UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended March 31, 2008
 Commission File No. 0-24624
 CHINDEX INTERNATIONAL, INC.
  
 DELAWARE
    
    13-3097642(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
   Common Stock, $.01 par value and associated Preferred Stock Purchase Rights
 o þ
 o þ
 þ o
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  Large accelerated filer 
oAccelerated filer 
þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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CHINDEX INTERNATIONAL, INC.
TABLE OF CONTENTS
 PART I
    
    
    4ITEM 1. BUSINESS
    
    
    4General
    
    
    4Healthcare Services Division
    
    
    4Medical Products Division
    
    
    6Discontinued Operations
    
    
    7Competition
    
    
    7Employees
    
    
    8Internet Information and SEC Documents
    
    
    8ITEM 1A. RISK FACTORS
    
    
    8ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    22ITEM 2. PROPERTIES
    
    
    22ITEM 3. LEGAL PROCEEDINGS
    
    
    23ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    23PART II
    
    
    23ITEM 5. MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
    
    
    23ISSUER REPURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATA
    
    
    25ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
    
    
    27Overview
    
    
    27Critical Accounting Policies
    
    
    28Fiscal year ended March 31, 2008 compared to fiscal year ended March 31, 2007
    
    
    30Fiscal year ended March 31, 2007 compared to fiscal year ended March 31, 2006
    
    
    33Liquidity and Capital Resources
    
    
    35Timing of Revenue
    
    
    38Foreign Currency Exchange and Impact of Inflation
    
    
    38ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    39ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    40ITEM 9A. CONTROLS AND PROCEDURES
    
    
    71ITEM 9B. OTHER INFORMATION
    
    
    72NONE.
    
    
    72
 2




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PART III
    
    
    72ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
    
    
    72ITEM 11. EXECUTIVE COMPENSATION
    
    
    72ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    
    
    72RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    72ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    72PART IV
    
    
    73ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    73
 3




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PART I
 ITEM 1. BUSINESS
 General
  
    
    Healthcare Services division.This division operates the Companys United Family
Healthcare network of private hospitals and clinics. United Family Healthcare currently
owns and operates hospital and affiliated clinic facilities in the Beijing and Shanghai
markets. The division opened its first managed clinic in the city of Wuxi south of Shanghai
in early 2008 and plans to enter the Guangzhou market in southern China in 2008 with an
owned clinic facility to be followed by a hospital facility planned for 2010. In addition,
an additional owned hospital in Beijing is also planned for opening in 2010. For fiscal
2008, the Healthcare Services division accounted for 51% of the Companys revenue. (See
Note 13 to the consolidated financial statements appearing elsewhere in this Annual Report
on Form 10-K.)
    
    Medical Products division.This division markets, distributes and sells select medical
capital equipment, instrumentation and other medical products for use in hospitals in China
and Hong Kong on the basis of both exclusive and non-exclusive agreements with the
manufacturers of these products. The division revenues are generated through a nation-wide
direct sales force that also manages local sub-dealers regionally throughout the country.
The distribution business unit provides supply chain management and logistics services to
both divisions of the Company. For fiscal 2008, the Medical Products division accounted for
49% of our revenue. (See Note 13 to the consolidated financial statements appearing
elsewhere in this Annual Report on Form 10-K.)
 Healthcare Services Division
 United Family Healthcare Network (UFH)
   4




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UFH  Beijing Market  Beijing United Family Hospital and Clinics (BJU)
    5




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UFH  Shanghai Market  Shanghai United Family Hospital and Clinics (SHU)
    Medical Products Division
     6




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Discontinued Operations
  Competition
  7




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Employees
  Internet Information and SEC Documents
  http://www.sec.gov
 ITEM 1A. RISK FACTORS
 You should carefully consider the risks described below, together with all of the other
information included in this Annual Report on Form 10-K. The following risks and uncertainties are
not the only ones we face. However, these are the risks our management believes are material. If
any of the following risks actually materialize, our business, financial condition or results of
operations could be harmed. This report contains statements that are forward-looking. These
statements are based on current expectations
and assumptions that are subject to risks and uncertainties such as those listed below and
elsewhere in this report, which, among others, should be considered in evaluating our future
performance.
 8




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Risks Related to Our Business and Financial Condition
 Our business is capital intensive and we may not be able to access the capital markets when we
would like to raise capital.
  We may not generate sufficient cash flow to fund our capital expenditures, ongoing operations and
indebtedness obligations.
  
    
    our future operating performance;
    
    the demand for our services and products;
    
    general economic conditions and conditions affecting suppliers, customers and patients;
    
    competition; and
    
    legal and regulatory factors affecting us and our business, including exchange rate
fluctuations.
  If we fail to manage our growth or maintain adequate internal accounting, disclosure and other
controls, we would lose the ability to manage our business effectively and/or experience errors or
information lapses affecting public reporting.
   9




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If we fail to maintain an effective system of internal control over financial reporting, we may not
be able to accurately report our financial results. As a result, current and potential shareholders
could lose confidence in our financial reporting, which would harm our business and the trading
price of our stock.
  If we lost the services of our key personnel, then our leadership, expertise, experience, business
relationships, strategic and operational planning and other important business attributes would be
diminished.
  Our business could be adversely affected by inflation or foreign currency fluctuation.
   10




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We have entered into loan arrangements that could impair our financial condition and prevent us
from fulfilling our business obligations.
  
    
    requiring a substantial portion of our cash flow from operations to be
dedicated to the payment of principal and interest on indebtedness
instead of funding working capital, capital expenditures, acquisitions
and other business purposes;
    
    making it more difficult for us to satisfy all of our debt
obligations, thereby increasing the risk of triggering a cross-default
provision;
    
    increasing our vulnerability to economic downturns or other adverse
developments relative to less leveraged competitors;
    
    limiting our ability to obtain additional financing for working
capital, capital expenditures, acquisitions or other corporate
purposes in the future; and
    
    increasing our cost of borrowing to satisfy business needs.
  We may be unable to service or refinance our debt.
  11




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The terms of our indebtedness impose significant restrictions on our operating and financial
flexibility.
  
    
    incur or guarantee additional indebtedness;
    
    make restricted payments, including dividends and management fees;
    
    create or permit certain liens;
    
    enter into business combinations and asset sale transactions;
    
    make investments;
    
    enter into transactions with affiliates;
    
    incur certain expenditures; and
    
    enter into new businesses.
   Risks Relating to the Healthcare Services Divisio n
 If we do not attract and retain qualified physicians, administrators or other hospital personnel,
our hospital operations would be adversely affected.
  Our business is heavily regulated and failure to comply with those regulations could result in
penalties, loss of licensure, additional compliance costs or other adverse consequences.
 12




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Our operations could be adversely affected by the high cost of malpractice insurance.
  We depend on information systems, which if not implemented and maintained, could adversely affect
our operations.
   Our operations face competition that could adversely affect our results of operations.
  13




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Expansion of healthcare services to reach the Chinese population depends to some extent on the
development of insurance products that are not available now.
  Our loan from the IFC places restrictions on the conduct of our healthcare services business.
   
    
    incur or guarantee additional indebtedness;
    
    make restricted payments, including dividends and management fees;
    
    create or permit certain liens;
    
    enter into business combinations and asset sale transactions;
    
    make investments;
    
    enter into transactions with affiliates;
    
    incur certain expenditures; and
    
    enter into new businesses.
  Timing of revenues due to seasonality and fluctuations in financial performance vary from quarter
to quarter and are not necessarily indicative of our performance over longer periods.
  We may not be able to complete our proposed new and/or expanded hospital projects on budget if at
all, which would materially and adversely affect our financial condition.
  14




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Risks relating to our Medical Products division
 Continuing Losses in the Division
  We depend on our relations with suppliers and would be adversely affected by the termination of
arrangements with, or shortage or loss of any significant product line from, them.
  Our sales of medical products depend to some extent on our suppliers continuing to improve their
products and introduce new models. If a supplier fails to upgrade its product line as quickly as
competitive manufacturers have done this could adversely impact our revenues.
  15




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Timing of revenues and fluctuations in financial performance vary significantly from quarter to
quarter and are not necessarily indicative of our performance over longer periods.
  We have not been able to arrange financings, from third party banks or governments, for our
customers in every year. Future periodic financings arranged on behalf of our customers cannot be
assured. The absence of these financings could result in lower sales.
  We may be subject to product liability claims and product recalls, and in the future we may not be
able to obtain insurance against these claims at a reasonable cost or at all.
   16




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
    
    product seizures;
    
    voluntary or mandatory recalls;
    
    voluntary or mandatory patient or physician notification; and
    
    restrictions on or prohibitions against marketing the products.
 We face competition that may adversely impact us, which impact may be increased as a result of
Chinas inclusion in the World Trade Organization.
   If we are not able to hire and retain qualified sales representatives and service specialists, then
our marketing competitiveness, selling capabilities and related growth efforts will be impaired.
  17




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We must maintain a significant investment in merchandise and parts inventories, which are costly
and, if not properly managed, would result in an inability to provide timely marketing and delivery
and could result in financial or operating imbalances and problems with liquidity and capital
resources.
  If we do not maintain good relations with foreign trade corporations, our ability to import
products may be adversely affected.
  Our dependence on sub-distributors and dealers could be detrimental to our financial condition if
those sub-distributors or dealers do not sell our products.
  If the Chinese Government tightens controls or policies on purchases of medical equipment or
implements reforms which disrupt the market for medical devices our sales could be adversely
affected.
  18




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Risks Relating to Doing Business in China
  The economic policies of the Chinese Government and economic growth of China could adversely affect
us.
  The Chinese legal system is relatively new and may not provide protections to us or our investors.
   19




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The conversion of Renminbi into foreign currency is regulated, and these regulations could
adversely affect us.
  The SARS outbreak or similar outbreak, such as Avian flu, could further adversely affect our
operations.
  Natural disasters, such as the earthquake in Sichuan Province in May 2008, could adversely affect
our business operations.
  20




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The Chinese Government could change its policies toward, or even nationalize, private enterprise,
which could harm our operations.
   Risks Related to our Corporate Structure
 Control by insiders and their ownership of shares having disproportionate voting rights could have
a depressive effect on the price of common stock, impede a change in control and impede management
replacement.
  Our unissued preferred stock could be issued to impede a change in control.
  21




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  ITEM 2. PROPERTIES
     22




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ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  PART II
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES
OF EQUITY SECURITIES
  High
    
    LowYear Ended March 31, 2007:First Quarter
    
    $
    8.60
    
    
    $
    4.56Second Quarter
    
    
    9.81
    
    
    
    5.07Third Quarter
    
    
    15.33
    
    
    
    7.79Fourth Quarter
    
    
    17.73
    
    
    
    9.69Year Ended March 31, 2008:First Quarter
    
    $
    16.20
    
    
    $
    11.63Second Quarter
    
    
    17.83
    
    
    
    10.17Third Quarter
    
    
    24.67
    
    
    
    15.80Fourth Quarter
    
    
    29.17
    
    
    
    19.33
  23




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(a)
    
    
    (b)
    
    
    (c)Number ofSecuritiesRemainingAvailable forNumber of
    
    
    
    
    
    
    FutureSecurities to
    
    
    Weighted
    
    
    IssuanceBe Issued
    
    
    Average
    
    
    Under EquityUpon
    
    
    Exercise
    
    
    CompensationExercise of
    
    
    Price of
    
    
    PlansOutstanding
    
    
    Outstanding
    
    
    (excludingOptions,
    
    
    Options,
    
    
    securitiesWarrants
    
    
    Warrants
    
    
    reflected inand Rights
    
    
    and Rights
    
    
    column (a))Plan CategoryEquity Compensation Plans Approved By
Security Holders1994 Stock Option Plan
    
    
    651,209
    
    
    $
    3.26
    
    
    
    2004 Stock Incentive Plan
    
    
    338,000
    
    
    $
    4.18
    
    
    
    2007 Stock Incentive Plan
    
    
    320,250
    
    
    $
    13.55
    
    
    
    1,175,250Equity Compensation Plans Not
Approved By Security
Holders
    
    None
    
    
    None
    
    
    NoneTotal
    
    
    1,309,459
    
    
    
    
    
    
    
    1,175,250
 
  24




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ITEM 6. SELECTED FINANCIAL DATA
  Year ended March 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Statement of Operations DataNet sales
    
    $
    130,058
    
    
    $
    105,921
    
    
    $
    90,836
    
    
    $
    83,159
    
    
    $
    75,419Percent increase over prior period
    
    
    23
    %
    
    
    17
    %
    
    
    9
    %
    
    
    10
    %
    
    
    21
    %Net income (loss) from continuing operations
    
    
    3,655
    
    
    
    2,982
    
    
    
    167
    
    
    
    (3,924
    )
    
    
    (854
    )Net income (loss) from continuing operations
per share-basic
    
    
    .32
    
    
    
    .29
    
    
    
    .02
    
    
    
    (.49
    )
    
    
    (.15
    )Net income (loss) from continuing operations
per share-diluted
    
    
    .27
    
    
    
    .26
    
    
    
    .02
    
    
    
    (.49
    )
    
    
    (.15
    )Market closing price per share  end of year
    
    
    25.17
    
    
    
    11.61
    
    
    
    6.04
    
    
    
    4.12
    
    
    
    6.73Book value per share at end of period
    
    
    6.14
    
    
    
    2.62
    
    
    
    2.25
    
    
    
    2.56
    
    
    
    2.60Cash dividends declared
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00Balance Sheet Data (at end of period):Total assets
    
    $
    135,979
    
    
    $
    62,907
    
    
    $
    57,046
    
    
    $
    57,288
    
    
    $
    47,851Long term liabilities
    
    
    22,578
    
    
    
    8,737
    
    
    
    8,660
    
    
    
    2,873
    
    
    
    125Total stockholders equity
    
    
    87,388
    
    
    
    27,918
    
    
    
    22,638
    
    
    
    24,963
    
    
    
    17,198
 Year ended March 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Segment information:Healthcare
Services divisionsales
    
    $
    65,817
    
    
    $
    47,944
    
    
    $
    36,500
    
    
    $
    22,801
    
    
    $
    15,954Healthcare Services divisionoperating income (loss)
    
    
    10,342
    
    
    
    5,028
    
    
    
    1,585
    
    
    
    (2,844
    )
    
    
    (680
    )Medical Products divisionsales
    
    
    64,241
    
    
    
    57,977
    
    
    
    54,336
    
    
    
    60,358
    
    
    
    59,465Medical Products divisionoperating (loss) income
    
    
    (2,607
    )
    
    
    (1,154
    )
    
    
    (1,436
    )
    
    
    (880
    )
    
    
    223
 
 Per share information has been retroactively adjusted to give effect to the three-for-two
stock split in the form of a stock dividend, which was announced by us on March 18, 2008 with a
record date of April 1, 2008. 25




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*
    
    In fiscal 2006, the Company determined that the retail operations of our former Healthcare
Products Distribution division, which had suffered continuing losses over a nine-year period, would
be closed. The close-down of the retail operations, which distributed health and personal care
products to the consumer markets in China through retail pharmacies, was completed by the end of
fiscal 2007. The distribution and logistics services, which had been part of the discontinued
division, have been absorbed by the parent company. The distribution of medical products that had
been conducted in the former Healthcare Products Distribution division is now conducted by the
Medical Products division. The operating results related to the closedown of this business have
been segregated from continuing operations and reported as discontinued operations on a separate
line item on the consolidated statements of operations. The segment information in the table above
has been restated to reflect the new reporting structure. See Notes 2 and 13 to the consolidated
financial statements. 26




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
     
    
    Healthcare Services division.This division operates the Companys United Family
Healthcare network of private hospitals and clinics. United Family Healthcare currently
owns and operates hospital and affiliated clinic facilities in the Beijing and Shanghai
markets. The division opened its first managed clinic in the city of Wuxi south of Shanghai
in early 2008 and plans to enter the Guangzhou market in southern China in 2008 with an
owned clinic facility to be followed by a hospital facility planned for 2010. In addition,
an additional owned hospital in Beijing is also planned for opening in 2010. For fiscal
2008, the Healthcare Services division accounted for 51% of the Companys revenue. (See
Note 13 to the consolidated financial statements appearing elsewhere in this Annual Report
on Form 10-K.)
    
    Medical Products division. This division markets, distributes and sells select medical
capital equipment, instrumentation and other medical products for use in hospitals in China
and Hong Kong on the basis of both exclusive and non-exclusive agreements with the
manufacturers of these products. The division revenues are generated through a nation-wide
direct sales force that also manages local sub-dealers regionally throughout the country.
The distribution business unit provides supply chain management and logistics services to
both divisions of the Company. For fiscal 2008, the Medical Products division accounted for
49% of our revenue. (See Note 13 to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.)
 27




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Critical Accounting Policies
   Revenue recognition
   28




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Receivable collectability
    Valuation allowance of deferred tax assets
   Inventories
  29




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Fiscal year ended March 31, 2008 compared to fiscal year ended March 31, 2007
   Healthcare Services Division
  30




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Medical Products Division
     31




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Other Income and Expenses
  Taxes
    32




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Fiscal year ended March 31, 2007 compared to fiscal year ended March 31, 2006
  Healthcare Services Division
   Medical Products Division
  33




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Other Income and Expenses
  Taxes
    34




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Discontinued Operations
    Liquidity and Capital Resources
     35




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pari passu
   
 36




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37




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Contractual Arrangements
   Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    ThereafterBank Loan
    
    $
    13,614
    (1)
    
    $
    617
    
    
    $
    1,521
    
    
    $
    1,499
    
    
    $
    1,476
    
    
    $
    1,905
    
    
    $
    6,596JPM financing
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Vendor financing
    
    
    882
    
    
    
    82
    
    
    
    781
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    Capital leases
    
    
    58
    
    
    
    36
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    14,310
    
    
    
    3,323
    
    
    
    2,602
    
    
    
    2,096
    
    
    
    1,325
    
    
    
    1,108
    
    
    
    3,856Other (2)
    
    
    213
    
    
    
    64
    
    
    
    71
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    44,077
    
    
    $
    4,122
    
    
    $
    4,997
    
    
    $
    3,692
    
    
    $
    2,801
    
    
    $
    3,013
    
    
    $
    25,452
 
 (1)
    
    Includes interest of $4,451.(2)
    
    Contractual fees owing to our BJU joint venture partner.  Timing of Revenue
     Foreign Currency Exchange and Impact of Inflation
  38




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  39




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm
         40




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Bethesda, Maryland
    /s/ BDO SEIDMAN LLPJune 11, 2008 41




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Report of Independent Registered Public Accounting Firm
          Bethesda, Maryland
    /s/ BDO SEIDMAN LLPJune 11, 2008 42




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CHINDEX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(thousands except share data)
 March 31, 2008
    
    
    March 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    79,258
    
    
    $
    9,106Restricted cash
    
    
    1,123
    
    
    
    1,590Trade accounts receivable, less allowance for doubtful accounts of $3,940 and $2,827,
respectivelyProduct sales receivables
    
    
    12,098
    
    
    
    13,133Patient service receivables
    
    
    9,085
    
    
    
    6,104Inventories, net
    
    
    9,796
    
    
    
    7,835Deferred income taxes
    
    
    1,656
    
    
    
    2,463Other current assets
    
    
    3,294
    
    
    
    3,153Total current assets
    
    
    116,310
    
    
    
    43,384Property and equipment, net
    
    
    18,428
    
    
    
    18,482Long-term deferred income taxes
    
    
    
    
    
    
    607Other assets
    
    
    1,241
    
    
    
    434Total assets
    
    $
    135,979
    
    
    $
    62,907LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,097
    
    
    $
    12,546Accrued wages
    
    
    4,326
    
    
    
    4,040Accrued expenses
    
    
    6,436
    
    
    
    3,752Other
current liabilities
    
    
    3,479
    
    
    
    2,539Short-term portion of capitalized leases
    
    
    36
    
    
    
    36Short-term debt and vendor financing
    
    
    82
    
    
    
    2,710Income taxes payable
    
    
    349
    
    
    
    629Total current liabilities
    
    
    25,805
    
    
    
    26,252Long-term deferred tax liability
    
    
    208
    
    
    
    Long-term portion of capitalized leases
    
    
    22
    
    
    
    58Long-term debt, vendor financing and
convertible debentures
    
    
    22,556
    
    
    
    8,679Total liabilities
    
    
    48,591
    
    
    
    34,989Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value, 500,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.01 par value, 28,200,000 shares authorized, including 3,200,000
designated
Class B:Common stock  13,074,593 and 9,498,518 shares issued and outstanding at
March 31, 2008 and March 31, 2007, respectively
    
    
    131
    
    
    
    95Class B stock  1,162,500 shares issued and outstanding at March 31, 2008 and
March 31, 2007, respectively
    
    
    12
    
    
    
    12Additional paid in capital
    
    
    92,586
    
    
    
    38,911Accumulated other comprehensive income
    
    
    2,210
    
    
    
    106Accumulated deficit
    
    
    (7,551
    )
    
    
    (11,206
    )Total stockholders equity
    
    
    87,388
    
    
    
    27,918Total liabilities and stockholders equity
    
    $
    135,979
    
    
    $
    62,907
  43




---



##### 



CHINDEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands except share and per share data)
 Years ended March 31,2008
    
    
    2007
    
    
    2006Product sales
    
    $
    64,241
    
    
    $
    57,977
    
    
    $
    54,336Healthcare services revenue
    
    
    65,817
    
    
    
    47,944
    
    
    
    36,500Total revenue
    
    
    130,058
    
    
    
    105,921
    
    
    
    90,836Cost and expensesProduct sales costs
    
    
    47,679
    
    
    
    43,891
    
    
    
    40,913Healthcare services costs
    
    
    51,810
    
    
    
    40,534
    
    
    
    33,455Selling and marketing expenses
    
    
    12,175
    
    
    
    9,930
    
    
    
    10,195General and administrative expenses
    
    
    10,055
    
    
    
    6,921
    
    
    
    5,723Income from continuing operations
    
    
    8,339
    
    
    
    4,645
    
    
    
    550Other (expenses) and incomeInterest expense
    
    
    (3,575
    )
    
    
    (766
    )
    
    
    (589
    )Interest income
    
    
    1,159
    
    
    
    238
    
    
    
    173Miscellaneous (expense) income   net
    
    
    (226
    )
    
    
    70
    
    
    
    (18
    )Income from continuing operations before income taxes
    
    
    5,697
    
    
    
    4,187
    
    
    
    116(Provision for) benefit from income taxes
    
    
    (2,042
    )
    
    
    (1,205
    )
    
    
    51Net income from continuing operations
    
    
    3,655
    
    
    
    2,982
    
    
    
    167Loss from discontinued operations
    
    
    
    
    
    
    (247
    )
    
    
    (3,105
    )Net income (loss)
    
    $
    3,655
    
    
    $
    2,735
    
    
    $
    (2,938
    )Net income (loss) per common share  basicContinuing operations
    
    $
    .32
    
    
    $
    .29
    
    
    $
    .02Discontinued operations
    
    
    .00
    
    
    
    (.02
    )
    
    
    (.32
    )Net income (loss)
    
    $
    .32
    
    
    $
    .27
    
    
    $
    (.30
    )Weighted average shares outstanding  basic
    
    
    11,369,607
    
    
    
    10,286,870
    
    
    
    9,809,357Net income (loss) per common share  dilutedContinuing operations
    
    $
    .27
    
    
    $
    .26
    
    
    $
    .02Discontinued operations
    
    
    .00
    
    
    
    (.02
    )
    
    
    (.29
    )Net income (loss)
    
    $
    .27
    
    
    $
    .24
    
    
    $
    (.27
    )Weighted average shares outstanding  diluted
    
    
    13,361,443
    
    
    
    11,641,893
    
    
    
    10,528,484
  44




---



##### 



CHINDEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
 Years ended March 31,2008
    
    
    2007
    
    
    2006OPERATING ACTIVITIESNet income (loss)
    
    $
    3,655
    
    
    $
    2,735
    
    
    $
    (2,938
    )Adjustments to reconcile net income (loss) to net cash provided (used in) by
operating activities:Depreciation and amortization
    
    
    3,871
    
    
    
    3,258
    
    
    
    2,910Inventory write down
    
    
    600
    
    
    
    254
    
    
    
    538Provision for doubtful accounts
    
    
    1,673
    
    
    
    1,598
    
    
    
    797Loss on disposal of property and equipment
    
    
    245
    
    
    
    95
    
    
    
    72Deferred income taxes
    
    
    (454
    )
    
    
    (442
    )
    
    
    (627
    )Stock based compensation
    
    
    1,341
    
    
    
    196
    
    
    
    Foreign exchange (gain) loss
    
    
    (604
    )
    
    
    (771
    )
    
    
    (401
    )Amortization of debt issuance costs
    
    
    3
    
    
    
    
    
    
    
    Amortization of debt discount
    
    
    2,860
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Restricted cash
    
    
    479
    
    
    
    (1,183
    )
    
    
    (383
    )Trade receivables
    
    
    (2,190
    )
    
    
    (6,278
    )
    
    
    1,310Inventories, net
    
    
    (454
    )
    
    
    2,913
    
    
    
    3,443Other current assets
    
    
    282
    
    
    
    (597
    )
    
    
    (288
    )Other assets
    
    
    288
    
    
    
    300
    
    
    
    72Accounts payable and accrued expenses
    
    
    681
    
    
    
    (344
    )
    
    
    11,932Income taxes payable
    
    
    (344
    )
    
    
    480
    
    
    
    139Net cash provided by (used in) operating activities
    
    
    11,932
    
    
    
    2,448
    
    
    
    62INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (3,207
    )
    
    
    (2,474
    )
    
    
    (4,133
    )Cash received on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    108Net cash used in investing activities
    
    
    (3,207
    )
    
    
    (2,474
    )
    
    
    (4,025
    )FINANCING ACTIVITIESProceeds from debt and convertible debentures
    
    
    40,000
    
    
    
    148
    
    
    
    9,448Debt issuance costs
    
    
    (993
    )
    
    
    
    
    
    
    (96
    )Repayment of debt, vendor financing and capitalized leases
    
    
    (3,387
    )
    
    
    (2,611
    )
    
    
    (5,167
    )Proceeds from issuance of common stock
    
    
    19,949
    
    
    
    
    
    
    
    Proceeds from exercise of stock options and warrants
    
    
    4,392
    
    
    
    2,318
    
    
    
    555Net cash provided by financing activities
    
    
    59,961
    
    
    
    (145
    )
    
    
    4,740Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    1,466
    
    
    
    243
    
    
    
    84Net increase in cash and cash equivalents
    
    
    70,152
    
    
    
    72
    
    
    
    861Cash and cash equivalents at beginning of year
    
    
    9,106
    
    
    
    9,034
    
    
    
    8,173Cash and cash equivalents at end of year
    
    $
    79,258
    
    
    $
    9,106
    
    
    $
    9,034Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    740
    
    
    $
    749
    
    
    $
    235Cash paid for taxes
    
    $
    2,869
    
    
    $
    1,123
    
    
    $
    453Non-cash investing and financing activities consist of the following:Transfer of demonstration equipment from property and equipment to inventory
    
    $
    1,251
    
    
    $
    
    
    
    $
    Acquisition of inventory through vendor financing agreement
    
    $
    651
    
    
    $
    2,087
    
    
    $
    1,598Conversion of convertible debt into common stock (net of unamortized debt
issuance costs of $160)
    
    $
    24,840
    
    
    $
    
    
    
    $
    
  45




---



##### 



CHINDEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended March 31, 2008, 2007 and 2006
(thousands except share data)
 Additional
    
    
    
    
    
    Accumulated OtherCommon Stock
    
    Common Stock Class B
    
    Paid In
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    (Loss) Income
    
    TotalBalance at March 31, 2005
    
    
    8,592,665
    
    
    $
    86
    
    
    
    1,162,500
    
    
    $
    12
    
    
    $
    35,851
    
    
    $
    (11,003
    )
    
    $
    17
    
    
    $
    24,963Net loss 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,938
    )
    
    
    
    
    
    
    (2,938
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    58Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,880
    )Options and warrants
exercised
    
    
    327,645
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    552
    
    
    
    
    
    
    
    
    
    
    
    555Balance at March 31, 2006
    
    
    8,920,310
    
    
    
    89
    
    
    
    1,162,500
    
    
    
    12
    
    
    
    36,403
    
    
    
    (13,941
    )
    
    
    75
    
    
    
    22,638Net income 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,735
    
    
    
    
    
    
    
    2,735Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    31Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,404Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    196Options and warrants
exercised, and issuance
of restricted stock
    
    
    578,208
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    2,312
    
    
    
    
    
    
    
    
    
    
    
    2,318Balance at March 31, 2007
    
    
    9,498,518
    
    
    
    95
    
    
    
    1,162,500
    
    
    
    12
    
    
    
    38,911
    
    
    
    (11,206
    )
    
    
    106
    
    
    
    27,918Net income 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,655
    
    
    
    
    
    
    
    3,655Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,104
    
    
    
    2,104Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,677Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,341
    
    
    
    
    
    
    
    
    
    
    
    1,341Shares issued
    
    
    2,424,569
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    44,765
    
    
    
    
    
    
    
    
    
    
    
    44,789Beneficial conversion
feature on convertible
debt, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,189
    
    
    
    
    
    
    
    
    
    
    
    3,189Options and warrants
exercised, and issuance
of restricted stock
    
    
    1,151,506
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    4,380
    
    
    
    
    
    
    
    
    
    
    
    4,392Balance at March 31, 2008
    
    
    13,074,593
    
    
    $
    131
    
    
    
    1,162,500
    
    
    $
    12
    
    
    $
    92,586
    
    
    $
    (7,551
    )
    
    $
    2,210
    
    
    $
    87,388
  46




---



##### 



CHINDEX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Consolidation
  Revenue Recognition
    47




---



##### 



Accounts Receivable
  Inventories
   Property and Equipment
  48




---



##### 



Income Taxes
    49




---



##### 



Cash Equivalents
  Fair Value of Financial Instruments
  Earnings Per Share
   Stock- Based Compensation
    50




---



##### 



2006Net loss, as reported
    
    
    
    $
    (2,938
    )Deduct: total stock-based employee
compensation expense determined under
fair value method for all awards, net of
related tax effects
    
    
    (1,333
    )Net loss, pro-forma
    
    
    
    $
    (4,271
    )Pro forma loss per share*:Loss per share, basic
    
    As reported
    
    $
    (.30
    )Loss per share, basic
    
    Pro forma
    
    $
    (.44
    )Loss per share, diluted
    
    As reported
    
    $
    (.27
    )Loss per share, diluted
    
    Pro forma
    
    $
    (.41
    )
 
 *
    
    Per share information has been retroactively adjusted to give effect to the three-for-two stock
split in the form of a stock dividend, which was announced by us on March 18, 2008 with a record
date of April 1, 2008.    Volatility
    
    
    71.36%  71.82
    %Dividend yield
    
    
    0.00
    %Risk-free interest rate
    
    
    3.61%  4.12
    %Expected average life
    
    7.0 years
  Volatility
    
    
    71.02
    %Dividend yield
    
    
    0.00
    %Risk-free interest rate
    
    
    4.95
    %Expected average life
    
    7.0 years
   51




---



##### 



Debt Issuance Costs
  Dividends
  Foreign Currencies
  Use of Estimates
  Reclassifications
  New Accounting Standards
   52




---



##### 



2. DISCONTINUED OPERATIONS
   Years ended March 31,2008
    
    2007
    
    2006Net revenue from discontinued operations
    
    $
    0
    
    
    $
    0
    
    
    $
    11,370Loss from discontinued operations
    
    $
    0
    
    
    $
    (247
    )
    
    $
    (3,105
    )
   53




---



##### 



3.
INVENTORIES, NET
 March 31, 2008
    
    
    March 31, 2007Inventories, net, consist of the following:Merchandise inventory, net
    
    $
    6,488
    
    
    $
    4,422Healthcare services inventory
    
    
    763
    
    
    
    615Parts and peripherals
    
    
    2,545
    
    
    
    2,798$
    9,796
    
    
    $
    7,835
 4. PROPERTY AND EQUIPMENT, NET
 March 31, 2008
    
    
    March 31, 2007Property and equipment, net consists of the following:Furniture and equipment
    
    $
    15,030
    
    
    $
    12,896Vehicles
    
    
    21
    
    
    
    68Demonstration equipment
    
    
    
    
    
    
    2,762Leasehold improvements
    
    
    17,157
    
    
    
    14,79632,208
    
    
    
    30,522Less: accumulated depreciation and amortization
    
    
    (13,780
    )
    
    
    (12,040
    )$
    18,428
    
    
    $
    18,482
  5. DEBT
  March 31, 2008
    
    
    March 31, 2007Short term
    
    
    Long term
    
    
    Short term
    
    
    Long termVendor financing
    
    $
    82
    
    
    $
    800
    
    
    $
    2,161
    
    
    $
    286Line of credit
    
    
    
    
    
    
    
    
    
    
    549
    
    
    
    Long term loan
    
    
    
    
    
    
    9,163
    
    
    
    
    
    
    
    8,393Convertible Notes,
net of debt
discount
    
    
    
    
    
    
    12,593
    
    
    
    
    
    
    
    $
    82
    
    
    $
    22,556
    
    
    $
    2,710
    
    
    $
    8,679
 Vendor financing
  54




---



##### 



Line of credit
  Long
term loan  IFC 2005
  Convertible
Notes  JPM
  55




---



##### 



56




---



##### 



Loan
Facility  IFC 2007
      Loan
Facility  DEG 2008
  pari passu
  57




---



##### 



pari passu
    Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    ThereafterLong term loan
    
    $
    9,163
    
    
    $
    
    
    
    $
    916
    
    
    $
    916
    
    
    $
    916
    
    
    $
    1,374
    
    
    $
    5,041Convertible Notes
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Vendor financing
    
    
    882
    
    
    
    82
    
    
    
    781
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    25,045
    
    
    $
    82
    
    
    $
    1,697
    
    
    $
    935
    
    
    $
    916
    
    
    $
    1,374
    
    
    $
    20,041
 
 6. STOCKHOLDERS EQUITY
 Common Stock
   58




---



##### 



Stock Option Plan
     Weighted AverageGrant-DateNumber of Shares
    
    
    Fair ValueNonvested options outstanding, March 31, 2007
    
    
    40,300
    
    
    $
    3.48Granted
    
    
    324,750
    
    
    
    9.13Vested
    
    
    (23,274
    )
    
    
    3.24Canceled
    
    
    (9,000
    )
    
    
    3.07Nonvested options outstanding, March 31, 2008
    
    
    332,776
    
    
    $
    8.91
  Weighted AverageGrant-DateNumber of Shares
    
    
    Fair ValueNonvested options outstanding, March 31, 2006
    
    
    114,500
    
    
    $
    3.51Granted
    
    
    4,500
    
    
    
    3.93Vested
    
    
    (53,450
    )
    
    
    2.81Canceled
    
    
    (25,250
    )
    
    
    4.89Nonvested options outstanding, March 31, 2007
    
    
    40,300
    
    
    $
    3.48
 59




---



##### 



AggregateNumber of shares
    
    
    Intrinsic Valueunderlying
    
    
    of Restricted Stockrestricted stock
    
    
    (in thousands) *Outstanding as of March 31, 2007
    
    
    42,000Granted
    
    
    124,322Vested
    
    
    (40,499
    )Forfeited
    
    
    (4,500
    )Outstanding as of March 31, 2008
    
    
    121,323
    
    
    $
    3,054Expected to vest
    
    
    114,044
    
    
    $
    2,870
  AggregateNumber of shares
    
    
    Intrinsic Valueunderlying
    
    
    of Restricted Stockrestricted stock
    
    
    (in thousands) *Outstanding as of March 31, 2006
    
    
    Granted
    
    
    42,000Vested
    
    
    Forfeited
    
    
    Outstanding as of March 31, 2007
    
    
    42,000
    
    
    $
    488Expected to vest
    
    
    39,590
    
    
    $
    460
  60




---



##### 



Weighted
    
    
    Aggregate
    
    
    
    
    
    
    Weighted
    
    
    Aggregate
    
    
    
    
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Intrinsic
    
    
    
    
    
    
    Average
    
    
    Intrinsic
    
    
    
    
    
    
    Average
    
    
    IntrinsicExercise
    
    
    Value (in
    
    
    
    
    
    
    Exercise
    
    
    Value (in
    
    
    
    
    
    
    Exercise
    
    
    Value (in2008
    
    
    Price
    
    
    thousands)*
    
    
    2007
    
    
    Price
    
    
    thousands)*
    
    
    2006
    
    
    Price
    
    
    thousands)*Options outstanding,
beginning of year
    
    
    1,700,459
    
    
    $
    3.48
    
    
    
    
    
    
    
    1,973,613
    
    
    $
    3.69
    
    
    
    
    
    
    
    1,669,716
    
    
    $
    3.23Granted
    
    
    324,750
    
    
    
    13.55
    
    
    
    
    
    
    
    4,500
    
    
    
    5.53
    
    
    
    
    
    
    
    673,575
    
    
    
    4.11Exercised
    
    
    (686,181
    )
    
    
    3.25
    
    
    
    
    
    
    
    (180,612
    )
    
    
    3.48
    
    
    
    
    
    
    
    (327,645
    )
    
    
    1.69Canceled
    
    
    (29,569
    )
    
    
    7.36
    
    
    
    
    
    
    
    (97,042
    )
    
    
    7.73
    
    
    
    
    
    
    
    (42,033
    )
    
    
    8.03Options outstanding, end
of year
    
    
    1,309,459
    
    
    $
    6.01
    
    
    $
    25,085
    
    
    
    1,700,459
    
    
    $
    3.48
    
    
    $
    13,824
    
    
    
    1,973,613
    
    
    $
    3.69
    
    
    $
    9,399Weighted Average
Remaining Contractual
Term (Years)
    
    
    6.02
    
    
    
    
    
    
    
    
    
    
    
    5.85
    
    
    
    
    
    
    
    
    
    
    
    6.98Options exercisable at
end of year
    
    
    976,682
    
    
    $
    3.56
    
    
    $
    21,106
    
    
    
    1,660,159
    
    
    $
    3.45
    
    
    $
    13,558
    
    
    
    1,859,113
    
    
    $
    3.60
    
    
    $
    8,707Options exercisable at
end of year and expected
to be exercisable**
    
    
    1,289,493
    
    
    $
    5.90
    
    
    $
    24,846
    
    
    
    1,691,789
    
    
    $
    3.46
    
    
    $
    13,788
    
    
    
    ***
    
    
    
    ***
    
    
    
    ***
 
 *
    
    The aggregate intrinsic value on this table was calculated based on the positive difference
between the closing market price of the Companys common stock on March 31, 2008, 2007 and 2006
($25.17, $11.61 and $6.04, respectively) and the exercise price of the underlying options.**
    
    Options exercisable at March 31, 2008, 2007 and 2006, and expected to be exercisable include
both vested options and non-vested options outstanding less our expected forfeiture rate.***
    
    Not calculated in prior years. Security Issuances  Warrants Exercised
  61




---



##### 



Securities Issuances Private Placement:
  Securities Purchase Agreement- IFC:
  Shares of Common Stock Reserved
  62




---



##### 



7. EARNINGS PER SHARE
   Years ended March 31,2008
    
    
    2007
    
    
    2006Basic net income (loss) per share computation:Numerator:Net income from continuing operations
    
    $
    3,655
    
    
    $
    2,982
    
    
    $
    167Loss from discontinued operations
    
    
    
    
    
    
    (247
    )
    
    
    (3,105
    )Net income (loss)
    
    $
    3,655
    
    
    $
    2,735
    
    
    $
    (2,938
    )Denominator:Weighted average shares outstanding- basic
    
    
    11,369,607
    
    
    
    10,286,870
    
    
    
    9,809,357Net (loss) income per common share  basic:Net income from continuing operations
    
    $
    .32
    
    
    $
    .29
    
    
    $
    .02Loss from discontinued operations
    
    
    .00
    
    
    
    (.02
    )
    
    
    (.32
    )Net income (loss)
    
    $
    .32
    
    
    $
    .27
    
    
    $
    (.30
    )Diluted net income (loss) per share computation:Numerator:Net income from continuing operations
    
    $
    3,655
    
    
    $
    2,982
    
    
    $
    167Loss from discontinued operations
    
    
    
    
    
    
    (247
    )
    
    
    (3,105
    )Net income (loss)
    
    $
    3,655
    
    
    $
    2,735
    
    
    $
    (2,938
    )Denominator:Weighted
average shares outstanding basic
    
    
    11,369,607
    
    
    
    10,286,870
    
    
    
    9,809,357Effect of dilutive securities:Shares issuable upon exercise of dilutive
outstanding stock options, conversion of
convertible debentures, vesting of
restricted stock and exercise of warrants:
    
    
    1,991,836
    
    
    
    1,355,023
    
    
    
    719,127Weighted average shares outstanding-diluted
    
    
    13,361,443
    
    
    
    11,641,893
    
    
    
    10,528,484Net (loss) income per common share  diluted:Net income from continuing operations
    
    $
    .27
    
    
    $
    .26
    
    
    $
    .02Loss from discontinued operations
    
    
    .00
    
    
    
    (.02
    )
    
    
    (.29
    )Net income (loss)
    
    $
    .27
    
    
    $
    .24
    
    
    $
    (.27
    )
   Years ended March 31,2008
    
    2007
    
    2006Number of shares considered antidulitive for calculating diluted
net income per share:
    
    
    390,900
    
    
    
    42,000
    
    
    
    92,173
 63




---



##### 



8. INCOME TAXES
  2008
    
    
    2007
    
    
    2006U.S.
    
    $
    (5,832
    )
    
    $
    (875
    )
    
    $
    (544
    )Foreign
    
    
    11,529
    
    
    
    5,062
    
    
    
    660Total
    
    $
    5,697
    
    
    $
    4,187
    
    
    $
    116
  2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    (8
    )
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    (2,581
    )
    
    
    (1,596
    )
    
    
    (576
    )(2,589
    )
    
    
    (1,596
    )
    
    
    (576
    )Deferred:Federal
    
    
    1,667
    
    
    
    (1,301
    )
    
    
    (53
    )State
    
    
    (144
    )
    
    
    51
    
    
    
    (10
    )Foreign
    
    
    (976
    )
    
    
    1,641
    
    
    
    690547
    
    
    
    391
    
    
    
    627Total (provision) benefit
    
    $
    (2,042
    )
    
    $
    (1,205
    )
    
    $
    51
  2008
    
    2007
    
    2006Income tax expense at federal statutory rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes (net of federal benefit)
    
    
    (5.6
    )%
    
    
    (1.0
    )%
    
    
    5.6
    %Foreign rate differential
    
    
    (24.2
    )%
    
    
    (5.0
    )%
    
    
    (227.6
    )%Change in valuation allowance
    
    
    23.9
    %
    
    
    (3.4
    )%
    
    
    140.5
    %Change in tax rate
    
    
    1.2
    %
    
    
    0.00
    %
    
    
    0.00
    %Other permanent differences
    
    
    3.8
    %
    
    
    4.2
    %
    
    
    3.5
    %Other
    
    
    2.7
    %
    
    
    0.00
    %
    
    
    0.00
    %35.8
    %
    
    
    28.8
    %
    
    
    (44.0
    )%
 64




---



##### 



2008
    
    
    2007Deferred tax assets, net:Allowance for doubtful accounts
    
    $
    928
    
    
    $
    803Sales commissions
    
    
    76
    
    
    
    187Net operating loss carryforwards
    
    
    5,222
    
    
    
    4,235Alternative minimum tax
    
    
    47
    
    
    
    47Depreciation
    
    
    90
    
    
    
    82Start-up costs
    
    
    329
    
    
    
    491Other
    
    
    758
    
    
    
    4587,450
    
    
    
    6,303Valuation allowance
    
    
    (4,583
    )
    
    
    (3,081
    )Deferred tax assets, net of valuation allowance
    
    
    2,867
    
    
    
    3,222Deferred tax liabilities:Allowance for doubtful accounts
    
    
    (144
    )
    
    
    Convertible debt beneficial conversion feature
    
    
    (949
    )
    
    
    Depreciation
    
    
    (152
    )
    
    
    Other
    
    
    (174
    )
    
    
    (152
    )Total deferred tax liabilities
    
    
    (1,419
    )
    
    
    (152
    )Total net deferred taxes
    
    $
    1,448
    
    
    $
    3,070
     65




---



##### 



66




---



##### 



9. COMMITMENTS
 Leases
   Year ending March 31:2009
    
    $
    3,3232010
    
    
    2,6022011
    
    
    2,0962012
    
    
    1,3252013
    
    
    1,108Thereafter
    
    
    3,856Net minimum rental commitments
    
    $
    14,310
   10. CONCENTRATIONS OF CREDIT RISK
    11. SIGNIFICANT CUSTOMERS/SUPPLIERS
  .
 67




---



##### 



12. ACCOUNTING FOR VARIABLE INTEREST ENTITIES (VIE)
   13. SEGMENT REPORTING
   Healthcare Services
    
    
    Medical Products
    
    
    TotalAssets
    
    $
    93,727,000
    
    
    $
    42,252,000
    
    
    $
    135,979,000Sales and service revenue
    
    $
    65,817,000
    
    
    $
    64,241,000
    
    
    $
    130,058,000Gross Profit
    
    
    n/a
    *
    
    
    16,562,000
    
    
    
    n/aGross Profit %
    
    
    n/a
    *
    
    
    26
    %
    
    
    n/aIncome (loss) from continuing operations before foreign exchange
    
    $
    10,342,000
    
    
    $
    (2,607,000
    )
    
    $
    7,735,000Foreign exchange gain
    
    
    
    
    
    
    
    
    
    
    604,000Income from continuing operations
    
    
    
    
    
    
    
    
    
    $
    8,339,000Other (expense), net
    
    
    
    
    
    
    
    
    
    
    (2,642,000
    )Income from continuing operations before income taxes
    
    
    
    
    
    
    
    
    
    $
    5,697,000
 68




---



##### 



Healthcare Services
    
    
    Medical Products
    
    
    TotalAssets
    
    $
    34,129,000
    
    
    $
    28,778,000
    
    
    $
    62,907,000Sales and service revenue
    
    $
    47,944,000
    
    
    $
    57,977,000
    
    
    $
    105,921,000Gross Profit
    
    
    n/a
    *
    
    
    14,086,000
    
    
    
    n/aGross Profit %
    
    
    n/a
    *
    
    
    24
    %
    
    
    n/aIncome (loss) from continuing operations before foreign exchange
    
    $
    5,028,000
    
    
    $
    (1,154,000
    )
    
    $
    3,874,000Foreign exchange gain
    
    
    
    
    
    
    
    
    
    
    771,000Income from continuing operations
    
    
    
    
    
    
    
    
    
    $
    4,645,000Other (expense), net
    
    
    
    
    
    
    
    
    
    
    (458,000
    )Income from continuing operations before income taxes
    
    
    
    
    
    
    
    
    
    $
    4,187,000
  Healthcare Services
    
    
    Medical Products
    
    
    TotalAssets
    
    $
    29,801,000
    
    
    $
    26,239,000
    
    
    $
    56,040,000Sales and service revenue
    
    $
    36,500,000
    
    
    $
    54,336,000
    
    
    $
    90,836,000Gross Profit
    
    
    n/a
    *
    
    
    13,423,000
    
    
    
    n/aGross Profit %
    
    
    n/a
    *
    
    
    25
    %
    
    
    n/aIncome (loss) from continuing operations before foreign exchange
    
    $
    1,585,000
    
    
    $
    (1,436,000
    )
    
    $
    149,000Foreign exchange gain
    
    
    
    
    
    
    
    
    
    
    401,000Income from continuing operations
    
    
    
    
    
    
    
    
    
    $
    550,000Other (expense), net
    
    
    
    
    
    
    
    
    
    
    (434,000
    )Income from continuing operations before income taxes
    
    
    
    
    
    
    
    
    
    $
    116,000
  
 *
    
    Gross profit margins not routinely calculated in the healthcare industry. 14. SUBSEQUENT EVENTS
   69




---



##### 



15. SELECTED QUARTERLY DATA (UNAUDITED)
 For the year ended March 31, 2008:
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterRevenue
    
    $
    26,771
    
    
    $
    32,652
    
    
    $
    36,011
    
    
    $
    34,624Income (loss) from continuing operations before
income taxes
    
    
    1,218
    
    
    
    2,481
    
    
    
    3,970
    
    
    
    (1,972
    )Net income (loss) from continuing operations
    
    
    809
    
    
    
    1,638
    
    
    
    3,894
    
    
    
    (2,686
    )Net income (loss)
    
    
    809
    
    
    
    1,638
    
    
    
    3,894
    
    
    
    (2,686
    )(a)Income (loss) per share of common stock  basicNet income (loss) from continuing operations
    
    
    .08
    
    
    
    .15
    
    
    
    .34
    
    
    
    (.20
    )Net income (loss) from continuing operations
    
    
    .08
    
    
    
    .15
    
    
    
    .34
    
    
    
    (.20
    )Diluted income (loss) earnings per share of common
stockNet income (loss) from continuing operations
    
    
    .07
    
    
    
    .13
    
    
    
    .28
    
    
    
    (.20
    )Net income (loss)
    
    
    .07
    
    
    
    .13
    
    
    
    .28
    
    
    
    (.20
    )Cash dividends per share of common stock
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00For the year ended March 31, 2007:Revenue
    
    $
    24,415
    
    
    $
    26,480
    
    
    $
    30,344
    
    
    $
    24,682Income from continuing operations before income taxes
    
    
    1,512
    
    
    
    762
    
    
    
    1,046
    
    
    
    867Net income from continuing operations
    
    
    525
    
    
    
    1,130
    
    
    
    679
    
    
    
    648Net income
    
    
    512
    
    
    
    879
    
    
    
    679
    
    
    
    665Income per share of common stock  basicNet income from continuing operations
    
    
    .05
    
    
    
    .11
    
    
    
    .07
    
    
    
    .06Net income
    
    
    .05
    
    
    
    .09
    
    
    
    .07
    
    
    
    .06Diluted income earnings per share of common stockNet income from continuing operations
    
    
    .05
    
    
    
    .10
    
    
    
    .06
    
    
    
    .05Net income
    
    
    .05
    
    
    
    .08
    
    
    
    .06
    
    
    
    .05Cash dividends per share of common stock
    
    
    .00
    
    
    
    .00
    
    
    
    .00
    
    
    
    .00
  
 (a)
    
    Included in the $2.7 million net loss for the quarter ended March 31, 2008 were the following
adjustments: a $1.5 million charge resulting from the foreign exchange effect of a change in
estimate related to the timing of the payment of intercompany
payables, a $1.4 million additional
tax expense related to the creation of valuation allowances on the US and China entities, a
$380,000 expense related to the use of demonstration units in the medical products division, a
$304,000 charge representing the interest and penalties assessed in the final settlement of a legal
case in our healthcare services division, net of tax, and a $283,000 valuation adjustment related
to aging merchandise inventory in the medical products division. Unless otherwise noted, there was
no income tax effect on these adjustments. 70




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures.
   Managements Annual Report on Internal Control over Financial Reporting.
  71




---



##### 



ITEM 9B. OTHER INFORMATION
 NONE.
 PART III
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
  ITEM 11. EXECUTIVE COMPENSATION
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  72




---



##### 



PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
          Balancebeginning
    
    
    
    
    
    Additions not
    
    
    
    
    
    Balance endDescription (amounts in thousands)
    
    of year
    
    Additions expensed
    
    expensed
    
    Deductions
    
    of yearFor the year ended March 31, 2008:Allowance for doubtful receivables
    
    $
    2,827
    
    
    
    1,673
    
    
    
    169
    
    
    
    729
    
    
    $
    3,940Deferred income tax valuation
allowance
    
    $
    3,081
    
    
    
    1,361
    
    
    
    141
    
    
    
    
    
    
    $
    4,583Litigation accrual
    
    $
    323
    
    
    
    700
    
    
    
    41
    
    
    
    143
    
    
    $
    921For the year ended March 31, 2007:Allowance for doubtful receivables
    
    $
    2,250
    
    
    
    1,598
    
    
    
    (169
    )
    
    
    852
    
    
    $
    2,827Deferred income tax valuation
allowance
    
    $
    3,105
    
    
    
    
    
    
    
    79
    
    
    
    103
    
    
    $
    3,081Litigation accrual
    
    $
    280
    
    
    
    136
    
    
    
    11
    
    
    
    104
    
    
    $
    323For the year ended March 31, 2006:Allowance for doubtful receivables
    
    $
    1,851
    
    
    
    797
    
    
    
    24
    
    
    
    422
    
    
    $
    2,250Deferred income tax valuation
allowance
    
    $
    2,623
    
    
    
    482
    
    
    
    
    
    
    
    
    
    
    $
    3,105Litigation accrual
    
    $
    
    
    
    
    280
    
    
    
    
    
    
    
    
    
    
    $
    280
  (b)
    
    Exhibits
 73




---



##### 



3.1
    
    Amended and Restated Certificate of Incorporation of the Company dated October 28, 2004.
Incorporated by reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K for the
fiscal year ended March 31, 2005.3.2
    
    Amendment to Certificate of Incorporation dated July 10, 2007. Incorporated by reference to
Exhibit 3.1 to the Companys Current Report on Form 8-K dated July 10, 2007.3.3
    
    By-laws of the Company. Incorporated by reference to Annex C to the Companys Proxy Statement on
Schedule 14A filed on June 7, 2002.3.4
    
    Certificate of Designations of Series A Junior Participating Preferred Stock of Chindex
International, Inc. Incorporated by reference to Exhibit 3.3 to the Companys Annual Report on
Form 10-K for the fiscal year ended March 31, 2007.4.1
    
    Form of Specimen Certificate representing the Common Stock.4.2
    
    Form of Specimen Certificate representing the Class B Common Stock.4.3
    
    Rights Agreement, dated as of June 7, 2007, between Chindex International, Inc. and American
Stock Transfer & Trust Company, as Rights Agent, which includes form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C (incorporated by
reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed on June 7, 2007).4.4
    
    Amendment No. 1 to Rights Agreement dated November 4, 2007 between the Company and American Stock
Transfer & Trust Company, as Rights Agent. Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K dated November 4, 2007.10.1*
    
    The Companys 1994 Stock Option Plan, as amended as of July 17, 2001. Incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the six months ended June 30,
2001.10.2*
    
    The Companys 2004 Stock Incentive Plan. Incorporated by reference to Annex B to the Companys
Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on September
14, 2004.10.3*
    
    The Companys 2007 Stock Incentive Plan. Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K dated September 11, 2007 (the September 11, 2007 Form
8-K).10.4*
    
    Form of Outside Director Restricted Stock Grant Letter. Incorporated by reference to Exhibit 99.2
to the to the September 11, 2007 Form 8-K.10.5*
    
    Form of Employee Restricted Stock Grant Letter. Incorporated by reference to Exhibit 99.3 to the
September 11, 2007 Form 8-K.10.6*
    
    Form of Employee Stock Option Grant Letter. Incorporated by reference to Exhibit 99.4 to the
September 11, 2007 Form 8-K.10.7
    
    Lease Agreement between the School of Posts and Telecommunications and the Company dated November
8, 1995. Incorporated by reference to Exhibit 10.14 to the Companys Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995.10.8
    
    Amendments Numbers One, Two and Three to the Lease Agreement between the School of Posts and
Telecommunications and the Company dated November 8, 1995, each such amendment dated November 26,
1996. Incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997.10.9
    
    Lease Agreement dated May 10, 1998, between the School of Posts and Telecommunications and the
Company relating to the lease of additional space. Incorporated by reference to Exhibit 10.13 to
the Companys Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998.10.10
    
    Contractual Joint Venture Contract between the Chinese Academy of Medical Sciences Union Medical
& Pharmaceutical Group Beijing Union Medical & Pharmaceutical General Corporation and the
Company, dated September 27, 1995. Incorporated by reference to Exhibit 10.16 to the Companys
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995.10.11
    
    First Investment Loan Manager Demand Promissory Note dated July 10, 1997 between First National
Bank of Maryland and the Company. Incorporated by reference to Exhibit 10.16 to the Companys
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.10.12
    
    Distribution Agreement dated October 11, 2001 between Siemens AG and the Company, Incorporated by
reference to Exhibit 10.18 to the Companys Quarterly Report on Form 10-Q for the nine months
ended September 30, 2001.10.13*
    
    Employment Agreement, dated as of March 1, 2006, between the Company and Roberta Lipson.
Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
October 31, 2006.10.14*
    
    Employment Agreement, dated as of March 1, 2006, between the Company and Elyse Beth Silverberg.
Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated
October 31, 2006.10.15*
    
    Employment Agreement, dated as of March 1, 2006, between the Company and Lawrence Pemble.
Incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated
October 31, 2006.10.16*
    
    Employment Agreement, dated as of May 1, 2006, between the Company and Anne Marie Moncure.
Incorporated by reference to Exhibit 10.19 to the Companys Quarterly Report on Form 10-Q for the
period ended December 31, 2006.10.17*
    
    Amendment to Employment Agreement between the Company and Roberta Lipson dated December 17, 2007.10.18*
    
    Amendment to Employment Agreement between the Company and Elyse Beth Silverberg dated December
17, 2007.10.19*
    
    Amendment to Employment Agreement between the Company and Lawrence Pemble dated December 17, 2007.10.20*
    
    Amendment to Employment Agreement between the Company and Anne Marie Moncure dated December 17,
2007.
 74




---



##### 



10.21
    
    Securities Purchase Agreement dated November 7, 2007 between the Company and Magenta Magic Limited.
Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated November 7,2007.10.22
    
    Loan Agreement dated December 10, 2007 between the Company and International Finance Corporation. Incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated December 10, 2007 (the December
10, 2007 Form 8-K).10.23
    
    Amendment to Loan Agreement dated as of January 3, 2008 between Chindex China Healthcare Finance, LLC and
International Finance Corporation. Incorporated by reference to Exhibit 4.1 to the Companys Current Report on
Form 8-K dated December 10, 2007 (the January 10, 2008 Form 8-K).10.24
    
    Securities Purchase Agreement dated December 10, 2007 between the Company and International Finance
Corporation. Incorporated by reference to Exhibit 10.1 to the December 10, 2007 Form 8-K.10.25
    
    Loan Agreement dated as of January 8, 2008 between Chindex China Healthcare Finance, LLC and DEG-Deutsche
Investitions-Und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 4.1 to January 10, 2008 Form
8-K.10.26
    
    SPV Guarantee Agreement dated as of January 8, 2008 between Chindex China Healthcare Finance, LLC and
DEG-Deutsche Investitions-Und Entwicklungsgesellschaft. Incorporated by reference to Exhibit 4.2 to the
January 10, 2008 Form 8-K.10.27
    
    Contractual Joint Venture Contract between Shanghai Changning District Central Hospital and the Company, dated
February 9, 2002. Incorporated by reference to Exhibit 10.24 to the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.10.28
    
    Lease Agreement between Shanghai Changning District Hospital and the Company related to the lease of the
building for Shanghai United Family Hospital. Incorporated by reference to Exhibit 10.25 to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2001.10.29
    
    Lease Agreement between China Arts & Crafts Import & Export Corporation and Chindex (Beijing) Consulting
Incorporated related to the lease of the building for the Companys main office in Beijing. Incorporated by
reference to Exhibit 10.17 to the Companys Quarterly Report on Form 10-Q for the six months ended June 30,
2002.10.30
    
    Agreement between Siemens AG and the Company for long-term payment of vendor invoices. Incorporated by
reference to Exhibit 10.18 to the Companys Quarterly Report on Form 10-Q for the nine months ended September
30, 2002.10.31
    
    Form of Common Stock Purchase Warrant issued to investors on March 24, 2005. Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K dated March 21, 2005.21.1
    
    List of subsidiaries. Incorporated by reference to Exhibit 21.1 to the Companys Registration Statement on
Form S-3 (No. 333-123975).23.1
    
    Consent of Independent Registered Public Accounting Firm (filed herewith)31.1
    
    Certification of the Companys Chief Executive Officer Pursuant to Rule 13a-14(a) (filed herewith)31.2
    
    Certification of the Companys Chief Financial Officer Pursuant to Rule 13a-14(a) (filed herewith)31.3
    
    Certification of the Companys Principal Accounting Officer Pursuant to Rule 13a-14(a) (filed herewith)32.1
    
    Certification of the Companys Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith)32.2
    
    Certification of the Companys Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith)32.3
    
    Certification of the Companys Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith)
 
 *
    
    Management contract or compensatory plan or arrangement. 75




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SIGNATURES
  CHINDEX INTERNATIONAL, INC.Dated: June 11, 2008
    By:
    /S/ Roberta LipsonRoberta LipsonChief Executive Officer
(principal executive officer)  Dated: June 11, 2008
    By:
    /S/ A. Kenneth NilssonA. Kenneth NilssonChairman of the BoardDated: June 11, 2008
    By:
    /S/ Roberta LipsonRoberta LipsonChief Executive Officer and Director
(principal executive officer)Dated: June 11, 2008
    By:
    /S/ Lawrence PembleLawrence PembleExecutive Vice President-Finance, 
Chief Financial
Officer and Director
(principal financial officer)Dated June 11, 2008
    By:
    /S/ Elyse Beth SilverbergElyse Beth SilverbergExecutive Vice President, Secretary and DirectorDated: June 11, 2008
    By:
    /S/ Cheryl ChartierCheryl ChartierCorporate Controller
(principal accounting officer) 76




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Dated: June 11, 2008
    By:
    /S/ Holli HarrisHolli HarrisDirectorDated: June 11, 2008
    By:
    /S/ Carol R. KaufmanCarol R. KaufmanDirectorDated: June 11, 2008
    By:
    /S/ Julius Y. OestreicherJulius Y. OestreicherDirector 77