US CHINA INDUSTRIAL EXCHANGE INC, 424B1, 1996-11-06

US CHINA INDUSTRIAL EXCHANGE INC
424B1, 1996-11-06
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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PROSPECTUS
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
10,000 UNITS
EACH CONSISTING OF 255 IPO UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK,
ONE REDEEMABLE CLASS A WARRANT AND ONE REDEEMABLE CLASS B WARRANT

[LOGO]

Each unit ('Unit') hereby offered (the 'Offering') by U.S.-CHINA INDUSTRIAL
EXCHANGE, INC., a New York corporation (the 'Company'), consists of 255 units
(the 'IPO Units'). Each IPO Unit is identical to the units sold in the Company's
initial public offering, which was completed in August 1994 ('IPO'), and
consists of one share of Common Stock, $.01 par value ('Common Stock'), one
redeemable Class A Warrant ('Class A Warrant') and one redeemable Class B
Warrant ('Class B Warrant'). The components of the Units and IPO Units will be
transferable separately immediately upon issuance. The offering price is $1,000
per Unit. The number of IPO Units included in each Unit was determined by
negotiations between the Company and D.H. Blair Investment Banking Corp. (the
'Underwriter'), based primarily on the market price of the outstanding IPO Units
and a determination of the number of IPO Units to be included in each Unit in
order to successfully market the Units in light of market conditions. Each Class
A Warrant entitles the registered holder thereof to purchase one share of Common
Stock and one Class B Warrant at an exercise price of $6.50, subject to
adjustment, at any time until August 18, 1999. Each Class B Warrant entitles the
registered holder thereof to purchase one share of Common Stock at an exercise
price of $8.75, subject to adjustment, at any time until August 18, 1999. The
Class A Warrants and the Class B Warrants (collectively, the 'Warrants') are
subject to redemption by the Company at a redemption price of $.05 per Warrant
on 30 days' prior written notice, provided the average of the closing bid prices
of the Common Stock exceeds $9.10 with respect to the Class A Warrants or $12.25
with respect to the Class B Warrants (subject to adjustment in each case) for 20
consecutive business days ending within 15 days of the date on which notice of
redemption is given. See 'Description of Securities.'

The Common Stock and the Company's Class B Common Stock, $.01 par value (the
'Class B Common Stock'), are essentially identical, except that the Class B
Common Stock has six votes per share and the Common Stock has one vote per share
and each share of Class B Common Stock is convertible into one share of Common
Stock. Upon completion of this Offering, the holders of the Class B Common Stock
will control approximately 74.9% of the total voting power and will therefore be
able to elect all of the Company's directors and to control the Company.
Immediately prior to this Offering, certain executive officers and certain
members of their immediate families hold all of the outstanding shares of Class
B Common Stock. The Class B Common Stock is automatically converted into Common
Stock upon any sale or transfer, except to certain permitted transferees. The
holders of the Class B Common Stock could significantly reduce their ownership
of such stock while retaining control of the Company. See 'Principal
Shareholders' and 'Description of Securities.'

The IPO Units, Class A Warrants and Class B Warrants are traded on the
National Association of Securities Dealers Automated Quotation ('Nasdaq')
SmallCap Market under the symbols CHDXU, CHDXW and CHDXZ, respectively, and the
Common Stock is traded on the Nasdaq National Market under the symbol CHDX. The
last sale prices of these securities on November 4, 1996 as reported by Nasdaq
were $5 3/4, $1 13/16, $ 29/32 and $3 7/8, respectively. See 'Price Range of
Securities and Dividend Policy.' The Units offered hereby will not be listed
separately on Nasdaq. The exercise prices and other terms of the Class A
Warrants and Class B Warrants were determined by negotiation between the Company
and the Underwriter at the time of the IPO and do not necessarily bear any
relationship to the Company's assets, book value, results of operations, net
worth or any other recognized criteria of value. FOR INFORMATION CONCERNING A
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION RELATING TO THE UNDERWRITER,
SEE 'RISK FACTORS' AND 'UNDERWRITING.'
------------------------------

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE 'RISK FACTORS' BEGINNING ON PAGE 8.
------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit.................................................................. $1,000.00 $82.50 $917.50
Total (3)................................................................. $10,000,000 $825,000 $9,175,000
</TABLE>

(footnotes on following page)

The Units are offered on a 'firm commitment' basis by the Underwriter when,
as and if delivered to and accepted by the Underwriter, and subject to the
Underwriter's right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of the certificates representing the
Units will be made at the offices of D.H. Blair Investment Banking Corp., 44
Wall Street, New York, New York 10005, on or about November 8, 1996.
------------------------------
D.H. BLAIR INVESTMENT BANKING CORP.
------------------------------
The date of this Prospectus is November 5, 1996

[The graphic for the inside front cover is a map of China, indicating
locations of the Company's corporate representative offices, subsidiaries,
regional representatives and joint ventures.]

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

(footnotes from cover)

(1) Does not include additional compensation to the Underwriter in the form of
(i) a non-accountable expense allowance in the amount of $300,000 ($345,000
if the Over-Allotment Option referred to below is exercised in full) or
$30.00 per Unit; and (ii) an option (the 'Unit Purchase Option') to purchase
up to 1,000 Units at $1,300 per Unit, exercisable over a period of three
years commencing on the second anniversary of the date of this Prospectus.
In addition, the Company has agreed to indemnify the Underwriter against
certain civil liabilities under the Securities Act of 1933, as amended. See
'Underwriting.'

(2) Before deducting estimated expenses of $320,000 and the non-accountable
expense allowance, both of which are payable by the Company.

(3) The Company has granted the Underwriter a 45-day option (the 'Over-Allotment
Option') to purchase up to 1,500 additional Units upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
the Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$11,500,000, $948,750 and $10,551,250, respectively. See 'Underwriting.'

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMPANY'S SECURITIES ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE 'RISK FACTORS -- POSSIBLE
RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES' AND
'UNDERWRITING.'

<PAGE>
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus does not give
effect to the exercise of (i) the Over-Allotment Option, (ii) the Warrants,
(iii) the Unit Purchase Option, (iv) options to purchase shares of Common Stock
reserved for issuance under the Company's 1994 Stock Option Plan, and (v) other
outstanding warrants. Except as otherwise indicated, all share and per share
information in this Prospectus has been restated to reflect (i) a 15,000-for-one
stock split of the Common Stock, which became effective in April 1994, (ii) a
1.2-for-one stock split of the Common Stock, which became effective in July
1994, (iii) a 10-for-nine stock split of the Common Stock, which became
effective in August 1994, and (iv) the conversion of the outstanding shares of
Common Stock into 2,000,000 shares (giving effect to the foregoing stock splits)
of Class B Common Stock, which became effective in April 1994. Prospective
investors are cautioned that this Prospectus contains certain forward-looking
statements, within the meaning of the 'safe harbor' provisions of the Private
Securities Litigation Reform Act of 1995, that involve various risks and
uncertainties. The Company's actual results may differ materially from those
described in these forward-looking statements due to a number of factors,
including those identified under 'Risk Factors' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'

THE COMPANY

U.S.-China Industrial Exchange, Inc. (the 'Company') is an established
independent marketing and sales organization in the People's Republic of China
('China') for certain Western products, including medical and industrial
equipment. The Company provides United States, European and other manufacturers
with access to the Chinese marketplace and offers a wide range of marketing,
sales and technical services for their products. The Company further provides
marketing research and consulting services to its manufacturers for a variety of
business activities in China. The Company conducts its marketing and sales and
provides its services almost exclusively to end-users located in China. The
Company is the exclusive sales representative in China for several major
manufacturers of high-technology medical equipment, construction, mining and
other industrial machinery and scientific research instrumentation. The Company
also sells certain products on a non-exclusive basis. The Company's
administrative and national sales and technical support staff in China,
comprised of 122 full-time employees, operates from its office in Beijing,
regional offices in Shanghai and Guangzhou, and through its wholly-owned
subsidiaries in the special economic Tianjin Free Trade Zone and in Hong Kong.

In 1995, the Company began a process of expansion into the related field of
providing health care services. The Company has taken initial steps to providing
Western-standard health care services to targeted market segments in China. The
Company believes that demographic developments in China, including the growth of
the expatriate business and diplomatic community, continue to create increasing
needs for these services. In this regard, the Company established the Beijing
United Family Health Center ('Beijing United'), a 90%-owned joint venture
between the Company and a company controlled by the Chinese Academy of Medical
Sciences. Beijing United expects to provide the expatriate business and
diplomatic community in Beijing with complete Western-standard maternity and
birthing services as well as neonatal and pediatric care. The Company is
considering establishing a series of clinics in other major metropolitan centers
in China over the next several years.

The Company was founded in June 1981 by Roberta Lipson and Elyse Beth
Silverberg in response to specific marketing opportunities presented by the
commercial opening of China to the West in the late 1970's and early 1980's and
the normalization of relations between the United States and China in 1979.
Mmes. Lipson and Silverberg opened initial offices in Beijing and New York with
the objective of supplying marketing, sales and technical support services to
Western manufacturers of electronic instrumentation and industrial machinery.
Subsequent Chinese economic reforms have significantly decentralized the import
purchasing authority of the Chinese with respect to the products marketed by the
Company. As this process of decentralization and related market orientation
progressed, the

<PAGE>
<PAGE>
Company responded by opening regional offices in Guangzhou (southern China) and
Shanghai (central China) and established wholly-owned subsidiaries in the
special economic Tianjin Free Trade Zone (northern China) and in Hong Kong to
expand its sales and technical service capability.

The Company's strategy is to grow through expansion of its marketing and
sales activities in China, Hong Kong and other Asian countries, and to establish
its proposed health care services operations. The Company intends to build on
its 15-year continuous operating presence in China, the relationships in China
established by the Company's executives and senior sales staff and the Company's
policy of representing what it believes are first-quality products in their
respective markets. In order to implement its marketing and sales expansion
strategy, the Company intends to increase its marketing, sales and service
capability in China through the addition of qualified personnel, including
technical service engineers, through the establishment of new regional offices
in China and through strategic acquisitions. In conjunction with its expansion
of marketing and sales capability, the Company intends to increase the variety
of products marketed and services provided. For example, the Company currently
is developing plans to commence distribution of health care products and
pharmaceuticals in China.

Substantially all of the Company's revenues are pursuant to agency
arrangements between the Company and its suppliers. The Company's revenues are
derived in two principal ways: through the sale by the Company for its own
account of products (principally medical products) purchased from manufacturers
and through the receipt of commissions from the sale of products by
manufacturers for which the Company acts as agent. The Company often elects the
form of each transaction based on the circumstances of the transaction,
including the nature of the products and parties involved.

During 1996, the Company recognized $8.4 million in sales as a result of
the shipment of goods sold to end-users under a single financing arrangement
with the United States Export-Import Bank. This financing arrangement was the
first of its kind for the Company and, the Company believes, was the first of
its kind for purchasers in China. The Company's results of operations for the
nine months ended September 30, 1996 were significantly and positively impacted
by this financing and are not expected to be indicative of the Company's results
of operations for the fourth quarter or the fiscal year ending December 31,
1996. Although the Company continues to seek similar financing arrangements with
the Export-Import Bank, no such financing commitments have been received and
there can be no assurance that any such commitments will be obtained in the
future.

In addition to its offices in Beijing, Guangzhou, Shanghai, Tianjin and
Hong Kong, the Company maintains executive and administrative offices at 7201
Wisconsin Avenue, Bethesda, Maryland 20814. The telephone number of the Company
in the United States is (301) 215-7777. Unless the context requires otherwise,
as used herein any reference to the Company includes the Company's wholly-owned
subsidiaries, Chindex, Inc., a New York corporation, Chindex Holdings
International Trade (Tianjin) Ltd., registered in China's special economic
Tianjin Free Trade Zone, and Chindex Hong Kong Limited, a Hong Kong corporation,
as well as Beijing United, its 90%-owned joint venture with a company controlled
by the Chinese Academy of Medical Sciences.

<PAGE>
<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
Securities Offered by the Company............ 10,000 Units, each consisting of 255 IPO Units. Each IPO Unit
consists of one share of Common Stock, one redeemable Class A
Warrant and one redeemable Class B Warrant. See 'Description of
Securities.'
<S> <C>
Terms of Warrants............................ Each Class A Warrant is exercisable at $6.50 to purchase one share
of Common Stock and one Class B Warrant until August 18, 1999,
subject to earlier redemption by the Company. Each Class B
Warrant is exercisable at $8.75 to purchase one share of Common
Stock until August 18, 1999, subject to earlier redemption by
the Company. See 'Description of Securities -- Warrants.'
Number of Shares of Capital Stock
Outstanding:
Before the Offering (1)................. 2,000,000 shares of Class B Common Stock, of which 450,000 shares
are being held in escrow(3)
1,840,000 shares of Common Stock
After the Offering (1)(2)............... 4,390,000 shares of Common Stock
2,000,000 shares of Class B Common Stock, of which
450,000 shares are being held in escrow(3)
Rights of Common Stock and Class B Common
Stock...................................... The rights of the holders of Common Stock and Class B Common Stock
are essentially identical, except that holders of Common Stock
are entitled to one vote per share and holders of Class B Common
Stock are entitled to six votes per share, and each share of
Class B Common Stock is convertible into one share of Common
Stock. The Class B Common Stock is automatically converted into
Common Stock upon any sale or transfer, except to certain
permitted transferees. See 'Description of Securities -- Common
Stock and Class B Common Stock.'
Nasdaq Symbols............................... Units -- CHDXU
Common Stock -- CHDX
Class A Warrants -- CHDXW
Class B Warrants -- CHDXZ
Use of Proceeds.............................. For general corporate purposes, including expansion of operations,
financing of sales and strategic acquisitions. See 'Use of
Proceeds.'
Risk Factors................................. An investment in the securities offered hereby involves a high
degree of risk and immediate substantial dilution to public
investors. See 'Risk Factors' and 'Dilution.'
</TABLE>

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

(1) Does not include (i) 2,140,000 shares of Common Stock issuable upon exercise
of the 2,140,000 Class A Warrants outstanding prior to this Offering (the
'Outstanding Class A Warrants'); (ii) 2,140,000 shares issuable upon
exercise of the 2,140,000 Class B Warrants outstanding prior to this
Offering (the 'Outstanding Class B Warrants'); and (iii) 2,140,000 shares
issuable upon exercise of the 2,140,000 Class B Warrants underlying the
Outstanding Class A Warrants.

(2) Does not include (i) 765,000 shares issuable upon exercise of the
Over-Allotment Option and the Class A Warrants included in the Units
issuable upon exercise of the Over-Allotment Option; (ii) 2,550,000 shares
issuable upon exercise of the Class A Warrants included in the Units offered
hereby; (iii) 510,000 shares issuable upon exercise of the Unit Purchase
Option and the Class A Warrants included in the Units underlying the Unit
Purchase Option; (iv) 6,375,000 shares issuable upon exercise of the Class B
Warrants included in, and issuable upon exercise of the Class A Warrants
included in, the Units offered hereby, the Units issuable upon exercise of
the Over-Allotment Option and the Units underlying the Unit Purchase Option;
(v) 6,420,000 shares of Common Stock reserved for issuance upon exercise of
the Outstanding Class A Warrants and

(footnotes continued on next page)

<PAGE>
<PAGE>
(footnotes continued from previous page)
Outstanding Class B Warrants; and (vi) 228,000 shares reserved for issuance
under the Company's 1994 Stock Option Plan. See 'Management -- Stock Option
Plan,' 'Description of Securities' and 'Underwriting.'

(3) In connection with the IPO, 450,000 shares of Class B Common Stock (the
'Escrow Shares') were deposited in escrow by certain shareholders of the
Company, which Escrow Shares may be transferred to the Company for no
consideration if the Company does not attain certain earnings levels or the
market price of the Common Stock does not reach certain targets during the
period from the date of the IPO to December 31, 1998. See 'Principal
Shareholders -- Escrow Shares.'

<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)

<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $10,613,000 $13,002,000 $ 7,697,000 $16,832,000
Cost of sales...................... 7,658,000 9,667,000 6,020,000 11,821,000
----------- ----------- ----------- -----------
Gross profit on sales.............. 2,955,000 3,335,001 1,677,000 5,011,000
Net commission income.............. 2,625,000 2,115,000 1,368,000 712,000
----------- ----------- ----------- -----------
TOTAL GROSS PROFIT ON SALES AND NET
COMMISSION INCOME................ 5,580,000 5,450,000 3,045,000 5,723,000
Selling, general and administrative
expenses(1)...................... 4,862,000 6,239,000 4,453,000 5,347,000
----------- ----------- ----------- -----------
718,000 (789,000) (1,408,000) 376,000
Other income (expense), net........ 108,000 340,000 272,000 804,000
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes..................... 826,000 (449,000) (1,136,000) 1,180,000
Income tax benefit (provision)..... (319,000) 132,000 399,000 (443,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS).................. $ 507,000 $ (317,000) $ (737,000) $ 737,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE(1)..... $0.23 $(0.09) $(0.22) $0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares
of Common Stock outstanding(1)... 2,218,000 3,390,000 3,390,000 3,390,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, --------------------------------
1995 ACTUAL AS ADJUSTED(2)
------------ ----------- ---------------
(UNAUDITED)

<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 6,595,000 $ 6,035,000 $14,590,000
Total assets........................................... 15,434,000 18,026,000 26,581,000
Total liabilities...................................... 6,925,000 8,780,000 8,780,000
Shareholders' equity................................... 8,509,000 9,246,000 17,801,000
</TABLE>

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

(1) Share information is based upon the number of shares of Common Stock and
Class B Common Stock treated as a single class, and excludes the Escrow
Shares.

(2) As adjusted to give effect to the sale of 10,000 Units offered hereby
(assuming the Over-Allotment Option is not exercised) at an offering price
of $1,000 per Unit and the application of the net proceeds. See 'Use of
Proceeds.'

<PAGE>
<PAGE>
RISK FACTORS

An investment in the securities offered hereby involves a high degree of
risk. Prospective investors, prior to making an investment decision, should
carefully consider the following risk factors.

This Prospectus contains forward-looking statements within the meaning of
the 'safe harbor' provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for future operations, assumptions underlying such plans and
objectives and other forward-looking statements included in 'Prospectus
Summary,' 'Use of Proceeds,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and 'Business' in this Prospectus. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties which could cause actual results to differ
materially from those described in the forward-looking statements. Factors which
could cause such results to differ materially from those described in the
forward-looking statements include those set forth in the risk factors below.

RISKS RELATING TO OPERATIONS IN CHINA

The Company conducts its marketing and sales and provides its services
exclusively to end-users located in China. The Company expects to continue to
focus its efforts on the Chinese markets. As such, there are risks involved with
the conduct of the Company's business in China, including the following:

Restrictions on Imports. The Chinese government regulates the import into
China of certain of the Company's products. The approval of imports by the
government is based to some extent on the lack of qualified
domestically-produced products and strategic plans for the development of local
Chinese industry. There can be no assurance that the government's policies will
continue to allow the products marketed by the Company to be imported into
China. Changes in the current policies could materially and adversely affect the
Company. See 'Business -- China.'

Most Favored Nation Trading Status. At present, a significant portion of
the economic activity in China is export-driven and, therefore, is affected by
developments in the economies of China's principal trading partners. The U.S.
Congress considers annually the renewal of 'Most Favored Nation' trading status,
which currently is in place, for China and may attach conditions to the renewal
of such status which China may decline, or be unable, to meet. In 1994,
President Clinton announced delinkage of such status to China's achievement of
overall significant progress in the area of human rights. Prior to this
announcement, renewal of such status had been contingent on the achievement of
such progress. There can be no assurance that renewal of such status in the
future will not be linked to human rights issues or other requirements or that,
notwithstanding continuing presidential support for such status, Congress for
any reason in the future will not deny such status beyond the President's
ability to veto such denial. Revocation or conditional extension by the United
States of China's 'Most Favored Nation' trading status could have a material
adverse effect on the trade and economic development of China and on the
operations of the Company. See 'Business -- China.'

Internal Political Risks. The Company's interests may be adversely affected
by the political environment in China. China is a socialist state which since
1949 has been, and is expected to continue to be, controlled by the Communist
Party of China. Changes in the top political leadership of the Chinese
government may have a significant impact on policy and the political and
economic environment in China. Moreover, economic reforms and growth in China
have been more successful in certain provinces than in others, and the
continuation or increase of such disparities could affect political or social
stability. See 'Business -- China.'

Government Control Over Economy. China only recently has permitted greater
provincial and local economic autonomy and private economic activities, and the
government of China has exercised and continues to exercise substantial control
over virtually every section of the Chinese economy through regulation and state
ownership. Accordingly, government actions in the future, including any decision
not to continue to support the economic reform program that commenced in the
late 1970's and possibly to return to the more centrally-planned economy that
existed prior thereto, could have a significant effect on economic conditions in
China and on the operations of the Company.

<PAGE>
<PAGE>
As part of its economic reform, China has designated certain areas as
special economic zones, including the Tianjin Free Trade Zone in the major city
of Tianjin, where the Company has registered its wholly-owned subsidiary,
Chindex Holdings International Trade (Tianjin) Ltd. ('Chindex Tianjin'). Chindex
Tianjin and other foreign enterprises in these areas benefit from greater
economic autonomy and more favorable tax treatment than enterprises in other
parts of China. Changes in the policies or laws governing these special economic
zones could have a material adverse effect on the operations of Chindex Tianjin
and, consequently, the Company.

The Company's business is dependent to a certain extent upon the allocation
of funds in the government's budgeting processes. Since these processes are not
necessarily subject to fixed time schedules, the Company's operations may be
adversely affected by extended periods of budgeting freezes or restraints and
the Company's quarterly revenues and operating results may fluctuate in
accordance with these budgeting processes. See 'Risk Factors -- Timing of
Revenues; Fluctuations in Financial Performance and Impact of Single Financing'
and 'Business -- China.'

In addition, the Company's business also is dependent to a certain extent
upon the availability of credit to the Company's customers from the banking
system in China. During approximately the last two years, in response to
inflationary concerns and other economic factors, the Chinese government has
imposed restrictions on the funds available for lending by the banking system.
These restrictions on the availability of credit negatively impacted the
Company's operations during the last two years and continue to negatively impact
operations. In response to these credit restrictions, the Company commenced
efforts to provide alternative financing arrangements to its customers. The
recent tied aid credits from the Export-Import Bank for the purchasers of the
Company's products provided such an attractive financing alternative. The
Company has not received any further Export-Import Bank financing commitments
and there can be no assurance that any commitments will be obtained in the
future. Other efforts include the provision of extended payment terms to certain
customers, applications for additional loan or loan guarantees from the
Export-Import Bank of the United States and the consideration of other
alternative financing arrangements. There can be no assurance that these
efforts, which entail increased risks for the Company, will be successful. In
addition, there can be no assurance as to whether the restrictions on the
availability of credit will ease and, if so, the nature and timing of such
changes. See 'Risk Factors -- Risks Relating to Operations in
China -- Inflation,' 'Risk Factors -- Timing of Revenues; Fluctuations in
Financial Performance and Impact of Single Financing,' 'Risk Factors -- Use of
Letters of Credit,' 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and 'Business -- China.'

Inflation. Over the last few years, China's economy has registered a high
growth rate and there have been recent indications that rates of inflation have
increased. In response, the Chinese government recently has taken measures to
curb the excessive expansion of the economy. These measures have included
devaluations of the Chinese currency, the Renminbi, restrictions on the
availability of domestic credit (reducing the purchasing capability of certain
of the Company's customers) and limited re-centralization of the approval
process for purchases of some foreign products. There can be no assurance that
these austerity measures alone will succeed in slowing down the economy's
excessive expansion or control inflation, nor that they will not result in
severe dislocations in the Chinese economy in general. To further combat
inflation, the Chinese government may adopt additional measures, including the
establishment of freezes or restraints on certain projects or markets, which may
have an adverse effect on the Company's operations. See 'Business -- China.'

Legal System. China's legal system is a civil law system which is based on
written statutes and in which decided legal cases have little precedential
value. China does not have a well-developed, consolidated body of laws governing
foreign investment enterprises. As a result, the administration of laws and
regulations by government agencies may be subject to considerable discretion. As
legal systems in China develop, foreign business entities may be adversely
affected by new laws, changes to existing laws (or interpretations thereof) and
preemption of provincial or local laws by national laws. In circumstances where
adequate laws exist, it may not be possible to obtain swift and equitable
enforcement thereof. See 'Business -- China.'

Foreign Trade Corporations. In order to conduct business in China, the
Company must make most of its sales through foreign trade corporations ('FTCs').
Although purchasing decisions are made by

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the end-user, which is obligated to pay the applicable purchase prices, the
Company or its supplier enters into a formal purchase contract with only the
FTC. The FTCs, which are legally authorized by the Chinese government to conduct
import business, make purchases on behalf of the end-users. By virtue of its
direct contractual relationship with the FTC, rather than the end-user, the
Company is to some extent dependent upon the continuing existence of and
contractual compliance by the FTC until the particular transaction has been
consummated. The Company's business, however, is not dependent on any single FTC
or end-user. Although sales by the Company to certain industries involve repeat
transactions with FTCs that operate in those industries, the Company does not
believe that it is dependent upon relations with any particular FTC or that the
loss of relations with any particular FTC would have a material adverse effect
on the Company. Rather, FTCs, which earn commissions in transactions, compete
with each other for the right to handle end-users' business. See 'Business --
China.'

Hong Kong. One of the Company's wholly-owned subsidiaries, Chindex Hong
Kong Limited, conducts sales, marketing and other activities in Hong Kong.
Accordingly, the Company may be materially adversely affected by factors
affecting Hong Kong's political situation and its economy or in its
international political and economic relations. Hong Kong currently is a British
Crown Colony, but sovereignty over Hong Kong will be transferred to China
effective July 1, 1997. As a result, there can be no assurance as to the
continued stability of political, economic or commercial conditions in Hong
Kong.

TIMING OF REVENUES; FLUCTUATIONS IN FINANCIAL PERFORMANCE AND IMPACT OF SINGLE
FINANCING

The timing of the Company's revenues is affected by several significant
factors. Many end-users of the products sold by the Company 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, particularly high-priced vehicles
sold to the mining and construction industries, often require protracted sales
efforts, long delivery schedules and other time-consuming steps. Further, in
light of the dependence by purchasers on the availability of credit, the timing
of sales may depend upon the timing of the Company's or its purchasers'
abilities to arrange for credit sources. A relatively limited number of orders
and shipments may constitute a meaningful percentage of the Company's revenues
in any one period. Correspondingly, a relatively small reduction in the number
of orders can have a material impact on the Company's revenues in any one
quarter or year. In addition, because the Company recognizes revenues and
expenses relating to certain contracts as products are shipped, the timing of
shipments could affect the Company's operating results for a particular period.
As a result, the Company's operating results have varied and are expected to
continue to vary significantly from quarter to quarter and the results of
operations of the Company for any particular quarter are not necessarily
indicative of results that may be expected for any subsequent quarter or related
fiscal year.

As an example of the foregoing, during the three months ended June 30,
1996, the Company recognized $6.9 million in sales (as well as an additional
$1.5 million in sales in the prior quarter) as a result of the shipment of goods
sold to end-users under a single Export-Import Bank financing arrangement, which
sales and financing had been arranged over a significantly longer period of time
prior to that period. This financing arrangement was the first of its kind for
the Company and, the Company believes, was the first of its kind for purchasers
in China. As a result of the financing, the Company recognized relatively
substantial sales during such three-month period. Accordingly, the Company's
results of operations for the nine months ended September 30, 1996 were
significantly and positively impacted by the timing of the payments from the
financing and are not expected to be indicative of the Company's results of
operations for the fourth quarter or the fiscal year ending December 31, 1996.
The Company has not received any further Export-Import Bank financing
commitments and there can be no assurance that any such commitments will be
obtained in the future by the Company or the end-users of its products. The
timing of these sales was subject to circumstances affecting the United States
Government, the Export-Import Bank, the Bank of China and other entities not
controlled by the Company.

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In addition, in order to meet increased competition and difficult marketing
conditions caused by a restriction of credit available to domestic Chinese
organizations and to continue to expand its markets, the Company has increased
the number of sales in which it has offered certain customers extended payment
terms on purchases. The Company believes that its efforts with respect to
financing initiatives contributed substantially to the overall increase in sales
in 1995 and the nine months ended September 30, 1996, particularly with respect
to the Export-Import Bank financed sales, although there can be no assurance
that these financial initiatives will continue to be available to offset or
reduce the continuing impact of credit restrictions. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business -- Strategy.'

RELATIONS WITH SUPPLIERS; RISK OF TERMINATION OF ARRANGEMENTS

The Company's relations with its product suppliers are based substantially
on mutual satisfaction with the relationship in addition to the terms of the
contractual arrangements between them. Although the Company believes that its
relations with its suppliers are good, there can be no assurance that some or
any of the Company's suppliers will not elect to change their method of
distribution into the Chinese marketplace to a form that does not utilize the
services of the Company. In addition, certain of the contracts between the
Company and its suppliers contain short-term cancellation provisions permitting
the contracts to be terminated on 30 days' to six months' notice, minimum sales
quantity requirements or targets and provisions triggering termination upon the
occurrence of certain events. From time to time, the Company and/or its
suppliers terminate or revise their respective distribution arrangements.
Although the Company is not aware of any threatened cancellations of its current
distribution arrangements, there can be no assurance that cancellations of or
other material adverse effects on its contracts will not occur. See
'Business -- Distribution Arrangements.'

DEPENDENCE ON CERTAIN SUPPLIERS

The Company relies on a limited number of suppliers for products which
represent a significant portion of its revenues. During the fiscal year ended
December 31, 1995 and the nine months ended September 30, 1996, the Company's
largest supplier, Acuson Corporation, provided goods which accounted for
approximately 54.6% and 58.2%, respectively, of the Company's revenues, which
are comprised of net sales and net commission income. Acuson and one other
supplier were the only suppliers that represented at least 10% of revenues
during the periods. Although the Company believes that its relations with its
suppliers are good, the loss of any significant supplier or the shortage or loss
of any significant product line could adversely affect the Company's ability to
service customers and, as a result, could have a material adverse effect on the
Company's operating results. Since most of the Company's arrangements with its
suppliers involve the Company's agreement not to sell directly competitive
products of other suppliers, the Company does not pursue alternatives to
existing suppliers. There can be no assurance that the Company would be able to
fully replace the loss of any significant supplier.

DEPENDENCE ON KEY PERSONNEL; NEED TO RETAIN SALES AND TECHNICAL PERSONNEL

The Company's success, to a large extent, depends upon the continued
services of certain executive officers, particularly Roberta Lipson, Chairperson
of the Board of Directors, Chief Executive Officer and President and Elyse Beth
Silverberg, Executive Vice President and Secretary. Although the Company has
entered into employment agreements with each of Mmes. Lipson and Silverberg, the
loss of the services of either such executive officer could materially adversely
affect the Company. The Company maintains key-person life insurance coverage in
the amount of $2,000,000 on the lives of each of Mmes. Lipson and Silverberg.
See 'Management.'

The Company intends to continue to hire additional personnel as necessary
to meet its management, marketing, sales and technical service needs from time
to time and expects to use a portion of the proceeds of this Offering allocated
to general corporate purposes for such expansion. Although the Company believes
that, to date, it has been successful in attracting and retaining highly
qualified professionals and other administrative personnel as required by its
business, there can be no assurance that the Company will continue to be
successful in this regard. The Company believes that the future success and
development of its business is dependent to a significant degree on its ability
to continue to attract such individuals. See 'Use of Proceeds' and
'Business -- Employees.'

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RISKS RELATING TO COMMENCEMENT OF NEW OPERATIONS; POTENTIAL LIABILITY

Following this Offering, the Company intends to continue to develop its
proposed health care services operations. To date, the Company's efforts in this
regard have been in the development phase and the proposed initial clinic in
Beijing has not yet opened. Although the Company believes that the Beijing
United clinic is the first foreign-managed health care facility of its kind to
have been granted the necessary authorization to operate in Beijing by China's
Ministry of Health, all requisite approvals have not yet been obtained.
Following completion of construction of the facility, the Company must obtain an
occupancy permit and medical license from the appropriate Beijing municipal
authorities. There can be no assurance that all requisite approvals ultimately
will be obtained or continued in effect as necessary for clinic operations. Even
if the numerous preparatory and commencement requirements, including government
approvals, are satisfied, as to which there can be no assurance, the Company's
proposed health care services operations will be dependent upon a variety of
operating requirements, including the Company's ability to retain qualified
physicians and other health care professionals, among other things. See
' -- Dependence on Qualified Health Care Professionals' below. Neither the
Company nor any of its senior management has significant experience establishing
or operating health care facilities in China or elsewhere. In addition, the
Company's health care services operations will be significantly affected by the
Company's ability to implement effective marketing programs and to attract a
significant number of patients. There can be no assurance that the Company will
be able to successfully establish health care services operations or that such
operations will result in significant revenues or profitability.

The provision of health care services entails the risk of potential medical
malpractice and similar claims. The Company does not, itself, engage in the
practice of medicine or have responsibility for compliance with regulatory
requirements directly applicable to physicians and requires physicians
performing medical services at its facilities to maintain medical malpractice
insurance. Nevertheless, malpractice claims may be asserted against the Company
directly in the event that services rendered by the Company or procedures
performed at the Company's facilities are alleged to have resulted in injury or
other adverse effects. Although the Company intends to obtain and to cause
Beijing United to obtain liability insurance that it believes will be adequate
as to both risk and amounts, there can be no assurance that any such insurance
will be obtained or that successful malpractice claims will not exceed the
limits of the Company's insurance and thus have a material adverse effect on the
Company's business, financial condition or operating results. In any event, the
applicable laws in China relating to liability of this type are not as well
settled as in the United States and most other Western countries. Moreover, a
malpractice claim asserted against the Company could be costly to defend, could
consume management resources and could adversely affect the Company's reputation
and business, regardless of the merit or eventual outcome of such claim. In
addition, there can be no assurance that the Company will be able to obtain such
insurance on commercially reasonable terms in the future or that any such
insurance will provide adequate coverage against potential claims.

DEPENDENCE ON QUALIFIED HEALTH CARE PROFESSIONALS

The success of the Company is dependent upon its continuing ability to
recruit, train and retain qualified health care professionals in Beijing or any
other markets. The Company faces competition for these personnel from other
health care providers, research and academic institutions, government entities
and other organizations throughout the world. The availability of such personnel
is limited, and the inability to recruit and maintain relationships with these
individuals in China could have a material adverse effect on the Company's
future growth and operations. This fact is particularly significant for the
Company, since qualified Western or similar health care professionals may have
to be recruited from outside China and replacing any such professionals may
require significant recruiting efforts and lead time. In addition, the costs of
housing and otherwise compensating such professionals may be relatively high in
light of the housing costs in Beijing and certain other cities in China. There
can be no assurance that the Company will be successful in attracting, hiring
and retaining these qualified health care professionals. The unavailability of
sufficient numbers of qualified personnel could have a material adverse effect
on the Company's operations. In addition, a shortage of skilled personnel or the
delay resulting from a need to train personnel could have a material adverse
effect on the Company's results of operations.

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COMPETITION

The Company competes with other independent distributors in China. Given
the rapid pace of technological advancement, particularly in the medical
products field, other independent distributors may introduce products into the
Company's markets that compete directly with the Company's sales. In addition to
other independent distributors, the Company faces significant competition from
direct distributors of established manufacturers. In the medical products field,
for example, the Company competes with manufacturers such as Hewlett-Packard Co.
('Hewlett-Packard'), which maintains its own direct sales force in China. In
addition, to the extent that certain manufacturers, such as Hewlett-Packard,
market under one brand name a wide variety of products in China to different
market sectors, those manufacturers may be better able than the Company to
establish brand name recognition across industry lines. In the machinery field
the Company also faces significant competition from the direct sales operations
of Caterpillar Inc. and other large, international companies active in the same
equipment sectors as the Company. The Company also experiences competition from
domestic Chinese entities in various product areas. Such entities, whether joint
venture projects with foreign manufacturers or all-Chinese groups, often receive
preferential treatment by the governmental regulatory authorities, who seek to
curtail spending on imported equipment in favor of domestic Chinese industrial
development. Although the Company competes directly with products of certain
such joint ventures and all-Chinese groups, the Company does not believe that
this preference has had a material effect on the Company's operations. The
Company's competitive position further depends in part upon its ability to
attract and retain qualified personnel in sales, technical and administrative
capacities. See 'Business -- Competition.'

Elements of competition in the Company's industry include quality,
technology, product price and after-sale service and support. The Company
believes that the products it markets and distributes are competitive in these
regards and that the quality of the Company's technical service and support of
those products in particular enhances the Company's competitiveness in its
markets. The Company does not believe that there are significant barriers to the
entry of additional competition in its markets either by distributors such as
the Company or by manufacturers seeking to sell on a direct sale basis.

In response to increased competition, and, in an effort to expand its
business, the Company has entered into agreements with certain customers to
provide extended payment terms for purchase of goods. These arrangements,
limited to selected purchasers qualified by the Company, have assisted the
Company in competing with financing offered by competing manufacturers and
governments. See 'Risk Factors-Timing of Revenues; Fluctuations in Financial
Performance and Impact of Single Financing' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources.'

To date, except for sales made by Chindex Tianjin, all of the Company's
sales have been made in United States Dollars. The competitiveness of the
Company's products, however, is dependent in part on the currency, such as
United States Dollars or Swedish Kronas, of the country of the selling
manufacturer. To the extent that any such currencies are devalued in comparison
with the currencies in which competitive products are sold, the Company would
experience a competitive disadvantage. Chindex Tianjin sells goods directly to
end-users without the required involvement or cost of an FTC and receives
payment in local Chinese currency and uses the currency to pay for local
expenses. Any devaluation in the local Chinese currency may have a negative
impact on the Company's results of operations.

Upon commencement of its operations, Beijing United will compete with a
large number and variety of health care facilities in Beijing. There are
numerous Chinese hospitals available to the general populace in Beijing, as well
as two international clinics serving the expatriate business and diplomatic
community. The Company believes that the existing two international clinics do
not currently provide specialized Western-standard maternity and birthing
services and neonatal care. There can be no assurance that these or other
clinics or facilities will not commence such operations and compete with Beijing
United. Further, there can be no assurance that a qualified Western or other
health care organization, with greater resources or more experience than the
Company in the provision or management of health care services, will not decide
to engage in operations similar to those to be conducted by Beijing United. See
'Business -- Proposed Beijing Clinic' and ' -- Competition.'

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USE OF LETTERS OF CREDIT

To date, most of the Company's sales have been backed by letters of credit.
The Company currently intends to continue to use letters of credit in the
conduct of its business, although the percentage of sales backed by letters of
credit has declined over the last several years and is expected to decline in
the future. Further, as competition increases and the Company seeks to expand
its business, particularly in light of restrictions on the availability of
credit from the Chinese banking system, the Company may no longer continue to
obtain letters of credit on the same basis or as often, if at all. To the extent
that the Company continues to extend credit or otherwise makes sales to
end-users not supported by letters of credit, the Company will experience
greater risk of nonpayment. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'

CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES

In the event that any Escrow Shares are released to the shareholders of the
Company who are officers, directors, employees or consultants of the Company,
compensation expense will be recorded for financial reporting purposes as
required by generally accepted accounting principles ('GAAP'). Therefore, in the
event the Company attains any of the earnings thresholds or the Company's Common
Stock meets certain minimum bid prices required for the release of the Escrow
Shares, such release will be deemed additional compensation expense of the
Company. Accordingly, the Company will, in the event of the release of the
Escrow Shares, recognize during the period in which the earnings thresholds are
met or such minimum bid prices obtained what could be a substantial charge,
which would have the effect of substantially increasing the Company's loss or
reducing or eliminating earnings, if any, at such time. Although the amount of
compensation expense recognized by the Company will not affect the Company's
total shareholders' equity, it may have a depressive effect on the market price
of the Company's securities. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Principal
Shareholders -- Escrow Shares.'

CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING RIGHTS;
POSSIBLE DEPRESSIVE EFFECT ON THE PRICE OF THE COMPANY'S SECURITIES

The Company's present insider shareholders own 2,000,000 shares of Class B
Common Stock (excluding warrants but including the Escrow Shares), representing
52.1% of the Company's outstanding capital stock and approximately 86.7% of the
total voting power and will be able to elect all of the Company's directors and
otherwise control the Company's operations. Furthermore, the disproportionate
vote afforded the Class B Common Stock could also serve to impede or prevent a
change of control of the Company. As a result, potential acquirors will be
discouraged from seeking to acquire control of the Company through the purchase
of Common Stock, which could have a depressive effect on the price of the
Company's securities. In addition, the Company's present insider shareholders
own an aggregate of 300,000 Outstanding Class A Warrants and 300,000 Outstanding
Class B Warrants. See 'Principal Shareholders' and 'Description of Securities.'

DIVIDENDS UNLIKELY

The Company has not paid any cash dividends and does not presently intend
to pay cash dividends. It is not likely that any cash dividends will be paid in
the foreseeable future. See 'Price Range of Securities and Dividend Policy.'

POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES
DUE TO THE INVESTIGATION OF D.H. BLAIR INVESTMENT BANKING CORP. AND
D.H. BLAIR & CO., INC. BY THE SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission (the 'Commission') is conducting an
investigation concerning various business activities of the Underwriter and D.H.
Blair & Co., Inc. ('Blair & Co.'), a selling group member which will distribute
substantially all of the Units offered hereby. The investigation appears to be
broad in scope, involving numerous aspects of the Underwriter's and Blair &
Co.'s compliance with the Federal securities laws and compliance with the
Federal securities laws by issuers whose securities were underwritten by the
Underwriter or Blair & Co., or in which the

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Underwriter or Blair & Co. made over-the-counter markets, persons associated
with the Underwriter or Blair & Co., such issuers and other persons. The Company
has been advised by the Underwriter that the investigation has been ongoing
since at least 1989 and that the Underwriter is cooperating with the
investigation. The Underwriter cannot predict whether this investigation will
ever result in any type of formal enforcement action against the Underwriter or
Blair & Co. or, if so, whether any such action might have an adverse effect on
the Underwriter, Blair & Co. or the securities offered hereby. The Company has
been advised that the Underwriter or Blair & Co. intends to make a market in the
securities following this Offering. An unfavorable resolution of the
Commission's investigation could have the effect of limiting such firm's ability
to make a market in the Company's securities, which could adversely affect the
liquidity or price of such securities. See 'Risk Factors -- Adverse Effect on
Liquidity Associated with Possible Restrictions on Market Making Activities in
the Company's Securities' and 'Underwriting.'

ADVERSE EFFECT ON LIQUIDITY ASSOCIATED WITH POSSIBLE RESTRICTIONS ON
MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES

The Underwriter has advised the Company that Blair & Co., among others,
intends to continue to make a market in the Company's securities. Rule 10b-6 of
the Commission under the Securities Exchange Act of 1934, as amended (the '1934
Act') may prohibit Blair & Co. from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, Blair & Co. may
be unable to provide a market for the Company's securities during the period
while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the market price of the
Company's securities. See 'Underwriting.'

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS

The Warrants may be redeemed by the Company at a redemption price of $.05
per Warrant upon 30 days' prior written notice if the average bid price per
share of the Common Stock exceeds $9.10 (subject to adjustment) with respect to
the Class A Warrants and $12.25 (subject to adjustment) with respect to the
Class B Warrants, for 20 consecutive trading days ending within 15 days of the
notice of redemption. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price therefor at a time when it may
be disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which, at the time the Warrants are called for
redemption, is likely to be substantially less than the market value of the
Warrants. See 'Description of Securities -- Warrants.'

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS

Purchasers of Units and holders of Warrants will only be able to exercise
the Warrants if (i) a current prospectus under the Securities Act of 1933, as
amended (the 'Securities Act') relating to the securities underlying the
Warrants is then in effect and (ii) such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of Warrants reside. Although the Company has
undertaken to use its best efforts to maintain the effectiveness of a current
prospectus covering the securities underlying the Warrants, there can be no
assurance that the Company will be able to do so. The value of the Warrants may
be greatly reduced if a current prospectus, covering the securities issuable
upon the exercise of the Warrants, is not kept effective or if such securities
are not qualified, or exempt from qualification, in the states in which the
holders of Warrants reside. See 'Description of Securities -- Warrants.'

POSSIBLE DEPRESSIVE EFFECT ON FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS

Immediately following this Offering, there will be an aggregate of
6,390,000 shares of Common Stock and Class B Common Stock outstanding (assuming
that the Over-Allotment Option is not exercised). In addition, an aggregate of
4,280,000 shares of Common Stock are issuable pursuant to the

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Outstanding Class A Warrants and Outstanding Class B Warrants. Of all such
shares, the shares of Common Stock included as part of the Units offered hereby
and the outstanding IPO Units will be freely tradeable without restriction under
the Securities Act. All other shares of Common Stock and the shares of Class B
Common Stock will be 'restricted securities' as that term is defined under the
Securities Act, and in the future may be sold in compliance with Rule 144 under
the Securities Act or pursuant to a Registration Statement filed under the
Securities Act. As of the date of this Prospectus, 2,000,000 shares of Common
Stock issuable upon conversion of the Outstanding Class B Common Stock are
eligible for sale under Rule 144 (subject to the restrictions on transfer agreed
to between the current shareholders and the Underwriter, as set forth below, and
the restrictions on transfer with respect to the Escrow Shares). Rule 144
generally provides that a person holding restricted securities for a period of
two years may sell every three months in brokerage transactions and/or
market-maker transactions an amount equal to the greater of one percent (1%) of
(a) the Company's issued and outstanding Common Stock or (b) the average weekly
trading volume of the Common Stock during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of shares
without any quantity limitation by a person who is not an affiliate of the
Company and who has satisfied a three-year holding period. However, all of the
current shareholders of the Company owning 1% or more of the issued and
outstanding Common Stock have agreed not to sell, assign or transfer any of
their shares of the Company's securities for a period of 13 months from the
closing of this Offering without the Underwriter's prior written consent. See
'Underwriting.'

Commencing one year from the date of this Prospectus, the Underwriter has
the right to two demand registrations of the IPO Units underlying its Unit
Purchase Option. The holder(s) of the Unit Purchase Option also will have
piggyback registration rights. These registration rights are in addition to the
registration rights granted to the holders of the outstanding unit purchase
options issued to the underwriter and a finder in connection with the initial
public offering of the Company in August 1994. These outstanding unit purchase
options represent the right to purchase in the aggregate up to 160,000 IPO Units
exercisable at $6.75 per IPO Unit until August 18, 1999. The registration rights
relating to these outstanding unit purchase options consist of the right to two
demand registrations of the IPO Units thereunder and piggyback registration
rights. The exercise of the registration rights relating to the Unit Purchase
Option or the outstanding unit purchase options may involve substantial expense
to the Company and have a depressive effect on the market price of the Company's
securities. See 'Description of Securities' and 'Shares Eligible for Future
Sale.'

POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of 'blank check' preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval (but subject to applicable government regulatory restrictions), to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. See 'Description of Securities.'

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USE OF PROCEEDS

The net proceeds to the Company from the sale of the Units offered hereby
are estimated to be approximately $8,555,000 ($9,886,250 if the Underwriter's
Over-Allotment Option is exercised in full), after deducting underwriting
discounts and estimated offering expenses.

The net proceeds of this Offering will be used for working capital
purposes, including the funding of the future expansion of the Company's
marketing and sales operations in China, Hong Kong and elsewhere in Asia and the
development, commencement and possible expansion of the Company's proposed
health care services operations. In connection with its proposed expansion of
marketing and sales activities, the Company contemplates recruiting and
employing various additional personnel in China and the United States. These
personnel may include expatriates and Chinese nationals for various regional
sales and technical service positions in China. The additional regional sales
personnel would be hired in connection with the Company's proposed territorial
expansion of the Company's facilities in China, which expansion may include the
opening of new regional offices. The Company may use a portion of the net
proceeds of this Offering to fund a portion of the start-up expenses of the
Beijing clinic and intends to use a portion of the net proceeds to finance the
clinic during the initial period of operations following its opening. In the
event that the clinic is successful and management deems it appropriate, the
Company may use additional amounts of the net proceeds of this Offering to
finance the consideration, development and commencement of similar clinics in
other metropolitan areas in China. The Company's proposed expansion also may
include the possible introduction of new product lines into the Company's
established markets, such as the marketing and sale of pharmaceuticals and other
medical consumables, as well as other products, to the health care system in
China.

Also in connection with its expansion activities, the Company has been
offering and intends to continue to offer alternative financing arrangements to
selected customers. In light of the uncertainty of the availability of financing
to the Company's markets, one such possible financing arrangement may involve
offering customers capital equipment on a lease, rather than sale, basis. Other
possible financing arrangement may include joint venture and/or cost and revenue
sharing projects. In the event that the Company determines to offer any of these
or other financing arrangements to its customers, significant capital
expenditures may be required by the Company, which expenditures may constitute a
significant portion of the net proceeds allocated to working capital purposes.
The feasibility of offering alternative financing arrangements currently is
being reviewed by the Company and no specific plans have been formulated to date
in this regard. In general, however, to the extent that the Company would be
providing any such financing, the Company believes that it may experience
increased risk of collection. For example, the Company recently has provided
extended payment terms to customers in its more familiar markets and under
controlled risk circumstances. The Company bears risks in connection with the
collection of those payments, which risks may be even greater in connection with
alternative financing arrangements. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'

In order to complement its proposed expansion, the Company also may use a
portion of the net proceeds of this Offering for the acquisition of businesses
or assets that are consistent with the Company's current or proposed operations
or experience in China. The Company currently does not have any agreements,
commitments, arrangements or understandings with respect to any proposed
acquisition and there can be no assurance that any suitable acquisition will be
discovered or consummated.

The Company believes that the net proceeds of this Offering, available
sources and cash flow from operations will satisfy its cash needs for at least
24 months from the date of this Prospectus. The amounts actually expended for
the proposed purposes described above could vary significantly depending on the
Company's assessment of the various proposed financing initiatives, the hiring
of additional personnel and expansion of facilities, the addition of new product
lines and the prospect of any acquisitions, all of which are subject to the
ongoing evaluation by the Company as to suitability. Pending such uses, the
Company intends to invest the net proceeds from this Offering in short-term,
interest-bearing securities.

<PAGE>
<PAGE>
DILUTION

The following discussion and tables treat the Common Stock and the Class B
Common Stock as a single class, allocate no value to the Class A Warrants and
Class B Warrants contained in the IPO Units and assume no exercise of the
Underwriter's Over-Allotment Option.

As of September 30, 1996, the Company had a net tangible book value of
$9,246,000 or approximately $2.41 per share of Common Stock. Net tangible book
value per share represents the amount of the Company's total tangible assets,
less liabilities, divided by the number of shares of Common Stock outstanding.
Giving retroactive effect to the sale of the 10,000 Units offered hereby, at a
price of $1,000 per Unit, the pro forma net tangible book value at September 30,
1996 would have been $2.79 per share (based on 255 IPO Units per Unit),
representing an immediate increase in net tangible book value of $.38 per share
to the present shareholders and an immediate dilution of $1.13 per share to
public investors from the public offering price. Dilution per share represents
the difference between the public offering price and the pro forma net tangible
book per share value after the Offering.

The following table illustrates the per share dilution to be incurred by
public investors from the public offering price:

<TABLE>
<S> <C> <C>
Public offering price per share of Common Stock................................................ $3.92
Net tangible book value before Offering................................................... $2.41
Increase attributable to public investors................................................. .38
------
Pro forma net tangible book value after Offering............................................... 2.79
-------
Dilution of net tangible book value to public investors........................................ $1.13
-------
-------
</TABLE>

The following table sets forth the difference between the present
shareholders and the public investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share.

<TABLE>
<CAPTION>
PERCENT PERCENT AVERAGE PRICE
NUMBER OF TOTAL AMOUNT OF TOTAL PER SHARE
--------- -------- ----------- -------- -------------

<S> <C> <C> <C> <C> <C>
Current Shareholders.............................. 3,840,000(1) 60.1% $ 9,464,577 48.62% $2.46
Investors in the Offering......................... 2,550,000(2) 39.9% 10,000,000 51.38% 3.92
--------- -------- ----------- --------
6,390,000 100.0% $19,464,577 100.0%
--------- -------- ----------- --------
--------- -------- ----------- --------
</TABLE>

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

(1) Includes the Escrow Shares. See 'Principal Shareholders -- Escrow
Arrangements.'

(2) Each Unit consists of 255 IPO Units.

<PAGE>
<PAGE>
PRICE RANGE OF SECURITIES AND DIVIDEND POLICY

The Company's IPO Units, Common Stock, Class A Warrants and Class B
Warrants have traded separately on Nasdaq under the symbols CHDXU, CHDX, CHDXW
and CHDXZ, respectively, since August 18, 1994. The Units offered hereby will
not be listed or traded separately on Nasdaq. The following table sets forth the
high and low last sale prices for the Company's securities for the periods
indicated as reported by Nasdaq. These prices do not reflect retail mark-ups,
markdowns or commissions.
<TABLE>
<CAPTION>
IPO UNITS COMMON STOCK CLASS A WARRANTS
--------------- -------------------------- ------------------------
HIGH LOW HIGH LOW HIGH LOW
------------ ---------- ------------ ---------- ---------- ----------

<S> <C> <C> <C> <C> <C> <C>
Fiscal 1994
Third Quarter(1)................. 8 3/4 6 5 3/4 5 2 1
Fourth Quarter................... 9 7 6 3 3/4 2 1/4 1 3/4
Fiscal 1995
First Quarter.................... 8 1/4 6 1/2 4 3/4 3 1/2 2 1/2 1 5/8
Second Quarter................... 9 1/4 6 1/2 5 1/2 3 3/8 2 1/4 1 1/2
Third Quarter.................... 9 1/2 7 1/4 5 3/4 4 1/2 2 1/2 1 3/4
Fourth Quarter................... 9 1/4 8 5 3/4 4 7/8 2 3/4 2 1/8
Fiscal 1996
First Quarter.................... 9 6 5/8 5 1/2 4 2 3/4 1 3/8
Second Quarter................... 8 5/8 6 1/8 4 15/16 3 1/4 2 5/8 1 1/2
Third Quarter.................... 8 21/32 6 1/2 5 1/8 3 7/8 2 7/32 1 3/4
Fourth Quarter(2)................ 7 11/32 5 1/4 4 5/8 3 1/8 1 13/16 1

<CAPTION>
CLASS B WARRANTS
------------------------
HIGH LOW
---------- ----------
<S> <C> <C>
Fiscal 1994
Third Quarter(1)................. 1 1/2 1/2
Fourth Quarter................... 1 1/8 1/2
Fiscal 1995
First Quarter.................... 1 1/2
Second Quarter................... 1 1/4 1/2
Third Quarter.................... 1 3/8 7/8
Fourth Quarter................... 1 1/2 1
Fiscal 1996
First Quarter.................... 1 1/2 7/8
Second Quarter................... 1 3/8 3/4
Third Quarter.................... 1 3/16 3/4
Fourth Quarter(2)................ 29/32 1/2
</TABLE>

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

(1) Includes the period from August 18, 1994 through September 30, 1994.

(2) Includes the period from October 1, 1996 through November 4, 1996.

------------------------
The last sale prices of these securities on November 4, 1996 as reported by
Nasdaq were $5 3/4 per IPO Unit, $3 7/8 per share of Common Stock, $1 13/16 per
Class A Warrant, and $ 29/32 per Class B Warrant, respectively.

As of October 9, 1996, there were nine record holders of the Company's
Common Stock and five record holders of the Company's Class B Common Stock.

The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
intends to retain any earnings to finance the growth of the Company. The Board
of Directors of the Company will review its dividend policy from time to time to
determine the feasibility and desirability of paying dividends, after giving
consideration to the Company's earnings, financial condition, capital
requirements and such other factors as the Board of Directors deems relevant.

<PAGE>
<PAGE>
CAPITALIZATION

The following table sets forth at September 30, 1996 the actual
Capitalization of the Company, and as adjusted to give effect to the sale of the
10,000 Units at the offering price of $1,000 per Unit. See 'Use of Proceeds.'

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED)
--------------------------
ACTUAL AS ADJUSTED
----------- -----------

<S> <C> <C>
Long-term liabilities.............................................................. $ 1,893,000 $ 1,893,000
Shareholders' equity
Preferred stock, $.01 par value: Authorized -- 5,000,000 shares; none
issued....................................................................... -- --
Common stock, $.01 par value:
Authorized -- 30,000,000 shares; issued and outstanding -- 2,000,000
shares designated as Class B, actual(1)................................ 20,000 20,000
1,840,000 shares designated Common Stock, actual; 4,390,000, as
adjusted(2)............................................................ 18,000 44,000
Additional paid-in capital.................................................... 7,477,000 16,006,000
Foreign currency translation adjustment....................................... (8,000) (8,000)
Retained earnings............................................................. 1,739,000 1,739,000
----------- -----------
Total shareholders' equity.................................................... 9,246,000 17,801,000
----------- -----------
Total capitalization.......................................................... $11,139,000 $19,694,000
----------- -----------
----------- -----------
</TABLE>

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

(1) Includes the 450,000 Escrow Shares, all of which are shares of Class B
Common Stock. See 'Principal Shareholders -- Escrow Shares.'

<PAGE>
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data as of December 31, 1995, and for each
of the two years in the period ended December 31, 1995, have been derived from
the Company's consolidated financial statements, which statements have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
included elsewhere herein. The selected financial data for the nine months ended
September 30, 1995 and 1996, have been derived from the unaudited consolidated
financial statements of the Company and, in the opinion of management, contain
all adjustments (consisting only of normal and recurring adjustments) that the
Company considers necessary for a fair presentation of such data. The results of
the interim periods are not necessarily indicative of the results of a full
year. All of the financial data set forth below should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
included elsewhere in this Prospectus and also with the information appearing
under the caption 'Management's Discussion and Analysis of Financial Condition
and Results of Operations.'

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------------------------
1994 1995 1995 1996
----------- ------------ ----------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $10,613,000 $ 13,002,000 $ 7,697,000 $16,832,000
Costs of sales.......................... 7,658,000 9,667,000 6,020,000 11,821,000
----------- ------------ ----------------- -------------
Gross profit on sales................... 2,955,000 3,335,000 1,677,000 5,011,000
Net commission income................... 2,625,000 2,115,000 1,368,000 712,000
----------- ------------ ----------------- -------------
TOTAL GROSS PROFIT ON SALES AND NET
COMMISSION INCOME..................... 5,580,000 5,450,000 3,045,000 5,723,000
Selling, general and administrative
expenses.............................. 4,862,000 6,239,000 4,453,000 5,347,000
----------- ------------ ----------------- -------------
718,000 (789,000) (1,408,000) 376,000
Other income (expense), net............. 108,000 340,000 272,000 804,000
----------- ------------ ----------------- -------------
Income (loss) before provision for
income taxes.......................... 826,000 (449,000) (1,136,000) 1,180,000
Income tax benefit (provision).......... (319,000) 132,000 399,000 (443,000)
----------- ------------ ----------------- -------------
NET INCOME (LOSS)....................... $ 507,000 $ (317,000) $ (737,000) $ 737,000
----------- ------------ ----------------- -------------
----------- ------------ ----------------- -------------
NET INCOME (LOSS) PER SHARE(1).......... $0.23 $(0.09) $(0.22) $0.22
----------- ------------ ----------------- -------------
----------- ------------ ----------------- -------------
Weighted average number of shares of
common stock outstanding(1)........... 2,218,000 3,390,000 3,390,000 3,390,000
----------- ------------ ----------------- -------------
----------- ------------ ----------------- -------------
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
---- ----
(UNAUDITED)
BALANCE SHEET DATA:
Working capital....................................................... $ 6,595,000 $ 6,035,000
Total assets.......................................................... 15,434,000 18,026,000
Total liabilities..................................................... 6,925,000 8,780,000
Shareholders' equity.................................................. 8,509,000 9,246,000
</TABLE>

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

(1) Share information is based upon the number of shares of Common Stock and
Class B Common Stock treated as a single class, and excludes the Escrow
Shares.

<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains certain forward-looking statements that
involve various risks and uncertainties. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and in 'Business' and 'Risk Factors.' The following discussion should be
read in conjunction with the consolidated financial statements of the Company
and notes thereto, and is qualified in its entirety by the foregoing and by
other more detailed financial information appearing elsewhere in this
Prospectus.

RESULTS OF OPERATIONS

The Company's revenues are derived in two principal ways: net sales by the
Company for its own account and net commission income consisting of commissions
on sales made by manufacturers that are represented by the Company. The Company
often elects the form of each transaction based on the circumstances of the
transaction, including the nature of the products and parties involved.
Consequently, the Company does not believe that the changes over periods in the
mix comprising total gross profit on sales and net commission income necessarily
reflect any trends.

The Company reported net sales of $4,254,000, net commission income of
$408,000 and a net loss of ($136,000), or ($0.04) per share, for the three
months ended September 30, 1996 as compared to net sales of $3,272,000, net
commission income of $807,000 and net income of $54,000, or $0.02 per share, for
the three months ended September 30, 1995. The results of operations during the
most recent period were adversely affected by (i) an increase of approximately
20.0% in selling, general and administrative expenses related to an increase in
the number of Company employees, increased staff bonuses in accordance with
improved past performance, increased travel and entertainment expenses related
to increased marketing efforts, and additional rental expenses related to the
building housing the Beijing United facility; (ii) an inventory write-down of
$84,000; (iii) the continued impact of restrictions imposed by the Chinese
Government on the availability of credit; and (iv) a concentration of sales
activity in the immediately preceding three months in connection with the
Export-Import Bank financing. See 'Timing of Revenues' below.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

The Company's net sales for the nine months ended September 30, 1996
increased $9,135,000 or 118.7% and net commission income decreased $656,000 or
48.0% over the nine months ended September 30, 1995. The total gross profit on
sales and net commission income increased $2,678,000 or 87.9%.

During 1996, the Company shipped $8.4 million of goods financed by the
Export-Import Bank tied aid credits to certain identified Chinese organizations
for the purchase of equipment sold by the Company. Tied aid credits were made
available to development projects in specific geographic areas of China to match
offers being made by European suppliers for the sale of similar equipment on
below market loan terms. While the Company continues to explore additional
financing opportunities, including with the Export-Import Bank, there can be no
assurances that any such financing will be available in the future.

The Company believes that the total gross profit on sales and net
commission income has been negatively impacted during the periods by
restrictions imposed by the Chinese government on the availability of credit
from the Chinese banking system to the Company's customers. The Company believes
the restrictions on the availability of credit will continue to impact
operations for the immediate future.

The Company anticipates making a bulk sale of certain inventory that had
been purchased from a manufacturer no longer represented by the Company. It is
anticipated that the sale would occur at a discount of no more than 20% off the
Company's cost and, accordingly, the Company recorded a one-time inventory
write-down in the amount of $84,000 in the nine-month period ended September 30,
1996.

<PAGE>
<PAGE>
The Company's gross profit on sales as a percentage of net sales for the
nine months ended September 30, 1996 was 29.8% as compared to 21.8% for the nine
months ended September 30, 1995. The improved gross profit margin is
attributable primarily to improved pricing achieved on the Export-Import Bank
financed sales as well as decreased freight and training costs for the nine
months ended September 30, 1996.

Selling, general and administrative expenses for the nine months ended
September 30, 1996 and 1995 were $5,347,000 and $4,453,000, respectively,
representing an increase of 20.1%. These expenses represent costs associated
with an increase in the number of Company employees, increased staff bonuses as
a result of higher sales, and increased rent expense related to the new building
leased to house the proposed Beijing United facility. As a percentage of net
sales and net commission income, the selling, general and administrative
expenses decreased from 49.1% in the nine months ended September 30, 1995 to
30.5% in the nine months ended September 30, 1996. The reduction in percentage
was due principally to shipment of the Export-Import Bank financed $8.4 million
sales and to the fact that substantially all of the related selling and
administrative expenses were incurred in prior periods.

As set forth above, the Company's net sales, total gross profit on net
sales and net commission income, and gross profit were in each case
significantly and positively impacted during the nine months ended September 30,
1996 as a result of the shipment of goods financed by the Export-Import Bank.
The Company does not expect such positive results to continue in the fourth
quarter or to be indicative of the results of operations for the fiscal year
ending December 31, 1996. This financing arrangement from the Export-Import Bank
was the first of its kind for the Company and, the Company believes, was the
first of its kind for purchasers in China. The Company has not received any
further Export-Import Bank financing commitments and there can be no assurance
that any such commitments will be obtained in the future.

Interest income for the nine months ended September 30, 1996 and 1995 were
$269,000 and $340,000 respectively. The decrease principally was due to a
reduction over the periods in the amount of proceeds remaining from the
Company's initial public offering. Most interest income was earned on these
proceeds. Miscellaneous income of $547,000 during the nine months ended
September 30, 1996 principally was due to the Company's three year sub-lease of
a portion of the building leased to house the proposed Beijing United facility.

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994

The Company's net sales for the year ended December 31, 1995 increased
$2,389,000 or 23%, and net commission income for 1995 decreased $510,000 or 19%
over the year ended December 31, 1994. The increase in net sales over the
periods was substantially due to the Company's offering of extended payment
terms with premium prices to selected customers, the hiring of additional sales
staff, and a broadening of its regional sales. The Company expects to continue
to offer such extended payment terms in the future. See 'Liquidity and Capital
Resources' below.

The Company believes that, notwithstanding the increase in net sales over
the periods, revenues in general were negatively impacted over the periods by
restrictions imposed by the Chinese government in the availability of credit
from the Chinese banking system to the Company's customers. There can be no
assurance as to whether the restrictions on the availability of credit will ease
and, if so, the nature and timing of such changes.

The Company believes that the changes over the years in the components of
revenues, including the decrease in net commission income from fiscal year 1994
to fiscal year 1995, were due in part to the timing of the occurrence of sales,
both direct and on an agency basis. Another difficulty is the prediction of when
sales will occur. One example is the delay in the Export-Import Bank's final
commitment which resulted in recognition of $8.4 million in sales and related
profits being shifted to early 1996 rather than occurring during fiscal year
1995 when originally anticipated. See 'Timing of Revenues' below.

The Company's gross profit on sales as a percentage of net sales for 1995
was 26% compared to 28% for 1994. The decrease is largely attributable to
increased competition in certain markets resulting in some price pressures.

<PAGE>
<PAGE>
The Company's total gross profit on sale and net commission income was
$5,450,000 for 1995. Of that amount $3,335,000 or 61% consisted of gross profit
on sales and $2,115,000 or 39% consisted of net commission income. The Company's
total gross profit and net commission income was $5,580,000 for 1994. Of that
amount $2,955,000 or 53% consisted of gross profit on sales and $2,625,000 or
47% consisted of net commission income. The Company does not believe that the
changes over the periods in the mix comprising total gross profit on sales and
net commission income reflects any trends.

Selling, general and administrative expenses for 1995 and 1994 were
$6,239,000 and $4,862,000, respectively, representing an increase of $1,377,000
or 28%. The significant increase in selling, general and administrative expenses
in the 1995 year was the result of increased employees and their related
salaries, travel, and entertainment. These components represent 87% of the total
increase over the year is attributable to expanded marketing efforts.

Interest income increased substantially in 1995 over 1994, rising by
$275,000. This is related to the combination of two elements: income from the
investment of proceeds from the Company's initial public offering, and
amortization of the imputed interest from extended term accounts receivable.

LIQUIDITY AND CAPITAL RESOURCES

During 1996, the Company expects to enter into commitments for capital
expenditures in the approximate aggregate amount of $2,500,000 for equipment and
renovations in connection with the Beijing United facility. The Company believes
that the Beijing United facility, which currently is expected to open in early
1997, will provide much-needed Western standard health care services, including
maternity and birthing services as well as neonatal and pediatric care, to
specified target markets in China, including the expatriate business and
diplomatic community in Beijing. The Company intends to finance these capital
expenditures principally from its cash and cash equivalents available prior to
this Offering. As of September 30, 1996 the Company had spent less than $600,000
in connection with developing the Beijing United facility. The Company may use a
portion of the net proceeds of this Offering to fund a portion of the start-up
expenses of the Beijing United facility and intends to use a portion of the net
proceeds to finance the clinic during the initial period of operations following
its opening. In the event that the clinic is successful and management deems it
appropriate, the Company may use a portion of the net proceeds of this Offering
to finance the consideration, development and commencement of similar clinics in
other metropolitan areas in China. The Company believes that the net proceeds of
this Offering, available sources and cash flow from operations will satisfy the
Company's cash requirements for at least 24 months from the date of this
Prospectus, including those in connection with such proposed health care
services operations and expansion. The Company, however, may be required to
obtain additional funds thereafter. There can be no assurance that such funds
will be available to the Company on favorable terms, if at all.

By the end of July 1996, the Company received all of the cash receipts from
sales financed by the $8.4 million Export-Import Bank financing arrangement and
used such cash receipts to reduce related accounts payable. As of September 30,
1996 the Company had cash and cash equivalents of $4.1 million.

In light of the uncertainty of available financing to the Company's
markets, the Company continues to search for alternate financing programs. The
recent tied aid credits from the Export-Import Bank for the purchasers of the
Company's products provided such an attractive financing alternative. The
Company has not received any further Export-Import Bank financing commitments
and there can be no assurance that any commitments will be obtained in the
future. Other efforts include the provision of extended payment terms to certain
customers, applications for additional loan or loan guarantees from the
Export-Import Bank and the consideration of other alternative financing
arrangements.

Recent increases in sales, which were substantially due to the Company's
offering of extended payment terms, resulted in a $693,000 increase in accounts
receivable from December 31, 1995 to September 30, 1996, offset somewhat by a
$1,495,000 increase in accounts payable and a decrease of $494,000 due to
collections of commission receivable over the period.

<PAGE>
<PAGE>
provided a $420,000 standby letter of credit as a separate credit facility apart
from the increased line of credit. The $1,300,000 credit facility and the
$420,000 standby letter of credit 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 $1,911,112. As of September 30,
1996, the Company had available approximately $900,000 under the credit
facility. Generally, since the Company's assets principally are located in
China, the Company has experienced difficulties in obtaining asset-based
financing.

Inventory increased to $1,830,000 at September 30, 1996 from $1,215,000 at
December 31, 1995 as the Company built up inventories in anticipation of sales
by its newly formed subsidiary, Chindex Tianjin. Although the Company formerly
sold products almost exclusively on a 'to-order' basis, Chindex Tianjin now
sells products on a cash basis, thus requiring maintenance of higher levels of
inventory. In addition, inventory growth resulted from internal delays in
Chindex Tianjin's marketing efforts and sales, which did not commence until late
in 1995 and which, as a result of various other factors typical for a new
business, have been relatively slow to develop. The delays related to start-up
issues, principally the time involved in organizing and developing a sales force
for the subsidiary's goods as well as establishing relationships with local
Chinese distribution companies. Although management is addressing these
difficulties, there can be no assurance that they will be favorably resolved or
not recur.

In order to meet increased competition and difficult marketing conditions
caused by a restriction of credit available to domestic Chinese organizations
and to continue to expand its markets, the Company has increased the number of
sales in which it has offered certain customers extended payment terms. In
addition, although the Company currently intends to continue to use letters of
credit in the conduct of its business, the percentage of sales backed by letters
of credit has declined over the past several years and is expected to decline in
the future. To the extent that the Company continues to extend credit or
otherwise make sales not supported by letters of credit, the Company will
experience greater risk of non-payment and consequential impact on liquidity. In
many cases the Company has the choice to arrange to have a letter of credit
opened by the Chinese customer directly to the manufacturer or to the Company.
In the former case, the manufacturer processes the letter of credit, retains the
agreed amount for the cost of goods and provides the remainder to the Company,
which classifies it as a commission payment. If the Company arranges to have the
letter of credit opened to the Company, it is classified as a sale by the
Company. In either case, the Company receives the same net economic benefits
from the sale.

In August 1994, the Company completed its initial public offering. The
Company received net proceeds of approximately $7.25 million from the offering
and subsequent sale of additional securities pursuant to an over-allotment
option held by the underwriter. Portions of the net proceeds already have been
applied to the Company's planned expansion of personnel and to the provision of
financing terms to increase product sales. In addition, the Company has financed
the development, including capital expenditures, of the Beijing United facility
principally from a portion of the net proceeds from the initial public offering.

TIMING OF REVENUES

<PAGE>
<PAGE>
period to period and year to year. In addition, a relatively limited number of
orders and shipments may constitute a meaningful percentage of the Company's
revenue in any one period. Correspondingly, a relatively small reduction in the
number of orders can have a material impact on the Company's revenues in any
year. Further, because the Company recognizes revenues and expenses relating to
certain contracts as products are shipped, the timing of shipments could affect
the Company's operating results for a particular period.

In 1995, timing of the Company's revenues also was impacted when the
Export-Import Bank financing of the sale of $8.4 million of the Company's
medical equipment exports was delayed due to the U.S. Government shutdown and
delays in the legislative extension of the Export-Import Bank's authority to
provide the financing in question. Consequently, the shipments of goods and
resulting receipt of revenues did not take place until 1996 and the Company's
results of operations for the nine months ended September 30, 1996 were
significantly and positively impacted thereby.

During the three months ended June 30, 1996, the Company recognized $6.9
million in sales (as well as an additional $1.5 million in sales in the prior
quarter) as a result of the shipment of goods sold to end-users under the
Export-Import Bank financing arrangement. This financing arrangement was the
first of its kind for the Company and, the Company believes, was the first of
its kind for purchasers in China. As a result of the financing, the Company's
net sales increased substantially during such three-month period. Accordingly,
the Company's results of operations for the nine months ended September 30, 1996
were significantly and positively impacted by the timing of the payments from
the financing and are not expected to be indicative of the Company's results of
operations for the fourth quarter or the fiscal year ending December 31, 1996.
The Company has not received any further Export-Import Bank financing
commitments and there can be no assurance that any such commitments will be
obtained in the future by the Company or the end-users of its products. As
discussed above, the timing of these sales was subject to circumstances
affecting the United States Government, the Export-Import Bank, the Bank of
China and other entities not controlled by the Company.

In addition, in order to meet increased competition and difficult marketing
conditions caused by a restriction of credit available to domestic Chinese
organizations and to continue to expand its markets, the Company has increased
the number of sales in which it has offered certain customers extended payment
terms. These sales were to familiar and qualified purchasers and were structured
so that the Company 's risk of non-payment has been reduced. In addition, the
short-term cash flow implications on the Company have been reduced because the
Company's suppliers participate in extending reciprocal payment terms to the
Company for a significant portion of these extended payment arrangements. There
can be no assurance, however, that the Company's suppliers will continue to so
participate in the future, which would have a negative impact on the Company's
short-term cash flow. The Company believes that its efforts with respect to
financing initiatives contributed substantially to the overall increase in sales
in 1995 and the nine months ended September 30, 1996, although there can be no
assurance that these financial initiatives will continue to offset or reduce the
continuing impact of credit restrictions or that the Export-Import Bank
financing will recur.

FOREIGN CURRENCY EXCHANGE AND IMPACT OF INFLATION

The results of operations of the Company for the periods discussed have not
been significantly affected by inflation or foreign currency fluctuation. To
date, substantially all of the Company's purchases and sales have been made in
U.S. dollars. Thus, the Company has not had extensive foreign currency risk.
However, changes in the valuation of the Chinese Renminbi may have an impact on
the Company's results of operations in the future. The Company's newly
established subsidiary, Chindex Tianjin, started selling products during 1995 in
Renminbi. The Renminbi is not a convertible currency and accordingly exchange
risks cannot be hedged.

Also, the Company has purchased and will continue to purchase some products
in 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, the Company could experience a
negative impact on profitability. The Company anticipates hedging transactions
wherever possible to minimize such negative impacts.

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China's economy has registered a high growth rate in recent years and rates
of inflation have been high. Although this inflation has not significantly
affected the Company's results of operations, measures taken by the government
to combat inflation, including the establishment of freezes or restraints on
financing available to Chinese customers, have had such an effect and may
continue to have such an affect in the future. See 'Results of Operations' and
'Liquidity and Capital Resources' above.

CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES

In the event any Escrow Shares are released from escrow to shareholders of
the Company who are officers, directors or employees of, or consultants to, the
Company, compensation expense will be recorded for financial reporting purposes
as required by generally accepted accounting principles. Therefore, in the event
the Company attains any of the earnings thresholds or the Company's Common Stock
meets certain minimum bid prices required for the release of the Escrow Shares,
such release will be deemed additional compensation expense of the Company.
Accordingly, the Company will, in the event of the release of Escrow Shares from
escrow, recognize during the periods in which the earnings thresholds are met or
are probable of being met or such minimum bid prices are attained, what will
likely be a substantial charge equal to the fair market value of the Escrow
Shares released from escrow, which charge will have the effect of substantially
increasing the Company's loss or reducing or eliminating earnings, if any, at
such time. Furthermore, the release of the Escrow Shares would have a dilutive
effect on earnings per share and a corresponding reduction in loss per share, as
a result of the increase in the number of outstanding shares. Although the
amount of compensation expense recognized by the Company will not affect the
Company's total shareholders' equity or its working capital, it may have a
depressive effect on the market price of the Company's securities. See 'Risk
Factors -- Charge to Income in the Event of Release of Escrow Shares' and Note 5
of Notes to Consolidated Financial Statements.

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BUSINESS

The discussion in this 'Business' section contains certain forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this 'Business' section and in 'Risk Factors' and 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'

GENERAL

The Company is an established, independent marketing and sales organization
in China for certain Western products, including medical and industrial
equipment. The Company provides United States, European and other manufacturers
with access to the Chinese marketplace and offers a wide range of marketing,
sales and technical services for their products. The Company further provides
marketing research and consulting services to its manufacturers for a variety of
business activities in China. The Company conducts its marketing and sales and
provides its services almost exclusively to end-users located in China. The
Company is the exclusive sales representative for several major manufacturers of
high-technology medical equipment, construction, mining and other industrial
machinery and scientific research instrumentation. The Company also sells
certain products on a non-exclusive basis. The Company's national sales and
technical support staff operates from its office in Beijing and regional offices
in Shanghai, Guangzhou, Tianjin and Hong Kong. In addition to its sales
activities, the Company also provides marketing research and consulting services
to its manufacturers for a variety of business activities in China. For purposes
of Chinese law, except for the operations of Chindex Tianjin, the Company
operates as a United States entity doing business in China through its
representative office in Beijing. This structure is distinguishable from
operations in China as a wholly foreign-owned enterprise (such as Chindex
Tianjin) or otherwise, all of which structures involve different legal, tax,
business and other issues.

In 1995, the Company established Chindex Tianjin, a wholly foreign-owned
subsidiary. Chindex Tianjin is registered in the special economic Tianjin Free
Trade Zone and is subject to specific Chinese legislation which governs the
activities of foreign-owned subsidiaries. In late 1995, this entity commenced
marketing and operations. Chindex Tianjin supplies certain products and
consumables directly to hospitals in China for domestic currency and will
provide a platform for future distribution activities. Another initiative taken
by the Company, in March 1996, was the establishment of an office in Hong Kong
through the formation under Hong Kong law of a 100%-owned subsidiary, Chindex
Hong Kong Limited ('Chindex Hong Kong').

In 1995, the Company began a process of expansion into the related field of
providing health care services. The Company has taken initial steps to providing
Western-standard health care services to targeted market segments in China. The
Company believes that demographic developments in China, including the growth of
the expatriate business and diplomatic community, continue to create increasing
needs for these services. In this regard, the Company established Beijing
United, a 90%-owned joint venture between the Company and a company controlled
by the Chinese Academy of Medical Sciences. Beijing United is being designed to
provide the expatriate business and diplomatic community in Beijing with
complete Western-standard maternity and birthing services as well as neonatal
and pediatric care. The Company will consider establishing a series of clinics
in other major metropolitan centers in China over the next several years.

HISTORY

During its early years of operation, the Company began work in the primary
market sectors in which it operates today. Relationships were initiated with
manufacturers of diagnostic ultrasound and

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off-road construction and mining machinery, among other products. By the end of
its second year, the Company had hired its first in-house technical support
personnel in order to provide service in connection with its sales. Lawrence
Pemble joined the Company in 1984 to oversee United States operations while
Mmes. Lipson and Silverberg continued to reside in China on a full-time basis.
By 1985, the Company's market position and identity had developed to the extent
that it organized into its current structure accommodating the marketing of a
variety of product types. The Company believes that the continuous presence in
China of Mmes. Lipson and Silverberg has been instrumental in the establishment
and development of relationships for the Company.

Beginning in the mid-1980's, China commenced economic reforms that
significantly decentralized the import purchasing authority of the Chinese with
respect to the products marketed by the Company. As this process of
decentralization and related market orientation progressed, the Company
responded by opening regional offices in Guangzhou (southern China) and Shanghai
(central China) to expand its sales and technical service capability. In this
regard, the Company established Chindex Tianjin and Chindex Hong Kong. As the
Company has expanded its operations, it has sought to maintain a balance of
administrative, sales and technical support capability in each of the Company's
product categories and geographic areas.

In August 1994, the Company completed its initial public offering in
furtherance of its expansion goals. The Company received net proceeds of
approximately $7.25 million from the offering and subsequent sale of additional
securities pursuant to an over-allotment option held by the underwriter.
Portions of the net proceeds already have been applied to the Company's planned
expansion of personnel and to the provision of financing terms to increase
product sales. In addition, the Company has financed the development, including
capital expenditures, of the Beijing United facility principally from a portion
of the net proceeds from the initial public offering. The Company believes that
the clinic will open in early 1997.

STRATEGY

The Company believes that it has a strong reputation in its markets in
China. This belief is based on several factors, including the Company's
continuous operating presence in China for the past 15 years, the relationships
in China established by the Company's executives and senior sales staff and the
Company's policy of representing what it believes are first-quality products in
their respective markets. The Company intends to build on its continuity,
relationships and standard of quality in two ways. First, the Company intends to
increase its marketing, sales and service capability in China through the
addition of qualified personnel, including technical service engineers, through
the establishment of new regional offices in China and, possibly, through
strategic acquisitions. Second, in conjunction with its expansion of marketing
capability, the Company intends to increase the variety of products marketed and
the services provided. For example, the Company currently is developing plans to
commence distribution of health care products and pharmaceuticals in China.

The Company emphasizes customer service and technical support in its
marketing efforts. Sales of medical equipment and scientific instrumentation
include the Company's responsibilities for servicing the products under the
manufacturers' warranties. The Company coordinates the after-sales support by
the manufacturer to the Chinese customer in sales of most construction mining
and other industrial machinery and scientific research instrumentation. The
Company believes that its purchasers place great emphasis on the prompt
availability and competence of the customer services that precede and follow a
sale. The Company's strategy is to further emphasize technical expertise and
customer service. In this regard, the Company intends to expand its existing
engineering and technical staff.

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sales in 1995 and the nine months ended September 30, 1996, although there can
be no assurance that these financial initiatives will continue to offset or
reduce the continuing impact of credit restrictions. In particular, during 1996,
the Company concluded sales in the aggregate amount of $8.4 million financed by
the Export-Import Bank. This financing from the Export-Import Bank for the
purchasers of the Company's products represented an innovative financing
alternative. Although the Company intends to continue to explore other
innovative financing opportunities, there can be no assurance that similar
Export-Import Bank or other financings will be available in the future.

The Company also proposes to explore initiatives which may allow it to
offer to customers certain types of capital equipment on a lease, rather than
sale, basis. The Company believes that this type of financing arrangement may
provide its Chinese customers with access to expensive capital equipment which
they otherwise might not be able to afford. Such a leasing initiative might be
undertaken in conjunction with a U.S. manufacturer, a Chinese company, or both.
The Company also is exploring possible joint venture projects for use of
equipment with Chinese partners on a cost and revenue sharing basis. The Company
currently is considering such alternative financing programs in the areas of
light construction machinery and diagnostic ultrasound imaging. The Company has
reached no conclusions as to the economic viability of leasing or cost/revenue
sharing. The Company is continuing its review and assessment of the relevant
factors, including cost-effectiveness and risk. There can be no assurance that
the Company will elect to implement any leasing or cost/revenue sharing program
or that any such program will provide the desired results.

The Company's strategy also includes expansion into the related field of
providing health care services. The Company believes that its knowledge of the
hospital and health care system in China, as well as management's continuous
presence in China over the past 15 years, positions the Company to take
advantage of perceived opportunities in this field. Further, demographic
developments in China, including the growth of the expatriate business and
diplomatic community, continue to create increasing needs for certain health
care services. In this regard, the Company expects to open the Beijing United
facility in early 1997 and to consider establishing a series of clinics in other
major metropolitan centers in China over the next several years.

PRODUCTS SOLD BY THE COMPANY
Medical Products
General

Medical products represent the largest category of products sold by the
Company. Medical product sales are arranged by specific product teams. A product
team normally is responsible for a single manufacturer's product line. In
certain cases where two manufacturers' products are sold to the same department
within a hospital, a product group will include both manufacturers. Each product
team is headed by a Product Manager who is responsible for all marketing and
sales for an assigned product. The Product Manager is further supported by sales
and/or clinical specialists and administrative support personnel. There
currently are approximately nine product teams engaged in medical product sales.
The product teams are based in Beijing and market and sell their assigned
product or products throughout China. Most sales of medical products are made
directly by the Company for its own account. The balance of the revenues
generated by the sale of medical products is net commission income paid by
manufacturers.

In addition to the Beijing-based product groups, the medical products also
are sold through the use of the regional offices of the Company in Shanghai and
Guangzhou and a network of territory sales managers. The sales personnel based
in the regional offices of the Company are responsible for identifying potential
medical business customers in the territory covered by the regional office and
coordinating the sales efforts of the Company with the appropriate product team.
In 1995 the Company established Chindex Tianjin, a wholly-owned foreign
subsidiary. Chindex Tianjin, which commenced marketing and operations in late
1995, is registered in the special economic Tianjin Free Trade Zone and is
subject to specific Chinese legislation governing the activities of
foreign-owned subsidiaries. Chindex Tianjin supplies certain products and
consumables directly to hospitals in China for domestic currency and will
provide a platform for future distribution activities. Further, in March 1996
the

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Company established Chindex Hong Kong, which represents expansion of the
Company's marketing, sales and technical service operations into Hong Kong.
Chindex Hong Kong currently performs the same services on behalf of Acuson in
Hong Kong as the Company currently performs in China.

The work of the technical service unit of the Company is particularly
related to the sale of medical products. The Company is responsible for the
technical support of most of the medical equipment sold by the Company. To
support its medical business, the Company owns and operates a full-service
technical service center. Included in that technical service is a cooperative
arrangement with China National Medicines and Health Products Import and Export
Corporation ('MEHECO'), which provides the Company's technical service
operations with access to bonded warehousing facilities. The Company is
responsible for the day-to-day management, hiring, operating expenses and parts
supply for servicing. MEHECO is responsible for handling customs issues and
obtaining bonded warehousing from Chinese customs authorities. The service
personnel employed by the Company generally are biomedical and/or electrical
engineers with advanced university training, who have received further training
and certification by a manufacturer to service that manufacturer's products. The
service personnel ordinarily receive their training and certification at the
manufacturers' facilities in the United States, Europe or elsewhere. Due to the
highly sophisticated and technical nature of the medical products sold by the
Company, the technical service personnel receive continuing training by the
manufacturer as the product technology advances. Through the relationships
developed between the Company's technical service personnel and the customer
base, the Company believes that it is provided with important performance and
other after-sales information that is useful in its ongoing marketing and sales
efforts.

Manufacturers and Products

Acuson Corporation ('Acuson') is the largest supplier of medical products
sold by the Company. Sales by the Company of Acuson products represented
approximately 54.6% and 58.2% of the revenues of the Company during the fiscal
year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively. The Company has an exclusive distribution agreement in China with
Acuson, which manufactures only ultrasound imaging devices. The agreement
provides that Acuson may terminate the arrangement if the Company fails to
purchase certain target quantities of products in certain time periods. In
addition, the Company recently was appointed as Acuson's exclusive distributor
in Hong Kong, which distribution is managed by the Company's subsidiary, Chindex
Hong Kong. The Acuson devices are used exclusively in hospitals for non-invasive
diagnostic purposes. The Acuson machines may be customized to accommodate
specific diagnostic applications, including visual assessment of almost every
part of the human body. See 'Distribution Arrangements.'

The Company believes that the ultrasound technology of the Acuson products
is suitable for large-scale marketing in China due to the relative economies of
the current alternatives for non-invasive imaging of the human body. In addition
to ultrasonic imaging, there exists conventional X-ray technology with its
inherent radiation risks, Computed Tomography ('CT'), which is also an X-ray
based technology, and magnetic resonance imaging ('MRI'), a technology based on
magnetic fields. With respect to the comparative initial equipment costs of
ultrasound, CT and MRI, an average CT scanner may be three to four times as
expensive as a high-end ultrasound machine, while an MRI scanner may be seven to
eight times as expensive. For China's developing health care system, the Company
believes that ultrasound represents appropriate and cost-effective non-invasive
imaging capability. In the high-end of the color Doppler ultrasound product
market, the Company's primary competition is Hewlett-Packard and Advanced
Technology Laboratories, Inc. ('ATL'). Hewlett-Packard maintains direct sales
operations in China through a joint venture. ATL sells products through an
independent, Hong Kong-based agent, which maintains offices in China. See
'Competition.'

The Company has been the exclusive distributor for Nova Biomedical, Inc.
('Nova'), a leading United States manufacturer of medical laboratory analysis
equipment, including electrolyte and blood analyzers since 1984. The Company's
arrangement with Nova is substantially based on an oral arrangement. The
purchase or sale by the Company of any minimum quantity of Nova products is not
required.

The Company has been the exclusive distributor for the Biomedical Division
of Nicolet Instrument Corporation ('Nicolet'), a manufacturer of
electrodiagnostic instrumentation, since 1987. These

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products are used to assist in the diagnosis of neurological disorders, surgical
monitoring, research and hearing assessment. Until 1991, Nicolet was the only
significant supplier of the Company that provided its own after-sales service
and support. In 1991, it transferred those responsibilities to the Company. No
arrangement exists between the Company and Nicolet whereby the Company must
purchase any minimum quantity of product.

In addition to the accounts described above, during the last two years the
Company has marketed and sold medical equipment on an exclusive basis for
numerous other manufacturers in such product areas as radiosurgical treatment
planning and stereotactic systems (Leibinger GmbH), bone densitometry systems
(Lunar Corporation), medical laser devices (Sharplan Lasers), ventilators, blood
processors, audiometric instruments and middle ear analyzers (Grason-Stadler,
Inc.), machines and consumables that utilize 'dry slide' clinical chemistry
technology (Johnson & Johnson Clinical Diagnostics) and production system for
hard currency transparencies of diagnostic images (Polaroid Medical Imaging
Systems).

Machinery Products
General

Machinery products sold by the Company consist primarily of a variety of
off-road construction, mining and heavy industrial vehicles, spare parts for
those vehicles and component parts for off-road vehicles. These products are
marketed to various mining, construction and industrial enterprises throughout
China. Substantially all of the revenues of the sale of machinery products are
in the form of net commission income on sales by manufacturers for which the
Company acts as agent.

The sale of machinery products is organized by product line and market
sector. Product Managers based in the Beijing office operate on a nationwide
basis. Each is responsible for business development in a specific market sector.
For example, one Product Manager will concentrate on the mining industry while
another will concentrate on ocean and inland shipping ports. The regional
offices of the Company offer sales and administrative support. Sales of
machinery products often are quantity purchases of a single product by large,
often government-run, enterprises. Such purchases are often regulated by China's
central government bureaucracies. These government agencies require significant
time in their decision-making processes. As such, the sale of machinery products
often requires protracted marketing efforts by the Product Managers and often
requires formal submission of bids by the respective manufacturers. All of the
Product Managers involved in the sale of machinery products are engineers who
have received extensive product sales training by the manufacturers of the
products. Technical support to the Chinese customers on sales of machinery
products is supplied directly by the manufacturers, with active coordination and
assistance by the Company.

As a condition of sale of such equipment, some degree of local content, or
'cooperative production' between the foreign suppliers and Chinese entities, of
the sold equipment often is required by the Chinese regulatory authorities. In
accordance with these requirements, the Company has incorporated into certain of
its product sales participation by local Chinese entities. For example, sales of
certain vehicles have included welding responsibilities on the part of local
Chinese in final assembly of the vehicles upon arrival in China. The Company
believes that it has successfully complied with these requirements, where
necessary, and that such compliance has not had a material effect on the
Company's operations. In addition, the Company has provided advice and guidance
to its manufacturers in the process of identifying appropriate Chinese partners
for 'cooperative production' projects and organizing an effective cooperative
structure between the partners. A 'cooperative production' project may take a
variety of forms. The project may be a joint venture between a Chinese
organization and a foreign entity in which the Chinese organization provides
facilities and labor in China for the manufacture of products and a foreign
entity provides production machinery and related technology. Another type of
'cooperative production' project may involve the Chinese participant providing
assembly of products manufactured in a foreign country. These arrangements
represent opportunities for the Chinese to work and become familiar with the
often more advanced machinery and technology from the foreign participant. In
addition, a 'cooperative production' project offers employment in China and may
involve economic participation in the venture. These arrangements similarly are
attractive to the foreign participants by permitting lower production costs.

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Although not required to do so by its distribution agreements, the Company
also has advised and assisted certain of its manufacturers in evaluating
potential opportunities in China, such as licensing or joint venture production.
Although the Company has provided such advice or assistance in conjunction with
sales efforts on behalf of particular manufacturers, to date the Company has not
entered into any separate, formal agreements relating to the provision of such
services. Similarly, the Company has not yet received fees specifically for the
rendering of such services.

Manufacturers and Products

A large majority of the Company's sales of mining and construction
vehicles, and spare parts for those vehicles, were attributable to the sales of
the products of Volvo Construction Equipment Corp. (formerly VME International
Sales AB) and its joint venture company, Euclid-Hitachi Heavy Equipment, Inc.
('EHHE'). Sales by the Company of Volvo and EHHE products are sold on an agency,
rather than direct sale, basis, thereby generating net commission income, rather
than sales income. The Company represents Volvo through an exclusive sales
representative agreement with Volvo Construction Equipment Corp. in China and
also undertakes independent consulting responsibilities for Volvo. See 'Business
-- Distribution Arrangements.'

The Volvo product line includes articulated haulers and wheel loaders
(marketed under the brand name Volvo BM) and rigid haulers (marketed under the
brand name Euclid). The Euclid 'R170' and 'R190' haulers, which are of the 170-
and 190-ton capacity classes, respectively, have been purchased in various
quantities by Chinese organizations in the ferrous metals, nonferrous metals and
coal mining industries. Such mining operations, which the Company believes are
important development sectors in China's economic programs, ordinarily are
administered by the central government and the applicable industrial ministry.
Volvo recently reorganized such that its rigid haulers are manufactured by EHHE.

As a condition of sale of this type of equipment to the mining industries
in China, the government has required that foreign suppliers participate in a
cooperative production project with a Chinese partner, including a nominal level
of 'technology transfer' over time. In response to this requirement, the Company
has advised and assisted Volvo in initiating such relationships with several
Chinese entities. As co-production partners of Volvo, the Chinese entities
perform certain value-added services under Volvo's direction, such as local
sourcing and fabrication of parts and subassemblies for the articulated and
rigid haulers.

The Company believes that its competitors in the 170-ton and higher truck
classes are Caterpillar, Inc., Komatsu-Dresser (through a domestic co-production
arrangement), and Unit Rig (through a domestic co-production arrangement). The
Company believes that its primary competition is Caterpillar, Inc., Terex
(through a domestic co-production arrangement) and other domestic and foreign
manufacturers for the articulated hauler and wheel loader products.

The Company also represents Clark-Hurth Components, a division of Clark
Equipment Company which manufactures a variety of transmissions and axles for
use in construction and mining vehicles. The Company markets and sells the
Clark-Hurth products in China and also serves as consultant to Clark-Hurth for a
potential manufacturing joint venture project in China.

In addition, the Company sells Bobcat Skid-Steer Loaders, related
attachments and parts and mini-excavators pursuant to a non-exclusive agency
agreement with Melroe International Company, an unincorporated business unit of
Clark Equipment Company.

Project-related Products
General

The Company sells products relating to a variety of independent projects in
various industrial and scientific fields in two ways. First, with respect to
these products, the Company seeks to use its resources, including existing
customer relationships and the Company's reputation in the marketplace, to
identify potential marketing projects in China. Such projects may be identified
in a variety of industrial or research sectors. In conjunction with the business
development resources of the Company based in the United States, the Company
coordinates the strategic working groups necessary to pursue

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an initial project. Such projects are often in industries or sectors that are
new to the Company, involving opportunities for the Company in new markets with
new manufacturers. In recent years the Company has completed initial industrial
projects in mining conveyance systems, electric power generation utilizing
geothermal and waste heat sources, specialized valves for the petroleum
industry, ultrasonic flaw detection systems for metallurgical applications,
quality control instrumentation for the mining and metallurgical industries, and
steel pretreatment systems. Recent activities in scientific instrumentation have
included projects in optical spectrum analysis.

Second, the Company often seeks to use the success of a project as a link
towards an ongoing relationship with the supplier. The initial transactional
relationship may lead into a full agency relationship in which the Company would
create a marketing plan for the pursuit of additional sales in China. In
addition, the success of a project also presents the Company with the
opportunity of establishing a relationship with the customer in the project, and
the industry of that customer, for purposes of future projects. In order to
facilitate the often complex sales of project-related products, the Company is
active in setting up and administering strategic alliances between foreign
suppliers and local Chinese entities. In some cases the Company has provided
advice and other assistance to its manufacturers of product-related products on
marketing issues regarding local cooperative production, joint venture
structures and other issues related to ongoing marketing.

The sales of project-related products are often of a nature and complexity
requiring protracted marketing efforts. In many cases, the Company is introduced
to the manufacturers' products during the initial project and the Company's
personnel receive their first product sales and technical training 'on the job.'
As a relationship with a new manufacturer develops, more formalized product
training is arranged.

Manufacturers and Products

The sales of project-related products, which have been made on an agency,
rather than direct, basis, represent a variety of new and developing areas of
activity for the Company.

In the industrial sector, in addition to the sale of construction and
mining vehicles and equipment, in recent years the Company has completed
industrial projects in mining conveyance systems, electric power generation
utilizing geothermal and waste heat sources, specialized valves for the
petroleum industry, ultrasonic flaw detection systems for metallurgical
applications, quality control instrumentation for the mining and metallurgical
industries, steel pretreatment systems, coal processing analysis
instrumentation, coal preparation equipment and industrial air conditioning.
Recent activities in scientific instrumentation have included projects in
optical spectrum analysis, electrochemical analysis, infrared analytical
instrumentation and instrumentation for laser beam analysis.

SERVICE AND WARRANTY

The Company's exclusive distribution agreements for medical and scientific
products provide that the Company is responsible for servicing and other
post-sale matters during the applicable warranty periods. Manufacturer's
warranties on the medical and scientific products sold by the Company ordinarily
run for approximately 15 months from the date of installation (or, in certain
cases, 13-15 months from the date of shipment). In order to perform its
servicing and other after-sale responsibilities, the Company employs a staff of
12 engineering and technical support personnel, most of whom are biomedical
and/or electrical engineers with advanced university training and who have
received further training and certification for servicing at the particular
manufacturer's home facilities.

The technical support engineers are located at the Company's various
offices and are trained to handle service calls initially through advice and
consultation. If necessary, the engineers travel to the location of the unit and
perform required servicing. The Company maintains what it believes is an
adequate inventory of supplies, spare parts and tools to handle most servicing.
If parts require replacement under warranty, the Company may elect to replace
that part out of its own parts inventory with the understanding that the
manufacturer would in turn replace the part in the Company's inventory. The
technical service provided by the Company to the end-user ordinarily is included
in the contract purchase price. The Company believes that the terms of
warranties provided to the Company's

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customers are standard for the medical and scientific instrument industries and
in accordance with each manufacturer's standard international warranty
provisions.

DISTRIBUTION ARRANGEMENTS

None of the contracts between the Company and its manufacturers represent
long-term obligations of the manufacturer. Each of the Company's agreements with
its two largest manufacturers requires that the Company use its best efforts to
promote the manufacturer's products. In addition, certain of the agreements
contain various sales office maintenance and confidentiality requirements. There
are significant differences in the form and content of the various agreements.
The Company's arrangements with certain of its manufacturers are not subject to
written agreements. The Company believes that its arrangement with each
manufacturer substantially depends upon the mutual satisfaction with the
relationship in addition to the terms of its operating agreement, if any. There
can be no assurance that the Company's manufacturers will not elect to change
their method of distribution into the China marketplace to a format that does
not to utilize the services of the Company.

Certain of the contracts between the Company and its suppliers contain
short-term cancellation provisions permitting the contracts to be terminated on
30 days' to six months' notice, minimum sales quantity requirements or targets
and provisions triggering termination upon the occurrence of certain events. The
Company has notified each of its significant suppliers as to the pendency of
this Offering. Although the Company is not aware of any threatened cancellations
of its distribution agreements, there can be no assurance that cancellations or
other material adverse effects on its contracts or arrangements will not occur.

Acuson Corporation

The Company commenced its contractual relationship with Acuson in 1987.
Under the terms of its current agreement, the Company is the authorized
distributor of Acuson diagnostic ultrasound equipment in China. In addition, the
Company's responsibilities include the training of all customers, the
maintenance and servicing of Acuson products and various promotional activities
within China. Acuson provides customers of the Company with a parts warranty of
up to thirteen months from the date of product shipment from the United States.
In accordance with such guarantee, Acuson will replace or repair any parts
defective as a result of original materials used or workmanship. Servicing this
warranty is the responsibility of the Company. The agreement with Acuson has
been renewed regularly since 1987. The current agreement with Acuson expires on
March 31, 1997 and is subject to automatic renewal for successive one year
periods unless either party gives timely notice of intent not to renew. Acuson,
however, has the right to terminate the agreement on 60 days' prior notice if
the Company fails to meet specified requirements, all of which the Company
believes it currently meets.

Volvo Construction Equipment Corp.

Since 1981, the Company has served as the representative for certain
products now marketed by Volvo Construction Equipment Corp. The current
agreement between the Company and Volvo has been in effect since January 1,
1989. That agreement was entered into with VME International Sales AB ('VME'), a
joint venture company jointly owned by Volvo AB and Clark Equipment Company. In
1995, Clark sold its shares of VME to Volvo AB and, since the conclusion of the
transaction, VME has been called Volvo Construction Equipment Corp. The Company
serves as the exclusive sales representative in all but two provinces of China
(in which the relationship is non-exclusive) for certain products now marketed
by Volvo Construction Equipment Corp. The products under this agreement are
wheel loaders, marked Volvo BM and/or Michigan, articulated haulers marked Volvo
BM, rigid haulers marked Euclid, excavator loaders marked Volvo BM and
replacement parts for such products. Volvo has the right to discontinue sales of
any product, make changes to any product or designate certain parts to be sold
as a component of a complete unit. In addition, Volvo may seek assistance of
other companies in the sale of such products in China under special
circumstances such as equipment being purchased by a foreign supplier for a
project in China or financing being provided by a third party for a project in
China. The territories of Guangdong and Hainan are handled on a non-exclusive
basis.

<PAGE>
<PAGE>
Under the terms of the agreement, the Company has a duty to maintain
relationships with the local trade authorities, purchase organizations and
end-users of Volvo products, to relay inquiries for sales in China to and from
Volvo, to assist Volvo in the promotion of products and literature, to assist
Volvo in procuring any necessary governmental approvals, licenses, certificates
and permits that may be required and to maintain an adequate staff dedicated to
the construction and mining machinery business. The Company, however, has no
duty to meet minimum sales targets or other similar requirements. Volvo has
recently reorganized such that its rigid haulers are now manufactured by EHHE.
The Company believes that its arrangement with Volvo eventually will be modified
to reflect the separate sales undertaking for the rigid haulers.

CHINA

China has had a socialist economy for more than forty years. Approximately
17 years ago, however, China began implementing market-oriented reforms aimed at
improving the economy and the Chinese standard of living. The Chinese
government's express economic policy during the last 17 years has shifted away
from centralization toward a market economy in which the government occupies a
reduced role and market forces are given greater emphasis. This policy toward an
economy observing market forces has resulted in several gradual but significant
changes affecting the operations of the Company. Most importantly with respect
to the Company, although government-owned enterprises continue to constitute the
largest sector of the Chinese economy, the recent Chinese economic policy has
led to a decentralization of decision-making power and responsibility with
respect to matters such as allocation of funds and the regionalization of
economic development. In general, the policy includes an attempt to attract
foreign technology to China.

China, with more than one billion people, contains approximately one-fifth
of the world's population. With respect to the market for the Company's medical
products, China has 1.15 doctors for every 1,000 people and 15,000 hospitals at
or above the county level. Nationwide there are 2,500,000 hospital beds, which
is second in the world only to the former Soviet Union. According to the Chinese
Customs Authority, China imported a total of $440 million worth of medical
equipment in 1995.

The Company's machinery equipment typically is sold in connection with
large centrally-controlled open pit mining projects and the operation of
regional port facilities. With respect to the market for the Company's machinery
equipment, the major ferrous, nonferrous, mineral, chemical and coal mine
projects throughout China continue to play key roles as strategic development
industries in the country's economic five year plans. As such they continue to
receive central government funding and various projects are the recipients of
foreign government loans. China presently is developing major coal fields in the
northeast province. These large, open pit mines require large fleets of mining
haulers such as those marketed by the Company. In keeping with China's strategy
of increasing its foreign trade, the central government and regional port
authorities continue to focus on developing new ports and increasing the
handling of capacity of existing ones.

At present, a significant portion of the economic activity in China is
export-driven and, therefore, is affected by developments in the economies of
China's principal trading partners. The U.S. Congress considers annually the
renewal of 'Most Favored Nation' trading status, which currently is in place,
for China and may attach conditions to the renewal of such status which China
may decline, or be unable, to meet. In 1994, President Clinton announced
delinkage of such status to China's achievement of overall significant progress
in the area of human rights. Prior to this announcement, renewal of such status
had been contingent on the achievement of such progress. There can be no
assurance that renewal of such status in the future will not be linked to human
rights issues or other requirements or that, notwithstanding continuing
presidential support for such status, Congress for any reason in the future will
not deny such status beyond the President's ability to veto such denial.
Revocation or conditional extension by the United States of China's 'Most
Favored Nation' trading status could have a material adverse effect on the trade
and economic development of China and on the operations of the Company.

<PAGE>
<PAGE>
MARKETING
General

The Company conducts a variety of marketing efforts. The Company's sales
personnel attend trade shows and exhibitions throughout China. At these trade
shows, the Company usually operates a separate promotional exhibit. The
Company's sales personnel also attend and sponsor seminars given to individual
end-user organizations or industry groups. Marketing activities can include
presentations to central Ministry officials, product seminars conducted at the
prospective end-user site and technical seminars given to end-users and other
pertinent entities in China. In addition, the Company conducts extensive
advertising throughout China on a product-specific basis. The Company regularly
advertises its products in leading Chinese industrial, trade and clinical
journals. The Company's products are further described in various product
catalogues, which are produced by the Company and disseminated to customers
through the sales force, direct mail, product promotions and trade exhibits. The
Company further coordinates on a product-specific basis with its manufacturers
for the production of various Chinese language materials which may include, in
addition to promotional materials, operations and technical manuals. The Company
believes that there exists a substantial expanding market for its products in
the China marketplace and the further integration of the Chinese foreign trade
system into the established global economy through its application to the World
Trade Organization and other initiatives to further open the Chinese economy to
foreign participation will further enhance the market for the Company's
products.

Products

The Company markets its medical products 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. Each hospital also has
various economic and administrative forces at work determining hospital policy
and practice. A hospital's decision to purchase products marketed by the Company
depends on those economic and administrative forces. The Company's marketing is
addressed to all relevant participants in the purchasing decision, including the
doctors and hospital administrators. Since a significant portion of the
Company's sales of medical products is repeat business, relations with the
Company's health field customers is an important aspect of the marketing efforts
for such products. Since 1988, the Company has sold products to approximately
750 hospitals in China, many of which have been repeat customers.

The Company markets its machinery products to industrial organizations in
the mining, construction and port development sectors. The principal purchasers
of these products are large-scale mining projects and port authorities as
administered by their relevant industrial ministry on a national or regional
basis. Many of the Company's purchasers in the mining industry involve open pit
mining operations for coal, ferrous metals and nonferrous metals. Unlike sales
of medical instruments, the sale of machinery to industrial groups is regulated
and/or coordinated by the applicable ministry or similar agency and usually
involves national funding concerns and interaction with centralized
bureaucracies. These same issues apply to the sale of machinery to port or
construction projects that are subject to national bureaucratic administration.
As such, the marketing efforts relating to the sale of machinery equipment are
designed for extended involvement by the Company over the full development cycle
of a particular sale, which often involves up to two years of pre-sale activity.
Other equipment sales can involve extensive work at a particular end-user site
to identify needs and assist in formulating specifications. In addition, the
contract performance period for the sale of machinery products in quantity in
the future may require an additional period of up to two or three years, with
suppliers being paid on an installment basis in accordance with deliveries.

The Company markets and sells its project-related products to a wide range
of end-users in a wide variety of circumstances. The marketing and sale of these
products occurs on a project-by-project basis rather than to a single,
established industry. With respect to project-related products, the Company
routinely engages in two phases of marketing activities which correspond to the
anticipated sequence of involvement with a manufacturer's product. The first
phase of marketing and promotion is directed specifically at the initial project
being pursued by the Company. This marketing may include product seminars
conducted at the prospective end-user site and technical seminars given to
end-users and other

<PAGE>
<PAGE>
pertinent entities in China. In addition, on the occasions that prospective
Chinese customers visit the manufacturer in the United States for product review
and investigation, the Company may coordinate visits to existing customers of
the manufacturer for reference purposes. The second phase of marketing and
promotion begins after the commencement of the project undertaking. At this
time, the Company will employ traditional product marketing techniques such as
advertising, sales seminars, exhibitions and Chinese language promotional
literature, among other things.

Foreign Trade Corporations

Most purchases of the Company's products, regardless of the nature of the
end-user, are made through 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 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. The Company markets
its products directly to end-users, but in consummating a sale the Company also
must interact with the particular FTC representing the end-user. For this
reason, the Company seeks to maintain ongoing relationships with the FTCs in its
industries. By virtue of its direct contractual relationship with the FTC,
rather than the end-user, the Company is to some extent dependent upon the
continuing existence of and contractual compliance by the FTC until the
particular transaction has been consummated. The Company's business, however, is
not dependent on any single FTC or end-user. Although sales by the Company to
certain industries involve repeat transactions with FTCs that operate in those
industries, the Company does not believe that it is dependent upon relations
with any particular FTC or that the loss of relations with any particular FTC
would have a material adverse effect on the Company. Rather, FTCs, which earn
commissions in transactions, compete with each other for the right to handle
end-users' business.

PROPOSED BEIJING CLINIC

In 1995, the Company began a process of expansion into the related field of
providing health care services. The Company has taken initial steps to providing
Western-standard health care services to targeted market segments in China. The
Company believes that demographic developments in China, including the growth of
the expatriate business and diplomatic community, continue to create increasing
needs for these services. In this regard, the Company established Beijing
United, a 90%-owned joint venture between the Company and a company controlled
by the Chinese Academy of Medical Sciences. Beijing United is being designed to
provide the expatriate business and diplomatic community in Beijing with
complete Western-standard maternity and birthing services as well as neonatal
and pediatric care. The Company is considering establishing a series of clinics
in other major metropolitan centers in China over the next several years.

Expatriate women and children in China, in general, and in Beijing, in
particular, have not been able to obtain maternity and pediatric services to
which they are accustomed. Presently, foreign women and children in China make
use of local Chinese institutions, which lack the level of care and philosophy
typical in their home countries, return home for care or seek care from the few
foreign general practitioners (rather than obstetric or pediatric specialists)
in their area. In addition, an increasing number of affluent Chinese also seek
to obtain these services other than through the existing Chinese system. In
Beijing, for example, there are no contemporary Western-style facilities or
specialists generally available to provide these services. The Company believes
that it will be able to address the demand for these facilities and services
initially through the establishment of the proposed Beijing United facility.

Beijing United expects that substantially all of its patients will be on a
fee-for-service, private payor basis. Given the nature of the expatriate
community in China, Beijing United does not intend to participate in Medicare,
Medicaid or similar governmental reimbursement programs. The Company believes
that most of its targeted patient population are Westerners who are covered by
private third-party insurers and that Beijing United's services will be covered
thereby. The Company further believes that these insurers and/or patient
employers may experience less total cost as a result of the use of the

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clinic's services. Such use should be expected to reduce these costs typically
incurred, since expatriates would not be expected to dislocate from China for
extended periods. Similarly, such use should be expected to reduce the personal
upheaval which such dislocation ordinarily creates for patients and their
families. Patients not covered by acceptable insurance will be required to pay
in cash.

The proposed facility is situated in a five-story building located near a
concentration of Beijing's expatriate residences. Although the Company leases
the entire building, consisting of approximately 43,000 square feet, the three
upper floors have been subleased to the International School of Beijing and
Beijing United will occupy only the lower two floors. During 1996, the Company
expects to enter into commitments for capital expenditures in the approximate
aggregate amount of $2,500,000 for equipment and renovations in connection with
the facility. The Company intends to finance these capital expenditures
principally from its cash and cash equivalents available prior to this Offering.
The Company may use a portion of the net proceeds of this Offering, however, to
fund a portion of the start-up expenses of the facility and intends to use a
portion of the net proceeds to finance the clinic during the initial period of
operations.

In addition to its lease, the Company will incur a variety of significant
costs in connection with the Beijing United facility, including construction and
improvements to the leased site, various medical equipment and supplies,
personnel costs relating to clinic management, medical staff and other employees
and other costs. The improvements to the site will include birthing suites
(containing resting and kitchen facilities), conference rooms, two operating
rooms, waiting rooms, examination rooms, office space, physician apartments, a
pharmacy area, hygienic facilities and other appropriate features. The Company
intends to supply the clinic with a variety of state-of-the-art equipment,
including requisite operating room equipment, ultrasound and other diagnostic
and imaging systems, incubators, respirators, neonatal monitors, laboratory
apparatus, pharmacy supplies and a wide variety of other necessary equipment.

Beijing United intends to provide a wide variety of services within a
well-defined protocol. These services will include full obstetric, maternity and
prenatal services, birthing services, women's health care, gynecology, fertility
services and counseling, genetic counseling, circumcision, baby care, general
pediatric services and extensive counseling in numerous related areas. Beijing
United is in the process of establishing its protocol regarding covered services
and patients. That protocol will identify high-risk patients and circumstances
to be referred to other appropriate providers and will dictate procedures for
accessing outside health care, where appropriate. Beijing United intends to make
arrangements with other medical institutions, including premier local hospitals,
and one or more of the leading emergency evacuation organizations in China in
order to provide extreme emergency or other outside health care services.
Beijing United will employ a Board certified obstetrician and gynecologist to be
on staff, as well as to provide planning and other operational guidance.
Further, Beijing United intends to hire nurses, nurse midwives, technicians and
other health care providers, as well as other appropriate staff and counselors.

To date, the Company's efforts in this regard have been in the development
phase and the proposed initial clinic in Beijing has not yet opened. Even if the
numerous preparatory and commencement requirements, including government
approvals, are satisfied, as to which there can be no assurance, the Company's
proposed health care services operations will be dependent upon a variety of
operating requirements, including the ability to attract and retain qualified
physicians and other health care professionals, among other things. There can be
no assurance that the Company will be able to successfully establish health care
services operations or that such operations will result in significant revenues
or profitability. Further, neither the Company nor any of its senior management
has significant experience establishing or operating health care facilities in
China or elsewhere.

The provision of health care services entails the risk of potential medical
malpractice and similar claims. Although the Company will provide medical
malpractice insurance for the physicians performing medical services at its
facilities, malpractice claims may be asserted against the Company directly in
the event that services rendered by the Company or procedures performed at the
Company's facilities are alleged to have resulted in injury or other adverse
effects. Although the Company intends to obtain and to cause Beijing United to
obtain liability insurance that it believes is adequate as to both risks and
amounts, successful malpractice claims could exceed the limits of the Company's
insurance and

<PAGE>
<PAGE>
could have a material adverse effect on the Company's business, financial
condition or operating results. In any event, the applicable laws in China
relating to liability of this type are not as well-settled as in the United
States and most other Western countries. Moreover, a malpractice claim asserted
against the Company could be costly to defend, could consume management
resources and could adversely affect the Company's reputation and business,
regardless of the merit or eventual outcome of such claim. In addition, there
can be no assurance that the Company will be able to obtain such insurance on
commercially reasonably terms in the future or that any such insurance will
provide adequate coverage against potential claims.

The Company believes that the Beijing United clinic is the first
foreign-managed health care facility of its kind to have been granted the
necessary authorization to operate by China's Ministry of Health. All requisite
approvals, however, have not yet been obtained. Following completion of
construction of the facility, the Company must obtain an occupancy permit and
medical license from the appropriate Beijing municipal authorities. There can be
no assurance that all requisite approvals ultimately will be obtained or
continued as necessary for clinic operations.

COMPETITION

The Company competes with other independent distributors in China that
market similar products. Although the Company believes that it is one of the
largest independent distributors in its markets, there may be other distributors
with greater resources or other competitive advantages over the Company.

In addition to other independent distributors, the Company faces more
significant competition from direct distributors of established manufacturers.
With respect to its medical products, for example, the Company competes with
Hewlett-Packard, which maintains its own direct sales force in China. In
addition, since certain manufacturers, such as Hewlett-Packard, market under one
brand name a wide variety of products in China to different market sectors,
those manufacturers may be better able than the Company to establish name
recognition across industry lines. For example, Hewlett-Packard also
manufactures and markets computers in China as well as other medical instruments
not sold by the Company. The Company believes that Hewlett-Packard and Siemens
Corporation are the largest such direct competitors in the medical products
field. The Company believes that its products incorporate technologies that are
more advanced than those available in products currently available from domestic
Chinese manufacturers.

With respect to machinery products, the Company faces significant
competition from the direct sales operations of Caterpillar Inc. and other
large, international companies active in the same equipment sectors as the
Company. In addition, certain competition is presented by domestic Chinese
entities in various product areas. Certain of these competitors, whether joint
venture projects with foreign manufacturers or all-Chinese groups, often receive
preferential treatment by the government regulatory authorities, who seek to
curtail spending on imported equipment in favor of domestic Chinese industrial
development. Although the Company competes directly with products of certain
such joint ventures and all-Chinese groups, the Company does not believe that
this preference by the regulatory authorities is often applied to the material
detriment of the Company. In general, the Company believes that this preference
has not had a material effect on the Company's operations.

The Company's competitive position depends in part upon its ability to
attract and retain qualified personnel in sales, technical and administrative
capacities. In addition, many of the Company's various competitors have greater
resources, financial or otherwise, than does the Company.

In response to increased competition, and, in an effort to expand its
business, the Company has entered into agreements with certain customers to
provide extended payment terms for purchase of

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<PAGE>
goods. These arrangements, limited to selected purchasers qualified by the
Company, have assisted the Company in competing with financing offered by
competing manufacturers and governments. See 'Risk Factors -- Timing of
Revenues; Fluctuations in Financial Performance and Impact of Single Financing'
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'

To date, most of the Company's sales have been backed by letters of credit
in order to ensure payment. As a result, the Company has not experienced
significant problems in the collection of accounts receivable. The Company
currently intends to continue to use letters of credit in the conduct of its
business. As competition increases and the Company seeks to expand its business,
particularly in light of restrictions on the availability of credit from the
Chinese banking system, however, the Company may no longer continue to obtain
letters of credit on the same basis or as often, if at all. In addition, to the
extent that the Company's competition increases, the Company's profit margins
may be reduced in order to remain competitive.

CONTRACT PERFORMANCE

In addition to the protracted marketing and sales efforts often involved in
the Company's transactions, an extended period of time ordinarily is required in
contract performance with respect to the sale of machinery and project-related
products. The period from contract signing to product availability often
requires up to one year or longer. An additional period of six months or longer
may be involved before acceptance of delivery has occurred. At that time, the
warranty period commences.

In connection with the extended contract performance period, the payment of
the purchase price typically is made on installment basis. Although the terms
vary, generally 10% of a purchase price is withheld pending acceptance of
delivery of the products and an additional 5% is withheld pending the duration
of the warranty period.

EMPLOYEES

At September 1, 1996, the Company had 135 full-time salaried employees, 122
of whom are in China. Of the full-time personnel in China, 20 are expatriates
and 102 are Chinese nationals. Of the Company's China-based employees, 22 are
considered administrative personnel, 21 are engineering personnel and the
remainder are sales personnel. No employee of the Company currently is
represented by a labor union. Management considers its employee relations to be
good.

The Company intends to add employees as necessary to meet its management,
marketing, sales and technical service needs from time to time. To date, the
Company has been able to attract and retain

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highly qualified professionals and other administrative personnel as required by
its business. The Company believes that the future success and development of
the Company is dependent to a significant degree on its ability to continue to
attract such individuals.

FACILITIES

The Company's representative headquarters in China are located at a 12,000
square foot facility in Beijing pursuant to a lease expiring June 30, 2001. The
Company also leases regional offices in the Chinese cities of Shanghai, Guangzou
and Tianjin comprised of approximately 700, 350 and 700 square feet,
respectively, each lease expiring yearly. The Company's executive and
administrative offices are located in Bethesda, Maryland, which provides access
to nearby Washington, D.C. The lease for the Bethesda office, which consists of
approximately 2,700 square feet, expires on May 31, 1999. On November 8, 1995,
the Company entered into a five year lease for a four story building of
approximately 43,500 square feet in Beijing. The Company plans to utilize two
floors of the building for Beijing United's proposed birthing center and
pediatric clinic. Aggregate rental expense was approximately $348,000 and
$468,000 for the year ended December 31, 1995, and the nine months ended
September 30, 1996, respectively. The Company's current aggregate annual rent is
$519,000.

The Company believes that the current facilities will be sufficient to
satisfy the Company's current requirements. In its strategy to expand
operations, however, the Company will explore new territories in China and will
seek to open new offices and will consider opening new clinics. Although the
Company believes that office space will be available at affordable prices, no
assurance can be given. The Company believes that, in the event any of the
existing leases that expire within five years are not renewed, adequate
alternative space is available in the same areas at comparable rates.

LEGAL PROCEEDINGS

There are no pending material legal proceedings to which the Company or any
of its properties is subject, nor, to the knowledge of the Company, are any such
legal proceedings threatened.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The officers and directors of the Company, their ages and present positions
held with the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------- --- ----------------------------------------------------------------

<S> <C> <C>
Roberta Lipson(1).............. 41 Chairperson of the Board of Directors,
Chief Executive Officer and President
Elyse Beth Silverberg(1)....... 39 Executive Vice President, Secretary and Director
Lawrence Pemble................ 39 Executive Vice President Finance and Business Development and
Director
Robert C. Goodwin, Jr.......... 55 Executive Vice President Operations, Treasurer, Assistant
Secretary, General Counsel and Director
Morris Lipson(1)(2)............ 74 Director
A. Kenneth Nilsson(2).......... 63 Director
Julius Y. Oestreicher(2)....... 66 Director
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

------------------------
The following is a brief summary of the background of each director and
executive officer of the Company:

ROBERTA LIPSON co-founded the Company 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 the Company 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 M.B.A. from Columbia University Graduate School
of Business. Ms. Lipson is the daughter of Morris Lipson.

ELYSE BETH SILVERBERG co-founded the Company in 1981. Ms. Silverberg has
served as the Company's Executive Vice President and Secretary and as a Director
since that time. Prior to founding the Company, 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 joined the Company 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 Marketing. From 1986 through April
1992 and September 1993 to the present, Mr. Pemble has also served as a Director
of the Company. Prior to joining the Company, 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. 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 the Company since October 1992. In addition
to his other duties, from October 1992 until January 1996, Mr. Goodwin served as
Vice President of Operations for the Company. Prior to joining the Company, 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 the
Company's 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. from Georgetown University Law Center.

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MORRIS LIPSON has served as a Director of the Company since its founding in
1981. He is the founder and President of Lipson Bros., Inc., a garment
manufacturing company in New York since 1946. Mr. Lipson is the father of
Roberta Lipson.

A. KENNETH NILSSON has served as a Director of the Company since January
1996. Since 1989, Mr. Nilsson has served as Chairman of Eureka Group, Inc., a
consulting firm he founded in 1972. Prior to 1989, Mr. Nilsson served as Vice
Chairman of Cooper Companies, Inc., President of Cooper Laboratories, Inc., and
President of Cooper Lasersonics, Inc. He previously served as an officer of Max
Factor & Co., Ltd. and of Pfizer International, Inc. Mr. Nilsson received a B.A.
degree in Telecommunications from the University of Southern California and a
M.A. in Political Science from the University of California.

JULIUS Y. OESTREICHER has served as a Director of the Company 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. He is a Certified Public Accountant admitted in
New York State. Mr. Oestreicher received a B.S. degree in Business
Administration from City College of New York and a J.D. from Fordham University
School of Law.

All Directors of the Company hold office until the next annual meeting of
shareholders or until their successors are 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 shareholders, and hold office until their
death, until they resign or until they have been removed from office. The
Company has no executive or nominating committee. The Board of Directors has
established a Compensation Committee, which currently is composed of Roberta
Lipson, Elyse Beth Silverberg and Morris Lipson. The Compensation Committee was
established to administer the Company's 1994 Stock Option Plan, make other
relevant compensation decisions of the Company and such other matters relating
to compensation as may be prescribed by the Board of Directors. The Audit
Committee currently is composed of Morris Lipson, A. Kenneth Nilsson and Julius
Y. Oestreicher. The function of the Audit Committee is to make recommendations
concerning the selection each year of independent auditors of the Company, to
review the effectiveness of the Company's 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
with the scope of their audit or its implementation.

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EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual and
long-term compensation of the Company's Chief Executive Officer and the
Company's most highly compensated executive officers whose compensation was in
excess of $100,000 during the year ended December 31, 1995.

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ---------------------------------
OTHER
ANNUAL RESTRICTED SHARES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARD UNDERLYING OPTIONS
- -------------------------------- ---- -------- ------- ------------ ----------- ------------------

<S> <C> <C> <C> <C> <C> <C>
Roberta Lipson ................. 1995 $135,000 -- -- -- --
Chairperson of the Board, 1994 $118,483 -- -- -- --
Chief Executive Officer and 1993 $ 30,000 -- -- -- --
President
Elyse Beth Silverberg, ......... 1995 $130,000 -- $ 23,600(1) -- --
Executive Vice President and 1994 $108,333 -- $ 22,565(1) -- --
Secretary
Lawrence Pemble, ............... 1995 $123,733 -- -- -- --
Executive Vice President 1994 $106,020 $55,000 -- -- --
Finance and Business 1993 $ 36,110 -- -- $ 250,000(2) --
Development
Robert C. Goodwin, Jr. ......... 1995 $110,000 -- -- -- --
Executive Vice President 1994 $103,769 $20,000 -- -- 16,000
Operations, General Counsel,
Assistant Secretary and
Treasurer
</TABLE>

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

(1) Includes yearly rental expense in the amount of $9,400 for Ms. Silverberg's
housing in China and tuition expense in the amounts of $14,200 for 1995 and
$13,165 for 1994 for Ms. Silverberg's son in China.

(2) Mr. Pemble was issued 100,000 restricted shares of the Company's Common
Stock in October 1993 in connection with his resumption of full-time
employment with the Company. Such restricted shares, which were converted to
restricted shares of the Company's Class B Common Stock in April 1994, were
valued at $250,000 for financial reporting purposes. The value of such
restricted shares as of December 31, 1995 was $531,250.

EMPLOYMENT AGREEMENTS

In May 1994, the Company entered into a three-year employment agreement
with each of Mmes. Lipson and Silverberg and Messrs. Pemble and Goodwin, which
as amended or revised to date, provide for annual base salaries of $167,670,
$161,460, $155,250 and $136,620, respectively. Each such executive officer also
receives additional benefits, including those generally provided to other
executive officers of the Company. In addition, Mmes. Lipson and Silverberg also
receive reimbursement of expenses relating to residing in China. The Company's
Board of Directors also may grant bonuses or increase the base salary payable to
any executive. The employment agreements also contain non-competition provisions
that preclude each executive from competing with the Company for a period of two
years from the date of his or her termination of employment unless his or her
employment is terminated by the Company without cause, as such term is defined
in the employment agreements.

The Company has obtained individual term life insurance policies covering
Roberta Lipson and Elyse Beth Silverberg in the amount of $2,000,000 per person.
The Company is the sole beneficiary under these policies.

In accordance with the terms of an agreement between the Underwriter and
the Company, the Company has agreed that the annual salary and bonuses of the
executive officers will not increase for 13 months after the closing of this
Offering.

In conformity with the Company's policy, all of its directors and officers
execute confidentiality and nondisclosure agreements upon the commencement of
employment with the Company. The agreements

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generally provide that all inventions or discoveries by the employee related to
the Company's business and all confidential information developed or made known
to the employee during the term of employment shall be the exclusive property of
the Company and shall not be disclosed to third parties without prior approval
of the Company. The Company's employment agreements with Mmes. Lipson and
Silverberg and Messrs. Pemble and Goodwin also contain non-competition
provisions that preclude each employee from competing in certain respects with
the Company for a period of two years from the date of his or her termination of
employment unless his or her employment is terminated by the Company without
cause, as such term is defined in the employment agreements. Public policy
limitations and the difficulty of obtaining injunctive relief may impair the
Company's ability to enforce the non-competition and nondisclosure covenants
made by its employees.

COMPENSATION OF DIRECTORS

Each Director who is not an employee of the Company is paid for service on
the Board of Directors a retainer at the rate of $1,000 per annum and an
additional $500 for each meeting of the Board of Directors attended. The Company
also reimburses each Director for reasonable expenses in attending meetings of
the Board of Directors. Directors who are also employees of the Company are not
separately compensated for their services as Directors.

STOCK OPTION PLAN

In April 1994, the Board of Directors adopted and the shareholders approved
the Company's 1994 Stock Option Plan. In July 1994, the Board of Directors
adopted and the shareholders approved an amendment to the 1994 Stock Option Plan
(as amended, the 'Plan'). The Plan provides for the grant of (i) options that
are intended to qualify as incentive stock options ('Incentive Stock Options')
within the meaning of Section 422A of the Code to certain employees and
consultants and (ii) options not intended to so qualify to employees, directors
and consultants. The total number of shares of Common Stock for which options
may be granted under the Plan is 228,000 shares. As of the date of this
Prospectus, the Company has granted options to purchase 168,060 shares of Common
Stock to employees and consultants in accordance with the terms of the Plan, at
exercise prices ranging from $3.38 to $5.30 per share.

The Plan may be administered by the Board of Directors or a committee of
the Board of Directors, which determines the terms of options, including the
exercise price, the number of shares subject to the option and the terms and
conditions of exercise. No option granted under the Plan is transferable by the
optionee other than by will or the laws of descent and distribution and each
option is exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the Plan must be at least
equal to the fair market value of such shares on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting rights
of the Company's outstanding capital stock, the exercise price of any Incentive
Stock Option must be not less than 110% of the fair market value on the date of
grant. The term of each option granted pursuant to the Plan may be established
by the Board, or a committee of the Board, in its sole discretion; provided,
however, that the maximum term of each Incentive Stock Option granted pursuant
to the Plan is ten years. With respect to any Incentive Stock Option granted to
a participant who owns stock possessing more than 10% of the total combined
voting power of all classes of the Company's outstanding capital stock, the
maximum term is five years.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as to the stock
ownership of each person known by the Company to be the beneficial owner of more
than five percent of the Company's Class B Common Stock or Common Stock, of the
Company's directors, each person named in the Executive Compensation Table and
all executive officers and directors as a group, as of the date of this
Prospectus. Neither prior to nor immediately following this Offering will any
officer, director or 5% shareholder known to the Company own any shares of
Common Stock:

<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
AMOUNT AND NATURE PERCENTAGE OWNERSHIP POWER
OF BENEFICIAL OF ALL COMMON STOCK AFTER
OWNERSHIP(2)(3): OUTSTANDING OFFERING(5)(6)
------------------------ ----------------------------- --------------
CLASS B
NAME AND ADDRESS OF BENEFICIAL COMMON COMMON BEFORE AFTER
SHAREHOLDER(1) STOCK STOCK(4)(6) OFFERING(4) OFFERING(4)(5)
- -------------------------------------- --------- --------- ----------- --------------

Roberta Lipson........................ 486,000(7) 1,040,000(8) 35.3% 22.2% 39.9%

Elyse Beth Silverberg................. 324,000(9) 680,000 24.1% 15.0% 26.4%

Lawrence Pemble....................... 98,000(10) 200,000 7.6% 4.6% 7.9%

Robert C. Goodwin, Jr................. 18,000(11) 0 * * *

Morris Lipson......................... 60,000(12) 80,000(13) 3.6% 2.2% 3.3%
3899 Live Oak Blvd.
Del Ray Beach, Florida

A. Kenneth Nilsson.................... 1,000 0 * * *
P.O. Box 2510
Monterey, California

Julius Y. Oestreicher................. 74,000(14) 0 1.9% 1.2% *
235 Mamaroneck Avenue
White Plains, New York
All Executive Officers and Directors
as a Group (7 persons).............. 1,061,000(15) 2,000,000 62.7% 41.2% 74.9%
</TABLE>

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

* Less than 1%

(1) Unless otherwise indicated, the business address of each person named in
the table is c/o U.S.-China Industrial Exchange, Inc., 7201 Wisconsin
Avenue, Bethesda, Maryland 20814.

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

(3) Beneficial ownership is calculated in accordance with Rule 13d-3(d) under
the Securities Exchange Act of 1934, as amended.

(4) Based on an aggregate of 3,840,000 shares of Common Stock and Class B
Common Stock outstanding prior to this Offering and an aggregate of
6,390,000 shares of Common Stock and Class B Common Stock immediately after
this Offering. Mmes. Lipson and Silverberg and Mr. Pemble have placed
240,000, 153,000 and 51,000 shares, respectively, of Class B Common Stock
in escrow and may vote, but not dispose of, any of such shares during the
term of the escrow agreement. See 'Escrow Shares' below.

(5) Assumes the issuance of 2,550,000 shares of Common Stock contained in the
Units offered by the Company hereby and no exercise of (i) any Warrants
offered thereby, (ii) the Unit Purchase Option, (iii) the Underwriter's
Over-Allotment Option and (iv) options to purchase shares of Common Stock
reserved for issuance under the Company's 1994 Stock Option Plan. For the
purposes of this calculation, the Common Stock and the Class B Common Stock
are treated as a single class of Common Stock.

(6) The Class B Common Stock is entitled to six votes per share, whereas the
Common Stock is entitled to one vote per share.

(footnotes continued on next page)

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(footnotes continued from previous page)

(7) Consists of shares that may be purchased pursuant to Class A Warrants and
Class B Warrants.

(8) Includes 40,000 shares held by the Ariel Benjamin Lee Trust, of which Ms.
Lipson is a Trustee.

(9) Consists of shares that may be purchased pursuant to Class A Warrants and
Class B Warrants.

(10) Includes 96,000 shares that may be purchased pursuant to Class A Warrants
and Class B Warrants.

(11) Includes 3,000 shares that may be purchased pursuant to Class A Warrants
and Class B Warrants and 14,000 shares that may be purchased pursuant to
currently-exercisable stock options.

(12) Includes 45,000 shares that may be purchased pursuant to Class A Warrants
and Class B Warrants.

(13) Consists of 40,000 shares held by the Daniel Lipson Plafker Trust and
40,000 shares held by the Jonathan Lipson Plafker Trust, for both of which
Mr. Lipson is a Trustee.

(14) Does not include 40,000 shares of Common Stock beneficially owned by Mr.
Oestreicher's wife, which includes 30,000 shares that may be purchased
pursuant to Class A Warrants and Class B Warrants, as to which Mr.
Oestreicher disclaims beneficial ownership. Includes 64,000 shares issuable
upon the exercise of 16,000 Unit Purchase Options, as defined below. Each
option consists of one share of Common Stock, one Class A Warrant and one
Class B Warrant. Also includes 10,000 shares that may be purchased pursuant
to currently-exercisable stock options.

(15) Includes an aggregate of 1,042,000 shares that may be purchased pursuant to
Unit Purchase Options, Class A Warrants, Class B Warrants and
currently-exercisable stock options.

ESCROW SHARES

Of the 2,000,000 shares of Class B Common Stock outstanding on the date
hereof, 450,000 shares (the 'Escrow Shares') are held in escrow and will not be
assignable nor transferable (but may be voted) until such time, if ever, as the
Escrow Shares are released from escrow in accordance with terms of the escrow
agreement. Each current holder of Class B Common Stock of the Company has
contributed pro rata to the number of Escrow Shares in accordance with their
percentage ownership of Class B Common Stock. All Escrow Shares remaining in
escrow on March 31, 1999 will be forfeited and then canceled and contributed to
the Company's capital. The arrangement relating to the Escrow Shares was
required by the Underwriter as a condition to the Company's initial public
offering.

A shareholder's rights to his or her shares in escrow are not affected by
any change in his or her status as an employee, officer or director of, or his
or her relationship with, the Company, and, in the event of such shareholder's
death, the terms of the escrow agreement will be binding on such shareholder's
executor, administrator, estate and legatees.

All Escrow Shares will be released from escrow if and only if either: (a)
the Minimum Pretax Income (as defined below) is at least $3,000,000 for the
fiscal year ending December 31, 1996, or (b) the Minimum Pretax Income is at
least $3,750,000 for the fiscal year ending December 31, 1997, or (c) the
Minimum Pretax Income is at least $5,000,000 for the fiscal year ending December
31, 1998, or (d) the closing bid price of the Common Stock averages in excess of
$14.60 per share (subject to adjustment in the event of any stock split,
dividend or distribution, reverse stock split or other similar event) for 20
consecutive trading days at any time prior to August 18, 1997.

'Minimum Pretax Income' means for any fiscal year the Company's income
before provision for income taxes and exclusive of any extraordinary earnings
and exclusive of any charges to income resulting from the release of any Escrow
Shares, all as reflected on the Company's audited financial statements. For
purposes of calculating Minimum Pretax Income, if additional shares of Common
Stock are issued, then the foregoing Minimum Pretax Income levels for any year
would increase proportionately. Accordingly, the Minimum Pretax Income levels
set forth above shall be adjusted proportionately to reflect the issuance of
shares of Common Stock, including shares of Common Stock issuable upon exercise
of Warrants, in this Offering.

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DESCRIPTION OF SECURITIES

GENERAL

The authorized capital stock of the Company consists of 28,000,000 shares
of Common Stock, $.01 par value per share, of which 1,840,000 are issued and
outstanding, 2,000,000 shares of Class B Common Stock, $.01 par value per share,
all of which are outstanding, and 5,000,000 shares of Preferred Stock, par value
$.01 per share, none of which are outstanding. As of October 9, 1996, the
Company had nine record holders of its Common Stock and five holders of its
Class B Common Stock.

UNITS

Each Unit consists of 255 IPO Units. Each IPO Unit consists of one share of
Common Stock, one redeemable Class A Warrant and one redeemable Class B Warrant.
Each redeemable Class A Warrant entitles the holder to purchase one share of
Common Stock and one redeemable Class B Warrant. Each Class B Warrant entitles
the holder to purchase one share of Common Stock. The Common Stock, Class A
Warrants and Class B Warrants comprising the IPO Units are immediately
separately transferable.

COMMON STOCK

Holders of Common Stock have one vote per share on each matter submitted to
a vote of the shareholders and a ratable right to the net assets of the Company
upon liquidation. Holders of the Common Stock do not have preemptive rights to
purchase additional shares of Common Stock or other subscription rights. The
Common Stock carries no conversion rights and is not subject to redemption or to
any sinking fund provisions. All shares of Common Stock are entitled to share
equally in dividends from legally available sources as determined by the Board
of Directors, subject to any preferential dividend rights of the Preferred Stock
(described below). Upon dissolution or liquidation of the Company, whether
voluntary or involuntary, holders of the Common Stock are entitled to receive
assets of the Company available for distribution to the shareholders, subject to
the preferential rights of the Preferred Stock. All outstanding shares of Common
Stock are validly authorized and issued, fully paid and non-assessable.

CLASS B 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 shareholders and the holders of
the Common Stock have one vote per share on each matter considered by
shareholders. The difference in voting rights increases the voting power of the
holders of Class B Common Stock and accordingly has an anti-takeover effect. The
existence of the Class B Common Stock may make the Company a less attractive
target for a hostile takeover bid or render more difficult or discourage a
merger proposal, an unfriendly tender offer, a proxy contest, or the removal of
incumbent management, even if such transactions were favored by the shareholders
of the Company other than the holders of Class B Common Stock. Thus, the
shareholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices in the event of a hostile takeover bid. Those
seeking to acquire the Company through a business combination will be compelled
to consult first with the holders of Class B Common Stock in order to negotiate
the terms of such business combination. Any such proposed business combination
will have to be approved by the Board of Directors, may be under the control of
the holders of Class B Common Stock, and if shareholder approval were required,
the approval of the holders of Class B Common Stock will be necessary before any
such business combination can be consummated.

Each share of Class B Common Stock is automatically converted into one
share of Common Stock upon (i) the death of the original holder thereof, or, if
such shares are subject to a shareholders 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 other original holder, or (ii) the sale or transfer
to any person other than the following transferees: (a) the spouse of a holder
of Class B Common Stock; (b)

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<PAGE>
any lineal descendants of a holder of Class B Common Stock, including adopted
children (said descendants, together with the holder of Class B Common Stock and
his or her spouse are hereinafter referred to as 'Family Members'); (c) a trust
for the sole benefit of a Class B Common shareholder's Family Members; (d) a
partnership made up exclusively of Class B Common shareholders and their Family
Members or a corporation wholly owned by a holder of Class B Common Stock and
their Family Members, and (e) any other holder of Class B Common Stock thereof.
Mmes. Lipson and Silverberg, Mr. Pemble and certain trusts for the benefit of
members of the families of Mmes. Lipson and Silverberg hold all of the
outstanding shares of Class B Common Stock. Presently, there are 2,000,000
shares of Class B Common Stock issued and outstanding. There are no options and
warrants to purchase Class B Common Stock currently outstanding.

WARRANTS

Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant, at an exercise price
of $6.50 until August 18, 1999. The Class A Warrants are redeemable by the
Company on 30 days' prior written notice at a redemption price of $.05 per Class
A Warrant, provided the average closing bid price of the Company's Common Stock
in the over-the-counter market as reported by The Nasdaq SmallCap Market or the
average last reported sale price as reported by the Nasdaq National Market for
any 20 consecutive business days ending within 15 days of the notice of
redemption exceeds $9.10 per share (subject to adjustment by the Company, as
described below, in the event of any reverse stock split or similar events). The
notice of redemption will be sent to the registered address of the registered
holder of the Class A Warrant. All Class A Warrants must be redeemed if any are
redeemed; provided, however, that the Class A Warrants underlying the Unit
Purchase Options may only be redeemed under limited circumstances. See
'Underwriting.' There currently are 2,140,000 Outstanding Class A Warrants.

Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $8.75 per share at
any time from the later of its date of issuance or the date of this Prospectus
until August 18, 1999. The Class B Warrants are redeemable by the Company on 30
days' prior written notice at a redemption price of $.05 per Class B Warrant,
provided the average closing bid price of the Company's Common Stock on the
over-the-counter market as reported by The Nasdaq SmallCap Market or the average
last reported sale price as reported by the Nasdaq National Market for any 20
consecutive business days ending within 15 days of the notice of redemption
exceeds $12.25 per share (subject to adjustment by the Company, as described
below, in the event of any reverse, stock split or similar events). The notice
of redemption will be sent to the registered address of the registered holder of
the Class B Warrant. All Class B Warrants must be redeemed if any are redeemed;
provided, however, that the Class B Warrants subject to the Unit Purchase
Options may only be redeemed under limited circumstances. See 'Underwriting.'
There currently are 2,140,000 outstanding Class B Warrants.

The Class A Warrants and Class B Warrants (collectively, the 'Warrants')
will be issued pursuant to a warrant agreement (the 'Warrant Agreement') among
the Company, the Underwriter and American Stock Transfer & Trust Company as
warrant agent (the 'Warrant Agent'), and will be evidenced by warrant
certificates in registered form. The exercise prices of the Warrants were
determined by negotiation between the Company and the Underwriter and should not
be construed to be predictive of, or to imply that, any price increases will
occur in the Company's securities. The exercise price of the Warrants and the
number and kind of shares of Common Stock or other securities and property to be
obtained upon exercise of the Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or the
issuance of shares of Common Stock at less than the market price of the Common
Stock. Additionally, an adjustment would be made upon the sale of all or
substantially all of the assets of the Company for less than the market value, a
merger or other unusual events (other than share issuances pursuant to employee
benefit and stock incentive plans for directors, officers and employees of the
Company) so as to enable holders of Warrant, to purchase the kind and number of
shares or other securities or property (including cash) receivable in such event
by a holder of the kind and number of shares of Common Stock that might
otherwise have been purchased upon

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exercise of such Warrant. No adjustment for previously paid cash dividends, if
any, will be made upon exercise of the Warrants.

The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date (or earlier redemption date) of such Warrants at
the offices of the Warrant Agent with the form of 'Election of Purchase' on the
reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of Warrants being exercised.
Shares of Common Stock issuable upon exercise of Warrants and payment in
accordance with the terms of the Warrants will be fully paid and non-assessable.

The Warrants do not confer upon the holders of Warrants any voting or other
rights of the shareholders of the Company. Upon notice to the holders of
Warrants, the Company has the right to reduce the exercise price or extend the
expiration date of the Warrants. Although this right is intended to benefit the
holders of Warrants, to the extent the Company exercises this right when the
Warrants would otherwise be exercisable at a price higher than the prevailing
market price of the Common Stock, the likelihood of exercise, and resultant
increase in the number of shares outstanding, may result in making more costly,
or impeding, a change in control in the Company.

The description above is subject to the provisions of the Warrant
Agreement, as amended, which has been filed as an exhibit to the Registration
Statement, of which this Prospectus forms a part, and reference is made to such
exhibit for a detailed description thereof.

PREFERRED STOCK

UNIT PURCHASE OPTION

See 'Underwriting' for a description of the material terms of the Unit
Purchase Option to be issued by the Company to the Underwriter upon completion
of this Offering.

TRANSFER AGENT AND WARRANT AGENT

The Company's transfer and warrant agent for the IPO Units, Common Stock
and Warrants is American Stock Transfer & Trust Company, New York, New York.

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SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this Offering, the Company will have outstanding an
aggregate of 3,840,000 shares of Common Stock and Class B Common Stock (assuming
no exercise of the Underwriter's Over-Allotment Option). Of all such shares, the
2,000,000 shares of Common Stock issuable upon conversion of the currently
outstanding Class B Common Stock will be eligible for sale under Rule 144
(subject to the restrictions on transfer agreed to between the current
shareholders and the Underwriter, as set forth below, and the restrictions on
transfer with respect to the Escrow Shares) and will be freely transferable
without restriction under the Securities Act except for any shares purchased by
any person who is or thereby becomes an 'affiliate' of the Company, which shares
will be subject to the resale limitations contained in Rule 144 promulgated
under the Securities Act. In addition, an aggregate of 4,280,000 shares of
Common Stock are issuable pursuant to the Outstanding Class A Warrants and
Outstanding Class B Warrants.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), with respect to restricted securities that satisfy
a two-year holding period, may sell within any three-month period a number of
restricted shares which does not exceed the greater of 1% of the then
outstanding shares of such class of securities or the average weekly trading
volume during the four calendar weeks prior to such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. Rule 144 also
permits, under certain circumstances, the sale of shares by a person who is not
an affiliate of the Company, with respect to restricted securities that satisfy
a three-year holding period, without regard to the volume or other resale
limitations. For shares issued in consideration of an unsecured or non-recourse
promissory note, the holding period does not commence until the note is paid in
full. The above is a brief summary of Rule 144 and is not intended to be a
complete description of the Rule.

The 'restricted' Common Stock currently is eligible for sale pursuant to
Rule 144. However, all of the current shareholders of the Company owning 1% or
more of the issued and outstanding Common Stock have agreed not to sell, assign
or transfer any of their shares of Common Stock, options or warrants for a
period of 13 months after the closing date of this Offering without the prior
consent of the Underwriter. In addition, the Company has granted certain
registration rights with respect to the Unit Purchase Option and the Units and
securities underlying those options. See 'Underwriting.'

Following this Offering, no predictions can be made of the effect, if any,
of future public sales of restricted shares or the availability of restricted
shares for sale in the public market. Moreover, the Company cannot predict the
number of shares of Common Stock that may be sold in the future pursuant to Rule
144 or Rule 701 because such sales will depend on, among other factors, the
market price of the Common Stock and the individual circumstances of the holders
thereof. The availability for sale of substantial amounts of Common Stock
acquired through the exercise of the Class A Warrants and Class B Warrants,
under Rule 144 or Rule 701, other options or the Unit Purchase Option could
adversely affect prevailing market prices for the Common Stock.

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UNDERWRITING

D.H. Blair Investment Banking Corp. (the 'Underwriter') has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase the
10,000 Units offered hereby from the Company on a 'firm commitment' basis, if
any are purchased. It is expected that D.H. Blair & Co., Inc. ('Blair & Co.')
will distribute as a selling group member substantially all of the Units offered
hereby. Blair & Co. is substantially owned by family members of J. Morton Davis.
Mr. Davis is the sole stockholder of the Underwriter.

The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus, and that it may allow, to selected dealers who are members of the
National Association of Securities Dealers, Inc. (the 'NASD') concessions, not
in excess of $33.00 per Unit, of which not in excess of $17.00 per Unit may be
reallowed to other dealers who are members of the NASD. After the public
offering, the public offering price, concessions and reallowances may be changed
by the Underwriter.

The Company has granted an option to the Underwriter exercisable during the
45-day period from the date of this Prospectus, to purchase up to 1,500
additional Units at the public offering price set forth on the cover page of
this Prospectus, less the underwriting discounts and commissions. The
Underwriter may exercise this option in whole, or, from time to time, in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the Units offered hereby.

The Company has agreed to pay to the Underwriter a non-accountable expense
allowance representing 3% of the aggregate offering price of the Units offered
hereby (plus 3% of the aggregate offering price of any Units purchased pursuant
to the Underwriter's Over-Allotment Option), $30,000 of which has been paid to
date.

The Company has agreed to sell to the Underwriter and its designees, on the
closing date of this Offering, for nominal cost, the Unit Purchase Option (the
'Unit Purchase Option') to purchase up to 1,000 Units at an exercise price of
$1,300 per Unit (130% of the initial public offering price), subject to certain
anti-dilution provisions. The Units purchasable upon exercise of the Unit
Purchase Option are identical to the Units offered hereby, except that the
Warrants contained therein are not subject to redemption nor are callable by the
Company unless on the redemption date, the Unit Purchase Option has been
exercised and the underlying Warrants are outstanding. The Unit Purchase Option
will be exercisable during the three-year period commencing two years from the
date of this Prospectus; provided that after the expiration of the Warrants, the
Unit Purchase Option will only be exercisable for shares of Common Stock. The
Unit Purchase Option may not be transferred, sold, assigned or hypothecated for
two years from the date of this Prospectus except to any National Association of
Securities Dealers, Inc. ('NASD') member participating in the Offering or any
officers of the Underwriter or any such NASD member. The Company has agreed to
register under the Securities Act at its expense on one occasion, and at the
expense of the Underwriter on another occasion, the Unit Purchase Option and/or
underlying securities at the request of the holder thereof. The Company has also
agreed to certain 'piggy-back' registration rights for the holders of the Unit
Purchase Option and/or the underlying securities.

For the life of the Unit Purchase Option, the holders are given the
opportunity to profit from a rise in the market price of the Company's Common
Stock and Warrants with a resulting dilution in the interest of other
shareholders. The Company may find it more difficult to raise additional equity
capital while the Unit Purchase Option is outstanding and, at any time when the
holders of the Unit Purchase Option might be expected to exercise it, the
Company would probably be able to obtain equity capital on terms more favorable
than those provided in the Unit Purchase Option.

All holders of 1% or more all of the issued and outstanding Common Stock of
the Company have agreed not to sell, transfer or assign any of their shares of
Common Stock, options or warrants without the prior written consent of the
Underwriter for a period of 13 months from the closing date of this Offering.

In connection with this Offering, the Company has extended the term of the
agreement providing for the payment of a fee to the Underwriter in the event the
Underwriter is responsible for a merger or

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other acquisition transaction to which the Company is a party until four years
from the date of this Prospectus.

The Underwriter acted as the sole underwriter for the Company's initial
public offering in August 1994. In connection therewith, the Underwriter
received a unit purchase option to purchase up to 144,000 option units, each
option unit consisting of one share of Common Stock, one Class A Warrant and one
Class B Warrant, at an exercise price of $6.75 per option unit, exercisable for
a period of two years commencing in August 1997.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities, including
liabilities under the Securities Act.

The Company has agreed with the Underwriter not to solicit Warrant
exercises other than through the Underwriter. Upon exercise of the Warrants, the
Company will pay the Underwriter a fee of 5% of the aggregate exercise price
(the 'Warrant Fee') if (i) the market price of the Company's Common Stock on the
date the Warrant is exercised is greater than the then exercise price of the
Warrant; (ii) the exercise of the Warrant was solicited by a member of the NASD;
(iii) the Warrantholder designates in writing that the exercise of the Warrant
was solicited by a member of the National Association of Securities Dealers,
Inc. and designates in writing the broker-dealer to receive compensation for
such exercise; (iv) the Warrant is not held in a discretionary account; (v)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (vi) the solicitation
of exercise of the Warrants was not in violation of Rule 10b-6 promulgated under
the 1934 Act or respective state blue sky laws; provided that in the event any
Warrants are exercised prior to one year from the date of this Prospectus, the
Underwriter shall only be entitled to receive the Warrant Fee with respect to
2,000,000 Class A Warrants and 4,000,000 Class B Warrants (which include the
2,000,000 Class B Warrants that may be issued on exercise of the Class A
Warrants issued in connection with the Company's initial public offering). For
purposes of determining which Warrants have been exercised, it will be assumed
that the first 2,000,000 Class A Warrants and 4,000,000 Class B Warrants
exercised were those issued in connection with the Company's initial public
offering. Any costs incurred by the Company in connection with the exercising of
the Warrants shall be borne by the Company. Costs incurred by the Underwriter in
connection with the solicitation of Warrant exercises or the redemption of the
Warrants shall be borne by the Company, subject to prior written authorization
by the Company.

Unless granted an exemption by the Commission from Rule 10b-6, the
Underwriter will be prohibited from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, the Underwriter
may be unable to continue to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.

The Underwriter and certain selling group members that currently act as
market makers for the Common Stock may engage in 'passive market making' in the
Company's securities on Nasdaq in accordance with Rule 10b-6A under the 1934
Act. Rule 10b-6A permits, upon the satisfaction of certain conditions,
underwriters and selling group members participating in a distribution that are
also Nasdaq market makers in the security being distributed to engage in limited
market making transactions during the period when Rule 10b-6 under the 1934 Act
would otherwise prohibit such activity. In general, under Rule 10b-6A, any
underwriter or selling group member engaged in passive market making in the
Company's securities (i) may not effect transactions in, or display bids for,
such securities at a price that exceeds the highest bid for such securities
displayed on Nasdaq by a market maker that is not participating in the
distribution of such securities, (ii) may not have net daily purchases of such
Company's securities that exceed 30% of its average daily trading volume in such
securities for the two full consecutive calendar months immediately preceding
the filing date of the registration statement of which this Prospectus forms a
part and (iii) must identify its bids made by a passive market maker.

The public offering price of the Units and the exercise prices and other
terms of the Warrants have been determined by negotiations between the Company
and the Underwriter and are not necessarily

<PAGE>
<PAGE>
related to the Company's asset value, net worth or other established criteria of
value. Factors considered in determining the offering price of the Units and the
exercise price and other terms of the Warrants include the present state of the
Company's development, the future prospects of the Company, an assessment of
management, the general condition of the securities markets and other factors
deemed relevant.

The Underwriter has informed the Company that the Commission is conducting
an investigation concerning various business activities of the Underwriter and
Blair & Co., a selling group member which will distribute substantially all of
the Units offered hereby. The investigation appears to be broad in scope,
involving numerous aspects of the Underwriter's and Blair & Co.'s compliance
with the Federal securities laws and compliance with the Federal securities laws
by issuers whose securities were underwritten by the Underwriter or Blair & Co.,
or in which the Underwriter or Blair & Co. made over-the-counter markets,
persons associated with the Underwriter or Blair & Co., such issuers and other
persons. The Company has been advised by the Underwriter that the investigation
has been ongoing since at least 1989 and that the Underwriter is cooperating
with the investigation. The Underwriter cannot predict whether this
investigation will ever result in a formal enforcement action against the
Underwriter or Blair & Co. or, if so, whether any such action might have an
adverse effect on the Underwriter, Blair & Co. or the securities offered hereby.
The Company has been advised that the Underwriter or Blair & Co. intends to make
a market in the securities following this Offering. An unfavorable resolution of
the Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could adversely
affect the liquidity or price of such securities.

LEGAL MATTERS

The validity of the securities offered hereby has been passed upon for the
Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Bachner,
Tally, Polevoy & Misher, LLP, New York, New York, has served as counsel to the
Underwriter in connection with this Offering.

EXPERTS

The consolidated financial statements of the Company at December 31, 1995,
and for each of the two years in the period ended December 31, 1995 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

ENFORCEABILITY OF CIVIL LIABILITIES

Certain of the directors and officers of the Company are or may be
residents of China and all or a substantial portion of the assets of such
persons are or may be located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons, or to enforce against them judgments obtained in the United
States courts, including judgments predicated upon the civil liability
provisions of the United States federal securities laws. The Company understands
that the United States does not currently have a treaty providing for reciprocal
recognition and enforcement of judgments in civil and commercial matters with
China and that there is doubt (i) whether a final judgment for the payment of
money rendered by a federal or state court in the United States based on civil
liability, whether or not predicated solely upon the civil liability provisions
of the United States federal securities laws, would be enforceable in China
against the Company or certain of the Company's officers and directors and (ii)
whether an action could be brought in China against the Company or certain of
the Company's officers and directors in the first instance on the basis of
liability predicated solely upon the provisions of the United States federal
securities laws.

EXPLANATORY NOTE

Pursuant to Rule 429 under the Securities Act, this Prospectus also relates
to and may be used in connection with securities previously registered under the
Securities Act pursuant to Registration

<PAGE>
<PAGE>
Statement No. 33-78446 and consisting of (i) 5,520,000 shares of Common Stock
issuable upon exercise of the Warrants issued in the IPO; (ii) 160,000 shares of
Common Stock, Class A Warrants and Class B Warrants issuable upon exercise of
unit purchase options received by the Underwriter and a finder in connection
with the IPO; (iii) 160,000 shares of Common Stock and Class B Warrants issuable
upon exercise of such Class A Warrants; and (iv) 320,000 shares of Common Stock
issuable upon exercise of all such Class B Warrants.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
'Commission'), Washington, D.C., a Registration Statement on Form SB-2 under the
Act with respect to the securities offered hereby. This Prospectus does not
contain all of the information set forth in such Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Units, reference is hereby made to the Registration Statement, exhibits and
schedules which may be inspected without charge at the public reference
facilities maintained at the principal office of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained upon written request from the public
reference section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Electronic registration statements made through the
Electronic Data Gathering, Analysis, and Retrieval System are publicly available
through the Commission's Web site (http://www.sec.gov). Statements contained in
the Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

The Company is subject to the informational requirements of the 1934 Act
and, in accordance therewith, files reports and other information with the
Commission. Such reports and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically. Reports and
other information concerning the Company may also be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company intends to furnish its shareholders and holders of Warrants
with annual reports containing audited financial statements and such interim
reports as it deems appropriate or as may be required by law.

<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE NO.
--------

<S> <C>
Report of Independent Auditors......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996 (unaudited)................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996 (unaudited)................................................. F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1996 (unaudited)..................................................... F-6
Notes to Consolidated Financial Statements............................................................. F-7
</TABLE>

F-1

<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
U.S.-China Industrial Exchange, Inc.

We have audited the accompanying consolidated balance sheet of U.S.-China
Industrial Exchange, Inc. as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of 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 U.S.-China
Industrial Exchange, Inc. at December 31, 1995, and the consolidated results of
its operations and its cash flows for the two years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.

Vienna, Virginia ERNST & YOUNG LLP
February 28, 1996

F-2

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS

Current assets:
Cash & cash equivalents............................................. $ 3,599,000 $ 4,055,000
Accounts receivable, less allowance of $95,000 (1995) and $110,000
(1996)............................................................ 3,725,000 3,926,000
Commissions receivable.............................................. 962,000 468,000
Inventories......................................................... 1,215,000 1,830,000
Current portion -- long term accounts receivable.................... 2,396,000 1,471,000
Other current assets................................................ 690,000 1,172,000
------------ -------------
Total current assets........................................... 12,587,000 12,922,000
Property & equipment................................................ 406,000 482,000
Accounts receivable, long term...................................... 2,348,000 3,750,000
Other............................................................... 93,000 872,000
------------ -------------
Total assets................................................... $ 15,434,000 $18,026,000
------------ -------------
------------ -------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses............................... $ 4,139,000 $ 5,326,000
Accrued contract training........................................... 683,000 798,000
Current portion-long term accounts payable, net..................... 984,000 217,000
Income taxes payable................................................ 186,000 546,000
------------ -------------
Total current liabilities...................................... 5,992,000 6,887,000
Long term accounts payable, net..................................... 933,000 1,893,000
------------ -------------
Total liabilities.............................................. 6,925,000 8,780,000
Shareholders' equity:
Preferred stock, $.01 par value: Authorized -- 5,000,000 shares,
none issued
Common stock, $.01 par value
Authorized -- 30,000,000 shares (including 2,000,000 designated
Class B);
Common stock -- 1,840,000 shares issued and outstanding............. 18,000 18,000
Common stock -- Class B -- 2,000,000 shares issued and
outstanding....................................................... 20,000 20,000
Additional paid in capital.......................................... 7,477,000 7,477,000
Foreign currency equity translation adjustment...................... (8,000) (8,000)
Retained earnings................................................... 1,002,000 1,739,000
------------ -------------
Total shareholders' equity..................................... 8,509,000 9,246,000
------------ -------------
Total liabilities and shareholders' equity..................... $ 15,434,000 $18,026,000
------------ -------------
------------ -------------
</TABLE>

See accompanying notes

F-3

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------- -----------------------------------
1994 1995 1995 1996
----------- ----------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.................................... $10,613,000 $13,002,000 $ 7,697,000 $ 16,832,000
Cost of goods sold........................... 7,658,000 9,667,000 6,020,000 11,821,000
----------- ----------- --------------- ----------------
Gross profit on sales........................ 2,955,000 3,335,000 1,677,000 5,011,000
Net commission income........................ 2,625,000 2,115,000 1,368,000 712,000
----------- ----------- --------------- ----------------
TOTAL GROSS PROFIT ON SALES AND NET
COMMISSION INCOME.......................... 5,580,000 5,450,000 3,045,000 5,723,000
Selling, general and administrative
Salaries and payroll taxes................... 1,981,000 2,682,000 1,957,000 2,514,000
Travel and entertainment..................... 931,000 1,440,000 927,000 1,081,000
Other........................................ 1,950,000 2,117,000 1,569,000 1,752,000
----------- ----------- --------------- ----------------
718,000 (789,000) (1,408,000) 376,000
Other income and expenses
Interest expense........................ (72,000) (81,000) (63,000) (12,000)
Interest income......................... 152,000 427,000 340,000 269,000
Miscellaneous income/expenses........... 28,000 (6,000) (5,000) 547,000
----------- ----------- --------------- ----------------
Income (loss) before (provision for)/benefit
from income taxes.......................... 826,000 (449,000) (1,136,000) 1,180,000
(Provision for)/benefit from income taxes.... (319,000) 132,000 399,000 (443,000)
----------- ----------- --------------- ----------------
NET INCOME (LOSS)............................ $ 507,000 $ (317,000) $ (737,000) $ 737,000
----------- ----------- --------------- ----------------
----------- ----------- --------------- ----------------
NET INCOME (LOSS) PER SHARE.................. $0.23 $(0.09) $(0.22) $0.22
----------- ----------- --------------- ----------------
----------- ----------- --------------- ----------------
Weighted average shares outstanding.......... 2,218,000 3,390,000 3,390,000 3,390,000
----------- ----------- --------------- ----------------
----------- ----------- --------------- ----------------
</TABLE>

See accompanying notes

F-4

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------ -----------------------------------
1994 1995 1995 1996
---------- ---------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ 507,000 $ (317,000) $ (737,000) $ 737,000
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation & amortization................ 81,000 121,000 97,000 83,000
Provision for doubtful accounts............ 15,000 20,000 15,000 15,000
Provision for deferred taxes............... (29,000) 46,000 (22,000) 0
Inventory write-down....................... 46,000 95,000 67,000 98,000
Amortization of discount from investment
security................................. 0 (91,000) (91,000) 0
Changes in operating assets and liabilities:
Accounts receivable........................ (3,755,000) (3,602,000) (1,129,000) (693,000)
Commissions receivable..................... (130,000) (32,000) (59,000) 494,000
Inventories................................ 93,000 (652,000) (625,000) (713,000)
Other current assets....................... (206,000) (288,000) 34,000 (482,000)
Other assets............................... (123,000) 119,000 170,000 (189,000)
Accounts payable and accrued expenses...... 1,329,000 2,866,000 1,172,000 1,495,000
Income taxes payable....................... 330,000 (263,000) (407,000) 360,000
---------- ---------- --------------- ----------------
Net cash (used in) provided by operating
activities.................................... (1,842,000) (1,978,000) (1,515,000) 1,205,000
INVESTING ACTIVITIES
Sale/(Purchase) of investment security.......... (2,544,000) 2,635,000 2,635,000 --
Increase in other assets........................ -- -- -- (590,000)
Purchase of property and equipment.............. (150,000) (189,000) (152,000) (159,000)
---------- ---------- --------------- ----------------
Net cash (used in) provided by investing
activities (2,694,000) 2,446,000 2,483,000 (749,000)
FINANCING ACTIVITIES
Proceeds from issuance of common stock.......... 7,250,000 -- -- --
Repayment of notes payable to shareholders...... (723,000) -- -- --
---------- ---------- --------------- ----------------
Net cash provided by financing activities....... 6,527,000 -- -- --
---------- ---------- --------------- ----------------
Effect of foreign exchange rate changes on cash
and cash equivalents.......................... -- (8,000) (9,000) --
---------- ---------- --------------- ----------------
Net increase (decrease) in cash and cash
equivalents................................... 1,991,000 460,000 959,000 456,000
Cash and cash equivalents at beginning of
period........................................ 1,148,000 3,139,000 3,139,000 3,599,000
---------- ---------- --------------- ----------------
Cash and cash equivalents at end of period...... $3,139,000 $3,599,000 $ 4,098,000 $4,055,000
---------- ---------- --------------- ----------------
---------- ---------- --------------- ----------------
Supplemental disclosure of cash flow information
Cash paid for interest.......................... $ 33,000 $ 3,000 $ 2,000 $ --
---------- ---------- --------------- ----------------
---------- ---------- --------------- ----------------
Cash paid for income taxes...................... $ 19,000 $ 31,000 $ 34,000 $ 33,000
---------- ---------- --------------- ----------------
---------- ---------- --------------- ----------------
</TABLE>

See accompanying notes

F-5

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK -- CLASS B ADDITIONAL
------------------- ------------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- ------------------------ ------------------------ ----------

<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.......... -- $ -- 2,000,000 $ 20,000 $ 245,000
Issuance of stock................... 1,840,000 18,000 -- -- 7,232,000
Net income for 1994................. -- -- -- -- --
Balance at December 31, 1994........ 1,840,000 18,000 2,000,000 20,000 7,477,000
Net loss for 1995................... -- -- -- -- --
--------- ------- ---------- ---------- ----------
Balance at December 31, 1995........ 1,840,000 18,000 2,000,000 20,000 7,477,000
Net income for nine months ended
September 30, 1996 (unaudited).... -- -- -- -- --
--------- ------- ---------- ---------- ----------
Balance at September 30, 1996
(unaudited)....................... 1,840,000 $18,000 2,000,000 $ 20,000 $7,477,000
--------- ------- ---------- ---------- ----------
--------- ------- ---------- ---------- ----------

RETAINED TRANSLATION
EARNINGS ADJUSTMENT TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1994.......... $ 812,000 -- $1,077,000
Issuance of stock................... -- -- 7,250,000
Net income for 1994................. 507,000 -- 507,000
Balance at December 31, 1994........ 1,319,000 -- 8,834,000
Net loss for 1995................... (317,000) (8,000) (325,000)
---------- ---------- ----------
Balance at December 31, 1995........ 1,002,000 (8,000) 8,509,000
Net income for nine months ended
September 30, 1996 (unaudited).... 737,000 -- 737,000
---------- ---------- ----------
Balance at September 30, 1996
(unaudited)....................... $1,739,000 $ (8,000) $9,246,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See accompanying notes

F-6

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Organization and Description of Business

U.S.-China Industrial Exchange, Inc. (the Company) is a sales
representative in China for several major U.S., European, and other
manufacturers of high-technology medical equipment, construction, mining and
other industrial machinery and scientific research instrumentation. The Company
markets and sells these products in China, and provides marketing, sales and
technical services for the products. Substantially all sales, commissions and
purchases are denominated in U.S. dollars.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Chindex, Inc., Chindex Holdings International
Trade (Tianjin), Chindex Hong Kong and the Beijing United Family Health Center.
Significant intercompany accounts and transactions have been eliminated in
consolidation.

Revenue Recognition

Sales and most commissions are recognized upon product shipment. Costs
associated with installation, after-sale servicing and warranty are not
significant and are recognized in cost of sales as they are incurred.

Inventories

Inventory purchased to fill signed sales contracts that remain undelivered
at year-end (Contract inventory) and inventory of peripheral components are
stated at the lower of cost or market using the specific identification method.
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.

Property and Equipment

Property and equipment are stated at cost. 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.

Long Term Receivables and Payables

Long term receivables and payables are recorded at estimated present values
determined based on current rates of interest. Imputed interest is recognized
using the effective interest method.

Income Taxes

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

F-7

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

income taxes result from temporary differences between the financial statement
amounts of assets and liabilities and their respective tax bases.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Earnings Per Share

Earnings per share is based on the average number of common and common
equivalent shares outstanding during the year. Shares of common stock placed in
escrow at completion of the initial public offering (Note 5) have been excluded
from the calculation of earnings per share. In addition, shares have been
adjusted to give effect to the stock splits discussed in Note 5. Other shares
issuable upon the exercise of stock options and warrants were excluded from the
calculation because their effect would be antidilutive.

Dividends

The Company has not paid dividends to the shareholders of its common stock
and any dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.

Recent Pronouncements

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-Based Compensation,' which is effective for the
Company's December 31, 1996 financial statements. SFAS No. 123 allows companies
to either account for stock-based compensation under the new provisions of SFAS
No. 123 or under the provisions of APB 25, but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS 123 had been adopted. The Company intends to continue accounting for its
stock-based compensation in accordance with the provisions of APB 25. As such,
the adoption of SFAS No. 123 will not impact the financial position or the
results of operations of the Company.

Unaudited Interim Statements

The unaudited consolidated financial statements for the nine months ended
September 30, 1995 and 1996 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial information for these interim
periods, have been made. The operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.

F-8

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Furniture and equipment........................................ $ 463,000 $621,000
Vehicles....................................................... 124,000 124,000
Leasehold improvements......................................... 195,000 195,000
--------- --------
782,000 940,000
Less: accumulated depreciation and amortization................ 376,000 458,000
--------- --------
$ 406,000 $482,000
--------- --------
--------- --------
</TABLE>

3. INVENTORIES

Inventories consist of the following:

DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Contract inventory............................................. $ 521,000 $1,167,000
Demonstration inventory, net................................... 616,000 577,000
Peripheral inventory........................................... 78,000 86,000
----------- ----------
$ 1,215,000 $1,830,000
----------- ----------
----------- ----------
</TABLE>

4. EXTENDED PAYMENT TERM SALES ARRANGEMENTS

The Company has entered into agreements with certain customers to provide
extended payment terms. In conjunction with these transactions the Company has
negotiated agreements with certain vendors to grant matching extended terms.
Receivables and payables under these arrangements were discounted at 7.35%,
6.39% and 6.39% for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996, respectively.

At December 31, 1995, long-term receivables and payables under these
arrangements mature as follows:

ACCOUNTS RECEIVABLE ACCOUNTS PAYABLE
------------------- ----------------

<S> <C> <C>
1996............................................................ $ 2,478,000 $1,022,000
1997............................................................ 1,826,000 811,000
1998............................................................ 534,000 213,000
1999............................................................ 211,000 23,000
2000............................................................ 89,000 0
----------- ----------
5,138,000 2,069,000
Less: imputed interest.......................................... 394,000 152,000
----------- ----------
4,744,000 1,917,000
Less: current portion........................................... 2,396,000 984,000
----------- ----------
$ 2,348,000 $ 933,000
----------- ----------
----------- ----------
</TABLE>

Amortization of imputed interest on long-term accounts receivable was $47,000,
$183,000 and $105,000 for the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1996, respectively. Amortization of imputed
interest on long-term accounts payable was $28,000, $78,000 and $12,000 for the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996, respectively.

F-9

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. SHAREHOLDERS' EQUITY

Common Stock and Preferred Stock

In April 1994, the Board of Directors and shareholders of the Company
approved an increase in the authorized capitalization of the Company to 20
million shares of common stock, par value $.01 per share, and 5 million shares
of preferred stock, par value $.01 per share. The 100 shares of common stock
outstanding at that time were split on the basis of 15,000-for-1 and the
resulting outstanding shares were designated Class B common stock. Furthermore,
in July 1994 and August 1994, the Board of Directors and shareholders of the
Company approved 1.2-for-1 and 10-for-9 stock splits, respectively. All share
and per share information in the consolidated financial statements has been
restated to reflect the stock splits and the designation of outstanding shares
as Class B common stock.

The holders of the outstanding 2,000,000 shares of Class B common stock
have placed 450,000 shares in escrow. These shares will not be assignable or
transferable (but may be voted) until such time as they are released from escrow
based upon the Company meeting certain earnings levels or the common stock
attaining certain price levels. All reserved shares remaining in escrow on March
31, 1999 will be forfeited and contributed to the Company's capital. In the
event the Company attains any of the earnings thresholds or stock prices for the
release of the escrowed shares to the original shareholders, the Company will
recognize compensation expense at such time based on the fair market value of
the shares released.

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 shareholders and the holders of
common stock have one vote per share on each matter considered by shareholders.
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 shares are subject to a shareholders 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.

On October 28, 1996, the shareholders of the Company voted to increase the
number of authorized shares of common stock from 18,000,000 to 28,000,000
(excluding common stock -- Class B).

Public Offering, Common Stock, Warrants

On August 18, 1994 the Company completed its initial public offering
selling 1,600,000 common stock units for net proceeds to the Company of
approximately $6,206,000. Additionally, on September 13, 1994 the underwriters
exercised their overallotment option purchasing an additional 240,000 common
stock units for net proceeds to the Company of approximately $1,044,000. Each
unit consisted of one common share, one Class A warrant and one Class B warrant.
Class A warrants entitle the holders to acquire one share of common stock and a
Class B warrant at an exercise price of $6.50. Each Class B warrant entitles the
holder to acquire one share of common stock at an exercise price of $8.75.
Warrants are exercisable through December 31, 1999. The underwriters and a
consultant have also been granted options to purchase an additional 144,000 and
16,000 units, respectively, at $6.75 per unit. These options are exercisable at
any time during the four year period beginning August 18, 1995.

In April 1994 the Company issued 300,000 Class A and 300,000 Class B
warrants on a pro rata basis to each shareholder of record. The exercise prices
of these warrants are the same as the warrants sold in the Company's initial
public offering. These warrants are exercisable at any time through December 31,
1999.

F-10

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Option Plan

In April 1994, the Board of Directors adopted and the shareholders approved
the Company's 1994 Stock Option Plan (the Plan). The Plan provides for the
grant, at the discretion of the Board of Directors, of (i) options that are
intended to qualify as incentive stock options (Incentive Stock Options) within
the meaning of Section 422A of the Internal Revenue Code to certain employees,
consultants and directors, and (ii) options not intended to so qualify
(Nonqualified Stock Options) to employees, consultants and directors. The total
number of shares of common stock for which options may be granted under the Plan
is 228,000 shares. On August 18, 1994, the Company granted 82,000 of these
options to purchase shares of common stock to employees and a consultant. Such
options are exercisable, generally for a term of ten years, at the IPO price.
During the year ended December 31, 1995, the Company granted 17,500 options to
employees. The options granted during 1995 are exercisable at the fair market
value on the date of grant and provide for a term of ten years.

The Plan is administered by a compensation committee of the Board of
Directors, which determines the terms of options, including the exercise price,
the number of shares subject to the options and the terms and conditions of
exercise. No option granted under the Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee.

The exercise price of options granted under the Plan must be at least equal
to the fair market value of such shares on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting rights of
the Company's outstanding capital stock, the exercise price of any Incentive
Stock Option may be not less than 110% of the fair market value on the date of
grant. With respect to any Incentive Stock Option granted to a participant who
owns stock possessing more than 10% of the total combined voting power of all
classes of the Company's outstanding capital stock, the maximum term is five
years.

As of December 31, 1995, 97,060 options were outstanding, of which 61,487
were exercisable. The balance become exercisable through December 31, 1997.
During the nine months ended September 30, 1996 the Company granted to employees
63,000 options and 2,000 options were cancelled. No options were exercised
during 1996, 1995 or 1994.

Shares of Common Stock Reserved

At September 30, 1996 the Company has reserved 7,128,000 shares of common
stock for issuance upon exercise of stock options and purchase warrants.

F-11

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES

The (provision for)/benefit from income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
------------ ------------

<S> <C> <C>
Current:
Federal........................................................................ $ (270,000) $ 180,000
Foreign........................................................................ (18,000) (30,000)
State.......................................................................... (60,000) 28,000
------------ ------------
(348,000) 178,000
Deferred:
Federal........................................................................ 23,000 (36,000)
State.......................................................................... 6,000 (10,000)
------------ ------------
29,000 (46,000)
------------ ------------
$ (319,000) $ 132,000
------------ ------------
------------ ------------
</TABLE>

The provisions for income taxes for the nine months ended September 30,
1995 and 1996 were computed using the estimated annual tax rates expected to be
applicable for the full year.

The net deferred tax asset is included in other current assets consists of
the following as of December 31:

<TABLE>
<CAPTION>
1995
--------

<S> <C>
Depreciation................................................................................ $ 4,000
Allowance for doubtful accounts............................................................. 30,000
Inventory write downs....................................................................... 44,000
Net operating loss carry forwards........................................................... 44,000
--------
122,000
Less valuation allowance.................................................................... (122,000)
--------
Net deferred tax asset...................................................................... $ --
--------
--------
</TABLE>

The Company's effective income tax rate varied from the statutory federal
income tax rate for the year ended December 31 as follows:

<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Statutory federal income tax rate.................................................... (34.0)% 34.0%
Adjustments:
State income taxes, net of federal tax benefit.................................. (4.0) 4.0
Other, including permanent differences.......................................... (0.6) (8.6)
----- -----
Effective income tax rate............................................................ (38.6)% 29.4%
----- -----
----- -----
</TABLE>

The Company and its subsidiaries file separate income tax returns; the
Company on a June 30 fiscal year and its subsidiaries on a December 31 fiscal
year.

The Company's net operating loss carryforward will expire in the year 2010.

7. COMMITMENTS

Employment Agreements

Effective May 1, 1994, the Company entered into three-year employment
agreements with four key executives which, as amended or revised to date,
provide for annual base salaries amounting to an aggregate of $621,000 per year.

F-12

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Leases

The Company leases office space under operating leases. Future minimum
payments under these noncancelable operating leases consisting of the following:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1996............................................................................... $ 519,000
1997............................................................................... 660,000
1998............................................................................... 629,000
1999............................................................................... 578,000
2000............................................................................... 571,000
Thereafter......................................................................... 357,000
----------
3,314,000
Less total minimum sublease rentals................................................ (2,470,000)
----------
Net minimum rental commitments..................................................... $ 844,000
----------
----------
</TABLE>

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

Rental expense was approximately $274,000 in 1994, $348,000 in 1995 and
$468,000 for the nine months ended September 30, 1996.

The Company had approximately $385,000 in inventory on hand at December 31,
1995 for which it had no customer contracts. Management currently is discussing
several bulk sale options with wholesalers for this equipment. Management
anticipates that the eventual sale will occur at a discount of no more than 20%
of the Company's cost, and accordingly the Company recorded a one-time inventory
write-down in the amount of $84,000 in the nine month period ended September 30,
1996. At September 30, 1996, this inventory still remains on hand.

8. CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, investments, accounts
receivable and commissions receivable. Substantially all of the Company's cash
and cash equivalents at December 31, 1995 and September 30, 1996 were held by
two U.S. financial institutions. All of the Company's sales during the year were
to end-users located in China. Most of the Company's accounts receivable are
supported by letters of credit with one Chinese financial institution. Sales on
extended payment terms usually have down payments in the form of a letter of
credit and additional payments are guaranteed through several methods. Before
extended payment terms are provided, the Company performs a thorough review of
the local operation, secures a guarantee from higher authorities than the
end-user, as well as other additional steps.

Extended payment term transactions are entered into in the context of the
Company's sales activities in China and, as such, the risks attendant to doing
business in China apply to such transactions as well. The absence of a
comprehensive and effective legal system in China, among other concerns,
requires alternative arrangements in order to reduce the Company's credit risks.
Guarantees from higher governmental authorities, for example, usually involve
requiring customers to have a provincial or municipal governmental organization
sign a statement that the payment obligations will be satisfied. This political
commitment is, in the Company's experience, an effective method in helping
ensure payment of obligations in China. These commitments, however, are
different from traditional commercial guarantees in the United States, which
guarantees are not available in China for transactions of the type engaged in by
the Company.

In February 1995, the Company entered into a bank credit agreement (the
'Agreement'). The Agreement provides for a line of credit facility of up to
$500,000, a standby letter of credit facility of up to $200,000, and a forward
exchange facility of up to $200,000. The notes bear interest at 1% over the
bank's three month moving average cost of funds rate, 6.32% at December 31,
1995. The indebtedness under the Agreement is collateralized by $1,000,000 in
cash equivalents deposited with the bank. At

F-13

<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1995, letters of credit issued by the bank amounted to
approximately $97,000 and no amounts were outstanding under the line of credit
facility or the foreign exchange facility.

On August 19, 1996, the Company increased its existing credit facility with
First National Bank of Maryland from $900,000 to $1,300,000 for short-term
working capital needs, standby letters of credit, and spot and forward foreign
exchange transactions. In addition, First National Bank of Maryland has provided
a $420,000 standby letter of credit as a separate credit facility apart from the
increased line of credit. The $1,300,000 credit facility and the $420,000
standby letter of credit 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 $1,911,112.

The Company conducts its marketing and sales and provides its services
exclusively to buyers located 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 December 31, 1995, approximately $1,350,000 of
such assets are located in China, consisting principally of inventories and
property and equipment.

9. SIGNIFICANT CUSTOMERS/SUPPLIERS

Substantially all purchases of the Company's 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.

Purchases from one supplier totaled approximately $4,816,000 and $4,670,000
for the years ended December 31, 1994 and 1995 and $5,890,000 for the nine
months ended September 30, 1996, respectively.

F-14

[The graphics for the inside back cover include photographs of selections
from the portfolio of products sold by the Company, including (i) mining and
construction vehicles manufactured by Volvo Construction Equipment Corp., (ii)
ultrasound scanning systems manufactured by Acuson Corporation, and (iii)
automated clinical chemistry analyzers manufactured by Johnson & Johnson
Clinical Diagnostics.]

<PAGE>
<PAGE>
_____________________________ _____________________________

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT QUALIFIED AND TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 8
Use of Proceeds............................................................................................................. 17
Dilution.................................................................................................................... 18
Price Range of Securities and Dividend Policy............................................................................... 19
Capitalization.............................................................................................................. 20
Selected Financial Data..................................................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 22
Business.................................................................................................................... 28
Management.................................................................................................................. 43
Principal Shareholders...................................................................................................... 47
Description of Securities................................................................................................... 49
Shares Eligible for Future Sale............................................................................................. 52
Underwriting................................................................................................................ 53
Legal Matters............................................................................................................... 55
Experts..................................................................................................................... 55
Enforceability of Civil Liabilities......................................................................................... 55
Explanatory Note............................................................................................................ 55
Available Information....................................................................................................... 56
Index to Consolidated Financial Statements.................................................................................. F-1
</TABLE>

U.S.-CHINA INDUSTRIAL
EXCHANGE, INC.

10,000 UNITS
EACH UNIT CONSISTING OF
255 IPO UNITS,
EACH CONSISTING OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE CLASS A WARRANT
AND
ONE REDEEMABLE CLASS B WARRANT

------------------------------
PROSPECTUS
------------------------------

D.H. BLAIR INVESTMENT
BANKING CORP.

NOVEMBER 5, 1996

_____________________________ _____________________________