**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB/A**


**Amendment
      No. 1**





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


For
      the
      fiscal year ended December 31, 2007





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




For
      the
      transition period from __________________ to __________________





**Commission
      File Number: 333-146975**





**HUIHENG
      MEDICAL INC.**


*(Exact
      name of registrant as specified in its charter)*





**Nevada**
            **20-4078899***(State
                or other jurisdiction of*
            *(I.R.S.
                Employer**incorporation
                or organization)*
            *Identification
                No.)*






**Huiheng
      Building, Gaoxin 7 Street South, Keyuannan Road,**


**Nanshan
      District, Shenzhen Guangdong, P.R. China 518057**


*(Address
      of principal executive offices)*







**86-755-25331366**


*(Registrant’s
      Telephone Number, Including Area Code)*





**Securities
      registered under Section 12(b) of the Act:**


**None**





**Securities
      registered under Section 12(g) of the Act:**





**None**





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. R





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. £





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





State
      issuer’s revenues for its most recent fiscal year: $15.94 million (net
      revenues).





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates of the registrant as of April 3, 2008 was approximately
      $17,426,165, based upon the closing price reported for such date on the
      Over-the-Counter Bulletin Board maintained by the NASD. Shares of common stock
      held by each officer and director and by each person who is known to own 10%
      or
      more of the outstanding Common Stock have been excluded in that such persons
      may
      be deemed to be affiliates of the Company. This determination of affiliate
      status is not necessarily a conclusive determination for other
      purposes.





As
      of
      April 15, 2008, there were 13,800,137 shares of the issuer’s $0.001 par value
      common stock issued and outstanding.








Transitional
      Small Business Disclosure format (check one): Yes £ No R





**EXPLANATORY
      NOTE**





The
      undersigned registrant hereby amends its Annual Report for the fiscal year
      ended
      December 31, 2007 on Form 10-KSB to (i) clarify and update certain information
      in Item 12: Certain Relationships and Related Transaction; and (ii) amplify
      certain information in the Notes to Consolidated Financial Statements as set
      forth in the pages attached hereto.





**Item
      12.** ***Certain
      Relationships and Related Transactions.***





*Transactions
      with management and others*




Clear
      Honest International, Ltd., a corporation owned and controlled by Mr. Hui
      Xiaobing, our CEO, became a holder of more than 5% of our outstanding shares
      as
      a result of the Allied Moral share exchange which was consummated on May 15,
      2007. In this transaction, the previous holders of Allied Moral capital stock
      exchanged their shares for shares of our capital stock. Clear Honest, is
      entitled to receive approximately 96.9% of the incentive shares that may be
      issued pursuant to the Allied Moral share exchange agreement. This incentive
      share program was negotiated as part of the share exchange agreement to provide
      the shareholders who controlled Allied Moral with an incentive to achieve or
      exceed the stated growth in the Company earnings, which will benefit all of
      our
      shareholders.





In
      August
      2006, Allied Moral (our subsidiary) acquired the equity interests in Changdu
      Huiheng from Huiheng Industry (99%) and Hui Xiaobing (1%), our CEO, for
      $6,207,002 and $62,697 respectively. The total of $6,269,699 was fully paid
      in
      2007. This payment is reflected in the financial statements as a payment of
      $6,854,386, with the difference being the results of changing exchange rates,
      since the underlying obligation was denominated in RMB.





As
      of
      December 31, 2006, Huiheng Industry, which is under the control of Hui Xiaobing,
      our CEO, owed Allied Moral a total of $688,100. This consisted of (i) an
      interest free and unsecured advance of $42,410 to Huiheng Industry for working
      capital, and (ii) $640,689 associated with the acquisition of Changdu Huiheng
      in
      2004. This second amount was offset by a corresponding advance to Allied Moral
      (our subsidiary) by a company under the control of Mr. Hui. These amounts due
      from Huiheng Industry had increased to $685,438 and $60,045, respectively,
      as of
      December 31, 2007, principally due to exchange rate differences on amounts
      denominated in RMB.





In
      connection with the sale of Series A Preferred Stock in January and February
      of
      2007, Allied Moral (our subsidiary) paid $3.58 million to Mr. Hui, our CEO,
      for
      the redemption of 957,265 shares of Allied Moral common stock held by Clear
      Honest International Limited, a company controlled by Mr. Hui.




*Indebtedness
      of Management*




There
      have been no borrowings by management from the Company.








**Item
      13.** ***Financial Statements and Exhibits.***





*(a)*  *Financial
      Statements:*




**Page**Report
                of Independent Registered Accounting Firm
            F-1Consolidated
                Balance Sheet at December 31, 2007
            F-2Consolidated
                Statements of Operations for the Years Ended December 31, 2007 and
                2006
            F-3Consolidated
                Statements of Shareholders’ Equity for the Years Ended December 31, 2007
                and 2006
            F-4Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007 and
                2006
            F-5Notes
                to Consolidated Financial Statements
            F-7





(b)*Exhibits:*******




3.1
            Articles
                of Incorporation, as revised (incorporated by reference to Company’s Form
                10-KSB filed on April 10, 2008)









3.2
            Amended
                and Restated By-Laws (incorporated by reference to Company’s Form 10-KSB
                filed on April 10, 2008)4.1
            Certificate
                of Designation for Series A Preferred Stock (incorporated by reference
                to
                Company's report on Form 8-K filed on January 16, 2008)10.1
            Securities
                Exchange Agreement dated May 15, 2007 (incorporated by reference
                to
                Company’s current report on Form 8-K filed on May 15,
                2007)*
            10.2
            Huiheng
                2007 Share Plan10.3
            Stock
                Purchase Agreement dated September 1, 2006 (incorporated by reference
                to
                Company’s Form 10-KSB filed on February 28, 2007)*
            10.4
            Office
                Lease*
            10.5
            Investors’
                Right Agreement among Allied Moral Holdings and the purchasers of
                Series A
                Preferred Stock*
            10.6
            Amendment
                to Investors’ Rights Agreement*
            10.7
            Form
                of Equipment Sales Contract*
            10.8
            Purchase
                Contract for Cobalt-60 Radiation Sources Used in SGS-I*
            10.9
            Contract
                for Commissioned Manufacturing of Collimators and Tungalloy
                Parts*
            10.10
            Contract
                for Commissioned Manufacturing of SGS-I*
            10.11
            Capital
                Contribution Transfer Agreement*
            10.12
            Underwriter
                Purchase Option*
            10.13
            Creditor’s
                Rights and Liability Confirmation Agreement23.1
            Consent
                of UHY ZTHZ HK CPA Limited31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes
                Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes
                Oxley Act of 2002.32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002.32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of
                2002.





*
      Previously filed





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned in the
      Shenzen, China on April 22, 2008.








Huiheng
                Medical, Inc.,a
                Nevada corporationBy:
            /s/
                Hui XiaobingHui
                XiaobingPresident
                and Chief Executive Officer





Date:
      April 22, 2008





**HUIHENG
        MEDICAL, INC.**
 
 **REPORT
        AND CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
        ENDED DECEMBER 31, 2007 AND 2006**
  **CONTENTS**
 
 **Pages**Report
                  of Independent Registered Public Accounting Firm
              
              
              F-1Consolidated
                  Balance Sheets
              
              
              F-2Consolidated
                  Statements of Income
              
              
              F-3Consolidated
                  Statements of Stockholders' Equity
              
              
              F-4Consolidated
                  Statements of Cash Flows
              
              
              F-5
                  - F-6Notes
                  to the Consolidated Financial Statements
              
              
              F-7
                  - F-34
  
  **REPORT
          OF INDEPENDENT REGISTERED**
 **PUBLIC
          ACCOUNTING FIRM**
 
 **TO
          THE BOARD OF DIRECTORS**
 **HUIHENG
          MEDICAL INC.**
 
 We
          have
          audited the accompanying consolidated balance sheets of Huiheng Medical
          Inc.
          (the “Company”) and subsidiaries as of December 31, 2007 and 2006, and the
          related consolidated statements of income, stockholders’ equity, and cash flows
          for the years then ended. These consolidated financial statements are the
          responsibility of the Company’s management. Our responsibility is to express an
          opinion on these consolidated financial statements based on our
          audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free 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 consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Huiheng Medical Inc.
          and
          subsidiaries as of December 31, 2007 and 2006, and the consolidated results
          of
          their operations and their cash flows for the years then ended in conformity
          with U.S accounting principles.
 
 UHY
          ZTHZ
          HK CPA LIMITED
 Certified
          Public Accountants
 David
          Tze
          Kin Ng, Auditor
 Practising
          Certified Number P553
 
 Hong
          Kong, the People’s Republic of China, March 28, 2008
 F-1
 **HUIHENG
                      MEDICAL, INC.****CONSOLIDATED
                      BALANCE SHEETS**
  **2007**
                  
                  **2006****December
                      31**
                  
                  **December
                      31****USD**
                  
                  **USD****Assets**Current
                      assetsCash
                      (note 4)
                  
                  
                  866,585
                  
                  
                  338,039Accounts
                      receivable (note 5)
                  
                  
                  8,245,647
                  
                  
                  2,649,300Prepayments
                      and other receivables (note 6)
                  
                  
                  3,272,886
                  
                  
                  2,786,518Due
                      from a related party (note 15(b))
                  
                  
                  745,483
                  
                  
                  688,100Inventories
                      (note 7)
                  
                  
                  1,071,613
                  
                  
                  1,624,675Deferred
                      income tax assets (note 14)
                  
                  
                  26,383
                  
                  
                  18,879**Total
                      current assets**
                  
                  
                  14,228,597
                  
                  
                  8,105,511Property,
                      plant and equipment, net (note 8)
                  
                  
                  3,701,692
                  
                  
                  435,705Intangible
                      assets, net (note 9)
                  
                  
                  881,738
                  
                  
                  896,363Investment
                      in affiliated company
                  
                  
                  48,326
                  
                  
                  63,689Deferred
                      income tax assets (note 14)
                  
                  
                  -
                  
                  
                  5,377**Total
                      assets**
                  
                  
                  18,860,353
                  
                  
                  9,506,645**Liabilities,
                      minority interest and stockholders' equity**Current
                      liabilitiesAccounts
                      payable
                  
                  
                  714,837
                  
                  
                  637,984Income
                      taxes payable
                  
                  
                  207,660
                  
                  
                  827,828Accrued
                      liabilities and other payables (note 10)
                  
                  
                  2,109,287
                  
                  
                  1,588,264Due
                      to related parties (note 15(b))
                  
                  
                  117,162
                  
                  
                  6,407,912**Total
                      current liabilities**
                  
                  
                  3,148,946
                  
                  
                  9,461,988**Minority
                      interest (Note 11)**
                  
                  
                  1,353,511
                  
                  
                  940,630**Stockholders'
                      equity (deficit)**Preferred
                      stock, $0.001 par value; 1,000,000 shares authorized;Designated
                      Series A 7% convertible preferred stock, $0.001 par value;300,000
                      shares authorized; 266,666 shares issued and oustandingwith
                      liquidation preference of $9,999,975
                  
                  
                  267
                  
                  
                  267Common
                      stock, $0.001 par value; 74,000,000 shares authorized;23,150,000
                      shares issued and 13,450,000 shares outstanding
                  
                  
                  13,450
                  
                  
                  13,450Treasury
                      stock, 9,700,000 shares at $0.001 par value
                  
                  
                  -
                  
                  
                  -Additional
                      paid-in capital
                  
                  
                  7,498,086
                  
                  
                  (1,617,271
                  )Retained
                      earnings
                  
                  
                  6,147,877
                  
                  
                  712,279Accumulated
                      other comprehensive incomeForeign
                      currency translation difference
                  
                  
                  698,216
                  
                  
                  (4,698
                  )**Total
                      owners' equity (deficit)**
                  
                  
                  14,357,896
                  
                  
                  (895,973
                  )**Total
                      liabilities, minority interest and****stockholders'
                      equity**
                  
                  
                  18,860,353
                  
                  
                  9,506,645See
                      accompanying notes to consolidated financial statements.
  F-2
 **HUIHENG
                      MEDICAL, INC.****CONSOLIDATED
                      STATEMENTS OF INCOME****YEARS
                      ENDED DECEMBER 31, 2007 AND 2006**
  **2007**
                  
                  **2006****USD**
                  
                  **USD**Revenues,
                      net (note 13)
                  
                  
                  15,939,614
                  
                  
                  12,346,672Cost
                      of revenues
                  
                  
                  (3,764,077
                  )
                  
                  (2,652,695
                  )Gross
                      profit
                  
                  
                  12,175,537
                  
                  
                  9,693,977General
                      and administrative expenses
                  
                  
                  (1,530,074
                  )
                  
                  (1,276,910
                  )Sales
                      and marketing expenses
                  
                  
                  (81,199
                  )
                  
                  (123,308
                  )Research
                      and development costs
                  
                  
                  (263,314
                  )
                  
                  (124,283
                  )Operating
                      income
                  
                  
                  10,300,950
                  
                  
                  8,169,476Interest
                      income
                  
                  
                  5,269
                  
                  
                  1,175Equity
                      in (loss)/income of affiliated company
                  
                  
                  (19,023
                  )
                  
                  5,942**Income
                      before income taxes and****minority
                      interest**
                  
                  
                  10,287,196
                  
                  
                  8,176,593Income
                      tax expense (note 14)
                  
                  
                  (938,078
                  )
                  
                  (1,395,786
                  )**Net
                      income before minority interest**
                  
                  
                  9,349,118
                  
                  
                  6,780,807Minority
                      interest
                  
                  
                  (333,349
                  )
                  
                  35,667**Net
                      income after minority interest**
                  
                  
                  9,015,769
                  
                  
                  6,816,474**Translation
                      adjustments**
                  
                  
                  702,914
                  
                  
                  3,992**Net
                      income/Comprehensive**
                  
                  
                  9,718,683
                  
                  
                  6,820,466Net
                      income per common shares-
                      Basic
                  
                  
                  0.67
                  
                  
                  0.51-
                      Diluted
                  
                  
                  0.66
                  
                  
                  0.50Weighted
                      common shares outstanding-
                      Basic
                  
                  
                  13,450,000
                  
                  
                  13,450,000-
                      Diluted
                  
                  
                  13,716,666
                  
                  
                  13,716,666
  See
            accompanying notes to consolidated financial statements.
  F-3
  **HUIHENG
                      MEDICAL, INC.****CONSOLIDATED
                      STATEMENT OF STOCKHOLDERS' EQUITY****YEARS
                      ENDED DECEMBER 31, 2007 AND 2006**
  Series
                        A 7% Preferred Stock$0.001
                      Par Value
                  
                  Common
                      Stock, $.001 Par Value
                  
                  Treasury
                      Stock
                  
                  Additional
                  
                  
                  
                  Accumulated
                      Other
                  
                  TotalNumber
                      of
                  
                  
                  
                  Number
                      of
                  
                  
                  
                  Number
                      of
                  
                  
                  
                  Paid-in
                  
                  Retained
                  
                  Comprehensive
                  
                  Stockholders'Shares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Capital
                  
                  Earnings
                  
                  Income
                  
                  EquityBalance,
                      December 31, 2005
                  
                  
                  266,666
                  
                  $
                  267
                  
                  
                  13,450,000
                  
                  $
                  13,450
                  
                  
                  (9,700,000
                  )
                  $
                  -
                  
                  $
                  (1,617,271
                  )
                  $
                  3,060,671
                  
                  $
                  (8,690
                  )
                  $
                  1,448,427Comprehensive
                      income:Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,816,474
                  
                  
                  
                  
                  
                  6,816,474Foreign
                      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,992
                  
                  
                  3,992Total
                      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,820,466Dividends
                      declared (Note 12c)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (9,164,866
                  )
                  
                  
                  
                  
                  (9,164,866
                  )Balance,
                      December 31, 2006
                  
                  
                  266,666
                  
                  
                  267
                  
                  
                  13,450,000
                  
                  
                  13,450
                  
                  
                  (9,700,000
                  )
                  
                  -
                  
                  
                  (1,617,271
                  )
                  
                  712,279
                  
                  
                  (4,698
                  )
                  
                  (895,973
                  )Comprehensive
                      income:Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,015,769
                  
                  
                  
                  
                  
                  9,015,769Foreign
                      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  702,914
                  
                  
                  702,914Total
                      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,718,683Contribution
                      to capital, net
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,115,357
                  
                  
                  
                  
                  
                  
                  
                  
                  9,115,357Payment
                      for redemption of common shares
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (3,580,171
                  )
                  
                  
                  
                  
                  (3,580,171
                  )Balance,
                      December 31, 2007
                  
                  
                  266,666
                  
                  $
                  267
                  
                  
                  13,450,000
                  
                  $
                  13,450
                  
                  
                  (9,700,000
                  )
                  $
                  -
                  
                  $
                  7,498,086
                  
                  $
                  6,147,877
                  
                  $
                  698,216
                  
                  $
                  14,357,896
 See
            accompanying notes to the consolidated financial statements.
  F-4
 **HUIHENG
                      MEDICAL, INC.****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****YEARS
                      ENDED DECEMBER 31, 2007 AND 2006**
 **2007**
                  
                  **2006****USD**
                  
                  **USD****Cash
                      flows from operating activities:**Net
                      income
                  
                  
                  9,718,683
                  
                  
                  6,820,466**Adjustments
                      to reconcile net income to net****cash
                      provided by operating activities:**Depreciation
                      of property, plant and equipment
                  
                  
                  79,399
                  
                  
                  164,810Amortization
                      of intangible assets
                  
                  
                  14,625
                  
                  
                  143,057Minority
                      interest
                  
                  
                  412,881
                  
                  
                  (35,667
                  )Equity
                      in losses/(earnings) of affiliated company
                  
                  
                  15,363
                  
                  
                  (5,942
                  )Deferred
                      taxes
                  
                  
                  (415
                  )
                  
                  2,637Translation
                      adjustments
                  
                  
                  423,446
                  
                  
                  334,465**Changes
                      in assets and liabilities:**Accounts
                      receivable
                  
                  
                  (5,596,347
                  )
                  
                  4,727,915Prepayments
                      and other receivables
                  
                  
                  (486,368
                  )
                  
                  356,878Inventories
                  
                  
                  553,062
                  
                  
                  (184,542
                  )Accounts
                      payable
                  
                  
                  76,853
                  
                  
                  (90,015
                  )Income
                      taxes payable
                  
                  
                  (620,168
                  )
                  
                  556,852Accrued
                      liabilities and other payables
                  
                  
                  521,023
                  
                  
                  (1,672,898
                  )**Net
                      cash provided by operating activities**
                  
                  
                  5,112,037
                  
                  
                  11,118,016
  F-5
 **HUIHENG
                      MEDICAL, INC.****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS (CONTINUED)****YEARS
                      ENDED DECEMBER 31, 2007 AND 2006**
  **2007**
                  
                  **2006****USD**
                  
                  **USD****Cash
                      flows from investing activities:**Investment
                      in affiliated company
                  
                  
                  -
                  
                  
                  7,958Capital
                      expenditures on addition ofProperty,
                      plant and equipment
                  
                  
                  (3,371,037
                  )
                  
                  -Advances
                      to related parties
                  
                  
                  -
                  
                  
                  (688,100
                  )Advance
                      to third parties
                  
                  
                  -
                  
                  
                  (655,109
                  )Advance
                      (to)/from related parties
                  
                  
                  (9,322
                  )
                  
                  640,689Payment
                      of the acquisition of a subsidiary
                  
                  
                  (6,854,386
                  )
                  
                  (1,537,653
                  )Advances
                      from third parties
                  
                  
                  -
                  
                  
                  480,496**Net
                      cash used in investing activities**
                  
                  
                  (10,234,745
                  )
                  
                  (1,751,719
                  )**Cash
                      flows from financing activities:**Contribution
                      to capital
                  
                  
                  9,115,357
                  
                  
                  -Payment
                      for redemption of common shares
                  
                  
                  (3,580,171
                  )
                  
                  -Repayment
                      of redemption of common shares
                  
                  
                  116,068
                  
                  
                  -Dividend
                      paid
                  
                  
                  -
                  
                  
                  (9,164,866
                  )**Net
                      cash from/(used in) financing activities**
                  
                  
                  5,651,254
                  
                  
                  (9,164,866
                  )**Net
                      increase in cash**
                  
                  
                  528,546
                  
                  
                  201,431Cash
                      as of January 1
                  
                  
                  338,039
                  
                  
                  136,608Cash
                      as of December 31
                  
                  
                  866,585
                  
                  
                  338,039Supplemental
                      disclosures of cash flow and non-cash information:Interest
                      paid
                  
                  
                  -
                  
                  
                  -Income
                      tax paid
                  
                  
                  1,558,246
                  
                  
                  856,120
  See
            accompanying notes to consolidated financial statements.
  F-6
  **HUIHENG
                    MEDICAL, INC.****NOTES
                    TO THE CONSOLIDATED FINANCIAL STATEMENTS****YEARS
                    ENDED DECEMBER 31, 2007 AND 2006**
  **1.**
                **Organization
                    and Operations**
  Huiheng
            Medical, Inc. (the “Company” or “Huiheng”) formerly known as Mill Basin
            Technologies Limited (the "Mill Basin") is a China-based medical device
            company
            that, through its subsidiaries, designs, develops and markets radiation
            therapy
            systems used for the treatment of cancer. The Company is a Nevada holding
            company and conducts all of its business through operating
            subsidiaries.
  In
            2005,
            the ownership interests of Shenzhen Hyper Technology Company, Ltd. (“Shenzhen
            Hyper”), Wuhan Kangqiao Medical New Technology Company, Ltd. (“Wuhan Kangqiao”)
            and Beijing Yuankang Kbeta Nuclear Technology Company, Ltd. (“Beijing Kbeta”)
            were reorganized under Tibet Changdu Huiheng Industry Development Company,
            Ltd.
            (“Changdu Huiheng”), a Chinese holding company established in Tibet. Upon the
            completion of the reorganization, Changdu Huiheng owned 75% of the equity
            interest in Shenzhen Hyper, 100% of the equity interest of Wuhan Kangqiao
            and
            50% of the equity interest of Beijing Kbeta. Remaining equity interests
            in
            Shenzhen Hyper and Beijing Kbeta are owned by unrelated and unaffiliated
            parties.
  In
            2006,
            Mr. Hui Xiaobing, the sole owner of Changdu Huiheng, established Allied
            Moral
            Holdings, Ltd. ("the Allied Moral')in the British Virgin Islands as a
            holding
            company and transferred 100% of the ownership interests of Changdu Huiheng
            to
            Allied Moral as part of an ownership restructuring to facilitate investments
            by
            foreign investors.
  In
                May
                2007, Mill Basin entered into a share exchange agreement to acquire
                (I) all of
                the issued and outstanding shares of the common stock of Allied Moral
                Holdings,
                Ltd. in exchange for 13,000,000 shares of Huiheng's common stock,
                and (ii) all
                of the issued and outstanding Series A Preferred Stock of Allied
                Moral in
                exchange for 266,666 shares of Huiheng's Series A Preferred Stock.
                In connection
                with the share exchange, Mill Basin agreed to change the name from
                "Mill Basin
                Technologies, Limited" to "Huiheng Medical, Inc.". As part of this
                transaction,
                holders of some of Mill Basin's outstanding shares issued prior to
                May 15, 2007
                contributed shares to Mill Basin so that there were 450,000 shares
                of Mill
                Basin's common stock issued and outstanding immediately prior to
                the share
                exchange. Taking into account the shares issued in the share exchange,
                Mill
                Basin now have 13,450,000 shares of common stock issued and outstanding,
                13,000,000 (96.65%) of which are owned by Allied Moral's former shareholders,
                with the balance being held by Mill Basin's prior shareholders, along
                with
                266,666 shares of our Series A Preferred Stock, all of which are
                owned by former
                holders of Allied Moral's Series A Preferred Stock.
 F-7
 **HUIHENG
                    MEDICAL, INC.****NOTES
                    TO THE CONSOLIDATED FINANCIAL STATEMENTS****YEARS
                    ENDED DECEMBER 31, 2007 AND 2006**
 **1.**
                  **Organization
                      and Operations (.../Cont'd)**
  On
            September 28, 2007 Huiheng Medical, Inc. filed a Certificate of Correction
            to
            correct the Certificate of Designation of the Series A Preferred Stock.
            The
            filing corrected the initial Conversion Price from $3.75 to $3.57 per
            share and
            corrected the initial conversion rate from 10.0 to 10.5042 shares of
            common
            stock for each share of Series A Preferred Stock.
  The
            share
            exchange is regarded as a reverse merger, since Allied Moral's former
            shareholders obtained control of Huiheng Medical, Inc. (formerly known
            as Mill
            Basin). As a result, Allied Moral was conidered to be the acquirer for
            accounting purposes.
  As
            a
            result of the share exchange, Huiheng owns all of the issued and outstanding
            stock of Allied Moral, which was incorporated in the British Virgin Islands
            on
            July 26, 2006. Allied Moral, holds all of the issued and outstanding
            stock of
            Changdu Huiheng Development Co., Ltd. (“Changdu Huiheng”), which in turn owns
            100% of the issued and outstanding stock of Wuhan Kangqiao Medical New
            Technology Co., Ltd. (“Wuhan Kangqiao”), 75% of the issued and outstanding stock
            of Shenzhen Hyper Technology Co., Ltd (“Shenzhen Hyper”) and 50% of the issued
            and outstanding stock of Beijing Yuankang Kbeta Nuclear Technology Co.,
            Ltd.
            (“Beijing Kbeta”). Private companies in China own the other interests in these
            subsidiaries.
  **2.**
                  **Basis
                      of Presentation and summary of significant accounting
                      policies**
  The
            Company's consolidated financial statements for the years ended December
            31,
            2007 and 2006 are presented in accordance with generally accepted accounting
            principles in the United States of America ("U.S. GAAP") for the interest
            of the
            investors.
  Because
            the Company, Changdu Huiheng, Wuhan Kangqiao and Shenzhen Hyper were
            under
            common control, the Company's acquisition of Changdu Huiheng and Changdu
            Huiheng's acquisition of Wuhan Kangqiao and Shenzhen Hyper has been accounted
            for in a manner similar to a pooling of interests. Accordingly, the assets
            and
            liabilities of Changdu Huiheng and its Subsidiaries transferred to the
            Company
            have been recognized at their historical carrying amount.
  In
            a
            reverse acquisition all accounting history becomes, that of the accounting
            acquirer, therefore all historical information prior to the acquisition
            is that
            of Allied Moral. The shares issued to the shareholders of Allied Moral
            have been
            stated retroactively. The reverse merger adjustment is therefore all
            the shares
            held by Mill Basin shareholders prior to the acquisition.
  F-8
  **HUIHENG
                    MEDICAL, INC.****NOTES
                    TO THE CONSOLIDATED FINANCIAL STATEMENTS****YEARS
                    ENDED DECEMBER 31, 2007 AND 2006**
  **2.**
                  **Basis
                      of Presentation and summary of significant accounting policies
                      (.../Cont'd)**
  The
            consolidated financial statements include all accounts of the Company
            and its
            wholly-owned and majority-owned subsidiaries. All material inter-company
            balances and transactions have been eliminated.
  **Reverse
            Acquisition Merger**
  Prior
            to
            the May 2007 share exchange, Huiheng was a non-reporting privately held
            company.
            The post-acquisition Company is accounted for as a recapitalization of
            Huiheng
            using accounting principles applicable to reverse acquisitions with Huiheng
            being treated as the accounting parent (acquirer) and Allied Moral Holdings
            Ltd
            ("Allied Moral"), the legal parent, being treated as the accounting subsidiary
            (acquiree). Prior to the consummation of the acquisition in May 2007,
            Mill Basin
            had been an inactive public shell with no material assets, liabilities,
            or net
            stockholders' equity. Huiheng is regarded as the predecessor entity.
            In
            accordance with the provisions governing the accounting for reverse
            acquisitions, the historical figures presented are those of the
            Huiheng.
 Common
                      Stock
                  
                  Additional
                      Paid-InShares
                  
                  Amount
                  
                  CapitalDiscount
                      on capital issuance
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,577,555
                  )Public
                      company shares alreadyoutstanding
                      on date of Merger,(May
                      15, 2007) par value $0.001
                  
                  
                  10,150,000
                  
                  
                  10,150
                  
                  
                  -Share
                      issued - Merger-
                      Common stock
                  
                  
                  13,000,000
                  
                  
                  13,000
                  
                  
                  (13,000
                  )*-
                      Series A 7% convertible preferred stock
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (267
                  )Treasury
                      stock
                  
                  
                  (9,700,000
                  )
                  
                  (9,700
                  )
                  
                  9,700Contribution
                      to capital, net-
                      Share premium
                  
                  
                  -
                  
                  
                  -
                  
                  
                  9,973,333-
                      Less: Transaction cost
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,014,642
                  )-
                      Elimination of Allied Moral
                  
                  
                  -
                  
                  
                  -
                  
                  
                  156,666Absorb
                      balances from Mill Basin
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (36,149
                  )Reverse
                      acquisition recapitalizationadjustment,
                      net
                  
                  
                  13,450,000
                  
                  
                  13,450
                  
                  
                  7,498,086
  F-9
  **HUIHENG
                    MEDICAL, INC.****NOTES
                    TO THE CONSOLIDATED FINANCIAL STATEMENTS****YEARS
                    ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                      **Summary
                          of Significant Accounting Policies**
  **(a)**
                  **Principles of
                      Consolidation**
  The
            consolidated financial statements include the Company and its three
            subsidiaries. All significant intercompany balances and transactions
            have been
            eliminated in consolidation.
  **(b)**
                  **Cash**
  Cash
            consists of cash on hand and in bank.
  **(c)**
                  **Accounts
                      Receivable**
  Accounts
            receivable are recorded at the invoiced amount, net of allowances for
            doubtful
            accounts sales returns, trade discounts and value added tax. The allowance
            for
            doubtful accounts is the Company’s best estimate of the amount of probable
            credit losses in the Company’s existing accounts receivable. The Company
            determines the allowance based on historical write-offexperience, customer
            specific facts and economic conditions. Bad debt expense is included
            in general
            and administrative expenses. The allowance for doubtful accounts approximated
            $5,059 at December 31, 2007.
  Outstanding
            account balances are reviewed individually for collectibility. Account
            balances
            are charged off against the allowance after all means of collection have
            been
            exhausted and the potential for recovery is considered remote. The Company
            does
            not have any off-balance-sheet credit exposure to its customers.
  **(d)**
                  **Inventories**
  The
            Company values inventories, consisting of work in process and raw materials,at
            the lower of cost or market. Cost of material is determined on the weighted
            average cost method. Cost of work in progress includes direct materials,
            direct
            production cost and an allocated portion of production
            overhead.
  F-10
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                      **Summary
                          of Significant Accounting Policies (.../Cont'd)**
  **(e)**
                  **Property, Plant,
                      and
                      Equipment**
  Property
            and equipment are recorded at cost less accumulated depreciation. Expenditures
            for major additions and betterments are capitalized. Maintenance and
            repairs are
            charged to general and administrative expenses as incurred. Depreciation
            of
            property and equipment is computed by the straight-line method (after
            taking
            into account their respective estimated residual values) over the assets
            estimated useful lives ranging from three to twenty years. Building
            improvements, if any, are amortized on a straight-line basis over the
            estimated
            useful life. Depreciation of property and equipment are stated at cost
            less
            accumulated depreciation. Upon sale or retirement of property and equipment,
            the
            related cost and accumulated depreciation are removed from the accounts
            and any
            gain or loss is reflected in operations. Construction in progress represents
            the
            costs of property, plant and equipment under construction or installation
            . The
            accumulated costs are reclassified as property, plant and equipment when
            installation or construction is completed. All borrowing costs, which
            include
            interest and foreign exchange differences incurred that are attributable to
            qualifying assets, are capitalized as cost of construction in
            progress. Capitalization of borrowing costs ceases when the construction is
            completed and the constructed or installed asset is ready for its intended
            use.
            The estimated useful lives of the assets are as follows:
  **Years**Building
                      improvements
                  
                  
                  3-5Buildings
                  
                  
                  20Production
                      equipment
                  
                  
                  3-5Furniture,
                      fixtures and office equipment
                  
                  
                  3-5Motor
                      vehicles
                  
                  
                  5-10
  F-11
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 **3.**
                **Summary
                    of Significant Accounting Policies
                    (.../Cont'd)**
  **(f)**
                **Intangible
                    Assets**
  Intangible
          assets were contributed to the Company and are stated at cost, representing
          the
          fair value at the time of contribution by minority owner of a subsidiary.
          Fair
          value was supported by cash contributed
          contemporaneouslybyanotherinvestor.Costis net of accumulated amortizationand
          impairmentlosses.Amortization expense is recognized on the straight-line
          basis
          over the estimated respective useful lives of these intangible assets as
          follows:
 
 **Years**Patented
                    technology
                
                
                20Software
                
                
                5
 
 **(g)**
                **Investment
                    in affiliated company**
  The
          Company owns 50% equity interest of Beijing Kbeta and is accounted for
          used the
          equity method of accounting because the Company has the abilityto exercise
          significant influence over the investee, but does not have a controlling
          financial interest.
  If
          circumstancesindicate that the carryingvalue of the Company’sinvestmentin
          Beijing Kbeta may not be recoverable, the Company would recognize an impairment
          loss by writing down its investment to its estimated net realizable value
          if
          management concludes such impairment is other than temporary.
  F-12
 
 **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 **3.**
                **Summary
                    of Significant Accounting Policies (.../Cont'd)**
  **(h)**
                **Impairment
                    of Long-Lived Assets**
  Long-lived
          assets, which include property and equipment and intangible assets, are
          reviewed
          for impairment whenever events or changes in circumstances indicate that
          the
          carrying amount of an asset may not be recoverable.
  Recoverability
          of long-lived assets to be held and used is measured by a comparison of
          the
          carrying amount of the asset to the estimated undiscounted future cash
          flows
          expected to be generated by the asset. If the carrying amount of an asset
          exceeds its estimated undiscounted future cash flows, an impairment charge
          is
          recognized by the amount by which the carrying amount of the asset exceeds
          the
          fair value of the asset. Assets to be disposed of, if any, are separately
          presented in the balance sheet and reported at the lower of the carrying
          amount
          or fair value less costs to sell, and are no longer depreciated.
  No
          impairment loss was recognized in 2006 and 2007.
  **(i)**
                **Fair
                    value of financial
                    instruments**
  The
          fair
          value of a financial instrument is the amount at which the instrument could
          be
          exchanged in a current transaction between willing parties. The carrying
          amounts
          of financial assets and liabilities, such as cash, accounts receivable,
          current
          income tax assets, prepayments and other current assets, accounts payable,
          income taxes payable, accrued expenses and other current liabilities,
          approximate their fair values because of the short maturity of these instruments
          and market rates of interest.
  F-13
 
 **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                **Summary
                    of Significant Accounting Policies (.../Cont'd)**
  **(j)**
                **Revenue
                    Recognition**
  The
          Company generates revenue primarily from sales of medical equipment and
          maintenance and support services. Revenue is recognized as follows:
  The
          Company recognizes revenue when products are delivered and the customer
          takes
          ownership and assumes risk of loss, collection of the relevant receivable
          is
          probable, persuasive evidence of an arrangement exists and the sales price
          is
          fixed or determinable. The sales price of the medical equipment includes
          the
          training and installation services. These services are ancillary to the
          purchase
          of medical equipment by customers and are normally considered by the customers
          to be an integral part of the acquired equipment. As training and installation
          services do not have separately determinable fair values, the Company recognizes
          revenue for the entire arrangement upon customer acceptance, which occurs
          after
          delivery and installation.
  In
          the
          PRC, value added tax ("VAT") of 17% on invoice amount is collected in respect
          of
          the sales of goods on behalf of tax authorities. The VAT collected is not
          revenue of the Company; instead, the amount is recorded as a liability
          on the
          balance sheet until such VAT is paid to the authorities.
  Pursuant
          to the laws and regulations of the PRC, Shenzhen Hyper is entitled to a
          refund
          of VAT on the sales of self-developed software embedded in medical equipment.
          The VAT refund represents the amount of VAT collected from customers and
          paid to
          the authoritiesin excessof 3% of relevantsales.The amount ofVAT refund
          is
          calculatedon a monthlybasis. As the refund relates directlyto the sale
          of
          self-developedsoftwarethat is embedded in the Company’sproducts, the
          Companyrecognizesthe VAT refund atthe time the product is sold. The amount
          is
          included in the line item "Revenues, net" in the consolidated statements
          of
          income and is recorded on an accrual basis.
  F-14
 
 **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                **Summary
                    of Significant Accounting Policies (.../Cont'd)**
  **(j)**
                **Revenue
                    Recognition (.../Cont'd)**
  Pursuant
          to the document dated December 16, 2004 with No.173 issued by Tibet Finance
          Bureau, the profits tax payment of Changdu Huiheng in excess of RMB 900,000
          for
          a yearwill be refundable by Tibet Finance Bureau. The 31% and 38.75% of
          business
          tax payment and value added tax payment respectively for a year will be
          refundable by Tibet Finance Bureau provided that the business tax payment
          and
          value added tax payment should be arrived at RMB 1 million and RMB 1.5
          million
          for a year respectively. Such tax incentive policy will be valid for five
          (5)
          years from the year of commencement of tax refund, starting from September
          2006.
  The
          medical equipment sold by the Company has embedded self-developed software.
          In
          all cases, the medical equipment is marketed and sold based on its performance
          and functionality as a whole. The self-developed software can also be sold
          on a
          standalone basis.
  The
          Company also provides comprehensive post-salesservices to certain distributors
          for medical equipment used by hospitals. These contracts are negotiated
          and
          signed independently and separately from the sales of medical equipment.
          According to the agreements, the Company provides comprehensive services
          including exchange of cobalt, training to users of the medical equipment,
          maintenance of medical equipment, upgraded software and consulting. Fees
          for the
          services are recognized over by the life of the contract on a monthly
          basis.
  **(k)**
                **Research
                    and Development Costs**
  Research
          and development costs are charged to expense as incurred. Research and
          developement costs mainly consist of remuneration for research and development
          staff and material costs for research and development. The Company incurred
          $263,314 and $124,283 for the years ended 31 December, 2007 and 2006
          respectively.
  F-15
 **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 **3.**
                **Summary
                    of Significant Accounting Policies (.../Cont'd)**
  **(l)**
                **Income
                    Taxes**
  The
          Company accounts for income taxes under FASB Statement No. 109, Accounting
          for
          Income Taxes. Deferred income tax assets and liabilities are determined
          based
          upon differences between the financial reporting and tax bases of assets
          and
          liabilities and are measured using the enacted tax rates and laws that
          will be
          in effect when the differences are expected to reverse. Deferred tax assets
          are
          reduced by a valuation allowance to the extent management concludes it
          is more
          likely than not that the assets will not be realized.Deferredtax assetsand
          liabilitiesare measuredusing enactedtax ratesexpected to apply to taxable
          income
          in the years in which those temporary differences are expected to be recovered
          or settled. The effect on deferred tax assets and liabilities of a change
          in tax
          rates is recognized in the statements of operations in the period that
          includes
          the enactment date.
  **(m)**
                **Retirement
                    and Other Postretirement
                    Benefits**
  Contributions
          to retirement schemes (which are defined contribution plans) are charged
          to
          consolidated statements of operations as and when the related employee
          service
          is provided.
  **(n)**
                **Warranty**
  The
          Company provides a product warranty to its customers to repair any product
          defects that occur within twelve months of the date of sale. Based on the
          limited number of actual warranty claims and the historically low cost
          of such
          repairs, the Company has not recognized a liability for warranty claims,
          but
          rather recognizes such costs when product repairs are made.
  **(o)**
                **Use
                    of Estimates**
  The
          preparation of consolidated financial statements in conformity with US
          GAAP
          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 consolidated financial statements and the
          reported amounts of revenues and expenses during the year. Actual results
          could
          differ from those estimates.
  F-16
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                **Summary
                    of Significant Accounting Policies (.../Cont'd)**
  **(p)**
                **Foreign currency
                    translation**
  Assets
          and liabilities of foreign subsidiaries are translated at the rate of exchange
          in effect on the balance sheet date; income and expenses are translated
          at the
          average rate of exchange prevailing during the year. The related transaction
          adjustments are reflected in " Accumulated other comprehensiveincome (loss)"in
          the stockholders'equitysection of our consolidated balance sheet.
  The
          average monthly for 2007 and the closing rate as at 31 December 2007 is
          Rmb
          7.5973 and Rmb 7.2946 to oneUSD respectively.The averagemonthlyfor2006
          and the
          closing rate as at 31 December 2006 is Rmb 7.9579 and Rmb 7.8041 to one
          USD
          respectively.
  **(p)**
                **Comprehensive
                    income**
  The
          Company has adopted SFAS No. 130 Reporting Comprehensive Income. This statement
          establishes rules for the reporting of comprehensive income and its components.
          Comprehensive income consists of net income and foreign currency translation
          adjustments and is presented in the Consolidated Statements of Income and
          the
          Consolidated Statement of Stockholders’ Equity.
  **(q)**
                **Earning
                    Per Share**
  Basic
          earnings per share are computed based on the weighted-averagenumber of
          shares of
          our commonstock outstanding. Diluted earnings per share are computed based
          on
          the weighted-average number of shares of our common stock and other dilutive
          securities. See also "Earnings Per Share" note below.
  All
          information in this report relating to the number of shares, price per
          share and
          per share amountsof common stock gives retroactive effect to the May2007
          of our
          common stock.
 
 F-17
 
 **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                **Summary
                    of Significant Accounting Policies
                    (.../Cont'd)**
 
 **(q)**
                **Earning
                    Per Share (.../Cont'd)**
 
 The
          following is a reconciliation of the numerators and denominators of the
          basic
          and diluted
          earnings per share computations :
 
 **2007**
                
                **2006****USD**
                
                **USD****Numerator:**Net
                    income
                
                
                9,015,769
                
                
                6,816,474**Denominator:**Weighted-average
                    shares outstandingused
                    for basic earnings per share
                
                
                13,450,000
                
                
                13,450,000Weighted-average
                    shares outstandingused
                    for diluted earnings per share
                
                
                13,716,666
                
                
                13,716,666
  **(r)**
                **Commitments
                    and contingencies**
  Liabilities
          for loss contingencies arising from claims, assessments, litigation, fines
          and
          penalties and other sources are recorded when it is probable that a liability
          has been incurred and the amount of the assessment can be reasonably
          estimated.
  **(s)**
                **Segment
                    reporting**
  The
          Company has no operating segments,as thattermisdefined in FASB Statement
          No.
          131, Disclosure About Segments of an Enterprise and Related Information.
          All of
          the Company's operations and customers are in the PRC. Accordingly, no
          geographic information is presented.
  **(t)**
                **Deferred
                    Offering Costs**
  Deferred
          offering costs are those costs directly attributable to the Company's proposed
          public offering. Such costs consist principally of professional fees and
          will be
          charged to stockholders' equity upon receipt of the capital raised. Should
          the
          proposed offering prove to be unsuccessful, the deferred costs will be
          charged
          to operations.
 
 F-18
 
 **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                **Summary
                    of Significant Accounting Policies
                    (.../Cont'd)**
  **(u)**
                **Recently
                    Issued Accounting
                    Standards**
  In
          July
          2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty
          in Income Taxes, a Interpretation of FASB Statement No. 109 ("FIN 48").
          FIN 48
          precribes a recognition threshold and measurement attribute for the financial
          statement recognition and measurement of a tax position taken in a tax
          return.
          The Company must determine whether it is "more-likely-than-not" that a
          tax
          position will be sustained upon examination, including resolution of any
          related
          appeals or litigation processes, based on the technical merits of the position.
          Once it is determined that a position meets the more-likely-than-not recognition
          threshold, the position is measured to determine the amount of benefit
          to
          recognize in the financial statements. FIN 48 applies to all tax positions
          related to income taxes subject to FASB Statement No. 109, Accounting for
          Income
          Taxes. The interpretation clearly scopes out income tax positions related
          to
          FASB Statement No. 5, Accounting for Contingencies. The Company adopted
          the
          provisions of this statement in 2007. The adoption of this statement did
          not
          have a material effect on the Company's financial condition and results
          of
          operations.
  On
          September 15, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
          ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for
          measuring
          fair value and expands disclosures about fair value measurements. SFAS
          157 is
          effective as of the beginning of the first fiscal year beginning after
          November
          15, 2007. The Company does not anticipate that the adoption of this statement
          will have a material effect on the Company’s financial condition and results of
          operations.
  In
          September 2006, FASB issued SFAS No. 158, Employers' Accounting for Defined
          Benefit Pension and Other PostretirementPlans, an amendment of FASB StatementsNo
          87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires the recognition of
          the
          overfunded or underfunded status of a defined benefit postretirement plan
          as an
          asset or liability in the statement of financial position and the recognition
          of
          changes in that funded status in the year in which the changes occur through
          comprehensive income. SFAS 158 also requires the measurement of the funded
          status of a plan as of the date of the
          year-end statement of financial position. The Company does not anticipate
          that
          the adoption of this statement will have a material effect on the Company’s
          financial condition and results of operations.
  F-19
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **3.**
                **Summary
                    of Significant Accounting Policies
                    (.../Cont'd)**
  **(t)**
                **Recently
                    Issued Accounting Standards
                    (.../Cont'd)**
  On
          February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option
          for
          Financial Assets and Financial Liabilities: Including an amendment of FASB
          Statement No. 115 (SFAS 159). SFAS 159 permits all entities to elect to
          measure
          many financial instruments and certain other items at fair value with changes
          in
          fair value reported in earnings. SFAS 159 is effective as of the beginning
          of
          the first fiscal year that begins after November 15, 2007, with earlier
          adoption
          permitted. The Company does not anticipate that the adoption of this statement
          will have a material effect on the Company’s financial condition and results of
          operations.
  In
          December 2007, The FASB issued SFAS No. 141 (revised 2007), "Business
          Combinations" ("SFAS 141R"), which replaces FASB Statement no. 141. SFAS
          141R
          establishes principles and requirements for how an acquirer recognizes
          and
          measures in its financial statements the identifiable assets acquired,
          the
          liabilities assumed, any non-controlling interest in the acquiree and the
          goodwill acquired. The Statement also establishes disclosure requirements
          that
          will enable users to evaluate the nature and financial effects of the business
          combination. SFAS 141R is effective as of the beginning of an entity's
          fiscal
          year that begins after December 15, 2008, which will be the Company's fiscal
          year 2010. The Company is currently evaluating the potential impact, if
          any, of
          the adoption of SFAS 141R on the Company's financial condition, results
          of
          operations and cash flows.
  In
          December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
          in
          Consolidated Financial Statements - an amendment of ARB No. 51 (SFAS 160)."
          SFAS
          160 requires that accounting and reporting for minority interests will
          be
          recharacterized as noncontrolling interests and classified as a component
          of
          equity. SFAS 160 also establishes reporting requirements that provide sufficient
          disclosures that clearlyidentify and distinguish between the interests
          of the
          parent and the interests of the noncontrolling owners. SFAS 160 applies
          to all
          entities that prepare consolidated financial statements, except not-for-profit
          organizations, but will affect only those entities that have an outstanding
          noncontrolling interest in one or more subsidiaries or that deconsolidate
          a
          subsidiary. This statement is effective as of the beginning of an entity's
          first
          fiscal year beginning after December 15, 2008. Based upon the December
          31, 2007
          balance sheet, the impact of adopting SFAS 160 would be to reclassify in
          minority interests in consolidated subsidiaries from total liabilities
          to a
          separate component of stockholder's equity.
  F-20
 
 **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 **3.**
                **Summary
                    of Significant Accounting Policies
                    (.../Cont'd)**
  **(t)**
                **Recently
                    Issued Accounting Standards
                    (.../Cont'd)**
  Management
          does not believe that any other recently issued, but not yet effective
          accounting pronouncements, if adopted, would have a material effect on
          the
          accompanying financial statements.
  **4.**
                **Cash**
  Cash
          represents cash in bank and cash on hand. There were no cash equivalents
          as of
          December 31, 2006 and 2007.
  Renminbi
          is not a freely convertible currency and the remittance of funds out of
          the PRC
          is subject to the exchange restrictions imposed by the PRC
          government.
  **5.**
                **Accounts
                    Receivable**
  The
          Company performs ongoing credit evaluations of its customers' financial
          conditions.The Company generally requires its customers to provide advanced
          cash
          deposits for their purchases. The Company has historically been able to
          collect
          all of its receivable balances, and accordingly, has not provided any allowance
          for doubtful accounts as of December 31, 2006 and 2007.
  **6.**
                **Prepayments
                    and Other Receivables**
 
 **2007**
                
                **2006****USD**
                
                **USD**Prepayments
                    to suppliers
                
                
                2,165,876
                
                
                1,568,007Advances
                    to third parties (a)
                
                
                181,230
                
                
                169,398Other
                    receivable (b)
                
                
                925,780
                
                
                1,049,1133,272,886
                
                
                2,786,518
 
 (a)
                Advances
                    to third parties are unsecured, interest-free advances for working
                    purposes.Advances
                    to third parties during 2007 and 2006 approximated $181,230 and
                    $169,398,
                    respectively. Repayments from third parties during 2007 approximated
                    $192,207 (none in 2006).
  (b)
                Included
                    in other receivables at December 31, 2007 and 2006 is $479,807
                    and
                    $640,689, respectively, due from Shenzhen Jiancheng. Such amounts
                    are due
                    on demand without interest.
 
 F-21
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **7.**
                **Inventories**
  Inventories
          as of December 31, 2006 and 2007 consist of the following:
 
 **2007**
                
                **2006****USD**
                
                **USD**Raw
                    materials
                
                
                338,637
                
                
                844,835Work-in-progress
                
                
                732,976
                
                
                779,8401,071,613
                
                
                1,624,675
 
 **8.**
                **Property,
                    Plant and Equipment**
 
 **2007**
                
                **2006****USD**
                
                **USD**Building
                    improvements
                
                
                161,192
                
                
                150,668Buildings
                
                
                103,316
                
                
                96,570Production
                    equipment
                
                
                531,506
                
                
                364,952Furniture,
                    fixtures and office equipment
                
                
                182,002
                
                
                148,761Motor
                    vehicles
                
                
                175,301
                
                
                124,9971,153,317
                
                
                885,948Accumulated
                    depreciation
                
                
                (617,175
                )
                
                (450,243
                )536,142
                
                
                435,705Construction
                    in progress#
                
                
                3,165,550
                
                
                -3,701,692
                
                
                435,705
 
 Construction
          in progress included cost for refurbishing the new office and the refurbishment
          was completed at the beginning of 2008. No more construction cost shall
          be
          incurred.
 
 F-22
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **9.**
                **Intangible
                    Assets**
  The
          following table summarizes the Company's net amortized carrying value of
          its
          intangible assets as of December 31, 2006 and 2007.
 
 **Patented****technology**
                
                **Software**
                
                **Total****USD**
                
                **USD**
                
                **USD**Balance
                    as of January 1, 2006
                
                
                936,616
                
                
                102,804
                
                
                1,039,420Amortization
                
                
                (57,856
                )
                
                (85,201
                )
                
                (143,057
                )Balance
                    as of December 31, 2006
                
                
                878,760
                
                
                17,603
                
                
                896,363Foreign
                    currency translation gain
                
                
                77,133
                
                
                -
                
                
                77,133Amortization
                
                
                (74,155
                )
                
                (17,603
                )
                
                (91,758
                )Balance
                    as of December 31, 2007
                
                
                881,738
                
                
                -
                
                
                881,738
 
 Patented
          technology represents a patent for the production of a component of the
          radiation treatment system.The patent was applied prior to its injection
          to
          Shenzhen Hyperas acapital contribution. Pursuant to the patent certificate,
          the
          patent was valid for 20 years from the application date, May 1999. Therefore
          it
          was amortized over the rest of the valid patent period, which is the estimated
          remaining useful life.
  Software
          is utilized in the manufacture of medical equipment and is amortized over
          its
          estimated useful life.
  Estimated
          amortization expenses for the years ending December 31, 2008, 2009, 2010,
          2011
          and 2012 is USD 74,155 each year which based on the average rate in
          2007.
 
 F-23
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **10.**
                **Accrued
                    Liabilities and Other
                    Payables**
  Accrued
          liabilities and other payables as of December 31, 2006 and 2007 consist
          of the
          following:
 
 **2007**
                
                **2006****USD**
                
                **USD**VAT,
                    other taxes payable and surcharges
                
                
                1,136,565
                
                
                859,073Accrued
                    expenses
                
                
                364,503
                
                
                99,858Accrued
                    payroll and welfare
                
                
                264,391
                
                
                159,872Customer
                    deposits
                
                
                343,828
                
                
                300,558Advances
                    from third party
                
                
                -
                
                
                168,9032,109,287
                
                
                1,588,264
 
 Advances
          from third party represented unsecured, interest-free advances which are
          repayable on demand.
  **11.**
                **Minority
                    interest**
  Minority
          interest represents the share of 25% equity interest of Shenzhen Hyper
          owned by
          Shenzhen OUR International Limited as of December 31, 2006 and
          2007.
  **12.**
                **Stockholders'
                    Equity**
  **(a)**
                **Stockholders'
                    capital**
  Common
          stock at $0.001 par value; 74,000,000 shares authorized; 23,150,000 shares
          issued and 13,450,000 shares were outstanding.
 
 Preferred
          stock at $0.001 par value; 1,000,000 shares authorized with 300,000 shares
          designated as Series A 7% convertible preferred stock, 266,666 shares issued
          and
          outstanding with liquidation preference of $9,999,975.
 
 F-24
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **12.**
                **Stockholders'
                    Equity**
  **(b)**
                **Retained
                    earnings**
  **(i)**
                Retained
                    earnings include the following:
  Retained
          earnings for the yearsended December 31, 2006 and December 31, 2007 include
          a
          General Reserve Fund of USD 1,310,516 for both year, less dividends paid
          in
          2006.
  **(ii)**
                General
                    reserve fund includes statutory surplus reserve and statutory
                    public
                    welfare reserve.
  Statutory
          surplus reserve
  In
          accordance with PRC Company Law, Changdu Huiheng is required to appropriate
          at
          least 10% of the profit arrived at for each year to the statutory surplus
          reserve. Appropriation to the statutory surplus reserve by Changdu Huiheng
          is
          based on profit arrived at under PRC accounting standards for business
  The
          profit arrived at must be set off against any accumulated losses sustained
          by
          Changdu Huiheng in prior years, before allocation is made to the statutory
          surplus reserve. Appropriation to the statutory surplus reserve must be
          made
          before distribution of dividends to owners. The appropriation is required
          until
          the statutory surplus reserve reaches 50% of the registered capital. This
          statutory surplus reserve is not distributable in the form of cash
          dividends.
  Statutory
          public welfare reserve (.../Cont'd)
 
 In
          accordance with PRC Company Law, Changdu Huiheng appropriates 5% of the
          profit
          arrived at for each year to the statutory public welfare reserve prior
          to
          December 31, 2005. No statutory public welfare reserve is mandatory after
          December 31, 2005. Appropriation to the statutory public welfare reserve
          by
          Changdu Huiheng is based on profit arrived at under PRC accounting standards
          for
          business enterprises for each year.
 
 F-25
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **12.**
                **Stockholders'
                    Equity**
  **(b)**
                **Retained
                    earnings**
  **(ii)**
                General
                    reserve fund includes statutory surplus reserve and statutory
                    public
                    welfare reserve.
  The
          fund
          can only be utilized for capital items for the collective benefit of Changdu
          Huiheng's employees such as construction of dormitories, canteens and other
          staff welfare facilities. This fund is non-distributable other than on
          liquidation. The transfer to this fund must be made before distribution
          of any
          dividends.
  According
          to PRC Company Law, a Foreign Investment Enterprise is not required to
          make
          a **** provision
          for statutory public welfare reserve.
  **(c)**
                **Dividend**
  Pursuant
          to the resolution passed at the Board of Directors' meeting in 2006, total
          dividends of USD 9,164,866 were declared and paid to Changdu Huiheng's
          equity
          owner prior to the restructuring. The dividend is based on retained earnings
          arrived at under PRC accounting standards for business enterprise. It is
          also a
          payment before the restructing of the Company. No dividend has been declared
          for
          the year of 2007.
 
 F-26
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **13.**
                **Revenues**
  Revenues
          for the years ended December 31, 2006 and 2007 consist of the
          following:
 
 **2007**
                
                **2006****USD**
                
                **USD**Product
                    sales
                
                
                9,530,071
                
                
                6,605,273Service
                    income
                
                
                5,034,683
                
                
                4,681,669Tax
                    refunds and others
                
                
                1,374,860
                
                
                1,059,73015,939,614
                
                
                12,346,672
 
 Other
          revenue includes the high and new technology business subsidy granted by
          the
          government authorities to Shenzhen Hyper which can be used for enterprise
          development and technology innovation purposes.
  **14.**
                **Income
                    Taxes**
  All
          of
          the Company's income is generated in the PRC.
  Income
          tax expense for the years ended December 31, 2006 and 2007:
 
 **2007**
                
                **2006****USD**
                
                **USD**Current
                    income tax expense
                
                
                938,493
                
                
                1,393,149Deferred
                    income tax benefit (expense)
                
                
                (415
                )
                
                2,637Total
                    income tax expense
                
                
                938,078
                
                
                1,395,786
 
 As
          Changdu Huiheng is located in the western area in the PRC and is within
          the
          industry specified by relevant laws and regulations of the PRC, the tax
          rate
          applicable to the Company is 10%.
  Wuhan
          Kangqiao is a high-tech enterprise with operations in an economic-technological
          development area in the PRC, the applicable tax rate is 15%.
 
 F-27
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **14.**
                **Income
                    Taxes (.../Cont'd)**
  Shenzhen
          Hyper is a high-tech manufacturing company located in Shenzhen special
          economic
          region. Therefore, the applicable tax rate is also 15%. According to local
          tax
          regulation, Shenzhen Hyper is entitled to a tax-free period for the first
          two
          years, commencing from the first profit-making year and a 50% reduction
          in state
          income tax rate for the next six years.
  A
          reconciliationof the expected income tax expense to the actual income tax
          expense for the years ended December, 2006 and 2007 are as follows:
 
 **2007**
                
                **2006****USD**
                
                **USD**Income
                    before minority interest and income tax
                
                
                10,287,196
                
                
                8,176,593Expected
                    PRC income tax expense at statutory tax rateof
                    33%
                
                
                3,394,775
                
                
                2,698,276Non-deductible
                    expenses-
                    Non-deductible entertainment expenses
                
                
                (116,450
                )
                
                --
                    Others
                
                
                (49,385
                )
                
                31,893Non-taxable
                    income
                
                
                -
                
                
                (35,855
                )Temporary
                    difference
                
                
                (415
                )
                
                -Others
                
                
                52,020
                
                
                173,259Tax
                    rate differences
                
                
                (2,342,467
                )
                
                (1,471,787
                )Actual
                    income tax expense
                
                
                938,078
                
                
                1,395,786
 
 The
          PRC
          tax system is subject to substantial uncertainties and has been subject
          to
          recently enacted changes, the interpretation and enforcement of which are
          also
          uncertain. There can be no assurance that changes in PRC tax laws or their
          interpretation or their application will not subject the Company to substantial
          PRC taxes in the future.
 
 F-28
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **14.**
                **Income
                    Taxes (.../Cont'd)**
  The
          tax
          effects of temporary differences that give rise to significant portions
          of the
          deferred tax assets as of December 31, 2006 and 2007 are presented
          below.
 
 **2007**
                
                **2006****USD**
                
                **USD**Current
                    deferred tax assets:Provisions
                    for other receivables
                
                
                26,383
                
                
                18,879Current
                    deferred tax assets
                
                
                26,383
                
                
                18,879Non-current
                    deferred tax assets:Deferred
                    expenses
                
                
                -
                
                
                5,377Non-current
                    deferred tax assets
                
                
                -
                
                
                5,377Total
                    deferred tax assets
                
                
                26,383
                
                
                24,256
 
 In
          assessing the realizability of deferred tax assets, management considers
          whether
          it is more likely than not that some portion or all of the deferred tax
          assets
          will not be realized. The ultimate realization of deferred tax assets is
          dependent upon the generation of future taxable income during the periods
          in
          which those temporary differences become deductible or utilized. Management
          considers the scheduled reversal of deferred tax liabilities, projected
          future
          taxable income,and tax planning strategies in making this assessment. Based
          upon
          an assessment of the level of historical taxable income and projections
          for
          future taxable income over the periods in which the deferred tax assets
          are
          tested whether they are deductible orcan be utilized, management believes
          that
          the deferred tax assets as of December 31, 2007 are more likely than not
          that it
          will not be realized.
 
 The
          amount of the deferred tax assets considered realizable, however, could
          be
          reduced in the near term if estimates of future taxable income are
          reduced.
 
 F-29
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **15.**
                **Related
                    Party Transactions**
  **(a)**
                **Summary
                    of significant related party
                    transactions**
  The
          significant related party transactions of the Company are summarized as
          follows:
 
 **2007**
                
                **2006****USD**
                
                **USD**Sales
                    of medical equipment (i)
                
                
                -
                
                
                1,933,251Cash
                    advance to related party (ii)
                
                
                12,635
                
                
                47,410Payments
                    to related party (iii)
                
                
                6,854,386
                
                
                1,537,653Acquisition
                    of Changdu Huiheng (iv)
                
                
                -
                
                
                6,269,699Redemption
                    of shares from related party (v)
                
                
                3,580,171
                
                
                -
 
 (i)
                Represents
                    the sales of medical equipment and income from service provided
                    to
                    Shenzhen Jiancheng prior to October 1, 2005. Shenzhen Jiancheng
                    was owned
                    by Mr. Hui Xiaobing until it was sold to third parties effective
                    from
                    October 1, 2005.
  (ii)
                Amount
                    is unsecured, interest-free advance for working capital purposes
                    to/from
                    Shenzhen Huiheng Industry Co., Ltd. ("Huiheng Industry"), which
                    is under
                    same control of Mr. Hui Xiaobing. Amount is repayable on demand.
                    Total
                    outstanding as of December 31, 2007 was
                    USD60,045.
 
 (iii)
                Amount
                    USD 6,854,386 represents the payment related to the acquisition
                    of equity
                    interest of Changdu Huiheng and USD 1,537,653 represents the
                    payment
                    related to the acquition of Wuhan Kangqiao from Huiheng
                    Industry.
  (iv)
                In
                    August 2006, the Company acquired equity interest of Changdu
                    Huiheng 99%
                    from Huiheng Industry and 1% from Mr. Hui Xiaobing in consideration
                    of
                    USD6,207,002 and USD62,697 respectively (Note
                    15(b)).
  (v)
                Amount
                    represents the Company redeemed 957,265 shares of common shares
                    from Clear
                    Honest International Limited in January
                    2007.
 
 F-30
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **15.**
                **Related
                    Party Transactions**
  **(b)**
                **Amounts
                    due from/to related
                    parties**
  Amount
          due from a related party
 
 **2007**
                
                **2006****USD**
                
                **USD**Huiheng
                    Industry (i)
                
                
                745,483
                
                
                688,100Amount
                    due to related parties
  **2007**
                
                **2006****USD**
                
                **USD**Huiheng
                    Industry (ii)
                
                
                -
                
                
                6,342,820Hui
                    Xiaobing
                
                
                1,094
                
                
                65,092Clear
                    Honest International Limited (iii)
                
                
                116,068
                
                
                -117,162
                
                
                6,407,912
 
 (i)
                USD685,438
                    in 2007 and USD640,690 in 2006 represents the acquisition of
                    Changdu
                    Huiheng in 2004. USD60,045 and USD47,410 represents interest-free
                    advances
                    to Huiheng Industry in 2007 and 2006 respectively . The amount
                    is payable
                    on demand.
  (ii)
                In
                    August 2006, the Company acquired equity interest of Changdu
                    Huiheng 99%
                    from Huiheng Industry and 1% from Mr. Hui Xiaobing in consideration
                    of
                    USD6,207,002 and USD62,697 respectively(Note 15(a)). Total of
                    USD6,269,699
                    was recorded based on the exchange rate on the transaction
                    date.
 
 (iii)
                The
                    amount represents the remaining outstanding balance of the redemption
                    of
                    the common shares issued by Allied Moral in January 2007 and
                    other Allied
                    Moral's expenses settled by Clear Honest International
                    Limited.
 
 F-31
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **16.**
                **Pension
                    and Other Postretirement
                    Benefits**
  Pursuant
          to the relevant laws and regulation in the PRC, the Company participates
          in
          defined contribution retirement plans for its employees arranged by a
          governmental organization. The Company makes contributions to the retirement
          scheme at the applicable rate based on the employees'salaries. The required
          contributions under the retirement plans are charged to the consolidated
          statements of operations on an accrual basis. The Company's contributions
          totalled USD 52,526 and USD 55,103 for the years ended December 31, 2006
          and
          2007 respectively.
  The
          Company has no other obligation to make payments in respect of retirement
          benefits of its employees.
  **17.**
                **Derivative
                    Financial Instruments and Hedging
                    Activities**
  The
          Company did not enter into any derivative financial instruments for any
          purpose
          during the years presented. The Company does not hedge risk exposures or
          speculate using derivative instruments.
  **18.**
                **Fair
                    Value of Financial
                    Instruments**
  The
          fair
          value of a financial instrument is the amount at which the instrument could
          be
          exchanged in a current transaction between willing parties. The carryingamount
          of financial instruments, such as accounts receivable, other receivables,
          accounts payable, and other payables, approximates their fair values because
          of
          the short term maturity of these instruments.
 
 F-32
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
  **19.**
                **Concentration
                    of credit risk**
  **(a)**
                **Customers
                    and Credit Concentrations**
  Two
          customers accounted for 76% and three customers accounted for 89% of Revenue
          for
          the years ended December 31, 2007 and 2006 respectively. These customers
          also
          accounted for 79% and 82% of accounts receivable as of December 31, 2007
          and
          2006, respectively.As a result, a termination in relationship with or a
          reduction in orders from any of these customers could have a material impact
          on
          the Company’s results of operations and financial condition.
  **(b)**
                **Credit
                    Risk**
  Financial
          instruments that potentially subject the Company to significant concentration
          of
          credit risk consist primarily of cash and cash equivalents. As of December
          31,
          2007, all of the Company’scash and cash equivalents were held by major financial
          institutions locatedin the PRC, none ofwhich wereinsured orcollateralized.
          However, management believes those financial institutions are of high credit
          quality and has assessed the loss arising from the non-insured cash and
          cash
          equivalents from those financial institutions to be immaterial to the
          consolidated financial statements.
  **20.**
                **Foreign
                    operations**
  **(a)**
                **Operations**
 
 All
          of
          the Company’s operations are carried out and all of its assets are located in
          the PRC. Accordingly, the Company’s business, financial condition and results of
          operations may be influenced by the political, economic and legal environments
          in the PRC. The Company’s business may be influenced by changes in governmental
          policies with respect to laws and regulations, anti-inflationary measures,
          currency fluctuation and remittances and methods of taxation, among other
          things.
 
 F-33
  **HUIHENG
          MEDICAL, INC.**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **20.**
                **Foreign
                    operations (.../Cont'd)**
  **(b)**
                **Dividends
                    and Reserves**
  Under
          laws of the PRC, net income after taxation can only be distributed as dividends
          after appropriation has been made for the following: (i) cumulative prior
          years'losses, if any; (ii) allocations to the "Statutory Surplus Reserve"
          of at
          least 10% of net income after tax, as determined under PRC accounting rules
          and
          regulations, until the fund amountsto50% ofthe
          Company'sregisteredcapital;(iii)allocationsof5-10% ofincome after tax,
          as
          determined under PRC accounting rules and regulations, to the Company's
          "Statutory Common Welfare Fund", which is established for the purpose of
          providing employee facilities and other collective benefits to employees
          in
          China; and (iv) allocations to any discretionary surplus reserve, if approved
          by
          stockholders.
  As
          of
          December 31, 2007, the Company established and segregated in retained earnings
          an aggregate amount for the Statutory Surplus Reserve and the Statutory
          Common
          Welfare Fund of USD 1,429,681.
  **21.**
                **Operating
                    lease commitments**
  Rental
          expense for obligations under operating leases was USD 44,746 and USD 52,504
          for
          the years ended December 31, 2006 and 2007, respectively. As of December 31,
          2007, the total future minimum lease payments under non-cancellable operating
          leases in respect of premises are payable as follows:
 
 **USD**December
                    312008
                
                
                263,2092009
                
                
                263,2092010
                
                
                263,2092011
                
                
                263,2092012
                
                
                263,209thereafter
                
                
                3,904,2555,220,300


F-34