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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q





(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2011

Or



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

Commission File Number 333-171386





USMD Holdings,
Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 27-2866866                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|6333 North State Highway 161, Suite 200
Irving, Texas          |  | 75038                            
|(Address of principal executive offices)                       |  | (zip code)                       

(214) 493-4000

(Registrants telephone number, including area code)





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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

The registrant had 39,100 shares of common stock outstanding as of September 6, 2011.









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TABLE OF CONTENTS



|                             |  |                                                                                       |  |      |    | 
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|                             |  |                                                                                       |  | Page |   
|                            
|PART I FINANCIAL INFORMATION | 
|                             |  |                                                                                      
|Item 1.                      |  | Financial Statements (Unaudited):                                                     |  |      | 1  | 
|                             |  | Explanatory Note                                                                      |  |      | 1  | 
|                             |  | Unaudited Financial Statements of USMD Holdings, Inc.                                 |  |      |    | 
|                             |  | Supplemental Information: Unaudited Financial Statements of USMD Inc.                 |  |      |    | 
|                             |  |                                                                                      
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 13 | 
|                             |  |                                                                                      
|Item 4.                      |  | Controls and Procedures                                                               |  |      | 22 | 
|PART II  OTHER
INFORMATION  | 
|                             |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  |      | 23 | 
|                             |  |                                                                                      
|Item 6.                      |  | Exhibits                                                                              |  |      | 23 | 
|                             |  |                                                                                      
|Signatures                   |  |                                                                                       |  |      | 24 | 



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|Item 1. | Financial Statements
|------- | --------------------

Explanatory Note:

USMD Holdings, Inc. (Holdings) is a Delaware corporation formed to facilitate the business combination
of USMD Inc. (USMD), UANT Ventures, L.L.P. (Ventures) and Urology Associates of North Texas, L.L.P. (UANT). Holdings, USMD, Ventures and UANT entered into a Contribution and Purchase Agreement dated
August 19, 2010 pursuant to which the shareholders of USMD will contribute all of their common stock in USMD to Holdings, and Ventures will contribute all of its assets, which at the time of the contribution will include all of the equity
interests in UANT, to Holdings (the Contribution). Holdings described the Contribution in its Form S-4 registration statement filed with the Securities and Exchange Commission, which became effective July 25, 2011. On
August 23, 2011, the shareholders of USMD and the partners of UANT and Ventures voted on and approved the Contribution and Purchase Agreement. Holdings expects to close the Contribution in late 2011. Through June 30, 2011, Holdings has no
operations and no assets, liabilities, equity or cash flows. As such, except for certain footnote disclosures, there is no financial statement activity for Holdings and except for those footnotes, Holdings has not presented financial statements in
this Quarterly Report on Form 10-Q. Holdings is presenting as supplemental financial information the unaudited condensed consolidated financial statements of USMD, the predecessor entity that will be the accounting acquirer in the event the
Contribution transaction is consummated.



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USMD HOLDINGS, INC.

Notes to Condensed Financial Statements

June 30, 2011

(Unaudited)

Note 1  Description of Business and Basis of Presentation

USMD Holdings, Inc. (Holdings) is a Delaware corporation formed to facilitate the business combination of
USMD Inc. (USMD), UANT Ventures, L.L.P. (Ventures) and Urology Associates of North Texas, L.L.P. (UANT). Holdings, USMD, Ventures and UANT entered into a Contribution and Purchase Agreement dated
August 19, 2010 pursuant to which the shareholders of USMD will contribute all of their common stock in USMD to Holdings, and Ventures will contribute all of its assets, which at the time of the contribution will include all of the equity
interests in UANT, to Holdings (the Contribution). Holdings described the Contribution in its Form S-4 registration statement filed with the Securities and Exchange Commission, which became effective July 25, 2011. Through
June 30, 2011, Holdings has no operations and no assets, liabilities, equity or cash flows.

Except for the exclusion of
financial statements for which there was no activity and no balances, the unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) for interim
financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim reporting. Certain information and note disclosures normally included in annual financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although Holdings believes that the disclosures made are adequate to make the information not misleading. These condensed financial statements reflect all
adjustments that, in the opinion of Holdings management, are necessary for fair presentation of the condensed financial statements. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year.
These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in Holdings Form S-4 registration statement filed with the SEC. There have been no significant changes in the
information reported in those notes, other than from normal business activities and as discussed herein.

Note 2  Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the FASB) issued Accounting Standard Update
(ASU) No. 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). The FASBs primary objective was to
collaborate with the International Accounting Standards Board to develop common requirements for measuring fair value and disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards.
ASU 2011-04 (i) expands and enhances disclosures about fair value measurements and (ii) clarifies the FASBs intent about the application of existing fair value measurement requirements in certain circumstances. Public companies are
required to adopt the provisions of ASU 2011-04 on a prospective basis during interim and annual periods beginning after December 15, 2011. Early adoption of the amended accounting guidance is not permitted. Holdings continues to review ASU
2011-04; however, Holdings does not believe that adoption will have a material impact on its consolidated financial statements or the notes thereto.

In July 2011, the FASB issued ASU No. 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful
Accounts for Certain Health Care Entities (ASU 2011-07). In accordance with ASU 2011-07, Holdings will be required to present its provision for doubtful accounts related to patient service revenue as a deduction from revenue, similar
to contractual discounts. Accordingly, Holdings patient service revenues will be reported net of both contractual discounts as well as its provision for doubtful accounts related to patient service revenues. Additionally, ASU 2011-07 will
require Holdings to make certain additional disclosures designed to help users understand how contractual discounts and bad debts affect recorded revenue in both interim and annual financial statements. ASU 2011-07 requires retrospective application
and is effective for public companies for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. The ASU permits early adoption. The adoption of ASU 2011-07 is not expected to impact Holdings
financial position, results of operations or cash flows, however, upon adoption and as required by this ASU, Holdings will reclassify the provision for bad debts related to prior period patient service revenue as a deduction from patient service
revenue.

Holdings does not believe any other recently issued, not yet effective, accounting standards will have a material
effect on its consolidated financial position, results of operations, or cash flows.



2



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USMD HOLDINGS, INC.

Notes to Condensed Financial Statements-(Continued)

June 30, 2011

(Unaudited)



Note 3  Subsequent Events

Holdings has evaluated subsequent events through the date its financial statements were issued.

Shareholder and Partner Votes

On August 23, 2011, the shareholders of USMD and the partners of UANT and Ventures voted on and approved the Contribution transaction described in Holdings Form S-4 registration statement and
accompanying prospectus. Holdings expects to close the Contribution in late 2011, subject to the satisfaction of certain closing conditions.

Non-Binding Term Sheet Regarding Issuance and Sale of Convertible Preferred Stock

Holdings and USMD Inc. have executed a non-binding term sheet with an unaffiliated private investment firm (the Investor) that
contemplates the sale of 60,000 shares of convertible preferred stock of Holdings at a price of $1,000 per share, representing a total purchase price of $60.0 million. The transaction is subject to the completion of Investor due diligence and the
negotiation of definitive agreements; therefore, management cannot predict the likelihood of its consummation. The non-binding term sheet does not set forth an actual conversion rate of the preferred stock but rather an expectation that the
preferred stock would convert into approximately one-third of the common stock of Holdings. The exact conversion rate and all other terms of the convertible preferred stock financing will depend upon the completion of due diligence and the
negotiation of definitive agreements with the Investor. However, should the preferred stock financing be consummated without material changes from the terms set forth in the non-binding term sheet, Holdings estimates that the 60,000 shares of
convertible preferred stock would be convertible into an aggregate of approximately 5,021,000 shares of common stock (representing a conversion rate of 83.68 shares of common stock for each share of convertible preferred stock). Under these terms,
upon issuance of the convertible preferred stock, Holdings would record $60.0 million of convertible preferred stock equity and a beneficial conversion discount of $11.1 million equal to the estimated intrinsic value of the conversion option.

Issuance of Restricted Common Shares

In July 2011, Holdings initiated an employee stock grant program in accordance with the Holdings 2010 Equity Compensation Plan. Under this stock grant program, Holdings offered 100 restricted shares
of its common stock to each of 416 employees of USMD, UANT and Ventures. Until restrictions lapse, the shares cannot be sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily and are subject to forfeiture upon termination of
employment. Restrictions lapse upon the earlier of the completion of the Contribution described in Holdings Form S-4 registration statement or the second anniversary date of the award.

In the third quarter of 2011, Holdings expects to record stock compensation expense of approximately $0.6 million representing the fair
value of the restricted shares based on the fair value of Holdings as calculated in the fairness opinion rendered February 11, 2011 and as discussed in Holdings Form S-4 registration statement. The fairness opinion contemplates the
successful completion of the Contribution as described in the Form S-4 and accompanying prospectus. If the Contribution does not close or otherwise fails to occur, the estimated fair value of the restricted shares is likely zero. The fairness
opinion was prepared based on financial information as of December 31, 2010 and does not take into account any subsequent changes in the results of operations or financial condition of the underlying business entities; however, Holdings does
not believe the fair value of the shares has materially changed from that date.



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SUPPLEMENTAL FINANCIAL INFORMATION OF USMD INC.

Holdings is presenting as supplemental financial information, the financial statements of USMD, which will be considered the accounting acquirer in the
event the Contribution transaction is consummated. Following are the unaudited condensed consolidated financial statements of USMD for the six month interim periods ended June 30, 2011 and 2010.

USMD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                               |  | June 30,2011                      |        |   | December 31,2010 |  
|                                                                                                                                                               |  | (in thousands, except share data) |       
|                                                                                                                                                               |  | (unaudited)                       |        |   |                  |  
|                                                                                                                                                               | 
|ASSETS                                                                                                                                                         |  |                                   |        |  
|                                                                                                                                                               |  |                                  
|Current assets:                                                                                                                                                |  |                                   |        |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                      |  | $                                 | 7,332  |   |                  | $ | 7,477  |  
|Accounts receivable, net of allowance for doubtful accounts of $420 at June 30, 2011 and $393 at December 31,
2010                                             |  |                                   | 3,290  |   |                  |   | 2,917  |  
|Affiliate accounts receivable                                                                                                                                  |  |                                   | 1,080  |   |                  |   | 1,694  |  
|Deferred tax assets, current                                                                                                                                   |  |                                   | 183    |   |                  |   | 168    |  
|Prepaid expenses and other current assets                                                                                                                      |  |                                   | 346    |   |                  |   | 143    |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total current assets                                                                                                                                           |  |                                   | 12,231 |   |                  |   | 12,399 |  
|                                                                                                                                                               |  |                                  
|Property and equipment, net                                                                                                                                    |  |                                   | 1,818  |   |                  |   | 2,219  |  
|Investments in nonconsolidated affiliates                                                                                                                      |  |                                   | 12,454 |   |                  |   | 11,682 |  
|Goodwill                                                                                                                                                       |  |                                   | 9,804  |   |                  |   | 9,804  |  
|Intangible assets, net                                                                                                                                         |  |                                   | 325    |   |                  |   | 343    |  
|Deferred tax assets, less current portion                                                                                                                      |  |                                   | 686    |   |                  |   | 445    |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total assets                                                                                                                                                   |  | $                                 | 37,318 |   |                  | $ | 36,892 |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|                                                                                                                                                               |  |                                  
|LIABILITIES AND EQUITY                                                                                                                                         |  |                                   |        |   |                  |   |        |  
|                                                                                                                                                               |  |                                  
|Current liabilities:                                                                                                                                           |  |                                   |        |   |                  |   |        |  
|Accounts payable                                                                                                                                               |  | $                                 | 167    |   |                  | $ | 404    |  
|Accrued payroll                                                                                                                                                |  |                                   | 1,553  |   |                  |   | 1,459  |  
|Other accrued liabilities                                                                                                                                      |  |                                   | 1,686  |   |                  |   | 1,765  |  
|Current portion of long-term debt                                                                                                                              |  |                                   | 953    |   |                  |   | 234    |  
|Current portion of related party long-term debt                                                                                                                |  |                                   | 449    |   |                  |   | 429    |  
|Current portion of capital lease obligations                                                                                                                   |  |                                   | 230    |   |                  |   | 229    |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total current liabilities                                                                                                                                      |  |                                   | 5,038  |   |                  |   | 4,520  |  
|                                                                                                                                                               |  |                                  
|Long-term debt, less current portion                                                                                                                           |  |                                   | 43     |   |                  |   | 883    |  
|Related party long-term debt, less current portion                                                                                                             |  |                                   | 7,029  |   |                  |   | 7,258  |  
|Capital lease obligations, less current portion                                                                                                                |  |                                   | 943    |   |                  |   | 1,092  |  
|Deferred tax liabilities                                                                                                                                       |  |                                   | 5,212  |   |                  |   | 5,011  |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total liabilities                                                                                                                                              |  |                                   | 18,265 |   |                  |   | 18,764 |  
|                                                                                                                                                               |  |                                  
|Commitments and contingencies                                                                                                                                  |  |                                   |        |   |                  |   |        |  
|                                                                                                                                                               |  |                                  
|Equity:                                                                                                                                                        |  |                                   |        |   |                  |   |        |  
|USMD Inc. stockholders equity:                                                                                                                                |  |                                   |        |   |                  |   |        |  
|Common stock, $0.01 par value, 50,000,000 shares authorized; 30,982,196 shares issued and 29,707,912 shares outstanding
at June 30, 2011 and December 31, 2010 |  |                                   | 310    |   |                  |   | 310    |  
|Additional paid-in capital                                                                                                                                     |  |                                   | 6,825  |   |                  |   | 6,825  |  
|Retained earnings                                                                                                                                              |  |                                   | 8,685  |   |                  |   | 7,913  |  
|Treasury stock at cost, 1,274,284, shares at June 30, 2011 and December 31, 2010                                                                               |  |                                   | (1,184 | ) |                  |   | (1,184 | )
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total USMD Inc. stockholders equity                                                                                                                           |  |                                   | 14,636 |   |                  |   | 13,864 |  
|Noncontrolling interests in subsidiaries                                                                                                                       |  |                                   | 4,417  |   |                  |   | 4,264  |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total equity                                                                                                                                                   |  |                                   | 19,053 |   |                  |   | 18,128 |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  
|Total liabilities and equity                                                                                                                                   |  | $                                 | 37,318 |   |                  | $ | 36,892 |  
|                                                                                                                                                               |  |                                   |        |   |                  |   |        |  

See accompanying notes to condensed consolidated financial statements.



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USMD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)



|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                          |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                          |  | 2011                        |        |   | 2010                      |   |        | 2011 |  |   | 2010   |  
|Revenue:                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Management services revenue                               |  | $                           | 5,792  |   |                           | $ | 5,364  |      |  | $ | 11,704 |   |  | $ | 8,655  |  
|Lithotripsy revenue                                       |  |                             | 5,603  |   |                           |   | 5,253  |      |  |   | 10,571 |   |  |   | 9,620  |  
|Net patient service revenue                               |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   | 14,895 |  
|Other operating revenue                                   |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   | 497    |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net operating revenue                                     |  |                             | 11,395 |   |                           |   | 10,617 |      |  |   | 22,275 |   |  |   | 33,667 |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Operating expenses:                                       |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Salaries, wages and employee benefits                     |  |                             | 4,923  |   |                           |   | 5,008  |      |  |   | 9,689  |   |  |   | 12,335 |  
|Medical supplies and services expense                     |  |                             | 132    |   |                           |   | 121    |      |  |   | 200    |   |  |   | 4,853  |  
|Provision for doubtful accounts                           |  |                             | (13    | ) |                           |   | 48     |      |  |   | 29     |   |  |   | 1,807  |  
|Other operating expenses                                  |  |                             | 2,666  |   |                           |   | 1,022  |      |  |   | 4,445  |   |  |   | 4,986  |  
|Depreciation and amortization                             |  |                             | 233    |   |                           |   | 300    |      |  |   | 510    |   |  |   | 1,405  |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                  |  |                             | 7,941  |   |                           |   | 6,499  |      |  |   | 14,873 |   |  |   | 25,386 |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income from operations                                    |  |                             | 3,454  |   |                           |   | 4,118  |      |  |   | 7,402  |   |  |   | 8,281  |  
|                                                          |  |                             |        |  
|Other income (expense):                                   |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Interest expense, net                                     |  |                             | (213   | ) |                           |   | (218   | )    |  |   | (430   | ) |  |   | (1,656 | )
|Equity in income of nonconsolidated affiliates            |  |                             | 473    |   |                           |   | 369    |      |  |   | 952    |   |  |   | 468    |  
|Other expense, net                                        |  |                             | (12    | ) |                           |   |       |      |  |   | (4     | ) |  |   | 12,425 |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total other income, net                                   |  |                             | 248    |   |                           |   | 151    |      |  |   | 518    |   |  |   | 11,237 |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income before provision for income taxes                  |  |                             | 3,702  |   |                           |   | 4,269  |      |  |   | 7,920  |   |  |   | 19,518 |  
|Provision for income taxes                                |  |                             | (279   | ) |                           |   | (653   | )    |  |   | (824   | ) |  |   | (5,562 | )
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income                                                |  |                             | 3,423  |   |                           |   | 3,616  |      |  |   | 7,096  |   |  |   | 13,956 |  
|Less: net income attributable to noncontrolling interests |  |                             | (3,363 | ) |                           |   | (3,163 | )    |  |   | (6,324 | ) |  |   | (4,797 | )
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income attributable to USMD Inc                       |  | $                           | 60     |   |                           | $ | 453    |      |  | $ | 772    |   |  | $ | 9,159  |  
|                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|                                                          |  |                             |        |  
|Earnings per share attributable to USMD Inc.              |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                     |  | $                           | 0.00   |   |                           | $ | 0.02   |      |  | $ | 0.03   |   |  | $ | 0.31   |  
|Diluted                                                   |  | $                           | 0.00   |   |                           | $ | 0.02   |      |  | $ | 0.03   |   |  | $ | 0.31   |  
|                                                          |  |                             |        |  
|Weighted average common shares outstanding                |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                     |  |                             | 29,708 |   |                           |   | 29,708 |      |  |   | 29,708 |   |  |   | 29,708 |  
|Diluted                                                   |  |                             | 29,775 |   |                           |   | 29,777 |      |  |   | 29,775 |   |  |   | 29,777 |  

See accompanying notes to condensed consolidated financial statements.



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USMD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

For the Six Months Ended June 30, 2011

(Unaudited  in thousands)



|                                                    |  |                                       |        |  |            |   |     |                |  |   |                  |  |  |        |       |  |                |  |       |           |  |   |                          |   |  |              |        |  |  |   |        |   |  |   |        |  
|--------------------------------------------------- |  | ------------------------------------- | ------ |  | ---------- | - | --- | -------------- |  | - | ---------------- |  |  | ------ | ----- |  | -------------- |  | ----- | --------- |  | - | ------------------------ | - |  | ------------ | ------ |  |  | - | ------ | - |  | - | ------ | -
|                                                    |  | USMD Inc. Common Stockholders Equity |        |  |            |   |     |                | 
|                                                    |  | Common Stock                          |        |  | Additional |   |     |                |  |   | Treasury Stock   |  |  | Total  |       |  | Noncontrolling |  |       |           | 
|                                                    |  | SharesOutstanding                     |        |  | Par Value  |   |     | Paid-inCapital |  |   | RetainedEarnings |  |  | Shares |       |  | Cost           |  |       | USMD Inc. |  |   | Interests inSubsidiaries |   |  | Total Equity |       
|Balance at December 31, 2010                        |  |                                       | 30,982 |  |            | $ | 310 |                |  | $ | 6,825            |  |  | $      | 7,913 |  |                |  | 1,274 |           |  | $ | (1,184                   | ) |  | $            | 13,864 |  |  | $ | 4,264  |   |  | $ | 18,128 |  
|Net income                                          |  |                                       |       |  |            |   |    |                |  |   |                 |  |  |        | 772   |  |                |  |      |           |  |   |                         |   |  |              | 772    |  |  |   | 6,324  |   |  |   | 7,096  |  
|Capital contributions from noncontrolling interests |  |                                       |       |  |            |   |    |                |  |   |                 |  |  |        |      |  |                |  |      |           |  |   |                         |   |  |              |       |  |  |   | 158    |   |  |   | 158    |  
|Distributions to noncontrolling interests           |  |                                       |       |  |            |   |    |                |  |   |                 |  |  |        |      |  |                |  |      |           |  |   |                         |   |  |              |       |  |  |   | (6,329 | ) |  |   | (6,329 | )
|                                                    |  |                                       |        |  |            |   |     |                |  |   |                  |  |  |        |       |  |                |  |       |           |  |   |                          |   |  |              |        |  |  |   |        |   |  |   |        |  
|Balance at June 30, 2011                            |  |                                       | 30,982 |  |            | $ | 310 |                |  | $ | 6,825            |  |  | $      | 8,685 |  |                |  | 1,274 |           |  | $ | (1,184                   | ) |  | $            | 14,636 |  |  | $ | 4,417  |   |  |   | 19,053 |  
|                                                    |  |                                       |        |  |            |   |     |                |  |   |                  |  |  |        |       |  |                |  |       |           |  |   |                          |   |  |              |        |  |  |   |        |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

USMD INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                               |  |                           |        |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                               |  | Six Months Ended June 30, |       
|                                                                                               |  | 2011                      |        |   | 2010 |  
|                                                                                               |  | (in thousands)            |       
|Cash flows from operating activities:                                                          |  |                           |        |   |      |   |         |  
|Net income                                                                                     |  | $                         | 7,096  |   |      | $ | 13,956  |  
|Adjustments to reconcile net income to net cash provided by operating activities:              |  |                           |        |   |      |   |         |  
|Provision for doubtful accounts                                                                |  |                           | 29     |   |      |   | 1,807   |  
|Depreciation and amortization                                                                  |  |                           | 510    |   |      |   | 1,405   |  
|Gain on deconsolidation of subsidiaries                                                        |  |                           |       |   |      |   | (12,425 | )
|Unrealized loss on interest rate swaps                                                         |  |                           |       |   |      |   | 493     |  
|Equity in earnings of nonconsolidated affiliates                                               |  |                           | (952   | ) |      |   | (468    | )
|Distributions from nonconsolidated affiliates                                                  |  |                           | 431    |   |      |   | 432     |  
|Stock compensation expense                                                                     |  |                           |       |   |      |   | 601     |  
|Impairment of investment in nonconsolidated affiliates                                         |  |                           | 89     |   |      |   |        |  
|Deferred income tax provision (benefit)                                                        |  |                           | (55    | ) |      |   | 4,409   |  
|Change in operating assets and liabilities, net of effects of deconsolidation of subsidiaries: |  |                           |        |   |      |   |         |  
|Restricted cash                                                                                |  |                           |       |   |      |   | 24      |  
|Accounts receivable                                                                            |  |                           | 212    |   |      |   | (2,192  | )
|Inventories                                                                                    |  |                           |       |   |      |   | (82     | )
|Prepaid expenses and other assets                                                              |  |                           | (203   | ) |      |   | (127    | )
|Accounts payable                                                                               |  |                           | (237   | ) |      |   | 829     |  
|Accrued liabilities                                                                            |  |                           | 15     |   |      |   | (325    | )
|                                                                                               |  |                           |        |   |      |   |         |  
|Net cash provided by operating activities                                                      |  |                           | 6,935  |   |      |   | 8,337   |  
|                                                                                               |  |                           |        |   |      |   |         |  
|Cash flows from investing activities:                                                          |  |                           |        |   |      |   |         |  
|Capital expenditures                                                                           |  |                           | (91    | ) |      |   | (11     | )
|Investments in nonconsolidated affiliates                                                      |  |                           | (340   | ) |      |   |        |  
|Decrease in cash due to deconsolidation of subsidiaries                                        |  |                           |       |   |      |   | (4,790  | )
|                                                                                               |  |                           |        |   |      |   |         |  
|Net cash used in investing activities                                                          |  |                           | (431   | ) |      |   | (4,801  | )
|                                                                                               |  |                           |        |   |      |   |         |  
|Cash flows from financing activities:                                                          |  |                           |        |   |      |   |         |  
|Repayments of long-term debt and capital lease obligations                                     |  |                           | (268   | ) |      |   | (1,362  | )
|Repayments of related party long-term debt                                                     |  |                           | (210   | ) |      |   | (298    | )
|Capital contributions from noncontrolling interests                                            |  |                           | 158    |   |      |   | 319     |  
|Distributions to noncontrolling interests                                                      |  |                           | (6,329 | ) |      |   | (5,726  | )
|                                                                                               |  |                           |        |   |      |   |         |  
|Net cash used in financing activities                                                          |  |                           | (6,649 | ) |      |   | (7,067  | )
|                                                                                               |  |                           |        |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                      |  |                           | (145   | ) |      |   | (3,531  | )
|Cash and cash equivalents at beginning of year                                                 |  |                           | 7,477  |   |      |   | 7,990   |  
|                                                                                               |  |                           |        |   |      |   |         |  
|Cash and cash equivalents at end of period                                                     |  | $                         | 7,332  |   |      | $ | 4,459   |  
|                                                                                               |  |                           |        |   |      |   |         |  
|                                                                                               |  |                          
|Supplemental cash flow information:                                                            |  |                           |        |   |      |   |         |  
|Cash paid for                                                                                 |  |                           |        |   |      |   |         |  
|Interest, net of related party                                                                 |  | $                         | 95     |   |      | $ | 88      |  
|Interest to related parties                                                                    |  |                           | 342    |   |      |   | 368     |  
|Income tax                                                                                     |  |                           | 1,485  |   |      |   | 789     |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

USMD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

(Unaudited)

Note 1  Description of Business and Basis of Presentation

USMD Inc. and its wholly-owned subsidiaries (USMD or the Company) comprise a health care
management company that provides finance, revenue cycle, centralized business office, clinical, operational and business development services, or a selection of these management services to healthcare providers. USMD owns and operates three
healthcare management companiesUSMD Hospital Division, USMD Cancer Treatment Center Division and USMD Lithotripsy Divisionthat were formed principally to establish, invest in or acquire, operate and/or manage acute-care hospitals, cancer
treatment centers and lithotripsy service providers.

Effective March 1, 2010, Texas Health Resources (THR),
a large non-profit health system in North Texas, purchased a 26% limited partnership interest in USMD Hospital at Arlington, L.P. (USMD Arlington) from limited partners other than USMD, bringing its partnership interest to 51%. In
addition, THR purchased an initial 51% limited partnership interest in USMD Hospital at Fort Worth, L.P. (USMD Fort Worth) from partners other than USMD. USMDs partnership interests in both hospitals were undiluted. THR also
obtained additional governing rights in the amended partnership agreements for the two hospitals. As a result, effective March 1, 2010, USMD determined that it no longer controls these two hospitals and therefore no longer consolidates their
assets, liabilities and results of operations. Since USMD does maintain significant influence over these two hospitals, it began using the equity method of accounting effective March 1, 2010.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States (GAAP) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim reporting. Certain information and note
disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the
information not misleading. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for fair presentation of the condensed consolidated financial statements. The operating results
for the interim periods are not necessarily indicative of results for the full fiscal year. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Companys
Form S-4 registration statement filed with the SEC. There have been no significant changes in the information reported in those notes, other than from normal business activities and as discussed herein.

Note 2  Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the FASB) issued Accounting Standard Update
(ASU) No. 2011-04, Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). The FASBs primary objective was to
collaborate with the International Accounting Standards Board to develop common requirements for measuring fair value and disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards.
ASU 2011-04 (i) expands and enhances disclosures about fair value measurements and (ii) clarifies the FASBs intent about the application of existing fair value measurement requirements in certain circumstances. Public companies are
required to adopt the provisions of ASU 2011-04 on a prospective basis during interim and annual periods beginning after December 15, 2011. Early adoption of the amended accounting guidance is not permitted. USMD continues to review ASU
2011-04; however, the Company does not believe that adoption will have a material impact on its consolidated financial statements or the notes thereto.

USMD does not believe any other recently issued, not yet effective, accounting standards will have a material effect on its consolidated financial position, results of operations, or cash flows.



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##### Table of Contents

USMD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2011

(Unaudited)



Note 3  Investments in Nonconsolidated Affiliates

The net carrying values and ownership percentages of nonconsolidated affiliates accounted for under the equity method
are as follows (dollars in thousands):



|                |  |               |        |  |                     |  |        |               |  |   |                     |  |  |  |        |  
|--------------- |  | ------------- | ------ |  | ------------------- |  | ------ | ------------- |  | - | ------------------- |  |  |  | ------ | -
|                |  | June 30, 2011 |        |  | December 31, 2010   | 
|                |  | CarryingValue |        |  | OwnershipPercentage |  |        | CarryingValue |  |   | OwnershipPercentage | 
|                |  |               |        | 
|USMD Arlington  |  | $             | 6,271  |  |                     |  | 5.000  | %             |  | $ | 6,162               |  |  |  | 5.000  | %
|                |  |               |        | 
|USMD Fort Worth |  |               | 5,827  |  |                     |  | 20.024 | %             |  |   | 5,286               |  |  |  | 20.024 | %
|                |  |               |        | 
|Other           |  |               | 356    |  |                     |  | 4%-34  | %             |  |   | 193                 |  |  |  | 4%-40  | %
|                |  |               |        |  |                     |  |        |               |  |   |                     |  |  |  |        |  
|                |  |               |        | 
|                |  | $             | 12,454 |  |                     |  |        |               |  | $ | 11,641              |  |  |  |        |  
|                |  |               |        |  |                     |  |        |               |  |   |                     |  |  |  |        |  

In March 2011, the Company terminated its investment in and management agreement with a New York
radiation oncology center and recorded an impairment charge of $48,000 to reduce its carrying value in the facility value to zero, its estimated fair value. During the second quarter of 2011, the Company concluded that its cost method investment in
a lithotripsy service provider was impaired and the Company recorded an impairment charge of $41,000 to reduce its investment to zero, its estimated fair value. These impairments are included in other expense, net on the consolidated statement of
operations.

In June 2011, the Company invested $340,000 in a radiation oncology center in Monterrey, Mexico. Because the
Company has the ability to exercise significant influence over the management and operations of the investee, the Company accounts for the investment under the equity method of accounting.

The net carrying value of investments accounted for under the cost method was $-0- at June 30, 2011 and $41,000 at December 31,
2010.

Note 4  Long-Term Debt

On January 10, 2011, the Company executed a $1.0 million line of credit agreement with Chase Bank. The line of
credit matured on July 1, 2011.

Interest expense consists of the following (in thousands):



|                                                                |  |                           |     |   |      |   |       |  
|--------------------------------------------------------------- |  | ------------------------- | --- | - | ---- | - | ----- | -
|                                                                |  | Six Months Ended June 30, |    
|                                                                |  | 2011                      |     |   | 2010 |  
|                                                                |  |                          
|Debt interest and commitment fees                               |  | $                         | 433 |   |      | $ | 1,175 |  
|                                                                |  |                          
|Unrealized loss on changes in fair value of interest rate swaps |  |                           |    |   |      |   | 493   |  
|                                                                |  |                          
|Interest income                                                 |  |                           | (3  | ) |      |   | (12   | )
|                                                                |  |                           |     |   |      |   |       |  
|                                                                |  |                          
|Total interest expense, net                                     |  | $                         | 430 |   |      | $ | 1,656 |  
|                                                                |  |                           |     |   |      |   |       |  

Note 5  Interest Rate Swaps

Changes in the fair value of interest rate swaps held by the Company that qualify as cash flow hedges are included in
other comprehensive income (loss) and reclassified into earnings in the period in which the hedged transaction affects earnings. Changes in the fair value of interest rate swaps held by the Company that do not qualify as part of a hedging
relationship are recorded in current period earnings. The Companys policy is to not hold or issue swaps or derivatives for trading purposes.

At June 30, 2011 and December 31, 2010, the Company is not party to any interest rate swaps.

Interest Rate Swaps Not Designated as Hedging Instruments

In order to
limit the variability of interest payments caused by changes in the London Inter-Bank Offered Rate (LIBOR), USMD Arlington and USMD Fort Worth were party to five interest rate swaps intended to convert certain of their long-term debt
variable interest rates to fixed rates. Prior to deconsolidation of these hospitals, for the two months ended February 28, 2010, the Company recorded an unrealized loss of $0.5 million on the changes in fair value of the interest rate swaps.



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USMD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2011

(Unaudited)



Interest Rate Swaps Designated as Cash Flow Hedges

USMD Fort Worth is party to an interest rate swap as a cash flow hedge of future interest payments on $12,970,000 of its long-term debt.
The swap was designated as a cash flow hedge under GAAP and effectively converts a LIBOR-based variable rate to a synthetic fixed rate of 5.23%. Effective March 1, 2010, in conjunction with deconsolidation of the hospitals, the Company
eliminated the swap from its records and reversed the total accumulated other comprehensive loss of $245,000, inclusive of a 2010 year to date unrealized loss of $22,000.

Note 6  Fair Value Measurements

Financial Instruments Measured at Fair Value on a Nonrecurring Basis

The Company measures its nonfinancial assets including property and equipment, goodwill, other intangible assets and investments in
nonconsolidated affiliates at fair value on a nonrecurring basis and the assets are subject to fair value adjustment in certain circumstances. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges or
similar adjustments made to the carrying value of the applicable assets.

On March 1, 2010, in connection with
deconsolidation of USMD Arlington and USMD Fort Worth, the Company recorded the investments in these hospitals at their estimated fair market value based on a valuation of the Companys business units and partnership interests. The valuation
primarily relied on an income approach  discounted cash flow analysis and included assumptions for discount rates, cash flow projections, growth rates and terminal values. The valuation is a Level 3 fair value measurement under the fair value
hierarchy.

During 2011, the Company impaired two of its investments in nonconsolidated affiliates. Level 3 inputs were used
in the fair value assessments.

Fair Value of Other Financial Instruments

Other financial instruments consist mainly of cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings and
long-term debt. The carrying value and estimated fair value of the Companys other financial instruments that do not approximate fair value due to their short-term or variable-rate nature are as follows (in thousands):



|                                                     |  |               |       |  |                   |  |       |               |  |   |           |  |  |   |       | 
|---------------------------------------------------- |  | ------------- | ----- |  | ----------------- |  | ----- | ------------- |  | - | --------- |  |  | - | ----- | 
|                                                     |  | June 30, 2011 |       |  | December 31, 2010 | 
|                                                     |  | CarryingValue |       |  | FairValue         |  |       | CarryingValue |  |   | FairValue | 
|USMD Inc. subordinated notes payable                 |  | $             | 731   |  |                   |  | 749   |               |  | $ | 731       |  |  | $ | 776   | 
|USMD Lithotripsy Division subordinated notes payable |  |               | 7,477 |  |                   |  | 9,829 |               |  |   | 7,687     |  |  |   | 9,672 | 
|Lithotripsy partnerships notes payable               |  |               | 121   |  |                   |  | 125   |               |  |   | 179       |  |  |   | 184   | 
|Capital lease obligations                            |  |               | 1,173 |  |                   |  | 1,173 |               |  |   | 1,321     |  |  |   | 1,321 | 

The Company determines the fair value of its long-term debt using discounted cash flows based primarily
on borrowing rates currently available to it for similar debt or debt for which the Company could use the proceeds to retire existing debt. Carrying value of the capital lease obligations approximates fair value due to recent lease inception. Quoted
market prices are not available for the Companys long-term debt.



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USMD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2011

(Unaudited)



Note 7  Earnings per Share

Basic earnings per share is based on the weighted-average number of common shares outstanding and diluted earnings per
share is based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. The following table presents a
reconciliation of the numerators and denominators of basic and diluted earnings per share and the computation of basic and diluted earnings per share attributable to USMD (in thousands, except per share data):



|                                                             |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|------------------------------------------------------------ |  | --------------------------- | ------ |  | ------------------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                             |  | Three Months Ended June 30, |        |  | Six Months Ended June 30, |  
|                                                             |  | 2011                        |        |  | 2010                      |   |        | 2011 |  |   | 2010   | 
|Numerator:                                                   |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|Net earnings attributable to USMD Inc                        |  | $                           | 60     |  |                           | $ | 453    |      |  | $ | 772    |  |  | $ | 9,159  | 
|                                                             |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|                                                             |  |                             |        | 
|Denominator:                                                 |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|Weighted-average common shares outstanding                   |  |                             | 29,708 |  |                           |   | 29,708 |      |  |   | 29,708 |  |  |   | 29,708 | 
|Effect of potentially dilutive securities:                   |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|Stock options                                                |  |                             | 67     |  |                           |   | 69     |      |  |   | 67     |  |  |   | 69     | 
|                                                             |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|Weighted-average common shares outstanding assuming dilution |  |                             | 29,775 |  |                           |   | 29,777 |      |  |   | 29,775 |  |  |   | 29,777 | 
|                                                             |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|                                                             |  |                             |        | 
|Earnings per share attributable to USMD Inc.                 |  |                             |        |  |                           |   |        |      |  |   |        |  |  |   |        | 
|Basic                                                        |  | $                           | 0.00   |  |                           | $ | 0.02   |      |  | $ | 0.03   |  |  | $ | 0.31   | 
|Diluted                                                      |  | $                           | 0.00   |  |                           | $ | 0.02   |      |  | $ | 0.03   |  |  | $ | 0.31   | 

At June 30, 2011 and 2010, the computation of dilutive shares excludes 469,384 stock options with a
weighted-average exercise price of $3.00 per share because the exercise price of these outstanding options was greater than the average estimated market price of USMDs common shares and, therefore, was anti-dilutive to the computation.

Note 8  Commitments and Contingencies

Financial Guarantees

As of June 30, 2011, the Company had issued guarantees to third parties of the indebtedness and other obligations of certain of its nonconsolidated investees. Should the investees fail to pay the
obligations due, the Company could potentially be required to make maximum aggregate payments totaling $6.0 million. The guarantees provide for recourse against the investee; however, if the Company is required to perform under the guarantee,
recovery of any amount would be unlikely. The remaining terms of these guarantees range from two to 62 months. The Company records a liability for performance under financial guarantees, when, upon review of available financial information of the
nonconsolidated affiliate and in consideration of pertinent factors, management determines that it is probable it will have to perform under the guarantee and the liability is reasonably estimable. The Company has not recorded a liability for these
guarantees, as the Company believes it is not probable that the Company will have to perform under these agreements.

Commitment to Enter
into a Businesses Combination

In April 2010, the Companys Board of Directors approved in principle a transaction
pursuant to which the Company will combine its business with UANT Ventures, LLP (Ventures) and Urology Associates of North Texas, LLP (UANT). The Companys Board of Directors includes three UANT and Ventures
shareholders. Of these three, the Companys CEO and Board chairman is the managing partner of UANT and Ventures. Pursuant to this transaction, the shareholders of the Company will contribute all of their equity interests in the Company to a
newly formed Delaware corporation named USMD Holdings, Inc. (Holdings) in return for shares of common stock of Holdings. Contemporaneous with this contribution, UANT and Ventures will contribute their businesses to Holdings in return for
shares of common stock of Holdings and a subordinated note payable issued by Holdings. A definitive agreement regarding this transaction was executed in August 2010 and was approved by the shareholders of USMD and the partners of UANT on
August 23, 2011. The transaction is expected to close in late 2011, subject to the satisfaction of certain closing conditions.

Non-Binding Letter of Intent to Sell Investment

On May 16, 2011, USMD Cancer Treatment Centers, L.L.C. entered into a non-binding letter of intent to sell the assets of Willowbrook Cancer Center, L.L.C. (excluding cash and accounts receivable) to
a third party and to terminate its existing management and facility contracts related to Willowbrook Cancer Center L.L.C. The parties have negotiated definitive documents,



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USMD INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

June 30, 2011

(Unaudited)



but the transaction remains subject to the completion of due diligence, the execution and delivery of the definitive agreements and the approval of the governing boards of the respective parties.
If the transaction is consummated, it is estimated that the closing will occur on or about October 1, 2011.

Non-Binding Term Sheet
Regarding Issuance and Sale of Convertible Preferred Stock

Holdings and the Company have executed a non-binding term sheet
with an unaffiliated private investment firm that contemplates the sale of 60,000 shares of convertible preferred stock of Holdings at a price of $1,000 per share, representing a total purchase price of $60.0 million. The transaction is subject to
the completion of due diligence and the negotiation of definitive agreements; therefore, management cannot predict the likelihood of its consummation. The non-binding term sheet does not set forth an actual conversion rate of the preferred stock but
rather an expectation that the preferred stock would convert into approximately one-third of the common stock of Holdings. The exact conversion rate and all other terms of the convertible preferred stock financing will depend upon the completion of
due diligence and the negotiation of definitive agreements with the private investment firm. However, should the preferred stock financing be consummated without material changes from the terms set forth in the non-binding term sheet, Holdings
estimates that the 60,000 shares of convertible preferred stock would be convertible into an aggregate of approximately 5,021,000 shares of common stock (representing a conversion rate of 83.68 shares of common stock for each share of convertible
preferred stock). Under these terms, upon issuance of the convertible preferred stock, Holdings would record $60.0 million of convertible preferred stock equity and a beneficial conversion discount of $11.1 million equal to the estimated intrinsic
value of the conversion option.

Note 9  Subsequent Events

The Company evaluated its financial statements for subsequent events through September 8, 2011, the date the
financial statements were available to be issued.

Issuance of Stock Options

Effective September 1, 2011, pursuant to the Companys 2007 Long Term Incentive Plan, the Company granted a newly hired
executive employee options to purchase 1,050,000 shares of the Companys common stock at an exercise price of $3.00. The exercise price is equal to or in excess of the estimated fair value of the Companys common stock on the date of
grant. Options expire eight years from the grant date. These options will vest at a rate of 210,000 per calendar year, with the first vesting date to occur on September 1, 2011 and successive vesting dates to occur on January 1 of the
succeeding four years. The Company expects to incur $0.6 million and $0.3 million of stock compensation expense for the remainder of 2011 and each of the three succeeding years, respectively, related to this issuance.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

This Quarterly Report on Form 10-Q contains, and from time to time management may make, statements that may constitute
forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent managements current
expectations regarding future events, many of which, by their nature, are inherently uncertain and outside its control. The forward-looking statements contained in this Quarterly Report are based on information as of the date of this quarterly
report. Many of these forward-looking statements relate to future industry trends, actions, future performance or results of current and anticipated initiatives and the outcome of contingencies and other uncertainties that may have a significant
impact on Holdings business, future operating results and liquidity. Whenever possible, Holdings identifies these statements by using words such as anticipate, believe, estimate, continue,
intend, expect, plan, forecast, project and similar expressions, for future-tense or conditional constructions (will, may, should, could,
etc.). Holdings cautions you that these statements are only predictions and are not guarantees of future performance. These forward-looking statements and Holdings actual results, developments and business are subject to certain risks and
uncertainties that could cause actual results and events to differ materially from those anticipated by these statements. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may
differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Holdings assumes no obligation to update or revise any forward-looking statements, whether as a result of new information or future events,
except as required by law. Many factors that could cause actual results to differ from those in the forward-looking statements including, among others, those discussed under Risk Factors, in Holdings Form S-4 registration statement
and those described elsewhere in this Quarterly Report on Form 10-Q and from time to time in Holdings future reports filed with the Securities and Exchange Commission.

Executive Overview

Holdings is a Delaware corporation formed to facilitate
the business combination of USMD, Ventures and UANT. Holdings, USMD, Ventures and UANT entered into a Contribution and Purchase Agreement dated August 19, 2010 pursuant to which the shareholders of USMD will contribute all of their common stock
in USMD to Holdings, and Ventures will contribute all of its assets, which at the time of the contribution will include all of the equity interests in UANT, to Holdings (the Contribution). Holdings described the Contribution in its Form
S-4 registration statement filed with the Securities and Exchange Commission, which became effective July 25, 2011. On August 23, 2011, the shareholders of USMD and the partners of UANT and Ventures voted on and approved the Contribution
and Purchase Agreement. Holdings expects the Contribution to close in late 2011. Through June 30, 2011, Holdings has no operations and no assets, liabilities, equity or cash flows. As such, except for certain forward-looking discussions,
Holdings has not presented significant discussions of its results of operations or liquidity and capital resources in this Form 10-Q. Holdings has presented as supplemental financial information the managements discussion and analysis of
financial condition and results of operations of USMD Inc., the predecessor entity that will be considered the accounting acquirer in the event the Contribution transaction is consummated.

Holdings intends to continue to own and operate the businesses that are currently owned and operated by USMD, UANT and Ventures. The
growth and success of Holdings in the near term largely depends on Holdings ability to



| | i) | successfully close the Contribution;
| | -- | ------------------------------------



| | ii) | increase the number of patients served by its subsidiaries and the health care providers it manages;
| | --- | ----------------------------------------------------------------------------------------------------



| | iii) | successfully open new facilities or expand existing facilities;
| | ---- | ---------------------------------------------------------------



| | iv) | successfully integrate its acquired and/or managed facilities into existing operations; and
| | --- | -------------------------------------------------------------------------------------------



| | v) | maintain productive relationships with physician and hospital partners.
| | -- | -----------------------------------------------------------------------

In addition, Holdings hopes to vertically expand its business in the North Texas service area by developing or acquiring complementary physician group practices and ancillary healthcare service providers.
Holdings hopes to horizontally expand its business in other strategic service areas by developing strategic alliances with large integrated urology practices and expanding the medical service lines of those medical groups in those service areas.
Holdings believes that the opportunity to execute its business combination with USMD, UANT and Ventures and to develop or acquire targeted physician group practices and ancillary healthcare service providers will place it in a position to achieve
its goal of becoming a regional or national integrated urology health services company.

Key Developments



| |  |  | On May 23, 2011, Holdings and USMD executed a non-binding term sheet with an unaffiliated private investment firm (Investor) that
contemplates the sale of 60,000 shares of convertible preferred stock of Holdings to the Investor at a price of
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | $1,000 per share, representing a total purchase price of $60.0 million. The transaction is subject to, among other closing conditions, completion of the Investors due diligence and
negotiation of definitive agreements; therefore, Holdings cannot predict the likelihood of its consummation at this time. It is contemplated that the holders of the preferred stock would be entitled to receive quarterly dividends, would be senior to
the common stock in right of liquidation, would be convertible into approximately 1/3 of the outstanding common stock of Holdings as of the closing date, would have the right to veto material corporate actions and would be entitled to elect
representatives to the Holdings board of directors.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The non-binding term sheet does not set forth an actual
conversion rate of the preferred stock but rather an expectation that the preferred stock would convert into approximately one-third of the common stock of Holdings. The exact conversion rate and all other terms of the convertible preferred stock
financing will depend upon the completion of due diligence and the negotiation of definitive agreements with the Investor. However, should the preferred stock financing be consummated without material changes from the terms contemplated by the
non-binding term sheet, Holdings estimates that the 60,000 shares of convertible preferred stock would be convertible into an aggregate of approximately 5,021,000 shares of common stock (representing a conversion rate of 83.68 shares of common stock
for each share of convertible preferred stock). Under these terms, upon issuance of the convertible preferred stock, Holdings would record $60.0 million of convertible preferred stock equity and a beneficial conversion discount of $11.1 million
equal to the estimated intrinsic value of the conversion option.

Results of Operations

As of June 30, 2011 and for the three and six month periods ending June 30, 2011 and 2010, Holdings had no operations, revenues
or expenses.

Liquidity and Capital Resources

As of June 30, 2011 and for the three and six month periods ending June 30, 2011 and 2010, Holdings had no cash flows.

Holdings expects to utilize cash flows from the operations of its subsidiaries to fund operations and meet principal and interest payment obligations, including the $30 million subordinated debt to be
issued in connection with the Contribution.

Part of Holdings overall business strategy is to make strategic
acquisitions of complementary healthcare facilities and physician practice groups and Holdings may rely heavily on financing in order to fulfill this strategy. To the extent Holdings is unable to secure the necessary acquisition financing, it may be
hampered or delayed in its ability to acquire such entities and, thus, may be unable to fulfill timely its acquisition strategy.

Holdings will consider restructuring and consolidating existing subsidiary credit facilities.

Supplemental USMD Managements Discussion and Analysis of Financial Condition and Results of Operations

Holdings is presenting supplemental managements discussion and analysis of financial condition and results of operations of USMD
(USMD MD&A), the predecessor entity that will be considered the accounting acquirer in the event the Contribution transaction is consummated. Following is the USMD MD&A for the three- and six-month interim periods ended
June 30, 2011 and 2010.

Supplemental Executive Overview of USMD

USMD provides finance, revenue cycle, centralized business office, clinical, operational and business development services or a selection
of these management services to healthcare providers. USMD owns and operates three healthcare management companies  USMD Hospital Division, USMD Cancer Treatment Center Division (USMD CTC Division) and USMD Lithotripsy Division
 formed principally to establish, acquire, operate and/or manage acute-care hospitals, cancer treatment centers and lithotripsy service providers. USMDs revenues are comprised of management services revenue received from contracts to
manage certain health care providers and revenue of consolidated lithotripsy partnerships. In addition, USMD generates income from equity in income of nonconsolidated affiliates that results from the allocation to USMD of its proportionate share of
income of its nonconsolidated affiliates.



| |  |  | USMD Hospital Division is a healthcare management services company that has partnership interests of 5% and 20% in hospitals located in Arlington and
Fort Worth, Texas, respectively. USMD beneficially owns 100% of the general partners of both of these hospitals and manages the hospital operations pursuant to long-term contractual management agreements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

| | USMD Hospital at Arlington, L.P. (USMD Arlington) owns and operates an acute care hospital that has 34 inpatient licensed beds. Its surgery unit is comprised of 18 day surgery beds,
two procedure rooms and nine operating rooms. USMD Arlington performs inpatient and outpatient surgeries in a variety of specialties that include urology, neurosurgery, general surgery, gynecology, podiatry, plastic surgery, pain management and
orthopedics. Other services include an in-house laboratory, diagnostic radiology, computed tomography, magnetic resonance imaging, nuclear medicine and ultrasound. The hospital also has an emergency department. USMD is the general partner of USMD
Arlington. On March 1, 2010, Texas Health Resources (THR), a large non-profit healthcare delivery system in North Texas, increased its limited partnership interest in USMD Arlington to 51% and obtained additional governing rights in
the amended partnership agreement. As a result, effective March 1, 2010, USMD no longer controls the hospital and therefore no longer consolidates its assets, liabilities and results of operations. Since USMD does maintain significant influence
over USMD Arlington, it began accounting for the hospital using the equity method of accounting effective March 1, 2010.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

USMD Hospital at Fort Worth, L.P. (USMD Fort Worth) owns and operates an acute care hospital that opened in March 2008 and has six operating rooms and eight licensed inpatient beds. USMD Fort
Worth performs inpatient and outpatient surgeries in a variety of specialties that include urology, ENT, general surgery, gynecology, podiatry, plastic surgery, oral surgery, and orthopedics. Other services include an in-house laboratory, diagnostic
radiology, computed tomography scans and ultrasound. USMD is the general partner of USMD Fort Worth. On March 1, 2010, THR purchased a 51% limited partnership interest in USMD Fort Worth and obtained additional governing rights in the amended
partnership agreement. As a result, effective March 1, 2010, USMD no longer controls the hospital and therefore no longer consolidates its assets, liabilities and results of operations. Since USMD does maintain significant influence over USMD
Fort Worth, it began accounting for the hospital using the equity method of accounting effective March 1, 2010.



| |  |  | USMD CTC Division is a healthcare management services company formed to develop, invest in, operate and/or manage cancer treatment centers providing
radiotherapy solutions to advance cancer care. USMD CTC Division currently has a limited ownership interest in Willowbrook Cancer Center, L.L.C. (Willowbrook), a cancer treatment center in Houston, Texas. In addition, at June 30,
2011 USMD CTC Division had seven contractual agreements under which USMD CTC Division provided management services to nine cancer treatment centers located in Texas, Florida, Missouri and Arizona. Due to its 30% limited ownership interest, USMD
accounts for its investment in Willowbrook under the equity method of accounting.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | USMD Lithotripsy Division is a healthcare management services company formed to establish, invest in or acquire, operate and/or manage joint venture
entities that provide lithotripsy services to hospitals, ambulatory surgery centers, and/or physician offices. As of June 30, 2011 USMD Lithotripsy Division provided management services to one lithotripsy service provider, had a limited
partnership interest in but did not manage the operations of another lithotripsy service provider, and served as the general partner, managing member or limited partner in 20 other active lithotripsy service providers, primarily located in the South
Central United States. The balance sheets and results of operations of the entities for which USMD served as the general partner are included in USMDs consolidated financial statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sources of Revenue

Subsequent to deconsolidation of USMD Arlington and USMD Fort Worth effective March 1, 2010, USMD Hospital Division primarily
generates revenue from management services provided by USMD to USMD Arlington and USMD Fort Worth. Management fees are based on a percentage of each hospitals adjusted net patient revenues, i.e., net patient service revenues and medical office
building base rent minus bad debt expense. Hospital net patient service revenue depends on a variety of factors, such as surgical case volume, the case mix or intensity of utilization of services and the mix of third-party payer sources. USMD
Hospital Division provides the hospitals with management, information technology and revenue cycle staff and the hospitals pay USMD Hospital Division for the labor costs associated with staffing these functions. Billings for these services are
included in management services revenue.

USMD CTC Division primarily earns revenue through the provision of broad-based
management services to cancer treatment centers. In addition, USMD CTC Division recognizes revenue that represents payment for certain operating expenses such as operations and revenue cycle staffing.

USMD Lithotripsy Division primarily generates revenue through the provision of lithotripsy services to hospitals in nine states. Under
these arrangements, USMD provides these lithotripsy services to its hospital, ambulatory surgery center and physician office clients based on a contracted fee-for-service arrangement. USMD Lithotripsy Division also recognizes revenue that represents
payments for certain operating expenses such as operations and revenue cycle staffing.



15



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##### Table of Contents

Key Developments



| |  |  | Effective March 1, 2010, THR purchased a 26% limited partnership interest in USMD Arlington from limited partners other than USMD, bringing its
partnership interest to 51%. In addition, THR purchased an initial 51% limited partnership interest in USMD Fort Worth from partners other than USMD. USMDs partnership interests in both hospitals were undiluted. THR also obtained additional
governing rights in the amended partnership agreements for the two hospitals. As a result, effective March 1, 2010, USMD determined that it no longer controls these two hospitals and therefore no longer consolidates their assets, liabilities
and results of operations. Since USMD does maintain significant influence over these two hospitals, it began using the equity method of accounting effective March 1, 2010.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As a result of THRs increased ownership in USMD Arlington and USMD Fort Worth, these hospitals began to utilize managed care contracts negotiated
by THR with a phase-in period from April 2010 to June 2010. The new managed care contracts have resulted in substantially higher reimbursement rates for patient services, resulting in higher net patient service revenue for both hospitals and
favorably impacting associated USMD management fee revenue.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On August 19, 2010, USMD, UANT Ventures, L.L.P. (Ventures) and Urology Associates of North Texas, L.L.P. (UANT) entered
into a Contribution and Purchase Agreement, pursuant to which the shareholders of USMD will contribute all of their equity interests in USMD, and Ventures will contribute all of its assets, which at the time of the contribution will include all of
the equity interests of UANT, to a newly formed Delaware corporation named USMD Holdings, Inc. (Holdings). The contribution by the USMD shareholders and by Ventures is collectively referred to as the Contribution. Immediately
prior to the Contribution, UANT will merge with a subsidiary of Ventures and, as the surviving entity, will become a wholly-owned subsidiary of Ventures. As a result of the Contribution, the assets owned, and the businesses previously conducted
separately, by USMD, UANT and Ventures will consolidate into a single integrated urology health services company. The contribution was approved by the shareholders of USMD and the partners of UANT on August 23, 2011 and is expected to close in
late 2011, subject to the satisfaction of certain closing conditions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On May 16, 2011, USMD entered into a non-binding letter of intent to sell the operating assets of Willowbrook Cancer Center, L.L.C. (excluding
cash and accounts receivable) and to terminate for a fee certain long-term contracts related to its management of facilities owned and operated by Willowbrook. While the terms and conditions of definitive transaction documents have been negotiated,
the transaction is subject to the completion of due diligence, the execution and delivery of definitive agreements and the approval of the boards of directors of the respective parties. If the transaction occurs, it is estimated that the closing
would be scheduled on or about October 1, 2011.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On May 23, 2011, USMD executed a non-binding term sheet with a private investment firm (Investor), which contemplates the sale of
60,000 shares of convertible preferred stock of Holdings to the Investor at a price of $1,000 per share, representing a total purchase price of $60 million. The transaction is subject, among other closing conditions, to the completion of the
Investors due diligence investigation and the negotiation of definitive agreements. It is contemplated that the holders of the preferred stock would be entitled to receive quarterly dividends, would be senior to the common stock in right of
liquidation, would be convertible into approximately 1/3 of the outstanding common stock of Holdings as of the closing date, would have the right to veto material corporate actions and would be entitled to elect representatives to the Holdings board
of directors. Although the substantive provisions of the term sheet are non-binding, USMD has agreed with the Investor that if the definitive agreements are not entered into prior to August 1, 2011 for any reason and the contemplated
transactions are terminated, USMD will reimburse the Investor for 50% of its out of pocket expenses up to a maximum of $500,000. If the definitive agreements are signed, the term sheet contemplates that the transactions would close in late 2011,
subject to satisfaction of the conditions that are set forth in the definitive agreements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Key Drivers and Challenges



| |  |  | Given the current contracted managed care reimbursement rates at USMD Arlington and USMD Fort Worth, USMD believes the management fee revenue it
receives will enable it to fund its working capital and routine capital expenditure requirements with cash flow from operations. However, USMD may seek additional financing in order to fund its operations and business strategy and to refinance
certain of its existing credit facilities. USMDs debt capacity is currently constrained by its ability to service additional debt, the tight credit markets and limitations on indebtedness contained in its existing credit facility. See further
discussion in the Liquidity and Capital Resources section of the USMD MD&A.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As the ongoing economic recession has increased the number of underinsured patients, and as the prevalence of high deductible insurance plans has
increased, USMD anticipates that a higher percentage of revenues of USMD Arlington and USMD Fort Worth will be comprised of the patients share of cost. This shift in payer mix may have an unfavorable impact on hospital collection rates, which
could have an unfavorable impact on USMDs revenue-based management fees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



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##### Table of Contents

Supplemental Results of Operations of USMD Inc.

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

The following table summarizes USMDs results of operations for the periods indicated and is used in the discussions that follow (in
thousands):



|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|--------------------------------------------------------- |  | --------------------------- | ------ | - | --------------------- |  | ----- | ------------- |  | - | ------ | - |  | ------ | ----- | - | ----- | - | ----- | - |  |  | ------ | -
|                                                          |  | Three Months Ended June 30, |        |   | Three Months Variance | 
|                                                          |  | 2011                        |        |   | 2010                  |  |       | 2011 vs. 2010 | 
|                                                          |  | Amount                      |        |   | Ratio                 |  |       | Amount        |  |   | Ratio  |   |  | Amount |       |   | Ratio |  
|Revenues:                                                 |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Management services revenue                               |  | $                           | 5,792  |   |                       |  | 50.8  | %             |  | $ | 5,364  |   |  |        | 50.5  | % |       | $ | 428   |   |  |  | 8.0    | %
|Lithotripsy revenue                                       |  |                             | 5,603  |   |                       |  | 49.2  | %             |  |   | 5,253  |   |  |        | 49.5  | % |       |   | 350   |   |  |  | 6.7    | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Net operating revenue                                     |  |                             | 11,395 |   |                       |  | 100.0 | %             |  |   | 10,617 |   |  |        | 100.0 | % |       |   | 778   |   |  |  | 7.3    | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Operating expenses:                                       |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Salaries, wages and employee benefits                     |  |                             | 4,923  |   |                       |  | 43.2  | %             |  |   | 5,008  |   |  |        | 47.2  | % |       |   | (85   | ) |  |  | -1.7   | %
|Medical supplies and services expense                     |  |                             | 132    |   |                       |  | 1.2   | %             |  |   | 121    |   |  |        | 1.1   | % |       |   | 11    |   |  |  | 9.1    | %
|Provision for doubtful accounts                           |  |                             | (13    | ) |                       |  | -0.1  | %             |  |   | 48     |   |  |        | 0.5   | % |       |   | (61   | ) |  |  | -127.1 | %
|Other operating expenses                                  |  |                             | 2,666  |   |                       |  | 23.4  | %             |  |   | 1,022  |   |  |        | 9.6   | % |       |   | 1,644 |   |  |  | 160.9  | %
|Depreciation and amortization                             |  |                             | 233    |   |                       |  | 2.0   | %             |  |   | 300    |   |  |        | 2.8   | % |       |   | (67   | ) |  |  | -22.3  | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|                                                          |  |                             | 7,941  |   |                       |  | 69.7  | %             |  |   | 6,499  |   |  |        | 61.2  | % |       |   | 1,442 |   |  |  | 22.2   | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Income from operations                                    |  |                             | 3,454  |   |                       |  | 30.3  | %             |  |   | 4,118  |   |  |        | 38.8  | % |       |   | (664  | ) |  |  | -16.1  | %
|Other income (expense), net                               |  |                             | 248    |   |                       |  | 2.2   | %             |  |   | 151    |   |  |        | 1.4   | % |       |   | 97    |   |  |  | 64.2   | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Income before provision for income taxes                  |  |                             | 3,702  |   |                       |  | 32.5  | %             |  |   | 4,269  |   |  |        | 40.2  | % |       |   | (567  | ) |  |  | -13.3  | %
|Provision for income taxes                                |  |                             | (279   | ) |                       |  | -2.4  | %             |  |   | (653   | ) |  |        | -6.2  | % |       |   | 374   |   |  |  | -57.3  | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Net income                                                |  |                             | 3,423  |   |                       |  | 30.0  | %             |  |   | 3,616  |   |  |        | 34.1  | % |       |   | (193  | ) |  |  | -5.3   | %
|Less: net income attributable to noncontrolling interests |  |                             | (3,363 | ) |                       |  | -29.5 | %             |  |   | (3,163 | ) |  |        | -29.8 | % |       |   | (200  | ) |  |  | 6.3    | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  
|Net income attributable to USMD                           |  | $                           | 60     |   |                       |  | 0.5   | %             |  | $ | 453    |   |  |        | 4.3   | % |       | $ | (393  | ) |  |  | -86.8  | %
|                                                          |  |                             |        |   |                       |  |       |               |  |   |        |   |  |        |       |   |       |   |       |   |  |  |        |  

Revenues

Net operating revenue increased 7.3% to $11.4 million for the three months ended June 30, 2011 from $10.6 million for the same period in 2010, due primarily to the THR managed care contracts that
became effective during the three months ended June 30, 2010 and favorably impacted management services revenue.

Management services revenue includes revenue earned through the provision of management and staffing services to USMDs managed
entities. In addition to the increase in hospital division management services revenue noted above, USMD Lithotripsy Division and CTC Division management services revenue increased a combined $0.1 million as a result of an increase in patient cases.
USMD is actively pursuing domestic and international investments and management contracts with radiation treatment centers.

Lithotripsy revenue consists of revenue of the consolidated lithotripsy partnerships, which increased 6.7%, to $5.6 million for the three
months ended June 30, 2011 from $5.3 million for the same period in 2010. This increase in revenue coincides with the lithotripsy partnership case count increase of 7.0% as compared to the same period in 2010.

Operating Expenses

Salaries, wages and employee benefits as a percentage of revenue decreased to 43.2% for the three months ended June 30, 2011 from
47.2% for the same period in 2010. This decrease resulted from a decline in stock compensation expense of $0.6 million offset by an increase in USMD base salaries, wages and employee benefits of $0.5 million at the corporate entity due to expansion
of centralized financial reporting staff. Effective September 1, 2011, the Company granted a newly hired executive employee options to purchase 1,050,000 shares of the Companys common stock at an exercise price of $3.00. USMD expects to
incur $0.6 million and $0.3 million of stock compensation expense for the remainder of 2011 and each of the three succeeding years, respectively, related to this issuance.

Due to the recovery of a receivable previously reserved by USMD CTC Division, the provision for doubtful accounts decreased $0.1 million for the three months ended June 30, 2011 compared to the same
period in 2010. USMDs divisions generally do not experience material bad debts.



17



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##### Table of Contents

Other operating expenses consist primarily of professional fees, rent and lease expenses,
facilities expense, travel expense and other expense. Other operating expenses increased $1.6 million to $2.7 million for the three months ended June 30, 2011 from $1.0 million for the same period in 2010 primarily due to a $1.1 million
increase in professional fees due to legal, audit and consulting costs associated with the Contribution and filing of the Form S-4 registration statement. Other expenses increased $0.3 million primarily due to purchased services related to printing
costs associated with the Contribution and filing of the Form S-4 registration statement. Travel increased $0.1 million primarily due to offsite board of director meetings.

Non-Operating Income and Expenses

Other income increased $0.1 million to
$0.2 million for the three months ended June 30, 2011, compared to the same period in 2010. The variance is related to a $0.4 million increase in equity in income of nonconsolidated affiliates for the deconsolidated hospitals offset by a $0.2
million reduction in equity in income of nonconsolidated affiliates at a cancer treatment center and a $0.1 million loss in equity in income of nonconsolidated affiliates at the Companys new Monterrey, Mexico cancer treatment center that is
incurring start-up costs prior to opening for patient visits.

The income tax provision decreased $0.4 million to $0.3 million
for the three months ended June 30, 2011, from $0.7 million for the same period in 2010. USMDs effective tax rates were 39.3% and 41.2% for the three months ended June 30, 2011 and 2010, respectively, excluding the effect of net
income attributable to noncontrolling interests.

Net income attributable to noncontrolling interests increased $0.2 million
to $3.4 million for the three months ended June 30, 2011, from $3.2 million for the same period in 2010, primarily due to a $0.2 million increase related to lithotripsy partnership interests.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

The following table summarizes USMDs results of operations for the periods indicated and is used in the discussions that follow (in
thousands):



|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|--------------------------------------------------------- |  | ------------------------- | ------ | - | ------------------- |  | ----- | ------------- |  | - | ------ | - |  | ------ | ----- | - | ----- | - | ------- | - |  |  | ------ | -
|                                                          |  | Six Months Ended June 30, |        |   | Six Months Variance | 
|                                                          |  | 2011                      |        |   | 2010                |  |       | 2011 vs. 2010 | 
|                                                          |  | Amount                    |        |   | Ratio               |  |       | Amount        |  |   | Ratio  |   |  | Amount |       |   | Ratio |  
|Revenues:                                                 |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Management services revenue                               |  | $                         | 11,704 |   |                     |  | 52.5  | %             |  | $ | 8,655  |   |  |        | 25.7  | % |       | $ | 3,049   |   |  |  | 35.2   | %
|Lithotripsy revenue                                       |  |                           | 10,571 |   |                     |  | 47.5  | %             |  |   | 9,620  |   |  |        | 28.6  | % |       |   | 951     |   |  |  | 9.9    | %
|Net patient service revenue                               |  |                           |       |   |                     |  | 0.0   | %             |  |   | 14,895 |   |  |        | 44.2  | % |       |   | (14,895 | ) |  |  | -100.0 | %
|Other operating revenue                                   |  |                           |       |   |                     |  | 0.0   | %             |  |   | 497    |   |  |        | 1.5   | % |       |   | (497    | ) |  |  | -100.0 | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Net operating revenue                                     |  |                           | 22,275 |   |                     |  | 100.0 | %             |  |   | 33,667 |   |  |        | 100.0 | % |       |   | (11,392 | ) |  |  | -33.8  | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Operating expenses:                                       |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Salaries, wages and employee benefits                     |  |                           | 9,689  |   |                     |  | 43.5  | %             |  |   | 12,335 |   |  |        | 36.6  | % |       |   | (2,646  | ) |  |  | -21.5  | %
|Medical supplies and services expense                     |  |                           | 200    |   |                     |  | 0.9   | %             |  |   | 4,853  |   |  |        | 14.4  | % |       |   | (4,653  | ) |  |  | -95.9  | %
|Provision for doubtful accounts                           |  |                           | 29     |   |                     |  | 0.1   | %             |  |   | 1,807  |   |  |        | 5.4   | % |       |   | (1,778  | ) |  |  | -98.4  | %
|Other operating expenses                                  |  |                           | 4,445  |   |                     |  | 20.0  | %             |  |   | 4,986  |   |  |        | 14.8  | % |       |   | (541    | ) |  |  | -10.9  | %
|Depreciation and amortization                             |  |                           | 510    |   |                     |  | 2.3   | %             |  |   | 1,405  |   |  |        | 4.2   | % |       |   | (895    | ) |  |  | -63.7  | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|                                                          |  |                           | 14,873 |   |                     |  | 66.8  | %             |  |   | 25,386 |   |  |        | 75.4  | % |       |   | (10,513 | ) |  |  | -41.4  | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Income from operations                                    |  |                           | 7,402  |   |                     |  | 33.2  | %             |  |   | 8,281  |   |  |        | 24.6  | % |       |   | (879    | ) |  |  | -10.6  | %
|Other income (expense), net                               |  |                           | 518    |   |                     |  | 2.3   | %             |  |   | 11,237 |   |  |        | 33.4  | % |       |   | (10,719 | ) |  |  | -95.4  | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Income before provision for income taxes                  |  |                           | 7,920  |   |                     |  | 35.6  | %             |  |   | 19,518 |   |  |        | 58.0  | % |       |   | (11,598 | ) |  |  | -59.4  | %
|Provision for income taxes                                |  |                           | (824   | ) |                     |  | -3.7  | %             |  |   | (5,562 | ) |  |        | -16.5 | % |       |   | 4,738   |   |  |  | -85.2  | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Net income                                                |  |                           | 7,096  |   |                     |  | 31.9  | %             |  |   | 13,956 |   |  |        | 41.5  | % |       |   | (6,860  | ) |  |  | -49.2  | %
|Less: net income attributable to noncontrolling interests |  |                           | (6,324 | ) |                     |  | -28.4 | %             |  |   | (4,797 | ) |  |        | -14.2 | % |       |   | (1,527  | ) |  |  | 31.8   | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  
|Net income attributable to USMD                           |  | $                         | 772    |   |                     |  | 3.5   | %             |  | $ | 9,159  |   |  |        | 27.2  | % |       | $ | (8,387  | ) |  |  | -91.6  | %
|                                                          |  |                           |        |   |                     |  |       |               |  |   |        |   |  |        |       |   |       |   |         |   |  |  |        |  

Effects of Deconsolidation of the Hospitals

As a result of the March 1, 2010 deconsolidation of USMD Arlington and USMD Fort Worth, due to considerable changes in the nature of
the results and amounts that are included or not included in the consolidated results of operations, subsequent to the deconsolidation, the historical results of operations and cash flows of USMD have limited comparability to prior periods that
include hospital activity. Generally, effective March 1, 2010, all results of the hospitals, including net patient service revenue and associated operating expenses are no longer consolidated, and conversely, management services revenue earned
from the hospitals that had previously been eliminated in consolidation is now included in USMDs consolidated results of operations and cash flows.



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Revenues

Net operating revenue decreased 33.8% to $22.3 million for the six months ended June 30, 2011 as compared to the same period in 2010, due primarily to reductions in net patient service revenue
related to deconsolidation of the hospitals, offset by increases in management services revenue and lithotripsy revenue.

Management services revenue includes revenue earned through the provision of management and staffing services to USMDs managed
entities. Management services revenue increased $3.0 million or 35.2% to $11.7 million for the six months ended June 30, 2011 compared to the same period in 2010 due to increases of $1.8 million in management services revenue from hospitals
that had previously been eliminated in consolidation as well as $0.6 million at USMD Hospital Division related to the THR managed care contracts, which became effective during the second quarter of 2010. USMD CTC Division management services revenue
increased $0.5 million as a result of two new cancer treatment centers that opened in January and August 2010. USMD is actively pursuing domestic and international investments and management contracts with radiation treatment centers.

Lithotripsy revenue consists of revenue of the consolidated lithotripsy partnerships, which increased 9.9%, or $1.0 million, to $10.6
million for the six months ended June 30, 2011 from $9.6 million for the same period in 2010. Approximately $0.3 million of the increase was related to deconsolidation of the hospitals, which resulted in the activity of one lithotripsy
partnership that had been previously eliminated in consolidation being included in the consolidated results of operations. Revenue of non-hospital related lithotripsy partnerships increased 6.3% or $0.6 million while case counts increased 8.1% as
compared to the same period in 2010.

Other operating revenue includes other hospital revenue and miscellaneous revenue and
decreased due to deconsolidation of the hospitals.

Operating Expenses

Salaries, wages and employee benefits as a percentage of revenue increased to 43.5% for the six months ended June 30, 2011, from
36.6% for the same period in 2010, primarily due to a shift in the nature of consolidated expenses. The deconsolidated hospital salaries, wages and benefits had a lower cost as a percentage of revenue than hospital management salaries, wages and
benefits. In addition, staffing expense increased $0.3 million due to the two new cancer treatment centers and $0.3 million due to the expansion of centralized financial reporting staff at USMD.

Medical supplies and services expense decreased $4.7 million due to deconsolidation of the hospitals.

Due to deconsolidation of the hospitals, the provision for doubtful accounts decreased $1.8 million for the six months ended
June 30, 2011 compared to the same period in 2010. USMDs divisions generally do not experience material bad debts.

Depreciation and amortization decreased $0.9 million due to deconsolidation of the hospitals.

Other operating expenses consist primarily of professional fees, rent and lease expenses, facilities expense, travel expense and other
expense. Other operating expenses decreased $0.5 million to $4.4 million for the six months ended June 30, 2011, from $5.0 million for the same period in 2010 primarily due to deconsolidation of the hospitals, offset by a $1.2 million increase
in professional fees due to legal, audit and consulting costs associated with the Contribution and filing of the Form S-4 registration statement. In addition, travel expense and collection fees each increased $0.1 million.

Non-Operating Income and Expenses

Other income decreased $10.7 million to $0.5 million for the six months ended June 30, 2011, from $11.2 million for the same period in 2010. The variance is primarily related to the March 2010 $12.4
million gain on deconsolidation of USMD Arlington Hospital and USMD Fort Worth Hospital. The deconsolidation gain represented an adjustment of the investment in these hospitals to estimated fair market value at March 1, 2010. In addition,
equity in income of nonconsolidated affiliates increased $0.5 million, including $1.1 million for the deconsolidated hospitals offset by a $0.4 million reduction at a cancer treatment center and a $0.1 million loss in equity in income of
nonconsolidated affiliates at the Companys new Monterrey Mexico cancer treatment center that is incurring start-up costs prior to opening for patient visits. Interest expense decreased $1.2 million primarily due to deconsolidated hospital
activity.



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The income tax provision decreased $4.7 million to $0.8 million for the six months ended
June 30, 2011, from $5.6 million for the same period in 2010. USMDs effective tax rates were 38.3% and 37.1% for the six months ended June 30, 2011 and 2010, respectively, excluding the effect of net income attributable to
noncontrolling interests.

Net income attributable to noncontrolling interests increased $1.5 million to $6.3 million for the
six months ended June 30, 2011, from $4.8 million for the same period in 2010, primarily related to losses at the deconsolidated hospitals for the six months ended June 30, 2010 and a $0.6 million increase related to lithotripsy
partnership interests.

Supplemental Liquidity and Capital Resources of USMD Inc.

The following table summarizes USMDs cash flows for the periods indicated and is used in the discussions that follow (in thousands):



|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|--------------------------------------------------------------- |  | ------------------------- | ------ | - | ------------------ | - | ------ | ------------- |  | - | ------ | -
|                                                                |  | Six Months Ended June 30, |        |   | Six MonthsVariance |  
|                                                                |  | 2011                      |        |   | 2010               |   |        | 2011 vs. 2010 | 
|Cash flows from operating activities:                           |  |                           |        |   |                    |   |        |               |  |   |        |  
|Net income                                                      |  | $                         | 7,096  |   |                    | $ | 13,956 |               |  | $ | (6,860 | )
|Net income to net cash reconciliation adjustments               |  |                           | 52     |   |                    |   | (3,746 | )             |  |   | 3,798  |  
|Change in operating assets and liabilities                      |  |                           | (213   | ) |                    |   | (1,873 | )             |  |   | 1,660  |  
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Net cash provided by operating activities                       |  |                           | 6,935  |   |                    |   | 8,337  |               |  |   | (1,402 | )
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Cash flows from investing activities:                           |  |                           |        |   |                    |   |        |               |  |   |        |  
|Capital expenditures                                            |  |                           | (91    | ) |                    |   | (11    | )             |  |   | (80    | )
|Investments in nonconsolidated affiliates                       |  |                           | (340   | ) |                    |   |       |               |  |   | (340   | )
|Decrease in cash due to deconsolidation of subsidiaries         |  |                           |       |   |                    |   | (4,790 | )             |  |   | 4,790  |  
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Net cash used in investing activities                           |  |                           | (431   | ) |                    |   | (4,801 | )             |  |   | 4,370  |  
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Cash flows from financing activities:                           |  |                           |        |   |                    |   |        |               |  |   |        |  
|Repayments of long-term debt and capital lease obligations      |  |                           | (478   | ) |                    |   | (1,660 | )             |  |   | 1,182  |  
|Distributions to noncontrolling interests, net of contributions |  |                           | (6,171 | ) |                    |   | (5,407 | )             |  |   | (764   | )
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Net cash used in financing activities                           |  |                           | (6,649 | ) |                    |   | (7,067 | )             |  |   | 418    |  
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Net decrease in cash and cash equivalents                       |  |                           | (145   | ) |                    |   | (3,531 | )             |  |   | 3,386  |  
|Cash and cash equivalents at beginning of year                  |  |                           | 7,477  |   |                    |   | 7,990  |               |  |   | (513   | )
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  
|Cash and cash equivalents at end of period                      |  | $                         | 7,332  |   |                    | $ | 4,459  |               |  | $ | 2,873  |  
|                                                                |  |                           |        |   |                    |   |        |               |  |   |        |  

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

Operating Activities

The
$1.4 million decrease in net cash provided by operating activities is primarily due to deconsolidation of the hospital activity and balances.

Investing Activities

Net cash used in investing activities decreased $4.4
million due to deconsolidation of the hospital activity offset by a $0.3 million investment in a nonconsolidated affiliate and a $0.1 million increase in capital expenditures. USMD expects to incur approximately $1.1 million per year in future
capital expenditures, primarily attributable to the replacement of lithotripters.

Financing Activities

Net cash used in financing activities decreased $0.4 million due to reductions in repayments of long-term debt offset by increased
distributions to noncontrolling interests. Of the $1.2 million reduction in debt repayments, $0.4 million of it was attributable to payments made by the hospitals prior to deconsolidation. In addition, USMD paid off certain corporate debt
obligations in 2010, resulting in a $0.8 million reduction in cash used for debt repayments in 2011. The $0.8 million increase in distributions to lithotripsy partnerships was due to increased profitability at those partnerships.



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Capital Resources and Debt Obligations

USMD expects to continue to fund operations and meet principal and interest payment obligations utilizing cash flows from operations.
Routine distributions from both managed hospitals serve as a critical source of cash flows for USMD. Hospital managed care contracted reimbursement rates that went into effect in mid-2010 have improved managed hospital profitability and may permit
continued future routine distributions from USMD Arlington, subject to credit facility restrictions. USMD Fort Worth has not made recent distributions; however, USMD anticipates that USMD Fort Worth will make a distribution in late 2011. USMD will
need future hospital distributions in order to meet its debt obligations under the $30 million subordinated debt to be issued in connection with the Contribution.

USMD plans to secure equity financing, mezzanine financing and/or debt financing for acquisitions and potential restructuring of existing credit facilities. Part of USMDs overall business strategy
is to make strategic acquisitions of complementary healthcare facilities and physician practice groups and USMD may rely heavily on financing in order to fulfill this strategy. To the extent USMD is unable to secure the necessary acquisition
financing, it may be hampered or delayed in its ability to acquire such entities and, thus, may be unable to fulfill timely its acquisition strategy. On January 10, 2011, USMD executed a $1.0 million working capital line of credit with Chase
Bank that accrued interest at the Chase Bank Floating Rate plus one percent and matured on July 1, 2011. USMD did not draw any funds on this line of credit and chose not to renew the line of credit at maturity.

USMD believes it has reached its corporate debt capacity inclusive of the line of credit. No significant additional debt funding is
available under corporate credit facilities and notes payable; however, USMD believes that demonstrated and sustained increases in profitability and cash reserves will permit lenders to extend credit in the future. Lithotripsy partnerships have
demonstrated the ability to obtain financing to fund equipment purchases. The following table illustrates the components of USMDs debt structure as of June 30, 2011 and December 31, 2010 (in thousands):



|                                                     |  |              |        |   |                  |   |        |  
|---------------------------------------------------- |  | ------------ | ------ | - | ---------------- | - | ------ | -
|                                                     |  | June 30,2011 |        |   | December 31,2010 |  
|USMD Inc.                                            |  |              |        |   |                  |   |        |  
|Subordinated notes payable                           |  | $            | 731    |   |                  | $ | 731    |  
|USMD Lithotripsy Division subordinated notes payable |  |              | 7,477  |   |                  |   | 7,687  |  
|                                                     |  |              |        |   |                  |   |        |  
|                                                     |  |              | 8,208  |   |                  |   | 8,418  |  
|                                                     |  |             
|Lithotripsy partnerships                             |  |              |        |   |                  |   |        |  
|Notes payable                                        |  |              | 266    |   |                  |   | 386    |  
|Capital lease obligations                            |  |              | 1,173  |   |                  |   | 1,321  |  
|                                                     |  |              |        |   |                  |   |        |  
|                                                     |  |              | 1,439  |   |                  |   | 1,707  |  
|                                                     |  |              |        |   |                  |   |        |  
|Total long-term debt                                 |  |              | 9,647  |   |                  |   | 10,125 |  
|Less: current portion                                |  |              | (1,632 | ) |                  |   | (892   | )
|                                                     |  |              |        |   |                  |   |        |  
|Long-term debt, less current portion                 |  | $            | 8,015  |   |                  | $ | 9,233  |  
|                                                     |  |              |        |   |                  |   |        |  

The lithotripsy partnership notes payable have certain debt covenant requirements. Events beyond the
partnerships control can affect their ability to meet covenant requirements and a breach of any of these covenants could result in a default of the note(s) payable. Upon the occurrence of an event of default, amounts outstanding under those
notes payable may become due and payable. As of June 30, 2011, the lithotripsy partnerships were in compliance with their contractually required debt covenants.



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Maturities of USMD long-term debt and future minimum capital lease payments are as follows
at June 30, 2011 (in thousands):



|                                |  |               |       |  |                   |   |       |       |  |   |       | 
|------------------------------- |  | ------------- | ----- |  | ----------------- | - | ----- | ----- |  | - | ----- | 
|                                |  | Long-TermDebt |       |  | CapitalLeases (1) |   |       | Total | 
|July 2011 through December 2011 |  | $             | 333   |  |                   | $ | 105   |       |  | $ | 438   | 
|                                |  |               |      
|Year Ending December 31,        |  |               |       |  |                   |   |       |       |  |   |       | 
|2012                            |  |               | 1,352 |  |                   |   | 318   |       |  |   | 1,670 | 
|2013                            |  |               | 513   |  |                   |   | 318   |       |  |   | 831   | 
|2014                            |  |               | 561   |  |                   |   | 318   |       |  |   | 879   | 
|2015                            |  |               | 614   |  |                   |   | 282   |       |  |   | 896   | 
|2016                            |  |               | 671   |  |                   |   | 8     |       |  |   | 679   | 
|Thereafter                      |  |               | 4,430 |  |                   |   |      |       |  |   | 4,430 | 
|                                |  |               |       |  |                   |   |       |       |  |   |       | 
|Total                           |  | $             | 8,474 |  |                   | $ | 1,349 |       |  | $ | 9,823 | 
|                                |  |               |       |  |                   |   |       |       |  |   |       | 



|(1) | includes related principal and interest
|--- | ---------------------------------------

Non-Binding Term Sheet Regarding Issuance and Sale of Convertible Preferred Stock

Holdings and USMD have executed a non-binding term sheet with an unaffiliated private investment firm which contemplates the sale of
60,000 shares of convertible preferred stock of Holdings at a price of $1,000 per share, representing a total purchase price of $60 million. The transaction is subject to the completion of due diligence and the negotiation of definitive agreements
and the likelihood of its consummation cannot be predicted at this time. The non-binding term sheet does not set forth an actual conversion rate of the preferred stock but rather an expectation that the preferred stock would convert into
approximately one-third of the common stock of Holdings. The exact conversion rate and all other terms of the convertible preferred stock financing will depend upon the completion of due diligence and the negotiation of definitive agreements with
the private investment firm. However, should the preferred stock financing be consummated without material changes from the terms contemplated by the non-binding term sheet, Holdings estimates that the 60,000 shares of convertible preferred stock
would be convertible into an aggregate of approximately 5,025,000 shares of common stock (representing a conversion rate of 83.75 shares of common stock for each share of convertible preferred stock). Under these terms, upon issuance of the
convertible preferred stock, Holdings would record $60.0 million of convertible preferred stock equity and a beneficial conversion discount of $11.2 million equal to the estimated intrinsic value of the conversion option.

Item 4. Controls and Procedures.

Holdings maintains disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Holdings disclosure
controls and procedures are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules
and forms and that such information is accumulated and communicated to its management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Holdings
conducted an evaluation under the supervision and with the participation of its Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of
the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this report. There have been no significant changes in Holdings internal controls over financial reporting (as defined by applicable SEC rules) that occurred during the fiscal quarter ended June 30, 2011 that have materially
affected or are reasonably likely to materially affect the Companys internal controls over financial reporting.

This
Quarterly Report on Form 10-Q does not include and Holdings has not previously performed or provided a report of managements assessment regarding internal control over financial reporting due to a transition period established by rules of the
Securities and Exchange Commission (SEC) for newly public companies. Under the rules of the SEC, managements first assessment regarding internal control over financial reporting will be included in its Annual Report on Form 10-K
for the year ended December 31, 2012.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

From
time to time Holdings may be a party to legal claims and proceedings in the ordinary course of business. Holdings management is not aware of any claims or proceedings that might have a material impact on Holdings operations or financial
condition.



|Item 6. | Exhibits
|------- | --------



|           |  |                                                                                                                                                                                                                                                                                                            
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                
|           | 
|2.1        |  | Contribution and Purchase Agreement, dated as of August 19, 2010, by and among the USMD Holdings, Inc., USMD Inc., Urology Associates of North Texas, L.L.P. and UANT Ventures,
L.L.P. (incorporated by reference to Annex A of registrants Registration Statement on Form S-4 filed on December 23, 2010)
|           | 
|3.1        |  | Certificate of Incorporation of USMD Holdings, Inc. (incorporated by reference to Exhibit 3.1 of registrants Registration Statement on Form S-4/A filed on February 16,
2011)                                                                                                                             
|           | 
|3.2        |  | Bylaws of USMD Holdings, Inc. (incorporated by reference to Exhibit 3.2 of registrants Registration Statement on Form S-4/A filed on February 16, 2011)                                                                                                                                                   
|           | 
|31.1       |  | Certification of John House, M.D., Chairman and Chief Executive Officer, pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                          
|           | 
|31.2       |  | Certification of Christopher Dunleavy, Chief Financial Officer, pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                   
|           | 
|32.1       |  | Certification of John House, M.D., Chief Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                              
|           | 
|32.2       |  | Certification of Christopher Dunleavy, Chief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                          



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Holdings has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.



USMD HOLDINGS, INC./s/ Christopher DunleavyChristopher Dunleavy, Chief Financial Officer(On behalf of registrant and as Principal Financial Officer)


Date: September 8, 2011



24