**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-KSB**





R
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934****For
                the fiscal year ended December 31, 2007**£
            **TRANSITION
                REPORT UNDER 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 1, 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










**PART
      I**




**Item
      1.** ***Description
      of Business.***




*This
      Annual Report contains certain forward-looking statements. When used in this
      Annual Report, statements which are not historical in nature, including the
      words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” “may,”
“project,” “plan” or “continue,” and similar expressions are intended to
      identify forward-looking statements. They also include statements containing
      anticipated business developments, a projection of revenues, earnings or losses,
      capital expenditures, dividends, capital structure or other financial
      terms.*




*The
      forward-looking statements in this Annual Report are based upon our management’s
      beliefs, assumptions and expectations of our future operations and economic
      performance, taking into account the information currently available to them.
      These statements are not statements of historical fact. Forward-looking
      statements involve risks and uncertainties, some of which are not currently
      known to us that may cause our actual results, performance or financial
      condition to be materially different from the expectations of future results,
      performance or financial condition we express or imply in any forward-looking
      statements. These forward-looking statements are based on our current plans
      and
      expectations and are subject to a number of uncertainties and risks that could
      significantly affect current plans and expectations and our future financial
      condition and results.*




*We
      undertake no obligation to publicly update or revise any forward-looking
      statements, whether as a result of new information, future events or otherwise.
      In light of these risks, uncertainties and assumptions, the forward-looking
      events discussed in this filing might not occur. We qualify any and all of
      our
      forward-looking statements entirely by these cautionary factors. As a
      consequence, current plans, anticipated actions and future financial conditions
      and results may differ from those expressed in any forward-looking statements
      made by or on our behalf. You are cautioned not to unduly rely on such
      forward-looking statements when evaluating the information presented
      herein.*




We
      design
      and sell precision radiotherapy equipment used for the treatment of cancer
      and
      tumors in The People’s Republic of China (“PRC”). Our patented line of gamma
      treatment systems (“GTS”) quickly and accurately deliver a well-defined
      conforming dose of radiation to the target tissue while sparing surrounding
      normal tissue. We have approximately 17 patents issued in the PRC and
      internationally covering our product line.




Our
      customers are health care providers and third party hospital equipment
      investors, with the hospital as end user. We also offer our customers
      comprehensive post-sales services for our products as well as third party
      manufactured products. These post sales services include radioactive cobalt
      source replacement and disposal, medical expert training, clinical trial
      analysis, patient tumor treatment analysis, software upgrades and patient care
      consulting.




Our
      net
      revenues increased from $9.8 million in 2005 to $12.4 million in 2006 and to
      $15.94 in 2007. Our net income increased from $4 million in  2005 to $6.8
      million in 2006 and to $9.02 in 2007. Over the last 5 years, management of
      Huiheng believes (based solely upon its knowledge of the industry) that it
      has sold more GTS units in China than any other company, as a result of the
      high
      quality, high performance and low-cost of its products.




We
      were
      founded in 2001 by Hui Xiaobing, who was a pioneer in the GTS industry in the
      PRC. Mr. Hui served as president and Chairman of Shenzhen OUR Technology, Co.,
      Ltd., the first PRC company to develop a gamma treatment system. Mr. Hui is
      also
      the former CEO of Everbright Securities, a major Chinese financial
      institution.




**Our
      Strategies**




Our
      goal
      is to gain a greater market share in the GTS market in the PRC, by pursuing
      the
      following strategies:




·
            broadening
                our product offering, including the launch of four new products estimated
                to be released between Q2 2008 and Q4
                2009;


·
            exploring
                opportunities to develop international markets in South America,
                Eastern
                Europe and Southeast Asia;


·
            expanding
                our sales and distribution force;


·
            pursuing
                relationships with foreign medical equipment technology
                leaders;


·
            continuing
                to offer high quality, low cost development services;
                and


·
            augmenting
                our strong commitment to R&D for the development of state-of-the-art
                equipment to maintain technological
                competitiveness.




-2-


**Our
      Strengths**




We
      believe, based solely on management’s knowledge of our industry, that we are a
      leader in the GTS market in the PRC. We consider our core competitive strengths
      to be:




·
            experienced
                and market savvy leadership;


·
            strong
                customer relationships and network;


·
            proprietary
                technology;


·
            production
                model and relationships;


·
            high
                quality product line;


·
            strong
                gross margins and pricing
                flexibility;


·
            consistent,
                high quality post sale customer service and
                support;


·
            experienced
                research and development team; and


·
            strong
                R&D partnerships with Beijing University, China Science &
                Technology University and Public Healthcare Institute of Jilin
                University.





**Our
      Industry**




The
      market for medical equipment and supplies in the PRC is segmented into
      geographical regions. Hospitals with greater spending power tend to be located
      in large towns and cities in the eastern part of the PRC, where rapid economic
      growth has taken place during the last two decades and where the population
      tends to have higher income. Medical equipment and supplies distribution is
      a
      very specialized and localized sector in the PRC. Distributors of medical
      equipment and supplies operate in the PRC within various relatively small and
      geographically dispersed markets, each based in a wealthy eastern city to cover
      the surrounding areas, with few distributors willing or able to cover the entire
      country. Most distributors focus on the PRC’s eastern cities, where the bulk of
      purchasing power is concentrated, while the western part of the PRC has very
      limited coverage by distributors. The fact that different areas of the PRC
      have
      their own medical and insurance practices, purchasing policies and regulatory
      issues further increases the complexity of medical equipment and supplies
      distribution in the PRC.




The
      medical device market in the PRC was estimated to be approximately
      $5.0 billion in 2006. This market is expected to grow at a compound
      annual growth rate of almost 24 percent till 2010. In particular, the country
      is
      expected to see an increased demand for digital imaging devices, owing to the
      developments of information technology. And as a result of the 2003 SARS crisis
      the government has further heightened its awareness of the need to improve
      the
      country’s healthcare infrastructure, making healthcare a top national priority
      for years to come.




The
      PRC’s
      aging population and the popularization of private hospitals and clinics coupled
      with the demand for the high-quality medical devices and efficient healthcare
      services are some of the key factors contributing to the growth of the medical
      device market in the country. Additionally, initiatives by the government,
      such
      as reforms in the national medicine system, are also fueling growth in the
      industry.




The
      PRC
      radiotherapy industry has the following characteristics:




·
            decreasing
                fragmentation of market as small suppliers find it difficult to
                compete;




·
            high
                degree of government regulation with respect to unit
                pricing;




·
            low
                penetration rates of less than one radiotherapy system per million
                persons;




·
            large
                discrepancy between demand and access to radiation oncology
                systems;




·
            high
                barriers to entry due to both high technology requirement and established
                relationship contacts; and




·
            cancer continuing
                to be the leading cause of death in the PRC in the years 2004, 2005
                and 2006.





-3-


**Our
      Market**




The
      Ministry of Health has identified cancer as the leading cause of death in the
      PRC for the years 2004, 2005 and 2006. To the extent that cancer-related illness
      and death are caused by environmental factors, the air and water pollution
      associated with the PRC’s rapid industrial expansion are expected to increase
      the rate of both. As a result, effective treatment of cancer is a high priority
      for the PRC healthcare system.




Radiotherapy
      is used in approximately 50% of all cancer treatments worldwide. In 2006, there
      were 0.6 radiotherapy units per million people in the PRC. The World Health
      Organization recommends 6 radiotherapy units per million people for “developed”
countries. The United States, for example, has 13 units per million
      people.




· According
      to the World Health Organization between 2000 and 2020 approximately 150
      million people will be diagnosed with cancer, of which 100 million should be
      treated with radiation therapy. Overall, the Asia Pacific region has the
      greatest discrepancy between the estimated need and supply wherein only 1,147
      radiotherapy systems are available for a current demand of 4000
      systems.




· Trends
      in
      the radiotherapy market in the PRC include:




·  increasing
      ability of PRC medical community to detect cancer at treatable
      stages;




·  increasing
      acceptance of use of western style medicine;




·  emerging
      middle class with increased financial ability to pay for medical procedures
      and
      demand for improved cancer care; and




·  government
      indications to increase permissible spending on medical device
      procurement.




**Corporate
      Structure**




We
      are a
      Nevada holding company and conduct all of our business through our operating
      subsidiaries as described in the below chart. We own 100% of the equity interest
      of Allied Moral Holdings, Ltd. (“Allied Moral”), a British Virgin Islands
      company that, in turn, owns 100% of the equity interest of Tibet Changdu Huiheng
      Development Company, Ltd. (“Changdu Huiheng”), a Tibetan holding company that,
      in turn, directly owns 100%, 75% and 50%, respectively, of our operating
      subsidiaries, Wuhan Kangqiao Medical New Technology Company, Ltd. (“Wuhan
      Kangqiao”), a PRC company, Shenzhen Hyper Technology Company, Ltd. (“Shenzhen
      Hyper”), a PRC company and Beijing Yuankang Kbeta Nuclear Technology Co., Ltd.
      (“Beijing Kbeta”), a PRC company. Wuhan Kangqiao focuses on research and
      development and managing production of the Head Gamma System and Body Gamma
      System. Shenzhen Hyper focuses on research and development and production
      management of the Super Gamma System and linear accelerators. Beijing Kbeta
      focuses on installation and replacement of the Cobalt 60 sources. The remaining
      equity interests in Shenzhen Hyper and Beijing Kbeta are owned by unrelated
      unaffiliated parties.




-4-











**Previous
        Operations**
  Prior
        to
        the change of control transaction in September 2006, we were engaged in the
        business of importing molding and door components and our corporate name
        was
        Pinewood Imports, Ltd. In September 2006, we changed our corporate name to
        Mill
        Basin Technologies, Ltd. In May 2007, we were subject to another change of
        control transaction, in which we acquired Allied Moral.
  **Corporate
        Information**
  Our
        principal executive office is located at Huiheng Building, Gaoxin 7 Street
        South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057.
        Our telephone number at that address is 86-755-25331366. Our website address
        is
        www.huihengmedical.com. The information on our website is not a part of this
        prospectus.


-5-


**Risks
      Related To Our Business**





**Adverse
      trends in the medical equipment industry, such as an overall decline in sales
      or
      a shift away from the therapies that our products support, may reduce our
      revenues and profitability.**




Our
      business depends on the continued vitality of the radiotherapy equipment
      industry, which is subject to technological change, short product life cycles
      and margin pressures. It is possible that innovations in other means of
      treatment of tumors or improvements in radiotherapy equipment developed by
      others will make our products unattractive in relative terms, reducing our
      revenues and profits.




**We
      do not have long-term purchase commitments from customers and have to rely
      on
      maintaining a steady stream of new orders for our
      products.**




Our
      medical equipment is generally sold one unit at a time to a particular customer,
      and most of our customers do not reorder our products. As a result, the
      continued growth of our business involves making sales to an increasing number
      of new customers each year, rather than being able to rely on continuing orders
      from existing customers. The failure to find and sell to a significant number
      of
      new customers each year would limit our revenues and profits.




We
      also
      make significant decisions, including determining the levels of business that
      we
      will seek and accept, production schedules, component procurement commitments,
      facility requirements, personnel needs and other resource requirements, based
      upon our estimates of future sales. Because many of our costs and operating
      expenses are fixed, a reduction in customer demand can reduce our gross margins
      and operating results. Additionally, from time to time, we may purchase
      quantities of supplies and materials greater than required by customer orders
      to
      secure more favorable pricing, delivery or credit terms. These purchases can
      expose us to losses from cancellation costs, inventory carrying costs or
      inventory obsolescence if the expected demand does not materialize , and hence
      adversely affect our business and operating results.




**Failure
      to optimize our sourcing activities and cost structure could materially increase
      our overhead, causing a decline in our margins and
      profitability.**




We
      strive
      to utilize our suppliers of parts and manufacturing services in an efficient
      manner. The efficiency of our operations depend in part on our success in
      accurately forecasting demand of our sales and planning component parts
      and outsourced manufacturing services for new products that we intend to
      produce. Failure to optimize our sourcing activities and cost structure could
      materially and adversely affect our business and operating results.




Moreover,
      our cost structure is subject to fluctuations from inflationary pressures.
      China
      is currently experiencing dramatic growth in its economy. This growth may lead
      to continued pressure on wages and salaries that may exceed increases in
      productivity. In addition, these may not be compensated for and may be
      exacerbated by exchange rate movements.




**Our
      business is subject to intense competition, which may reduce demand for our
      products and materially and adversely affect our business, financial condition,
      results of operations and prospects.**




The
      medical device market is highly competitive, and we expect the level of
      competition to remain at its current level or intensify. We face direct
      competition in China and will do so in other markets should we expand
      internationally. This competition is across all product lines and at all price
      points. Our competitors also vary significantly according to business segment.
      For domestic sales, our competitors include publicly traded and privately held
      multinational companies, as well as domestic Chinese companies. For
      international sales, which we are planning to commence in the near future,
      our
      competitors are primarily publicly traded and privately held multinational
      companies. We also face competition in international sales from companies that
      have local operations in the markets in which we sell our products. Some of
      our
      larger competitors especially the multinational company, have, among
      them:




·
            greater
                financial and other resources;




·
            A
                larger variety of products;




·
            more
                products that have received regulatory
                approvals;




·
            more
                extensive research and development and technical
                capabilities;




-6-




·
            patent
                portfolios that may present an obstacle to our conduct of
                business;




·
            greater
                knowledge of local market conditions where we seek to increase our
                international sales;




·
            stronger
                brand recognition; and




·
            larger
                sales and distribution networks.




As
      a
      result, we may be unable to offer products similar to, or more desirable than,
      those offered by our competitors, market our products as effectively as our
      competitors or otherwise respond successfully to competitive pressures. In
      addition, our competitors may be able to offer discounts on competing products
      as part of a “bundle” of non-competing products, systems and services that they
      sell to our customers, and we may not be able to match those discounts while
      retaining profitability. Furthermore, our competitors may develop technologies
      and products that are more effective than those we currently offer or that
      render our products obsolete or uncompetitive. In addition, the timing of the
      introduction of competing products into the market could affect the market
      acceptance and market share of our products. Our failure to compete successfully
      could materially and adversely affect our business, financial condition, results
      of operation and prospects.




Moreover,
      some of our internationally-based competitors have established or are in the
      process of establishing production and research and development facilities
      in
      China, while others have entered into cooperative business arrangements with
      Chinese manufacturers. If we are unable to develop competitive products, obtain
      regulatory approval or clearance and supply sufficient quantities to the market
      as quickly and effectively as our competitors, market acceptance of our products
      may be limited, which could result in decreased sales. In addition, we may
      not
      be able to maintain our outsourced manufacturing cost advantage.




In
      addition, we believe that corrupt practices in the medical device industry
      in
      China still occur, although it is difficult to know how frequently. To increase
      sales, certain manufacturers or distributors of medical devices may pay
      kickbacks or provide other benefits to hospital personnel who make procurement
      decisions. Our company policy prohibits these practices. As a result, as
      competition intensifies in the medical device industry in China, we may lose
      sales, customers or contracts to competitors who engage in these practices,
      and
      there may be no remedy we can pursue to prevent this.




**We
      may fail to effectively develop and commercialize new products, which would
      materially and adversely affect our business, financial condition, results
      of
      operations and prospects.**




The
      medical device market is developing rapidly and related technology trends are
      constantly evolving. This results in frequent introduction of new products,
      relatively short product life cycles and significant price competition.
      Consequently, our success depends on our ability to anticipate technology
      development trends and identify, develop and commercialize in a timely and
      cost-effective manner new and advanced products that our customers demand.
      Moreover, it may take an extended period of time for our new products to gain
      market acceptance, if at all. Furthermore, as the life cycle for a product
      matures, the average selling price generally decreases. Although we have
      previously offset the effect of declining average sales prices through increased
      sales volumes and reductions in outsourced manufacturing costs, we may be unable
      to continue to do so. Lastly, during a product’s life cycle, problems may arise
      regarding regulatory, intellectual property, product liability or other issues
      which may affect its continued commercial viability.




Whether
      we are successful in developing and commercializing new products is determined
      by our ability to:




·
            accurately
                assess technology trends and customer needs and meet market
                demands;




·
            optimize
                our procurement processes to predict and control
                costs;




·
            manufacture
                and deliver products in a timely
                manner;




·
            increase
                customer awareness and acceptance of our
                products;




·
            minimize
                the time and costs required to obtain required regulatory clearances
                or
                approvals;




·
            anticipate
                and compete effectively with other medical device
                companies;




-7-




·
            price
                our products competitively; and




·
            effectively
                integrate customer feedback into our research and development
                planning.




**If
      we fail to obtain or maintain applicable regulatory clearances or approvals
      for
      our products, or if such clearances or approvals are delayed, we will be unable
      to commercially distribute and market our products at all or in a timely manner,
      which could significantly disrupt our business and materially and adversely
      affect our sales and profitability.**




The
      sale
      and marketing of our products are subject to regulation in the PRC and in most
      other countries where we intend to conduct business. For a significant portion
      of our sales, we need to obtain and renew licenses and registrations with the
      PRC State Food and Drug Administration, or SFDA, and its equivalent in other
      markets. The processes for obtaining regulatory clearances or approvals can
      be
      lengthy and expensive, and the results are unpredictable. We recently have
      experienced unexpected delays in obtaining regulatory approval for our new
      products, and we cannot be certain how long the additional delays will be.
      In
      addition, the relevant regulatory authorities may introduce additional
      requirements or procedures that have the effect of delaying or prolonging the
      regulatory clearance or approval for our existing or new products. For example,
      the SFDA introduced a new safety standard to its approval process for new
      medical devices which we believe has increased the typical time period required
      to obtain such approval by approximately three months. If we are unable to
      obtain clearances or approvals needed to market existing or new products, or
      obtain such clearances or approvals in a timely fashion, our business would
      be
      significantly disrupted, and our sales and profitability could be materially
      and
      adversely affected.




In
      particular, as we enter foreign markets, we lack the experience and familiarity
      with both the regulators and the regulatory regimes, which could make the
      process more difficult, more costly, more time consuming and less likely to
      succeed.




**Failure
      to manage our growth could strain our management, operational and other
      resources, which could materially and adversely affect our business and
      prospects.**




Our
      growth strategy includes building our brand, increasing market penetration
      of
      our existing products, developing new products, increasing our targeting of
      hospitals in the PRC, and expanding internationally. Pursuing these strategies
      has resulted in, and will continue to result in, substantial demands on
      management resources. In particular, the management of our growth will require,
      among other things:




·
            continued
                enhancement of our research and development
                capabilities;




·
            information
                technology system enhancement;




·
            stringent
                cost controls and sufficient
                liquidity;




·
            strengthening
                of financial and management controls and information technology
                systems;




·
            increased
                marketing, sales and sales support activities;
                and




·
            hiring
                and training of new personnel.




If
      we are
      not able to manage our growth successfully, our business and prospects would
      be
      materially and adversely affected.




**We
      extend credit to our customers and may not be able to collect all receivables
      due to us, and our inability to collect such receivables may have an adverse
      effect on our immediate and long-term liquidity.**




The
      typical terms on which we sell our products provides for the customer to make
      a
      deposit at the time that the order is placed and to make progress payments
      at
      various stages of the manufacturing, shipping, installation and testing process.
      The final payment is not due until after the testing is complete and the
      customer accepts the product as meeting the specifications. We have limited
      ability to compel that final payment from the customer. Legal action is
      available, but the time it takes and the outcome of any litigation is inherently
      uncertain, particularly in the PRC, where the civil justice system continues
      to
      evolve. Should we be unable to collect on these accounts, it would reduce our
      liquidity and profitability.




-8-




**We
      generate a significant portion of our revenues from a small number of products,
      and a reduction in demand for any of these products could materially and
      adversely affect our financial condition and results of
      operations.**




We
      derive
      a substantial percentage of our revenues from a small number of products. As
      of
      December 31, 2007, we had just four products in our portfolio. In 2007, we
      shipped our first multileaf collimator, increasing our portfolio to four
      products. As a result, continued market acceptance and popularity of these
      products is critical to our success. A reduction in demand due to, among other
      factors, the introduction of competing products, the entry of new competitors,
      or end-users’ dissatisfaction with the quality of our products, could materially
      and adversely affect our financial condition and results of
      operations.




**If
      we experience a significant number of warranty claims, our costs could
      substantially increase and our reputation and brand could
      suffer.**




We
      typically sell our products with warranty terms covering 12 months after
      purchase. Our product warranty requires us to repair all mechanical malfunctions
      and, if necessary, replace defective components. We accrue liability for
      potential warranty claims at the time of sale based on historical experience.
      If
      we experience an increase in warranty claims or if our repair and replacement
      costs associated with warranty claims increase significantly, we may have to
      accrue a greater liability for potential warranty claims. Moreover, an increase
      in the frequency of warranty claims could substantially increase our costs
      and
      harm our reputation and brand. Our business, financial condition, results of
      operations and prospects may suffer materially if we experience a significant
      increase in warranty claims on our products.




**We
      may need additional capital, and we may be unable to obtain such capital in
      a
      timely manner or on acceptable terms, or at all.**




For
      us to
      grow, remain competitive, develop new products and expand our distribution
      network, we may require additional capital. Our ability to obtain additional
      capital is subject to a variety of uncertainties, including:




·
            our
                future financial condition, results of operations and cash
                flows;




·
            general
                market conditions for capital raising activities by medical device
                and
                related companies; and




·
            economic,
                political and other conditions in China and
                elsewhere.




We
      may be
      unable to obtain additional capital in a timely manner or on acceptable terms
      or
      at all. Furthermore, the terms and amount of any additional capital raised
      through issuances of equity securities may result in significant shareholder
      dilution.




**Products
      we develop may contain design or manufacturing defects, which could result
      in
      reduced demand for our services and customer claims, causing us to sustain
      additional costs, loss of business reputation and legal
      liability.**




Our
      products are highly complex and may at times contain design or manufacturing
      errors or failures. Any defects in the products we develop, whether caused
      by a
      design, manufacturing or component failure or error, may result in claims,
      delayed shipments to customers or reduced or cancelled customer orders. If
      these
      defects occur, we will incur additional costs, and if in they occur in large
      quantity or frequently, we may sustain additional costs, loss of business
      reputation and legal liability.




**Any
      product recall could have a material adverse effect on our business, results
      of
      operations and financial condition.**




Complex
      medical devices, such as our radiotherapy systems, can experience performance
      problems that require review and possible corrective action by the manufacturer.
      From time to time, we receive reports from users of our products relating to
      performance problems they have encountered. We expect that we will continue
      to
      receive customer reports regarding performance problems they encounter through
      the use of our products. Furthermore, component failures, manufacturing errors
      or design defects that could result in an unsafe condition or injury to the
      patient might occur. Any serious failures or defects could cause us to withdraw
      or recall products, which could result in significant costs such as repair
      and
      product replacement costs. We cannot assure you that market withdrawals or
      product recalls will not occur in the future, which could have a material
      adverse effect on our business, financial condition and results of operations.
      We are currently unable to ensure against this type of liability in
      China.




-9-




**We
      could become involved in intellectual property disputes, resulting  in
      substantial costs and diversion of our management resources. Such disputes
      could
      materially and adversely affect our business by increasing our expenses and
      limiting the resources that we can devote to expansion of our business, even
      if
      we ultimately prevail.**




We
      currently possess approximately 17 patents issued in the PRC and
      internationally. If one of our patents is infringed upon by a third party,
      we
      may need to devote significant time and financial resources to attempt to halt
      the infringement. We may not be successful in defending the patents involved
      in
      such a dispute. Similarly, while we do not knowingly infringe on patents,
      copyrights or other intellectual property rights owned by other parties, we
      may
      be required to spend a significant amount of time and financial resources to
      resolve any infringement claims against us. We may not be successful in
      defending our position or negotiating an alternative remedy. Any litigation
      could result in substantial costs and diversion of our management resources and
      could   reduce our revenues and profits.




We
      also
      rely on trade secrets, proprietary know-how and other non-patentable technology,
      which we seek to protect through non-disclosure agreements with employees.
      We
      cannot assure you that these non-disclosure agreements will not be breached,
      that we will have adequate remedies for any breach, or that our trade secrets,
      proprietary know-how and other non-patentable technology will not otherwise
      become known to, or be independently developed by, our competitors.




Implementation
      and enforcement of PRC intellectual property-related laws has historically
      been
      deficient and ineffective, and is hampered by corruption and local
      protectionism. Accordingly, intellectual property rights and confidentiality
      protections in China may not be as effective as in the United States or other
      countries. Policing unauthorized use of proprietary technology is difficult
      and
      expensive, and we might need to resort to litigation to enforce or defend
      patents issued to us or to determine the enforceability, scope and validity
      of
      our proprietary rights or those of others. The experience and capabilities
      of
      PRC courts in handling intellectual property litigation varies, and outcomes
      are
      unpredictable. Further, such litigation may require significant expenditure
      of
      cash and management efforts and could harm our business, financial condition
      and
      results of operations. An adverse determination in any such litigation will
      impair our intellectual property rights and may harm our business, prospects
      and
      reputation.




**We
      may develop new products that may not gain market acceptance, and our
      significant costs in designing and manufacturing services for new product
      solutions may not result in sufficient revenue to offset those costs or to
      produce profits.**




We
      operate in an industry characterized by frequent technological advances, the
      introduction of new products and new design and manufacturing technologies.
      We
      are expecting to introduce four new products during the period from Q2 2008
      through Q4 2009. As a result, we are expending funds and committing resources
      to
      research and development activities, possibly requiring additional engineering
      and other technical personnel; purchasing new design, production, and test
      equipment; and continually enhancing design processes and techniques. Delays
      in
      product approval could result in increased costs. We may invest in equipment
      employing new production techniques for existing products and new equipment
      in
      support of new technologies that fail to generate adequate returns on the
      investment due to insufficient productivity, functionality or market acceptance
      of the products for which the equipment may be used. We could, therefore, incur
      significant sums in design and manufacturing services for new products that
      do
      not result in sufficient revenue to make those investments
      profitable.




**Our
      limited operating history makes evaluating our business and prospects
      difficult.**




Shenzhen
      Hyper commenced operations in September 2001, and delivered the first unit
      of
      our Super Gamma System (“SGS”) in that year. Wuhan Kangqiao also commenced
      operation in September of 2001, and it delivered the first unit of our Body
      Gamma Treatment System (“BGTS”) in 2003 and the first unit of our Head Gamma
      Treatment System (“HGTS”) in 2004. As a result, we have a limited operating
      history which may not provide a meaningful basis for you to evaluate our
      business, financial performance and prospects. We may not have sufficient
      experience to address the risks frequently encountered by early-stage companies,
      and as a result we may not be able to:




·
            maintain
                profitability;




·
            preserve
                our what we believe (based solely on management's knowledge of industry)
                is leading position in the market of Gamma Treatment System tumor
                therapy
                devices in China;




·
            acquire
                and retain customers;




·
            attract,
                train, motivate and retain qualified
                personnel;




-10-




·
            keep
                up with evolving industry standards and market
                developments;




·
            increase
                the market awareness of our
                products;




·
            respond
                to competitive market conditions;




·
            maintain
                adequate control of our expenses;




·
            manage
                our relationships with our suppliers and distributors;
                or




·
            protect
                our proprietary technologies.




If
      we are
      unsuccessful in addressing any of these risks, our business may be materially
      and adversely affected.




**Our
      component and materials suppliers may fail to meet our needs, causing us to
      experience outsourced manufacturing delays, which may harm our relationships
      with current or prospective customers and reduce sales.**




We
      acquire many of the components of our equipment from third parties. This
      generally serves to reduce our commitment risk but does expose us to supply
      risk
      and to price increases that we may not be able to pass on to our customers.
        There may be shortages of some of the materials and components that we
      use. If we are unable to obtain sufficient amounts of components or materials
      on
      a timely basis, we may experience outsourced manufacturing delays, which could
      harm our relationships with current or prospective customers and reduce
      sales.




**We
      are subject to product liability exposure and have no product
      liability insurance coverage.**




As
      our
      main products are medical devices used for the treatment of patients, we are
      exposed to potential product liability claims in the event that the use of
      our
      products causes or is alleged to have caused personal injuries or other adverse
      effects. A successful product liability claim against us could require us to
      pay
      substantial damages. Product liability claims against us, whether or not
      successful, are costly and time-consuming to defend. Also, in the event that
      our
      products prove to be defective, we may be required to recall or redesign such
      products. As the insurance industry in China is still in an early stage of
      development, we do not have any product liability insurance. A product liability
      claim, with or without merit, could result in significant adverse publicity
      against us, and could have a material adverse effect on the marketability of
      our
      products and our reputation, which in turn, could have a material adverse effect
      on our business, financial condition and results of operations. In addition,
      we
      do not have any business interruption insurance coverage for our operations.
      Any
      business disruption or natural disaster could result in substantial costs and
      diversion of resources.




**New
      product development in the medical device and supply industry is both costly
      and
      labor-intensive and has a very low rate of successful
      commercialization.**




Our
      success will depend in part on our ability to enhance our existing products
      and
      technologies and to develop and acquire new products or technologies. The
      development process for medical technology is complex and uncertain, as well
      as
      time-consuming and costly. Product development requires the accurate assessment
      of technological and market trends as well as precise technological execution.
      We cannot assure you that:




·
            our
                product or technology development will be successfully
                completed;




·
            necessary
                regulatory clearances or approvals will be granted by the SFDA or
                other
                regulatory bodies as required on a timely basis, or at all;
                or




·
            any
                product or technology we develop can be commercialized or will achieve
                market acceptance.




Also,
      we
      may be unable to locate suitable products or technologies to acquire or acquire
      such products or technologies on commercially reasonable terms. Failure to
      develop or acquire, obtain necessary regulatory clearances or approvals for,
      or
      successfully commercialize or market potential new products or technologies
      could have a material adverse effect on our financial condition and results
      of
      operations.




-11-




**The
      price and the sales of our products may be adversely affected by reductions
      in
      treatment fees by the Chinese Government.**




Treatment
      fees for our radiotherapy systems, like many other medical treatments, are
      subject to prices set by provincial governments in China, and these prices
      can
      be adjusted downward or upward from time to time. If the treatment fees for
      our
      products are reduced by the government, some hospitals and distributors may
      be
      discouraged from buying our products, which would reduce our sales. We may
      need
      to decrease the price of our products to provide hospitals acceptable returns
      on
      their purchases. Our business or results of operations may be adversely affected
      by a reduction in treatment fees for our products in the future.




**We
      may not be able to secure financing needed for future operating needs on
      acceptable terms, or on any terms at all.**




From
      time
      to time, we may seek additional equity or debt financing to provide the capital
      required to expand our facilities and equipment and/or working capital, if
      cash
      flow from operations is insufficient to do so. We cannot predict with certainty
      the timing or amount of any such capital requirements or the availability of
      investment to meet them. If such financing is not available on satisfactory
      terms, we may be unable to expand our business or to develop new business at
      the
      rate desired.




**Potential
      strategic alliances may not achieve their objectives, which could lead to wasted
      effort or involvement in ventures that are not profitable and could harm our
      company’s reputation.**




We
      are
      currently exploring strategic alliances designed to enhance or complement our
      technology or to work in conjunction with our technology, increase utilization
      of our manufacturing capacity, provide additional know-how, components or
      supplies, and develop, introduce and distribute products and services utilizing
      our technology and know-how. Any strategic alliances entered into may not
      achieve their strategic objectives, and parties to our strategic alliances
      may
      not perform as contemplated. As a result, the alliances themselves may run
      at a
      loss, which would reduce our profitability, and if the products or customer
      service provided by such alliances were of inferior quality, our reputation
      in
      the marketplace could be harmed, affecting our existing and future customer
      relationships.




**We
      may not be able to retain, recruit and train adequate management and production
      personnel. We rely heavily on those personnel to help develop and execute our
      business plans and strategies, and if we lose such personnel, it would reduce
      our ability to operate effectively.**




Our
      success is dependent, to a large extent, on our ability to retain the services
      of our executive management, who have contributed to our growth and expansion
      to
      date. The executive directors play an important role in our operations and
      the
      development of our new products. Accordingly, the loss of their services,
      without suitable replacements, will have an adverse affect on our business
      generally, operating results and future prospects.




In
      addition, our continued operations are dependent upon our ability to identify
      and recruit adequate management and production personnel in China. We require
      trained graduates of varying levels and experience and a flexible work force
      of
      semi-skilled operators. Many of our current employees come from the more remote
      regions of China as they are attracted by the wage differential and prospects
      afforded by Shenzhen, Beijing and our operations. With the economic growth
      currently being experienced in China, competition for qualified personnel will
      be substantial, and there can be no guarantee that a favorable employment
      climate will continue and that wage rates we must offer to attract qualified
      personnel will enable us to remain competitive. Inability to attract such
      personnel or the increased cost of doing so could reduce our competitive
      advantage relative to our competitors, reducing or eliminating our growth in
      revenues and profits.




***Risks
      Related to International Operations***




***We
      do not currently conduct a meaningful amount of business internationally.
      However, we have plans to expand our operations into international sales, and
      the rate and degree of that expansion could be substantial. For that reason,
      risks related to international operations may be relevant to your investment
      decision.***




**If
      China does not continue its policy of economic reforms, it could, among other
      things, result in an increase in tariffs and trade restrictions on products
      we
      produce or sell following a business combination, making our products less
      attractive and potentially reducing our revenues and
      profits.**




China’s
      government has been reforming its economic system since the late 1970s. The
      economy of China has historically been a nationalistic, “planned economy,”
meaning it has functioned and produced according to governmental plans and
      pre-set targets or quotas.




-12-




However,
      in recent years, the Chinese government has implemented measures emphasizing
      the
      utilization of market forces for economic reform and the reduction of state
      ownership in business enterprises. Although we believe that the changes adopted
      by the government of China have had a positive effect on the economic
      development of China, additional changes still need to be made. For example,
      a
      substantial portion of productive assets in China are still owned by the Chinese
      government. Additionally, the government continues to play a significant role
      in
      regulating industrial development. We cannot predict the timing or extent of
      any
      future economic reforms that may be proposed, but should they occur, they could
      reduce our operating flexibility or require us to divert our efforts to products
      or ventures that are less profitable than those we would elect to pursue on
      our
      own.




A
      recent
      positive economic change has been China’s entry into the World Trade
      Organization, the global international organization dealing with the rules
      of
      trade between nations. It is believed that China’s entry will ultimately result
      in a reduction of tariffs for industrial products, a reduction in trade
      restrictions and an increase in trading with the United States and other western
      countries. However, China has not fully complied with all of its WTO obligations
      to date, including fully opening its markets to American goods and easing the
      current trade imbalance between the two countries. If actions are not taken
      to
      rectify these problems, trade relations between the United States and China
      may
      be strained, and this may have a negative impact on China’s economy and our
      business by leading to the imposition of trade barriers on items that
      incorporate our products, which would reduce the revenues and profits we might
      otherwise generate from international sales.




**The
      Chinese government could change its policies toward, or even nationalize,
      private enterprise, which could leave us unable to use the assets we have
      accumulated for the purpose of generating profits for the benefit of our
      shareholders.**




Over
      the
      past several years, the Chinese government has pursued economic reform policies,
      including the encouragement of private economic activities and decentralization
      of economic regulation. The Chinese government may not continue to pursue these
      policies or may significantly alter them to our detriment from time to time
      without notice. Changes in policies by the Chinese government that result in
      a
      change of laws, regulations, their interpretation, or the imposition of
      confiscatory taxation, restrictions on currency conversion or imports and
      sources of supply could materially reduce the value of our business by making
      us
      uncompetitive or, for example, by reducing our after-tax profits. The
      nationalization or other expropriation of private enterprises by the Chinese
      government could result in the total loss of our investment in China, where
      a
      significant portion of our profits are generated.




**The
      Chinese legal system may have inherent uncertainties that could materially
      and
      adversely impact our ability to enforce the agreements governing our
      operations.**




The
      performance of the agreements and the operations of our factories are dependent
      on our relationship with the local government. Our operations and prospects
      would be materially and adversely affected by the failure of the local
      government to honor our agreements or an adverse change in the laws governing
      them. In the event of a dispute, enforcement of these agreements could be
      difficult in China. China tends to issue legislation , which is followed by
      implementing regulations, interpretations and guidelines that can render
      immediate compliance difficult. Similarly, on occasion, conflicts arise between
      national legislation and implementation by the provinces that take time to
      reconcile. These factors can present difficulties in our ability to achieve
      compliance. Unlike the United States, China has a civil law system based on
      written statutes in which judicial decisions have limited precedential value.
      The Chinese government has enacted laws and regulations to deal with economic
      matters such as corporate organization and governance, foreign investment,
      commerce, taxation and trade. However, our experience in implementing,
      interpreting and enforcing these laws and regulations is limited, and our
      ability to enforce commercial claims or to resolve commercial disputes in China
      is therefore unpredictable. These matters may be subject to the exercise of
      considerable discretion by agencies of the Chinese government, and forces and
      factors unrelated to the legal merits of a particular matter or dispute may
      influence their determination.




**International
      expansion may be costly, time consuming and difficult. If we do not successfully
      expand internationally, our profitability and prospects would be materially
      and
      adversely affected.**




Our
      success depends to a significant degree upon our ability to expand into
      international markets. In expanding our business internationally, we intend
      to
      enter markets in which we have limited or no experience and in which our brand
      may be less recognized. To further promote our brand and generate demand for
      our
      products so as to attract distributors in international markets, we expect
      to
      spend significantly more on marketing and promotion than we do in our existing
      markets. We may be unable to attract a sufficient number of distributors, and
      our selected distributors may not be suitable for selling our products.
      Furthermore, in new markets we may fail to anticipate competitive conditions
      that are different from those in our existing markets. These competitive
      conditions may make it difficult or impossible for us to effectively operate
      in
      these markets. If our expansion efforts in existing and new markets are
      unsuccessful, our profitability and prospects would be materially and adversely
      affected.




-13-




We
      are
      exposed to other risks associated with international operations,
      including:




·
            political
                instability;


·
            economic
                instability and recessions;


·
            changes
                in tariffs;


·
            difficulties
                of administering foreign operations
                generally;


·
            limited
                protection for intellectual property
                rights;


·
            obligations
                to comply with a wide variety of foreign laws and other regulatory
                requirements;


·
            increased
                risk of exposure to terrorist
                activities;


·
            financial
                condition, expertise and performance of our international
                distributors;


·
            export
                license requirements;


·
            unauthorized
                re-export of our products;


·
            potentially
                adverse tax consequences; and


·
            the
                inability to effectively enforce contractual or legal
                rights.




**If
      we begin to do business internationally, we will be subject to significant
      worldwide political, economic, legal and other uncertainties that may make
      collection of amounts owed to us difficult or costly**




Because
      we develop all of our products in the PRC, substantially all of the net book
      value of our total fixed assets is located there. Should we begin selling our
      products to customers worldwide, we will have receivables from and goods in
      transit to those locations. Protectionist trade legislation in the United States
      or other countries, such as a change in export or import legislation, tariff
      or
      duty structures, or other trade policies, could adversely affect our ability
      to
      sell products in these markets, or even to purchase raw materials or equipment
      from foreign suppliers.




We
      are
      also subject to numerous national, state and local governmental regulations,
      including environmental, labor, waste management, health and safety matters
      and
      product specifications and regulatory approvals from healthcare agencies. We
      are
      subject to laws and regulations governing our relationship with our employees,
      including: wage and hour requirements, working and safety conditions,
      citizenship requirements, work permits and travel restrictions. These include
      local labor laws and regulations, which may require substantial resources for
      compliance. We are subject to significant government regulation with regard
      to
      property ownership and use in connection with our facilities in the PRC, import
      restrictions, currency restrictions and restrictions on the volume of domestic
      sales and other areas of regulation, all of which can limit our ability to
      react
      to market pressures in a timely or effective way, thus causing us to lose
      business or miss opportunities to expand our business.




**Fluctuation
      of the Renminbi could make our pricing less attractive, causing us to lose
      sales, or could reduce our profitability when stated in terms of another
      currency, such as the US dollar.**




The
      value
      of the Renminbi, the main currency used in China, fluctuates and is affected
      by,
      among other things, changes in the PRC’s political and economic conditions. The
      conversion of Renminbi into foreign currencies such as the dollar has been
      generally based on rates set by the People’s Bank of China, which are set daily
      based on the previous day’s interbank foreign exchange market rates and current
      exchange rates on the world financial markets. The official exchange rate had
      remained stable over the past several years. However, the PRC recently adopted
      a
      floating rate with respect to the Renminbi. As a result, the exchange rate
      of
      the Renminbi to the dollar is about 7.7 from what had been about 8.25. This
      floating exchange rate, and any appreciation of the Renminbi that may result
      from such rate, could have various effects on our international business, which
      include making our products more expensive relative to those of our competitors
      than has been true in the past, or increasing our profitability when stated
      in
      dollar terms. It is not possible to predict if the net effects of the
      appreciation of the Renminbi, to whatever extent it occurs, would be positive
      or
      negative for our business.




**Changes
      in foreign exchange regulations in China may affect our ability to pay dividends
      in foreign currency or conduct other business for which we would need access
      to
      foreign currency exchange.**




Renminbi,
      or RMB, is not currently a freely convertible currency, and the restrictions
      on
      currency exchanges may limit our ability to use revenues generated in RMB to
      fund business activities outside the PRC or to make dividends or other payments
      in United States dollars. The Chinese government strictly regulates conversion
      of RMB into foreign currencies. For example, RMB cannot be converted into
      foreign currencies for the purpose of expatriating the foreign currency, except
      for purposes such as payment of debts lawfully owed to parties outside of the
      PRC. Over the years, foreign exchange regulations in the PRC have significantly
      reduced the government’s control over routine foreign exchange transactions
      under current accounts.




-14-




The
      State
      Administration for Foreign Exchange (“SAFE”) regulates the conversion of the RMB
      into foreign currencies. Currently, Foreign Invested Enterprises (“FIE”) are
      required to apply for “Foreign Exchange Registration Certificates,” which permit
      the conversion of RMB into foreign exchange for the purpose of expatriating
      profits earned in the PRC to a foreign country. Our PRC subsidiary, Changdu
      Huiheng, is a FIE that has obtained the registration certifications, and with
      such registration certifications, which need to be renewed annually, Changdu
      Huiheng is allowed to open foreign currency accounts including a “current
      account” and “capital account.” Currently, conversion within the scope of the
“current account”, e.g. remittance of foreign currencies for payment of
      dividends, etc., can be effected without requiring the approval of SAFE.
      However, conversion of currency in the “capital account,” e.g. for capital items
      such as direct investments, loans, securities, etc., still requires the approval
      of SAFE. In accordance with the existing foreign exchange regulations in the
      PRC, Changdu Huiheng is able to pay dividends in foreign currencies, without
      prior approval from the SAFE, by complying with certain procedural
      requirements.




In
      addition, on October 21, 2005, SAFE promulgated Notice 75, Notice on Issues
      concerning Foreign Exchange Management in People’s Republic of the PRC
      Residents’ Financing and Return investments through Offshore Special Purpose
      Vehicle (“OSPV”). Notice 75 provides that Chinese residents shall apply for
      Foreign Exchange Investment Registration before establishing or controlling
      an
      OSPV, which is defined by Notice 75 as a foreign enterprise directly established
      or indirectly controlled by Chinese residents for foreign equity capital
      financing with their domestic enterprise assets and interests.




Notice
      75
      further requires that Chinese residents shall process the modification of
      foreign investment exchange registration for the interests of net assets held
      by
      Chinese residents in an OSPV and its alteration condition, if Chinese residents
      contributed their domestic assets or shares into the OSPV, or processed foreign
      equity capital financing after contributing their domestic assets or shares
      into
      the OSPV.




Pursuant
      to Notice 75, Chinese residents are prohibited, among other things, from
      distributing profits or proceeds from a liquidation, paying bonuses, or
      transferring shares of the OSPV outside of the PRC if Chinese residents have
      not
      completed or do not maintain the foreign investment exchange
      registration.




Hui
      Xiaobing, our principal executive officer and director, has filed the requisite
      application for foreign investment exchange registration under the relevant
      laws
      of the PRC and the regulations of Notice 75, and his registration application
      has been approved by SAFE. His foreign investment exchange registration is
      valid, legal and effective for the purpose of Notice 75.




However,
      we cannot provide any assurance that Chinese regulatory authorities will not
      impose further restrictions on the convertibility of the RMB. Since our
      subsidiary in the PRC currently generates virtually all of our revenue and
      these
      revenues are denominated mainly in RMB, any future restrictions on currency
      exchanges may limit our ability to repatriate such revenues for the distribution
      of dividends to our shareholders or for funding our other business activities
      outside the PRC.




**We
        are subject to various tax regimes, which may adversely affect our
        profitability and tax liabilities in the future.**
  Huiheng
        is incorporated in the U.S., with subsidiaries and/or operations or other
        presence in the PRC and the British Virgin Islands, and it will be subject
        to
        the tax regimes of these countries. Although virtually all of Huiheng’s profits
        will be earned outside of the U.S., under U.S. tax laws most or all of Huiheng’s
        earnings will be subject to U.S. taxation, because U.S. companies are generally
        taxed on their world-wide income. That may be true even if Huiheng does not
        repatriate any of its foreign earnings to the U.S. As a result of the imposition
        of U.S. taxes, Huiheng’s after-tax profits could decrease significantly and
        those profits would likely be below the amount that would have been obtained
        if
        Huiheng were incorporated outside the U.S. The amount of taxes payable in
        the
        U.S. depends on the profitability of our various operations and the application
        of available tax credits and tax treaties. Since the effect of tax credits
        and
        tax treaties depend on the profitability of operations in various jurisdictions,
        the amount of the additional tax will vary over time and as the Company changes
        the geographic scope of its activities. Huiheng may not be able to avoid
        having
        to pay significantly higher taxes than we have paid historically. In addition,
        any change in tax laws and regulations or the interpretation or application
        thereof, either internally in one of those jurisdictions or as between those
        jurisdictions, may adversely affect Huiheng’s profitability and tax liabilities
        in the future.


-15-




**Because
      Chinese law will govern almost all of our material agreements, we may not be
      able to enforce our legal rights within China or elsewhere, which could result
      in a significant loss of business, business opportunities, or
      capital.**




Chinese
      law will govern almost all of our material agreements. We cannot assure you
      that
      we will be able to enforce any of our material agreements or that remedies
      will
      be available outside of the PRC. The system of laws and the enforcement of
      existing laws in the PRC may not be as certain in implementation and
      interpretation as in the United States. The Chinese judiciary is relatively
      inexperienced in enforcing corporate and commercial law, leading to a higher
      than usual degree of uncertainty as to the outcome of any litigation. The
      inability to enforce or obtain a remedy under any of our future agreements
      could
      result in a significant loss of business, business opportunities or
      capital.




**It
      will be extremely difficult to acquire jurisdiction and enforce liabilities
      against our officers, directors and assets based in China.**




Substantially
      all of our assets will be located outside of the United States and most of
      our
      officers and directors will reside outside of the United States. As a result,
      it
      may not be possible for United States investors to enforce their legal rights,
      to effect service of process upon our directors or officers or to enforce
      judgments of United States courts predicated upon civil liabilities and criminal
      penalties of our directors and officers under Federal securities laws. Moreover,
      we have been advised that the PRC does not have treaties providing for the
      reciprocal recognition and enforcement of judgments of courts with the United
      States. Further, it is unclear if extradition treaties now in effect between
      the
      United States and the PRC would permit effective enforcement of criminal
      penalties of the Federal securities laws.




**We
      may have difficulty establishing adequate management, legal and financial
      controls in the PRC, which could impair our planning processes and make it
      difficult to provide accurate reports of our operating
      results.**




The
      PRC
      historically has not followed Western style management and financial reporting
      concepts and practices, and its access to modern banking, computer and other
      control systems has been limited. We may have difficulty in hiring and retaining
      a sufficient number of qualified employees to work in the PRC in these areas.
      As
      a result of these factors, we may experience difficulty in establishing
      management, legal and financial controls, collecting financial data and
      preparing financial statements, books of account and corporate records and
      instituting business practices that meet Western standards, making it difficult
      for management to forecast its needs and to present the results of our
      operations accurately at all times.




**Imposition
      of trade barriers and taxes may reduce our ability to do business
      internationally, and the resulting loss of revenue could harm our
      profitability.**




We
      may
      experience barriers to conducting business and trade in our targeted emerging
      markets in the form of delayed customs clearances, customs duties and tariffs.
      In addition, we may be subject to repatriation taxes levied upon the exchange
      of
      income from local currency into foreign currency, substantial taxes of profits,
      revenues, assets and payroll, as well as value-added tax. Further obstacles
      still may arise in obtaining the approval for the use of our equipment in the
      health care systems of various countries.   The markets in which we plan to
      operate may impose onerous and unpredictable duties, tariffs and taxes on our
      business and products, and there can be no assurance that this will not reduce
      the level of sales that we achieve in such markets, which would reduce our
      revenues and profits.




The
      PRC
      has agreed that foreign companies will be allowed to import most products into
      any part of the PRC. In the sensitive area of intellectual property rights,
      the
      PRC has agreed to implement the trade-related intellectual property agreement
      of
      the Uruguay Round. There can be no assurances that the PRC will implement any
      or
      all of the requirements of its membership in the World Trade Organization in
      a
      timely manner, if at all. If the PRC does not fulfill its obligations to the
      World Trade Organization, we may be subject to retaliatory actions by the
      governments of the countries into which we sell our products, which could render
      our products less attractive, thus reducing our revenues and
      profits.




**There
      can be no guarantee that our management will continuously meet its obligations
      under Chinese law to enable distribution of profits earned in the PRC to
      entities outside of the PRC.**




A
      circular recently promulgated by SAFE has increased the ability of foreign
      holding companies to receive distributions of profits earned by Chinese
      operating subsidiaries. We qualify for this treatment, but remaining qualified
      for it will require the Chinese principals involved to meet annual filing
      obligations. While they have agreed to meet those annual requirements, it is
      possible that they will fail to do so, which could limit our ability to gain
      access to the profits earned by Allied. The result could be the inability to
      pay
      dividends to our stockholders or to deploy capital outside of the PRC in a
      manner that would be beneficial to our business as a whole.




-16-




***Risks
      Related to our Securities.***




**The
      market price of our shares is subject to significant price and volume
      fluctuations.**




The
      price
      of our common shares may be subject to wide fluctuations in response to
      variations in operating results, news announcements, trading volume, general
      market trends both domestically and internationally, currency movements and
      interest rate fluctuations or sales of common shares by our officers, directors
      and our principal shareholders, customers, suppliers or other publicly traded
      companies. Certain events, such as the issuance of common shares upon the
      exercise of our outstanding stock options, could also materially and adversely
      affect the prevailing market price of our common shares. Further, the stock
      markets in general have recently experienced extreme price and volume
      fluctuations that have affected the market prices of equity securities of many
      companies and that have been unrelated or disproportionate to the operating
      performance of such companies. These fluctuations may materially and adversely
      affect the market price of our common shares and the ability to resell shares
      at
      or above the price paid, or at any price.




**One
      of our stockholders, which is controlled by our Chief Executive Officer,
      currently owns approximately** **85%
      of our Common Stock and may act, or prevent certain types of corporate actions,
      to the detriment of other stockholders.**




Clear
      Honest International Limited, a company controlled by Mr. Hui Xiaobing (our
      Chief Executive Officer) owns 11,750,000 shares of our common stock, which
      represents approximately 85% of our outstanding shares of common stock. Mr.
      Hui
      is able to exercise significant influence over all matters requiring stockholder
      approval, including the election of a majority of the directors and
      determination of significant corporate actions. This concentration could
      increase if the earnout shares are issued. If all 1,600,000 of the earnout
      shares are issued as additional consideration under the Allied Moral share
      exchange (which would occur, if ever, from 2008 through 2011) and assuming
      that
      there are no other issuances of shares, Clear Honest would own approximately
      87%
      of our issued and outstanding common stock. This concentration of ownership
      could also have the effect of delaying or preventing a change in control that
      could otherwise be beneficial to our stockholders.




**Future
      Sales Of Our Common Stock May Depress Our Stock Price.**




The
      13,800,137 shares of common stock outstanding, and an additional 2,450,977
      shares of common stock issuable upon conversion of our Series A Preferred Stock,
      will be available for sale in the public market at various times after we
      register our stock under the Securities Exchange Act:




If
      our
      stockholders sell substantial amounts of shares in the public market, or if
      the
      market perceives that these sales may occur, the market price of our common
      stock may decline. In addition, we intend to file a registration statement
      under
      the Securities Act covering up to 1,566,666 shares of common stock issuable
      under our stock plan. Accordingly, shares registered under that registration
      statement will be available for sale in the open market.




**Our
      Articles of Incorporation authorize our board of directors to issue new series
      of preferred stock that may have the effect of delaying or preventing a change
      of control, which could adversely affect the value of your
      shares.**




Our
      articles of incorporation, provide that our board of directors will be
      authorized to issue from time to time, without further stockholder approval,
      up
      to 700,000 additional shares of preferred stock in one or more series and to
      fix
      or alter the designations, preferences, rights and any qualifications,
      limitations or restrictions of the shares of each series, including the dividend
      rights, dividend rates, conversion rights, voting rights, rights of redemption,
      including sinking fund provisions, redemption price or prices, liquidation
      preferences and the number of shares constituting any series or designations
      of
      any series. Such shares of preferred stock could have preferences over our
      common stock with respect to dividends and liquidation rights. We may issue
      additional preferred stock in ways which may delay, defer or prevent a change
      of
      control of our company without further action by our stockholders. Such shares
      of preferred stock may be issued with voting rights that may adversely affect
      the voting power of the holders of our common stock by increasing the number
      of
      outstanding shares having voting rights, and by the creation of class or series
      voting rights.




**There
      may not be an active, liquid trading market for our common stock
      .**




Our
      common stock is currently traded on the Over the Counter Bulletin Board, and
      we
      have filed an application for listing on The Nasdaq Capital Market. We believe
      we will meet all of the listing criteria. Although we intend on meeting all
      of
      the necessary requirements, our application may not be accepted. If we do not
      succeed in securing a listing on the Nasdaq Capital Market, it could limit
      the
      ability to trade our common stock and result in a reduction of the price that
      can be obtained for shares being sold.




-17-




Compliance
      with the applicable provisions of the Sarbanes-Oxley Act may be a further
      condition of continued listing or trading. If we are granted a listing on the
      Nasdaq Capital Market, we may not always be able to meet the listing
      requirements. Failure to continually meet the Nasdaq Capital Market listing
      requirements could result in the delisting of our common stock, which may
      adversely affect the liquidity of our shares, the price that can be obtained
      for
      them or both.




**We
      may not pay dividends.**




We
      may
      not pay dividends in the future. Instead, we expect to apply earnings toward
      the
      further expansion and development of our business. The likelihood of our paying
      dividends is further reduced by the fact that, in order to pay dividends, we
      would need to repatriate profits earned outside of the U.S., and in doing so
      those profits would become subject to U.S. taxation. Thus, the liquidity of
      your
      investment is dependent upon your ability to sell stock at an acceptable price,
      rather than receiving an income stream from it. The price of our stock can
      go
      down as well as up, and fluctuations in market price may limit your ability
      to
      realize any value from your investment, including recovering the initial
      purchase price.




-18-




**Item
      2.**  ***Description
      of Property.***





We
      currently operate our business out of two properties located in the PRC. Wuhan
      Kangqiao is headquartered in Wuhan, China where it owns a 287 square meter
      office building that houses management, research and development personnel,
      marketing, finance and administrative support staff.




Shenzhen
      Hyper is headquartered in Shenzhen, China, where it leases office space of
      4,000
      square meters, with a monthly rental of RMB 160,000 (USD 21,934) per month,
      that
      houses management, research and development personnel, marketing, finance and
      administrative support staff. This lease will expire at the end of December
      2027. We relocated to this space at the beginning of 2008.




Neither
      facility contains equipment or specialized improvements that would be difficult
      to move to a new location. If we decided to relocate, we believe that there
      are
      many facilities in these locations that would be suitable for our
      needs.




**Item
      3.**  ***Legal
      Proceedings.***





From
      time
      to time, Huiheng may be involved in litigation relating to claims arising out
      of
      its operations in the normal course of business. Any of these claims could
      subject us to costly litigation and, while we generally believe that we have
      adequate insurance to cover many different types of liabilities, our insurance
      carriers may deny coverage or our policy limits may be inadequate to fully
      satisfy any damage awards or settlements. If this were to happen, the payment
      of
      any such awards could have a material adverse effect on our results of
      operations and financial position. Additionally, any such claims, whether or
      not
      successful, could damage our reputation and business. Huiheng currently is
      not a
      party to any legal proceedings, the adverse outcome of which, in management’s
      opinion, individually or in the aggregate, would have a material adverse effect
      on our results of operations or financial position.




**Item
      4.** ***Submission of Matters to a Vote of Security Holders.***





In
      December 2007, we sought and obtained shareholder approval to amend the rights
      and preferences of our Series A Preferred stock. This amendment was approved
      by
      the requisite majority of shareholders.




-19-




**PART
      II**





**Item
      5.** ***Market for Common Equity, Related Stockholder Matters and Small Business Issuer
      Purchases of Equity Securities.***





Our
      common stock is currently listed for trading in the over-the-counter market
      on
      the NASD “Electronic Bulletin Board” (Symbol: “HHGM”). After we initially
      registered shares for public trading in 2006, our common stock did not have
      any
      trading volume or bid prices listed. Our common stock has only had bid prices
      entered since the second quarter of 2007, following the share exchange we
      consummated with Allied Moral Holdings Limited.




The
      following table shows the high and low bid information for our stock since
      May,
      2007 (these amounts reflect inter-dealer prices, without retail mark-ups,
      mark-downs, or commissions and do not necessarily represent actual
      transactions):




**Fiscal 2007**
            
            **High**
            
            **Low**Second
                Quarter
            
            $
            9.00
            
            $
            9.00Third
                Quarter
            
            $
            8.00
            
            $
            7.50Fourth
                Quarter
            
            $
            13.00
            
            $
            8.00




**Fiscal 2008**
              
              **High**
              
              **Low**First
                  Quarter
              
              $
              10.00
              
              $
              7.20


There
      are
      no outstanding options or warrants that can be converted into our common equity.
      As provided in the Allied Moral Holdings share exchange agreement, if Huiheng
      achieves certain profit targets for 2008 through 2011, we may distribute some
      or
      all of 1,600,000 shares of common stock to those persons who were the holders
      of
      Allied Moral’s common stock at the time of the share exchange.




We
      have
      approximately 50 record holders of our common stock. This number excludes any
      estimate by us of the number of beneficial owners of shares held in street
      name,
      the accuracy of which cannot be guaranteed.




*Dividends*




In
      January 2007, our subsidiary (Allied Moral) paid a dividend of
      approximately $9.16 million to the sole shareholder of Allied
      Moral's common stock at the time, Mr. Hui Xiaobing, our Chief
      Executive Officer. This dividend was paid upon the completion of the
      restructuring transaction in which Mr. Hui became such sole shareholder
      of Allied Moral's common stock. The dividend was intended to
      distribute the retained earnings that had accumulated before the
      restructuring. Huiheng has no plans to distribute additional dividends for
      at least the immediate future, as it plans to retain any profit to support
      its
      growth plans.




All
      of
      our business is conducted through our subsidiaries based in China. As stated
      above in the Risk Factors section, Renminbi, or RMB, is not a freely convertible
      currency currently, and the restrictions on currency exchanges may limit our
      ability to make dividends or other payments in United States dollars. However,
      in accordance with the existing foreign exchange regulations in China, Allied
      Moral is able to pay dividends in foreign currencies, without prior approval
      from the SAFE, by complying with certain procedural requirements. There can
      be
      no assurance that the current foreign exchange measures will not be changed
      in a
      way that will make payment of dividends and other distributions outside of
      China
      more difficult or unlawful. As a result, if we intend to distribute profits
      outside of China, there can be no assurance that we will be able to obtain
      sufficient foreign exchange to do so. Additionally, we cannot provide any
      assurance that China regulatory authorities will not impose further restrictions
      on the convertibility of the RMB. Since our subsidiaries in China, both direct
      and indirect, generate virtually all of our revenue, and these revenues are
      currently denominated in RMB, any future restrictions on currency exchanges
      may
      limit our ability to repatriate such revenues for the distribution of dividends
      to our shareholders.




SAFE
      regulations have required extensive documentation and reporting, some of which
      was burdensome and slowed payments. If there is a return to burdensome payment
      restrictions and reporting, the ability of a company with its principal
      operations in China to attract investors will be reduced. Also, current
      investors may not be able to obtain the profits of the business in which they
      own for other reasons. Relevant Chinese law and regulation permit payment of
      dividends only from retained earnings, if any, determined in accordance with
      Chinese accounting standards and regulations. It is possible that Chinese tax
      authorities may require changes in our reported income that would limit our
      ability to pay dividends and other distributions. Chinese law requires companies
      to set aside a portion of net income to fund certain reserves, which amounts
      are
      to distributable as dividends. These rules and possible changes could restrict
      a
      company in China from repatriating funds to us and our shareholders as
      dividends.




-20-




*Securities
      authorized for issuance under equity compensation plans*




As
      of
      April 1, 2008, our Board of Directors has authorized 1,566,666 shares of common
      stock for issuance under its equity compensation plan by the Board of Directors.
      However, the plan has not been presented to Huiheng’s shareholders for approval
      and no options for such shares have been granted as yet.




**Item
      6.** ***Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.***


*You
        should read the following discussion and analysis of our financial condition
        and
        results of operations in conjunction with our consolidated financial statements
        and the related notes included elsewhere in this prospectus. This discussion
        contains forward-looking statements that involve risks and uncertainties.
        Our
        actual results and the timing of selected events could differ materially
        from
        those anticipated in these forward-looking statements, including as a result
        of
        those matters set forth under “Risk factors” and elsewhere in this
        prospectus.*
  **OVERVIEW**
  We
        are a
        China-based medical device company that develops, designs and markets radiation
        therapy systems used for the treatment of cancer. We currently have four
        products; the Super Gamma System (“SGS”), the Body Gamma Treatment System
        (“BGTS”), the Head Gamma Treatment System (“HGTS”) and a multileaf collimator
        device (“MLC”) used in conjunction with a linear accelerator.
  In
        2006,
        we established Allied Moral Holdings, Ltd. 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. As discussed below in the “Business -
        Huiheng’s Background” section, the shareholders of Allied Moral engaged in a
        share exchange transaction with Huiheng in May 2007.
  In
        2005,
        the ownership interests of Shenzhen Hyper, Wuhan Kangqiao and Beijing Kbeta
        were
        reorganized under Changdu Huiheng. 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.
  Our
        company is led by Hui Xiaobing, the former CEO of Everbright Securities,
        a major
        Chinese financial institution. Through his experience and relationships,
        Mr. Hui
        maintains access to China’s hospitals and the Company’s principal customers. As
        a result of his leadership, we have successfully developed a strong sales
        and
        marketing force, which covers the entire country and maintains relationships
        with China’s top medical institutions.
  Our
        expansion plans include broadening our product offering. Our research and
        development team is focused on developing and producing technologically advanced
        radiotherapy and GTS products. We currently have 17 patents issued in the
        PRC
        and internationally and additional patent applications pending. Our SGS and
        BGTS
        products are approved for use in China by the State Food and Drug
        Administration, an agency of the Ministry of Healthcare of the PRC.
  Currently,
        the focus of the research and development efforts has been on four main
        projects. The
        first
        project is the development of the next generation SGS unit that will incorporate
        what the Company believes (based
        solely on management's knowledge of the industry) are the
        world’s most advanced functional radiotherapy technologies through the addition
        of an Image Guided System (“IGS”), which improves the targeting of the radiation
        beam through use of computer-generated images, and Respiration Tracking System
        (“RTS”), which automatically adjusts the targeting of the radiation to
        compensate for the patient’s breathing. We plan to install the first next
        generation SGS unit in the second quarter of 2008. The other major projects
        include the development of an integrated linear accelerator (“LINAC”) plus
        multileaf collimator unit, another type of radiotherapy device that is used
        in
        less demanding applications, an advanced magnetic resonance imaging (“MRI”)
        device and an industrial LINAC unit that is used for, among other things,
        preserving food through irradiation. These projects are in various stages
        of
        development.
  We
        sell
        our products directly to hospitals and to third party investors in China
        that
        install our systems in hospitals. We also offer comprehensive post-sales
        services for our medical equipment to our customers. The service contracts
        are
        negotiated and signed independently and separately from the sales of medical
        equipment. Our post sales services include radioactive cobalt source replacement
        and disposal, training, product maintenance, software upgrades, and
        consulting.
  Many
        of
        the key research and development personnel who developed our products are
        currently employed by our company.
  We
        have
        also begun pursuing relationships with foreign medical capital equipment
        technology leaders to offer the management of high quality, low cost
        manufacturing services and China-based distribution for their
        products.
  *Shenzhen
        Hyper* .
        Shenzhen Hyper was established in September of 2001 as a domestic Chinese
        company based in Shenzhen China. From inception, it has been engaged in
        designing, developing and servicing radiotherapy medical equipment used for
        the
        treatment of tumors for customers throughout China. Shenzhen Hyper developed
        the
        Super Gamma System (“SGS”), our most advanced and versatile technology, in 2001.
        The SGS is a radiotherapy device that uses gamma radiation to non-invasively
        treat tumors located in the head and the body and to treat certain functional
        disorders of the head and neck areas. It utilizes stereotactic, or
        three-dimensional imaging, principles to enhance the accuracy of the targeting
        of the radiation beams. Our first SGS device was installed in 2001 and our
        SGS
        device was approved by the SFDA in 2004. As of the end of 2007, we have a
        total
        installed base of 24 SGS units, all of which are located in China. We estimate
        that over 14,000 patients have been treated with our SGS product. Shenzhen
        Hyper
        has also developed a multileaf collimator (“MLC”) device that is used in
        conjunction with a linear accelerator (“LINAC”) to provide conformal shaping of
        radiotherapy treatment beams, which increases the precision of the beam and
        reduces the damage caused to surrounding tissues. Our first MLC was installed
        in
        March of 2007 in China for a clinical trial. We are currently developing
        our own
        LINAC with which we will integrate our MLC.
  -21-
  Shenzhen
        Hyper is currently working on the development of additional radiotherapy
        and
        diagnostic equipment that will be sold in China and abroad, including the next
        generation SGS unit, capable of treating tumors in the head and body by advanced
        radiotherapy functions.
  *Wuhan
        Kangqiao* .
        Wuhan
        Kangqiao was established in September of 2001 as a domestic Chinese company
        based in Wuhan China. From inception, it has been engaged in designing,
        developing and servicing radiotherapy medical equipment for customers throughout
        China. Wuhan Kangqiao developed BGTS in 2003 and the HGTS in 2004 and currently
        designs, markets and services these products.
  The
        BGTS
        is a stereotactic radiotherapy device that uses gamma sourced radiation to
        non-invasively treat tumors located in the body. Our first BGTS device was
        installed in 2003 and in 2004 it was approve d
        by the
        SFDA. As of the end of 2007, we have
        a total installed base of 8
        BGTS
        units.
  The
        HGTS
        is a stereotactic radiotherapy device that uses gamma sourced radiation to
        non-invasively treat tumors in the head and to treat other functional disorders
        of the head and neck area. Our first HGTS device was installed in 2004.
        We
        have completed clinical trials on the HGTS and have submitted a final report
        to
        the SFDA. Subject to a favorable review by the SFDA, we expect to receive
        SFDA
        approval of the HGTS in 2008. **** As
        of the
        end of 2007, we had a
        total installed base of 6
        HGTS
        units.
  *Beijing
        Kbeta* .
        Beijing
        Kbeta was established in December 2004 and supplies the Cobalt-60 radioactive
        material used as the radioactive source in the SGS, BGTS and HGTS.
  **PRICING**
  Treatment
        fees for radiotherapy are set by provincial governments in China, a factor
        we
        consider when pricing our systems. To gain market penetration, we price our
        radiotherapy treatment systems at levels that we believe offer attractive
        economic returns to distributors and hospitals, taking into account the prices
        of competing products in the market. We market and sell our products to
        distributors at a price that is lower than the price that hospitals pay for
        our
        products. We believe that our products are competitively priced compared
        to
        other radiotherapy devices available in China.
  The
        provincial governments in China set the treatment fee rates for radiotherapy,
        and they may adjust the fee rates from time to time. If they reduce the fee
        rates, some hospitals and third party investors may be discouraged from
        purchasing our products, which would reduce our sales. In that event, we
        may
        need to decrease the price of our systems to provide our customers acceptable
        returns on their purchases. We cannot assure you that our business, financial
        condition and results of operations will not be adversely affected by any
        reduction in treatment fees for radiotherapy in the future.
  **REVENUES**
  We
        derive
        our revenues from selling our products to hospitals and third party investors
        and from selling service contracts to the buyers of our products.
  Our
        net
        revenues are net of Value Added Tax (“VAT”), but include VAT refunds on the
        sales of self-developed software embedded in our medical equipment products.
        In
        addition, our revenues include regional VAT and Business tax
        subsidies.
  The
        sales
        price of our devices includes basic training and installation services. These
        services are ancillary to the purchase of medical equipment by our customers
        and
        are normally considered by the customers to be an integral part of the acquired
        equipment. As the delivered items (training and installation services) do
        not
        have determinable fair values, revenues for the entire arrangement is recognized
        upon customer acceptance, which occurs after delivery and
        installation.
  Our
        revenue recognition policies, as disclosed in our financial statements, state
        that revenue is recognized when products are delivered, collection is probable,
        persuasive evidence of an arrangement exists and the sales price is fixed
        or
        determinable. Typically we require our customers to pay 90% of the sales
        price
        in installments based upon placement of the order; delivery of the product,
        installation, testing and acceptance by the customer. The 90% is recognized
        as a
        liability until such time as the products are delivered and the customer
        takes
        ownership and risk of loss. The remaining 10% of the arrangement is typically
        paid within one year of acceptance by the customer.
  The
        use
        of the installment method with regards to collection impacts our revenue
        recognition policies in that we must determine if collection is probable
        prior
        to recognizing revenue for each arrangement. We have not experienced any
        material bad debts, and accordingly generally recognize revenue from our
        arrangements in full when the devices have been installed, tested and accepted
        by our customers.
  We
        typically require our customers to pay 30% of the sales price as a down-payment
        when a purchase order is placed, another 30% of the sale price when the product
        is shipped, and another 30% of the sale price after the device has been
        installed, tested and is accepted by the customer. The remaining 10% balance
        is
        typically paid by the customer within one year of acceptance.
  Our
        revenues, growth and results of operations depend on several factors, including
        the level of acceptance of our products among doctors, hospitals and patients
        and our ability to maintain prices for our products at levels that provide
        favorable margins. The level of acceptance among doctors, hospitals and patients
        is influenced by the performance and pricing of our products, our ability
        to
        educate distributors and the medical community about our products, our
        relationships with hospitals and major distributors, government reimbursement
        levels as well as other factors.
  Our
        sales
        have historically been achieved on a unit-by-unit basis. We expect that in
        any
        given period a relatively small, and changing, number of third party investors
        will continue to account for a significant portion of our revenues. For the
        fiscal year ended December 31, 2006, sales to our top four customers accounted
        for 89% of our revenues. For the year ended December 31, 2007, two customers
        accounted for 76% of our revenues.
  -22-
  **COSTS**
  **Cost
        of revenues**
  Our
        cost
        of revenues primarily consists of material and component costs. It also includes
        amortization of intangible assets and direct costs incurred in the assembly,
        installation and service of our products, such as salaries and related personnel
        expenses and depreciation costs of plant and equipment used for production
        purposes. Depreciation of property, plant and equipment attributable to
        manufacturing activities is capitalized and expensed as cost of revenues
        when
        product is sold.
  As
        we
        source a significant portion of our components and raw materials in China,
        we
        currently have a relatively low cost base compared to medical technology
        companies in more developed countries. We expect the costs of components
        and raw
        materials in China will increase in the future as a result of further economic
        development in China. In addition, our focus on new generations and applications
        of our products may require higher cost components and raw materials. We
        plan to
        offset increases in our cost of raw materials and components through more
        efficient product designs and product assembly enhancements as well as through
        savings due to economies of scale.
  **Operating
        expenses**
  Our
        operating expenses primarily consist of research and development expenses,
        sales
        and marketing expenses and general and administrative expenses.
  *Research
        and development* Research
        and development expenses primarily consist of costs associated with the design,
        development, testing and enhancement of both our existing products and our
        new
        product development. These costs consist of expenditures for purchases of
        supplies, clinical trials, salaries and related personnel expenses, and other
        relevant costs. Going forward, we expect to increase our research and
        development expenses, both on an absolute basis and as a percentage of revenue,
        to develop new products and applications and to improve the product designs
        of
        our existing products.
  *Sales
        and marketing* Sales
        and
        marketing expenses consist primarily of salaries and related expenses for
        personnel engaged in sales, marketing and customer support functions and
        costs
        associated with advertising and other marketing activities. Similar to most
        China-based medical device companies, our sales are made primarily to third
        party investors. As a result, our sales and marketing expenses as a percentage
        of revenues are significantly lower than medical device companies that operate
        their own marketing and distribution networks and sell directly to hospitals.
        Going forward, we expect to increase our expenditures on sales and marketing,
        both on an absolute basis and as a percentage of revenue, to promote our
        products in China. Furthermore, we anticipate aggressively pursuing new markets
        outside the PRC and expect to increase our expenditures on sales and marketing
        for this purpose as well.
  *General
        and administrative* General
        and administrative expenses consist primarily of salaries and benefits and
        related costs for our administrative personnel and management, fees and expenses
        of our outside advisers, including legal, audit and valuation expenses, expenses
        associated with our administrative offices and the depreciation of equipment
        used for administrative purposes. We expect that our general and administrative
        expenses will increase, both on an absolute basis and as a percentage of
        revenue, as we hire additional personnel and incur costs related to the
        anticipated growth of our business and our becoming a publicly listed company
        in
        the U.S.
  **TAXES
        AND INCENTIVES**
  **Allied
        Moral Holdings**
  Under
        the
        current laws of the British Virgin Islands, we are not subject to tax on
        our
        income or capital gains. In addition, no British Virgin Islands withholding
        tax
        will be imposed on payments of dividends by us to our shareholders.
  **Changdu
        Huiheng**
  Under
        the
        current PRC laws, Changdu Huiheng is subject to the Enterprise Income Tax
        (“EIT”) and the VAT. Changdu Huiheng is established in the western region of the
        PRC and, as such, it is currently subject to an EIT rate of 15%, compared
        to a
        statutory rate of 33% for most companies in China. However, pursuant to an
        agreement with the Tibet Finance Bureau, Changdu Huiheng will be refunded
        any
        amounts of its annual EIT payment that exceed RMB 900,000 (USD 126,709 ).
        In
        addition, the Tibet Finance Bureau will refund Changdu Huiheng’s annual 31%
        business tax payment and its 38.75% VAT payment under the condition that
        the
        total annual business tax and VAT owed exceeds RMB 1 million (USD 140,788 )
        and RMB
        1.5 million (USD 211,181 ),
        respectively. This tax incentive policy will be valid for 5 years from the
        commencement of the tax refund, which began in fiscal 2006.
  -23-
  **Shenzhen
        Hyper**
  Shenzhen
        Hyper is classified as a high technology company and currently operates in
        an
        approved economic-technological development area. As such, it is currently
        subject to an EIT rate of 15%, compared to a statutory rate of 33% for most
        companies in China. Furthermore, this classification, according to local
        tax
        regulations, entitles Shenzhen Hyper to a tax-free period for two years,
        commencing on it first profitable year, and a 50% reduction in EIT for the
        following six years. Although Shenzhen Hyper was profitable in 2007, accumulated
        losses from prior years eliminated its tax liability for 2007. As a result,
        2007
        does not qualify as its first taxable year according to local tax regulations.
        We expect Shenzhen Hyper to commence its first profitable year in
        2008.
  VAT
        is
        charged based on the selling price of products at a general rate of 17% and
        revenues are recorded net of this VAT. Shenzhen Hyper, however, is entitled
        to a
        14% refund of VAT on the sales of self-developed software embedded in device
        systems. This is a result of a PRC government program to promote the development
        of the high technology sector of China’s economy. The program phases out for
        companies after five years of profitable operations.
  The
        VAT
        refund is recorded as part of net revenues under U.S. GAAP. For the fiscal
        year
        ended December 31, 2007, no VAT refunds were booked as revenues for the period
        due to the refund application process extending past the end of the year.
        As a
        result, we expect the refunds that we applied for in 2007 to be booked as
        revenue in 2008. VAT refunds amounted to $169,643
        ( RMB
        1.35
        million )
        for the
        fiscal year ended 2006. There were no VAT refunds for fiscal year ending
        December 31, 2005.
  **Wuhan
        Kangqiao**
  Wuhan
        Kangqiao is classified as a high technology company and currently operates
        in an
        approved economic-technological development area. As such, it is currently
        subject to an EIT rate of 15%, compared to a statutory rate of 33% for most
        companies in China. Furthermore, this classification, according to local
        tax
        regulations, entitles Wuhan Kangqiao to a tax-free period for two years,
        commencing the first year the company is established. Wuhan Kangqiao’s EIT rate
        for the years ending December 31, 2005, 2006 and 2007 were 15%, 15% and 15%,
        respectively.
 
 The
        PRC
        tax system is subject to 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 us to tax increases in the
        future.
  **SIGNIFICANT
        ACCOUNTING POLICIES**
  **Significant
        Accounting Policies and Estimates**
  The
        discussion and analysis of our financial condition presented in this section
        are
        based upon our financial statements, which have been prepared in accordance
        with
        the generally accepted accounting principles in the United States. During
        the
        preparation of our financial statements we are required to make estimates
        and
        judgments that affect the reported amounts of assets, liabilities, revenue
        and
        expenses, and related disclosure of contingent assets and liabilities. On
        an
        ongoing basis, we evaluate our estimates and judgments, including those related
        to sales, returns, pricing concessions, bad debts, inventories, investments,
        fixed assets, intangible assets, income taxes and other contingencies. We
        base
        our estimates on historical experience and on various other assumptions that
        we
        believe are reasonable under current conditions. Actual results may differ
        from
        these estimates under different assumptions or conditions.
  -24-
  In
        response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding
        Disclosure About Critical Accounting Policy,” we identified the most critical
        accounting principles upon which our financial status depends. We determined
        that those critical accounting principles are related to the use of estimates,
        inventory valuation, revenue recognition, income tax and impairment of
        intangibles and other long-lived assets. We present these accounting policies
        in
        the relevant sections in this management’s discussion and analysis, including
        the Recently Issued Accounting Pronouncements discussed below.
  **(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-off experience, 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.
 
 -25-
 
  **(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)**
              **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 contemporaneously by another investor.
        Cost is net of accumulated amortization and impairment losses. 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 ability to exercise
        significant influence over the investee, but does not have a controlling
        financial interest.
 
 If
        circumstances indicate that the carrying value of the Company’s investment in
        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.
 
 -26-
 
  **(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.
  **(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 authorities in excess of 3% of relevant sales. The amount of VAT refund
        is
        calculated on a monthly basis. As the refund relates directly to the sale
        of
        self-developed software that is embedded in the Company’s products, the Company
        recognizes the VAT refund at the 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.
 
 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 year will 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-sales services 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.
  -27-
  **(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.




**(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. Deferred tax assets
        and
        liabilities are measured using enacted tax rates expected 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.
  **(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 comprehensive income (loss)"
        in
        the stockholders' equity section 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 one USD respectively. The average monthly for 2006
        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.
  -28-
 
 **(q)**
              **Earning
                  Per Share**
 
 Basic
        earnings per share are computed based on the weighted-average number of shares
        of our common stock 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 amounts of common stock gives retroactive effect to the May 2007
        of
        our common stock.
  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 outstanding used for basic earnings per share
              
              
              13,450,000
              
              
              13,450,000Weighted-average
                  shares outstanding used 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 that term is defined 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.
  -29-
  **Incentive
        Share and After-Tax Profit Targets**
  As
        an
        additional purchase price under the Allied Moral Holdings share exchange,
        the
        previous shareholders of common stock of Allied Moral Holdings will be issued,
        on an all or none basis per year, an aggregate of 1,600,000 shares of common
        stock of Huiheng (400,000 shares each year for four years), if on a consolidated
        basis, Huiheng has after-tax profits in the following amounts for the indicated
        12-month periods ending December 31:
  Years
                  Ending December 31
              
              After
                  Tax Profit2008
              
              
              13,100,0002009
              
              
              18,500,0002010
              
              
              26,200,0002011
              
              
              34,060,000
  **OUR
        SELECTED RESULTS OF OPERATIONS**
  *Operating
        revenues*
  For
        the
        year ended December 31,2007,net
        revenues amounted to $15.94****million,
        an increase of $3.59million,
        or 29%, compared to $12.35million
        for the same period of the prior year.This
        increase in total revenues was due to an increase in revenues fromproduct
        sales,services,
        andtax
        refunds and subsidies in 2007compared
        with 2006.
        The
        next two paragraphs discuss these changes in greater detail.
  Total
        revenues from product sales were
        $9.53 million for 2007, an increase
        of $ 2.92 million
        or 44%, compared to $ 6.61 million
        for the same period of the prior year. In 2007, we sold 11 units and in 2006
        we
        sold a total of 8 units. This increase in unit sales and revenues from unit
        sales in 2007 compared with 2006 was due to an increased demand in the market
        for our products.
 
 Total
        revenues from services were $5.04 million for 2007, an increase of $0.36
        million
        or 7.7%, compared to $4.68 million for the same period of the prior year.
        For
        the years ended December 31, 2006 and 2007, we managed a total of 26 service
        contracts. Of the 26 contracts, three were signed at the beginning of the
        second
        quarter of 2006. As a result, we generated revenue on those three contracts
        for
        three quarters in 2006 and for an entire year in 2007, resulting in an increase
        in service revenues in 2007 compared with 2006.
  Of
        the
        $ 15.94 million
        of net revenues, approximately $1.38 million related to tax refunds and
        subsidies, an increase of approximately $ 32 0,000 **** or
        30%
        over the $ 1.06 **** million
        in tax refunds and subsidies for the same period of the prior year. Tax
        refunds and subsidies accumulate each current year and are paid to us, and
        recognized as revenue, the following year.
 
 *Revenue
        Backlog*
  Revenue
        backlog represents the total amount of unrecognized revenue associated with
        existing purchase orders for our
        products .
        Any
        deferral of revenue recognition is reflected in an increase in backlog as
        of the
        end of current period. The backlog as of December 31, 2007 amounted
        to $ 2.4 million,
        representing a decrease of
        56 %,
        compared to $ 5.41 million
        as of December 31, 2006 . The
        decrease in backlog was due to negotiations over new purchase contracts
        extending past the end of the year in 2007, which resulted in a smaller backlog
        at the end of 2007 compared with at the end of 2006. However, in the first
        quarter of 2008, we received a total of 10 purchase orders, all of which
        were
        under negotiation before January 1 st ,
        2008,
        which has increased our backlog to $12.24 million as of March 31, 2008. These
        purchase orders are not cancelable **** and
        we
        expect that all of them will be filled in 2008.
 
 *Cost
        of revenues*
  The
        total
        cost of revenues amounted to $ 3.76
        million, an increase of $1.11 million
        or 41.9%, compared to $ 2.65 million
        for the same period of the prior year. The
        increase was due to increased number of units sold in 2007 compared with
        2006.
  -30-
  *Gross
        margin*
  As
        a
        percentage of total revenues, the overall gross margin decreased to 76.4 %
        for the
        year ended December 31, 2007 from
        78.5% for the
        same period in the prior year . The
        decrease in the gross margin was due to product sales accounting for a larger
        percentage of total revenues in 2007 compared with 2006, during which
        time higher
        margin service revenues accounted
        for a larger percentage of total revenues.
 
 *Operating
        expenses*
  Sales
        and marketing expenses .
        Sales
        and marketing expenses consist primarily of salaries and related expenses
        for
        personnel engaged in sales, marketing and customer support functions and
        costs
        associated with advertising and other marketing activities.
  Sales
        and
        marketing expenses were approximately $ 82,000 for the
        year ended December 31 ,
        2007, a
        decrease of 33% ,
        or
        roughly $ 41,000 compared
        to approximately $ 123,300 for
        the
        same period of the prior year. The decrease was due to
        a
        fewer commissions paid to sales staff as senior management was responsible
        for
        several sales and were not paid any commissions.
  This
        relatively low overall expenditure toward sales and marketing is due to our
        direct marketing strategy which primarily includes expenses for salaries,
        commissions and travel fees for our marketing staff. We have established
        guidelines to monitor and evaluate sales performance for its products to
        customers in different industries and regions to control selling expenses.
        We
        expect that our selling expenses will remain at or increase above the 2007 levels
        as
        we increase our efforts to expand sales, particularly internationally, where
        our
        brand is not as well known and the resources devoted to establish a presence
        in
        new markets will be greater.
 
 General
        and administrative expenses .
        General
        and administrative expenses consist primarily of salaries and benefits and
        related costs for our administrative personnel and management, fees and expenses
        of our outside advisers, including legal, audit and valuation expenses, expenses
        associated with our administrative offices. General and administrative expenses
        amounted to approximately $ 1.53 million
        for the year ended December 31, 2007 ,
        an
        increase of roughly $ 250,000 compared
        to approximately $ 1.28 million
        for the same period of the prior year, representing an increase of
        19.5% .
        The
        increase in general and administrative expenses was due primarily to increased
        expenses associated with human resources, increased administrative expenses
        resulting from our growth over that period and from additional expenses
        resulting from becoming a
        publicly listed company in the U.S.
 
 Research
        and development expenses .
        Research and development expenses comprise mostly employee compensation,
        materials consumed and experiment expenses for specific new product research
        and
        development, and any expenses incurred for basic research on advanced
        technologies. Research and development expenses were $ 263,300 for
        the
        year ended December 31, 2007 ,
        compared to $ 124,300 in
        the
        same period of the prior year. This was due to new product development including
        our MLC, linear accelerator and next generation SGS device.
 
 *Income
        tax provision*
  Our
        effective tax rate was 9.12% for the year ended December 31, 2007, compared
        to
        17.07% for the year ended December 31, 2006. This decrease in effective tax
        rate
        resulted from a combination of factors. The tax rate payable at each level
        of
        our operations is different. In 2007, the tax rate payable at Changdu Huiheng
        was 15%, at Wuhan Kangqiao it was 15% and at Shenzhen Hyper it was 0%. Compared
        with 2006, a greater percentage of the Company’s income was earned at Shenzhen
        Hyper, and therefore subject to a 0% tax rate, for two reasons: Shenzhen
        Hyper
        sold proportionally more SGS units in 2007 than in 2006 relative to the sales
        of
        BGTS and HGTS units by Wuhan Kangqiao in those years, and it sold those products
        to Changdu Huiheng at a higher price. As a result, more of the Company’s taxable
        revenue was earned at the Shenzhen Hyper level, the most favorable tax
        jurisdiction, which produced a reduction in 2007 relative to 2006, when a
        larger
        proportion of the Company’s income was generated in the less favorable tax
        jurisdictions. In addition to reducing the effective tax rate, that shift
        in
        income generation also reduced the income tax expense for 2007 compared with
        2006 by nearly 33%, to $938,000 from $1.4 million, respectively. The tax
        rate
        payable at each level of our operations is expected to remain the same in
        2008,
        although the effective tax rate may change should the income generated at
        each
        level be different.
 
 *Net
        Income*
  For
        the
        year ended December 31, 2007, the Company’s net income amounted to $ 9.02
        million, an increase of 2.2 million compared to $6.82 million for the prior
        year, or 32.26%. This
        increase was attributable primarily to the increase in product
        sales.
  *Comprehensive
        Income*
 
 For
        the
        year ended December
        31, 2007, the Company’s
        comprehensive incom e amounted
        to $9.72 million, an increase of $2.89 million or 42% compared to $6.82 million
        for the prior year. The increase was due to an increase in net income and
        foreign currency translation adjustments over the period.
  -31-
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
  To
        date,
        the Company has financed its operations primarily through cash flows from
        operations. We currently do not have any outstanding short term or long term
        debt. We generate sufficient capital from our operating revenues and shareholder
        investments to cover our operating cash flow needs. We require that our
        customers pay us 30% of the sale price at the time the order is placed and
        the
        purchase order is signed. In addition, our customers pay us an additional
        30%
        once the unit has been built and tested. The final 40% is paid in two
        installments, 30% on the date of installation and acceptance by the customer
        and
        the final 10% on 1 year following the installation date. As we operate with
        relatively high margins, this scenario provides us with sufficient cash to
        purchase various raw materials, meet our component inventory needs and pay
        our
        vendors. In addition, there are very few direct costs associated with our
        service business which further enhances our cash position. We have longstanding,
        positive relationships with our vendors and are given favorable payment terms.
        Also, we believe that we can defer certain tax payments, if we choose to
        do so.
        We plan to raise additional capital that will help finance a number of expansion
        initiatives including new product development.
  As
        of
        December 31, 2007 ,
        the
        Company had total assets of $ 18.86 million,
        of which cash amounted to $ 866,585, accounts
        receivable amounted to $ 8.25 million,
        prepayment and other current assets amounted to $ 3.27 million
        and inventories amounted to $ 1.07
        million. **** Working
        capital was approximately $ 11.08 million.
        The quick ratio was approximately 4.18:1.
  ***Comparison
        of years*** ***ended
        December 31,*** ***2006
        and 2007***
  Net
        cash
        from operating activities totaled approximately $ 5.11 million
        for the year ended
        December 31, 2007,
        a
        decrease by $ 6.01 million
        compared to $ 11.12 million
        for the same period in the prior year. This decrease resulted primarily from
        the
        following changes in the operating assets and liabilities:
  
 ·
              $5.6
                  million increase in accounts receivables;·
              $553,000
                  decrease in inventories;·
              $486,000
                  increase in prepayments and other
                  receivables;
  ·
              $76,850
                  increase in accounts payable;·
              $620,000
                  decrease in tax payable;·
              $521,000
                  increase in accrued expenses and other current
                  liabilities;
  Cash
        collected from accounts receivable for the year ended December
        31, 2007
        was
        significantly lower than cash collected from accounts receivables for the
        year ended
        December 31, 2006. This
        was
        due to an abnormal, large accounts receivable payment made by one of the
        company’s major customers during the year ended December
        31, 2006.
 
 Net
        cash
        from investing activities was ($ 10.23) million
        and ($ 1.75 )
        million for
        the
        years ended December
        31, 2007
        and
        2006, respectively. The cash used by investing activities was used
        to
        equip our new office facility into which we moved to support our growing
        operations and
        to **** repay
        advances by related parties that were used to complete the acquisition of
        Tibet
        Changdu by Allied Moral **.**
 
 Cash
        flows provided by financing activities amounted to $5.65 million and
        ($ 9.16) million
        for the years ended December
        31, 2007
        and
        2006, respectively. For the years ended December
        31, 2007 ,
        cash
        flows generated by financing activities consisted of $ 9.12 million
        of contributed capital  and
        ($3.58) million as a payment for redemption of common shares.
  -32-
  **OPERATING
        LEASE COMMITMENTS**
  Rental
        expenses for obligations under operating leases were $44.75 (RMB
        356,088 )  and
        $52,504 (RMB 372,778 **)** 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 $5.22 million (RMB 37.1 million). While
        our
        new facilities have a lower cost per square meter, they are larger than the
        office space we previously occupied. As a result, our total rental expense
        will
        increase from $4,006
        ( RMB
        31,880 )
        per
        month to $21,934 (RMB
        160,000 )
        per
        month.
  ***Quantitative
        information about market risk and qualitative information about market
        risk***
  **Transaction
        Risk and Currency Risk Management**
  Our
        operations do not employ financial instruments or derivatives which are market
        sensitive, and therefore we are not subject to the financial market risks
        associated with such instruments and derivatives.
  **Exchange
        Rate Sensitivity**
  We
        do not
        currently sell our products internationally, so we are not subject to
        substantial risk from changes in exchange rates. There is a limited impact
        from
        exchange rate fluctuations as a result of the fact that we purchase some
        components and materials internationally. However, after a fairly stable
        period
        when the RMB was pegged to the US Dollar, the trend over the past few years
        has
        been appreciation of the RMB. This has the result of reducing our costs when
        stated in RMB terms, as it requires fewer RMB to acquire the same dollar
        value
        of goods compared to periods when the RMB was weaker.
  Our
        production base is in China, which results in a substantial portion of our
        operating expenses being denominated in Renminbi, although the majority of
        our
        international purchases are made in U.S. dollars.
  We
        currently do not engage in hedging or other activities to control the risk
        of
        our foreign currency exposure.
  ***Exchange
        Controls***
  Chinese
        law allows enterprises owned by foreign investors to remit their profits,
        dividends and bonuses earned in China to other countries, and the remittance
        does not require prior approval by the State Administration on Foreign Exchange.
        SAFE regulations formerly required extensive documentation and reporting,
        some
        of which was burdensome and slowed payments. If there is a return to payment
        restrictions and reporting, the ability of a Chinese company to attract
        investors will be reduced. Also, current investors may not be able to obtain
        the
        profits of the business which they own as a result of other restrictions
        that
        the Chinese government may impose. Relevant Chinese laws and regulations
        permit
        payment of dividends only from retained earnings, if any, determined in
        accordance with Chinese accounting standards and regulations. It is possible
        that the Chinese tax authorities may require changes in our reported income
        that
        would limit our ability to pay dividends and other distributions. Chinese
        law
        requires companies to set aside a portion of net income to fund certain reserves
        which amounts are to distributable as dividends. These rules and possible
        changes could restrict a company in China from repatriating funds to us and
        our
        shareholders as dividends.
  ***Interest
        Rate Risk***
  We
        are
        equity financed and have only limited debt that is subject to interest rate
        change risk.


-33-






**Item
      7.** ***Financial Statements.***





Our
      financial statements are annexed to this report beginning on page F-1.




**Item
      8.** ***Changes In and Disagreements With Accountants on Accounting and Financial
      Disclosure.***





None.




**Item
      8A.** ***Controls and Procedures.***





**Evaluation
      of Disclosure Controls and Procedures**





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
      as
      amended (the Exchange Act). Based on this evaluation, our principal executive
      officer and our principal financial officer concluded that our disclosure
      controls and procedures were effective as of the end of the period covered
      by
      this Annual Report. This annual report does not include an attestation report
      of
      the Company’s registered public accounting firm regarding internal control over
      financial reporting. Management’s report was not subject to attestation by the
      Company’s registered public accounting firm pursuant to temporary rules of the
      Securities and Exchange Commission that permit the Company to provide only
      management’s report in this annual report.


-34-


**Changes
      in Internal Controls Over Financial Reporting**




There
      have been no significant changes in our internal controls over financial
      reporting that occurred during the quarter ended December 31, 2007, that have
      materially affected, or are reasonably likely to materially affect our internal
      control over financial reporting.




**Item
      8B.** ***Other Information.***





None.


-35-


**PART
      III**





**Item
      9.**  ***Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a)
      of the Exchange Act.***





The
      information required by this item regarding directors is incorporated by
      reference to our Definitive Proxy Statement to be filed with the Securities
      and
      Exchange Commission in connection with our 2008 Annual Meeting of Stockholders
      (the “Proxy Statement”) under the heading “Election of Directors.” The
      information required by this item regarding compliance with Section 16(a) of
      the
      Securities Exchange Act of 1934, as amended, is incorporated by reference to
      the
      information under the caption “Compliance with Section 16(a) of the Exchange
      Act” contained in the Proxy Statement. The information required by this item
      regarding our code of ethics is incorporated by reference to the information
      under the caption “Code of Ethics” contained in our Proxy
      Statement.




The
      following table and text set forth the names and ages (as of November 15, 2007)
      of all of our directors and executive officers. The Board of Directors is
      comprised of only one class. All of the directors will serve until the next
      annual meeting of shareholders and until their successors are elected and
      qualified, or until their earlier death, retirement, resignation or removal.
      There are no family relationships among directors and executive officers. Each
      of our directors, other than Mr. Hui, is “independent” under the independence
      standards adopted by the Nasdaq Capital Market. Also provided herein are brief
      descriptions of the business experience of each director and executive officer
      during the past five years and an indication of directorships held by each
      director in other companies subject to the reporting requirements under the
      Federal securities laws.




**Name**
            
            **Age**
            
            **Position**Hui
                Xiaobing
            
            54
            
            Chairman
                and CEOHuang
                Jian
            
            50
            
            Vice
                President and DirectorLi
                Bo
            
            35
            
            Corporate
                SecretaryRichard
                Shen
            
            42
            
            Chief
                Financial OfficerCui
                Zhi
            
            38
            
            Chief
                Technology OfficerTang
                Sucheng
            
            45
            
            Director
                of MarketingJoe
                Chang
            
            43
            
            DirectorKenneth
                Borow
            
            59
            
            DirectorEdward
                Meng
            
            40
            
            DirectorLi
                Daxi
            
            59
            
            DirectorPeter
                Slate
            
            41
            
            Director





***Hui
      Xiaobing, Chairman of the Board and Chief Executive
      Officer***




Mr.
      Hui
      currently serves as Chairman of the Board and Chief Executive Officer of
      Huiheng, positions he has held (including with Allied Moral) since the inception
      of that company in 2006, and Chairman of the Board and Chief Executive Officer
      of Changdu Huiheng, positions he has held since 2005. In addition, Mr. Hui
      has
      been the Chief Executive Office of Huiheng Industry since 2004. Mr. Hui also
      served from 1999 to 2006 as the President and Chairman of the Board of Shenzhen
      OUR Technology Co., Ltd., the pioneer of the radiotherapy industry in China.
      Mr.
      Hui holds a Masters degree in Regional Economics from Tongji
      University.




***Mr.
      Huang Jian, Director***




Mr.
      Huang
      Jian, a director since November 2007, has a background in business and
      management. He currently serves as the Vice President of the Company, a position
      he assumed in 2007. Mr. Huang is also the President and Director of Wuhan
      Kangqiao, positions he has held since 2006. In addition, Mr. Huang has been
      a
      director of Shenzhen Hyper since 2006 and has been the President of Shenzhen
      Hyper since 2001. Mr. Huang has a degree from Beijing Broadcast and Television
      University.




***Li
      Bo, Corporate Secretary***




Mr.
      Li Bo
      has a background in business and engineering and holds a Ph.D in management
      from
      Huazhong University of Science and Technology. Since 2005, Mr. Li has served
      as
      the Assistant to the CEO of Huiheng. He was obtaining his Ph.D. degree from
      2002
      through 2004. Prior to that, from 1998 to 2001, Mr. Li was the Assistant to
      the
      President of Wuhan Huazhong Numerical Control System Co., Ltd.


-36-


***Richard
      Shen, Chief Financial Officer***




Mr.
      Shen
      serves as Chief Financial Officer of Huiheng. In addition, he is also a managing
      partner of Sunlight Investment Limited, an asset management and investment
      consultant business, where he has served since 2005. From 2002 through 2005,
      Mr.
      Shen was a Vice President and Director of New Tech & Telecom Investment
      Limited. Previously, he served as the General Manager of Touchstone Investment
      Limited. Mr. Shen received his MBA from York University in Toronto,
      Canada.




***Mr.
      Cui Zhi, Chief Technology Officer***




Mr.
      Cui
      Zhi oversees Changdu Huiheng’s research and development operations as the Chief
      Technology Officer, a position he has held since 2005. From 2002 to 2005, Mr.
      Cui was the Chief Engineer for Shenzhen Hyper, where he played a key role in
      the
      development of the Super Gamma System. Mr. Cui holds a Ph.D in Physics from
      China Science and Technology University.




***Tang
      Sucheng, Director of Marketing***




Mr.
      Tang
      is responsible for the sales and marketing functions of Tibet Chengdu as
      Director of Marketing, a position he has held since 2005. From 2000 to 2005,
      Mr.
      Tang was the Vice General Manager of SZ Jiancheng Investment Co., Ltd., a former
      affiliate of Huiheng. Mr. Tang studied at the Austria National Science and
      Technology Academy, where he earned a Ph.D. degree in physics.




***Dr.
      Joe Chang, Director***




Dr.
      Joe
      Chang, a director since November 2007, presently serves as Associate Professor
      and the Clinical Service Chief of Thoracic Radiation Oncology at the University
      of Texas M.D. Anderson Cancer Center in Houston, Texas, a position he has held
      since 2006, and is responsible for clinical operation for thoracic service.
      Dr.
      Chang has worked as an attending physician in the MD Anderson Cancer Center
      for
      the past six years. In recent years, he has received a Radiology Society of
      North America Research Scholar grant and the Career Development Award from
      the
      University of Texas MD Anderson Cancer Center lung cancer SPORE (NIH grant),
      amongst other research grants, honors and awards. He has published more than
      110
      papers, book chapters in the field of cancer biology and radiotherapy. Dr.
      Chang
      earned his medical degree at Shanghai Medical University in the PRC in 1985
      and
      his Ph.D. from the University of Texas in 1997.




***Dr.
      Kenneth Borow, Director***





Dr.
      Kenneth M. Borow has been a director since November 2007. For the seven years
      beginning in 2000 he was President and Chief Executive Officer at Encorium
      Group, Inc., a NASDAQ small cap listed company. He is currently Encorium's
      President and Chief Medical and Strategic Development Officer. Dr. Borow is
      an
      internist, pediatrician, adult cardiologist and pediatric cardiologist with
      over
      30 years of clinical research experience. He earned his medical degree at The
      Temple University School of Medicine in 1974. He completed his post doctoral
      training at the Brigham & Women's Hospital, The Children's Hospital Medical
      Center, and Harvard Medical School in Boston. Subsequently, he was Professor
      of
      Medicine and Pediatrics at the University of Chicago Medical Center. Dr. Borow
      has more than 100 medical/scientific publications. After completion of a 20
      year
      academic career, Dr. Borow was responsible for Clinical Research Operations
      in
      the United States and Puerto Rico for Merck Research Laboratories. In this
      role,
      he oversaw clinical research studies for over 200 different protocols conducted
      at more than 2,500 investigative sites. Since coming to Encorium Group he has
      been involved in the design and conduct of more than 50 clinical trials, many
      of
      them multinational in scope. Dr. Borow has been a senior consultant to numerous
      pharmaceutical and biotechnology companies, medical imaging companies, and
      venture capital firms providing due diligence services for medical products
      as
      well as expertise in the design and conduct of clinical development programs
      in
      cardiovascular disease, hyperlipidemias, oncology, medical imaging, diabetes,
      pulmonary arterial hypertension, osteoporosis and multiple
      vaccines.





***Mr.
      Edward Meng, Director***





Mr.
      Edward Meng, a director since November 2007, is the CFO and a director of
      NavStar Media Holdings, Inc. He has over ten years of experience in managing,
      leading and advising corporations through complex restructurings, international
      market expansion and capital markets transactions. Mr. Meng’s previous positions
      include Senior Financial Consultant at Shell (China) Limited; CFO of Koch
      Materials (China) Co., a subsidiary of Koch Industries, Inc.; and Director
      of
      Finance of Intelsat Global Services Co. Mr. Meng earned his MBA from Georgetown
      University.





***Dr.
      Li Daxi, Director***





Dr.
      Li
      Daxi, a director since November 2007, founded the Chinese Association of Science
      and Business, a organization devoted to bridging science with business and
      bridging China with the world, in 1997. Dr. Li has 14 years experience in
      investment banking and venture capital, including ten years on Wall Street
      with
      Salomon Brothers and Lehman Brothers. He is a director of the United Orient
      Bank
      where he oversees investments and auditing of the bank. In March 2005, he was
      invited as an overseas representative to participate in the China National
      Chinese People’s Political Consultative Conference. He is also a co-founder of
      the Shenzhen Overseas Chinese Student Venture Park, a joint-venture with the
      Shenzhen city government, which hosts 250 high-tech startup companies. Dr.
      Li
      received a Ph.D. in high energy physics from the City University of New
      York.


-37-


***Mr.
      Peter Slate, Director***





Mr.
      Peter
      Slate, a director since November 2007, is the President & CEO of
      International Orthopedic Alliance. Previously, Mr. Slate was the President
&
CEO of Arizona Technology Enterprises, LLC. Mr. Slate has extensive
      experience as an advisor and board member for emerging companies. He has held
      senior executive positions with both public and private companies including
      Baxter International, Inc. and Zenith Electronics, Inc. Mr. Slate was also
      a corporate attorney with Katten, Muchin & Zavis (now Katten Muchin
      Rosenman, LLP) specializing in mergers, acquisitions and securities and private
      equity transaction. Mr. Slate received his BA from University of Michigan,
      JD
      from George Washington University and MBA from Northwestern
      University.




***Involvement
      in Certain Legal Proceedings***




To
      the
      best of our knowledge, during the past five years, none of our directors or
      executive officers were involved in any of the following: (1) any bankruptcy
      petition filed by or against any business of which such person was a general
      partner or executive officer either at the time of the bankruptcy or within
      two
      years prior to that time; (2) any conviction in a criminal proceeding or being
      subject to a pending criminal proceeding (excluding traffic violations and
      other
      minor offenses); (3) being subject to any order, judgment, or decree, not
      subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his involvement in any type of business, securities or
      banking activities; and (4) being found by a court of competent jurisdiction
      (in
      a civil action), the Securities and Exchange Commission or the Commodities
      Futures Trading Commission to have violated a federal or state securities or
      commodities law, and the judgment has not been reversed, suspended or
      vacated. **




**Item
      10.** ***Executive Compensation.***





*Summary
      Compensation Table*




The
      following table sets forth the information, on an accrual basis, with respect
      to
      the compensation of our and Allied Moral’s executive officers for the
      fiscal years ended December 31, 2006 and December 31, 2007.




**Name and**
              **Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($)**
            
            **Non-**
              **Equity**
              **Incentive**
              **Plan**
              **Compen-**
              **sation**
              **($)**
            
            **Non-**
              **Qualified**
              **Deferred**
              **Compen-**
              **sation**
              **Earnings**
            
            **All Other**
              **Compen-**
              **sation**
              **($)**
            
            **Total**
              **($)**Hui Xiaobing,
            
            
            2007
            
            $
            19,200
            
            $
            2,667
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            21,867Chief
                Executive Officer
            
            
            2006
            
            $
            18,000
            
            $
            2,500
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            20,500Huang
                Jian,
            
            
            2007
            
            $
            16,000
            
            $
            1,333
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            17,333Vice
                President
            
            
            2006
            
            $
            15,000
            
            $
            1,250
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            16,250Richard
                Shen (1)
            
            
            2007
            
            $
            6,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            6,000Chief
                Financial Officer
            
            
            2006
            
            $
            n/a
            
            $
            n/a
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            n/aCui
                Zhi,
            
            
            2007
            
            $
            13,440
            
            $
            1,333
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            14,773Chief
                Technology Officer
            
            
            2006
            
            $
            12,600
            
            $
            1,250
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            13,850Tang
                Sucheng,
            
            
            2007
            
            $
            7,200
            
            $
            1,200
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            8,400Director
                of Marketing
            
            
            2006
            
            $
            6,750
            
            $
            1,125
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            7,875Li
                Bo,
            
            
            2007
            
            $
            8,000
            
            $
            1,333
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            $
            9,333Secretary
                & Chairman’s Assistant
            
            
            2006
            
            $
            7,500
            
            $
            1,250
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            8,750


-38-


(1)
      Mr.
      Shen joined the company in 2007.




*Options/SAR
      Grants Table*




During
      the last fiscal year, neither we nor Allied Moral have granted any stock options
      or Stock Appreciation Rights (“SARS”) to any executive officers or other
      individuals listed in the table above.




*Aggregated
      Option/SAR exercised and Fiscal year-end Option/SAR value
      table*




Neither
      our executive officers nor the other individuals listed in the tables above,
      exercised options or SARs during the last fiscal year.




*Stock
      Option Plan*




The
      Company has adopted a stock option plan that reserves 1,566,666 shares for
      issuance upon the exercise of options. No options have been issued under the
      plan.




*Long-term
      incentive plans*




No
      Long
      Term Incentive awards were granted in the last fiscal year.




*Defined
      benefit or actuarial plan disclosure*




As
      required by Chinese law, our Chinese subsidiaries contribute 10% of an
      individual employee’s monthly salary to pension insurance.




*Compensation
      of Directors*




We
      have
      recently decided to compensate our outside directors for their service through
      a
      combination of cash and stock options, in addition to the reimbursement of
      their
      expenses incurred in performing their duties. Each director (other than the
      Chair of the Compensation Committee or Audit Committee) will receive $3,000
      per
      month and a stock option to purchase 30,000 shares vesting quarterly over a
      period of three years. The Chair of the Compensation Committee will receive
      $3,500 per month and options for 36,000 shares (with the same vesting schedule
      as the other directors) and the Chair of the Audit Committee will receive $4,000
      per month and options for 36,000 shares (with the same vesting schedule as
      the
      other directors). No compensation was paid and no options were awarded in
      2007.




*Employment
      contracts and termination of employment and change-in-control
      arrangements*




None
      of
      our officers or employees is under an employment contract or has contractual
      rights triggered by a change in control of the Company.




*Compensation
      Committee Inter* *locks
      and Insider Participation*




The
      Compensation Committee of our Board of Directors is comprised of Mssrs. Li
      Daxi,
      Kenneth Borow and Joseph Chang Mill Basin did not pay any salary or other
      compensation during fiscal 2007. Mr. Hui, in consultation with others,
      determined the compensation payable to officers and employees of Allied Moral
      and its subsidiaries during 2006 and prior to the share exchange in 2007. The
      Compensation Committee is comprised entirely of independent directors. None
      of
      the members of our Compensation Committee is or has ever been one of our
      officers or employees. No interlocking relationship exists between the Huiheng
      Board of Directors or Compensation Committee and the board of directors or compensation committee of any other entity.




**Item
      11.** ***Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.***





As
      used
      in this section, the term beneficial ownership with respect to a security is
      defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
      as
      consisting of sole or shared voting power (including the power to vote or direct
      the vote) and/or sole or shared investment power (including the power to dispose
      of or direct the disposition of) with respect to the security through any
      contract, arrangement, understanding, relationship or otherwise, subject to
      community property laws where applicable.


-39-


As
      of
      April 1, 2008, we had a total of 13,800,137 shares of common stock outstanding
      and 233,333 shares of Series A Preferred Stock issued and
      outstanding.




**Common
      Stock**




The
      following table sets forth, as of April 1, 2008: (a) the names and
      addresses of each beneficial owner of more than five percent of our common
      stock
      known to us, the number of shares of common stock beneficially owned by each
      such person, and the percent of our common stock so owned; and (b) the names
      and
      addresses of each director and executive officer, the number of shares our
      common stock beneficially owned, and the percentage of our common stock so
      owned, by each such person, and by all of our directors and executive officers
      as a group. Unless otherwise indicated, the business address of each of our
      directors and executive offices is c/o Huiheng Medical, Inc., Huiheng Building,
      Gaoxin 7 Street South, Keyaunnan Road, Nanshan District, Shenzhen Guangdong,
      P.R. China 51807. Each person has sole voting and investment power with respect
      to the shares of our common stock, except as otherwise indicated. Beneficial
      ownership consists of a direct interest in the shares of common stock, except
      as
      otherwise indicated.




**Name of Beneficial Owner**
            
            **Shares Owned**
              **Beneficially**
            
            **Percentage**
              **Ownership**Hui
                Xiaobing (1)
            
            
            11,750,000
            
            
            85
            %Huang
                Jian
            
            
            0
            
            
            *Li
                Bo
            
            
            0
            
            
            *Richard
                Shen
            
            
            0
            
            
            *Cui
                Zhi
            
            
            0
            
            
            *Tang
                Shucheng
            
            
            0
            
            
            *Joe
                Chang
            
            
            0
            
            
            *Kenneth
                Borow
            
            
            0
            
            
            *Edward
                Meng
            
            
            0
            
            
            *Li
                Daxi
            
            
            0
            
            
            *Peter
                Slate
            
            
            0
            
            
            *All
                Officers & Directors as a Group (11 people)
            
            
            11,750,000
            
            
            85
            %





*
      Individual owns less than 1% of our securities.




(1)
      Includes shares held by Clear Honest International Limited, a company controlled
      by Mr. Hui Xiaobing, Chief Executive Officer of Huiheng.


-40-


**Preferred
      Stock**




The
      following table sets forth, as of April 1, 2008: the names and addresses of
      each
      beneficial owner of more than five percent of our Series A Preferred Stock
      known
      to us, the number of shares of preferred stock beneficially owned by each such
      person, the percent of the preferred stock so owned, and the number of shares
      of
      common stock issuable upon conversion of the preferred stock. To our knowledge,
      none of our directors or executive officers have any direct or beneficial
      ownership interest in shares of preferred stock or shares of common stock
      issuable upon conversion of the preferred stock:




**Name and Address**
            
            **Shares**
              **Beneficially**
              **Owned**
            
            **Percentage**
              **Ownership**
            
            **Shares of**
              **Common**
              **Stock**
              **Issuable on**
              **Conversion**Chardan
                China Investments, LLC
              625
                Broadway, Ste. 1111
              San
                Diego, CA 92101
            
            
            52,667
            
            
            22.6
            %
            
            553,225Platinum
                Partners Value Arbitrage Fund, L.P.
              152
                West 57th St.
              New
                York, NY 10019
            
            
            48,988
            
            
            21.0
            %
            
            514,580Kenneth
                Greif
              240
                Maple Street
              Englewood,
                NJ 07631
            
            
            20,000
            
            
            8.5
            %
            
            210,084Atlas
                Master Fund, Ltd
              135
                East 57th St.
              New
                York, NY 10022
            
            
            15,087
            
            
            6.5
            %
            
            158,477




**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.




As
      of
      December 31, 2006, Allied Moral had advanced $688,100 to Huiheng Industry which
      was under the control of Mr. Hui Xiaobing. This advance was unsecured and
      interest free and was made to provide working capital to Shenzhen Huiheng.
      These
      amounts are repayable on demand, and as of September 30, 2007, $584, 207
      remained outstanding. During August 2006, Allied Moral acquired the equity
      interests in Changdu Huiheng from Shenzhen Huiheng (99%) and Mr. Hui (1%),
      for
      $6,207,002 and $62,697 respectively. As of December 31, 2006 there was a balance
      of $6,342,820 due to Huiheng Industry and $65,092 due to Mr. Hui with respect
      to
      the acquisition. As of May 2007, these balances were paid in full.




*Indebtedness
      of Management*




There
      have been no borrowings by management from the Company.


-41-


**Item
      13.** ***Exhibits.***





The
      following documents are filed as part of this Annual Report:





*(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 Cash Flows for the Years Ended December 31, 2007 and
                2006
            
            F-5Consolidated
                Statements of Shareholders’ Equity for the Years Ended December 31, 2007
                and 2006
            
            F-4Notes
                to Consolidated Financial Statements
            
            F-7





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




3.1
            
            Articles
                of Incorporation, as revised3.2
            
            Amended
                and Restated By-Laws4.2
            
            Certificate
                of Designation for Series A Preferred Stock (incorporated by reference
                to
                the exhibit to the 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 Option31.1
            
            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




**Item
      14.** ***Principal Accountant Fees and Services.***





We
      paid
      the aggregate fee of $122,000 to UHY ZTHZ HK CPA Limited, our principal external
      auditors, for the professional services rendered by them for the audit of our
      annual financial statements for the fiscal year ended on December 31,
      2007.


-42-


**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 3, 2008.





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





Date: April
      8,
      2008





In
      accordance with the requirements of the Securities Act of 1933, this report
      has
      been signed by the following persons in the capacities and on the dates
      stated.





**Signature(s)**
            ****
            **Title(s)**
            ****
            **Date**/s/
                Hui Xiaobing
            
            Chairman
                and CEOHui
                Xiaobing
            
            (Principal
                Executive Officer)
            
            April
                8, 2008/s/
                Richard Shen
            
            Chief
                Financial OfficerRichard
                Shen
            
            (Principal
                Financial and Accounting Officer)
            
            April
                8, 2008/s/
                Jian HuangJian
                Huang
            
            Director
            
            April
                8, 2008/s/
                Daxi LiDaxi
                Li
            
            Director
            
            April
                3, 2008/s/
                Joe Y. ChangJoe
                Y. Chang
            
            Director
            
            April
                3, 2008/s/
                Kenneth BorowKenneth
                Borow
            
            Director
            
            April
                2, 2008/s/
                Peter SlatePeter
                Slate
            
            Director
            
            April
                5, 2008/s/
                Edward MengEdward
                Meng
            
            Director
            
            April
                5, 2008




-43-




**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 oustanding with 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
            
            
            9,506,645





See
      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 considered 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 already outstanding 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 recapitalization adjustment, 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-off experience, 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 contemporaneously by another investor.
      Cost is net of accumulated amortization and impairment losses. 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 ability to exercise
      significant influence over the investee, but does not have a controlling
      financial interest.





If
      circumstances indicate that the carrying value of the Company’s investment in
      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 authorities in excess of 3% of relevant sales. The amount of VAT refund
      is
      calculated on a monthly basis. As the refund relates directly to the sale of
      self-developed software that is embedded in the Company’s products, the Company
      recognizes the VAT refund at the 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 year will 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-sales services 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. Deferred tax assets and
      liabilities are measured using enacted tax rates expected 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 comprehensive income (loss)"
      in
      the stockholders' equity section 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 one USD respectively. The average monthly for 2006
      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-average number of shares
      of our common stock 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 amounts of common stock gives retroactive effect to the May 2007
      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 outstanding used for basic earnings per share
            
            
            13,450,000
            
            
            13,450,000Weighted-average
                shares outstanding used 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 that term is defined 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 Postretirement Plans, an amendment of FASB Statements
      No 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 clearly identify 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
            
            
            181,230
            
            
            169,398Other
                receivable
            
            
            925,780
            
            
            1,049,1133,272,886
            
            
            2,786,518


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 refurbishiment
      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 Hyper as a capital 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 USD74,155 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; 1,000000 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 years ended 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
      enterprises for each year.





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
      reconciliation of 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 or can 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)
            
            
            1,270
            
            
            1,933,251Cash
                advance to related party (ii)
            
            
            -
            
            
            688,100Cash
                advance from related party (iii)
            
            
            -
            
            
            640,689Payments
                to related party (iv)
            
            
            6,854,386
            
            
            1,537,653Acquisition
                of Changdu Huiheng (v)
            
            
            -
            
            
            6,269,699Redemption
                of shares from related party (vi)
            
            
            3,580,171
            
            
            -Settlement
                of expenses on behalf of related party (vii)
            
            
            3,723,270
            
            
            -


(i)
              Amount
                  represents sales of medical equipment to Beijing Yuankang Kbeta
                  Nuclear
                  Technology Co., Limited. Tibet Changdu Huiheng Development Co.,
                  Ltd holds
                  50% of equity interest in Beijing Yuankang Kbeta Nuclear Technology
                  Co.,
                  Limited.
 
 (ii)
              Amount
                  is unsecured, interest-free advance for working capital purposes
                  to/from
                  Shenzhen Huiheng Industry Co., Ltd., which is under same control
                  of Mr.
                  Hui Xiaobing. Amount is repayable on
                  demand.
 
 (iii)
              Amount
                  is advance for working capital purposes from related companies
                  which is
                  under same control of Mr. Hui
                  Xiaobing.
 
 (iv)
              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 Shenzhen Huiheng
                  Industry
                  Co., Ltd.
 
 (v)
              In
                  August 2006, the Company acquired equity interest of Changdu Huiheng
                  99%
                  from Shenzhen Huiheng Industry Co., Ltd. and 1% from Mr. Hui Xiaobing
                  in
                  consideration of USD6,207,002 and USD62,697 respectively (Note
                  15(b)).
 
 (vi)
              Amount
                  represents the Company redeemed 957,265 shares of common shares
                  from Clear
                  Honest International Limited in January
                  2007.
 
 (vii)
              Amount
                  represents the balance of amount due to Clear Honest International
                  Limited
                  being settled by Chardan Capital
                  LLC.




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**Shenzhen
                Huiheng Industry Co., Ltd. (i)
            
            
            745,483
            
            
            688,100




Amount
        due to related parties




**2007**
            
            **2006****USD**
            
            **USD**Shenzhen
                Huiheng Industry Co., Ltd. (ii)
            
            
            -
            
            
            6,342,820Hui
                Xiaobing
            
            
            1,094
            
            
            65,092Clear
                Honest International Limited (ii)
            
            
            116,068
            
            
            -117,162
            
            
            6,407,912


(i)
              USD685,438
                  in 2007 and USD640,690 in 2006 represents the acquisition of Changdu
                  Huiheng in August 2006. USD60,045 and USD47,410 represents interest-free
                  advances to Shenzhen Huiheng Industry Co., Ltd in 2007 and 2006
                  respectively . The amount is payable on
                  demand.
 
 (ii)
              The
                  amount represents the balance of the redemption of the common shares
                  issued by Allied Moral in January
                  2007.





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 carrying amount
      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’s cash and cash equivalents were held by major
      financial institutions located in the PRC, none of which were insured or
      collateralized. 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 amounts to 50% of the Company's registered capital;
      (iii) allocations of 5-10% of income 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