<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                               AMENDMENT NO. 1 TO
                                    FORM 10-K

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

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2004

                           Commission File No. 0-24624

                           CHINDEX INTERNATIONAL, INC.

             (Exact name of registrant as specified in its charter)

                             [CHINDEX LOGO OMITTED]

             DELAWARE                                    13-3097642
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                              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 September 30, 2003 (the last business day of
the registrant's most recently completed second fiscal quarter) was
approximately $13,733,000.

The number of shares outstanding of each of the issuer's class of common equity,
as of July 29, 2004, was 4,543,152 shares of Common Stock and 775,000 shares of
Class B Common Stock.

Documents Incorporated by Reference: None.


<PAGE>


                                INTRODUCTORY NOTE

This Amendment to Annual Report on Form 10-K/A is being filed to supplement and
amend the Annual Report on Form 10-K of Chindex International, Inc. (the
"Company") for the fiscal year ended March 31, 2004, which report was filed on
June 29, 2004, to add as new the entirety of Items 10-14 and to include revised
and/or additional information under Items 1, 6, 7 and 8, each of which is
presented herein in its entirety, and Item 15.


                                     PART I

ITEM 1.   BUSINESS

GENERAL

     Chindex International, Inc., founded in 1981, is an American company
operating in several healthcare sectors of the Chinese marketplace, including
Hong Kong. Revenue is generated from the sale of healthcare equipment and
products and the provision of healthcare services. The Company operates in three
segments:

     o    MEDICAL CAPITAL EQUIPMENT DIVISION. This division markets, sells and
          facilitates the export of select capital healthcare equipment and
          instrumentation to China on the basis of both exclusive and
          non-exclusive agreements with the manufacturers of these products.
          Chindex believes based on its knowledge and experience in the Chinese
          healthcare system, that it is the largest independent U.S. distributor
          of healthcare equipment in China. For the fiscal year ended March 31,
          2004, the Medical Capital Equipment Division accounted for 38% of our
          revenue.

     o    HEALTHCARE PRODUCTS DISTRIBUTION DIVISION. This division, through a
          network of wholly owned foreign subsidiaries in China, imports and
          distributes off-the-shelf healthcare instrumentation and
          health-related consumable products developed by third parties. For the
          fiscal year ended March 31, 2004, the Healthcare Products Distribution
          Division accounted for 44% of the Company's revenue.

     o    HEALTHCARE SERVICES DIVISION. This division operates the Company's
          private hospital and clinics. Beijing United Family Hospital and
          Clinics (BJU) opened in 1997 and Shanghai United Family Hospital and
          Clinics (SHU), is scheduled to open in 2004. In 2002, we opened our
          first satellite clinic associated with BJU in Shunyi County outside of
          Beijing. For the fiscal year ended March 31, 2004, the Healthcare
          Services Division accounted for 18% of the Company's revenue.

MEDICAL CAPITAL EQUIPMENT

     On the basis of exclusive and non-exclusive distribution agreements,
Chindex offers manufacturers of quality medical capital equipment access to the
greater Chinese marketplace through a wide range of marketing, sales, and
technical services for their products. Through a matrix of dedicated marketing
and technical service departments, local area product and technical specialists,
and local area territory representatives and clinical application specialists,
we provide comprehensive marketing coverage on behalf of our clients and
suppliers on a nationwide basis. Marketing efforts are based on annual marketing
plans developed by each marketing department within Chindex for each product,
and normally include attendance at a variety of trade shows throughout China,
advertisement in leading Chinese industrial, trade, and clinical journals,
production of Chinese language product literature for dissemination to the
potential customer base, direct mail and telemarketing campaigns, and other
product promotions.



                                      -2-
<PAGE>

     The medical capital equipment operations in China are managed by our
medical department, which focuses on exporting quality Western medical capital
equipment to the China market. These export sales are denominated in U.S.
dollars and are made to China's larger hospitals. The medical department is
organized both by clinical or therapeutic product specialty and by region.

     The medical department markets its products directly to hospitals, through
hospital administrators and the doctors who are the ultimate users of the
products. There is virtually no private practice of medicine in China and all
physicians are affiliated with hospitals or similar institutions. Our marketing
is addressed to all relevant participants in the purchasing decision, including
the doctors and hospital administrators. Chindex has sold products to more than
2,000 hospitals in China, many of which have been repeat customers.

     Most purchases of the medical capital equipment sold by Chindex in China,
regardless of the nature of the end-user, are made through foreign trade
corporations, or 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, we enter into formal purchase contracts with FTCs.
The FTCs make purchases on behalf of the end-users and are legally authorized by
the Chinese government to conduct import business. These organizations are
chartered and regulated by the government and are formed to facilitate foreign
trade. We market our products directly to end-users, but in consummating a sale
we also must interact with the particular FTC representing the end-user. For
this reason, we seek to maintain ongoing relationships with the FTCs in our
industries.

     Chindex maintains a separate technical service unit, which is closely tied
to the medical department. The Company is responsible for the technical support
of virtually all the medical equipment that it sells. To support our capital
healthcare equipment business, we own and operate a full-service technical
service center. This service center supports spare parts inventories and
factory-trained service engineers on a nationwide basis. It also makes use of a
joint venture organization, the Chindex Meheco technical service center, which
provides access to bonded warehousing facilities. This joint venture is a true
contractual joint venture with each party assuming different responsibilities.
Chindex handles the daily management while Meheco handles many of the customs
and approval issues related to the importation of parts. Meheco also takes
responsibility for the sale of some parts and the collection of payment for
them.

     Since 1995, Chindex has from time to time helped arrange government-backed
financing to help hospitals in China finance their purchases of medical
equipment from the Company. Such financing has included loan guarantees from the
U.S. Ex-Im Bank as well as commercial financing that is guaranteed by the
Chinese government but without Ex-Im Bank participation. While these
transactions are primarily used to promote purchases of the products that the
Company exclusively distributes in China, equipment manufactured by other
suppliers has also been incorporated. Sales utilizing government-backed
financing are different from the standard sales of capital equipment in a number
of ways. A standard sale will usually involve one hospital purchasing a single
item of equipment by using a letter of credit. This, of course, requires that
the hospital have the funds available at the time of the purchase. In a sale
involving government-backed financing, a financing package is made available at
attractive interest rates to a number of hospitals as part of a hospital
improvement project approved by the Chinese government. The hospital is able to
arrange to pay for the equipment over a number of years instead of having to
have all the funds available up front. Since the hospitals involved in a project
are likely to desire to purchase a variety of equipment, including equipment not
normally supplied by Chindex, such sales involve Chindex establishing new
relationships with suppliers in order to present the hospital with the package
of equipment that it desires. Although these and other differences exist,
ultimately sales that utilize government-backed financing are simply another way
of financing the sale of equipment.

     Among the products sold by the Medical Capital Equipment Division are
diagnostic color ultrasound imaging devices, chemistry analyzers, sterilizers,
surgical equipment, computerized


                                      -3-
<PAGE>

electrophysiology systems, bone densitometers, mammography and breast biopsy
devices, Pneumatic tube systems, and image-guided surgery and stereotactic
radiosurgery systems.

HEALTHCARE PRODUCTS DISTRIBUTION

     Through our Healthcare Products Distribution, or HPD, division, Chindex
offers 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, the Company'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 our experience and increasing scale of operations.

     Through a network of wholly foreign-owned enterprise, or 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 HPD division imports products into China via two Chindex subsidiaries
that it operates, one domiciled in the Shanghai Waigaoqiao Free Trade Zone and
the other in the Tianjin Free Trade Zone.

     Our HPD division is comprised of three primary business units:

     o    Retail Pharmacy Sales;

     o    Hospital Dealer Sales; and

     o    Logistic Services.

     RETAIL PHARMACY SALES

     Our HPD retail products business unit is focused on distribution, including
sales and marketing, of branded healthcare and health-related consumer products
through China's burgeoning retail pharmacy sector. Sales began in mid-1998 in
Shanghai and plans call for coverage of all of the major pharmacies in the top
30 urban markets. The Company currently distributes to 36 cities and nearly 350
stores, doing business with eight of the top ten retail pharmacy chains in
China.

     Our personalized, high service approach calls for coverage of all partner
outlets by a field force of customer service representatives. Several new
product areas are under development in parallel with growing distribution
capabilities. All of these branded healthcare and health-related consumer
products are subject to a strict regulatory regime in China and the process of
registration of the products often presents substantial difficulties.

     Chindex initiated retail pharmacy distribution through a partnership with
the L'Oreal Group, the world's largest producer of cosmetic products. In 1998,
under a partnership agreement, Chindex became the exclusive distributor of a
prominent brand of health-oriented cosmetics and skin care products. Chindex's
ability to closely control both inventory and distribution in China has proven
successful in both the test market and expansion phases of distribution for this
product line. Chindex currently has exclusive distribution rights to certain
premier brands, which are marketed through its Retail Pharmacy Sales channel.



                                      -4-
<PAGE>

     HOSPITAL DEALER SALES

Through our Hospital Dealer Sales division, Chindex HPD taps the market for
quality imported medical consumables and low-priced instrumentation via a
network of sub-distributors located throughout China. The network includes over
two hundred active accounts which cover all of China's 350 hospitals with more
than 500 beds. These hospitals account for approximately 80% of the demand for
imports in China.

     Chindex provides marketing, logistical and distribution services to a
number of manufacturers of medical instrumentation and consumables.

     LOGISTICS SERVICES

     Chindex logistics is the core of the HPD division, as it is through this
business unit that we operate the import and distribution channels for bringing
products to buyers nationwide. This business unit provides customized logistics
services to other Chindex departments and business units, as well as to outside
clients on a third party logistics basis. Chindex logistics services allow
clients to avoid having to immerse themselves in the minutiae of China's opaque
and heavily-regulated distribution sector so that they can focus on providing
solutions to their end-user customers in China. The logistics services cover all
aspects of importing products and delivering them to the local customers' sites
as well as value-added administrative and financial services. In addition to
providing logistics support to internal clients, Chindex logistics provides
third party logistics services to providers of products related to our core
healthcare and health-related markets.

HEALTHCARE SERVICES

     In 1994, using our expertise in healthcare as a foundation, we began a
long-term program to establish a private hospital network in China. In 1997, we
opened Beijing United Family Hospital and Clinics (BJU), marking the successful
completion of the first phase of our program. BJU 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

     BJU is a unique, state-of-the-art, fee-for-service, 50-bed specialty
hospital providing primary family care for expatriates and Chinese citizens in
Beijing. The hospital is housed in a modern facility in the eastern section of
Beijing, and features seven 5-star birthing suites, three operating theaters, a
medical - surgical inpatient ward, a pediatric ward, two executive VIP suites, a
neonatal intensive care unit, an adult intensive care unit, nursery, a clinical
laboratory, extensive digital diagnostic imaging facilities, a pharmacy, 24
hours emergency department and six outpatient clinics.

     BJU completed a significant expansion development program in 2002 resulting
in a doubling of the hospital's capacity. In 2002, BJU also began to fulfill our
strategy of expansion through well-placed satellite clinics, with the opening of
the Beijing United Family Clinic - Shunyi, or the Shunyi Clinic. The Shunyi
Clinic is the first satellite clinic associated with BJU and is the only
outpatient clinic located in the densely expatriate-populated suburb of Shunyi
County. It is also located near the International School of Beijing. This clinic
has further broadened the patient base of BJU and subsequently the referral base
for BJU's inpatient services. Plans are also underway to open additional
affiliated satellite clinics throughout Beijing, expanding upon this initial
program to provide outpatient services

     Emphasizing the need for well-care (routine visits in the absence of
illness) and patient-centered care (involving the patient in health care
decisions), BJU offers a full range of top-quality family healthcare services,
including mental health services, for men, women and children. The hospital is
staffed by a mix of Western and Chinese physicians and operates in accordance
with international


                                      -5-
<PAGE>

hospital standards. BJU is also committed to community outreach programs and
offers healthcare education classes, including CPR, Lamaze, and Stress
Management.

     BJU was the first officially approved healthcare joint venture to provide
international-standard healthcare services in China. An international standard
hospital not only provides healthcare services at a level generally recognized
and accepted internationally in the developed world, but also manages the
hospital according to generally accepted international principles, such as
transparency, infection control, medical records, patient confidentiality, peer
review, etc. BJU was formed as a 90/10 contractual joint venture between Chindex
and the Chinese Academy of Medical Sciences and received the initial national
level approvals from the Chinese Ministry of Health, or MOH, and Ministry of
Foreign Trade and Economic Cooperation, or MOFTEC, in 1995.

     SHANGHAI UNITED FAMILY HOSPITAL AND CLINICS

     In late 2001, Chindex received approval from the MOH and in early 2002
received approval from MOFTEC to open a second hospital venture. The new
hospital, located in Shanghai is designed as a 50-bed facility, offering a full
range of inpatient and outpatient services to both Shanghai's expatriate and
Chinese communities. This hospital is also a contractual joint venture
undertaking, with Chindex being entitled to 70% of the profits of the
enterprise. Construction on the hospital has been underway for a number of
months and Shanghai United is scheduled to be completed and opened in the fall
of 2004. Funding for the initial development of this hospital was obtained
through an agreement with a major supplier for deferred payment on equipment
purchases by us from the supplier.

     CHINDEX HEALTHCARE NETWORK EXPANSION

     Our strategy is to continue to provide care to the expatriate community and
increasingly to provide quality specialty healthcare to affluent Chinese
society. An increasing portion of our healthcare network's market will be the
growing urban middle class population. Our strategic business plan calls for the
establishment of additional hospitals, each with affiliated satellite clinics,
in selected urban cities throughout eastern China. These hospitals would be
networked with each other and with Beijing United through a central
administrative arm. In addition to the top-quality primary family healthcare
services that would be available at each hospital in the network, we also plan
to integrate visits by rotating specialists to each hospital, expanding the
range of services offered.

COMPETITION

     In the sale of products, we compete with other independent distributors in
China that market similar products. In addition to other independent
distributors, we face more significant competition from direct distribution by
established manufacturers. In the medical products field we compete with General
Electric Corporation, or 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 we are 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 us. We believe that GE, Philips and
Toshiba are the largest such direct competitors in the medical products field.

     In the sales and distribution of off-the-shelf medical products and
consumables, our sales, marketing and logistical distribution networks also
compete with similar distribution operations of other independent distributors,
both foreign and Chinese, joint ventures and foreign manufacturers. In addition,
the products themselves supplied by us to the China market compete with similar
products of foreign, joint venture and domestic manufacturers. Our competitive
position for product sales depends in part upon our ability to attract and
retain qualified personnel in sales, technical and administrative


                                      -6-
<PAGE>

capacities. In addition, many of our various competitors have greater resources,
financial or otherwise, than we do.

     Two of our subsidiaries, Chindex Holdings International Trade (Tianjin)
Ltd., and Chindex Shanghai International Trading Co., Ltd., sell goods and
receive payment in local Chinese currency and use the currency to pay for local
expenses. Payments are often required to be made in advance for consumable
products. We recognize that any devaluation in the local currency may have a
negative impact on the results of operations.

     At the present time, there are no Western-owned hospitals in Beijing which
compete with Beijing United Family Hospital in catering to the expatriate
diplomatic and affluent local Chinese markets. There are several
Western-operated clinics and a variety of foreign-invested joint ventures which
provide outpatient services.

EMPLOYEES

     At March 31, 2004, the Company had 759 full-time salaried employees. Of
these, 744 are in China and Hong Kong. Of the full-time personnel in China and
Hong Kong, 74 are expatriates and 670 are Chinese or third country nationals. Of
our non-U.S. based full-time employees, 363 are employed at Beijing United.

INTERNET INFORMATION AND SEC DOCUMENTS

     The Company's internet site is located at www.chindex.com. Copies of the
Company's reports and amendments thereto filed pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, including Annual Reports filed on
Form 10-K, Quarterly Reports filed on Form 10-Q and Current Reports filed on
Form 8-K may be accessed from the Company's website, free of charge, as soon as
reasonably practicable after the Company electronically files such reports with,
or furnishes such reports to, the Securities and Exchange Commission. The
information found on our internet site is not part of this or any other report
Chindex files with or furnishes to the Commission.




                                      -7-
<PAGE>


                                     PART II

ITEM 6. SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                     YEAR ENDED     THREE MONTHS ENDED              YEAR ENDED DECEMBER 31,
                                     MARCH 31,          MARCH 31,          ------------------------------------------
                                        2004        2003        2002         2002       2001       2000        1999
                                     ----------   --------    --------     --------   --------   --------    --------
                                                              (UNAUDITED)
STATEMENT OF OPERATIONS DATA                              (in thousands, except per share data)
<S>                                    <C>         <C>         <C>          <C>        <C>        <C>        <C>
Net sales.........................     $88,183      $21,849     $15,578    $70,617     $56,118    $45,064    $37,128
Percent increase over prior period          25%          40%         47%        26%         25%        21%        72%
(Loss) income from operations.....      (1,582)         222        (293)       133        (401)       152       (221)
Other (expenses) income...........        (111)         (66)        (12)      (126)        726        664        896
Net (loss) income before income
   taxes..........................      (1,923)         156        (305)        19         307        780        657
(Provision for) benefit from
   income taxes...................         (64)         (80)        113        240          77       (139)      (265)
Net (loss) income ................      (1,987)          76        (192)       259         384        641        392

Net (loss) income per share-basic.        (.53)         .02        (.05)       .07          .10       .17        .11
Net (loss) income per
   share-diluted..................        (.53)         .02        (.05)       .07          .10       .17        .11
Market closing price per share-
   end of period..................       10.09         2.00        2.78       1.86         3.18      1.53       3.77
Book value per share at end of
   period.........................        3.92         3.79        3.94       3.77         3.71      3.89       3.72
Cash dividends declared...........         .00          .00         .00        .00          .00       .00        .00

BALANCE SHEET DATA (AT END OF PERIOD):
 Total assets......................    $47,851      $42,340     $32,859    $43,126     $33,369    $36,498    $24,384
 Short term debt...................      5,668          696         702      1,946         200          0          0
 Long term debt or vendor
   financing .....................         125        3,734           0      3,609           0          0         91
Total shareholders' equity........      17,198       14,044      13,497     13,968      13,611     13,235     12,587
</TABLE>


<TABLE>
<CAPTION>
                                     YEAR ENDED     THREE MONTHS ENDED              YEAR ENDED DECEMBER 31,
                                     MARCH 31,          MARCH 31,          ------------------------------------------
                                        2004        2003        2002         2002       2001       2000        1999
                                     ----------   --------    --------     --------   --------   --------    --------
                                                              (UNAUDITED)
SEGMENT INFORMATION:
<S>                                  <C>          <C>         <C>          <C>        <C>        <C>        <C>
Medical Capital Equipment-sales...     $33,836     $7,716       $6,653     $28,708     $25,819
Medical Capital Equipment-gross
   margin percent.................          28%        32%          22%         27%         29%
Medical Capital Equipment-
   operations (loss) income.......        (269)       521         (174)        198         439
Healthcare Products Distribution-
   sales..........................      38,393     10,663        6,126      28,946      21,520
Healthcare Products Distribution-
   gross margin percent...........          13%        10%          12%         13%         13%
Healthcare Products Distribution-
   operating loss.................        (641)      (121)        (161)       (601)     (1,316)
Healthcare Products-sales.........           *          *            *           *           *    $39,049    $33,182
Healthcare Products-gross margin
   percent........................           *          *            *           *           *         24%        25%
Healthcare Products-operating
   (loss) income..................           *          *            *           *           *        (66)       243
Healthcare Services-sales.........      15,954      3,470        2,799      12,963       8,779      6,015      3,946
Healthcare Services-operating
   (loss) income..................        (672)      (178)          42         536         476        218       (464)
</TABLE>


-----------------
* We expanded to three segments in 2002 and restated 2001.


                                      -8-
<PAGE>



ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

OVERVIEW

     Chindex International, Inc., is a Delaware corporation with headquarters
located in the Washington, D.C. metropolitan area. We were founded in 1981 and
currently are an American provider of healthcare products and services to China,
including Hong Kong. We operate in three business segments:

     o    MEDICAL CAPITAL EQUIPMENT DIVISION. This division markets, sells and
          facilitates the export of select capital healthcare equipment and
          instrumentation to China on the basis of both exclusive and
          non-exclusive agreements with the manufacturers of these products. We
          believe, based on our knowledge and experience in the Chinese
          healthcare system, that we are the largest independent U.S.
          distributor of healthcare equipment in China. For the fiscal year
          ended March 31, 2004, the Medical Capital Equipment Division accounted
          for 38% of our revenue.

     o    HEALTHCARE PRODUCTS DISTRIBUTION DIVISION. This division, through a
          network of wholly owned foreign subsidiaries in China, imports and
          distributes off-the-shelf healthcare instrumentation and
          health-related consumable products developed by third parties. For the
          fiscal year ended March 31, 2004, the Healthcare Products Distribution
          Division accounted for 44% of our revenue.

     o    HEALTHCARE SERVICES DIVISION. This division operates our private
          hospital and clinics. Beijing United Family Hospital and Clinics (BJU)
          opened in 1997 and Shanghai United Family Hospital and Clinics (SHU)
          is scheduled to open in 2004. In 2002, we opened our first satellite
          clinic associated with BJU in Shunyi County outside of Beijing. For
          the fiscal year ended March 31, 2004, the Healthcare Services Division
          accounted for 18% of our revenue.

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

     Our Medical Capital Equipment Division and Healthcare Products Distribution
Divisions are subject to challenges and risks as a result of our dependence on
our relations with suppliers of equipment and products. In addition, the timing
of our revenue from the sale of medical capital equipment is affected by the
availability of funds to customers in the budgeting processes of the Chinese
government, the availability of credit from the Chinese banking system and
otherwise. The timing of sales of such equipment may depend on the timing of our
customers' ability to arrange for credit sources. Further, because we recognize
revenue and expenses relating to certain contracts as such products are shipped,
the timing of shipments, among other things, affects our operating results for a
particular period. Consequently, our operating results have varied and are
expected to continue to vary from period to period.

CRITICAL ACCOUNTING POLICIES

     The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us 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


                                      -9-
<PAGE>

financial statements and the reported amounts of revenue and expenses during the
reporting period. Our 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 our accounting policies require higher degrees of judgment than
others in their application. These include receivables collectibility and income
tax recognition of deferred tax items. In addition, Note 1 to the Consolidated
Financial Statements includes further discussion of our significant accounting
policies.

REVENUE RECOGNITION

     Sales of equipment and consumables are recognized upon product shipment. We
provide installation, warranty, and training services for certain of our capital
equipment sales. These services are viewed as perfunctory to the overall
arrangement and are not accounted for separately from the equipment sale. Cost
associated with installation, after-sale servicing and warranty are not
significant and are recognized in cost of sales as they are incurred. The
estimated cost for training services is accrued upon shipment.

     Revenue related to services provided in our Healthcare Services segment is
recognized in the period services are provided. Revenue includes an estimate of
services at the end of the period for patients who have not completed service.
Costs associated with such services are recognized in the period incurred.

RECEIVABLE COLLECTIBILITY

     We grant credit to some customers in the ordinary course of business. We
evaluate collectibility of accounts receivable periodically and adjust our
allowance for doubtful accounts accordingly. Bad Debts are experienced
predominately in Healthcare Services business and to a lesser extent in Medical
Capital Equipment business. We have experienced few losses in Healthcare
Products Distribution business.

     We incurred bad debt expense of $777,000, $118,000 and $279,000 in the year
ended March 31, 2004, three months ended March 31, 2003 and the year ended
December 31, 2002, respectively. The increased loss experience in 2004 is the
result of periodic review of accounts and resulted in an increase to the
allowance for doubtful accounts from $883,000 at December 31, 2002 to $1,131,000
at March 31, 2004. For more information on our bad debt accounts, see "- Fiscal
2004 compared to twelve months ended December 31, 2002 - Healthcare Services
Segment."

VALUATION ALLOWANCE OF DEFERRED TAX ASSETS

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

     We released deferred tax valuation allowances totaling $660,000 and
$232,000 in the years ended December 31, 2002 and 2001 based on assessments in
those years that it was more likely than not that it would be able to use our
U.S. federal net operating loss carryforwards. Certain of these benefits were
realized in tax filings for the period ended March 2003. While losses were
incurred in the U.S. in fiscal year 2004, our assessment, based on expected
income in 2005 and 2006, is that it is more likely than not that a substantial
portion of the deferred tax asset will be realized. These U.S. net operating
loss carryforwards do not expire before 2014.



                                      -10-
<PAGE>

     We have provided substantial deferred tax valuation allowances for certain
deferred tax assets related to various subsidiaries in China because it is not
able to conclude that it is more likely than not that those assets will be
realized.

FISCAL 2004 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 2002

GENERAL

     Our revenue for fiscal 2004 was $88,183,000, up 25% from the twelve months
ended December 31, 2002 revenue of $70,617,000. We experienced continued revenue
growth in each of the three segments of the business, with revenue growth of 18%
in the medical capital equipment segment, 33% in the healthcare products
distribution segment, and 23% in the healthcare services segment, compared to
the twelve months ended December 31, 2002. The growth in revenue in the medical
capital equipment and healthcare products distribution segments was primarily a
result of increased marketing and sales efforts and expense. The growth in
revenue in the healthcare services segment was primarily a result of expanded
services offered at Beijing United, including the addition of staff to support
those services. Costs and expenses were $89,987,000 for fiscal 2004 as compared
with costs and expenses of $70,522,000 for the twelve months ended December 31,
2002. We recorded a net loss of $1,987,000 for fiscal 2004, as compared to net
income of $259,000 for the twelve months ended December 31, 2002. Each of our
three segments experienced an operating loss in fiscal 2004. We believe that
there are three principal reasons for the loss from operations for the fiscal
year. First, the fiscal year was marked by the extraordinary experience of
dealing with Severe Acute Respiratory Syndrome (SARS), which had a significant
negative impact in a variety of ways on our business. Normal Beijing business
activity came to a near standstill resulting in the delay of contract
negotiations for the sale of medical capital equipment and hospital visits were
far below our expectations as foreign residents in Beijing left the capital.
Second, the lack of government-sponsored loan programs in the period also
adversely impacted the volume of our sales. Third, we continued to incur
operational expenses in connection with SHU, while the opening of that hospital
was delayed due to a number of factors. Cost increases for the segments are
discussed below. There were a number of increased costs at our parent level,
including for an upgrade of our data systems in China and new offices in
Beijing. The largest parent level increases, which have been allocated among the
segments as described below, include increased payroll of $163,000, increased
professional fees of $117,000, increased accounting and legal fees of $82,000,
and increased rent of $136,000.

MEDICAL CAPITAL EQUIPMENT SEGMENT

     The medical capital equipment segment exports high quality Western medical
capital equipment to the China market. In fiscal 2004, this segment had revenue
of $33,836,000, an 18% increase over revenue of $28,708,000 in the twelve months
ended December 31, 2002. Loss from operations was $269,000 in the recent fiscal
year compared with income from operations of $198,000 in the twelve months ended
December 31, 2002.

     Gross profit in fiscal 2004 increased to $9,427,000 from $7,822,000 in the
twelve months ended December 31, 2002. Gross profit margin for the medical
capital equipment segment for the recent fiscal year was 28% as compared to 27%
in the prior period. Expenses for the medical capital equipment segment in
fiscal 2004 increased to $9,697,000 from $7,624,000 in the twelve months ended
December 31, 2002, and, as a percentage of revenue over the periods, increased
to 29% from 27%. Payroll for the segment in fiscal 2004 increased by $864,000
over payroll in the twelve months ended December 31, 2002, and as a percentage
of revenue was 11% compared to 10% for the twelve months ended December 31,
2002. The payroll increase was primarily due to increased sales personnel in
connection with expanding the marketing of the segment's products. In addition,
travel and entertainment expenses for the segment increased $428,000. Other
costs increased $781,000 over the periods, primarily due to the segment's
allocated portion of additional parent-level administrative expenses and higher
costs for new customs fees related to parts purchases, promotion, meeting
expenses and telephones.



                                      -11-
<PAGE>

HEALTHCARE PRODUCTS DISTRIBUTION SEGMENT

     The healthcare products distribution segment, consisting of medical
consumables and personal healthcare products, had revenue growth of 33% to
$38,393,000 fiscal 2004, as compared to revenue of $28,946,000 in the twelve
months ended December 31, 2002. The segment had a loss from operations of
$863,000 in the recent fiscal year, compared with a loss from operations of
$601,000 in the twelve months ended December 31, 2002. We anticipate that
revenue growth in this segment will be slower as several customers contemplate
and effectuate direct sales and new products are subjected to an increasingly
formalized Chinese regulatory process. For example, one significant client,
Becton-Dickenson, has recently established a subsidiary in China that will
perform the logistical services previously performed by our healthcare products
distribution division. Another client, Guidant, is establishing a similar
subsidiary in China. Both these principals have indicated their interest in
Chindex continuing to perform value-added and higher margin distribution and
marketing services for certain products and channels. This transition away from
lower margin logistical services is consistent with the division's strategy of
prioritizing higher margin business. With respect to delays in the Chinese
regulatory process, the launch of new products is requiring longer lead times,
due to the fact that China's regulatory environment is becoming more
professional, bureaucratic and transparent, resulting in longer regulatory cycle
time. During the regulatory approval process, some products that the division
planned to launch encountered delays. The division's local currency sales of
medical consumables and personal healthcare products are 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 fiscal 2004 rose to $4,788,000 from $3,856,000 in the
twelve months ended December 31, 2002. Gross profit margin from the healthcare
products distribution segment for the recent was the same, 13%, as for the
twelve months ended December 31, 2002.

     Expenses for the healthcare products distribution segment in fiscal 2004
increased to $5,429,000 from $4,457,000 in the twelve months ended December 31,
2002, but decreased to 14% as a percentage of revenue as compared to 15% for the
twelve months ended December 31, 2002. Payroll for the segment increased
$281,000 primarily due to increased staff compensation. In addition, travel and
entertainment expense for the segment was relatively unchanged while other costs
increased $694,000, due primarily to the segment's allocated portion of
additional parent-level administrative costs, increased other professional fees
of $221,000 and $163,000 in promotion.

HEALTHCARE SERVICES SEGMENT

     The healthcare services segment consists of two Western style primary care
hospitals, Beijing United Family Hospital and Clinics (BJU) and Shanghai United
Family Hospital and Clinics (SHU), which continues to be under construction, as
well as an affiliated satellite clinic in Beijing. For fiscal 2004, the revenue
from this segment was $15,954,000, an increase of 23% over the twelve months
ended December 31, 2002 revenue of $12,963,000. The segment had a loss from
operations of $672,000 in the recent fiscal year, compared with income from
operations of $536,000 for the twelve months ended December 31, 2002. During the
recent fiscal year, the hospital was significantly negatively impacted by the
SARS crisis in Beijing. Many of BJU's expatriate patients left the country and
many others deferred visits during the April to August period. Healthcare
services costs increased for fiscal 2004 to $16,626,000, a 34% increase over the
twelve months ended December 31, 2002 costs of $12,427,000. This increase was
due primarily to the costs associated with adding to BJU dermatology services
and an intensive care unit plus $780,000 of operating expenses of the not yet
open SHU facility. Payroll increased by $2,181,000 (payroll was 55% of revenue
for fiscal 2004 and 50% for the twelve months ended December 31, 2002), with all
other costs increasing a total of $2,027,000, including increases of $679,000 in
bad debt accounts, $437,000 in other professional fees and $193,000 in
depreciation. During fiscal 2004, in the process of the ongoing roll-out of our
new clinical and financial reporting systems throughout this segment, we
completed a review of all accounts receivable reflected on our predecessor
systems. The increase in our bad debt accounts over periods is primarily based
on our determinations in


                                      -12-
<PAGE>

that review that certain patients and/or responsible parties had departed China
or otherwise practically became unreachable. The roll-out of our new systems
also impacted our allowance for doubtful accounts. In addition to our normal
reviews, the review of all accounts in connection with the roll-out resulted in
an increase in our allowance for doubtful accounts from $883,000 at December 31,
2002 to $1,130,000 at March 31, 2004. Our new systems are designed to better
monitor our accounts receivable aging.

     The opening of SHU, originally scheduled for the fall of 2003, is now
expected in the fall of 2004. The delay in opening the new hospital is due to a
number of factors. During the SARS epidemic, travel between Beijing and Shanghai
was very difficult and proved a major disruption in the schedule. After the SARS
experience ended, we decided to reevaluate the SHU design in light of lessons
learned during the epidemic. As a result of this reevaluation, a number of
specific design changes were made, such as adding a fever clinic, changing the
air conditioning system and increasing the number of rooms where negative
pressure could be utilized.

LOSS ON EQUITY INVESTMENT

     We recorded an additional equity investment loss of $222,000 in fiscal year
2004, which represents our pro-rata share of additional capital for Natural
Formula Asia (NFAL), a joint venture in which we have a 40% interest. The joint
venture purchases various cosmetics made by Nesh, an Israeli cosmetics
manufacturer, and sells such products into China through pharmacy channels
developed by us. The investment represents an amount that the joint venture
partners determined was required to provide additional working capital. Our
investment is in the form of a loan to the joint venture. The loan, which was
accrued but not yet executed as of March 31, 2004, bears interest at the rate of
5% commencing May 15, 2004, has no stated maturity date and may be prepaid. We
reported a loss of $38,000 for this venture in the year ended December 31, 2002.

OTHER INCOME AND EXPENSES

     Interest expense on short-term debt of $5,668,000 and long term debt of
$125,000 amounted to $249,000 whereas we had $54,000 the prior period. Over
$2,900,000 of debt is for the development of SHU that is currently under
construction (see "Liquidity and Capital Resources").

TAXES

     We recorded a $64,000 provision for taxes in fiscal 2004 as compared to a
benefit from taxes of $240,000 for the twelve months ended December 31, 2002.
Our deferred tax asset increased by $909,000. This tax computation is in
accordance with current accounting standards but assumes a certain level of
future profitability. We believe this properly recognizes the benefits we have
achieved as a result of our tax restructuring and expect to utilize a
substantial portion of the loss carry-forward benefit in fiscal years 2005 and
2006. We have provided a 100% valuation allowance on deferred tax benefits
related to development expenses incurred at Shanghai United, since it has no
operating history to support a conclusion that realization of the tax benefit is
more likely than not.

THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
(TRANSITION)

     Our revenue for the three months ended March 31, 2003 was $21,849,000, up
40% from the three months ended March 31, 2002 revenue of $15,578,000. We
experienced continued growth in each of the three segments of the business, with
revenue growth of 16% in the medical capital equipment segment, 74% in the
healthcare products distribution segment, and 24% in the healthcare service
segment, compared to the same period last year. We recorded net income of
$76,000 for the three months ended March 31, 2003, as compared to a net loss of
$192,000 for the three months ended March 31, 2002.



                                      -13-
<PAGE>

MEDICAL CAPITAL EQUIPMENT SEGMENT

     In the three months ended March 31, 2003, the medical capital equipment
segment had revenue of $7,716,000, a 16% increase over revenue of $6,653,000 in
the three months ended March 31, 2002. Income from operations was $521,000 in
the recent period compared with a loss from operations of $174,000 in the prior
period.

     Gross profit in the three months ended March 31, 2003 increased to
$2,474,000 from $1,439,000 in the three months ended March 31, 2002. Gross
profit margin for this segment for the recent period was 32% as compared to 22%
in the prior period. The increase in gross profit margin is primarily
attributable to two factors. First, we had made this a priority for our sales
staff and instituted additional reporting and reviewed margin issues on a
contract by contract basis. Accordingly, where a salesperson might previously
have been inclined to accept an offer from a customer to purchase our equipment
at a less than optimum margin, the salesperson knew that the contract would be
reviewed critically once it was brought back to our senior review staff. This
created an additional incentive for the salesperson to seek better pricing from
the customer. Second, in the recent period there were no loan program sales,
which typically are at a lower gross margin because we are not required to
provide warranty service. Thus, in periods where there are loan program sales,
such as the three months ended March 31, 2003, the average gross profit margin
is often lower because of the inclusion of these lower-margin loan sales in the
mix. Further, to the extent, as we intend, that in future periods a larger
portion of sales are made through sub-dealers, which are local Chinese
distributors, then our gross profit margin may be proportionately lower.
Sub-dealers represent an additional layer in the distribution process and their
compensation reduces our profit. They purchase our products and resell them to
customer hospitals. We cannot yet quantify the impact such increase might have
or the extent thereof and the related cost cannot as yet be determined.

     Expenses for the medical capital equipment segment in the three months
ended March 31, 2003 increased to $1,937,000 from $1,609,000 in the three months
ended March 31, 2002, and as a percentage of revenue over the periods increased
to 25% from 24%. Salaries for the segment in the three months ended March 31,
2003 increased by $238,000 from the three months ended March 31, 2002, and as a
percentage of revenue over the periods increased to 11% from 9%. The salary
increase was primarily due to increased payroll benefits mandated by the Chinese
government and increased commissions. In addition, travel and entertainment
expenses for the segment decreased $11,000. Other costs increased $101,000 over
the periods, primarily due to additional administrative expenses offset by lower
costs for exhibitions.

HEALTHCARE PRODUCTS DISTRIBUTION SEGMENT

     The healthcare products distribution segment had revenue growth of 74% to
$10,663,000 in the three months ended March 31, 2003, as compared to revenue of
$6,126,000 in the three months ended March 31, 2002. The segment had a loss from
operations of $121,000 in the recent period, compared with a loss from
operations of $161,000 in the prior period. The large revenue growth over the
periods is attributed 26% to a temporary arrangement with an existing client to
handle part of their product line that we had not previously handled and that we
will not handle in the future. The remaining 48% increase in revenue was caused
by growth across multiple product lines resulting from strong demand for
healthcare and consumer products by our Chinese customers as well as our strong
competitive position and management.

     Gross profit in the three months ended March 31, 2003 rose to $1,097,000
from $767,000 in the three months ended March 31, 2002. Gross profit margin from
the healthcare products segment for the recent period was 10% as compared to 12%
in the prior period. The decrease in gross profit is primarily attributable to
the low margin non-recurring sale mentioned above.

                                      -14-
<PAGE>

     Expenses for the healthcare products distribution segment in the three
months ended March 31, 2003 increased to $1,218,000 from $928,000 in the three
months ended March 31, 2002, but decreased as a percentage of revenue over the
periods to 11% from 15%. Payroll for the segment increased $151,000 primarily
due to increased staff compensation. In addition, travel and entertainment
expense for the segment increased $6,000 (but was flat at 1% of revenue for both
periods) and other costs increased $134,000 due primarily to increased promotion
expense and costs relating to facilities.

HEALTHCARE SERVICES SEGMENT

     For the three months ended March 31, 2003, the revenue from this segment
was $3,470,000, an increase of 24% over the three months ended March 31, 2002
revenue of $2,799,000. The segment had a loss from operations of $178,000 in the
recent period, compared with income from operations of $42,000 in the prior
period. During the recent period, the hospital completed the $2.6 million
expansion of its Beijing facility, which contributed to increased patient visits
as well as increased inpatient stays over the periods. Total inpatient days in
the hospital increased to 669 in the three months ended March 31, 2003 from 518
in the three months ended March 31, 2002, an increase of 29%. For outpatient
clinic visits, total clinic visits increased to 13,152 in the three months ended
March 31, 2003, from 12,200 for the three months ended March 31, 2003, an
increase of 12%. Healthcare services costs increased 32% over the periods from
$2,757,000 to $3,648,000. This increase was due primarily to the costs
associated with expanded services offered. Payroll increased by $452,000
(payroll was 56% and 54% of revenue for the three months ended March 31, 2003
and 2002, respectively), with all other costs increasing $445,000, including
increases of $186,000 in development expenses related to SHU, $90,000 in
doubtful accounts reserve, $134,000 in professional fees and $90,000 in rent
expense.

     OTHER INCOME AND EXPENSES

     Interest expense on short-term debt of $696,000 and long term debt of
$3,734,000 amounted to $51,000 whereas we had little expense in the prior
period. The long-term debt relates to the development of SHU that is currently
under construction (see "-- Liquidity and Capital Resources").

     TAXES

     We recorded a $80,000 provision for taxes for the three months ended March
31, 2003 as compared to a benefit from taxes of $113,000 for the three months
ended March 31, 2002.

FISCAL YEAR ENDED DECEMBER 31, 2002 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2001

     Our revenue for 2002 was $70,617,000, up 26% from 2001 revenue 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 us for our customers. We believe that this
type of financing is important to our 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 our results are difficult to predict (see "Timing of
Revenue").

MEDICAL CAPITAL EQUIPMENT SEGMENT

     In 2002 this segment had revenue of $28,708,000, an 11% increase over the
revenue 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 revenue of this segment fluctuate due to
financing programs facilitated by us 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 us to our 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 Revenue").



                                      -15-
<PAGE>

     Gross profit in 2002 increased to $7,822,000 from $7,451,000 in 2001. Gross
profit margin 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, we had less service contract revenue, which
carries higher margins, than in the prior year. Service contract revenue in Hong
Kong was down significantly because of the downturn in the economy there. In
addition, competitive factors such as the timing and composition of major
tenders, as well as ongoing competitive pricing pressures due to Chinese
government tendering regulations in the sale of capital medical equipment in the
recent year yielded lower margins on such sales. Finally, gross margins on loan
project sales are generally lower than on our other sales because we are 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 revenue over the
period was the same at 27%. Salaries for the segment in 2002 increased by
$561,000 from 2001 and as a percentage of revenue 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 revenue 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 healthcare products distribution segment, consisting of medical
consumables and personal healthcare products, had revenue growth of 35% to
$28,946,000 in 2002 from 2001 revenue 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. Gross
profit margin from the 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 revenue
over the periods to 15% from 19%. Salaries for the segment increased $354,000,
but remained flat as a percentage of revenue 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 revenue for both years and other costs
decreased $131,000 primarily from decreased promotion.

HEALTHCARE SERVICES SEGMENT

     For 2002, the revenue from this segment was $12,963,000, an increase of 48%
over 2001 revenue 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 had recently finished expanding its present facility to
include space formerly occupied by a sublease tenant. The hospital also had
continued its efforts to explore the establishment of additional affiliated
satellite clinics to serve as referral sites. In this regard, Beijing United is
affiliated with a satellite clinic that opened in November of


                                      -16-
<PAGE>

2002. This clinic, in Shunyi County outside of Beijing, is funded by one of our
subsidiaries and is staffed by doctors and other health professionals from
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

     Our agreement with our 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. We also recorded a $38,000 start-up loss
on our investment in a joint venture in Hong Kong. This was offset by our
minority partner share loss of $121,000 in our 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
we did not anticipate any sublease revenue in 2002, we do anticipate that now
that the space is renovated and in service for Beijing United, we will recognize
additional revenue through the expanded operations of Beijing United, which may
offset part or all of the loss of income from the sublease.

TAXES

     We 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. We
believe this properly recognizes the benefits we have has achieved as a result
of our tax restructuring and short-term anticipation of future income tax loss
carry forward utilization.

     As a result of this restructuring, we expect to make use of a portion of
our U.S. federal net operating losses and accordingly, recorded a $660,000
deferred tax valuation adjustment in addition to last year's $232,000 recorded
on previously fully reserved tax losses.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2004, our cash and cash equivalents, net accounts
receivable and net inventories were $6,791,000, $17,374,000 and $10,363,000,
respectively, as compared to $6,100,000, $16,195,000 and $10,346,000,
respectively, as of December 31, 2002.

     As of March 31, 2004, our short-term loan payable was comprised of bank
loans of $2,670,000 and extended payment accounts payable by one vendor of
$2,998,000. With respect to the vendor accounts payable, the vendor has agreed
to provide continuing credit facilities for purchases for a seven-year period,
each grant of credit bearing interest of five percent per annum and expiring at
the end of 18 months, to be replaced by subsequent purchases and payables. The
classification from long-term to short-term is a result of the maturity of the
first group of payables under this program having been less than 12 months at
March 31, 2004. As of March 31, 2004, the accounts payable attributable to the
vendor financing was $2,998,000. We are currently completing renovation and
outfitting of our hospital facility in Shanghai, which has been financed
primarily through the vendor financing and local bank borrowings. The estimated
total costs for design and construction, including demolition, is


                                      -17-
<PAGE>

approximately $4.2 million. We have negotiated a loan with the Hong Kong and
Shanghai Banking Corporation (HSBC), with which we have an existing loan
relationship relating to Beijing United. This new loan would provide $4 million
and recently received final approval on June 2, 2004. Although we have
sufficient capital resources to complete SHU as currently scheduled, we will
continue to explore additional financing opportunities, although there are no
assurances that such additional financing will be available.

     As of March 31, 2004, letters of credit in the aggregate amount of
approximately $420,000 and borrowings in the aggregate amount of $883,000 were
outstanding under a credit facility with M&T Bank, our principal bank. The
borrowings bear interest at 1% over the three-month London Interbank Offered
Rate (LIBOR). Beijing United has a short-term financing arrangement in China
with HSBC for $600,000 in revolving loans bearing interest at 1.75% over the
three-month Singapore Interbank Money Market Offer Rate (SIBOR). Beijing United
has agreed to utilize HSBC for a portion of its patient payments via credit
cards. Also, a new line of credit is included in the arrangement with HSBC for
up to $1,200,000, bearing interest at 2.25% over SIBOR and having a term of up
to three years. As of March 31, 2004, the balances on these credit liens were
$600,000 and $1,087,000, respectively. We on behalf of Beijing United have
guaranteed the full amount of those facilities.

RECENT ISSUANCE OF SECURITIES

     As of March 29, 2004, we entered into a securities purchase agreement with
a limited number of accredited investors pursuant to which we agreed to issue
and the investors agreed to purchase at a price of $9.00 per share 1,500,000
shares of our common stock, together with warrants to purchase an additional
300,000 shares of our common stock at an exercise price of $12.00 per share, for
an aggregate purchase price of $13,500,000. The net proceeds to us from the
financing, after deducting expenses of the financing including placement agent
fees, were approximately $12,300,000. In connection with the financings, we also
agreed to issue the placement agent five-year warrants to purchase 90,000 shares
of our common stock at an exercise price of $12.00 per share. On March 31 and
April 1, 2004, the initial closings of the financing occurred at which a total
of 600,000 shares of our common stock together with warrants to purchase 120,000
shares of our common stock were issued to the investors. In connection with the
initial closings, the placement agent was issued warrants to purchase 36,000
shares of our common stock. The final closing of the financing took place on May
5, 2004 at which the remaining 900,000 shares of common stock together with the
remaining warrants to purchase 180,000 shares of our common stock were issued to
the investors. In connection with the final closing, the placement agent was
issued the remaining warrants to purchase 54,000 shares of our common stock.
Pursuant to the securities purchase agreement, each investor irrevocably
subscribed for and agreed to purchase the initial securities and the remaining
securities, subject only to, in addition to the delivery of customary closing
documentation, the completion of stockholder consent to the financing in
accordance with the rules of the Nasdaq SmallCap Market as described below.

     The Nasdaq SmallCap Market, where our common stock is traded, prohibits us
from issuing shares of our common stock in an amount greater than 20% of our
outstanding common stock, if the purchase price per share in such issuance is
less than the greater of book or market value of our common stock, without
obtaining stockholder approval. Since the issuance of the shares was at such a
lesser price, at the initial closings of the financing only a portion of the
common stock and warrants (600,000 shares of common stock and warrants to
purchase 120,000 shares of common stock for aggregate gross proceeds of
$5,400,000) were issued to the investors. The remaining shares and warrants were
issued to the investors at a final closing, which occurred on May 5, 2004, more
than 20 days after we mailed an information statement to our stockholders
relating to stockholders approval that had been obtained by written consent.

     We continue to consider various other financing alternatives to satisfy our
future expansion, capital improvements and equipment requirements.

                                      -18-
<PAGE>

     The following table sets forth our contractual cash obligations as of March
31, 2004:

                                   (thousands)

<TABLE>
<CAPTION>
                              TOTAL         2005         2006         2007        2008         2009         THEREAFTER
                              -----         ----         ----         ----        ----         ----         ----------
<S>                           <C>          <C>         <C>          <C>         <C>          <C>            <C>
Line of credit                $ 2,670      $2,670      $    0       $    0      $    0       $    0          $    0
Vendor financing                2,998       2,998           0            0           0            0               0
Capital leases                    320         152         150           17           1            0               0
Equity investment                 220         220           0            0           0            0               0
Operating leases               10,719       1,616       1,387        1,348       1,263        1,219           3,886
                               ------       -----       -----        -----       -----        -----          ------
Total contractual cash
     obligations              $16,927      $7,656      $1,537       $1,365      $1,264       $1,219          $3,886
                              ========     =======     =======      =======     =======      ======          ======
</TABLE>

     For information about these contractual cash obligations, see Notes 4 and 8
to the consolidated financial statements appearing elsewhere in this prospectus.

TIMING OF REVENUE

     The timing of our revenue is affected by several significant factors. Many
end-users of the capital equipment products sold by us depend to a certain
extent upon the allocation of funds in the budgeting processes of the Chinese
government and the availability of credit from the Chinese banking system. These
processes and the availability of credit are based on policy determinations by
the Chinese government and are not necessarily subject to fixed time schedules.

     In addition, the sales of certain products often require protracted sales
efforts, long lead times and other time-consuming steps. Further, in light of
the dependence by purchasers of capital equipment on the availability of credit,
the timing of sales may depend upon the timing of our or our purchasers'
abilities to arrange for credit sources, including Ex-Im Bank or other loan
financing. As a result, our operating results have varied and are expected to
continue to vary from period to period and year to year. In addition, a
relatively limited number of orders and shipments may constitute a meaningful
percentage of our revenue in any one period. As a result, a relatively small
reduction in the number of orders can have a material impact on our revenue in
any year. Further, because we recognize revenue and expense as products are
shipped, the timing of shipments could affect our operating results for a
particular period. At the same time, a growing percentage of our revenue is
attributable to hospital services and local currency sales through the HPD, both
of which have more even revenue streams.

FOREIGN CURRENCY EXCHANGE AND IMPACT OF INFLATION

     Our results of operations for the periods discussed have not been
significantly affected by inflation or foreign currency fluctuation. Since we
receive over 60% of our revenue in local Chinese currency, we have some foreign
currency risk. Changes in the valuation of the Chinese Renminbi or Hong Kong
dollar may have an impact on our results of operations in the future. Our
subsidiaries, Chindex Tianjin, Chindex Shanghai and Beijing United, sell
products and services in Renminbi. For over 20 years the Chinese and Hong Kong
dollars have been pegged to the US dollar. While discussions about the possible
removal of this pegged rate have been in the news we do not believe at this time
any change is imminent. Also, Chinese currency is not freely tradable and we do
not hedge our transactions. We monitor the situation globally and continue to
keep up with the discussion. While there can be no assurances that a change will
not occur, we do not believe any such change will have a material adverse
effect.

     We also have purchased and will continue to purchase some products in
Western currencies other than U.S. dollars and has sold and will continue to
sell such products in China for U.S. dollars. To the extent that the value of
the U.S. dollar declines against such a currency, we could experience a negative



                                      -19-
<PAGE>

impact on profitability. We anticipate hedging transactions wherever possible to
minimize such negative impacts. Currently there are no such hedges.

     As part of our risk management program, we also perform sensitivity
analyses to assess potential changes in revenue, operating results, cash flows
and financial position relating to hypothetical movements in currency exchange
rates. Our sensitivity analysis of changes in the fair value of the Renminbi to
the U.S. Dollar at March 31, 2004, indicated that if the U.S. Dollar uniformly
increased in value by 10 percent relative to the Renminbi, then we would
experience a 6% smaller loss. Conversely, a 10 percent increase in the value of
the Renminbi relative to the U.S. Dollar at March 31, 2004 would have resulted
in a 7% additional loss.










                                      -20-
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTING DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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 March 31, 2004 and December 31, 2002,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended March 31, 2004, the three months ended March 31,
2003 and the years ended December 31, 2002 and 2001. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free 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 March 31, 2004 and December 31, 2002, and the
consolidated results of its operations and its cash flows for the year ended
March 31, 2004, the three months ended March 31, 2003 and the years ended
December 31, 2002 and 2001 in conformity with U.S. generally accepted accounting
principles. 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.



                                                /s/ Ernst & Young, LLP
McLean, Virginia
June 15, 2004




                                      -21-
<PAGE>

                           CHINDEX INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                          (thousands except share data)

<TABLE>
<CAPTION>
                                                                                       March 31,          December 31,
                                                                                         2004                 2002
                                                                                         ----                 ----
<S>                                                                                     <C>                <C>
                                               ASSETS
Current Assets:
         Cash and cash equivalents                                                       $   6,791         $    6,100
         Trade receivables less allowance for doubtful accounts
            of $1,131 in 2004 and $883 in 2002
                  Equipment sales receivables                                               15,039             14,378
                  Patient service receivables                                                2,335              1,817
         Inventories                                                                        10,363             10,346
         Income taxes receivable                                                                 0                 11
         Deferred income taxes                                                                 467                892
         Other current assets                                                                2,235              1,793
                                                                                         ---------          ---------
                 Total current assets                                                       37,230             35,337
Property & equipment, net                                                                    8,901              7,128
Long term deferred income taxes                                                              1,334                  0
Other assets                                                                                   386                661
                                                                                         ---------          ---------
                 Total assets                                                            $  47,851          $  43,126
                                                                                         =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
         Accounts payable and accrued expenses                                           $  23,383          $  22,612
         Accrued contract training                                                           1,078                920
         Short term debt or vendor financing                                                 5,668              1,946
         Income taxes payable                                                                  381                  0
                                                                                         ---------          ---------
                 Total current liabilities                                                  30,510             25,478
Long-term debt or vendor financing                                                             125              3,609
                                                                                         ---------          ---------
                 Total liabilities                                                          30,635             29,087
Minority interest                                                                               18                 71
Stockholders' Equity:
         Preferred stock, $.01 par value, 500,000 shares authorized, none issued                 0                  0
         Common stock, $.01 par value, 6,800,000 shares authorized, including
         800,000 designated Class B:
                 Common stock - 3,643,152 and 2,932,956 shares issued and
                 outstanding in 2004 and 2002, respectively                                     36                 29
                 Class B stock - 775,000 shares issued and outstanding in 2004 and
                 2002                                                                            8                  8
         Additional capital                                                                 22,488             17,356
         Accumulated other comprehensive income                                                 11                  9
         Accumulated deficit                                                                (5,345)            (3,434)
                                                                                         ---------          ---------
                 Total stockholders' equity                                                 17,198             13,968
                                                                                         ---------          ---------
                 Total liabilities and stockholders' equity                              $  47,851            $43,126
                                                                                         =========          =========
</TABLE>

See accompanying notes

                                      -22-
<PAGE>

                           CHINDEX INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   (thousands except share and per share data)


<TABLE>
<CAPTION>
                                                     Year ended         Three months ended              Year ended
                                                      March 31,             March 31,                  December 31,
                                                        2004           2003           2002         2002          2001
                                                        ----           ----           ----         ----          ----
                                                                                (unaudited)
<S>                                                   <C>            <C>            <C>           <C>           <C>
Product sales                                         $72,229        $18,379        $12,779       $57,654       $47,339
Hospital services revenue                              15,954          3,470          2,799        12,963         8,779
                                                       ------          -----          -----        ------         -----
Total revenue                                          88,183         21,849         15,578        70,617        56,118

Cost and expenses
         Cost of product sales                         58,014         14,808         10,578        45,976        37,046
         Healthcare services costs                     15,723          3,393          2,722        11,721         8,304
         Selling and marketing expenses                10,346          2,007          1,567         7,934         6,899
         General and administrative                     5,682          1,419          1,004         4,853         4,270
                                                     ---------      ---------      ---------     ---------     ---------

(Loss) income from operations                          (1,582)           222           (293)          133          (401)

Minority interest                                          (8)             0              0            50           (18)

Loss on equity investment                                (222)             0              0           (38)            0

Other income and (expenses)
         Interest expense                                (249)           (51)            (4)          (54)          (13)
         Interest income                                   44             14             15            59           161
         Miscellaneous income (loss) , net                 94            (29)           (23)         (131)          578
                                                     ---------      ---------      ---------     ---------     ---------
                 Total other (loss) income               (111)           (66)           (12)         (126)          726
                                                     ---------      ---------      ---------     ---------     ---------

(Loss) income before income taxes                      (1,923)           156           (305)           19           307
(Provision for) benefit from income taxes                 (64)           (80)           113           240            77
                                                     ---------      ---------      ---------     ---------     ---------
Net (loss) income                                     $(1,987)           $76          $(192)         $259          $384
                                                     =========      =========      =========     =========     =========
(Loss) income per share data
Net (loss) income per common share - basic              $(.53)          $.02          $(.05)         $.07          $.10
Weighted average shares outstanding - basic         3,758,170      3,708,232      3,672,460     3,699,052     3,667,204
Net (loss) income per common share - diluted            $(.53)          $.02          $(.05)         $.07          $.10
Weighted average shares outstanding - diluted       3,758,170      3,715,908      3,672,460     3,796,340     3,950,636
</TABLE>


See accompanying notes




                                      -23-
<PAGE>


                           CHINDEX INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (thousands)


<TABLE>
<CAPTION>
                                                             Year ended     Three months ended           Year ended
                                                              March 31,          March 31,              December 31,
                                                                2004         2003         2002        2002        2001
                                                                ----         ----         ----        ----        ----
OPERATING ACTIVITIES                                                                  (unaudited)
<S>                                                           <C>              <C>       <C>           <C>         <C>
Net (loss) income                                             $(1,987)         $76       $(192)        $259        $384
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
         Depreciation                                           1,309          280          241       1,016         773
         Inventory write-down                                     151           31           43         158         147
         Provision for doubtful accounts                          777          118            0         279           0
         Minority interest                                          8            0            0         (53)          0
         Deferred income taxes                                   (909)           0            0        (660)       (232)
         Loss on Equity Investment                                222            0            0          38           0
Changes in operating assets and liabilities:
         Trade receivables                                     (3,121)       1,047          467      (3,542)      4,264
         Inventories                                              373         (571)        (979)     (3,124)      1,608
         Income taxes receivable                                  135         (122)        (196)        154         112
         Other current assets                                    (713)         270           44        (125)       (353)
         Other assets                                              25           26           67          98         282
         Accounts payable and accrued expenses                    678          388         (898)      3,992      (3,615)
         Income taxes payable                                     381            0            0           0         (90)
                                                             ---------     --------    ---------   ---------   ---------
Net cash (used in) provided by operating activities            (2,671)       1,543       (1,403)     (1,510)      3,280
INVESTING ACTIVITIES
         Investment in equity joint venture                         0            0            0         (40)          0
         Purchases of property and equipment                   (2,925)        (437)        (323)     (3,382)     (1,798)
                                                             ---------     --------    ---------   ---------   ---------
Net cash used in investing activities                          (2,925)        (437)        (323)     (3,422)     (1,798)
FINANCING ACTIVITIES
         Proceeds from (repayment of) short term debt
         payable                                                1,974       (1,250)         502       1,746         200
         Proceeds from issuance of common stock                 4,892            0            0           0           0
         Cash from (paid to) joint venture partner
         investment                                               (61)           0            0         120           0
         Long term vendor financing                              (623)           0            0       3,609           0
         Exercise of stock options                                247            0           56          81           0
                                                             ---------     --------    ---------   ---------   ---------
Net cash provided by (used in) financing activities             6,429       (1,250)         558       5,556         200
Effect of foreign exchange rate changes on cash and cash
equivalents                                                         2            0           22          17          (8)
                                                             ---------     --------    ---------   ---------   ---------
Net increase (decrease) in cash and cash equivalents              835         (144)      (1,146)        641       1,674
Cash and cash equivalents at beginning of period                5,956        6,100        5,459       5,459       3,785
                                                             ---------     --------    ---------   ---------   ---------
Cash and cash equivalents at end of period                     $6,791       $5,956       $4,313      $6,100      $5,459
                                                             =========     ========    =========   =========   =========
Cash paid for interest                                           $124           $8           $1         $45         $13
Cash paid for taxes                                              $460          $71          $56        $336        $518
</TABLE>

See accompanying notes



                                      -24-
<PAGE>

                           CHINDEX INTERNATIONAL, INC.
                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
           EQUITY FOR THE PERIOD ENDED MARCH 31, 2004 AND YEARS ENDED
                           DECEMBER 31, 2002 AND 2001
                          (thousands except share data)


<TABLE>
<CAPTION>

                                                      Common Stock                                      Accumulated
                               Common Stock             Class B          Additional    Accumulated         Other
                           ---------------------- --------------------- ------------  --------------   Comprehensive
                             Shares     Amount     Shares     Amount      Capital        Deficit       Income (Loss)    Total
                           -------------------------------------------------------------------------------------------------------

<S>                        <C>          <C>        <C>        <C>        <C>           <C>             <C>           <C>
Balance at
  December 31, 2000        2,895,656       $29      775,000        $8        $17,275       ($4,077)             $0      $ 13,235
----------------------------------------------------------------------------------------------------------------------------------

Net income 2001                                                                                384                           384

Foreign currency
  translation adjustment                                                                                        (8)           (8)
                                                                                                                     -------------
Comprehensive income                                                                                                         376
                                                                                                                     -------------

Balance at
  December 31, 2001        2,895,656        29      775,000         8         17,275        (3,693)             (8)       13,611
----------------------------------------------------------------------------------------------------------------------------------

Net income 2002                                                                                259                           259

Foreign currency
  translation adjustment                                                                                        17            17
                                                                                                                     -------------
Comprehensive income                                                                                                         276
                                                                                                                     -------------

Options exercised             37,300         0                                    81                                          81
                           -------------------------------------------------------------------------------------------------------

Balance at
  December 31, 2002        2,932,956        29      775,000         8         17,356        (3,434)              9        13,968
----------------------------------------------------------------------------------------------------------------------------------

Net income for the three
months ended March 31,
2003                                                                                            76                            76

Net loss 2004                                                                               (1,987)                       (1,987)
Foreign currency
  translation adjustment                                                                                         2             2
                                                                                                                     -------------
Comprehensive income                                                                                                      (1,985)
                                                                                                                     -------------
Issuance of common stock     600,000         6                                 4,886                                       4,892

Options exercised            110,196         1                                   246                                         247
                           -------------------------------------------------------------------------------------------------------

Balance at
  March 31, 2004           3,643,152       $36      775,000        $8        $22,488       ($5,345)            $11       $17,198
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes




                                      -25-
<PAGE>

                           CHINDEX INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004
                 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Chindex International, Inc. (the Company or "Chindex") is an American
company operating in several healthcare sectors of the Chinese marketplace,
including Hong Kong. The Company conducts business in three segments.

     The Medical Capital 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. Most consumable products are shipped
when payment is received.

     The Healthcare Services segment operates a hospital and clinic in Beijing
and will be opening a second hospital in Shanghai in 2004. While Beijing United
generally transacts its business in local Chinese currency it can receive
payments in U.S. dollars.

CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Minority interest is derived from the
Company's partner's 10% share of the earnings of Beijing United and 30% share of
the earnings of Shanghai United. The Company also holds a 40% interest in
Natural Formula Asia Limited (NFAL), which is accounted for using the equity
method. The Company has agreed in principle with the other investors to fund an
additional $220,000, in the form of a loan, to NFAL. This payment will be made
in 2005. Significant intercompany balances and transactions are eliminated.

REVENUE RECOGNITION

     Sales of equipment and consumables are recognized upon product shipment,
which corresponds to the point at which the risk of loss transfers to the
customer. A small amount of retail product uses the consignment sale model,
where shipments are recorded as consignment inventory and revenue is recognized
based on sales by the retail outlet to the end customers. Revenue related to
services provided by Healthcare Services are net of contractual adjustments or
discounts and is recognized in the period services are provided. Healthcare
Services makes an estimate at the end of the month for certain in-


                                      -26-
<PAGE>

patients who have not completed service. This estimate reflects only the cost of
care up to the end of the month.

     The Company earns revenue from sales of products and providing services.
Substantially all revenue in the Medical Capital Equipment segment and the
Healthcare Products Distribution segment are from the sale of products and
substantially all revenue in Healthcare Services is from providing services. See
Note 11 for further information on sales and gross profit by segment.

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 the healthcare services division 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 Healthcare Services,
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. The Company
evaluates its long-lived assets for impairment when indicators of impairment are
identified. The Company records impairment charges based upon the difference
between the fair value and carrying value of the original asset when
undiscounted cash flows indicate the carrying value will not be recovered. No
impairment losses have been recorded in the accompanying consolidated statement
of operations.

INCOME TAXES

     The Company's U.S. entities file 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.


                                      -27-
<PAGE>

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 primarily of cash and cash equivalents, trade receivables,
accounts payable, and short-term debt payable and vendor financing to
approximate the fair value of the respective assets and liabilities at March 31,
2004 and December 31, 2002.

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. 100% stock splits in the form of a stock dividend were announced by the
Company on August 6, 2003 with a record date of August 18, 2003 and on December
29, 2003 with a record date of January 10, 2004. Common stock as reported in the
financial statements has been adjusted for all periods to reflect these stock
dividends.

FOREIGN CURRENCIES

     Financial statements of the Company's foreign subsidiaries are translated
from the functional currency, generally the local currency, to U.S. Dollars.
Assets and liabilities are translated at the exchange rates on the balance sheet
date. Results of operations are translated at average exchange rates.
Accumulated other comprehensive income in the accompanying consolidated
statements of stockholders' equity consists entirely of the resulting exchange
difference.

USE OF ESTIMATES

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


                                      -28-
<PAGE>

used include receivable collectibility and deferred tax valuation allowances.
There were no material changes to the estimates made by the Company this year as
compared to last year.

RECLASSIFICATIONS

     Certain balances in the 2003, 2002 and 2001 financial statements have been
reclassified to conform to the 2004 presentation.

                                 2. INVENTORIES
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                           March 31,       -----------------
                                                                             2004                2002
                                                                     --------------------  -----------------
<S>                                                                   <C>                  <C>
        Inventories consist of the following:
            Merchandise inventory                                          $  7,834             $ 7,609
            Healthcare services inventory                                       247                 240
            Demonstration inventory, net                                        826                 840
            Parts and peripherals                                             1,456               1,657
                                                                     --------------------  -----------------
                                                                            $10,363             $10,346
                                                                     ====================  =================
</TABLE>

                         3. PROPERTY AND EQUIPMENT, NET
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                             March 31,
                                                                         ----------------    December 31,
                                                                               2004              2002
                                                                         ----------------  -----------------
<S>                                                                      <C>               <C>
         Property and equipment, net consists of the following:
           Furniture and equipment                                         $    7,616      $      5,408
           Vehicles                                                               109               109
           Leasehold improvements                                               6,747             5,594
                                                                         ----------------  -----------------
                                                                               14,472            11,111
         Less: accumulated depreciation and amortization                       (5,571)           (3,983)
                                                                         ----------------  -----------------
                                                                           $    8,901      $      7,128
                                                                         ================  =================
</TABLE>


                                     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 March 31, 2004, letters of credit issued by the bank
amounted to approximately $420,000 and $883,000 was 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. As of March 31, 2004, this line
of credit had $600,000 outstanding. Terms of the agreement are customary, with
the interest rate being 1.75% over the three-month Singapore Interbank Money
Market Offer Rate (SIBOR). In connection with the agreement, the hospital has
agreed to utilize HSBC for a certain portion of its patient payments via credit
cards. Under this credit card arrangement, all funds from patient invoices
reimbursed by U.S. Dollar credit cards are received by HSBC in Beijing and
posted directly to the Company's account at HSBC in Beijing. Currently HSBC in
Beijing does not hold a Reminbi license and, accordingly, all Reminbi credit
card transactions are processed through the Bank of China.



                                      -29-
<PAGE>

     Also, a new line of credit is included in the arrangement with HSBC for up
to $1,200,000, bearing interest at 2.25% over SIBOR and having a term of up to
three years. As of March 31, 2004, the balance on this credit line was
$1,087,000. The Company on behalf of Beijing United has guaranteed the full
amount of these facilities.

     The Company has 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. As of March 31,
2004, the Company has $2,998,000 of payables recorded under this agreement that
are due in fiscal 2005.

     The following table sets forth the Company's debt obligations as of March
31, 2004:

                                 (in thousands)

<TABLE>
<CAPTION>
                            TOTAL       2005        2006        2007        2008       2009     THEREAFTER
                            -----       ----        ----        ----        ----       ----     ----------
<S>                       <C>        <C>        <C>         <C>         <C>         <C>         <C>
Line of credit            $  2,670   $    2,670 $       0   $     0     $     0     $      0    $    0
Vendor financing             2,998        2,998         0         0           0            0         0
</TABLE>


                             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.

STOCK OPTION PLAN

     The Company's 1994 Stock Option Plan (the Plan) provided 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. On April 27, 2004, the Plan
terminated by its terms and no additional options may be granted thereunder.

     The following is a summary of stock option activity during the year ended
March 31, 2004, the three months ended March 31, 2003 and the years ended
December 31, 2002 and 2001:

                                      -30-
<PAGE>

<TABLE>
<CAPTION>
                                        Weighted                Weighted               Weighted                Weighted
                                        Average                 Average                Average                 Average
                                        Exercise                Exercise               Exercise                Exercise
                              2004        Price        2003       Price       2002       Price       2001        Price
                           ---------                  -------                -------               -------
<S>                        <C>          <C>           <C>       <C>          <C>       <C>         <C>         <C>
Options outstanding,
beginning of year:         1,053,416    $   2.29      929,416   $    2.35    838,404   $    2.54    840,084    $    2.49
     Granted                  20,000        2.60      124,000        1.90    128,508        2.60    112,240         2.34
     Exercised              (110,196)       2.25            0        0       (37,300)       2.18          0         0
     Canceled                (14,520)       2.49            0        0          (196)       2.08   (113,920)        2.05
                           ---------                  -------                -------               --------
Options outstanding,
end of year                  948,700    $   2.30    1,053,416   $    2.29    929,416   $    2.35    838,404    $    2.54
                           =========                =========                =======                =======
</TABLE>

     Options exercisable at March 31, 2004, March 31, 2003, December 31, 2002
and 2001, were 919,360, 1,010,476, 886,752 and 736,128, respectively, with
weighted average exercise prices of $2.30, $2.28, $2.34 and $2.55, respectively.
The weighted average exercise price of options outstanding is $2.30, $2.29,
$2.35 and $2.54 and the weighted average remaining contractual life of such
options is 6.77, 7.73, 7.68 and 8.6 years respectively as of March 31, 2004,
March 31, 2003, December 31, 2002 and 2001

     The Company accounts for stock-based compensation to employees under
Accounting Principles Board Opinion ("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 share data):

<TABLE>
<CAPTION>
                                                        2004          2003          2002           2001
                                                      --------      -------       -------        -------
<S>                                                   <C>               <C>          <C>            <C>
Net (loss) income, as reported                        $(1,987)          $76          $259           $384
Deduct: total stock-based employee compensation
expense determined under fair value method for all
awards, net of related tax effects                        (18)          (36)          (24)          (186)
                                                      --------      -------       -------        -------
Net (loss) income, pro-forma                          $(2,005)          $40          $235           $298
                                                      ========      =======       =======        =======
Pro forma earnings per share:
EPS, basic             As reported                      $(.53)        $ .02          $.07           $.10
EPS, basic             Pro forma                        $(.53)        $ .02          $.06           $.08
EPS, diluted           As reported                      $(.53)        $ .01          $.07           $.10
EPS, diluted           Pro forma                        $(.53)        $ .01          $.06           $.08
</TABLE>

     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 2003, 2002 and 2001: dividend yield 0.00%; expected volatility
of 62.3%; risk-free interest rate of 3.00%; and expected life of 7.0 years. For
March 2004: dividend yield 0.00%; expected volatility 99.8%; risk-free interest
rate 2.00%; expected life 7.0 years.

RECENT ISSUANCE OF SECURITIES

     As of March 29, 2004, the Company entered into a securities purchase
agreement with a limited number of accredited investors pursuant to which we
agreed to issue and the investors agreed to purchase at a price of $9.00 per
share 1,500,000 shares of our common stock, together with warrants to purchase
an additional 300,000 shares of our common stock at an exercise price of $12.00
per share, for an aggregate purchase price of $13,500,000. We sometimes refer to
this financing as the "financing." The net proceeds to us from the financing,
after deducting expenses of the financing including placement agent fees, were
approximately $12,300,000. In connection with the financings, we also agreed to
issue the placement agent five-year warrants to purchase 90,000 shares of our
common stock at an exercise price of $12.00 per share. On March 31 and April 1,
2004, the initial closings of the financing occurred at which a total of 600,000
shares of our common stock together with warrants to purchase 120,000


                                      -31-
<PAGE>

shares of our common stock were issued to the investors. In connection with the
initial closings, the placement agent was issued warrants to purchase 36,000
shares of our common stock. The final closing of the financing took place on May
5, 2004 at which the remaining 900,000 shares of common stock together with the
remaining warrants to purchase 180,000 shares of our common stock were issued to
the investors. In connection with the final closing, the placement agent was
issued the remaining warrants to purchase 54,000 shares of our common stock.

SHARES OF COMMON STOCK RESERVED

     As of March 31, 2004, the Company had reserved 3,656,848 shares of common
stock for issuance upon exercise of remaining private placement securities,
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:

                   (thousands except share and per share data)

<TABLE>
<CAPTION>
                                                                             Three months
                                              Year ended                     ended March      Year ended       Year ended
                                               March 31,     Three months      31, 2002      December 31,     December 31,
                                             -------------   ended March     -----------    -------------    -------------
                                                 2004          31, 2003      (unaudited)         2002             2001
                                             -------------   ------------    -----------    -------------    -------------
<S>                                          <C>             <C>             <C>            <C>              <C>
    Net (loss) income                           $(1,987)            $76           $(192)          $259             $384
    Weighted average shares
    outstanding-basic                         3,758,170       3,708,232       3,672,460      3,699,052        3,667,204

    Basic earnings per share                      $(.53)           $.02           $(.05)          $.07             $.10

    Effect of dilutive securities:

    Shares issuable upon exercise of
    dilutive outstanding stock options:               0           7,676               0         97,288          283,432
    Weighted average shares
    outstanding-basic                         3,758,170       3,715,908       3,672,460      3,796,340        3,950,636

    Diluted earnings per share                    $(.53)           $.02           $(.05)          $.07             $.10

</TABLE>

For the periods in which losses were incurred, shares issuable upon exercise of
stock options are excluded from diluted earnings per share because the effect
would be anti-dilutive.

                                 7. INCOME TAXES

     The Company's (provision for) benefit from income taxes consists of the
following for the year ended March 31, 2004, three months ended March 31, 2003,
and the years ended December 31, 2002 and 2001:





                                      -32-
<PAGE>

<TABLE>
<CAPTION>
                                                                            (in thousands)
                                                 2004                 2003                2002                2001
                                            -------------         -------------       ------------        -------------
<S>                                         <C>                   <C>                 <C>                 <C>
    Current:
         Federal                            $      --              $        --        $     --            $      --
         Foreign                                   (356)                   (80)            (545)                (249)
         State                                        0                      0                0                  (34)
                                            -------------          -------------      ------------        -------------
                                                   (356)                   (80)            (545)                (283)
    Deferred:
         Federal                                    208                      0              681                  190
         State                                        2                      0              104                   42
         Foreign                                     82                      0                0                  128
                                            -------------          -------------      ------------        -------------
                                                    292                      0              785                  360
                                            -------------          -------------      ------------        -------------
                                            $       (64)           $       (80)       $     240           $       77
                                            =============          =============      ============        =============
</TABLE>


     Significant components of the Company's deferred tax liabilities and assets
are as follows for the years ended March 31, 2004 and December 31, 2002:

<TABLE>
<CAPTION>
                                                                            (in thousands)
                                                            --------------------------------------------
                                                                    2004                     2002
                                                            --------------------      ------------------
<S>                                                         <C>                       <C>
    Deferred tax liabilities:
         Unremitted earnings on foreign subsidiaries        $              0          $            0

    Deferred tax assets:
         Allowance for doubtful accounts                                 286                     286
         Sales commissions                                               181                     114
         Net operating loss carryforwards                              2,463                     949
         Foreign tax credit                                              194                       0
         Alternate minimum tax                                            47                       0
         Depreciation                                                     27                       0
         Other                                                             0                      (1)
                                                            --------------------      ------------------
         Subtotal                                                      3,198                   1,348
         Less valuation allowance                                     (1,397)                   (456)
                                                            --------------------      ------------------
    Net deferred tax asset                                  $          1,801          $          892
                                                            ====================      ==================
</TABLE>

     The Company's effective income tax rate varied from the statutory federal
income tax rate for the year ended March 31, 2004, the three months ended March
31, 2003 and the years ended December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                               2004          2003           2002           2001
                                                              ------        ------         ------         ------
<S>                                                           <C>          <C>            <C>             <C>
    Statutory federal income tax rate                           34.0%        34.0%            34.0%         34.0%
    Adjustments:
         State income taxes, net of federal benefit              4.0          4.0              4.0           4.0
         Foreign tax rate differential                          (9.0)       171.0          3,036.0        (188.0)
         Use of net operating losses                             0.0          0.0         (5,289.0)        (42.0)
         Change in valuation allowance                          17.0        (38.0)        (3,474.0)        (75.0)
         Other, including permanent differences                (49.0)      (136.0)         4,426.0         242.0
                                                               -----       ------         --------         -----
                                                                (3.0)%       35.0%        (1,263.0)%       (25.0)%
                                                               =====       ======         ========         =====
</TABLE>

     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 reductions in its deferred tax valuation allowance on previously fully
reserved tax losses of $660,000 in fiscal year 2002 and $232,000 in fiscal


                                      -33-
<PAGE>

year 2001. The Company expects the tax benefits from these net operating losses
will be realized in 2005 or 2006.

     All profit-seeking hospitals are entitled to business tax deferral for 3
years starting from the receipt of certificate recognizing those hospitals as
profit-seeking. Beijing United received this certificate on November 26, 2001
and as a result Beijing United is entitled to 3-year business tax exemption
starting from November 26, 2001 through November 25, 2004. As of June 20, 2004
this approval, while only a formality, has not been received. The Company's
liability is estimated at $900,000 should approval be denied. The Company has
not recorded any accrual for the contingency related to this matter because it
considers it remote that it will incur this tax liability.

         The Company has U.S. Federal net operating losses of approximately $3.2
million that expire in 2014 through 2024. The Company also has foreign losses
from China of approximately $559,000 that expire in 2007 and 2009.


                                 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:

                              (thousands)
           Year ending March 31:
                     2005...............................   $1,616
                     2006...............................    1,387
                     2007...............................    1,348
                     2008...............................    1,263
                     2009...............................    1,219
                     Thereafter.........................    3,886
                                                          -------
                     Net minimum rental commitments.....  $10,719
                                                          =======

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

Rental expense was approximately $1,904,000, $472,000, $1,499,000 and $1,026,000
for the year ended March 31, 2004, three months ended March 31, 2003, and for
the years ended December 31, 2002, and 2001, 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. Substantially all of the Company's cash and cash equivalents
at March 31, 2004 and December 31, 2002 were held by one U.S. financial
institution. All of the Company's sales during the years were to end-users
located in China or Hong Kong. Most of the Company's equipment or consumables
sales are accompanied by down payments of cash and/or letters of credit. Most of
the Company's medical services provided by Beijing United were performed in
China for patients residing in China. Approximately 65% of the payments received
for such services were denominated in local currency and 35% in U.S. dollars.

         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


                                      -34-
<PAGE>

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 assets at March 31, 2004 and December 31, 2002,
approximately $33,476,000 and $29,784,000, respectively, of such assets are
located in China, consisting principally of cash, receivables, inventories,
leasehold improvements, equipment and other assets. Also, see Note 10.


                       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 fiscal 2002, the Company recorded sales to
Instrimpex FTC of $8,821,000; this is the only customer over 10% of total sales.

         Purchases from several suppliers were each over 10% of total cost of
goods. These were Siemens ($14,945,000), Becton-Dickenson ($8,863,000), Guidant
($11,926,000) and L'Oreal ($10,311,000) for the year ended March 31, 2004.
Purchases over 10% for the year ended December 31, 2002 were Siemens,
($11,233,000), Becton-Dickenson ($11,145,000) and L'Oreal ($7,168,000).


                              11. SEGMENT REPORTING

         The Company has three reportable segments: Medical Capital 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. 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 March 31, 2004:

<TABLE>
<CAPTION>
                                              Medical         Healthcare
                                              Capital          Products         Healthcare
                                             Equipment       Distribution        Services          Total
                                            -----------      ------------      -----------      -----------
<S>                                         <C>              <C>               <C>              <C>
Assets                                      $23,087,000      $12,525,000        $12,339,000     $47,951,000

Sales and service revenue                   $33,836,000      $38,393,000        $15,954,000     $88,183,000
Gross Profit                                  9,427,000        4,788,000              n/a           n/a
Gross Profit %                                       28%              13%             n/a           n/a
(Loss) from operations                      $  (269,000)     $  (643,000)       $  (672,000)    $(1,582,000)
Other (expense) net                                                                                (111,000)
Minority interest                                                                                    (8,000)
Loss on equity investment                                                                          (222,000)
                                                                                                -----------
Loss before income taxes                                                                        $(1,923,000)
                                                                                                ===========
</TABLE>


                                      -35-
<PAGE>

For the three months ended March 31, 2003:

<TABLE>
<CAPTION>
                                              Medical         Healthcare
                                              Capital          Products         Healthcare
                                             Equipment       Distribution        Services          Total
                                            -----------      ------------      -----------      -----------
<S>                                         <C>              <C>               <C>              <C>
Assets                                      $19,521,000      $12,571,000        $10,248,000     $42,340,000

Sales and service revenue                   $ 7,716,000      $10,663,000        $ 3,470,000     $21,849,000
Gross Profit                                  2,474,000        1,097,000              n/a           n/a
Gross Profit %                                       32%              10%             n/a           n/a
Income (loss) from operations               $   521,000      $  (121,000)       $  (178,000)    $   222,000
Other (expense) net                                                                                 (66,000)
Minority interest                                                                                         0
Loss on equity investment                                                                           (38,000)
                                                                                                -----------
Income before income taxes                                                                      $   156,000
                                                                                                ===========
</TABLE>


For the year ended December 31, 2002:
<TABLE>
<CAPTION>
                                              Medical         Healthcare
                                              Capital          Products         Healthcare
                                             Equipment       Distribution        Services          Total
                                            -----------      ------------      -----------      -----------
<S>                                         <C>              <C>               <C>              <C>
Assets                                      $21,354,000      $10,616,000        $11,156,000     $43,126,000

Sales and service revenue                   $28,708,000      $28,946,000        $12,963,000     $70,617,000
Gross Profit                                  7,822,000        3,856,000              n/a           n/a
Gross Profit %                                       27%              13%             n/a           n/a
Income (loss) from operations               $   198,000      $  (601,000)       $   536,000     $   133,000
Other (expense) net                                                                                (126,000)
Minority interest                                                                                    50,000
Loss on equity investment                                                                           (38,000)
                                                                                                -----------
Income before income taxes                                                                      $    19,000
                                                                                                ===========
</TABLE>


For the year ended December 31, 2001:
<TABLE>
<CAPTION>
                                              Medical         Healthcare
                                              Capital          Products         Healthcare
                                             Equipment       Distribution        Services          Total
                                            -----------      ------------      -----------      -----------
<S>                                         <C>              <C>               <C>              <C>

Assets                                      $17,511,000      $ 8,987,000        $ 6,871,000     $33,369,000

Sales and service revenue                   $25,819,000      $21,520,000        $ 8,779,000     $56,118,000
Gross Profit                                  7,451,000        2,842,000              n/a           n/a
Gross Profit %                                       29%              13%             n/a           n/a
Income (loss) from operations               $   439,000      $(1,316,000)       $   476,000     $  (401,000)
Other income, net                                                                                   726,000
Minority interest                                                                                   (18,000)
                                                                                                -----------
Income before income taxes                                                                      $   307,000
                                                                                                ===========
</TABLE>


                                      -36-
<PAGE>

                                      12. SELECTED QUARTERLY DATA (UNAUDITED)

                                         (thousands except per share data)

<TABLE>
<CAPTION>
                                                             First          Second          Third         Fourth
For the year ended March 31, 2004:                          Quarter        Quarter         Quarter        Quarter
                                                            -------        -------         -------        -------
<S>                                                          <C>           <C>             <C>            <C>
Revenue                                                      $20,373       $21,156         $21,630        $25,024
Gross profit from operations                                   5,670         7,152           7,506          8,247
(Loss) income before income taxes                             (1,726)          376            (502)           (71)
Net (loss) income                                             (1,338)          218            (383)           484)
Basic (loss) earnings per share of common stock                 (.36)          .06            (.10)          (.13)
Diluted (loss) earnings per share of common stock               (.36)          .05            (.10)          (.13)
Cash dividends per share of common stock                         .00           .00             .00            .00

For the thee months ended March 31, 2003:
Revenue                                                      $21,849
Gross profit from operations                                   6,702
Income before income taxes                                       156
Net income                                                        76
Basic earnings per share of common stock                         .02
Diluted earnings per share of common stock                       .02
Cash dividends per share of common stock                         .00
</TABLE>


<TABLE>
<CAPTION>
                                                             First          Second          Third         Fourth
For the year ended December 31, 2002:                       Quarter        Quarter         Quarter        Quarter
                                                            -------        -------         -------        -------
<S>                                                          <C>           <C>             <C>            <C>
Revenue                                                      $15,578       $14,968         $17,801        $22,270
Gross profit from operations                                   4,656         4,973           6,361          7,078
(Loss) income before income taxes                               (305)         (612)            400            536
Net (loss) income                                               (192)         (411)            176            686
Basic (loss) earnings per share of common stock                 (.05)         (.11)            .05            .19
Diluted (loss) earnings per share of common stock               (.05)         (.11)            .04            .19
Cash dividends per share of common stock                         .00           .00             .00            .00
</TABLE>




                                      -37-
<PAGE>



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The directors and executive officers of the Company and their present
positions with the Company are as follows:


Name                          Positions with the Company
----                          --------------------------

Roberta Lipson                Chairperson of the Board of Directors,
                              Chief Executive Officer and President

Elyse Beth Silverberg         Executive Vice President, Secretary and Director

Lawrence Pemble               Executive Vice President Finance and
                              Business Development and Director

Robert C. Goodwin, Jr.        Executive Vice President Operations, Treasurer,
                              Assistant Secretary, General Counsel and Director

A. Kenneth Nilsson*           Director

Julius Y. Oestreicher*        Director

Carol R. Kaufman*             Director


----------------
* Member of both the Compensation Committee and the Audit Committee.

         All directors of the Company hold office until the next annual meeting
of the stockholders and until their successors have been duly elected and
qualified. The officers of the Company are elected by the Board of Directors at
the first meeting after each annual meeting of the Company's stockholders and
hold office until their resignation, removal from office or death.

         Set forth below is certain information with respect to each director:

         ROBERTA LIPSON, 49, co-founded Chindex in 1981. Ms. Lipson has served
as the chairperson of the board of directors, chief executive officer and
president since that time. From 1979 until founding Chindex in 1981, Ms. Lipson
was employed in China by Sobin Chemical, Inc., a worldwide trading company, as
Marketing Manager, coordinating marketing and sales of various equipment in
China. Ms. Lipson was employed by Schering-Plough Corp. in the area of product
marketing until 1979. Ms. Lipson received a B.A. degree in East Asian Studies
from Brandeis University and an MBA degree from Columbia University Graduate
School of Business.

         ELYSE BETH SILVERBERG, 47, co-founded Chindex in 1981. Ms. Silverberg
has served as our executive vice president and secretary and as a director since
that time. Prior to founding us, from 1980 to 1981, Ms. Silverberg worked with
Ms. Lipson at Sobin Chemical, Inc. and was an intern in China with the National
Council for U.S.-China Trade from 1979 to 1980. Ms. Silverberg received a B.A.
degree in Chinese Studies and History from the State University of New York at
Albany.

         LAWRENCE PEMBLE, 47, joined us in 1984 and has served as executive vice
president--finance and business development since January 1996. From 1986 until
1996, Mr. Pemble served as vice president of


                                      -38-
<PAGE>


marketing. From 1986 through April 1992 and September 1993 to the present, Mr.
Pemble has also served as a director of Chindex. Prior to joining us, Mr. Pemble
was employed by China Books and Periodicals, Inc. as Manager, East Coast Center.
Mr. Pemble received a B.A. degree in Chinese Studies and Linguistics from the
State University of New York at Albany.

         ROBERT C. GOODWIN, JR., 63, has served as executive vice president
operations since January 1996, as assistant secretary since June 1995 and as
general counsel, treasurer and a director of Chindex since October 1992. In
addition to his other duties, from October 1992 until January 1996, Mr. Goodwin
served as vice president of operations for us. Prior to joining us, Mr. Goodwin
was engaged in the private practice of law from 1979 to 1992, with a specialty
in international law, in Washington, D.C. and had served as our outside counsel
since 1984. Prior to such employment, Mr. Goodwin served for two years as the
assistant general counsel for International Trade and Emergency Preparedness for
the United States Department of Energy and for three years as the deputy
assistant general counsel for the Federal Energy Administration. From 1969 until
1974, Mr. Goodwin served as an attorney-advisor for the U.S. Department of
Commerce. Mr. Goodwin received a B.A. degree from Fordham University and a J.D.
degree from Georgetown University Law Center.

         A. KENNETH NILSSON, 71, has served as a director since January 1996. He
formerly served as president of Cooper Laboratories, Inc.; president of Cooper
Lasersonics, Inc.; managing director of Pfizer Taito Ltd.; president of Max
Factor, Japan; and chairman of the Monterey Institute of International Studies.
Mr. Nilsson received a B.A. degree from the University of Southern California
and an M.A. degree from the University of California.

         JULIUS Y. OESTREICHER, 74, has served as a director for us since
January 1996. Mr. Oestreicher has been a partner with the law firm of
Oestreicher & Ennis, LLP and its predecessor firms for thirty years, engaged
primarily in estate, tax and business law. Mr. Oestreicher received a B.S.
degree in Business Administration from City College of New York and a J.D.
degree from Fordham University School of Law.

         CAROL R. KAUFMAN, 55, was appointed a director of Chindex in November
2000. Ms. Kaufman has been vice president and chief administrative officer of
The Cooper Companies, a medical device company, since October 1995 and was
elected vice president of legal affairs in March 1996. From January 1989 through
September 1995, she served as vice president, secretary and chief administrative
officer of Cooper Development Company, a healthcare and consumer products
company that was a former affiliate of The Cooper Companies. Ms. Kaufman
received her undergraduate degree from Boston University.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's capital stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports they file. To the Company's knowledge, based solely
upon review of the copies of such reports furnished to the Company during the
one-year period ended March 31, 2004, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% stockholders were
complied with.

CODE OF ETHICS

         The Company has adopted a code of ethics that applies to all executive
officers and directors of the Company, a copy of which is filed as Exhibit 14.1
to this report.


                                      -39-
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth information concerning the annual and
long term compensation during our last three fiscal years and the three month
fiscal period ended March 31, 2003 of our chief executive officer and other most
highly compensated executive officers whose salary and bonus for fiscal 2004
exceeded $100,000 for services rendered in all capacities to us and our
subsidiaries:

<TABLE>
<CAPTION>
                                                          ANNUAL COMPENSATION
                                          --------------------------------------------------------
                                                                                     OTHER ANNUAL
NAME AND PRINCIPAL POSITION               YEAR(a)        SALARY         BONUS        COMPENSATION
---------------------------               -------        ------         -----        ------------
<S>                                         <C>         <C>            <C>             <C>
Roberta Lipson .......................     2004         $184,437          --          $139,562(b)
  chairperson of the board, chief          2003         $ 46,109          --          $ 38,444(b)
  executive officer and president          2002         $184,437       $25,000        $137,765(b)
                                           2001         $184,437       $25,000        $156,460(b)



Elyse Beth Silverberg ................     2004         $177,606          --          $ 99,062(c)
  executive vice president and             2003         $ 44,402          --          $ 24,750(c)
  secretary                                2002         $177,606       $25,000        $ 98,750(c)
                                           2001         $177,606       $25,000        $ 98,100(c)

Lawrence Pemble ......................     2004         $176,839          --              --
  executive vice president finance         2003         $ 42,694          --              --
  and business development                 2002         $170,775       $25,000            --
                                           2001         $170,775       $25,000            --

Robert C. Goodwin, Jr ................     2004         $172,497          --              --
  executive vice president --              2003         $ 41,811          --              --
  operations, treasurer, assistant         2002         $167,244       $25,000            --
  secretary and general counsel            2001         $167,244       $25,000            --
</TABLE>

-----------------
(a)      Information is presented for our fiscal year ended March 31, 2004, the
         three months ended March 31, 2003, and our fiscal years ended December
         31, 2002 and 2001. Effective April 1, 2003, we changed our fiscal year
         end from December 31 to March 31.

(b)      Includes tuition expenses for Ms. Lipson's sons in China in the amounts
         of $36,600 in the year ended March 31, 2004, $13,694 in the three
         months ended March 31, 2003, $36,475 in 2002 and $54,900 in 2001. Also
         includes rental expenses of $96,000 in each of the years presented and
         $24,000 in the three months ended March 31, 2003, for Ms. Lipson's
         housing in China. Also includes $3,062 in the year ended March 31,
         2004, $750 in the three months ended March 31, 2003, $2,750 in 2002 and
         $2,100 in 2001 representing our matching contributions as deferred
         compensation under our 401(k) plan.

(c)      Includes rental expense in the amount of $96,000 in each of the years
         presented and $24,000 in the three months ended March 31, 2003, for Ms.
         Silverberg's housing in China. Also includes $3,062 in the year ended
         March 31, 2004, $750 in the three months ended March 31, 2003, $2,750
         in 2002 and $2,100 in 2001, representing our matching contribution as
         deferred compensation under our 401(k) plan.


OPTION GRANTS IN LAST FISCAL YEAR

         We did not grant any options to our named executive officers during
fiscal 2004.


                                      -40-
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

         The following table provides summary information concerning stock
options held as of March 31, 2004 by our chief executive officer and by the
other executive officers named in the summary compensation table above.

<TABLE>
<CAPTION>
                                                                      NUMBER OF SECURITIES      VALUE OF UNEXERCISED
                                   SHARES                            UNDERLYING UNEXERCISED     IN-THE-MONEY OPTIONS
                                ACQUIRED ON                        OPTIONS AT FISCAL YEAR END    AT FISCAL YEAR END
                                 EXERCISE            VALUE                EXERCISABLE/              EXERCISABLE/
NAME                               (#)(A)       REALIZED ($)(A)           UNEXERCISABLE           UNEXERCISABLE(B)
----                               ------       ---------------           -------------           ----------------
<S>                                <C>              <C>                    <C>                       <C>
Roberta Lipson                       --                --                   96,800/0                   $763,752/0
Elyse Silverberg                     --                --                   96,800/0                   $763,752/0
Lawrence Pemble                    16,800           $192,860                80,000/0                   $631,200/0
Robert C. Goodwin, Jr.             10,000           $122,948               161,820/0                 $1,284,162/0
</TABLE>


-----------------
(a)  Based on the closing prices per share on the respective dates of exercise
     after giving effect to a subsequent 100% stock dividend in the form of a
     stock split.

(b)  Based on the closing price per share of $10.09 on March 31, 2004, the last
     trading day of fiscal 2004.

EMPLOYMENT AGREEMENTS

         In 2001, we entered into five-year employment agreements with each of
Mmes. Lipson and Silverberg and Messrs. Pemble and Goodwin, providing for base
salaries to be subject to annual review and adjustment as determined by us, and
which currently are $184,437, $177,606, $170,775 and $167,244, respectively.
Each such executive officer also receives additional benefits, including those
generally provided to our other executive officers. In addition, each of Mmes.
Lipson and Silverberg also receives reimbursement of expenses relating to
residing in China. Each employment agreement also provides certain additional
compensation in the case of a departure related to a change of control of
Chindex, including the payment of three times the annual salary. Each agreement
also contains non-competition provisions that preclude each executive from
competing with us for a period of two years from the date of termination of
employment.

         We have obtained individual term life insurance covering Ms. Lipson in
the amount of $2,000,000. We are the sole beneficiary under this coverage.

COMMITTEES OF THE BOARD OF DIRECTORS

         We have no executive or nominating committee of the board of directors,
but have a compensation committee and an audit committee.

         The compensation committee consists of Messrs. Oestreicher and. Nilsson
and Ms. Kaufman. The function of the compensation committee is to make relevant
compensation decisions for us and to attend to such other matters relating to
compensation as may be prescribed by the board of directors.

         The audit committee consists of Ms. Kaufman and Messrs. Nilsson and
Oestreicher, each of whom meets the independence requirements for audit
committee members under the listing standards of the Nasdaq Stock Market, on
which the common stock is quoted. The function of the audit committee is to make
recommendations concerning the selection each year of our independent auditors,
to review the effectiveness of our internal accounting methods and procedures
and to determine through discussions with the independent auditors whether any
instructions or limitations have been placed upon them in connection


                                      -41-
<PAGE>

with the scope of their audit or our implementation. The audit committee reviews
and reassesses our charter annually and recommends any changes to the board of
directors for approval.

DIRECTOR COMPENSATION

         Each director who is not one of our employees is paid for serving on
the board of directors a retainer at the rate of $3,000 per annum and an
additional $1,000 for each meeting of our stockholders attended, $500 for each
meeting of the board of directors attended and $300 for each meeting of a
committee of the board of directors attended. We also reimburse each director
for reasonable expenses in attending meetings of the board of directors.
Directors also receive stock options as determined by the board of directors.
Directors who are also our employees are not separately compensated for their
services as directors. Since January 1, 2002, each of our outside directors
annually has been granted options for the purchase of 6,000 shares of our common
stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The members of the Company's compensation committee are Ms. Kaufman and
Messrs. Nilsson and Oestreicher, all of whom are independent directors. No
member of the compensation committee has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

Overview and Philosophy

         The Compensation Committee of the Board of Directors is composed
entirely of non-employee directors and is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation policies. In addition, the Compensation Committee,
pursuant to authority delegated by the Board of Directors, determines the
compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Company.

         The objectives of the Company's executive compensation program are to:

               *    Support the achievement of desired Company performance

               *    Provide compensation that will attract and retain superior
                    talent and reward performance

         The executive compensation program provides an overall level of
compensation opportunity that is intended to be competitive. The Compensation
Committee has considered companies of comparable size and in similar industries.
The Compensation Committee believes that the Company is atypical in its
combination of operations and China-based location, as well as other operational
and human resource circumstances. As such, the Compensation Committee has
designed its executive compensation in light of such circumstances.


                                      -42-
<PAGE>

Executive Officer Compensation Program

         The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation, long-term incentive
compensation in the form of stock options, specific performance-based bonuses
and various benefits, including medical and pension plans generally available to
employees of the Company. In 2001, the Company entered into employment
agreements with the executive officers. See "Executive Compensation - Employment
Agreements." These employment agreements have not been amended during the last
three years.

Base Salary

         Base salary levels for the Company's executive officers are
competitively set relative to historical levels as well as comparable entities
in similar industries. In determining salaries, the Compensation Committee also
takes into account individual experience and performance, as well as specific
circumstances, particular to the Company. The base salary levels for the
executive officers have not been increased during the past three years (except
for an approximately 4% and 3% total increase over the three-year period for
Messrs. Pemble and Goodwin, respectively) and currently are $184,437 for Ms.
Lipson, our Chief Executive Officer and President; $177,606 for Ms. Silverberg,
our Executive Vice President; $176,839 for Mr. Pemble, our Executive Vice
President Finance and Business Development; and $172,497 for Mr. Goodwin, our
Executive Vice President Operations and General Counsel. In light of the
foregoing, the Compensation Committee currently is considering increasing the
base salary levels for the Company's executive officers.

Stock Option Program

         The stock option program has been the Company's long-term incentive
plan for providing an incentive to key employees (including directors and
officers who are key employees) and to directors who are not employees of the
Company. This program would be expanded to include other equity incentives under
the proposed 2004 Stock Option Plan.

1994 Stock Option Plan

         The 1994 Stock Option Plan, which by its terms has terminated,
authorized the Board of Directors or a committee thereof to award key executives
stock options during fiscal 2004. Options granted under the plan contained terms
determined by the Board of Directors (or a committee thereof), including
exercise periods and price; provided, however, that the Stock Option Plan
required that the exercise price of the options be less than the fair market
value of the Common Stock on the date of the grant and the exercise period not
exceed ten years, subject to further limitations. During fiscal 2004 no options
were granted under the plan to any executive officer, although such options were
granted during fiscal 2005. In light of the expiration of the Stock Option Plan,
the 2004 Stock Option Plan is being submitted for approval by the Company's
stockholders.

Benefits

         The Company provides to executive officers medical and pension benefits
that generally are available to employees of the Company. The amount of
perquisites, as determined in accordance with the rules of the SEC relating to
executive compensation, exceeded 10% of salary for each of the fiscal year ended
December 31, 2002, the fiscal period ended March 31, 2003 and the fiscal year
ended March 31, 2004 with respect to Mmes. Lipson and Silverberg. The principal
components of these perquisites were cost of tuition and housing in China.



                                      -43-
<PAGE>

Bonus

         In light of the Compensation Committee's satisfaction with the
performance of management and the Company in general, the Company may pay
bonuses to certain executive officers. Although certain executive officers from
time to time have received annual bonuses in the amount of $25,000, during
fiscal 2004 none of Ms. Lipson, Ms. Silverberg, Mr. Pemble nor Mr. Goodwin
received any such bonus on the basis in part that the Compensation Committee
awarded stock options to executive officers during fiscal 2005.

Chief Executive Officer Compensation

         As noted above, in 2001, the Company entered into a five-year
employment agreement with Ms. Lipson. See "Executive Compensation-Employment
Agreements". In making compensation decisions as to the employment of Ms.
Lipson, the Compensation Committee specifically considered the Company's recent
revenue and earnings performance in the context of the continuing difficult time
and unpredictable political and economic circumstances of the Company's
industries, as well as the increased risk of loss of qualified management
personnel.

                                        Julius Y. Oestreicher
                                        A. Kenneth Nilsson
                                        Carol Kaufman
                                        Members of the Compensation Committee

PERFORMANCE GRAPH

         The following table compares the cumulative return to holders of the
Company's Common Stock for the five years ended March 31, 2004 with the National
Association of Securities Dealers Automated Quotation System Market Index and an
index of companies with a market capitalization similar to that of the
Company's, for the same period. The comparison assumes $100 was invested at the
close of business on March 31, 1999 in the Company's Common Stock and in each of
the comparison groups, and assumes reinvestment of dividends. The Company paid
no cash dividends during the foregoing period.

         The peer group selected by the Company includes companies with similar
market capitalization to that of the Company as of March 31, 2004. The Company
does not use a published industry or line-of-business basis, and does not
believe it could reasonably identify a different peer group. The companies that
comprise the peer group are the following: American Vantage Companies; Omni
Energy Services Corp.; Delcath Systems Inc.; Printware Inc.; Imagex Inc.; Regen
Biologics Inc.; Insteel Industries; Rit Technologies Ltd.; Law Enforcement
Associates Corp.; T/R Systems Inc.; Medwave Inc.; Wizzard Software Corp.; Mexco
Energy Corp.; Teledigital Inc.; Non Invasive Monitor; and New Century Companies,
Inc.


                                      -44-
<PAGE>


                                                 [GRAPH OMITTED]


                                          TOTAL RETURN TO SHAREHOLDER'S
                                      (INCLUDES REINVESTMENT OF DIVIDENDS)
<TABLE>
<CAPTION>
                                                                     ANNUAL RETURN PERCENTAGE

                                                                           YEARS ENDING
COMPANY NAME / INDEX                                    MAR00        MAR01       MAR02       MAR03        MAR04
----------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>         <C>         <C>         <C>
CHINDEX INTERNATIONAL INC                              140.46       -13.27       19.51      -28.16       404.50
NASDAQ U.S. INDEX                                       85.81       -59.96        0.78      -26.60        47.58
PEER GROUP                                              14.40       -79.79      -32.11      -29.21       167.39
</TABLE>

<TABLE>
<CAPTION>
                                                                          INDEXED RETURNS

                                         BASE
                                        PERIOD                              YEARS ENDING
COMPANY NAME / INDEX                     MAR99          MAR00        MAR01       MAR02       MAR03        MAR04
----------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>         <C>         <C>          <C>
CHINDEX INTERNATIONAL INC                 100          240.46       208.55      249.25      179.05       903.32
NASDAQ U.S. INDEX                         100          185.81        74.39       74.97       55.03        81.21
PEER GROUP                                100          114.40        23.12       15.70       11.11        29.72
</TABLE>


<TABLE>
<CAPTION>
PEER GROUP COMPANIES
----------------------------------------------------------------------------------------------------------------
<S>                                               <C>
AMERICAN VANTAGE COMPANIES                        NON INVASIVE MONITOR
CHINDEX INTL INC                                  OMNI ENERGY SERVICES CORP
DELCATH SYSTEMS INC                               PRINTWARE INC
IMAGEX INC                                        REGEN BIOLOGICS INC
INSTEEL INDUSTRIES                                RIT TECHNOLOGIES LTD
LAW ENFORCEMENT ASSOCS CORP                       T/R SYSTEMS INC
MEDWAVE INC                                       TELEDIGITAL INC
MEXCO ENERGY CORP                                 WIZZARD SOFTWARE CORP
NEW CENTURY COMPANIES INC
</TABLE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

EQUITY COMPENSATION PLAN INFORMATION

         The following table contains a summary of the number of shares of our
common stock to be issued upon the exercise of options, warrants and rights
outstanding at March 31, 2004, the weighted-average exercise price of those
outstanding options, warrants and rights, and the number of additional shares of
our common stock remaining available for future issuance under our equity
compensation plans as of March 31, 2004. Effective April 27, 2004, our 1994
Stock Option Plan, under which all of the options described below were granted,
terminated by its terms. Consequently, no further options may be granted under
any existing equity compensation plan as of the date of this prospectus.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                          (a)                          (b)                          (c)
                                                                                       Number of securities
                                                                                       remaining available for the
                             Number of securities to be     Weighted-average           future issuance under equity
                             issued upon exercise of        exercise price of          compensation plans (excluding
                             outstanding options,           outstanding options,       securities reflected in
Plan Category                warrants and rights            warrants and rights        column (a))
----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                          <C>                         <C>
Equity compensation plans
approved by security
holders                                 948,700                      $2.52                       1,010,000
---------------------------- ------------------------------ ------------------------ ---------------------------------
Equity compensation plans
not approved by security
holders                                   N/A                          N/A                          N/A
----------------------------------------------------------------------------------------------------------------------
</TABLE>

         The following table sets forth information as to the ownership of
shares of the Company's Common Stock and Class B Common Stock as of July 23,
2004 with respect to (i) holders known to the Company to


                                      -45-
<PAGE>


beneficially own more than five percent (5%) of the outstanding Common Stock or
the Class B Common Stock, (ii) each director, (iii) the Company's Chief
Executive Officer and each other executive officer whose annual cash
compensation for fiscal 2004 exceeded $100,000 and (iv) all directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                             AMOUNT AND NATURE
                                               OF BENEFICIAL
                                              OWNERSHIP(b)(c)                    PERCENT OF(d)
                                        --------------------------     ------------------------------------
                                                       CLASS B                     CLASS B
NAME AND ADDRESS OF                      COMMON        COMMON           COMMON     COMMON
BENEFICIAL STOCKHOLDER(a)                 STOCK        STOCK(e)         STOCK       STOCK      COMBINED(f)
-------------------------                 -----        --------         -----       -----      -----------
<S>                                     <C>            <C>               <C>         <C>          <C>
Roberta Lipson..................        118,012(g)     440,000(h)        2.5%        56.8%        29.6%
Elyse Beth Silverberg...........        137,972(i)     260,500           3.0         33.6         18.3
Lawrence Pemble.................        101,148(j)      74,500           2.1          9.6          5.9
Robert C. Goodwin, Jr...........        168,328(k)          --           3.5         --            2.0
Julius Y. Oestreicher...........        129,532(l)          --           2.7         --            1.4
A. Kenneth Nilsson..............        129,532(m)          --           2.7         --            1.4
Carol R. Kaufman................         69,360(n)          --           1.5         --             *
Neon Liberty Capital
   Management LLC
   230 Park Avenue, Suite 865
   New York, NY  10169..........        300,390(o)          --           6.6         --            3.3
Federated Kaufman Fund,
   a portfolio of Federated
   Equity Funds
   140 East 45th Street
   43rd Floor
   New York, NY 10017...........        666,000(p)          --          11.9         --            7.2
All executive officers and
   directors as a group (7
   persons).....................        873,884(q)     775,000          16.2        100.0         54.9
</TABLE>

-----------------
*    Less than 1%.

(a)  Unless otherwise indicated, the business address of each person named in
     the table is c/o Chindex International, Inc., 7201 Wisconsin Avenue,
     Bethesda, Maryland 20814.

(b)  Except as otherwise indicated, each of the parties listed has sole voting
     and investment power with respect to all shares indicated below.

(c)  Beneficial ownership is calculated in accordance with Regulation S-K as
     promulgated by the Commission.

(d)  Gives effect to all of the 1,500,000 shares sold in the financing.

(e)  Our common stock is entitled to one vote per share and our Class B common
     stock is entitled to six votes per share.

(f)  Indicates percentage voting power represented by beneficial ownership when
     the Class B common stock and common stock vote together, based on total
     outstanding as of June 28, 2004 of 775,000 shares of Class B common stock
     and 4,551,152 shares of common stock, including all of the 1,500,000 shares
     sold in the financing.

(g)  Includes 116,800 shares underlying options that are currently exercisable
     with respect to all of the underlying shares.

(h)  Includes 20,000 shares held by each of the Ariel Benjamin Lee Trust, Daniel
     Lipson Plafker Trust and Jonathan Lipson Plafker Trust, all of which Ms.
     Lipson is a trustee.


                                      -46-
<PAGE>

(i)  Includes 116,800 shares underlying options that are currently exercisable
     with respect to all of the underlying shares.

(j)  Includes 60,000 shares underlying options that are currently exercisable
     with respect to all of the underlying shares.

(k)  Includes 161,820 shares underlying options that are currently exercisable
     with respect to all of the underlying shares.

(l)  Represents shares underlying options that are currently exercisable with
     respect to all of the underlying shares.

(m)  Includes 123,480 shares underlying options that are currently exercisable
     with respect to all of the underlying shares.

(n)  Represents shares underlying options that are currently exercisable with
     respect to all of the underlying shares.

(o)  The amount and nature of beneficial ownership of these shares by Neon
     Liberty Capital Management LLC is based solely on a Schedule 13G filed by
     it with the Commission. The Schedule 13G indicates that the following
     natural persons share investment decisions over our shares owned by Neon
     Liberty Capital Management LLC: Satyen Mehta, Alejandro Baez-Sacasa and
     Fang Zheng. We have no independent knowledge of the accuracy or
     completeness of the information set forth in the Schedule 13G, but have no
     reason to believe that such information is not complete or accurate.

(p)  Federated Kaufmann Fund ("FKF") is a portfolio of Federated Equity Funds, a
     registered investment company. The parent holding company of FKF's advisors
     is Federated Investors Inc. FKF's advisor is Federated Equity Management
     Company of Pennsylvania ("FEMCPA") which has delegated daily management of
     the fund's assets to Federated Global Investment Management Corp.("FGIMC"),
     as subadvisor. While the officers and directors of FEMCPA have dispositive
     power over FKF's portfolio securities, they customarily delegate this
     dispositive power, and therefore the day to day dispositive decisions are
     made by the portfolio managers of FKF, currently, Lawrence Auriana and Hans
     P. Utsch. Messrs. Auriana and Utsch disclaim any beneficial ownership of
     the shares. With respect to voting power, FKF has delegated the authority
     to vote proxies to FEMCPA. FEMCPA has established a Proxy Voting Committee
     to cast proxy votes on behalf of FKF in accordance with proxy voting
     policies and procedure approved by FKF.

(q)  Includes 737,792 underlying options that are currently exercisable with
     respect to all of the underlying shares.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Not applicable.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         During fiscal year ended March 31, 2004, the three months ended March
31, 2003 and the fiscal year ended December 31, 2002, the aggregate fees billed
by Ernst & Young LLP for professional services were as follows:



                                      -47-
<PAGE>

                               Fiscal Year      Three Months    Fiscal Year
                                  Ended            Ended           Ended
                                March 31,         March 31,     December 31,
                                  2004              2003           2002
                               -----------      ------------    -----------
Audit Fees: (1)                 $135,000         $20,000        $125,000
Audit-Related Fees:                    0               0               0
Tax Fees: (2)                     36,300               0          34,660
All Other Fees: (3)             $145,545         $ 6,853        $ 18,551
                                --------         -------        --------
Total                           $316,845         $26,853        $178,211
                                ========         =======        ========

(1)  Represents fees for professional services provided in connection with the
     audit of our annual financial statements and review of our quarterly
     financial statements, advice on accounting matters that arose during the
     audit and audit services provided in connection with other statutory or
     regulatory filings.

(2)  Represents fees for international and U.S. tax planning and compliance
     services as well as consultations and assistance surrounding matters with
     various income and sales tax authorities.

(3)  Represents fees for services provided in connection with the Company's
     recently submitted registration statement and other miscellaneous items not
     otherwise included in the categories above.

         The Audit Committee has determined that the provision by Ernst & Young
LLP of non-audit services is compatible with maintaining the independence of
Ernst & Young LLP. In accordance with its charter, the Audit Committee approves
in advance all audit and non-audit services to be provided by Ernst & Young LLP.
In certain cases, the Audit Committee may delegate authority to pre-approve
non-audit services on a preliminary basis to one or more members of the Audit
Committee, provided that such pre-approvals re communicated to the full
Committee at its next meeting. During fiscal 2004, all services were
pre-approved by Audit Committee in accordance with this policy.


                                     PART IV

ITEM 15. EXHIBITS

         Item 15 is hereby supplemented as follows:

         The following financial statement schedule is included in Item 15(a):

                                                   Schedule II
                                        Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                     Balance
                                                    beginning      Additions    Additions not                Balance end
Description (amounts in thousands)                   of year       expensed       expensed      Deductions     of year
-------------------------------------------------------------------------------------------------------------------------
For the year ended March 31, 2004:
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
<S>                                                   <C>            <C>                          <C>          <C>
Allowance for doubtful receivables                    $1,001         $777                         $647         $1,131
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Deferred income tax valuation allowance                  456          278          $663              0          1,397
                                                         ---          ---          ----              -          -----
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
   Total allowances deducted from assets              $1,457       $1,055          $663           $647         $2,528
------------------------------------------------- ------------- ------------- --------------- ------------- -------------

------------------------------------------------- ------------- ------------- --------------- ------------- -------------
For the year ended March 31, 2004:
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Allowance for doubtful receivables                      $883         $118                                      $1,001
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Deferred income tax valuation allowance                  456                                         0            456
                                                         ---                                         -            ---
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
   Total allowances deducted from assets              $1,339         $118            $0             $0         $1,457
-------------------------------------------------------------------------------------------------------------------------

                                                      -48-
<PAGE>

-------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2002:
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Allowance for doubtful receivables                      $604         $279                                        $883
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Deferred income tax valuation allowance                1,446                                       990            456
                                                       -----                                       ---            ---
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
   Total allowances deducted from assets              $2,050         $279            $0           $990         $1,339
------------------------------------------------- ------------- ------------- --------------- ------------- -------------

------------------------------------------------- ------------- ------------- --------------- ------------- -------------
For the year ended December 31, 2001:
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Allowance for doubtful receivables                      $604                                                     $604
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
Deferred income tax valuation allowance                3,081                                     1,635          1,446
                                                       -----                                     -----          -----
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
   Total allowances deducted from assets              $3,685           $0            $0         $1,635         $2,050
------------------------------------------------- ------------- ------------- --------------- ------------- -------------
</TABLE>

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.

         The following exhibits are filed as part of this Report:

         14.1     Code of Ethics.

         23.1     Consent of Independent Registered Public Accounting Firm

         31.4     Certification of Chief Executive Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

         31.5     Certification of Chief Financial Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

         31.6     Certification of Chief Accounting Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.






                                      -49-
<PAGE>



                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                           CHINDEX INTERNATIONAL, INC.

July 29, 2004                              By:   /s/ Robert C. Goodwin
                                                 ----------------------------
                                                 Robert C. Goodwin, Jr.
                                                 Executive Vice President and
                                                 General Counsel













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