents the excess of the purchase price over the estimated fair value of net
tangible and identifiable intangible assets acquired. The Companys goodwill and acquisition
related intangible assets outstanding at December 31, 2008 and 2009 were related to the
Companys Reorganization, the acquisition of China Medstar, XHF and other businesses (see notes
1 and 4). In accordance with ASC 350-20, Intangibles, Goodwill and Other(Pre-Codification:
SFAS No. 142, Goodwill and Other Intangible Assets), goodwill amounts are not amortized, but
rather are tested for impairment at least annually or more frequently if there are indicators
of impairment present. An impairment loss must be measured if the sum of the expected future
undiscounted cash flows from the use and eventual disposition of the asset is less than the net
book value of the asset. The amount of the impairment loss will generally be measured as the
difference between the net book value of the asset and their estimated fair value. The Company
determined it has one reporting unit in which all goodwill was tested for impairment at each
reporting period end resulting in no impairment charges.Acquired intangible assets, netAcquired intangible assets relate to customer relationships and operating leases that are not
considered to have an indefinite useful life. These intangible assets are amortized on a
straight line basis over the economic life. The customer relationship assets relate to the
ability to sell existing and future services to existing customers and have been estimated
using the income method. Operating leases relate to favorable operating lease terms based on
market conditions that existed on the date of acquisition and are amortized over the term of
the leases.Impairment of long-lived assets and acquired intangiblesThe Group evaluates its long-lived assets or asset group including acquired intangibles with
finite lives for impairment whenever events or changes in circumstances (such as a significant
adverse change to market conditions that will impact the future use of the assets) indicate
that the carrying amount of a group of long-lived assets may not be fully recoverable. When
these events occur, the Group evaluates the impairment by comparing the carrying amount of the
assets to future undiscounted cash flows expected to result from the use of the assets and
their eventual disposition. If the sum of the expected undiscounted cash flows is less than the
carrying amount of the assets, the Group recognizes an impairment loss based on the excess of
the carrying amount of the asset group over its fair value, generally based upon discounted
cash flows. No such impairment charge was recognized for any of the years presented.
 F - 14




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Fair value of financial instrumentsThe carrying amounts of the Groups financial instruments, including cash, accounts receivable,
accounts payable and accrued expenses and other liabilities approximate fair value because of
their short maturities. The carrying amounts of the Groups short-term and long-term bank
borrowings bear interest at floating rates and therefore approximate the fair value of these
obligations based upon managements best estimates of interest rates that would be available
for similar debt obligations at December 31, 2008 and 2009.Revenue recognitionThe majority of the Groups revenues are derived directly from hospitals that enter into
medical equipment lease and management service arrangements with the Company. A lease and
management service arrangement will typically include the purchase and installation of
diagnostic imaging and/or radiation oncology system (medical equipment) at the hospital, and
the full-time deployment of a qualified system technician that is responsible for certain
management services related to the radiotherapy or diagnostic services being performed by the
hospital centers doctors to their patients. To a lesser extent, revenues are generated from
stand-alone management service arrangements where a hospital has previously acquired the
equipment from the Company or through another vendor or sale of medical equipment.Revenues arising from sales of medical equipment and services are recognized when there is
persuasive evidence of an arrangement, the fee is fixed or determinable, collectability is
reasonably assured and the delivery of the medical equipment or services has occurred. When the
fees associated with an arrangement containing extended payment terms are not considered to be
fixed or determinable at the outset of arrangement, revenue is recognized as payments become
due, and all of the other criteria above have been met.The Group is subject to approximately 5% business tax and related surcharges on the revenue
earned from provision of leasing and management services. The Group has recognized revenues net
of these business taxes and other surcharges. Such business tax and related surcharges for the
period from January 1 to October 30, 2007 (predecessor), September 10, 2007 to December 31,
2007 (successor) and the years ended December 31, 2008 and 2009 (successor) are approximately
RMB428, RMB208, RMB4,500 and RMB10,771 (US$1,577), respectively. In the event that revenue
recognition is deferred to a later period, the related business tax and other surcharges and
fees are also deferred and will be recognized only upon recognition of the deferred revenue.Lease and management servicesThe Group enters into both leases and management service arrangements with independent
hospitals consisting of terms that range from 6 to 20 years. Pursuant to these arrangements,
the Group receives a percentage of the net profit (profit share as defined in the
arrangement) of the hospital unit that delivers the diagnostic imaging and/or radiation
oncology services determined in accordance with the terms of the arrangement.
 F - 15




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Revenue recognition(continued)Lease and management services(continued)Pursuant to ASC 840-10, Leases, Overall,(Pre-Codification: EITF 01-8, Determining Whether an
Arrangement Contains a Lease), the Group determined that the Lease and management service
arrangements contain a lease of medical equipment. The hospital has the ability and right to
operate the medical equipment while obtaining more than a minor amount of the output. The
arrangement also contains a non-lease deliverable being the management service element. The
arrangement consideration should be allocated between the lease element and the non-lease
deliverables on a relative fair value basis, however because all of the consideration is earned
through the contingent rent feature discussed below, there is no impact of such allocation.ASC 840, Leases, is applied to the lease elements of the arrangement and U.S. Securities and
Exchange Commission (SEC) Staff Accounting Bulletin No. 104 is applied to other elements of
the arrangement not within the scope of ASC 840.The lease rentals and management service receivable under the lease arrangement are based
entirely on a profit sharing formula (contingent rent feature). The profitability of the
business unit is not only dependent on the medical equipment placed at the hospital, but also
the hospitals ability to manage the costs and appoint doctors and clinical staff to operate
the equipment. Certain of the lease and management service arrangements may include a transfer
of ownership or bargain purchase option at the end of the lease term. Due to the length of the
lease term, the collectability of these minimum lease payments are not considered reasonably
predictable and there are also inherent uncertainties regarding the future costs to be incurred
by the Group relating to the arrangement. Given these uncertainties, the Group accounts for all
of these lease arrangements as operating leases.As the collectability of the minimum lease rental is not considered predictable, and the
remaining rental is considered contingent, the Group recognizes revenue when a lease payment
under the arrangement become fixed, i.e. when the profit share under the arrangement is
determined and agreed upon by both parties to the agreement. Similarly, for the service element
of the arrangement, revenue is only considered determinable at the time a payment under the
arrangement becomes fixed, i.e. when the profit share under the arrangement is determined and
agreed upon by both parties. Revenue is recognized when it is determined that the basic
criteria, referred to above, have also been met.Management servicesThe Group provides stand-alone management services to certain hospitals which are already in
possession of radiotherapy and diagnostic equipment. The fee for the management service
arrangement is either based on a contracted percentage of monthly revenue generated by the
specified hospital unit (revenue share) or in limited instances on a fixed monthly fee. The
consideration that is based on a contracted percentage of revenue is recognized when the
monthly fees under the arrangement become due, i.e. when the revenue share under the
arrangement is determined and agreed upon by both parties to the agreement. Fixed monthly fees
are recognized ratably over the service term.
 F - 16




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Revenue recognition(continued)Medical equipment salesPursuant to the application of ASC 605-45, Revenue Recognition, Principal Agent Consideration
(Pre-Codification: EITF 99-19, Reporting Revenue Gross as Principal versus Net as an Agent),
the Group records revenue related to medical equipment sales on a net basis when the equipment
is delivered to the customer and the sales price is determinable. During the period from
January 1 to October 30, 2007 (predecessor), September 10, 2007 to December 31, 2007
(successor) and the years ended December 31, 2008 and 2009 (successor), the Company had medical
equipment sales, of nil, nil, RMB 1,725 and RMB 2,675, net of 17% value-added tax of
approximately nil, nil, RMB863 and RMB1,519 (US$223) taxes, respectively. Revenue derived from
medical equipment sales is recorded under Other in the consolidated statements of operations.Cost relating to lease and management service arrangementThe cost of medical equipment that is leased under an operating lease is included in property,
plant and equipment in the balance sheet. The medical equipment is depreciated using the
Groups depreciation policy. The costs of the management service component is recognized as an
expense as incurred.Cost of management servicesCosts of management services mainly include the labor costs of technicians and management
staff.Cost of equipment salesCost of equipment sales, recorded net against the related revenue, include the cost of the
equipment purchased and other direct costs involved in the equipment sales.Income taxesThe Group follows the liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the period in which the differences are expected to reverse. The Group records
a valuation allowance to offset deferred tax assets if based on the weight of available
evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will
not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax
expense in the period that includes the enactment date of the change in tax rate.On January 1, 2007, the Group adopted ASC 740-10, Income taxes, Overall(Pre-Codification: FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109), which clarifies the accounting and disclosure for uncertainty in income
taxes. Interests and penalties arising from underpayment of income taxes shall be computed in
accordance with the related PRC tax laws. The amount of interest expense is computed by
applying the applicable statutory rate of interest to the difference between the tax position
recognized and the amount previously taken or expected to be taken in a tax return. Interests
and penalties recognized in accordance with ASC 740-10 is classified in the financial
statements as a component of income tax expense.
 F - 17




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Income taxes(continued)In accordance with the provisions of ASC 740-10, the Group recognizes in its financial
statements the impact of a tax position if a tax return position or future tax position is
more likely than not to prevail based on the facts and technical merits of the position. Tax
positions that meet the more likely than not recognition threshold are measured at the
largest amount of tax benefit that has a greater than fifty percent likelihood of being
realized upon settlement. The Groups estimated liability for unrecognized tax benefits which
is included in the accrued expenses and other liabilities account is periodically assessed
for adequacy and may be affected by changing interpretations of laws, rulings by tax
authorities, changes and/or developments with respect to tax audits, and expiration of the
statute of limitations. The outcome for a particular audit cannot be determined with certainty
prior to the conclusion of the audit and, in some cases, appeal or litigation process. The
actual benefits ultimately realized may differ from the Groups estimates. As each audit is
concluded, adjustments, if any, are recorded in the Groups financial statements. Additionally,
in future periods, changes in facts, circumstances, and new information may require the Group
to adjust the recognition and measurement estimates with regard to individual tax positions.
Changes in recognition and measurement estimates are recognized in the period in which the
changes occur.Share-based compensationThe Groups employees participate in the Companys share-based scheme which is more fully
discussed in note 20. Share-based awards granted to employees are accounted for under ASC
718-10, Compensation-Stock Compensation, Overall(Pre-Codification: SFAS No. 123(R),
Share-Based Payment).In accordance with ASC 718-10, all grants of share-based awards to employees are recognized in
the financial statements based on their grant date fair values which are calculated using an
option pricing model. The Group has elected to recognize compensation expense using the
straight-line method for all share options granted with graded vesting based on service
conditions. To the extent the required vesting conditions are not met resulting in the
forfeiture of the share-based awards, previously recognized compensation expense relating to
those awards are reversed. ASC 718-10 requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent period if actual forfeitures differ from initial
estimates. Share-based compensation expense was recorded net of estimated forfeitures such that
expense was recorded only for those share-based awards that are expected to vest.Income (loss) per shareIncome (loss) per share is computed in accordance with ASC 260, Earnings Per Share
(Pre-Codification: SFAS No. 128, Earnings per Share). Basic income (loss) per ordinary share is
computed by dividing income (loss) attributable to holders of ordinary shares by the weighted
average number of ordinary shares outstanding during the period. Diluted income (loss) per
ordinary share reflects the potential dilution that could occur if securities or other
contracts to issue ordinary shares were exercised or converted into ordinary shares. Ordinary
 shares issuable upon the conversion of the contingently redeemable convertible preferred shares
are included in the computation of diluted income (loss) per ordinary share on an
if-converted basis when the impact is dilutive. The dilutive effect of outstanding
share-based awards is reflected in the diluted income (loss) per share by application of the
treasury stock method. Two- Class Method prescribed under ASC 260-10, Earnings Per Share,
Overall(Pre-Codification: EITF 03-6, Participating Securities and the Two-Class Method), is
used to calculate income (loss) per share data for preferred shares that are participating
securities in the event the Group has reportable net income.
 F - 18




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Comprehensive incomeComprehensive income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, ASC 220-10,
Comprehensive Income, Overall,(Pre-Codification: SFAS No. 130, Reporting Comprehensive Income)
requires that all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. During the periods presented, the
Groups comprehensive income includes net income and foreign currency translation adjustments
and is presented in the statement of changes in shareholders equity.Recent accounting pronouncementsIn May 2009, the Financial Accounting Standards Board the FASB issued SFAS No. 165,
Subsequent Events, (subsequently codified by ASC 855) names the two types of subsequent events
either as recognized subsequent events or non-recognized subsequent events and modifies the
definition of subsequent events as events or transactions that occur after the balance sheet
date, but before the financial statements are issued (for public entities) or available to be
issued (for nonpublic entities that do not widely distribute their financial statements). The
statement also required the Group to disclose the date through which it had evaluated its
subsequent events and the basis for that date. SFAS 165 is effective on a prospective basis for
interim or annual financial periods ending after June 15, 2009. The Company adopted ASC 855
from fiscal year 2009. In February 2010, Accounting Standards Update (ASU) 2010-09,
Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,
was issued to remove the requirement for an SEC filer to disclose a date in both issued and
revised financial statements, effective from issuance of the final update. ASC 855 and its
related amendment did not have a significant impact on the Groups consolidated financial
position and results of operations.In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13 (ASU
2009-13), Multiple-Deliverable Revenue Arrangements. ASU 2009-13 amends ASC 605-25, Revenue
Recognition, Multiple-Element Arrangements, regarding revenue arrangements with multiple
deliverables. These updates addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting, and how the arrangement
consideration should be allocated among the separate units of accounting. These updates are
effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or
prospectively for new or materially modified arrangements. In addition, early adoption is
permitted. By providing another alternative for determining the selling price of deliverables,
the guidance for arrangements with multiple deliverables will allow companies to allocate
arrangement consideration in multiple deliverable arrangements in a manner that better reflects
the transactions economics and will often result in earlier revenue recognition. The new
guidance modifies the fair value requirements of previous guidance by allowing best estimate
of selling price in addition to vendor-specific objective evidence (VSOE) and other
third-party evidence (TPE) for determining the selling price of a deliverable. A vendor is
now required to use its best estimate of the selling price when VSOE or TPE of the selling
price cannot be determined. In addition, the residual method of allocating arrangement
consideration is no longer permitted under the new guidance. The Group is still assessing the
impact of adoption of ASU 2009-13 onto its consolidated financial statements.
 F - 19




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Recent accounting pronouncements(continued)In January 2010, the FASB issued ASU No. 2010-06 (ASU 2010-06), Fair Value Measurements and
Disclosures, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC 820,
Fair Value Measurements and Disclosures, to require a number of additional disclosures
regarding (1) the different classes of assets and liabilities measured at fair value, (2) the
valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and
(4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The Group does not expect that the adoption of ASU 2010-06
will have a material impact on its consolidated financial statements.3.
    
    CONCENTRATION OF RISKSConcentration of credit riskAssets that potentially subject the Group to significant concentration of credit risk primarily
consist of cash, accounts receivable and advances made to suppliers and hospital customers.As of December 31, 2009, substantially all of the Groups cash was deposited in financial
institutions located in the PRC and in Hong Kong, which management believes are of high credit
quality.Accounts receivable are typically unsecured and are derived from revenue earned from hospitals
in the PRC. The risk with respect to accounts receivable is mitigated by credit evaluations the
Group performs on its customers and its ongoing monitoring of outstanding balances.Advances made to suppliers are typically unsecured and arise from deposits paid in advance for
future purchases of medical equipment. As a percentage of total advances, the top five
suppliers accounted for 88% and 70% as of December 31, 2008 and 2009, respectively. Due to the
Groups concentration of advances made to a limited number of suppliers and the significant
prepayments that are made to them, any negative events or deterioration in financial strength
with respect to the Groups suppliers may cause material loss to the Group and have a material
adverse effect on the Groups financial condition and results of operations. The risk with
respect to advances made to suppliers is mitigated by credit evaluations that the Group
performs on its suppliers prior to making any advances and the ongoing monitoring of its
suppliers performance.With respect to advances made to hospital customers, the Group conducts periodic credit
evaluation of its customers but does not require collateral or other security from its hospital
customers.
 F - 20




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 3.
    
    CONCENTRATION OF RISKS (continued)
 Concentration of customersThe Group currently generates a substantial portion of its revenue from a limited number of
customers. As a percentage of revenues, the top five customers accounted for 62% for the period
from January 1, 2007 to October 30, 2007 (predecessor), 65% for the period from September 10,
2007 to December 31, 2007 (successor) and 38% and 33% for the years ended December 31, 2008 and
2009 (successor), respectively. The loss of revenue from any of these customers would have a
significant negative impact on the Groups business. However, arrangements with customers are
mostly long-term in nature. Due to the Groups dependence on a limited number of customers and
the contingent fees received based on variables the Group does not control, any negative events
with respect to the Groups customers may cause material fluctuations or declines in the Group
revenue and have a material adverse effect on the Groups financial condition and results of
operations.Concentration of suppliersA significant portion of the Groups medical equipment is sourced from its three largest
suppliers who collectively accounted for 100% of total medical equipment purchases of the Group
for the period from January 1, 2007 to October 30, 2007 (predecessor), 100% for the period from
September 10, 2007 to December 31, 2007 (successor), 96% and 50% of the total medical equipment
purchases of the Group for the years ended December 31, 2008 and 2009 (successor), respectively.
Failure to develop or maintain the relationships with these suppliers
may cause the Group  to have to identify other suppliers  in order to expand its business with new hospitals. Any
disruption in the supply of medical equipment to the Group may adversely affect the Groups
business, financial condition and results of operations.Current vulnerability due to certain other concentrationsThe Groups operations may be adversely affected by significant political, economic and social
uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies
for more than 20 years, no assurance can be given that the PRC government will continue to
pursue such policies or that such policies may not be significantly altered, especially in the
event of a change in leadership, social or political disruption or unforeseen circumstances
affecting the PRCs political, economic and social conditions. There is also no guarantee that
the PRC governments pursuit of economic reforms will be consistent or effective.The Group transacts all of its business in RMB, which is not freely convertible into foreign
currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced
a single rate of exchange as quoted daily by the Peoples Bank of China (the PBOC). However,
the unification of the exchange rates does not imply that the RMB may be readily convertible
into United States dollars or other foreign currencies. All foreign exchange transactions
continue to take place either through the PBOC or other banks authorized to buy and sell foreign
currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by
the PBOC or other institutions requires submitting a payment application form together with
suppliers invoices, shipping documents and signed contracts.Additionally, the value of the RMB is subject to changes in central government policies and
international economic and political developments affecting supply and demand in the PRC foreign
exchange trading system market.
 F - 21




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 3.
    
    CONCENTRATION OF RISKS (continued)
 Current vulnerability due to certain other concentrations(continued)A medical-related business is subject to significant restrictions under current PRC laws and
regulations. Currently, the Group conducts its operations in China through contractual
arrangements entered into with hospitals in the PRC. The relevant regulatory authorities may
find the current contractual arrangements and businesses to be in violation of any existing or
future PRC laws or regulations. If so, the relevant regulatory authorities would have broad
discretion in dealing with such violations.
 4.
    
    ACQUISITIONS
 Acquisition of China MedstarChina Medstar was a publicly listed company on the Alternative Investment Market (the AIM) of
the London Stock Exchange in the United Kingdom. Consistent with the Companys business, MSC,
the wholly-owned subsidiary of China Medstar, was also principally engaged in leasing of medical
equipment to hospitals and provision of management services in the PRC.In July 2008, the Group acquired China Medstar for cash consideration of £17.1 million,
(US$34,975) or 62 pence per share in exchange for 100% of Medstars issued and outstanding share
capital. On July 31, 2008, the Company completed the acquisition of China Medstar at which China
Medstar became a 100% owned subsidiary of the Group. The acquisition of China Medstar was
designed to complement the Groups existing network of treatment and diagnostic lease and
management service arrangements. The results of China Medstars operations have been included in
the Companys consolidated financial statements commencing August 1, 2008, the acquisition date.The purchase price allocation for the acquisition is primarily based on valuations determined by
the Group with the assistance of American Appraisal. The consideration paid by the Company was
more than the fair value of the net identifiable assets which led to the realization of
goodwill. The purchase price was allocated to net assets acquired at fair value as follows:
 RMB
    
    
    US$Goodwill
    
    
    21,210
    
    
    
    3,107Current assets
    
    
    77,053
    
    
    
    11,287Long-term receivables
    
    
    9,397
    
    
    
    1,377Property, plant and equipment
    
    
    217,965
    
    
    
    31,931Other intangible assets- customer relationships and operating lease
    
    
    52,380
    
    
    
    7,673Deposit for property, plant and equipment
    
    
    83,505
    
    
    
    12,233Deferred tax assets, non-current portion
    
    
    23,089
    
    
    
    3,382Deferred tax liabilities, non-current portion
    
    
    (12,529
    )
    
    
    (1,835
    )Liabilities assumed
    
    
    (233,323
    )
    
    
    (34,180
    )Total consideration paid
    
    
    238,747
    
    
    
    34,975
  F - 22




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 4.
    
    ACQUISITIONS (continued)
 Acquisition of China Medstar(continued)The following unaudited pro forma consolidated financial information reflects the Groups
consolidated results of operations for the year ended December 31, 2008 as if the acquisition of
China Medstar had occurred on January 1, 2008. These unaudited pro forma results have been
prepared for information purposes only and do not purport to be indicative of what the Companys
consolidated results of operations would have been had the acquisition of China Medstar actually
taken place on January 1, 2008, and may not be indicative of future results of operations.
 September 10,
    
    
    For the Year2007 to
    
    
    EndedDecember 31,
    
    
    December 31,2007
    
    
    2008(successor)
    
    
    (successor)RMB
    
    
    RMBRevenues, net
    
    
    25,392
    
    
    
    234,662Net income
    
    
    (45,638
    )
    
    
    106,626Net loss attributable to ordinary shareholders
    
    
    (45,610
    )
    
    
    (603,628
    )Net loss per common share  basic and diluted
    
    
    (0.91
    )
    
    
    (10.50
    )
 Acquisition of XHFXHF was established in Beijing, the PRC on July 27, 2007 as a limited liability company. The
registered and paid-in capital of XHF amounted to RMB10,000 (US$1,465). Similarly, XHF is
principally engaged in the provision of leasing of medical equipment and management services. On
October 28, 2008, the Group consummated 100% of the equity interest of XHF for cash
consideration of approximately RMB34,979 (US$5,124). As at December 31, 2008, RMB18,016
(US$2,639) was recorded in Payable for acquisition of a subsidiary and business components
which was paid in March 2009.The Company, with the assistance of American Appraisal, determined the fair value of the
acquired customer relationships to be approximately RMB18,000 (US$2,637). The Company amortizes
acquisition related intangible assets on a straight basis over the economic life.Unaudited pro forma consolidated financial information has not been provided due to the overall
insignificance of the acquisition relative to the Companys results of operations and financial
condition for the year ended December 31, 2008. The results of XHFs operations have been
included in the Companys consolidated financial statements since October 28, 2008, the
acquisition date.
 F - 23




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 4.
    
    ACQUISITIONS (continued)
 Acquisition of XHF(continued)The purchase price allocation for the acquisition is primarily based on valuations determined by
the Group with the assistance of American Appraisal. The purchase price was allocated to net
assets acquired at estimated fair value as follows:
 RMB
    
    
    US$Goodwill
    
    
    10,906
    
    
    
    1,598Current assets
    
    
    12,680
    
    
    
    1,857Property, plant and equipment
    
    
    15,288
    
    
    
    2,239Other intangible assets- customer contracts and customer relationships
    
    
    18,000
    
    
    
    2,637Liabilities assumed
    
    
    (21,895
    )
    
    
    (3,207
    )Total consideration paid
    
    
    34,979
    
    
    
    5,124
 Other acquisitionsIn order to expand the Groups network in cancer radiotherapy and diagnosis, on March 31, 2008,
the Group acquired certain medical equipment located in Tianjin People Liberation Army 272
Hospital and the related business from a third party for cash consideration of RMB14,000
(US$2,051). As at December 31, 2008, the Company had RMB 10,000 (US$1,465) recorded in Payable
for acquisition of a subsidiary and business components relating to these acquisitions which
was paid in December 2009. On August 31, 2008, the Group acquired certain medical equipment
located in People Liberation Army 254 Hospital and the related business from another third party
for cash consideration of RMB3,980 (US$583). These acquired assets and activities were
considered to constitute businesses in accordance with ASC 805-10, Business Combinations,
Overall (Pre-Codification: SFAS NO. 141(R), Business Combinations).The Company, with the assistance of American Appraisal, determined the estimated fair value of
the goodwill and intangible assets to be approximately RMB8,766 (US$1,284) and RMB1,957
(US$287), respectively. The Company amortizes acquisition related intangible assets based on the
benefits expected to be realized, considering the related cash flows over the life of each
relationship, up to a period of 12 years.
 5.
    
    RESTRICTED CASH
 Restricted cash includes bank deposits that are required under the Companys borrowing
arrangements to be kept as part of the security required under the respective loan agreements.
Restricted cash is classified as current and non-current in the amount of RMB293 (US$43) and
RMB4,421 (US$648), respectively, based on the reclassification of the underlying financing (see
note 11).
 F - 24




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 6.
    
    ACCOUNTS RECEIVABLE
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Accounts receivable
    
    
    96,602
    
    
    
    113,328
    
    
    
    16,603Allowance for doubtful accounts
    
    
    (3,830
    )
    
    
    (2,000
    )
    
    
    (293
    )Accounts receivable, net
    
    
    92,772
    
    
    
    111,328
    
    
    
    16,310Movement in allowance for doubtful accounts:Balance at beginning of the year
    
    
    3,808
    
    
    
    3,830
    
    
    
    561Provisions
    
    
    22
    
    
    
    2,402
    
    
    
    352Write-offs
    
    
    
    
    
    
    (4,232
    )
    
    
    (620
    )Balance at end of the year
    
    
    3,830
    
    
    
    2,000
    
    
    
    293
 As at December 31, 2008 and 2009, accounts receivable with carrying value of nil and RMB8,487
(US$1,243) are used to secure bank borrowings of RMB70,359 (US$10,308) (see note 11).
 7.
    
    PREPAYMENT AND OTHER CURRENT ASSETS
 Prepayment and other current assets consist of the following:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Deposits to a hospital*
    
    
    15,000
    
    
    
    15,000
    
    
    
    2,198Prepayments to suppliers**
    
    
    9,953
    
    
    
    14,393
    
    
    
    2,109Advances to hospitals***
    
    
    2,568
    
    
    
    18,038
    
    
    
    2,642Advances to employees****
    
    
    2,928
    
    
    
    14,368
    
    
    
    2,105Deferred costs
    
    
    7,005
    
    
    
    7,005
    
    
    
    1,026Others
    
    
    6,112
    
    
    
    31,680
    
    
    
    4,64143,566
    
    
    
    100,484
    
    
    
    14,721
 
 *
    
    The amount represents an interest-free cash deposit paid to a customer hospital
pursuant to the management service contract to which the deposit is repayable at the
termination of the service contract (see note 26).**
    
    The amount represents interest-free non-refundable payments to suppliers in connection
with purchase contracts the Group enters into for future delivery of medical equipment and
supply materials for external sales. The remaining contractual obligations associated with
these purchase contracts are approximately RMB4,200 and RMB1,400 (US$205) as at December
31, 2008 and 2009, respectively, which is included in the amount disclosed as Purchase
Commitments in note 23. The risk of loss arising
from non-performance by or bankruptcy of the suppliers is assessed
prior to ordering of the  equipment. To
date, the Group has not experienced any loss on advances to suppliers. F - 25




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 7.
    
    PREPAYMENT AND OTHER CURRENT ASSETS (continued)
 
 ***
    
    The amount represents interest-free advances to hospital. Management has assessed the
impact of such advances on revenue recognition at the outset of the arrangement. The risk
of loss arising from any failure by hospital customers to fulfill their financial
obligations is assessed prior to making the advances and is monitored for recoverability on
a regular basis by management. To date, the Group has not experienced any loss of advances to
hospitals.****
    
    The amount represents interest-free advance to hospitals held
by the Companys employees
to cover expenses incurred by the centers. A formal loan agreement is in place binding the
employees as to the uses of advances and terms and conditions of repayment. The risk of
loss arising from inadequate or failure of operation of internal process is assessed prior
to making the advances and is monitored on a regular basis by management. To date, the
Group has not experienced any loss of such advances. 8.
    
    PROPERTY, PLANT AND EQUIPMENT, NET
 Property, plant and equipment consist of the following:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Medical equipment
    
    
    299,100
    
    
    
    614,238
    
    
    
    89,987Electronic and office equipment
    
    
    1,895
    
    
    
    2,377
    
    
    
    348Motor vehicles
    
    
    178
    
    
    
    520
    
    
    
    76Leasehold improvement and building improvement
    
    
    1,182
    
    
    
    4,246
    
    
    
    622Construction in progress
    
    
    65,029
    
    
    
    20,345
    
    
    
    2,980Total
    
    
    367,384
    
    
    
    641,726
    
    
    
    94,013Less: Accumulated depreciation
    
    
    (18,263
    )
    
    
    (68,684
    )
    
    
    (10,062
    )349,121
    
    
    
    573,042
    
    
    
    83,951
 Depreciation expenses were approximately RMB17,906, RMB1,084, RMB17,629 and RMB51,681 (US$7,571)
for the period from January 1, 2007 to October 30, 2007 (predecessor), September 10, 2007 to
December 31, 2007 (successor) and for the years ended December 31, 2008 and 2009 (successor),
respectively.As at December 31, 2008 and 2009, certain of the Groups property, plant and equipment with a
net book value of approximately RMB81,595 and RMB155,836 (US$22,830) were pledged as security
for bank borrowings of RMB112,760 and RMB101,670 (US$14,895), respectively.As at December 31, 2008 and 2009, the Company held equipment under operating lease contracts
with customers with an original cost of RMB299,100 and RMB614,238 (US$89,987) and accumulated
depreciation of RMB17,705 and RMB64,217 (US$9,408), respectively.
 F - 26




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 9.
    
    OTHER INTANGIBLE ASSETS AND GOODWILL
 Goodwill is comprised of the following:
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Balance at beginning of period
    
    
    
    
    
    
    
    
    
    
    259,282
    
    
    
    300,163
    
    
    
    43,974Goodwill recognized upon Reorganization (note 1)
    
    
    
    
    
    
    259,282
    
    
    
    
    
    
    
    
    
    
    
    Goodwill recognized upon acquisition of China Medstar
    
    
    
    
    
    
    
    
    
    
    21,209
    
    
    
    
    
    
    
    Goodwill recognized upon acquisition of XHF (note 4)
    
    
    
    
    
    
    
    
    
    
    10,906
    
    
    
    
    
    
    
    Goodwill recognized in other business acquisitions (note 4)
    
    
    
    
    
    
    
    
    
    
    8,766
    
    
    
    
    
    
    
    Balance at end of period
    
    
    
    
    
    
    259,282
    
    
    
    300,163
    
    
    
    300,163
    
    
    
    43,974
 No impairment loss was recognized in any of the years presented.Acquired intangible assets consist of the following:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Customer relationship intangibles  OMS (note 1)
    
    
    122,000
    
    
    
    122,000
    
    
    
    17,873Operating lease intangibles  OMS (note 1)
    
    
    10,000
    
    
    
    10,000
    
    
    
    1,465Customer
relationship intangibles  China Medstar and other acquisitions (note 4)
    
    
    67,259
    
    
    
    67,259
    
    
    
    9,853Operating
lease intangibles  China Medstar and other acquisitions (note 4)
    
    
    5,078
    
    
    
    5,078
    
    
    
    744Less: Accumulated amortization
    
    
    (22,499
    )
    
    
    (48,992
    )
    
    
    (7,177
    )181,838
    
    
    
    155,345
    
    
    
    22,758
 F - 27




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 9.
    
    OTHER INTANGIBLE ASSETS AND GOODWILL (continued)
 Acquired intangible amortization expenses were approximately nil, RMB2,002, RMB20,894 and
RMB26,493 (US$3,881) for the period from January 1, 2007 to October 30, 2007 (predecessor),
September 10, 2007 to December 31, 2007 (successor) and the years ended December 31, 2008 and
2009 (successor), respectively. The estimated annual amortization expenses for the above
intangible assets for each of the five succeeding years are as follows:
 AmortizationRMB
    
    
    US$2010
    
    
    26,815
    
    
    
    3,9282011
    
    
    23,142
    
    
    
    3,3902012
    
    
    23,142
    
    
    
    3,3902013
    
    
    18,862
    
    
    
    2,7632014
    
    
    16,225
    
    
    
    2,377108,186
    
    
    
    15,848
 10.
    
    DEPOSITS FOR NON-CURRENT ASSETS
 Deposits for non-current assets consist of the following:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Deposits for purchase of property, plant and equipment *
    
    
    128,749
    
    
    
    79,173
    
    
    
    11,599Deposits held by a related party **
    
    
    17,630
    
    
    
    15,370
    
    
    
    2,252Others ***
    
    
    20,821
    
    
    
    32,607
    
    
    
    4,777167,200
    
    
    
    127,150
    
    
    
    18,628
 
 *
    
    Represents interest-free non-refundable partial payments to suppliers associated with
contracts the Company enters into for the future scheduled delivery of medical equipment to
customers. As at December 31, 2009, the remaining contractual obligations associated with
these purchase contracts are approximately RMB96,873 (US$14,192) which is included in the
amount disclosed as Purchase Commitments in Note 23. The risk of loss arising from
non-performance by or bankruptcy of the suppliers is assessed prior to ordering the
equipment. To date, the Group has not experienced any loss on deposit to suppliers.**
    
    On October 31, 2007, the Group entered into a long-term sale and purchase agreement with
Shenzhen Our Medical New Technology Development Co. Ltd (Our Medical New Technology), under which
the Group agreed to purchase gamma knife systems at agreed upon prices and Our Medical New
Technology also agreed to provide the Group relevant maintenance and repair services and training.
Our Medical New Technology is
controlled by an individual who was a director of a subsidiary of the Group until July 2009. F - 28




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 10.
    
    DEPOSITS FOR NON-CURRENT ASSETS (continued)
 
 ***
    
    The Group has entered into two distinct framework agreements with Changan Hospital Co.
Ltd. (Changan) and Changan Information Industry (Group) Co., Ltd., (Changan
Information) towards the development and construction of the following two medical
facilities: On December 18, 2007, the Group entered into a framework agreement to build a proton
treatment center in Beijing, pursuant to which the Group paid deposits to a subsidiary of
Changan Information to be used towards the construction of the proton treatment center
(Beijing Proton Treatment Center). Total deposits paid as of December 31, 2008 and 2009
pursuant to this arrangement amounted to RMB3,821 and RMB 14,600 (US$2,139),
respectively.On July 1, 2008, the Group entered into a framework agreement with Changan to build a
cancer center in northwest China, the Changan CMS International Cancer Center (CCICC)
pursuant to which the Group paid security deposits to Changan totaling RMB17,000 and RMB
18,007 (US$2,638), which have been recorded as a non-current deposits as of December 31,
2008 and 2009 respectively (See note 26).
 11.
    
    BANK BORROWINGS
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Total bank borrowings
    
    
    112,760
    
    
    
    149,902
    
    
    
    21,961Comprised of:Short-term
    
    
    20,800
    
    
    
    11,500
    
    
    
    1,685Long-term, current portion
    
    
    39,840
    
    
    
    57,487
    
    
    
    8,42260,640
    
    
    
    68,987
    
    
    
    10,107Long-term, non-current portion
    
    
    52,120
    
    
    
    80,915
    
    
    
    11,854112,760
    
    
    
    149,902
    
    
    
    21,961
 All bank borrowings at December 31, 2008 and 2009 are obtained from financial institutions in
the PRC and are secured by equipment with a net carrying value of RMB81,595 and RMB 155,836
(US$22,830), accounts receivable with carrying value of nil and RMB8,487 (US$1,243) and
restricted cash with carrying value of nil and RMB4,714 (US$691), respectively. Restricted cash
is classified as current and non-current in the amount of RMB293 (US$43) and RMB4,421 (US$648),
respectively, based on the reclassification of the underlying financing.As at December 31, 2008 and 2009, the short-term bank borrowing bore a weighted average interest
of 6.66% and 5.21% per annum, and the long-term bank borrowings bore a weighted average interest
of 7.47% and 5.29% per annum, respectively. All borrowings are denominated in RMB.
 F - 29




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 11.
    
    BANK BORROWINGS (continued)
 The Group entered into eight new bank borrowings with PRC financial institutions during the year
ended December 31, 2009 with an aggregate principal amount of RMB215,600 (US$31,586) of which
RMB 154,580 (US$22,647) was drawn down as at December 31, 2009. The weighted average interest
rate of these eight new bank borrowings was 5.59%. Three of these new bank financing
arrangements are secured by certain accounts receivables and restricted cash deposited with each
of the respective financial institutions.One of these new borrowing arrangements were entered into by a subsidiary of the Group, MSC,
which requires MSC and AMS, another subsidiary of the Group, in accordance with PRC GAAP, to
maintain a financial reporting covenant of tangible net worth of at least RMB400,000 and
RMB180,000 and total gearing ratio of less than 0.5 and 0.36 respectively. Tangible net worth is
calculated as the sum of issued share capital and reserves less goodwill and intangible assets
and any amount due from shareholders and the total gearing ratio is calculated as the ratio of
total liabilities to tangible net worth. The Group was in compliance of these financial
covenants as at December 31, 2009. The remaining bank borrowings do not have any financial
reporting or administrative covenants restricting the Companys operating, investing and
financing activities.The maturity of these long-term bank borrowings was as follows:
 As at December 31, 2009RMB
    
    
    US$Within one year
    
    
    57,487
    
    
    
    8,422Between one and two years
    
    
    51,105
    
    
    
    7,487Between two and three years
    
    
    29,810
    
    
    
    4,367138,402
    
    
    
    20,276
 12.
    
    ACCRUED EXPENSES AND OTHER LIABILITIES
 The components of accrued expenses and other liabilities are as follows:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Accrued expenses
    
    
    3,772
    
    
    
    10,224
    
    
    
    1,498Salary and welfare payable
    
    
    2,650
    
    
    
    2,085
    
    
    
    305Business and other taxes payable
    
    
    9,339
    
    
    
    10,340
    
    
    
    1,515Unrecognized tax benefit and related interest and penalties (note 18)
    
    
    20,509
    
    
    
    23,894
    
    
    
    3,500Other accruals
    
    
    6,174
    
    
    
    2,120
    
    
    
    31042,444
    
    
    
    48,663
    
    
    
    7,128
 F - 30




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 13.
    
    OBLIGATIONS UNDER CAPITAL LEASES
 The Company has  capital lease obligations collateralized by medical equipment with a net book value of approximately RMB31,610 and
RMB15,982 (US$2,341) as at December 31, 2008 and 2009, respectively. As at December 31, 2009,
the obligations have a stated interest rate of 9.96%, and are repayable in 44 monthly installments
by August 2013.Future minimum lease payments, together with the present value of the net minimum lease payments
under capital leases, at December 31, 2009, are summarized as follows:
 Minimum LeasePaymentsRMB
    
    
    US$2010
    
    
    3,781
    
    
    
    5542011
    
    
    3,781
    
    
    
    5542012
    
    
    3,781
    
    
    
    5542013
    
    
    2,611
    
    
    
    382Total capital lease payments
    
    
    13,954
    
    
    
    2,045Less: imputed interest
    
    
    (2,298
    )
    
    
    (337
    )11,656
    
    
    
    1,708Less: current portion
    
    
    (3,582
    )
    
    
    (525
    )8,074
    
    
    
    1,183
 As at December 31, 2008 and 2009, the Company held equipment under capital lease contracts with
an original cost of RMB39,799 and RMB17,124 (US$2,509) and accumulated depreciation of RMB8,739
and RMB1,142 (US$167), respectively. The depreciation and amortization expenses of medical
equipment under capital leases are included in cost of revenues  depreciation and amortization
expenses lease and management services.
 14.
    
    CONVERTIBLE NOTES
 Tranche A Convertible NotesOn November 17, 2007, OMS issued notes convertible into Series A contingently redeemable
convertible preferred shares (the Series A Preferred Shares) with a principal amount of
US$5,000 (the Tranche A Convertible Notes) to Carlyle Asia Growth Partners III, L.P.
(hereafter, Carlyle Asia) and CAGP III Co-Investment, L.P. (CAGP, an affiliate of Carlyle
Asia, together with Carlyle Asia, Carlyle) for cash consideration of US$5,000. The Tranche A
Convertible Notes bear compound interest on the principal amount at a rate of 10% per annum. The
maturity date of the Tranche A Convertible Notes is December 31, 2008, provided they are not
previously converted into Series A Preferred Shares.Automatic ConversionThe Tranche A Convertible Notes, including any accrued and unpaid interest, are
automatically convertible upon the issuance of Series A Preferred Shares at a conversion price
that is not fixed until the issuance date of Series A Preferred Shares; the conversion price
will be the then subscription price of the
Series A Preferred Shares. On April 10, 2008, the Company issued a tranche of Series A Preferred
Shares at US$188 per share. Concurrently, the conversion price of the Tranche A Convertible
Notes was renegotiated and modified to a conversion price of US$179 per share.
 F - 31




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 14.
    
    CONVRTIBLE NOTES (continued)Tranche A Convertible Notes(continued)On April 10, 2008, the total principal and accrued and unpaid interest of the Tranche A
Convertible Notes amounting to US$5,172 was converted into 28,882 Series A Preferred Shares.Tranche B Convertible NotesOn April 2, 2008, the Company issued notes convertible into Series A Preferred Shares (Tranche
B Convertible Notes) to Carlyle with a principal amount of US$20,000. The Tranche B Convertible
Notes bear compound interest on the principal amount at a rate of 9% per annum. The maturity
date of the Tranche B Convertible Notes is December 31, 2009, provided they are not previously
converted into Series A Preference Shares.ConversionCarlyle shall have the right, at its sole option, to convert the Tranche B Convertible
Notes into Series A Preferred Shares at any time starting from the closing of the subscription
of the Series A Preferred Shares on April 10, 2008 to August 30, 2008 at an initial conversion
price of $235 per share. If an initial public offering (IPO) of the Company occurs after
August 31, 2008, all the principal and accrued and unpaid interest shall be automatically
converted into a number of Series A Preferred Shares at a conversion price that is not fixed,
calculated according to a formula based on the Groups 2008 net income as disclosed in the IPO.On July 31, 2008, Carlyle exercised its conversion right and the total principal and accrued and
unpaid interest of the Tranche B Convertible Notes amounting to US$20,547 was converted into
87,425 Series A Preferred Shares.Accounting for the Tranche A and Tranche B Convertible NotesThe Tranche A and Tranche B Convertible Notes (collectively the Convertible Notes) were
accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity
(Pre-Codification: SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity) as a liability recorded at fair value, because
the Convertible Notes are convertible into Series A Preferred Shares, which are redeemable
instruments.The movement of Convertible Notes presented on the consolidated balance sheets is as follows:
 (Successor)RMBBalance as at September 10, 2007Issuance of Tranche A Convertible Notes
    
    
    36,523Fair value loss
    
    
    341Foreign exchange translation gain
    
    
    (11
    )Balance as at December 31, 2007
    
    
    36,853Issuance of Tranche B Convertible Notes
    
    
    140,241Fair value loss
    
    
    464Foreign exchange translation gain
    
    
    (1,476
    )Conversion to Series A Preferred Shares
    
    
    (176,082
    )Balance as at December 31, 2008
    
    
    
 F - 32




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 15.
    
    CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED SHARES
 In April 2008, OMS issued an aggregate of 53,070 Series A contingently redeemable convertible
preferred shares (Series A Preferred Shares) to Carlyle and CICC Sun Company Limited (CICC)
for total cash proceeds of US$10,000, each investor subscribing for US$5,000. As discussed in
note 14, the aggregate principal and accrued and unpaid interest relating to the Tranche A
Convertible Notes were converted into 28,882 Series A Preferred Shares on April 10, 2008 and all
the principal and accrued and unpaid interest relating to the Tranche B Convertible Notes were
converted into 87,425 Series A Preferred Shares on July 31, 2008.Concurrent with the issuance of the Series A Preferred Shares, one of the Companys major
shareholders transferred additional Series A Preferred Shares to CICC in return for services
rendered relating to the placement of Series A Preferred Shares and the Tranche B Convertible
Notes. The total additional shares to be transferred represented 1.3% of the then if-converted
outstanding ordinary shares. This transfer agreement was settled on June 18, 2008. The Company
agreed that a relative of a director of the Company shall transfer 756,500 of her own holdings
of the Companys ordinary shares, which were redesignated as Series A Preferred Shares, and
issued to CICC.In October 2008, the Company issued an aggregate of 233,332 Series B contingently redeemable
convertible preferred shares (the Series B Preferred Shares) to Carlyle, Starr Investments
Cayman II, Inc. (Starr), and CICC for cash consideration of US$25,000, US$25,000 and
US$10,000, respectively.The key terms of the Series A Preferred Shares and the Series B Preferred Shares (collectively
the Preferred Shares) summarized below are defined in the Amended and Restated Shareholders
Agreement and the Companys Second Amended and Restated Memorandum and Articles of Association
adopted by special resolution passed on October 20, 2008, signed among the Company, Carlyle,
Starr and CICC.Voting rightsThe holder of each Preferred Share shall be entitled to the number of votes equal to the number
of ordinary shares into which such Preferred Share could be converted.DividendsA qualified initial public offering (QIPO) is defined as a firm-commitment underwritten IPO
led by the Board, yielding a valuation of the Company of not less than US$450,000 immediately
prior to the consummation of such IPO, or any other IPO approved by holders of at least 70% of
the then outstanding Series B Preferred Shares.Each holder of Preferred Shares shall be entitled to receive a dividend on an annual basis, in
respect of each Preferred Share, of an amount equal to the higher of: (a) the product of the
number of ordinary shares into which such Preferred Share may then be converted multiplied by
the dividend per ordinary share declared on the ordinary shares; or (b) the product of the
original issuance price of each Preferred Share multiplied by 5%. Dividends are payable annually
on April 30 in the following financial year.
 F - 33




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 15.
    
    CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED SHARES (continued)Liquidation PreferenceIn the event of any liquidation, dissolution or winding up of the Company, each holder of
Preferred Shares shall be entitled to receive, prior to and in preference to any distribution of
any of the assets or surplus funds of the Company to the holders of the ordinary shares, the
amount equal to the sum of 150% times the original price of each Preferred Share plus all
accrued but unpaid dividends thereon and all interest accrued on such unpaid dividends, taking
into account adjustments for share splits, share dividends, recapitalizations, share
consolidations and other capital reorganizations (Liquidation Preference).ConversionEach Preferred Share shall be convertible, at the option of the holder at any time into a number
of fully paid and non-assessable ordinary shares at an initial conversion ratio of 1:100 (the
Conversion Ratio), subject to adjustments for anti-dilution, as follows:
 (i)
    
    if there was a share split or reverse share split, the conversion price should be
adjusted proportionally;(ii)
    
    if new equity or equity-linked securities (either ordinary or preferred shares, but not
including securities issued to employees pursuant to employee benefit plans) were
subsequently issued at a lower price than the then-Conversion Price of any class of
Preferred Shares, the Conversion Price of such Preferred Shares shall be adjusted to the
price of the newly issued shares.
 All Preferred Shares outstanding immediately prior to the closing of the QIPO shall, on and with
effect from the closing of the QIPO, be automatically converted into ordinary shares at the then
Conversion Ratio.RedemptionUpon the occurrence of any Put Trigger Event as defined below, each holder of Preferred Shares
shall have the right to require the Company to purchase all the Preferred Shares held by the
Preferred Shareholders at a rate of return of 12.5%.Put Trigger Event means any of the following:
 (i)
    
    the Company has not completed a qualified initial public offering by the third
anniversary of the closing date of the subscription of the Series B Preferred Shares;(ii)
    
    any of certain key directors has resigned from the Company and its subsidiaries, which
resignation, in the sole determination of a majority of the Investors, has resulted in or
would be likely to result in, a material adverse effect; or(iii)
    
    the Company or any of its Subsidiaries has breached or failed to be in compliance with
any applicable laws that has had or would be reasonably likely to have, a material adverse
effect.
 F - 34




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 15.
    
    CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED SHARES (continued)Earning adjustmentsIf the Groups 2008 adjusted net income (pro forma adjusted net income including 2008 net income
of China Medstar for the whole year) falls below US$21,430 or if the Groups 2009 adjusted net
income falls below US$34,000, the controlling shareholders shall transfer a number of ordinary
 shares and cash to the Series A Preferred shareholders and Series B preferred shareholders, to a
maximum of approximately 198,200,000 ordinary shares as well as pay cash to the Preferred
shareholders to a maximum of US$18,000. The Company has no legal obligation to indemnify the
controlling shareholders for such cash payment. The above earnings adjustments automatically
terminate upon occurrence of a QIPO.Accounting for the contingently redeemable convertible preferred sharesThe Preferred Shares have been classified as mezzanine equity because their redemption is
contingent on certain events which are not within the control of the Company. The initial
carrying value of the preferred shares is accreted using the effective interest method to the
redemption amount over the earliest redemption date.The initial carrying value of the Preferred Shares is the issuance price at their respective
issuance dates less the attributable issuance costs. The Company evaluated the Preferred Shares
to determine if there were any embedded derivatives requiring bifurcation and to determine if
there was any beneficial conversion feature. The Company determined that the conversion option
of the Preference Shares did not qualify for the scope exception of ASC 815-10-15-74
(Pre-Codification: SFAS No. 133 paragraph 11(a)) because the conversion price may be adjusted if
the Companys ordinary or preference shares are subsequently issued at a lower price than the
original conversion price. However, the conversion option of the Preferred Shares did not
qualify for derivative accounting because the Preferred Shares are not readily convertible into
cash as there is not a market mechanism in place for trading its shares. The redemption option
of the Preferred Shares did not qualify for derivative accounting because the option was not
considered to require a principle repayment involving a substantial premium or discount. The
liquidation, preference of Series A Preferred Shares that may be triggered if the company is
placed in liquidation, dissolution or winding up was evaluated to be an embedded derivative to
be bifurcated. As at December 31, 2008, the Company has assessed the value of this embedded
derivative to be insignificant.A beneficial conversion feature exists when the effective conversion price of the Preferred
Shares is lower than the fair value of the ordinary shares at April 2, 2009 and July 31, 2009
for the Series A Preferred Shares and October 17, 2008 for the Series B Preferred Shares. The
intrinsic value of the beneficial conversion feature is allocated from the carrying value of the
Preferred Shares as a contribution to additional paid-in-capital. Since the conversion price of
the Preferred Shares is subject to additional Preferred Shares from the Earnings Adjustments,
the effective conversion price used to calculate the beneficial conversion feature is determined
at the commitment date as the most favorable conversion price that would be in effect at the
conversion date, assuming there are no changes to the current circumstances except for the
passage of time.
 F - 35




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 15.
    
    CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED SHARES (continued)Accounting for the contingently redeemable convertible preferred shares(continued)The Company determined the fair value of ordinary shares based on valuations performed with
assistance from American Appraisal. In accordance with ASC 470-20, Debt, Debt with Conversion
and Other Options(Pre-Codification: EITF 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios), if the intrinsic
value of the beneficial conversion feature is greater than the proceeds allocated to the
Preferred Shares, the amount of discount assigned to the beneficial conversion feature is
limited to the amount of the proceeds allocated to the Preferred Shares. The cumulative
preferred dividends were recorded as a reduction of income available to ordinary shareholders.The discount resulting from the beneficial conversion feature to the Preferred Shares is then
accreted to the earliest conversion date. For the year ended December 31, 2008, total
beneficial conversion feature recorded for the Series A and Series B Preferred Shares was
RMB253,317 and RMB295,019, respectively, which was immediately accreted at the issuance date.An accretion charge to increase the carrying value of the Preferred Shares to their expected
redemption amount is recorded as a reduction to retained earnings from the date of issuance to
the earliest redemption date of the Preferred Shares using the effective interest method. The
redemption amount for the Preferred Shares provides the shareholder with a 12.5% compounded
annual return on the original subscription price or converted value, of which 5% is payable as a
fixed dividend. For the year ended December 31, 2008, accretion recorded to the expected
redemption amount of the Series A and Series B Preferred Shares amounted to RMB17,026 and
RMB9,744, of which RMB6,801 and RMB3,987 was recorded as dividend payable, respectively.
Similarly, for the year ended December 31, 2009, accretion recorded to the expected redemption
amount for the Series A and Series B Preferred Shares amounted to RMB30,050 (US$4,402) and
RMB48,359 (US$7,085). On November 17, 2009, the Company declared dividends that amounted to an
aggregate of approximately RMB10,867 (US$1,591) payable to shareholders of the Series A and
Series B contingently redeemable convertible preferred shares. Such dividends were paid in cash
on November 27, 2009.
 F - 36




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 15.
    
    CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED SHARES (continued)Accounting for the contingently redeemable convertible preferred shares(continued)The balance and changes in balance of the Series A Preferred Shares and Series B Preferred
Shares are as follows:
 Series A
    
    
    Series B
    
    
    TotalRMB
    
    
    RMB
    
    
    RMBMezzanine equityBalance as at January 1st 2008
    
    
    
    
    
    
    
    
    
    
    Conversion of Convertible Notes into Series A Preferred
Shares
    
    
    176,082
    
    
    
    
    
    
    
    176,082Issuance of Series A Preferred Shares
    
    
    70,120
    
    
    
    
    
    
    
    70,120Less: Series A Preferred Shares issuance costs
    
    
    (2,964
    )
    
    
    
    
    
    
    (2,964
    )Issuance of Series B Preferred Shares
    
    
    
    
    
    
    411,021
    
    
    
    411,021Less: Series B Preferred Shares issuance costs
    
    
    
    
    
    
    (5,677
    )
    
    
    (5,677
    )Redesignation of 756,500 ordinary shares to Series A
Preferred Shares
    
    
    895
    
    
    
    
    
    
    
    895Allocation of proceeds to beneficial conversion feature
    
    
    (253,317
    )
    
    
    (295,019
    )
    
    
    (548,336
    )Accretion of beneficial conversion feature
    
    
    253,317
    
    
    
    295,019
    
    
    
    548,336Accretion of 5% fixed dividend
    
    
    6,801
    
    
    
    3,987
    
    
    
    10,788Accretion to the redemption amount
    
    
    10,225
    
    
    
    5,757
    
    
    
    15,982Total
    
    
    261,159
    
    
    
    415,088
    
    
    
    676,247Mezzanine equityBalance as at December 31, 2008
    
    
    254,358
    
    
    
    411,101
    
    
    
    665,459Dividend payableBalance as at December 31, 2008
    
    
    6,801
    
    
    
    3,987
    
    
    
    10,788Accretion of 5% fixed dividend
    
    
    11,584
    
    
    
    19,464
    
    
    
    31,048Accretion to the redemption amount
    
    
    18,466
    
    
    
    28,895
    
    
    
    47,361Preference share dividend paid
    
    
    (4,776
    )
    
    
    (6,091
    )
    
    
    (10,867
    )Conversion to ordinary shares immediately upon the
completion of initial public offering
    
    
    (286,433
    )
    
    
    (457,356
    )
    
    
    (743,789
    )Total
    
    
    
    
    
    
    
    
    
    
    Mezzanine equityBalance as at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    Mezzanine equityBalance as at December 31, 2009, in
US$
    
    
    
    
    
    
    
    
    
    
    Dividend payableBalance as at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    Dividend payableBalance as at December 31, 2009, in
US$
    
    
    
    
    
    
    
    
    
    
    
 F - 37




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 16.
    
    SHAREHOLDERS EQUITYShare exchangeAll share and per share data before March 7, 2008 are presented to give retroactive effect to
the share exchange between Ascendium and the Company at a rate of 10 shares in the Company to 1
share in Ascendium which included all shares of OMS exchanged into shares of Ascendium at a rate
of 1 to 1 on November 8, 2007.Redesignation of 756,500 ordinary sharesOn June 18, 2008, the Company redesignated 756,500 ordinary shares held by a relative of a
director of the Company into Series A Preferred Shares which were issued to CICC as
consideration for services related to the Series A Preferred Shares subscription and issuance of
the Tranche B Convertible Loans. The aggregate fair value of the 7,565 Series A Preferred Shares
issued to CICC of RMB8,734 was considered issuance costs and was allocated on a pro rata basis
between the US$10 million subscription amount of the Series A Preferred Shares and the US$20
million subscription amount of the Tranche B Convertible Loans, respectively. The issuance costs
related to the Series A Preferred Shares of RMB2,911 were charged against the gross proceeds of
the offering. The debt issuance costs related to the Tranche B Convertible Loans are amortized
into interest expense over the term of the loan until maturity on December 31, 2009. Total
interest expense recorded was RMB895. On July 31, 2008, when the Tranche B Convertible Loans
were converted into Series A Preferred Shares, the unamortized balance of the debt issuance
costs was charged against the conversion amount of the Series A Preferred Shares. The fair value
of the 7,565 Series A Preferred Shares issued to CICC was determined with assistance from
American Appraisal.Qualified Initial Public OfferingOn December 16, 2009, the Company completed its qualified initial public offering of 36,000,000
ordinary shares. Upon completion of the initial public offering, all of the Companys
outstanding Series A and Series B contingently redeemable convertible preferred shares were
converted into 41,027,400 ordinary shares.
 F - 38




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 17.
    
    RESTRICTED NET ASSETSThe Companys ability to pay dividends is primarily dependent on the Company receiving
distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit
payments of dividends by the Groups PRC subsidiaries only out of their retained earnings, if
any, as determined in accordance with PRC accounting standards and regulations. The results of
operations reflected in the financial statements prepared in accordance with U.S. GAAP differ
from those reflected in the statutory financial statements of the Companys subsidiaries.In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles
of association, a foreign invested enterprise established in the PRC is required to provide
certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff
welfare and bonus fund which are appropriated from net profit as reported in the enterprises
PRC statutory accounts. A foreign invested enterprise is required to allocate at least 10% of
its annual after-tax profit to the general reserve until such reserve has reached 50% of its
respective registered capital based on the enterprises PRC statutory accounts. Appropriations
to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the
board of directors for all foreign invested enterprises. The aforementioned reserves can only be
used for specific purposes and are not distributable as cash dividends. MSC, CHM, AMS, XHF and
AML were established as a foreign invested enterprise and therefore are subject to the above
mandated restrictions on distributable profits.As a result of these PRC laws and regulations that require annual appropriations of 10% of
after-tax income to be set aside prior to payment of dividends as general reserve fund, the
Companys PRC subsidiaries are restricted in their ability to transfer a portion of their net
assets to the Company.Amounts restricted include paid-in capital, statutory reserve funds and net assets of the
Companys PRC subsidiaries, as determined pursuant to PRC generally accepted accounting
principles, totaling approximately RMB958£647 (US$140,443) as of December 31, 2009; therefore
in accordance with Rules 5-04 and 4-08 (e) (3) of Regulation S-X, the condensed Parent Company
only financial statements as of December 31, 2009 and 2008 and for each of the three years ended
December 31, 2009 are disclosed in note 28.
 18.
    
    TAXATIONEnterprise income tax:Cayman IslandsUnder the current laws of the Cayman Islands, the Company is not subject to tax on income or
capital gains. In addition, upon payments of dividends by the Company to its shareholders, no
Cayman Islands withholding tax will be imposed.British Virgin IslandsUnder the current laws of the British Virgin Islands, Ascendium and OMS are not subject to tax
on income or capital gains. In addition, upon payments of dividends by these companies to their
shareholders, no British Virgin Islands withholding tax will be imposed.
 F - 39




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 18.
    
    TAXATION (continued)Enterprise income tax:(continued)Hong KongCMS Holdings, Cyber and King Cheers are incorporated in Hong Kong and do not conduct any
substantive operations of their own.No provision for Hong Kong profits tax has been made in the consolidated financial statements as
the Company has no assessable profits for the year ended December 31, 2009. In addition, upon
payment of dividends by CMS Holdings and Cyber to their shareholders, no Hong Kong withholding
tax will be imposed.SingaporeChina Medstar is incorporated in Singapore and does not conduct any substantive operations of
its own. No provision for Singapore profits tax has been made in the consolidated financial
statements as the Company has no assessable profits for the year ended December 31, 2009. In
addition, upon payments of dividends by China Medstar to its shareholder, no Singapore
withholding tax will be imposed.ChinaPrior to January 1, 2008, PRC enterprise income tax, EIT, was generally assessed at the rate
of 33% of taxable income. However, as foreign enterprises located in the Shenzhen Special
Economic Zone or Pudong New District of Shanghai, AMS and MSC were entitled to preferential EIT
rate of 15%.In March 2007, a new enterprise income tax law (the New EIT Law) in the PRC was enacted which
was effective on January 1, 2008. The New EIT Law applies a uniform 25% EIT rate to both
foreign invested enterprises and domestic enterprises. The new law provides a five-year
transition period from its effective date for those enterprises which were established before
the promulgation date of the new tax law and which were entitled to a preferential tax treatment
such as a reduced tax rate or a tax holiday. Based on the transitional rule, certain categories
of enterprises, including the foreign invested enterprise located in Shenzhen Special Economic
Zone and Pudong New District, which previously enjoyed a preferential tax rate of 15% are
eligible for a five-year transition period during which the income tax rate will be gradually
increased to the unified rate of 25%. Specifically, the applicable rates for AMS and MSC would
be 22%, 24% and 25% for 2010, 2011, 2012 and thereafter, respectively.AMS and MSC have accounted for their current and deferred income tax based on the five-year
transitional tax rates, as applicable.Dividends paid by PRC subsidiaries of the Group out of the profits earned after December 31,
2007 to non-PRC tax resident investors would be subject to PRC withholding tax. The withholding
tax would be 10%, unless a foreign investors tax jurisdiction has a tax treaty with China that
provides for a lower withholding tax rate.In general, the PRC tax authorities have up to five years to conduct examinations of the PRC
entities tax filings. Accordingly, the PRC entities tax years from 2004 to 2008 remain subject
to examination by the tax authorities.
 F - 40




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 18.
    
    TAXATION (continued)Enterprise income tax:(continued)Income (loss) before income taxes consists of:
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Non  PRC
    
    
    
    
    
    
    (54,205
    )
    
    
    (6,335
    )
    
    
    (2,044
    )
    
    
    (300
    )PRC
    
    
    34,444
    
    
    
    5,697
    
    
    
    108,739
    
    
    
    163,267
    
    
    
    23,91934,444
    
    
    
    (48,508
    )
    
    
    102,404
    
    
    
    161,223
    
    
    
    23,619
 The current and deferred components of the income tax expense/(benefit) appearing in the
consolidated statements of operations are as follows:
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Current tax expense
    
    
    5,542
    
    
    
    1,426
    
    
    
    28,395
    
    
    
    38,726
    
    
    
    5,673Deferred tax
expense (benefit)
    
    
    9,472
    
    
    
    (1,608
    )
    
    
    (5,060
    )
    
    
    (2,330
    )
    
    
    (341
    )15,014
    
    
    
    (182
    )
    
    
    23,335
    
    
    
    36,396
    
    
    
    5,332
 A reconciliation of the differences between the statutory tax rate and the effective tax
rate for EIT is as follows:
 January 1
    
    
    September 10to
    
    
    ToOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 312007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Income (loss) before income taxes
    
    
    34,444
    
    
    
    (48,508
    )
    
    
    102,404
    
    
    
    161,223
    
    
    
    23,619Income tax computed at
applicable tax rates (33% for
the periods from January 1 to
October 30, 2007 and September
10 to December 31, 2007; 25% for
the years ended December 31,
2008 and 2009)
    
    
    11,367
    
    
    
    (16,007
    )
    
    
    25,601
    
    
    
    40,306
    
    
    
    5,905Effect of different tax rates in
different jurisdictions
    
    
    
    
    
    
    17,887
    
    
    
    1,548
    
    
    
    457
    
    
    
    67Non-deductible expenses
    
    
    234
    
    
    
    57
    
    
    
    1,181
    
    
    
    1,101
    
    
    
    162Effect of preferential tax rate
    
    
    (6,328
    )
    
    
    (1,057
    )
    
    
    (8,684
    )
    
    
    (7,910
    )
    
    
    (1,159
    )Effect of tax rate changes
    
    
    8,929
    
    
    
    (1,248
    )
    
    
    (378
    )
    
    
    275
    
    
    
    40Interest and penalties on
unrecognized tax benefits
    
    
    812
    
    
    
    186
    
    
    
    4,067
    
    
    
    2,167
    
    
    
    31715,014
    
    
    
    (182
    )
    
    
    23,335
    
    
    
    36,396
    
    
    
    5,332
 18.
    
    TAXATION (continued)
 F - 41




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 Enterprise income tax:(continued)Reconciliation of accrued unrecognized tax benefits is as follows:
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Balance at beginning of year
    
    
    1,552
    
    
    
    2,941
    
    
    
    3,218
    
    
    
    12,905
    
    
    
    1,891Additions based on tax positions related
to the current year
    
    
    1,389
    
    
    
    277
    
    
    
    7,393
    
    
    
    1,217
    
    
    
    178Addition arising from business acquisitions
    
    
    
    
    
    
    
    
    
    
    2,294
    
    
    
    
    
    
    
    Decrease related to prior year tax position
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68
    )
    
    
    (10
    )Balance at end of year
    
    
    2,941
    
    
    
    3,218
    
    
    
    12,905
    
    
    
    14,054
    
    
    
    2,059
 The Group has recorded an unrecognized tax benefit of approximately RMB12,905 and RMB14,054
(US$2,059) in 2008 and 2009, respectively, which is included in the account of Accrued expenses
and other liabilities. At December 31, 2008 and 2009, RMB10,064 and RMB10,064, respectively,
would impact the effective tax rate, if recognized in connection with the normal tax return
preparation. Included in the balance at December 31, 2008 and 2009 are approximately RMB2,841
and RMB3,990 (US$585), respectively, of tax positions for which the ultimate deductibility is
highly certain but for which there is uncertainty about the timing of such deductibility.It is possible that the amount of unrecognized tax benefits will change in the next twelve
months. However, an estimate of the range of the possible change cannot be made at this time.During the period from January 1 to October 30, 2007 (predecessor), the period September 10 to
December 31, 2007 (successor), the years ended December 31, 2008 and 2009 (successor), the
Company recognized approximately RMB812, RMB186, RMB4,067 and RMB2,167 (US$317) in income tax
expenses for interest and penalties related to uncertain tax positions. The Company accrued
interest and penalties of approximately RMB7,604 and RMB9,840 (US$1,441) at December 31, 2008
and 2009, respectively.The aggregate amount and per share effect of the tax holidays are as follows:
 January 1
    
    
    September 10To
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$The aggregate amount
    
    
    5,676
    
    
    
    1,488
    
    
    
    8,684
    
    
    
    7,910
    
    
    
    1,159The aggregate
effect on basic and
diluted earnings
per share:-Basic
    
    
    0.11
    
    
    
    0.03
    
    
    
    0.15
    
    
    
    0.11
    
    
    
    0.02-Diluted
    
    
    0.11
    
    
    
    0.03
    
    
    
    0.15
    
    
    
    0.11
    
    
    
    0.02
 F - 42




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 18.
    
    TAXATION (continued)
 Enterprise income tax:(continued)
 The components of deferred taxes are as follows:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Deferred tax assets, current portionAccrued expenses
    
    
    300
    
    
    
    418
    
    
    
    61Accounts receivable
    
    
    994
    
    
    
    1,663
    
    
    
    243Allowance for doubtful accounts
    
    
    
    
    
    
    891
    
    
    
    131Deferred revenue
    
    
    2,595
    
    
    
    1,560
    
    
    
    2293,889
    
    
    
    4,532
    
    
    
    664Deferred tax liability, current portionDeferred cost
    
    
    (1,240
    )
    
    
    (1,364
    )
    
    
    (200
    )Deferred tax assets, current portion, net*
    
    
    2,649
    
    
    
    3,168
    
    
    
    464Deferred tax assets, non-current portionAccounts receivable
    
    
    3,765
    
    
    
    2,947
    
    
    
    432Property, plant and equipment.
    
    
    54,044
    
    
    
    50,378
    
    
    
    7,380Deferred revenue, non-current portion
    
    
    1,841
    
    
    
    941
    
    
    
    138Other
    
    
    595
    
    
    
    528
    
    
    
    7760,245
    
    
    
    54,794
    
    
    
    8,027Deferred tax liabilities, non-current portionDeferred cost
    
    
    (1,523
    )
    
    
    (1,013
    )
    
    
    (148
    )Intangible assets
    
    
    (44,750
    )
    
    
    (39,234
    )
    
    
    (5,748
    )Property, plant and equipment
    
    
    (21,400
    )
    
    
    (20,164
    )
    
    
    (2,954
    )(67,673
    )
    
    
    (60,411
    )
    
    
    (8,850
    )Deferred tax assets, non-current portion, net **
    
    
    12,650
    
    
    
    19,700
    
    
    
    2,886Deferred tax liabilities, non-current portion, net **
    
    
    (20,078
    )
    
    
    (25,317
    )
    
    
    (3,709
    )
 
 *
    
    As at December 31, 2008 and 2009, deferred tax assets, current portion of
approximately RMB1,240 and RMB1,364 (US$220) have been offset against deferred tax
liabilities, current portion relating to a particular tax-paying component of an
enterprise and within a particular tax jurisdiction, respectively.**
    
    As at December 31, 2008 and 2009, deferred tax assets, non-current portion of
approximately RMB47,595 and RMB35,094 (US$5,141) have been offset against deferred tax
liabilities, non-current portion relating to a particular tax-paying component of an
enterprise and within a particular tax jurisdiction, respectively. F - 43




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 18.
    
    TAXATION (continued)
 Enterprise income tax:(continued)
 Aggregate undistributed earnings of the Companys subsidiaries located in the PRC that are
available for distribution at December 31, 2009 are considered to be indefinitely reinvested
under ASC 740-30, Income Taxes, Other Considerations or Special Areas(Pre-Codification:
Accounting Principles Board Opinion No. 23, Accounting for Income TaxesSpecial Areas), and
accordingly, no provision has been made for taxes that would be payable upon the distribution
of those amounts to any entity within the Group outside the PRC. Unrecognized deferred tax
liabilities for temporary differences related to investments in foreign subsidiaries were not
recorded because the determination of that amount is not practicable.
 The Group does not have any present plan to pay any cash dividends on its ordinary shares in
the foreseeable future. It intends to retain most of its available funds and any future
earnings for use in the operation and expansion of its business. As of December 31, 2009, the
Group has not declared any dividends.
 Business taxes
 Generally revenue earned from the provision of leasing and management services is subject to 5%
business tax regulations promulgated by the State Council of the PRC. According to Guoshuihan
[1999] No. 3402 issued by State Administration of Tax (the SAT), the revenue generated from
certain qualified profit sharing cooperation arrangements, which is treated as investment
income under existing PRC tax regulation is not subject to business taxes. One of the Groups
subsidiaries has not recorded any business taxes on certain of its leasing and management
services on the basis that revenue generated from these profit sharing cooperation arrangements
with hospitals are not subject to business taxes. Based on the above, management believes that
it is not probable the SAT will challenge this subsidiarys position that its not subject to
business tax for those profit sharing cooperation arrangements.
 19.
    
    OTHER INCOME
 On January 21, 2008, the Company was awarded a settlement from the Intermediate Court of
Shenzhen city, Guangdong Province in the amount of RMB7,734 for the reimbursement of amounts
that were misappropriated by employees. These activities occurred during fiscal 2005 or before
and were discovered in July 2006.
 20.
    
    EMPLOYEE SHARE OPTIONS
 OMS Share Options
 On November 17, 2007, OMS, the predecessor of Ascendium and the Company, adopted a share option
plan pursuant to which OMS granted three executive directors (Grantees) 25,000,000 options in
aggregate (OMS Share Options) to purchase ordinary shares of OMS at an exercise price of
US$0.80 per share. The OMS Share Options vest upon the achievement of certain performance
conditions.
 The OMS Share Options are exercisable from the date they vest until their expiry on December
31, 2008 and are transferrable to any individuals designated by Grantees. As at December 31,
2007, the OMS Share Options vested because all performance conditions had been met. The
aggregate fair value of the options on the grant date of November 17, 2007 was RMB49,526 ,
which was recorded as compensation expense.
 F - 44




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 20.
    
    EMPLOYEE SHARE OPTIONS (continued)
 In August 2008, Concord agreed to issue 21,184,600 vested options (Concord Options) with an
exercise price of US$0.79 per share to the Grantees in exchange for their vested OMS Share
Options. Since the fair value of the Concord Options RMB36,207 was less than the fair value of
the OMS Share Options RMB45,970, the difference of RMB9,763 has been credited to Additional
Paid-In Capital.
 Of the 21,184,600 vested Concord Options issued, 6,355,400 Concord Options were exercised
immediately resulting in total proceeds of RMB34,382 being paid to the Company. The remaining
14,829,200 vested Concord Options, which were held by a significant shareholder of Concord,
were sold to three directors of Concord for an amount which was less than the fair value of the
Concord Options (the Concord Options Transfer). The difference represented a benefit that the
shareholder conveyed to the three directors to compensate them for assuming directorship roles
with the Company. The three directors signed employment contracts with the Company but the
contractual terms did not contain a required service period. At the date of the Concord Options
Transfer, the fair value of the Concord Options (RMB25,460) calculated using an option pricing
model exceeded the consideration paid by the directors (RMB21,245) with the difference of
RMB4,215 being recognized immediately as compensation expense since the options had vested. An
offsetting credit was recognized in Additional Paid-In Capital to reflect the contribution made
by the shareholder for providing a benefit to directors of the Company in accordance with SAB
Topic 5T Accounting for Expenses or Liabilities Paid by Principal Stockholder(s). The three
directors immediately exercised the 14,829,200 Concord Options and paid total proceeds of
US$11,715 in aggregate.
 The Company calculated the estimated grant date fair value of the share-based awards in 2007
and 2008 using a Binomial-Lattice Model based on the following weighted average assumptions:
 November 17,
    
    
    August 18,2007
    
    
    2008
    
    
    August 18, 2008(successor)
    
    
    (successor)
    
    
    (successor)OMS Options
    
    
    OMS Options
    
    
    Concord OptionsRisk-free interest rate
    
    
    4.17
    %
    
    
    2.94
    %
    
    
    2.94
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected volatility range
    
    
    38.34
    %
    
    
    39.53
    %
    
    
    39.53
    %Sub optimal early exercise factor
    
    1.5 times
        
    1.5 times
        
    1.5 times
 The volatility assumption was estimated based on the price volatility of ordinary shares of
comparable companies in the health care industry. The sub optimal early exercise factor was
estimated based on the vesting and contractual terms of the awards and managements expectation
of exercise behavior of the grantees. The risk-free rate was based on the market yield of China
Sovereign Bonds denominated in US$ with maturity terms equal to the expected term of the option
awards. Forfeitures were estimated based on historical experience. The fair value of the
ordinary shares, at the option grant dates, was determined with assistance from an independent
valuation firm, American Appraisal. The weighted-average grant-date fair value of stock options
granted during the period from September 10 to December 31, 2007 (successor) and the year ended
December 31, 2008 (successor) were RMB1.29 and RMB1.71 per share, respectively.
 F - 45




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 20.
    
    EMPLOYEE SHARE OPTIONS (continued)
 No compensation expense was recorded by the predecessor entity for the period from January 1 to
October 30, 2007 since no share-based awards were issued. Total share-based compensation
expense of RMB49,526 and RMB4,215 was recognized in the period from September 10 to December
31, 2007 (successor) and in the year ended December 31, 2008 (successor), respectively, in
general and administrative expenses.
 Concord 2008 Share Incentive Plan
 On October 16, 2008, the Board of Directors adopted the 2008 Share Incentive Plan (The 2008
Share Incentive Plan). The 2008 Share Incentive Plan provides for the granting of options,
share appreciation rights, or other share based awards to key employees, directors or
consultants. The total number of Concord ordinary shares that may be issued under the 2008
Share Incentive Plan is up to 13,2180,000 ordinary shares. As of December 31, 2008, no awards
have been granted under the 2008 Share Incentive Plan.
 On November 17, 2009, the Board of Directors approved a grant of options to its directors and
employees to purchase an aggregate of 4,765,800 ordinary shares under its 2008 Share Incentive
Plan. On November 27, 2009, the Company granted options to purchase 4,765,800 ordinary shares
to its directors and employees. The stock options have an exercise price equal to the Companys
initial public offering price of $3.67 per share, a contractual life of eight years and vest
equally on the first, second, third, and fourth anniversary of the grant date. The measurement
date occurred when the exercise price was established, at which time the Company estimated the
fair value of these share-based payment awards and recognize compensation cost over each
employees respective requisite service period which closely approximates the vesting period of
the awards. The total compensation recognized in 2009 was RMB1,006 (US$148), representing the
pro rata compensation from November 27, 2009 to December 31, 2009. The Company recognizes the
compensation expense on a straight-line basis over the requisite service period for the entire
award. However, the amount of compensation cost recognized at any date must at least equal the
portion of the grant-date value of the award that is vested at that date. As of December 31,
2009, the total compensation cost related to non-vested awards not yet recognized amounted to
approximately RMB42,231 (US$6,187).
 The Company calculated the estimated grant date fair value of the share options granted in the
year ended December 31, 2009 using a Black-Scholes Model based on the following weighted
average assumptions:
 December 11, 2009(Successor)2008 Share Incentive PlanRisk-free interest rate
    
    
    2.36
    %Dividend yield
    
    
    Expected volatility range
    
    
    35.99
    %Expected term
    
    5.25 years
 F - 46




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 20.
    
    EMPLOYEE SHARE OPTIONS (continued)
 The risk-free rate was based on the US Treasury bond yield curve in effect at the time of grant
for periods corresponding with the expected term of the option. The dividend yield was assumed
nil as the Company has no history or expectation of paying dividends on its ordinary shares.
The volatility assumption was estimated based on the price volatility of ordinary shares of
comparable companies in the health care industry. The expected term of options reflected the
application of the simplified method set out in SAB No. 107, which defined the term as the
average of the contractual term of the options and the weighted-average vesting period for the
options given their characteristics.
 The following table summarizes employee share-based awards activities during the period from
January 1 to October 30, 2007 (predecessor), September 10 to December 31, 2007 (successor) and
the years ended December 31, 2008 and 2009 (successor):
 WeightedWeighted-
    
    
    AverageWeighted-
    
    
    Average
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average
    
    
    Grant-date
    
    
    Contractual
    
    
    IntrinsicShare Options Granted to Employees
    
    Shares
    
    
    Exercise Price
    
    
    Fair Value
    
    
    Term (Years)
    
    
    ValueOutstanding, January 1, 2007 and
October 30, 2007
    
    
    GrantedOMS Options
    
    
    25,000,000
    
    
    US$
    0.80
    
    
    US$
    0.26
    
    
    
    1.09
    
    
    
    Outstanding, December 31, 2007
    
    
    25,000,000
    
    
    US$
    0.80
    
    
    US$
    0.26
    
    
    
    1
    
    
    
    Expiration of OMS Options
    
    
    (25,000,000
    )
    
    US$
    0.80
    
    
    US$
    0.26
    
    
    
    0.39
    
    
    
    Grant of Concord Options
    
    
    21,184,600
    
    
    US$
    0.79
    
    
    US$
    0.25
    
    
    
    0.38
    
    
    
    Exercised of Concord Options
    
    
    (21,184,600
    )
    
    US$
    0.79
    
    
    US$
    0.25
    
    
    
    0.38
    
    
    US$
    10,793Outstanding, December 31, 2008
    
    
    Granted - 2008 Share Incentive Plan
    
    
    4,765,800
    
    
    US$
    3.67
    
    
    US$
    1.33
    
    
    
    4.00
    
    
    
    Outstanding, December 31, 2009
    
    
    4,765,800
    
    
    US$
    3.67
    
    
    US$
    1.33
    
    
    
    3.91
    
    
    
    
 The aggregate intrinsic value is calculated as the difference between the exercise price
of the underlying awards and the fair value of the Companys shares that would have been
received by the option holders if all in-the-money options had been exercised on December 31,
2009.
 The share-based compensation expense of the share-based awards granted to employees for the
year ended December 31, 2009 is as follows:
 For the year endedDecember 31, 2009(successor)RMB
    
    
    US$General and administrative expenses
    
    
    744
    
    
    
    109Selling expenses
    
    
    262
    
    
    
    381,006
    
    
    
    147
 F - 47




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 21.
    
    RELATED PARTY TRANSACTIONS
 a)
    
    Related parties
 Name of Related Parties
    
    Relationship with the GroupMr. Haifeng Liu
    
    A relative of a shareholder of the CompanyMr. Jianyu Yang
    
    Director and a shareholder of the CompanyMr. Zheng Cheng
    
    Director and a shareholder of the CompanyMr. Yaw Kong Yap
    
    Director and a shareholder of the CompanyShenzhen Hai Ji Tai
Technology Co., Ltd.
(Haijitai)
    
    A company owned by Mr. Haifeng LiuBeijing Medstar Hi-Tech
Investment Co., Ltd.
(Beijing Medstar)
    
    A company under the control of Mr. Zheng ChengOur Medical New Technology
Co., Ltd (Our Medical)
    
    A company under the control of Mr. Haifeng Liu
 b)
    
    The Group had the following related party transactions for the period from January 1,
2007 to October 30, 2007 (predecessor), September 10, 2007 to December 31, 2007
(successor), and the years ended December 31, 2008 and 2009 (successor):
 January 1,
    
    
    September 10,To
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Short-term interest-free
loans borrowed from:Haijitai
    
    
    
    
    
    
    38,700Mr. Haifeng Liu
    
    
    
    
    
    
    4,000Mr. Jianyu Yang
    
    
    
    
    
    
    1,000
    
    
    
    4,000
    
    
    
    
    
    
    
    Repayment of interest-free
loans borrowed from:Haijitai
    
    
    
    
    
    
    
    
    
    
    38,700
    
    
    
    
    
    
    
    Mr. Haifeng Liu
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    293Mr. Jianyu Yang
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    Non-current deposits made to:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Our Medical
    
    
    11,521
    
    
    
    706
    
    
    
    1,726
    
    
    
    12,497
    
    
    
    1,831
 Imputed interest, calculated using incremental borrowing rates ranging from 6.57% to
7.48%, amounting to approximately RMB8, RMB96, RMB2,991, and RMB55 (US$8) for the period
from January 1 to October 30, 2007 (predecessor), September 10 to December 31, 2007
(successor), the years ended December 31, 2008 and 2009 (successor), respectively, were
recorded with an offsetting credit to Additional Paid-in Capital.
 F - 48




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 21. RELATED PARTY TRANSACTIONS (continued)
 c) The Group had the following related party balances as of December 31, 2008 and 2009:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Amount due to related parties:Beijing Medstar
    
    
    196
    
    
    
    196
    
    
    
    29Mr. Haifeng Liu
    
    
    2,000
    
    
    
    
    
    
    
    Mr. Zheng Cheng
    
    
    1,351
    
    
    
    1,190
    
    
    
    174Mr. Yaw Kong Yap
    
    
    60
    
    
    
    160
    
    
    
    233,607
    
    
    
    1,546
    
    
    
    226Deposits held by a related party:Our Medical
    
    
    17,630
    
    
    
    15,370
    
    
    
    2,252
 All balances with the related parties as of December 31, 2008 and 2009 were unsecured,
interest-free and have no fixed terms of repayment.
 22.
    
    EMPLOYEE DEFINED CONTRIBUTION PLAN
 Full time employees of the Group in the PRC participate in a government mandated defined
contribution plan, pursuant to which certain pension benefits, medical care, employee housing
fund and other welfare benefits are provided to employees. Chinese labor regulations require
that the PRC subsidiaries of the Group make contributions to the government for these benefits
based on certain percentages of the employees salaries. The Group has no legal obligation for
the benefits beyond the contributions made. The total amounts for such employee benefits, which
were expensed as incurred, were approximately RMB208, RMB35, RMB938 and RMB2,506 (US$367) for
the period from January 1 to October 30, 2007 (predecessor), September 10 to December 31, 2007
(successor), the years ended December 31, 2008 and 2009 (successor), respectively.
 Obligations for contributions to defined contribution retirement plans for full-time employees
in Singapore are recognized as expense in the statements of operations as incurred. The total
amounts for such employee benefits, who is also a Director of the Company, were approximately
nil, nil, RMB14 and RMB85 (US$12) for the period from January 1, 2007 to October 30, 2007
(predecessor), the period from September 10 to December 31, 2007 (successor) and the years
ended December 31, 2008 and 2009 (successor), respectively.
 F - 49




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 23.
    
    COMMITMENTS AND CONTINGENCIES
 Operating lease commitments
 Future minimum payments under non-cancelable operating leases with initial terms in excess of
one year consist of the following at December 31, 2009:
 RMB
    
    
    US$2010
    
    
    5,215
    
    
    
    7642011
    
    
    4,808
    
    
    
    7042012
    
    
    2,464
    
    
    
    36112,487
    
    
    
    1,829
 Payments under operating leases are expensed on a straight-line basis over the periods of their
respective leases. The terms of the leases do not contain material rent escalation clauses or
contingent rents. For the years ended December 31, 2007, 2008 and 2009, total rental expenses
for all operating leases amounted to approximately RMB711, RMB2,620 and RMB 5,448 (US$798),
respectively.Purchase commitments
 The Group has commitments to purchase certain medical equipment of approximately RMB170,657
(US$25,001) at December 31, 2009, which are scheduled to be paid within one year.Income taxes
 As of December 31, 2009, the Group has recognized approximately RMB23,894 (US$3,500) as an
accrual for unrecognized tax benefits (note 18). The final outcome of the tax uncertainty is
dependent upon various matters including tax examinations, interpretation of tax laws or
expiration of status of limitation. However, due to the uncertainties associated with the
status of examinations, including the protocols of finalizing audits by the relevant tax
authorities, there is a high degree of uncertainty regarding the future cash outflows
associated with these tax uncertainties. As December 31, 2009, the Group classified the
RMB23,894 (US$3,500) accrual as a current liability.Lawsuit
 On December 4, 2009, the Company received a legal proceeding alleging that certain of the
Groups centers gamma knife systems were infringing a third-party owned patent. This claim
relates to a patent used in the head gamma knife system manufactured by one of the Companys
equipment manufacturers, Our Medical, which is a related party of the Company. A previous legal
proceeding involving the same such patent was initiated in June 2000 against Our Medical, its
related parties, and AMS, whereby the relevant PRC court also ordered the use of such equipment
to cease. The Company is currently assessing the validity of the claim and has received a
written indemnification from Our Medical for any damages or losses incurred from any
intellectual property infringement by such system. The Company has identified one head gamma
knife system currently in use in a center of the Companys network that could be subject to
such claim, representing approximately 1.5% and 0.9% of the Companys total consolidated net
revenues in 2008 and in 2009, respectively. Based on the early stage of this legal claim, the
Company has determined that it is not probable that a loss will result from this contingency
nor could an amount of the loss contingency be reasonably estimated.
 F - 50




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 24.
    
    SEGMENT REPORTING
 In accordance with ASC 280, Segment Reporting(Pre-Codification: SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information), the Group chief operating decision
maker has been identified as the chief executive officer, who reviews consolidated results when
making decisions about allocating resources and assessing performance of the Group; hence, the
Group has only one reportable segment. The Group operates and manages its business as a single
segment that includes primarily lease rental, management services and equipment sales.
 Lease and management services accounted for 94%, 93%, 90% and 89% of the Groups net revenue
for the period from January 1 to October 30, 2007 (predecessor), September 10 to
December 31, 2007 (successor), the year ended December 31, 2008 and 2009 (successor),
respectively. Any significant reduction in sales from this service could have a substantial
negative impact on the Groups results of operations.
 Hospital A represented the largest customer of the Group which individually accounted for
approximately RMB29,551 (US$4,329) or more than 10% of the Groups consolidated revenues for
the year ended December 31, 2009 (successor). Hospital B represented the largest customer of
the Group which individually accounted for approximately RMB23,191 (US$3,397) or more than 10%
of the Groups consolidated revenues for the year ended December 31, 2008 (successor). Hospital
A, Hospital B and Hospital C represented the largest customers of the Group accounting for
RMB3,387, RMB1,683 and RMB1,911, respectively, each of which is more than 10% of the Groups
consolidated revenues for the period from September 10 to December 31, 2007 (successor).
Hospital A, Hospital C and Hospital D represented the largest customers of the Group accounting
for RMB14,641, RMB8,062 and RMB7,767 or more than 10% of the Groups consolidated revenues for
the period from January 1 to October 30, 2007 (predecessor).
 Geographic disclosures:
 As the Group primarily generates its revenues from customers in the PRC, no geographical
segments are presented. All of the Groups long-lived assets are located in the PRC.
 F - 51




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 25.
    
    INCOME (LOSS) PER SHAREBasic and diluted income (loss) per share for each of the periods presented is calculated as
follows:
 January 1,
    
    
    September 10,to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the Year Ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Numerator:Net income (loss)
attributable to
ordinary
shareholders used
in calculating
(loss) income per
ordinary share -
basic and diluted
    
    
    19,430
    
    
    
    (48,326
    )
    
    
    (496,037
    )
    
    
    46,418
    
    
    
    6,800Denominator:Weighted average
number of ordinary
shares outstanding
used in calculating
basic and diluted
(loss) income per
share
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    57,481,400
    
    
    
    74,648,779
    
    
    
    74,648,779Basic and diluted
(loss) income per
share
    
    
    0.39
    
    
    
    (0.97
    )
    
    
    (8.63
    )
    
    
    0.62
    
    
    
    0.09
 In the period from September 10 to December 31, 2007 (successor), the diluted income
(loss) per share is the same as basic loss per share because the if-converted method would not
be applied as the effect of the convertible loans would be anti-dilutive. The share options
should not be included in the calculation of diluted income (loss) per share because the
Company incurred a net loss and, therefore, the effect would be anti-dilutive.In 2008, the basic loss per share was calculated using the two class method because the
Preferred Shares were participating securities. The losses were not allocated to holders of the
Preferred Shares because they are not obligated to fund the losses of the Group and the
contractual principal and mandatory redemption amount of Preferred Shares are not reduced as a
result of losses incurred by the Group. Diluted loss per share is the same as basic loss per
share because the effects of the Preferred Shares were anti-dilutive when computed on an if
converted basis.In 2008, the Company issued Series A and Series B contingently redeemable convertible preferred
shares (note 15). Each Preferred Share shall be convertible, at the option of the holder
thereof, at any time after the closing of the subscription, into a number of fully paid and
non-assessable ordinary Shares at a ratio 1:100 and is subject to adjustment pursuant to
anti-dilution provisions. One hundred per cent of each class of the Preferred Shares which are
outstanding immediately prior to the closing of the qualified initial public offering shall, on
and with effect from the closing of the qualified initial public offering, be automatically
converted into ordinary shares.In 2009, the effects of the Preferred Shares were also anti-dilutive when computed on an if
converted basis. In addition, the share options were not included in the calculation of
diluted income per share under the treasury stock method because their exercise prices were
greater than the average fair value of the
ordinary shares and, therefore, the effect would be anti-dilutive.
 F - 52




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 26.
    
    ARRANGEMENTS WITH CHANGAN HOSPITAL CO., LTD.The Group has entered into the following agreements with Changan Hospital Co., Ltd.
(Changan), a general hospital located in Xian in Shaanxi province in the PRC, which is also
a significant customer of the Group, and certain of its related parties, including the
controlling parent of Changan, Changan Information Industry (Group) Co., Ltd., (Changan
Information), a China-based conglomerate engaged in information technology, real estate and
the medical industries; a subsidiary of Changan, Xian Century Friendship Medical Technology
R&D Co., Ltd. (Xian), and another subsidiary controlled by Changan Information, Beijing
Century Friendship Science & Technology Development Co., Ltd., (Beijing Century).Management agreements to provide stand-alone management servicesThe Group entered into a five year Medical Equipment Entrusted Management Agreement on March 1,
2007 with Xian and Changan to provide management services with respect to radiotherapy and
diagnostic equipment owned by Xian located in the oncology center of Changan. Commencing
January 1, 2010, Concord has the option to purchase the radiotherapy and diagnostic equipment
owned by Xian at fair value if the Changan oncology centers annualized revenues achieves a
certain targeted level. Total management services revenue recognized under this contract was
RMB8,000 and RMB10,921 (US$1,600) for the years ended December 31, 2008 and 2009,
respectively. Accounts receivable related to this contract as at December 31, 2008 and 2009 was
RMB4,000  and RMB2,142 (US$314), respectively.On August 25, 2009, the Group exercised its option under the Medical Equipment Entrusted
Management Agreement and the Group entered into an Equipment Purchase Agreement with Xian and
Changan to acquire the radiotherapy and diagnostic equipment for a total cash consideration of
RMB72,716 (US$10,603). Concurrently, the Group also converted the stand-alone management services
arrangement into a Lease and Management Service Agreement which has a term of 15 years and
provides the Group with a percentage of net profit generated by Changans oncology center.
Commencing September 2009, the Group records all revenue associated with this arrangement as
lease and management services revenue. The depreciation expense of the associated equipment is
recorded as lease and management services cost of revenues. Total lease and management service
revenue recognized under this lease and management service agreement was RMB8,388 (US$1,229)
for the year ended December 31, 2009. Accounts receivable related to this contract as at
December 31, 2009 was RMB6,388 (US$936).On August 1, 2008, the Company signed an Entrusted Management Contract with Xian and Changan
to provide general administrative management services to Changan. The service period is from
August 1, 2008 to December 31, 2009. Under this arrangement, the Group earns a certain
percentage of total monthly revenues of Changan Hospital. In accordance with the contract, the
Group paid a performance guarantee deposit of RMB15,000 (US$2,197) to a related party of Xian,
which is refundable 15 days after the cancellation or expiration of the contract (January 15,
2010). Total revenue recognized during the years ended December 31, 2008 and 2009 under this
contract was RMB2,000  and RMB11,807 (US$1,730), respectively. Accounts receivable
related to this contract as at December 31, 2008 and 2009 was nil and RMB4,517 (US$662).
 F - 53




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 26.
    
    ARRANGEMENT WITH CHANGAN HOSPITAL CO., LTD. (continued)Beijing Proton Treatment CenterOn December 18, 2007, the Group entered into a framework agreement with Changan Information to
build a Beijing Proton Treatment Center (Proton Center). The Proton Center will initially be
established by Changan Information with a total registered capital of RMB100,000. The parties
agreed that after certain capital injections from the Group, the Company will hold a 51.2%
interest in the Proton Center, while Jian Chang Group Limited, a related party of Changan,
will hold 28.8% and China-Japan Friendship Hospital, a state-owned hospital, will hold 20.0%.
Once the Proton Center commences operations, the Group shall own a 51.2% controlling interest
in the Proton Center and will consolidate the operating results and financial position within
the Group. Additional contractual arrangements will be entered into by the Group once all
relevant permits and approvals are obtained. In order for this framework agreement to become
effective, the Group is required to pay a deposit of RMB10,000 (US$1,465); this deposit was not
paid as of December 31, 2009 .To assist with this project, the Group has made deposits to Beijing Century in the amounts of
RMB3,800 and RMB14,600 (US$2,139) as of December 31,2008 and December 31, 2009, respectively,
towards certain setup costs of the Proton Center; these deposits are due by December 31, 2010.
All of the deposits are guaranteed by Changan Information.Changan CMS International Cancer CenterOn July 1, 2008, the Group entered into a framework agreement with Xian to build a cancer
center in northwest China, to be called Changan CMS International Cancer Center (CCICC).
Although the CCICC will initially be established by Xian, the parties agreed that after
certain initial capital injections estimated at RMB34,800 (US$5,098) from the Group, the
Company shall hold a controlling interest of 52% in the CCICC, while Xian will hold a
non-controlling interest of 48%. Similarly, the Group anticipates having to consolidate the
operating results and financial position of the CCICC when the Group obtains a controlling
interest. As at December 31, 2009, the relevant permits and approvals were pending. When they
are received, the CCICC would then be established legally and additional contractual
arrangements will be entered into by the Group (see note 27). Similarly, the Group anticipates
having to consolidate the operating results and financial position of the CCICC when the Group
obtains a controlling interest. As at December 31, 2008 and 2009, the Group paid a deposit of
RMB15,007 (US$2,197) to a related party of Xian in accordance with the framework agreement.There are no other obligations under the current framework agreement and the agreement does not
specify a contractual completion date for the deposit to be repaid to the Group. If the CCICC
is established, the RMB15,000 deposit will be applied against future capital injections beyond
the initial capital investment estimate of RMB34,800. The Group has also paid deposits to Xian
to be used towards setup and construction costs of the CCICC amounting to RMB2,000 and RMB3,000
(US$439) as of December 31, 2008 and 2009.
 F - 54




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States
Dollar (US$),
except for number of shares)
 26. ARRANGEMENT WITH CHANGAN HOSPITAL CO., LTD. (continued)
 January 1
    
    
    September 10to
    
    
    toOctober 30,
    
    
    December 31,
    
    
    For the year ended December 31,2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(predecessor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Management services revenue:Medical Equipment Entrusted
Management Agreement
    
    
    3,500
    
    
    
    1,000
    
    
    
    8,000
    
    
    
    10,921
    
    
    
    1,600Entrusted Management Contract
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    11,807
    
    
    
    1,730Lease and Management Service
Agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,388
    
    
    
    1,229Total management services revenue
    
    
    3,500
    
    
    
    4,500
    
    
    
    10,000
    
    
    
    31,116
    
    
    
    4,559Accounts receivable due from Changan
    
    
    3,500
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    13,047
    
    
    
    1,911
 The Group had the following deposits with Changan and its affiliated companies as at
December 31, 2008 and 2009:
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    US$Current  Entrusted Management Contract
    
    
    15,000
    
    
    
    15,000
    
    
    
    2,198Non-current  Proton Center and CCICC
    
    
    20,821
    
    
    
    32,607
    
    
    
    4,777Total
    
    
    35,821
    
    
    
    47,607
    
    
    
    6,975
 27. SUBSEQUENT EVENTS
 On January 30, 2010, the Company entered into an Equipment Purchase Agreement with Xian to
acquire certain general hospital facilities owned by Changan for total proceeds of RMB25,000
(US$3,662). Concurrently, a direct finance lease agreement was entered into between the Company
and Changan pursuant to which the purchased general hospital facilities would be subject to
the finance lease for a term of five years commencing from February 2010. Changan was required
to pay a non-refundable administrative fee of RMB 1,250 (US$183) under the finance lease
agreement. The cash consideration after netting off the administrative fee was paid in February
2010.
 F - 55




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 27. SUBSEQUENT EVENTS (continued)
 In February 2010, AML obtained a RMB60,000 banking facility with a financial institution in the
PRC. The facility consists of a six months revolving loan of up to RMB42,000 and a term loan of
up to RMB60,000 repayable by 30 equal monthly installments. The total sum drawn down under this
facility cannot not exceed RMB60,000. Proceeds from this facility will be used towards future
purchases of equipment and will be secured by such equipment. The facility is guaranteed by MSC
and AMS up to RMB 66,000 and RMB 71,500 respectively. AML and AMS are required to comply with
certain covenants under the terms of the loan. AML has not drawn down any loan under this
facility.
 In February 2010, MSC obtained a RMB65,000 banking facility which consists of a RMB15,000
overdraft for working capital purposes and a RMB50,000 loan including a six month revolving
loan of RMB35,000 and a term loan of up to RMB50,000 repayable by 30 equal monthly installments
for future equipment purchases. The borrowing will be secured by account receivables of MSC as
approved by the financial institution and the respective medical equipment financed by the
facility. The facility is guaranteed by AMS and AML up to RMB 71,500 each.MSC and AMS are
required to comply with certain covenants under the terms of the loan any time during the
contractual period. MSC has drawn down RMB15,000 (US$2,198) under this facility.
 On April 16, 2010, Cyber signed a share acquisition agreement with Changan Hospital. According
to the terms of the agreement, Changan Hospital would transfer 52% of its equity interests in
Xian Wanjie Huaxiang Medical Technology Developing Co., Ltd. (Xian Wanjie) for
consideration amounting to RMB103,181. Xian Wanjie is a company incorporated in the PRC and
its main assets are certain hospital buildings, currently occupied by Changan Hospital, in
which the CCICC would be located upon establishment and the related land use right. The
acquisition is subject to approval by the government and the acquisition consideration would be
settled within three months from the date of the governments approval and the completion of
the related registration procedures with the government.On April 22, 2010, AML entered into an agreement to acquire 100% of the equity interest in
Tianjin Kangmeng Radiology Equipment Management Co., Ltd. (Tianjin Kangmeng Radiology), a
company that has medical equipment lease and management service arrangements with four
radiotherapy and diagnostic imaging centers of a hospital in Hebei province for a cash
consideration of RMB60,000. These four centers have been in operation since July 2009 and the
arrangements will expire in five years after the initial investment has been recovered by
Tianjian Kangmeng Radiology. Concurrently, AML entered into an entrusted management contract
with Tianjin Kangmeng Medical Investment Co. Ltd (Tianjin Kangmeng Medical) according to
which Tianjin Kangmeng Medical would provide management services with respect to the four
centers for a term of three years. RMB18,000 of the acquisition consideration of RMB60,000
would be treated as a performance guarantee deposit which is refundable after fulfilling the
performance target. The acquisition was completed in April 2010. The cash consideration of
RMB40,000 was paid in June 2010.
 F - 56




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 28. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
 Condensed balance sheets
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)RMB
    
    
    RMB
    
    
    US$ASSETSCurrent assets:Cash
    
    
    274,515
    
    
    
    601,040
    
    
    
    88,053Amounts due from subsidiaries
    
    
    167,140
    
    
    
    505,558
    
    
    
    74,065Prepayments and other current assets
    
    
    
    
    
    
    16,732
    
    
    
    2,450Total current assets
    
    
    441,655
    
    
    
    1,123,330
    
    
    
    164,568Non-current assets:Investment in subsidiaries
    
    
    763,010
    
    
    
    1,040,899
    
    
    
    152,493Deposit for non-current assets
    
    
    37,746
    
    
    
    15,007
    
    
    
    2,199Total assets
    
    
    1,242,411
    
    
    
    2,179,236
    
    
    
    319,260LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accrued expenses and other liabilities
    
    
    529
    
    
    
    7,905
    
    
    
    1,158Amounts due to subsidiaries
    
    
    615
    
    
    
    17,583
    
    
    
    2,576Dividends payable
    
    
    10,788
    
    
    
    
    
    
    
    Total current liabilities
    
    
    11,932
    
    
    
    25,488
    
    
    
    3,734Total liabilities
    
    
    11,932
    
    
    
    25,488
    
    
    
    3,734
 F - 57




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 28. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
 Condensed balance sheets (continued)
 As at December 31,2008
    
    
    2009
    
    
    2009(successor)RMB
    
    
    RMB
    
    
    US$Commitments and contingenciesSeries A contingently redeemable
convertible preferred shares (par
value of US$0.01 per share;
Authorized - 200,000 shares as at
December 31, 2008 and 2009; Issued
and outstanding - 176,942 and nil
shares as at December 31, 2008 and
2009, respectively. As at December
31, 2009, aggregate liquidation
preference and redemption amounts
were US$ nil and US$ nil,
respectively (2008: US$54,573 and
US$38,147, respectively))
    
    
    254,358
    
    
    
    
    
    
    
    Series B contingently redeemable
convertible preferred shares (par
value of US$0.01 per share;
Authorized - 300,000 shares as at
December 31, 2008 and 2009,
respectively. Issued and
outstanding - 233,332 and nil
shares as at December 31, 2008 and
2009, respectively. As at December
31, 2009, aggregate liquidation
preference and redemption amounts
were US$ nil and US$ nil,
respectively (2008: US$90,583 and
US$61,390, respectively))
    
    
    411,101
    
    
    
    
    
    
    
    Shareholders equity:Ordinary shares (par value of
US$0.0001 per share at December 31,
2008 and 2009; Authorized -
450,000,000 shares at December 31,
2008 and 2009; Issued and
outstanding - 70,428,100 and
147,455,500 shares at December 31,
2008 and 2009, respectively.
    
    
    55
    
    
    
    108
    
    
    
    16Additional paid-in capital
    
    
    1,113,150
    
    
    
    2,671,910
    
    
    
    391,437Accumulated other comprehensive loss
    
    
    (3,822
    )
    
    
    (3,987
    )
    
    
    (584
    )Accumulated deficit
    
    
    (544,363
    )
    
    
    (514,283
    )
    
    
    (75,343
    )Total shareholders equity
    
    
    565,020
    
    
    
    2,153,748
    
    
    
    315,526Total liabilities, preferred shares
and shareholders equity
    
    
    1,242,411
    
    
    
    2,179,236
    
    
    
    319,260
 F - 58




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 28.
    
    PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
 Condensed statements of operations
 September 10toDecember 31,
    
    
    For the Year Ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost of revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    (53,862
    )
    
    
    (4,593
    )
    
    
    (2,372
    )
    
    
    (347
    )Selling expenses
    
    
    
    
    
    
    
    
    
    
    (262
    )
    
    
    (38
    )Operating loss
    
    
    (53,862
    )
    
    
    (4,593
    )
    
    
    (2,634
    )
    
    
    (385
    )Equity in profit of subsidiaries
    
    
    5,877
    
    
    
    84,731
    
    
    
    126,621
    
    
    
    18,549Interest income
    
    
    
    
    
    
    364
    
    
    
    818
    
    
    
    120Interest expense
    
    
    
    
    
    
    (895
    )
    
    
    
    
    
    
    Change in fair value of convertible notes
    
    
    (341
    )
    
    
    (464
    )
    
    
    
    
    
    
    Exchange loss
    
    
    
    
    
    
    (74
    )
    
    
    22
    
    
    
    3Net (loss) income
    
    
    (48,326
    )
    
    
    79,069
    
    
    
    124,827
    
    
    
    18,287Accretion of Series A contingently
redeemable convertible preferred shares
    
    
    
    
    
    
    (270,343
    )
    
    
    (30,050
    )
    
    
    (4,402
    )Accretion of Series B contingently
redeemable convertible preferred shares
    
    
    
    
    
    
    (304,763
    )
    
    
    (48,359
    )
    
    
    (7,085
    )Net (loss) income attributable to
ordinary shareholders
    
    
    (48,326
    )
    
    
    (496,037
    )
    
    
    46,418
    
    
    
    6,800
 F - 59




---



##### Table of Contents



CONCORD MEDICAL SERVICES HOLDINGS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Amounts in thousands of Renminbi (RMB) and United States Dollar (US$),
except for number of shares)
 28.
    
    PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)
 Condensed statements of cash flows
 September 10toDecember 31,
    
    
    For the Year Ended December 31,2007
    
    
    2008
    
    
    2009
    
    
    2009(successor)
    
    
    (successor)
    
    
    (successor)
    
    
    (successor)RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Net cash generated from operating activities
    
    
    
    
    
    
    526
    
    
    
    34
    
    
    
    5Net cash used in investing activities
    
    
    
    
    
    
    (448,224
    )
    
    
    (466,520
    )
    
    
    (68,346
    )Net cash generated from financing activities
    
    
    
    
    
    
    727,849
    
    
    
    793,138
    
    
    
    116,195Exchange rate effect on cash
    
    
    
    
    
    
    (5,636
    )
    
    
    (127
    )
    
    
    (18
    )Net increase in cash
    
    
    
    
    
    
    274,515
    
    
    
    326,525
    
    
    
    47,836Cash at beginning of the period
    
    
    
    
    
    
    
    
    
    
    274,515
    
    
    
    40,217Cash at end of the period
    
    
    
    
    
    
    274,515
    
    
    
    601,040
    
    
    
    88,053Supplemental schedule of non-cash activities:Conversion of convertible loans into Series
A contingently redeemable convertible
preferred shares
    
    
    
    
    
    
    176,082
    
    
    
    704,276
    
    
    
    103,177Proceeds from convertible notes paid
directly to a subsidiary of the Company
    
    
    36,523
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series A and Series B
convertible contingently redeemable
preferred shares to ordinary shares upon
initial public offering
    
    
    
    
    
    
    
    
    
    
    704,276
    
    
    
    103,177
 Basis of Presentation
 For the presentation of the parent company only condensed financial information, the Company
records its investment in subsidiaries under the equity method of accounting as prescribed in
ASC 323, InvestmentsEquity Method and Joint Ventures(Pre-Codification: APB Opinion No. 18, The
Equity Method of Accounting for Investments in Common Stock). Such investment is presented on
the balance sheet as Investment in Subsidiaries and the subsidiaries profit or loss as Equity
in profit or loss of subsidiaries on the statement of income. The parent company only financial
statements should be read in conjunction with the Companys consolidated financial statements.
 F - 60