##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2002 Commission File No. 0-24624 CHINDEX INTERNATIONAL, INC.  (CHINDEX LOGO) DELAWARE
    
    13-3097642(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 7201 Wisconsin Avenue Bethesda, Maryland, 20814 (301) 215-7777 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained is not contained herein, and will not be contained,
to the best of registrants knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [ x ] The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of June 28, 2002 (the last business day of the
registrants most recently completed second fiscal quarter) was approximately
$7,100,000. The number of shares outstanding of each of the issuers class of common
equity, as of March 20, 2003, was 733,308 shares of Common Stock and 193,750
shares of Class B Common Stock. Documents Incorporated by Reference: Part III: Proxy Statement




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EXPLANATORY NOTE THIS ANNUAL REPORT ON FORM 10-K/A IS BEING FILED FOR THE PURPOSE OF AMENDING
ITEMS 6, 7 AND 8 OF PART II SOLELY TO (I) CORRECT MATHEMATICAL
ERRORS, WITHOUT CHANGING FINANCIAL CONDITION, REVENUES, CASH FLOWS OR
NET INCOME, INCLUDING CORRECTING WEIGHTED AVERAGE SHARES OUTSTANDING AMOUNTS TO GIVE EFFECT TO THE
COMPANYS ELEVEN-FOR-TEN STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND DECLARED
IN JUNE 2002 AND CORRESPONDING EARNINGS PER SHARE; AND (II)  REFILE THE
CERTIFICATIONS REQUIRED BY THE SARBANES-OXLEY ACT OF 2002. WE HAVE MADE NO
FURTHER CHANGES TO THE PREVIOUSLY FILED 10-K AND FORM 10-K/A CONTAINING PART
III INFORMATION. ALL INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K/A IS AS OF
DECEMBER 31, 2002 AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS. PART I
ITEM 1. BUSINESS GENERAL Chindex International, Inc. is an American public company with its
common stock traded on NASDAQ. The Companys headquarters are located in the
Washington, D.C. metropolitan area. In 2002 the Company changed its state of
incorporation from New York to Delaware and formally changed its name from
U.S.-China Industrial Exchange, Inc. to Chindex International, Inc. (Chindex
or the Company). Chindex, founded in 1981, is a leading American company in
the healthcare sectors of the Chinese marketplace, including Hong Kong.
Revenues are generated from the sale of healthcare equipment and products and
the provision of healthcare services. The Company operates in three segments.
First, the Companys original business has been its Capital Medical Equipment
Division, through which Chindex markets, sells, and facilitates the export of
select capital healthcare equipment and instrumentation throughout China on the
basis of exclusive agreements with the manufacturers of these products.
Chindex is the largest independent U.S. distributor of healthcare equipment in
China. Second, in addition to the sale of capital equipment, the Companys
Healthcare Products Distribution Division, through a network of wholly
foreign-owned subsidiaries, imports and distributes off-the-shelf healthcare
instrumentation and health-related consumable products. Finally, the
Healthcare Services Division operates the Companys private hospitals, Beijing
United Family Hospital and Clinics (Beijing United), and Shanghai United
Family Hospital and Clinics (Shanghai United) which is scheduled to open in
2003. In 2002, the Company opened its first satellite clinic associated with
Beijing United in Shunyi County outside of Beijing. For financial information
regarding the Companys segments see footnote 10 to the Financial Statements
contained in Item 10. The financial information regarding the segments has
been restated for 2001 as a result of the Companys recent split of its
Healthcare Products segment into two separate segments.
     In 2002, Chindex was awarded the annual U.S. Secretary of States Award
for Corporate Excellence by Secretary of State Colin Powell. The award
recognizes exemplary business practices, innovation and good corporate
citizenship in the Companys operations overseas. Chindex was one of only two
companies to receive this prestigious award.
     Chindex has 619 full-time employees worldwide, 605 of whom reside in China
and Hong Kong. In China and Hong Kong, Chindex operates three representative
offices and four subsidiary companies. The Company also participates in four
joint ventures, the most recent of which is Natural Formula Asia Ltd., a joint
venture established in Hong Kong between the Companys Hong Kong subsidiary
(40% ownership) and two Israeli companies. The Company also has three
subsidiaries in the Republic of Mauritius and one in the British Virgin Islands
which were established in 2001 as part of a tax restructuring plan. In
addition, in 2002, the Company established a subsidiary in Germany in order to
facilitate the Companys participation in German Government-funded loan
programs for the sale in China of medical equipment.

      Chindex was established to take advantage of the marketing opportunities
presented by the commercial opening of China to the West in the late 1970s and
early 1980s. The Company opened initial offices in Beijing and New York in
order to provide representative services, including product marketing, sales,
distribution, and technical support to Western manufacturers of electronic
instrumentation and industrial machinery.
     During its early years of operation, Chindex began work in the healthcare
and industrial machinery market sectors. Relationships were initiated with
manufacturers of a variety of capital medical equipment and off-road
construction and mining machinery. By the end of its second year, the Company
had hired its first in-house technical support engineer in order to provide
service in connection with its sales. By 1985, the Company had developed an
organizational structure which consisted of two discrete marketing groups:
capital medical equipment and industrial machinery. The Company has been
continually active in pursuit of new product areas, technologies, and emerging
market segments within its industry focus in China.
     In response to the fast-paced development of the Chinese market-oriented
economic reforms through the mid-1980s, the Company opened representative
offices in Guangzhou (southern China) and Shanghai (central China) to expand
its sales capabilities. In addition, to increase its technical service
capabilities, in 1986, Chindex opened its first cooperative venture, the
Chindex Meheco Service Center, which provided access to bonded warehouse
facilities for the importation of spare parts inventories utilized by the
Technical Service operations of the Company. As the Chinese economy has
continued to show exceptional growth rates Chindex has pursued the expansion of
its business operations through staff and facilities expansion, as well as
increased product offerings. The




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regional offices support a network of territory sales managers, local area
regional representatives, and technical service engineers throughout the
country.
     In order to increase the Companys overall market access in China, Chindex
opened its first foreign subsidiary, Chindex Holdings International Trade
(Tianjin), Ltd., in the Tianjin Free Trade Zone in 1994. A second subsidiary,
Chindex Shanghai International Trading Co., Ltd., was opened in the Waigaoqiao
Free Trade Zone of Shanghai, in mid-1998. The subsidiaries are managed by the
Healthcare Products Distribution division and provide Chindex with a unique
nationwide distribution system for off-the-shelf medical devices and
consumables used in hospitals as well as home healthcare and health-oriented
products sold to consumers in retail pharmacies.
     In early 1996, Chindex established operations in Hong Kong through another
foreign subsidiary, Chindex Hong Kong Limited. This subsidiary has been
staffed for sales and technical support in the healthcare sectors of the Hong
Kong market.
     To provide funding for growth initiatives and to capitalize on its
sustained investment and long-term management expertise in China, Chindex
successfully completed two public offerings in 1994 and 1996, the proceeds of
which allowed the Company to initiate and develop a growth plan based on
expansion of its traditional healthcare equipment sales and service operations,
development of primary healthcare ventures, expansion of product distribution
capabilities in healthcare products, and investment in the growth of the Hong
Kong market services.
     To address the long-term financing needs of its customers in the China
marketplace, Chindex has worked with the U.S. Government to utilize direct loan
and loan guarantee programs to extend financing to Chinese buyers in
cooperation with the Chinese Ministries of Health and Finance. Chindex has
utilized assistance from the Export-Import Bank of the United States (Ex-Im
Bank) on three separate projects spanning a five year period from 1995 to 2000,
totaling $34 million in medical equipment exports. In addition, Chindex has
also secured $11.7 million in financing for Chinese hospitals through three
separate commercial loan transactions in 2001 and 2002. These transactions
have helped to sustain Chindexs competitive position in the face of increased
competition from other suppliers in the China marketplace.
     In 1997, Chindex opened Beijing United, a joint venture between Chindex
and a company affiliated with the Chinese Academy of Medical Sciences. Chindex
invested approximately $4.0 million in the Beijing United project, which has
brought an international-standard family hospital to China. The Chindex
multi-year development plan, which is subject to obtaining requisite financing
among other conditions, includes a series of family hospitals and clinics in
major metropolitan centers in China over the next several years as it
establishes itself as the premier private hospital corporation in China.
Chindex has already received approval from Chinas Ministry of Health for, and
has commenced construction of its second planned hospital, Shanghai United
Family Hospital, which is expected to open in 2003.  CAPITAL MEDICAL
EQUIPMENT




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the need for utilizing an FTC. These changes are being phased in over
several years, although the Company has already experienced reduced tariff
rates on some of the products that it sells in China. 
 Siemens AG is a world leader in the manufacture of medical
equipment. In 2001, Chindex and Siemens entered into a five year agreement
calling for Chindex to be the exclusive distributor in China for the Siemens
line of diagnostic color ultrasound imaging devices manufactured by Acuson
Corporation (acquired by Siemens in 2000) and by Siemens. Siemens has
appointed Chindex as the sole distributor in Hong Kong as well. Chindex has
been the exclusive Acuson distributor in China since Acuson entered the China
market in 1987, and in Hong Kong since 1996. In 2002, the sale of Siemens and
Acuson products accounted for approximately 16% of the Companys revenues. Bard Electrophysiology manufactures products which aid in the
diagnosis and treatment of electrophysiology disorders. Chindex assumed the
exclusive distributorship of Bards Computerized Labsystems in China in 1999.
The Labsystems are used in cardiac cath labs and complement Chindexs other
cardiology product offerings. Hologic, Inc. is a leading developer, manufacturer and supplier of
bone densitometers, mammography and breast biopsy devices, and
direct-to-digital X-ray systems. Chindex began representing Hologic in both
China and Hong Kong in 2001. Nova Biomedical, Inc. is a leading American manufacturer of medical
laboratory analysis equipment used in critical care as well as central
laboratory environments in the hospital. Chindex has represented Nova
Biomedical in the China market since 1986. Ortho-Clinical Diagnostics, Inc., a Johnson & Johnson company, the
technology leader in dry chemistry analyzers, is the manufacturer of the Vitros
(formerly Ektachem, a Kodak trademark) dry slide chemistry analyzer system
developed originally by the Eastman Kodak Company. The dry slide reagents used
in all of these analyzers are supplied to Chinese customers through the
domestic logistics distribution network of the Companys Healthcare Products
Distribution division. PLC Medical Systems, a wholly-owned subsidiary of PLC Systems,
manufactures The Heart Laser System, a patented technology for Transmyocardial
Revascularization (TMR), a new cardiosurgical procedure with the potential to
provide patients suffering from coronary artery disease with a third
alternative to angioplasty and cardiac bypass surgery. Chindex began to
represent PLC in China in early 1998. Steris Corporation is a leading provider of infection prevention,
contamination prevention, microbial reduction, and surgical support systems,
products, services, and technologies. Since 1996, Chindex has marketed the
Steris line of Amsco sterilizers, a leader in infection control and surgical
equipment, services, and consumable products for the healthcare and scientific
markets. In addition, Chindex markets Steris lines of surgical equipment in
China. The Company entered into two new distribution agreements at the end of
2002. The first of these is with Quinton Cardiology Systems, Inc., a
leading manufacturer of a family of diagnostic cardiology systems used in the
diagnosis, treatment and rehabilitation of patients with cardiovascular
disease. The second agreement is with BrainLAB, Inc., a leading company
in the fields of image-guided surgery and stereotactic radiosurgery.




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HEALTHCARE PRODUCTS DISTRIBUTION As an important aspect of its WTO accession plan, China has committed to
opening its distribution sector fully to foreign participation in mid-2003.
Chindex, through its Healthcare Products Distribution (HPD) division, has been
a significant player in this area since 1995, offering foreign manufacturers a
unique nationwide distribution system for low price medical devices and
consumables sold in hospitals, home healthcare, and other products sold to
consumers in retail pharmacies. With an established distribution network,
Chindexs HPD division is poised to take advantage of new opportunities created
by Chinas WTO-based liberalization, as well as Chinese government-mandated
consolidation in the distribution industry, and to continue to leverage its
experience and increasing scale of operations.     
Through a network of wholly foreign-owned enterprise (WFOE) companies,
chartered in Chinas free trade zones, the HPD division imports healthcare and
other products into China, carries them in inventory, sells them downstream for
local currency, and pays the suppliers in foreign exchange obtained legally
under Chinese regulations. The Chindex HPD division is comprised of three
primary business units: Logistics Services, Retail Pharmacy Sales, and Hospital
Dealer Sales. Logistics Services Pari GmbH  Whitney International, Inc.
 Retail Pharmacy Sales Summer s Eve  Natural Formula  Vichy Laboratories and La Roche-Posay




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Hospital Dealer Sales

Guidant Corporation  Hudson RCI  Truphatek  Tuttnauer  Tyco/Kendall Healthcare Products Company


HEALTHCARE SERVICES In 1994, using its extensive expertise in healthcare as a foundation,
Chindex began a long-term program to establish a private hospital network in
China. In 1997, Chindex opened Beijing United Family Hospital and Clinics
(Beijing United), marking the successful completion of the first phase of its
program. Beijing United is the first officially approved private,
international-standard hospital in China. Future phases of Chindexs private
hospital network program are planned to expand delivery of
international-standard healthcare services to Chinas growing middle class
throughout the country. Beijing United Family Hospital and Clinics 
  Shanghai United Family Hospital and Clinics




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Chindex Healthcare Network Expansion  COMPETITION In the sale of products, the Company competes with other independent
distributors in China that market similar products. In addition to other
independent distributors, the Company faces more significant competition from
direct distribution by established manufacturers. In the medical products
field, for example, the Company competes with General Electric Corporation
(GE), which maintains its own direct sales force in China as well as selling
through distributors. In addition, since certain manufacturers, such as GE,
market a wide variety of products under one brand name in China to different
market sectors, those manufacturers may be better able than the Company to
establish name recognition across industry lines. For example, GE manufactures
and markets other electrical products in China as well as other medical
instruments not sold by the Company. The Company believes that GE, Philips, and
Toshiba are the largest such direct competitors in the medical products field.
The Company believes that its products incorporate technologies that are more
advanced than those available in products currently available from domestic
Chinese manufacturers.    EMPLOYEES  INTERNET INFORMATION AND SEC DOCUMENTS The Companys internet site is located at www.chindex.com. Copies of the
Companys reports filed pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, including Annual Reports filed on Form 10-K, Quarterly
Reports filed on Form 10-Q and Current Reports filed on Form 8-K may be
accessed from the Companys website, free of charge, as soon as reasonably
practicable after the Company electronically files such reports with, or
furnishes such reports to, the Securities and Exchange Commission. FORWARD-LOOKING STATEMENTS




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Company undertakes no obligation to release publicly the result of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. ITEM 2. PROPERTIES The Companys representative headquarters in China are located at a newly
renovated facility in Beijing. The Companys prior facility was designated for
redevelopment in 2002 and accordingly, the Company moved into new space in
mid-2002. The Company has a ten year lease for this new space. The Company
also leases regional offices in the Chinese cities of Shanghai, Guangzhou and
Tianjin. The Companys executive and administrative offices are located in
Bethesda, Maryland, which provides access to nearby Washington, D.C. ITEM 3. LEGAL PROCEEDINGS  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Companys Common Stock is listed on NASDAQ under the symbol CHDX. The
following table shows the high and low Common Stock bid quotations in the
over-the-counter market, as quoted on NASDAQ. Such quotations reflect
interdealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. Quarter Ended
    
    High Bid
    
    Low BidMarch 31, 2001
    
    $
    9.77
    
    
    $
    6.03June 30, 2001
    
    
    11.52
    
    
    
    6.48September 30, 2001
    
    
    12.18
    
    
    
    6.41December 31, 2001
    
    
    13.54
    
    
    
    5.05March 31, 2002
    
    
    13.87
    
    
    
    9.28June 30, 2002
    
    
    11.81
    
    
    
    9.14September 30, 2002
    
    
    10.99
    
    
    
    6.33December 31, 2002
    
    
    8.98
    
    
    
    6.42
 As of March 26, 2003, there were 14 record holders and there were
estimated to be approximately 1,170 beneficial owners of the Companys Common
Stock. There are three owners of the Companys Class B Common Stock.
      TIMING OF REVENUES   FOREIGN CURRENCY EXCHANGE AND IMPACT OF INFLATION Renminbi Renminbi
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks in a variety of ways. The
principal market risk is related to the nature of the Chinese economy and
political system. Since the Company generates all of its revenues from China,
any risk having to do with the environment in China for a foreign business
operating there can have a significant impact on the Company.   Internal Political Risk  Government Control Over Economy
      foreign businesses or were to impose any number of other possible types of
limitations on the Companys operations, the impact would be significant. Legal System  Foreign Trade Corporations
      ITEM 6. SELECTED FINANCIAL DATA (in thousands except per share data) For the year ended December 31:
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998Net sales
    
    $
    70,617
    
    
    $
    56,118
    
    
    $
    45,064
    
    
    $
    37,128
    
    
    $
    21,610Percent increase
    
    
    26
    %
    
    
    25
    %
    
    
    21
    %
    
    
    72
    %
    
    
    -10
    %Income (loss) from operations
    
    
    95
    
    
    
    (401
    )
    
    
    152
    
    
    
    (221
    )
    
    
    (3,613
    )Other income and expenses
    
    
    (126
    )
    
    
    726
    
    
    
    664
    
    
    
    896
    
    
    
    1,661Net income (loss) before tax
    
    
    19
    
    
    
    307
    
    
    
    780
    
    
    
    657
    
    
    
    (1,964
    )Benefit from (provision for) income taxes
    
    
    240
    
    
    
    77
    
    
    
    (139
    )
    
    
    (265
    )
    
    
    (75
    )Net income (loss)
    
    
    259
    
    
    
    384
    
    
    
    641
    
    
    
    392
    
    
    
    (2,039
    )Net income (loss) per share-basic
    
    
    .28
    
    
    
    .42
    
    
    
    .70
    
    
    
    .43
    
    
    
    (2.23
    )Net income (loss) per share-diluted
    
    
    .27
    
    
    
    .39
    
    
    
    .68
    
    
    
    .43
    
    
    
    (2.23
    )Market closing price per share  end of year
    
    
    7.42
    
    
    
    12.73
    
    
    
    6.14
    
    
    
    15.08
    
    
    
    2.25Book value per share at end of year
    
    
    15.07
    
    
    
    14.85
    
    
    
    14.44
    
    
    
    13.75
    
    
    
    13.32Cash dividends declared
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00At December 31:Total assets
    
    $
    43,126
    
    
    $
    33,369
    
    
    $
    36,498
    
    
    $
    24,384
    
    
    $
    28,553Short term debt
    
    
    1,946
    
    
    
    200
    
    
    
    0
    
    
    
    0
    
    
    
    0Long term debt or accounts payable
    
    
    3,609
    
    
    
    0
    
    
    
    0
    
    
    
    91
    
    
    
    272Total capital
    
    
    13,968
    
    
    
    13,611
    
    
    
    13,235
    
    
    
    12,587
    
    
    
    12,196Segment information for the year ended December 31:Capital
Medical Equipment - sales
    
    $
    28,708
    
    
    $
    25,819Capital
Medical Equipment - gross margin percent
    
    
    27
    %
    
    
    29
    %Capital
Medical Equipment - operations income
    
    
    198
    
    
    
    439Healthcare
Products Distribution - sales
    
    
    28,946
    
    
    
    21,520Healthcare
Products Distribution - gross margin percent
    
    
    13
    %
    
    
    13
    %Healthcare
Products Distribution - operations loss
    
    
    (639
    )
    
    
    (1,316
    )Healthcare
Products - sales
    
    
    *
    
    
    
    *
    
    
    $
    39,049
    
    
    $
    33,182
    
    
    $
    19,750Healthcare
Products - gross margin percent
    
    
    *
    
    
    
    *
    
    
    
    24
    %
    
    
    25
    %
    
    
    29
    %Healthcare
Products - operations income (loss)
    
    
    *
    
    
    
    *
    
    
    
    (66
    )
    
    
    243
    
    
    
    (2,527
    )Healthcare
Services - sales
    
    
    12,963
    
    
    
    8,779
    
    
    
    6,015
    
    
    
    3,946
    
    
    
    1,860Healthcare
Services - operations income (loss)
    
    
    536
    
    
    
    476
    
    
    
    218
    
    
    
    (464
    )
    
    
    (1,086
    )
  *
    
    the company expanded to three segments in 2002 and restated 2001
      ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
 General The Companys revenues continued to grow in 2002, with increases occurring
in all three segments of the Companys business. In 2002, the Company expanded
the number of segments into which its business is divided by dividing the
former Healthcare Products segment into two: Capital Medical Equipment and
Healthcare Products Distribution. In 2002, the Company, continuing its loan
program efforts, shipped a total of $8.8 million under a program of commercial
bank financing for its customers in China. The Company recorded net income in
2002 of $259,000 or a 33% decrease from 2001 net income of $384,000. Income
from operations was $95,000 in 2002 compared to a loss from operations of
$401,000 in 2001. The Healthcare Services segment of the Companys business saw a number of
changes in 2002. During the year the Company completed a significant expansion
of its Beijing United Hospital and Clinics (Beijing United), doubling its
capacity. This expansion involved the renovation of the upper floors of the
hospital building that previously had been subleased to a tenant. Also in
2002, Chindex opened its first outpatient satellite clinic affiliated with
Beijing United in Shunyi County outside of Beijing. In addition to expansion efforts at Beijing United, the Company completed
negotiations for its new hospital in Shanghai and, in February of 2002, entered
into a joint venture agreement with Shanghai Changning Central District
Hospital (a 70-30 equity joint venture, with the Company holding 70%) for the
establishment of Shanghai United Family Hospital and Clinics (Shanghai
United). The business license for Shanghai United was received in July of
2002. The Company has also entered into an 18-year lease for a stand-alone
four story building on the campus of the Changning Hospital. Financing for
Shanghai United is being obtained through an agreement with a major supplier
whereby extended payment terms on up to $4 million in purchases by the Company
are being provided. Construction on Shanghai United is underway and is
expected to open in 2003. Critical Accounting Policies The preparation of the Companys financial statements in conformity with
accounting principles generally accepted in the United States requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Companys estimates, judgments and
assumptions are continually evaluated based on available information and
experience. Because of the use of estimates inherent in the financial reporting
process, actual results could differ from those estimates. Some of the Companys accounting policies require higher degrees of
judgment than others in their application. These include revenue recognition on
long-term service contracts, impairments and estimation of useful lives of
long-term assets, income tax recognition of deferred tax items, and accruals
for contingencies. Our policy and related procedures for revenue recognition on
long-term service contracts are summarized below. In addition, Note 1 to the
Consolidated Financial Statements includes further discussion of the Companys
significant accounting policies. Revenue Recognition  Sales and most commissions are recognized upon
product shipment. Costs associated with shipping, handling, installation,
after-sale servicing and warranty are not significant and are recognized in
Cost of Sales as they are incurred. Revenues related to services provided by
Beijing United are recognized in the period services are provided. Costs
associated with such services are recognized in the period incurred. Stock-based Compensation  The Company accounts for stock-based
compensation to employees under Accounting Principles Board (APB) No. 25 -
Accounting for Stock Issued to Employees, and complies with the disclosure
requirements for SFAS No. 123  Accounting for Stock-Based Compensation and
SFAS No. 148  Accounting for Stock-Based Compensation  Transition and
Disclosure.  (see Stock Option Plan) Fiscal year 2002 compared to 2001 The Companys revenues for 2002 were $70,617,000, up 26% from 2001
revenues of $56,118,000. Of these amounts, $8,821,000 in 2002 and $4,175,000
in 2001 were attributable to loan project sales by the Company for its
customers. The Company believes that this type of financing is important to
its customers and will continue to try to offer such financings in the future.
These financings can be very complex and their timing and impact on the
Companys results are difficult to predict (see Timing
of Revenues). Capital Medical Equipment Segment In 2002 this segment had revenues of $28,708,000, an 11% increase over the
revenues of $25,819,000 in 2001. Income from operations for the segment was
$198,000 in 2002 compared to income from operations of $439,000 in 2001. The
decrease was primarily attributable to a decrease in the gross profit
percentage. The period-to-period revenues of this segment fluctuate due to
financing programs facilitated by the Company from time to time and due to
fluctuating hospital purchasing cycles in China. The increase for 2002 was
primarily attributable to loan project sales by the Company to its customers,
which were $8,821,000 in the recent year as compared to $4,175,000 in the prior
year. The U.S. dollar-based sales of capital medical equipment are often
contingent on financing (see Timing of Revenues). Gross profit in 2002 increased to $7,822,000 from $7,451,000 in 2001. As a
percentage of revenues, gross profit from the capital medical equipment segment
for the recent period was 27% as compared to 29% in the prior period. The
gross profit in 2001 reflected a different mix of revenue sources having
different profit margins. In particular, in the recent year, the Company had
less service contract revenues, which carry higher margins, than in the prior
year. Service contract revenues in Hong Kong were down significantly because
of the downturn in the
      economy there. The Company anticipates that service
contract revenues will not return to previous levels. In addition, competitive factors such as the timing and
composition of major tenders, as well as the ongoing competitive pricing
pressures due to Chinese government tendering regulations in the sale of
capital medical equipment in the year yielded lower margins on such sales.
Finally, gross margins on loan project sales are generally lower than on the
Companys other sales because the Company is not required to provide warranty
service on many of the products sold through the loan programs. Loan program
shipments in 2002 were more than twice as large as in 2001. Expenses for the capital medical equipment segment in 2002 increased to
$7,624,000 from $7,012,000 in 2001, and as a percentage of revenues over the
period were the same at 27%. Salaries for the segment in 2002 increased by
$561,000 from 2001and as a percentage of revenues over the period increased to
10% from 9%. The salary increase was primarily due to increased payroll
benefits mandated by the Chinese government. In addition, travel and entertainment expenses for the segment increased
$197,000 but were flat at 5% of revenues in both years. Other costs decreased
$123,000 as compared to the prior year, primarily due to lower administration
allocations and lower promotion costs offset by increased exhibition fees and
bad debt reserve. Healthcare Products Distribution Segment The Health Care Products Distribution (HPD) segment, consisting of
medical consumables and personal healthcare products, had revenue growth of 35%
to $28,946,000 in 2002 from 2001 revenues of $21,520,000. This increase was
attributable to an increase in sales in the hospital and retail pharmacy
markets. The segment had a loss from operations of $639,000 in 2002 compared
to a loss from operations of $1,316,000 in 2001. The sales of medical
consumables and personal healthcare products are local currency-based sales
made from inventories maintained locally in China (see Foreign Currency
Exchange and Impact of Inflation) to a network of sub-dealers and pharmacies. Gross profit in 2002 rose to $3,856,000 from $2,842,000 in 2001. As a
percentage of revenues, gross profit from the HPD segment remained consistent
at 13% in 2002 and 2001. Expenses for the healthcare products distribution segment in 2002
increased to $4,457,000 from $4,158,000 in 2001, but decreased as a percentage
of revenues over the twelve month period to 15% from 19%. Salaries for the
segment increased $354,000, but remained flat as a percentage of revenues over
the years at 5%. The increase is primarily due to increased payroll benefits
mandated by the Chinese government. In addition, travel and entertainment
expense for the segment increased $76,000 but was flat at 1% of revenues for
both years and other costs decreased $131,000 primarily from decreased
promotion. Healthcare Products Segment In order to provide a complete segment comparison the following is a
comparison of the 2002 and 2001 results for the products now contained in two
segments, the Capital Medical Equipment segment and the Healthcare Products
Distribution segment. In 2000, the company treated these two as one segment
and thus, comparable information is not available and it would be impracticable
to compare the two years on the basis of the segmentation in effect in 2002. If the Company had not separated the two segments, the prior Healthcare
Products segment, which was a combination of the Capital Medical Equipment
segment and the Healthcare Products Distribution Segment, would have reported
revenue of $57,654,000 in 2002 as compared to $47,339,000 in 2001. Gross
profit would have been $11,678,000 in 2002 as compared to $10,293,000 in 2001.
As a percentage of revenues the old segment would have reported 20% in 2002 as
compared to 22% in 2001. Expenses would have increased to $12,081,000 in 2002
as compared to $11,170,000 in 2001. Healthcare Services Segment For 2002, the revenues from this segment were $12,963,000, an increase of
48% over 2001 revenues of $8,779,000. Income from operations in 2002 was
$536,000 as compared to $476,000 in 2001. During the recent period, Beijing
United continued to expand the services offered, which contributed to increased
patient visits as well as increased inpatient stays over the prior year.
Healthcare services costs during 2002 were $12,427,000, an increase of 50% over
2001 costs of $8,303,000. This increase was due primarily to the costs
associated with increased services offered. The hospital has recently finished
expanding its present facility to include space formerly occupied by a sublease
tenant (see Liquidity and Capital Resources). The hospital also has continued
its efforts to explore the establishment of additional affiliated satellite
clinics to serve as referral sites to its hospital. In this regard, Beijing
United is affiliated with a satellite clinic that opened in November of 2002.
This clinic, in Shunyi County outside of Beijing, is funded by a Chindex
subsidiary and is staffed by doctors and other health professionals from the
Beijing United. Salaries increased by $2,450,000 (salaries were 50% and 46% of
revenue for 2002 and 2001, respectively), with all other costs increasing
$1,674,000, including $193,000 in supplies, $457,000 in rent, $129,000 to
establish a bad debt reserve and $104,000 in administrative allocation. The
salary increases resulted from increased staffing for the emergency room and
for other expanded facilities as well as additional payroll benefits. Minority Interest The Companys agreement with its joint venture partner for Beijing United
calls for the partner to receive 10% of the profits of the hospital. In 2002,
this minority interest in the net local income of Beijing United amounted to
$71,000 as compared to $18,000 for 2001. This income is directly related to
the local entity profitability of the hospital. The Company also recorded a
$38,000 start-up loss on its investment in a joint venture in Hong Kong. This
was offset by The Companys minority partner share loss of $121,000 in its new
start-up hospital venture in Shanghai.
      Other Income and Expenses Other expense (other than interest) in 2002 was $131,000, compared to
other income (other than interest) of $578,000 for 2001. The prior period
other income was derived substantially from the sublease of space in the
facility housing Beijing United that ended on December 31, 2001. The part of
the building that was subleased has now been renovated as part of the hospital
expansion. Although the Company did not anticipate any sublease revenues in
2002, it does anticipate that now that the space is renovated and in service
for Beijing United, the Company will recognize additional revenues through the
expanded operations of Beijing United, which may offset part or all of the loss
of income from the sublease. Taxes The Company recorded a $240,000 benefit from taxes in 2002 as compared to
a benefit for taxes of $77,000 in 2001. This tax computation is in accordance
with current accounting standards but assumes a certain level of future
profitability. The Company believes this properly recognizes the benefits the
Company has achieved as a result of its tax restructuring and short-term
anticipation of future income tax loss carryforward utilization. As a result of this restructuring the Company expects to make use of a
portion of its U.S. federal net operating losses and accordingly, recorded a
$660,000 deferred tax valuation adjustment in addition to last years $232,000
recorded on previously fully reserved tax losses. The Company expects these net
operating losses to be recognizable in 2003 to 2004. Fiscal year 2001 compared to 2000 The Companys revenues for 2001 were $56,118,000, up 25% from 2000
revenues of $45,064,000. These amounts include bulk medical equipment sales of
$4,175,000 in 2001 and $9,396,000 in 2000, due to sales attributable to
shipments made under the Companys loan financing transactions. The Company
believes that this type of financing is important to its customers and the
Company and will continue to try to offer such financings in the future. These
financings can be very complex and their impact and timing on the Companys
results are difficult to predict (see Timing of Revenues). The Company recorded net income in 2001 of $384,000 or a 40% decrease from
2000 net income of $641,000. Healthcare Products The following comparison on Healthcare Products includes the products now
contained in two segments, the Capital Medical Equipment segment and the
Healthcare Products Distribution segment. In 2000, the company treated these
two as one segment and thus, comparable information is not available and it
would be impracticable to compare the two years on the basis of the
segmentation in effect in 2002. The healthcare products segment, consisting of medical equipment, medical
consumables and personal healthcare products, had revenue growth of 21% to
$47,339,000 in 2001 from 2000 revenues of $39,049,000. The 2001 revenues
included $25,819,000 in sales of medical equipment (55%) and $21,520,000 in
sales of medical consumables and personal healthcare products (45%). In 2000,
the sales of medical equipment constituted 68% of the total for healthcare
product sales, while the sales of medical consumables and personal healthcare
products constituted 32% of the total. The segment had a loss from operations
of $877,000 in 2001 compared with a loss from operations of $66,000 in 2000.
The sales of medical equipment are U.S. Dollar-based export sales often
contingent on financing (see Timing of Revenues). The sales of medical
consumables and personal healthcare products are local currency-based sales
made from inventories maintained locally in China (see Foreign Currency
Exchange and Impact of Inflation) to a network of sub-dealers and pharmacies. Gross profit in 2001 rose to $10,293,000 from $9,529,000 in 2000. As a
percentage of revenue, gross profit from the healthcare products segment
declined in 2001 to 22% from 24% in 2000. This decrease in gross profit is
related to the increase in local currency sales of medical consumables and
personal healthcare products since these sales are made at a lower average
gross profit than U.S. dollar capital equipment sales. Expenses for the healthcare products segment in 2001 increased to
$11,170,000 (24% of revenue) from $9,595,000 in 2000 (25% of revenue). Salaries
increased $587,000 (salaries were 13% of revenue in 2001 and 14% in 2000),
primarily due to increased hires. In addition, travel and entertainment expense
increased $174,000 (travel and entertainment was 4% of revenue in 2001 and 5%
in 2000) as a result of increased marketing efforts and other costs increased
$597,000. Healthcare Services The healthcare services segment consists of a Western style primary care
hospital and outpatient facility. In 2001, the revenues from this segment
increased to $8,779,000 or 46% over 2000 revenues of $6,015,000. Income from
operations was $476,000 in 2001 compared to $218,000 in 2000. During 2001, the
hospital continued the expansion of its service offerings and the revenue
increases for the year reflect increased patient visits taking advantage of
these services. Healthcare services costs increased in 2001 to $8,303,000 or
43% over 2000 costs of $5,797,000. This increase was due to the costs
associated with increases in services. Also, in September 2001 the Company
completed first floor renovations and added a full time emergency room. The
hospital is currently expanding its present facility and continues to explore
the possibility of additional satellite clinics to serve as referral sites to
its hospital. Salaries increased by $1,727,000 (salaries were 46% of revenue
in 2001 versus 39% in 2000), with all other costs increasing $779,000. Other Income and Expenses Interest income in 2001 declined to $161,000 from $200,000 in 2000. In
addition, the Company incurred $13,000 in interest expense in 2001 and had
$94,000 in interest expense in 2000 (see Liquidity and
Capital Resources).
      Other income (other than interest) increased slightly in 2001 to $578,000
from $558,000 in 2000. This other income is primarily from the net sublease
income. This sublease ended December 31, 2001 and this part of the building is
now being renovated as part of the hospital expansion. The Company does not
anticipate any significant revenue in this category in 2002. Taxes The Company has undertaken a global restructuring in which it has
reorganized its structure and is modifying inter-company relationships to
better accommodate its predominantly Chinese operations. This restructuring
was motivated, in part, by the Companys desire to incorporate various
functions previously operated as a division or branch of the U.S. parent and,
in part, due to its intent to expand its presence in the direct health care
market by opening an additional hospital. This restructuring provides the flexibility to structure operations in the
Peoples Republic of China to comply with the various legal and regulatory
restrictions and encourages cash flow among the foreign subsidiaries to new
investments without triggering U.S. federal income tax. This flexibility
further permits the Company to aggressively pursue Chinese and other tax
incentives, rebates, and holidays without triggering U.S. federal income tax.
In addition, the new legal structure creates a desirable environment should the
Company wish to attract third party investment in a new Chinese hospital or the
Chinese hospitals as a whole. As such, this reorganization aligns the U.S. tax
result with the Companys overall business plan and facilitates the free flow
of cash among the Companys foreign subsidiaries. As a result of this restructuring the Company expects to make use of a
portion of its U.S. federal net operating losses and accordingly, recorded a
$232,000 deferred tax valuation adjustment on previously fully reserved tax
losses. The Company expects these net operating losses to be recognizable in
2002 or 2003. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2002, total accounts receivable increased by $3,542,000
as compared to December 31, 2001. This was primarily due to the large loan
project transaction shipping at the end of 2002 while no large loan transaction
shipped during the last half of the year ended December 31, 2001. Substantially all of the $3,987,000 increase as of December 31, 2002 in
accounts payable and accrued expenses was related to vendor payments for the
loan project shipped at the end 2002. Payments related to this shipment are
expected to be paid during 2003. As of December 31, 2002, inventories were $10,346,000, increasing
$2,981,000 from the December 31, 2001 balance of $7,365,000. This increase was
due to expansion of the Healthcare Products Distribution network and pending
Capital Medical Equipment loan shipments awaiting final shipping instructions. As of December 31, 2001 the Company capitalized $3,382,000 of improvements
and equipment, primarily for the expansion of Beijing United into the two
remaining floors previously sub-leased. The Company is currently renovating
and outfitting its hospital facility in Shanghai, which is being primarily
financed through vendor financing and local bank borrowings. The Company has
signed an agreement with a major supplier whereby the supplier has agreed to
provide long term (one and one-half years on transactions to date) payment
terms on the Companys purchases of medical equipment from the supplier. The
arrangement carries an interest component of five percent. Due to this vendor
financing the Company has recorded long-term accounts payable of $3,609,000 as
of December 31, 2002. As of December 31, 2002, letters of credit issued by the Companys
principal bank, AllFirst, amounted to approximately $362,000 and $1,346,000
were outstanding under the line of credit facility. Borrowings under the credit
facility bear interest at 1% over three month London Interbank Offered Rate
(LIBOR). Beijing United has completed short term financing arrangements in
China with Hongkong Shanghai Banking Corp. (HSBC) for up to $600,000 in
revolving loans or standby credit. Terms of the agreement are customary, with
the interest rate being 1.75% over the 3 month Singapore Interbank Money Market
Offer Rate (SIBOR). Beijing United has agreed to utilize HSBC for a certain
portion of its credit card settlement business. As of December 31, 2002 this
line of credit was full utilized. The following table sets forth the Companys contractual cash obligations
as of December 31, 2002: Total
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    ThereafterLine of credit
    
    $
    1,946,000
    
    
    $
    1,946,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Vendor financing
    
    
    3,609,000
    
    
    
    0
    
    
    
    3,609,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating leases
    
    
    12,224,000
    
    
    
    1,454,000
    
    
    
    1,137,000
    
    
    
    994,000
    
    
    
    993,000
    
    
    
    993,000
    
    
    
    6,653,000Total contractual cash obligations
    
    $
    17,779,000
    
    
    $
    3,400,000
    
    
    $
    4,746,000
    
    
    $
    994,000
    
    
    $
    993,000
    
    
    $
    993,000
    
    
    $
    6,653,000
 For information about these contractual cash obligations, see Notes 7 and 8 to
the consolidated financial statements appearing elsewhere in this report. The Company continues to consider various other financing alternatives to
satisfy its future expansion, capital improvements and equipment requirements.
      ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Chindex International, Inc. We have audited the accompanying consolidated balance sheets of Chindex
International, Inc. (the Company) as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chindex
International, Inc. at December 31, 2002 and 2001, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein. As
described in Note 6 the EPS for years ended December 31, 2002, 2001 and 2000 have been restated. /s/ Ernst & Young, LLPMcLean, Virginia
March 14, 2003
      CHINDEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS December 31,2002
    
    2001ASSETSCurrent Assets:Cash and cash equivalents
    
    
    
    
    
    $
    6,100,000
    
    
    $
    5,459,000Trade
receivables less allowance for doubtful accounts of $883,000 in 2002
and
$604,000 in 2001
    
    
    
    
    
    
    16,195,000
    
    
    
    12,932,000Inventories
    
    
    
    
    
    
    10,346,000
    
    
    
    7,365,000Income taxes receivable
    
    
    
    
    
    
    11,000
    
    
    
    165,000Deferred income taxes
    
    
    
    
    
    
    892,000
    
    
    
    232,000Other current assets
    
    
    
    
    
    
    1,793,000
    
    
    
    1,668,000Total current assets
    
    
    
    
    
    
    35,337,000
    
    
    
    27,821,000Property & equipment, net
    
    
    
    
    
    
    7,128,000
    
    
    
    4,751,000Other assets
    
    
    
    
    
    
    661,000
    
    
    
    797,000Total assets
    
    
    
    
    
    $
    43,126,000
    
    
    $
    33,369,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable and accrued expenses
    
    
    
    
    
    $
    22,612,000
    
    
    $
    18,625,000Accrued contract training
    
    
    
    
    
    
    920,000
    
    
    
    915,000Short term loan payable
    
    
    
    
    
    
    1,946,000
    
    
    
    200,000Total current liabilities
    
    
    
    
    
    
    25,478,000
    
    
    
    19,740,000Long-term accounts payable
    
    
    
    
    
    
    3,609,000
    
    
    
    0Total liabilities
    
    
    
    
    
    
    29,087,000
    
    
    
    19,740,000Minority interest
    
    
    
    
    
    
    71,000
    
    
    
    18,000Stockholders Equity:Preferred stock, $.01 par value, 5,000 shares authorized, none issued
    
    
    
    
    
    
    0
    
    
    
    0Common
stock, $.01 par value, 2,500,000 shares authorized, including
200,000
designated Class B:Common stock
- 733,308 and 723,051 shares issued and outstanding in 2002 and
2001, respectively
    
    
    
    
    
    
    7,000
    
    
    
    7,000Class B stock - 193,750 shares issued and outstanding in 2002 and 2001
    
    
    
    
    
    
    2,000
    
    
    
    2,000Additional capital
    
    
    
    
    
    
    17,384,000
    
    
    
    17,303,000Accumulated other comprehensive income (loss)
    
    
    
    
    
    
    9,000
    
    
    
    (8,000
    )Accumulated deficit
    
    
    
    
    
    
    (3,434,000
    )
    
    
    (3,693,000
    )Total stockholders equity
    
    
    
    
    
    
    13,968,000
    
    
    
    13,611,000Total liabilities and stockholders equity
    
    
    
    
    
    $
    43,126,000
    
    
    $
    33,369,000
 See accompanying notes
      CHINDEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS For the year ended December 31,2002
        
        2001
        
        2000Total sales and service
            revenue
        
        $
        70,617,000
        
        
        $
        56,118,000
        
        
        $
        45,064,000Cost and expensesCost of goods and
            services sold
        
        
        47,549,000
        
        
        
        38,426,000
        
        
        
        30,529,000Salaries and payroll
            taxes
        
        
        13,463,000
        
        
        
        10,091,000
        
        
        
        7,777,000Travel and entertainment
        
        
        2,601,000
        
        
        
        2,139,000
        
        
        
        1,897,000Other
        
        
        6,909,000
        
        
        
        5,863,000
        
        
        
        4,709,000Income (loss) from
            operations
        
        
        95,000
        
        
        
        (401,000
        )
        
        
        152,000Minority interest
        
        
        50,000
        
        
        
        (18,000
        )
        
        
        (36,000
        )Other income and
            (expenses)Interest expense
        
        
        (54,000
        )
        
        
        (13,000
        )
        
        
        (94,000
        )Interest income
        
        
        59,000
        
        
        
        161,000
        
        
        
        200,000Miscellaneous (loss) income,
            net
        
        
        (131,000
        )
        
        
        578,000
        
        
        
        558,000Total other (loss) income
        
        
        (126,000
        )
        
        
        726,000
        
        
        
        664,000Income before income
            taxes
        
        
        19,000
        
        
        
        307,000
        
        
        
        780,000(Benefit from) provision
            for income taxes
        
        
        (240,000
        )
        
        
        (77,000
        )
        
        
        139,000Net income
        
        $
        259,000
        
        
        $
        384,000
        
        
        $
        641,000Income per share data
              (restated, see Note 6):Net income per common
            share - basic
        
        $
        .28
        
        
        $
        .42
        
        
        $
        .70Weighted average
            shares outstanding - basic
        
        
        924,763
        
        
        
        916,801
        
        
        
        916,283Net income per common
            share - diluted
        
        $
        .27
        
        
        $
        .39
        
        
        $
        .68Weighted average
            shares outstanding - diluted
        
        
        949,085
        
        
        
        987,659
        
        
        
        946,277
 See accompanying notes
      CHINDEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31,2002
    
    2001
    
    2000OPERATING ACTIVITIESNet income
    
    $
    259,000
    
    
    $
    384,000
    
    
    $
    641,000Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Depreciation
    
    
    1,016,000
    
    
    
    773,000
    
    
    
    750,000Inventory write-down
    
    
    158,000
    
    
    
    147,000
    
    
    
    154,000Provision for doubtful accounts
    
    
    279,000
    
    
    
    0
    
    
    
    0Minority interest
    
    
    (53,000
    )
    
    
    0
    
    
    
    0Deferred taxes
    
    
    (660,000
    )
    
    
    (232,000
    )
    
    
    0Changes in operating assets and liabilities:Trade receivables
    
    
    (3,542,000
    )
    
    
    4,264,000
    
    
    
    (9,229,000
    )Inventories
    
    
    (3,124,000
    )
    
    
    1,608,000
    
    
    
    (3,393,000
    )Income taxes receivable
    
    
    154,000
    
    
    
    112,000
    
    
    
    (161,000
    )Other current assets
    
    
    (125,000
    )
    
    
    (353,000
    )
    
    
    (418,000
    )Other assets
    
    
    136,000
    
    
    
    282,000
    
    
    
    (260,000
    )Accounts payable and accrued expenses
    
    
    3,992,000
    
    
    
    (3,615,000
    )
    
    
    11,481,000Income taxes payable
    
    
    0
    
    
    
    (90,000
    )
    
    
    (15,000
    )Net cash (used in) provided by operating activities
    
    
    (1,510,000
    )
    
    
    3,280,000
    
    
    
    (450,000
    )INVESTING ACTIVITIESInvestment in equity joint venture
    
    
    (40,000
    )
    
    
    0
    
    
    
    0Purchases of property and equipment
    
    
    (3,382,000
    )
    
    
    (1,798,000
    )
    
    
    (720,000
    )Net cash used in investing activities
    
    
    (3,422,000
    )
    
    
    (1,798,000
    
    
    
    (720,000
    )FINANCING ACTIVITIESProceeds from short term loan payable
    
    
    1,746,000
    
    
    
    200,000
    
    
    
    0Cash from joint venture partner investment
    
    
    120,000
    
    
    
    0
    
    
    
    0Long term accounts payable
    
    
    3,609,000
    
    
    
    0
    
    
    
    0Exercise of stock options
    
    
    81,000
    
    
    
    0
    
    
    
    9,000Net cash provided by financing activities
    
    
    5,556,000
    
    
    
    200,000
    
    
    
    9,000Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    17,000
    
    
    
    (8,000
    )
    
    
    (2,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    641,000
    
    
    
    1,674,000
    
    
    
    (1,163,000
    )Cash and cash equivalents at beginning of year
    
    
    5,459,000
    
    
    
    3,785,000
    
    
    
    4,948,000Cash and cash equivalents at end of year
    
    $
    6,100,000
    
    
    $
    5,459,000
    
    
    $
    3,785,000Cash paid for interest
    
    $
    45,000
    
    
    $
    13,000
    
    
    $
    10,000Cash paid for taxes
    
    $
    336,000
    
    
    $
    518,000
    
    
    $
    368,000
 See accompanying notes
      CHINDEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 AccumulatedOtherCommon Stock
    
    Common Stock - Class B
    
    Additional
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    Income
    
    TotalBalance at December
31,
1999
    
    
    596,563
    
    
    $
    6,000
    
    
    
    193,750
    
    
    $
    2,000
    
    
    $
    17,294,000
    
    
    
    ($4,717,000
    )
    
    $
    2,000
    
    
    $
    12,587,000Net income 2000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    641,000
    
    
    
    
    
    
    
    641,000Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (2,000
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    639,000September stock
dividend
    
    
    59,756
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    0Option exercised
    
    
    1,000
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    9,000Balance at December
31, 2000
    
    
    657,319
    
    
    
    7,000
    
    
    
    193,750
    
    
    
    2,000
    
    
    
    17,303,000
    
    
    
    (4,077,000
    )
    
    
    0
    
    
    
    13,235,000Net income 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,000
    
    
    
    
    
    
    
    384,000Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,000
    )
    
    
    (8,000
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    376,000Balance at December
31, 2001
    
    
    657,319
    
    
    
    7,000
    
    
    
    193,750
    
    
    
    2,000
    
    
    
    17,303,000
    
    
    
    (3,693,000
    )
    
    
    (8,000
    )
    
    
    13,611,000Net income 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259,000
    
    
    
    
    
    
    
    259,000Foreign currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,000
    
    
    
    17,000Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    276,000July stock dividend
    
    
    66,664
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Options exercised
    
    
    9,325
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    81,000
    
    
    
    
    
    
    
    
    
    
    
    81,000Balance at December
31, 2002
    
    
    733,308
    
    
    $
    7,000
    
    
    
    193,750
    
    
    $
    2,000
    
    
    $
    17,384,000
    
    
    
    ($3,434,000
    )
    
    $
    9,000
    
    
    $
    13,968,000
 See accompanying notes
      CHINDEX INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND DESCRIPTION OF BUSINESS Chindex International, Inc. (the Company or Chindex) is a leading
American company in the healthcare sectors of the Chinese marketplace,
including Hong Kong. The Company conducts business in three segments. The
Capital Medical Equipment segment markets and sells high-technology medical
equipment and instrumentation acquired from several major U.S., European, and
other manufacturers. The Company markets and sells these products in China,
including Hong Kong, and provides marketing, sales and technical services for
the products. Substantially all direct sales, commissions and purchases of
these products are denominated in U.S. dollars. The Healthcare Products Distribution segment operates a logistics platform
through which it provides logistics services to internal clients as well as to
other companies doing business in the Chinese market. Sales of consumables and
low value healthcare and health-related consumer products are undertaken
through Chindex Holdings International Trade (Tianjin) Ltd., and Chindex
Shanghai International Trading Co., Ltd., subsidiaries that sell goods and
receive payments in local Chinese currency and use the currency to pay for
local expenses and U.S.-dollar imported goods. Payments are generally required
to be made in advance for consumable products. Finally, in its Healthcare Services segment, the Company operates a
hospital and clinic in Beijing and will be opening a second hospital in
Shanghai in mid-2003. In 1996 the Company established Beijing United Family
Hospital and Clinics (Beijing United), a contractual joint venture between
the Company and a company controlled by the Chinese Academy of Medical
Sciences. Beijing United provides complete international standard primary care
health services including family practice, pediatrics, dental care, physical
therapy, obstetrics, gynecology, neonatology, mens health care, 24 hour
emergency room, general surgery, psychiatrics, ICU diagnostic imaging, and
pharmacy. Operations commenced in late 1997. Full-time operation began in
March 1998. While Beijing United generally transacts its business in local
Chinese currency it can receive payments in U.S. dollars. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Consolidation The consolidated financial statements include the accounts of the Company
and its subsidiaries or controlled enterprises. Minority interest is derived
from the Companys 10% partner share of the earnings of Beijing United and 30%
equity partner interest in Shanghai United. The Company also holds a 40%
interest in Natural Formula Asia Limited accounted for using the equity method,
netted in other assets. Significant intercompany balances and transactions are
eliminated. Revenue Recognition Sales and most commissions are recognized upon product shipment. Costs
associated with shipping, handling, installation, after-sale servicing and
warranty are not significant and are recognized in cost of sales as they are
incurred.
Revenues related to services provided by HCS are recognized in the period
services are provided. Costs associated with such services are recognized in
the period incurred. Inventories Inventory purchased to fill executed sales contracts and purchase orders
that remain undelivered at year-end (merchandise inventory), service parts and
inventory of peripheral components are stated at the lower of cost or market
using the specific identification method. In addition, two wholly foreign owned
subsidiaries maintain merchandise inventory based on expected sales targets. Certain items are purchased for demonstration purposes and subsequent sale
(demonstration inventory). Management monitors the salability of such
demonstration inventory and reduces the carrying amount to net realizable value
when there is any impairment in value. Inventory items held by HCS are stated at the lower of cost or market
using the average cost method. Property and Equipment Property and equipment, including such assets held by HCS, are stated at
historical cost. The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. Depreciation is
computed on the straight line method over the estimated useful lives of the
related assets. Useful lives for office equipment, vehicles and furniture and
fixtures range from 5 to 7 years. Leasehold improvements are amortized by the
straight-line method over the shorter of the estimated useful lives of the
improvements or the lease term. Certain medical equipment is depreciated over
three years. The Company assesses the impairment of long-lived assets including intangible
assets in accordance with Statement of Financial Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 establishes
one accounting model to be used for long-lived assets to be disposed of by sale
and broadens the presentation requirements of discontinued operations to
      include more disposal transactions. The adoption of this statement did not have
a material impact on the Companys results of operation and financial position. Income Taxes The Companys U.S. entities are on a June 30 tax fiscal year and beginning
in 2001, they filed a consolidated U.S. federal tax return. The U.S. provision
for income taxes is computed for each entity in the U.S. consolidated group at
the statutory rate based upon each entitys income or loss, giving effect to
permanent differences. The Companys foreign subsidiaries file separate income
tax returns on a December 31 fiscal year. Provisions for income taxes are based upon earnings reported for financial
statement purposes and may differ from amounts currently payable or receivable
because certain amounts may be recognized for financial reporting purposes in
different periods than they are for income tax purposes. Deferred income taxes
result from temporary differences between the financial statement amounts of
assets and liabilities and their respective tax bases. A valuation allowance
reduces the deferred tax assets when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Cash Equivalents The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Fair Value of Financial Instruments The Company considers the recorded value of its financial instruments,
which consist of cash and cash equivalents, trade receivables, commissions
receivable and accounts payable, to approximate the fair value of the
respective assets and liabilities at December 31, 2002 and 2001. Earnings Per Share The Company follows Statement of Financial Accounting Standards No. 128,
Earnings per Share (Statement 128) whereby basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities and
diluted earnings per share includes such effects. The Company does not include
the effects of stock option, warrants and convertible securities for periods
when the Company reports a net loss as such effects would be antidilutive. Stock Based Compensation The Company accounts for stock-based compensation to employees under
Accounting Principles Board (APB) No. 25 - Accounting for Stock Issued to
Employees, and complies with the disclosure requirements for SFAS No. 123 -
Accounting for Stock-Based Compensation and SFAS
No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. Dividends The Company has not paid cash dividends to the stockholders of its common
stock and any cash dividends that may be paid in the future will depend upon
the financial requirements of the Company and other relevant factors. On June
19, 2002 the Company declared a 10% stock dividend to holders of record on July
15, 2002. Reclassifications Certain balances in the 2001 and 2000 financial statements have been
reclassified to conform to the 2002 presentation. 2. INVENTORIES Inventories consist of the following:
    
    December 31,2002
    
    2001Merchandise inventory
    
    $
    7,609,000
    
    
    $
    4,805,000Healthcare services inventory
    
    
    240,000
    
    
    
    234,000Demonstration inventory, net
    
    
    840,000
    
    
    
    597,000Parts and peripherals
    
    
    1,657,000
    
    
    
    1,729,000$
    10,346,000
    
    
    $
    7,365,000
 3. PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following:
    
    December 31,2002
    
    2001Furniture and equipment
    
    $
    5,408,000
    
    
    $
    4,594,000Vehicles
    
    
    109,000
    
    
    
    109,000Leasehold improvements
    
    
    5,594,000
    
    
    
    3,610,00011,111,000
    
    
    
    8,313,000Less: accumulated depreciation and amortization
    
    
    (3,983,000
    )
    
    
    (3,562,000
    )$
    7,128,000
    
    
    $
    4,751,000
      4. DEBT Short term The Company has a $1,750,000 credit facility with First National Bank of
Maryland for short-term working capital needs, standby letters of credit, and
spot and forward foreign exchange transactions. Balances outstanding under the
facilities are payable on demand, fully secured and collateralized by
government securities acceptable to the Bank having an aggregate fair market
value of not less than $1,945,000. As of December 31, 2002, letters of credit
issued by the bank amounted to approximately $362,000 and $1,346,000 were
outstanding under the line of credit facility. Borrowings under the credit
facility bear interest at 1% over three month London Interbank Offered Rate
(LIBOR). The Companys hospital has recently completed short term financing
arrangements in China with Hongkong Shanghai Banking Corp. (HSBC) for up to
$600,000 in revolving loans or standby credit. Terms of the agreement are
customary, with the interest rate being 1.75% over the 3 month Singapore
Interbank Money Market Offer Rate (SIBOR). The hospital has agreed to
utilize HSBC for a certain portion of its credit card settlement business. As
of December 31, 2002 this line of credit had $600,000 outstanding. Long term The Company has signed an agreement with a major supplier whereby the
supplier has agreed to provide long term (one and one-half years on
transactions to date) payment terms on the Companys purchases of medical
equipment from the supplier. The arrangement carries an interest component of
five percent. Due to this vendor financing the Company has recorded long-term
accounts payable of $3,609,000 as of December 31, 2002. The following table sets forth the Companys debt obligations as of
December 31, 2002: Total
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    ThereafterLine of credit
    
    $
    1,946,000
    
    
    $
    1,946,000
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Vendor financing
    
    
    3,609,000
    
    
    
    0
    
    
    
    3,609,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 5. STOCKHOLDERS EQUITY Common Stock The Class B common stock and the common stock are substantially identical
on a share-for-share basis, except that the holders of Class B common stock
have six votes per share on each matter considered by stockholders and the
holders of common stock have one vote per share on each matter considered by
stockholders. Each share of Class B common stock will convert at any time at
the option of the original holder thereof into one share of common stock and is
automatically converted into one share of common stock upon (i) the death of
the original holder thereof, or, if such stocks are subject to a stockholders
agreement or voting trust granting the power to vote such shares to another
original holder of Class B common stock, then upon the death of such original
holder, or (ii) the sale or transfer to any person other than specified
transferees. The Company issued a 10% stock dividend to shareholders of record (except
Class B common stock) as of the close of business on June 19, 2002. A similar
10% dividend was previously issued to shareholders of record as of the close of
business on September 13, 2000. Stock Option Plan The Companys 1994 Stock Option Plan (the Plan) provides for the grant, at
the discretion of the Board of Directors, of (i) options that are intended to
qualify as incentive stock options (Incentive Stock Options) within the meaning
of Section 422A of the Internal Revenue Code to certain employees, consultants
and directors, and (ii) options not intended to so qualify (Nonqualified Stock
Options) to employees, consultants and directors. At the Companys 2001 annual
meeting the stockholders approved a 200,000 increase in the amount of stock
authorized for issuance. The total number of shares of common stock for which
options may be granted under the Plan is currently 317,625. The Plan is administered by the Board of Directors, which determines the
terms of options, including the exercise price, the number of shares subject to
the options and the terms and conditions of exercise. No option granted under
the Plan is transferable by the optionee other than by will or the laws of
descent and distribution and each option is exercisable during the lifetime of
the optionee only by such optionee. The exercise price of options granted under the Plan must be at least
equal to the fair market value of such shares on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the
voting rights of the Companys outstanding capital stock, the exercise price of
any Incentive Stock Option may be not less than 110% of the fair market value
on the date of grant. With respect to any Incentive Stock Option granted to a
participant who owns stock possessing more than 10% of the total combined
voting power of all classes of the Companys outstanding capital stock, the
maximum term is five years.
      The following is a summary of stock option activity during the years ended
December 31, 2002, 2001 and 2000: Weighted Average
    
    
    
    Weighted Average
    
    
    
    Weighted Average2002
    
    Exercise Price
    
    2001
    
    Exercise Price
    
    2000
    
    Exercise PriceOptions outstanding, beginning of year:
    
    
    209,601
    
    
    $
    10.17
    
    
    
    210,021
    
    
    $
    9.95
    
    
    
    46,318
    
    
    $
    11.98Granted
    
    
    32,127
    
    
    
    10.40
    
    
    
    28,060
    
    
    
    9.37
    
    
    
    171,498
    
    
    
    9.62Exercised
    
    
    (9,325
    )
    
    
    8.71
    
    
    
    0
    
    
    
    0
    
    
    
    (1,000
    )
    
    
    9.13Canceled
    
    
    (49
    )
    
    
    8.32
    
    
    
    (28,480
    )
    
    
    8.21
    
    
    
    (6,795
    )
    
    
    9.22Options outstanding, end of year
    
    
    232,354
    
    
    
    9.38
    
    
    
    209,601
    
    
    
    10.17
    
    
    
    210,021
    
    
    
    9.95
 Options exercisable at December 31, 2002 and 2001, were 221,688 and
184,032, respectively, with a weighted average exercise prices of $9.35 and
$10.19, respectively. The weighted average exercise price of options
outstanding is $9.38 and $10.17 and the weighted average remaining contractual
life of such options is 7.68 and 8.6 years respectively as of December 31, 2002
and 2001. The Company accounts for stock-based compensation to employees under
Accounting Principles Board (APB) No. 25 - Accounting for Stock Issued to
Employees, and complies with the disclosure requirements for SFAS No. 123 -
Accounting for Stock-Based Compensation and SFAS
No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. Had compensation cost
for these plans been determined consistent with SFAS No. 123, the Companys net
earnings and earnings per share (EPS) would have been reduced to the
following pro-forma amounts (in thousands, except per share data): 2002
    
    2001
    
    2000Net earnings, as reported
    
    $
    259
    
    
    $
    384
    
    
    $
    641Deduct: total stock-based employee
compensation expense determined under
fair value method for all awards, net
of related tax efforts
    
    
    (24
    )
    
    
    (158
    )
    
    
    (514
    )Net earnings, pro-forma
    
    $
    235
    
    
    $
    226
    
    
    $
    127Pro forma earnings per shareEPS, basic            As reported
    
    $
    .28
    
    
    $
    .42
    
    
    $
    .70EPS, basic            Pro forma
    
    $
    .25
    
    
    $
    .25
    
    
    $
    .14EPS, diluted         As reported
    
    $
    .27
    
    
    $
    .39
    
    
    $
    .68EPS, diluted         Pro forma
    
    $
    .25
    
    
    $
    .23
    
    
    $
    .13
 The fair value of each option is estimated at the date of grant using a
modified Black-Scholes option pricing model, with the following
weighted-average assumptions for 2002, 2001 and 2000: dividend yield 0.00%;
expected volatility of 62.3%; risk-free interest rate of 3.00%; and expected
life of 7.0 years. Shares of Common Stock Reserved As of December 31, 2002 the Company has reserved 482,500 shares of common
stock for issuance upon exercise of stock options and Class B common stock
convertibility. 6. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the
basic and diluted Earnings per Share (EPS) computations for net income and
other related disclosures: This 10K/A is amended to correct weighted average shares outstanding amounts to give effect to
the Company's eleven-for-ten stock split in the form of a stock dividend declared in June 2002 and corresponding earnings per share. For the year ended December 31, 2002Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountNet income/Basic EPS
    
    $
    259,000
    
    
    
    924,763
    
    
    $
    .28Effect of dilutive securities:Warrants and options
    
    
    
    
    
    
    24,322
    
    
    
    (0.01
    )Net income/Diluted EPS
    
    $
    259,000
    
    
    
    949,085
    
    
    $
    .27
 For the year ended December 31, 2001Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountNet income/Basic EPS
    
    $
    384,000
    
    
    
    916,801
    
    
    $
    .42Effect of dilutive securities:Warrants and options
    
    
    
    
    
    
    70,858
    
    
    
    (0.03
    )Net income/Diluted EPS
    
    $
    384,000
    
    
    
    987,659
    
    
    $
    .39
      For the year ended December 31, 2000Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountNet income/Basic EPS
    
    $
    641,000
    
    
    
    916,283
    
    
    $
    .70Effect of dilutive securities:Warrants and options
    
    
    
    
    
    
    29,994
    
    
    
    (0.02
    )Net income/Diluted EPS
    
    $
    641,000
    
    
    
    946,277
    
    
    $
    .68
 Options to purchase 232,354, 209,601, and 210,021 of common stock between $6.87
and $33.05 were outstanding during most of 2002, 2001 and 2000 respectively.
See Note 5. 7. INCOME TAXES The Companys provision for (benefit from) income taxes consists of the
following for the year ended December 31: 2002
    
    2001
    
    2000Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    Foreign
    
    
    545,000
    
    
    
    249,000
    
    
    
    220,000State
    
    
    0
    
    
    
    34,000
    
    
    
    545,000
    
    
    
    283,000
    
    
    
    220,000Deferred:Federal
    
    
    (681,000
    )
    
    
    (190,000
    )
    
    
    State
    
    
    (104,000
    )
    
    
    (42,000
    )
    
    
    Foreign
    
    
    0
    
    
    
    (128,000
    )
    
    
    (81,000
    )(785,000
    )
    
    
    (360,000
    )
    
    
    (81,000
    )$
    (240,000
    )
    
    $
    (77,000
    )
    
    $
    139,000
 Significant components of the Companys deferred tax liabilities and assets are
as follows as of December 31: 2002
    
    2001Deferred tax liabilities:Unremitted earnings on Foreign subsidiaries
    
    
    
    
    
    $
    0
    
    
    $
    (1,054,000
    )Deferred tax assets:Allowance for doubtful accounts
    
    
    
    
    
    
    286,000
    
    
    
    233,000Sales Commissions
    
    
    
    
    
    
    114,000
    
    
    
    54,000Net operating loss carryforwards
    
    
    
    
    
    
    949,000
    
    
    
    1,991,000Foreign tax credit
    
    
    
    
    
    
    0
    
    
    
    210,000Other
    
    
    
    
    
    
    (1,000
    )
    
    
    244,000Subtotal
    
    
    
    
    
    
    1,348,000
    
    
    
    1,678,000Less valuation allowance
    
    
    
    
    
    $
    (456,000
    )
    
    $
    (1,446,000
    )Net deferred tax asset
    
    
    
    
    
    $
    892,000
    
    
    $
    232,000
  2002
    
    2001
    
    2000Statutory federal income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Adjustments:State income taxes, net of federal benefit
    
    
    4.0
    
    
    
    4.0
    
    
    
    3.5Foreign tax rate differential
    
    
    3,036.0
    
    
    
    (188.0
    )
    
    
    (31.5
    )Use of net operating losses
    
    
    (5,289.0
    )
    
    
    (42.0
    )
    
    
    (20.7
    )Change in valuation allowance
    
    
    (3,474.0
    )
    
    
    (75.0
    )
    
    
    34.0Other, including permanent differences
    
    
    4,426.0
    
    
    
    242.0
    
    
    
    (1.5
    )(1,263.0
    )%
    
    
    (25.0
    )%
    
    
    17.8
    %
 Due to the Companys global restructuring plan, it expects to be able to make
use of a portion of its U.S. federal net operating losses, and accordingly,
recorded $660,000 in 2002 and $232,000 in 2001 reduction in its deferred tax
valuation allowance on previously fully reserved tax losses. The Company
expects the tax benefits from these net operating losses will be realized in
2003 or 2004. The remaining net deferred tax assets have been fully reserved.
      The Company has U.S. Federal net operating losses of approximately $2.3 million
that expire in 2014 through 2022. The Company also has foreign losses from
China of approximately $1,677,000 that expire in 2003 and 2007. 8. COMMITMENTS Leases The Company leases office space, warehouse space, and space for both Beijing
United and Shanghai United under operating leases. Future minimum payments
under these noncancelable operating leases consist of the following: Year ending December 31:2003
    
    
    1,454,0002004
    
    
    1,137,0002005
    
    
    994,0002006
    
    
    993,0002007
    
    
    993,000Thereafter
    
    
    6,653,000Net minimum rental commitments
    
    $
    12,224,000
 The above leases require the Company to pay certain pass through operating
expenses and rental increases based on inflation.
Rental expense was approximately $1,499,000, $1,026,000, and $953,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. 9. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
trade receivables and commission receivables. Substantially all of the
Companys cash and cash equivalents at December 31, 2002 and 2001 were held by
two U.S. financial institutions. All of the Companys sales during the years
were to end-users located in China or Hong Kong. Most of the Companys sales
are accompanied by down payments of either cash or letters of credit with one
Chinese financial institution. Sales on extended payment terms usually have
down payments in the form of a letter of credit and additional payments are
secured through several methods. The Company generally does not grant extended
payment terms for greater than 20% of a contract value unless there are
exceptional circumstances. Before extended payment terms are provided, the
Company performs a thorough review of the local operation, secures a guarantee
from higher authorities than the end-user, and performs other steps as needed.
All of the Companys medical services provided by Beijing United were performed
in China for patients residing in China. Substantially all of the payments
received for such services were denominated in local currency; however, the
Company is authorized to accept payment in other currencies. The Company conducts its marketing and sales and provides its services
exclusively to buyers located in China, including Hong Kong. The medical
services and products provided by Beijing United and the marketing of such
services are performed exclusively for/to patients in China. The Companys
results of operations and its ability to obtain financing could be adversely
affected if there was a deterioration in trade relations between the United
States and China. Of the Companys net assets at December 31, 2002 and 2001, approximately
$16,760,000 and $15,660,000, respectively, of such assets are located in China,
consisting principally of cash, receivables, inventories, property
improvements, equipment, and certain liabilities. See Note 10 also. 10. SIGNIFICANT CUSTOMERS/SUPPLIERS Substantially all China purchases of the Companys U.S.-Dollar sales of
products, regardless of the end-user, are made through Chinese foreign trade
corporations (FTCs). Although the purchasing decision is made by the end-user,
which may be an individual or a group having the required approvals from their
administrative organizations, the Company enters into formal purchase contracts
with FTCs. The FTCs make purchases on behalf of the end-users and are
authorized by the Chinese government to conduct import business. FTCs are
chartered and regulated by the government and are formed to facilitate foreign
trade. The Company markets its products directly to end-users, but in
consummating a sale the Company must also interact with the particular FTC
representing the end-user. By virtue of its direct contractual relationship
with the FTC, rather than the end user, the Company is to some extent dependent
on the continuing existence of and contractual compliance by the FTC until a
particular transaction has been completed. In 2002 the Company recorded sales
to Instrimpex FTC of $8,821,000; this is the only customer over 10% of total
sales. Purchases from three suppliers were each over 10% of total cost of goods.
These were Siemens ($11,233,000), Becton-Dickenson ($11,145,000) and LOreal
($7,168,000) for the year ended December 31, 2002. Purchases over 10% for the
year ended December 31, 2001 were Siemens, ($9,330,000), Becton-Dickenson
($4,949,000) and Tyco ($5,356,000). In 2000 only Siemens, ($9,616,000) was
over 10% of cost of goods. The Company has entered into a security arrangement
to ensure the payment of Siemens accounts payable.
      11. SEGMENT REPORTING As a result of the growth the chief decision making officer requested to
split the former Healthcare Products Distribution segment into Capital Medical
Equipment and Healthcare Products Distribution. The Company now has three
reportable segments: Capital Medical Equipment, Healthcare Products
Distribution and Healthcare Services. The Company evaluates performance and
allocates resources based on profit or loss from operations before income
taxes, not including gains or losses on the Companys investment portfolio.
For the year ended December 31, 2000 the three segment disclosure was
impracticable to compute and therefore has been shown as originally reported. The following segment information has been provided per Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information:
For the year ended December 31, 2002: Capital Medical
    
    Healthcare Products
    
    Healthcare Services
    
    TotalEquipment
    
    DistributionAssets
    
    $
    21,354,000
    
    
    $
    10,616,000
    
    
    $
    11,156,000
    
    
    $
    43,126,000Sales and service revenue
    
    $
    28,708,000
    
    
    $
    28,946,000
    
    
    $
    12,963,000
    
    
    $
    70,617,000Gross Profit
    
    
    7,822,000
    
    
    
    3,856,000
    
    
    
    n/a
    
    
    
    n/aGross Profit %
    
    
    27
    %
    
    
    13
    %
    
    
    n/a
    
    
    
    n/aIncome (loss) from operations
    
    $
    198,000
    
    
    $
    (639,000
    )
    
    $
    536,000
    
    
    $
    95,000Other (expense)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126,000
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,000
 For the year ended December 31, 2001: Capital Medical
    
    Healthcare Products
    
    Healthcare Services
    
    TotalEquipment
    
    DistributionAssets
    
    $
    17,511,000
    
    
    $
    8,987,000
    
    
    $
    6,871,000
    
    
    $
    33,369,000Sales and service revenue
    
    $
    25,819,000
    
    
    $
    21,520,000
    
    
    $
    8,779,000
    
    
    $
    56,118,000Gross Profit
    
    
    7,451,000
    
    
    
    2,842,000
    
    
    
    n/a
    
    
    
    n/aGross Profit %
    
    
    29
    %
    
    
    13
    %
    
    
    n/a
    
    
    
    n/aIncome (loss) from operations
    
    $
    439,000
    
    
    $
    (1,316,000
    )
    
    $
    476,000
    
    
    $
    (401,000
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    726,000Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,000
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    307,000
 For the year ended December 31, 2000: Healthcare Products
    
    Healthcare Services
    
    TotalAssets
    
    
    
    
    
    $
    30,847,000
    
    
    $
    5,651,000
    
    
    $
    36,498,000Sales and service revenue
    
    
    
    
    
    $
    39,049,000
    
    
    $
    6,015,000
    
    
    $
    45,064,000Gross profit
    
    
    
    
    
    
    9,529,000
    
    
    
    n/a
    
    
    
    n/aGross profit %
    
    
    
    
    
    
    24
    %
    
    
    n/a
    
    
    
    n/aIncome (loss) from operations
    
    
    
    
    
    
    (66,000
    )
    
    
    218,000
    
    
    
    152,000Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    664,000Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,000
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    780,000
 Intersegment transactions were eliminated for the years ended December 31,
2002, 2001 and 2000
      12. SELECTED QUARTERLY DATA (UNAUDITED) (thousands except per share data) For the year ended December 31, 2002:
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterRevenues
    
    $
    15,578
    
    
    $
    14,968
    
    
    $
    17,801
    
    
    $
    22,270Gross profit from operations
    
    
    4,656
    
    
    
    4,973
    
    
    
    6,361
    
    
    
    7,078Income (loss) before income taxes
    
    
    (305
    )
    
    
    (612
    )
    
    
    400
    
    
    
    536Net income (loss)
    
    
    (192
    )
    
    
    (411
    )
    
    
    176
    
    
    
    686Basic earnings (loss) per share of common stock
    
    
    (.21
    )
    
    
    (.44
    )
    
    
    .19
    
    
    
    .74Diluted earnings (loss) per share of common stock
    
    
    (.21
    )
    
    
    (.44
    )
    
    
    .17
    
    
    
    .74Cash dividends per share of common stock
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00
 For the year ended December 31, 2001:
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterRevenues
    
    $
    10,606
    
    
    $
    13,201
    
    
    $
    13,447
    
    
    $
    18,864Gross profit from operations
    
    
    3,657
    
    
    
    4,215
    
    
    
    4,407
    
    
    
    5,413Income (loss) before income taxes
    
    
    129
    
    
    
    (140
    )
    
    
    178
    
    
    
    139Net income (loss)
    
    
    25
    
    
    
    (225
    )
    
    
    109
    
    
    
    475Basic earnings (loss) per share of common stock
    
    
    .03
    
    
    
    (.25
    )
    
    
    .12
    
    
    
    .52Diluted earnings (loss) per share of common stock
    
    
    .03
    
    
    
    (.25
    )
    
    
    .11
    
    
    
    .49Cash dividends per share of common stock
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00
      ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE. None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The information relating to the directors, executive officers, promoters
and control persons of the Company will be included in the Companys Proxy
Statement (the Proxy Statement) relating to its 2002 Annual Meeting of
Shareholders, which the Company intends to file with the Securities and
Exchange Commission on or prior to April 30, 2003, and is incorporated herein
by reference. ITEM 11. EXECUTIVE COMPENSATION Information required is set forth in the Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required is set forth in the Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required is set forth in the Proxy Statement, which is incorporated herein by reference. ITEM 14. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Companys reports
that are filed with the Securities and Exchange Commission is recorded,
processed and reported within the time periods required for each report and
that such information is reported to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) which is required to be included in its publicly
filed reports. There have been no significant changes in the Companys
internal control or in other factors which could significantly affect internal
controls since that evaluation.
      PART IV Item 15. Exhibits and Reports on Form 8-K (a)(1) The following consolidated financial statements of Chindex International, Inc. are included in Part II, Item 8:
Independent Auditors Report.
Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000.
Consolidated Balance Sheets as of December 31, 2002 and 2001.
Consolidated Statements of Stockholders Equity for the years ended December
31, 2002, 2001 and 2000.
Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000.
Notes to Consolidated Financial Statements.
(a)(2) The following financial statement schedule of Chindex International is included in Item 15(d):
Schedule II Valuation and Qualifying Accounts. Balance
    
    
    
    
    
    Additionsbeginning
    
    Additions
    
    not
    
    
    
    
    
    Balance end ofDescription (amounts in thousands)
    
    of year
    
    expensed
    
    expensed
    
    Deductions
    
    yearFor the year ended December 31, 2002:Allowance for doubtful receivables
    
    $
    604
    
    
    $
    279
    
    
    
    
    
    
    
    
    
    
    $
    883Deferred tax
    
    
    1,446
    
    
    
    
    
    
    
    
    
    
    
    990
    
    
    
    456Total allowances deducted from assets
    
    $
    2,050
    
    
    $
    279
    
    
    $
    0
    
    
    $
    990
    
    
    $
    1,339For the year ended December 31, 2001:Allowance for doubtful receivables
    
    $
    604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    604Deferred tax
    
    
    3,081
    
    
    
    
    
    
    
    
    
    
    
    1,635
    
    
    
    1,446Total allowances deducted from assets
    
    $
    3,685
    
    
    $
    0
    
    
    $
    0
    
    
    $
    1,635
    
    
    $
    2,050For the year ended December 31, 2000:Allowance for doubtful receivables
    
    $
    604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    604Deferred tax
    
    
    2,816
    
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    3,081Total allowances deducted from assets
    
    $
    3,420
    
    
    $
    0
    
    
    $
    265
    
    
    $
    0
    
    
    $
    3,685
 All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits The exhibits listed below are filed as a part of this annual report: 3.1
    
    Certificate of Incorporation of the Company. Incorporated by reference to Annex B tothe Company's Proxy Statement on Schedule 14A, filed with the Securities andExchange Commission on or about June 7, 2002 (the "Proxy Statement")3.2
    
    By-laws of the Company.  Incorporated by reference to Annex C to the Proxy Statement.4.1
    
    Form of Specimen Certificate of the Company's Common Stock. Incorporated byreference to Exhibit 4.2 to the Company's Registration Statement on Form SB-2 (No.33-78446) (the "IPO Registration Statement").4.2
    
    Form of Specimen Certificate of Class B Common Stock Certificate. Incorporated byreference to Exhibit 4.3 to the IPO Registration Statement.10.1
    
    The Company's 1994 Stock Option Plan, as amended as of July 17, 2001. Incorporatedby reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for thesix months ended June 30, 2001.10.2
    
    Lease Agreement, dated as of March 1994, between the Company and Central PropertiesLimited Partnership, relating to the Company's Bethesda, Maryland facility.Incorporated by reference to Exhibit 10.4 to the IPO Registration Statement.10.3
    
    First Amendment to Lease, dated as of June 26, 1996, between the Company and CentralProperties Limited Partnership, relating to additional space at the Company'sBethesda, Maryland facility. Incorporated by reference to Exhibit 10.5 to theCompany's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.10.4
    
    Lease Agreement between the School of Posts and Telecommunications and the Companydated November 8, 1995. Incorporated by reference to Exhibit 10.14 to the Company'sAnnual Report on Form 10-KSB for the fiscal year ended December 31, 1995.10.5
    
    Amendments Numbers One, Two and Three to the Lease Agreement between the School ofPosts and Telecommunications and the Company dated November 8, 1995, each suchamendment dated November 26, 1996. Incorporated by reference to Exhibit 10.13 to theCompany's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.
      10.6
    
    Lease Agreement dated May 10, 1998, between the School of Posts andTelecommunications and the Company relating to the lease of additional space.Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form10-KSB for the fiscal year ended December 31, 1998.10.7
    
    Contractual Joint Venture Contract between the Chinese Academy of Medical SciencesUnion Medical & Pharmaceutical Group Beijing Union Medical & Pharmaceutical GeneralCorporation and the Company, dated September 27, 1995. Incorporated by reference toExhibit 10.16 to the Company's Annual Report on Form 10-KSB for the fiscal yearended December 31, 1995.10.8
    
    First Investment Loan Manager Demand Promissory Note dated July 10, 1997 betweenFirst National Bank of Maryland and Chindex, Inc. Incorporated by reference toExhibit 10.16 to the Company's Annual Report on Form 10-KSB for the fiscal yearended December 31, 1997.10.9
    
    Distribution Agreement dated October 11, 2001 between Siemens AG and the Company,Incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form10-Q for the nine months ended September 30, 2001.10.10
    
    Second amendment to lease, dated as of November 24, 2000, between the Company andCentral Properties Limited Partnership, relating to the extension of the lease termfor the Company's Bethesda, Maryland offices.  Incorporated by reference to Exhibit10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December31, 2001.10.11
    
    Employment Agreement, dated as of September 1, 2001, between the Company and RobertaLipson.  Incorporated by reference to Exhibit 10.20 to the Company's Annual Reporton Form 10-K for the fiscal year ended December 31, 2001.10.12
    
    Employment Agreement, dated as of September 1, 2001, between the Company and ElyseBeth Silverberg.  Incorporated by reference to Exhibit 10.21 to the Company's AnnualReport on Form 10-K for the fiscal year ended December 31, 2001.10.13
    
    Employment Agreement, dated as of September 1, 2001, between the Company andLawrence Pemble.  Incorporated by reference to Exhibit 10.22 to the Company's AnnualReport on Form 10-K for the fiscal year ended December 31, 2001.10.14
    
    Employment Agreement, dated as of September 1, 2001, between the Company and RobertC. Goodwin, Jr.  Incorporated by reference to Exhibit 10.23 to the Company's AnnualReport on Form 10-K for the fiscal year ended December 31, 2001.10.15
    
    Contractual Joint Venture Contract between Shanghai Changning District CentralHospital and the Company, dated February 9, 2002.  Incorporated by reference toExhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2001.10.16
    
    Lease Agreement between Shanghai Changning District Hospital and the Company relatedto the lease of the building for Shanghai United Family Hospital.  Incorporated byreference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for thefiscal year ended December 31, 2001.10.17
    
    Lease Agreement between China Arts & Crafts Import & Export Corporation and Chindex(Beijing) Consulting Incorporated related to the lease of the building for theCompany's main office in Beijing+.  Incorporated by reference to Exhibit 10.17 tothe Company's Quarterly Report on Form 10-Q for the six months ended June 30, 2002.10.18
    
    Agreement between Siemens AG and the Company for long term payment of vendorinvoices.  Incorporated by reference to Exhibit 10.18 to the Company's QuarterlyReport on Form 10-Q for the nine months ended September 30, 2002.21.1
    
    List of subsidiaries.  Incorporated by reference to Exhibit 21.1 to the Company'sAnnual Report on Form 10-K for the fiscal year ended December 31, 2002.23.1
    
    Consent of Ernst & Young LLP, Independent Auditors (filed herewith).31.1
    
    Certification of the Company's Chief Executive Officer Pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002 (filed herewith)31.2
    
    Certification of the Company's Executive Vice President Finance Pursuant to Section302 of the Sarbanes-Oxley Act of 2002 (filed herewith)31.3
    
    Certification of the Company's Principal Accounting Officer Pursuant to Section 302of the Sarbanes-Oxley Act of 2002 (filed herewith)32.2
    
    Certification of the Company's Chief Executive Officer Pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 (filed herewith)32.2
    
    Certification of the Company's Executive Vice President Finance Pursuant to Section906 of the Sarbanes-Oxley Act of 2002 (filed herewith)32.2
    
    Certification of the Company's Principal Accounting Officer Pursuant to Section 906of the Sarbanes-Oxley Act of 2002 (filed herewith)
      * Confidential treatment has been granted as to a portion of this Exhibit.
+ English translation of summary from Chinese original. b. Reports on Form 8-K None c. Exhibits. 
 d. Financial Statement Schedule.
      SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. CHINDEX INTERNATIONAL, INC.Dated: February
            27, 2004
    
    
    
    By: /S/ Roberta Lipson
Roberta Lipson
President and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated. Dated: February
            27, 2004
    
    By: /S/ Roberta Lipson
Roberta Lipson
Chairperson of the Board of Directors,
Chief Executive Officer and PresidentDated: February
            27, 2004
    
    By: /S/ Elyse Beth Silverberg
Elyse Beth Silverberg
Executive Vice President, Secretary and DirectorDated: February
            27, 2004
    
    By: /S/ Lawrence Pemble
Lawrence Pemble
Executive Vice President-Finance and DirectorDated: February
            27, 2004
    
    By: /S/ Robert C. Goodwin, Jr.
Robert C. Goodwin, Jr.
Executive Vice President of Operations,
Treasurer, General Counsel and DirectorDated: February
            27, 2004
    
    By: /S/ Ronald Zilkowski
Ronald Zilkowski
Senior Vice President Finance and Controller