**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB/A**


**Amendment
      No. 2**





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


For
      the
      fiscal year ended December 31, 2007





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




For
      the
      transition period
      from to





**Commission
      File Number: 333-146975**





**HUIHENG
      MEDICAL INC.**


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





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





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


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


*(Address
      of principal executive offices)*





**86-755-25331366**


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





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


**None**





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





**None**





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





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: $16,203,566.





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
      August 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









**EXPLANATORY
      NOTE**





Huiheng
      Medical, Inc. (“Registrant”) previously filed its Annual Report on Form
      10-KSB for the fiscal year ended December 31, 2007 on April 10, 2008 and filed
      an Amendment No. 1 on Form 10-KSB/A to such Annual Report on April 22, 2008.





On
      July
      7, 2008, the Registrant filed an Amendment No. 2 on Form S-1 to its registration
      statement on Form SB-2 (“Registration Statement”) with updated disclosure in
      response to SEC comments. The purpose of this Amendment No. 2 on Form 10-KSB/A
      is: (1) to conform the information contained in the following sections of the
      Annual Report to the disclosure provided in the Registration Statement: (i)
      Item
      1: Description of Business, (ii) Item 6: Management’s Discussion and Analysis of
      Financial Condition and Results of Operations, (iii) Item 9: Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a)
      of the Exchange Act, (iv) Item 12: Certain Relationships and Related
      Transactions, and (v) the Financial Statements and the Notes to the Financial
      Statements; (2) to provide for revised disclosure with respect to 2007 earnings
      per share in the Income Statement and in Note 3 to the Financial Statements;
      and
      (3) to include its Management’s Report on Internal Control Over Financial
      Reporting and updated disclosure regarding Evaluation of Disclosure Controls
      and
      Procedures and Changes in Internal Controls Over Financial Reporting as set
      forth in Item 8A: Controls and Procedures.





2





**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 cancerous
      tumors in the People’s Republic of China (“PRC” or “China”). Our products
      include a patented line of gamma treatment systems (“GTS”) that accurately
      deliver well-defined conforming doses of radiation to the target tissue and
      a
      multileaf collimator (“MLC”) used in conjunction with a linear accelerator for
      radiation therapy applications. We currently have 15 patents issued in the
      PRC,
      one patent issued in the U.S., one patent issued in the European Union and
      additional patent applications which cover our product line.




Our
      primary customers are hospital equipment investors, with hospitals and clinics
      as end users. In addition to providing precision radiotherapy equipment, we
      also
      offer our customers comprehensive post-sales services for our products as well
      as products manufactured by others. These 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
      revenues increased from $12.7 million in 2006 to $16.2 million in 2007. Our
      net
      income increased from $6.8 million in 2006 to $9.0 million in 2007.




Our
      operating subsidiaries were founded in 2001 by Mr. Hui Xiaobing, our
      Chairman and 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 greater market share for our GTS products, by pursuing the following
      strategies:





·
            continuing
                to offer high quality, competitively priced products and
                services;




·
            broadening
                our product offering and improving our existing
                technologies;




·
            expanding
                our sales and distribution force in the
                PRC;




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




·
            expanding
                our product portfolio through relationships with foreign medical
                equipment
                technology leaders.




3





**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
                leadership;





·
            strong
                customer relationships and network;





·
            proprietary
                technology with patent protection;





·
            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 business sector in the PRC. Distributors of
      medical equipment and supplies operate in the PRC within 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. 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
      PRC’s
      aging population, the popularization of private hospitals and clinics and
      growing demand for high-quality medical equipment and efficient healthcare
      services are some of the key factors contributing to the growth of the medical
      equipment market in the country. Additionally, initiatives by the government,
      such as reforms in the national healthcare system, are also fueling growth
      in
      the industry.




**The
      PRC Radiotherapy Market**




The
      Ministry of Health identified cancer as the leading cause of death in the PRC
      for the years 2005, 2006 and 2007. 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. The United
      States has 13 radiotherapy units per million people. The World Health
      Organization recommends 6 radiotherapy units per million people for “developed”
countries. The PRC remains well below the recommended threshold. In 2007, there
      was less than one radiotherapy unit per million people in the PRC.





4




The
      PRC
      radiotherapy industry has the following characteristics:





·
            consolidation
                of the market as small suppliers find it difficult to
                compete;




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




·
            large
                discrepancy between the need for and access to radiation oncology
                systems;
                and




·
            high
                barriers to entry due to both high technology requirements and established
                relationships.





Trends
      in
      the radiotherapy market in the PRC include:





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




·
            increasing
                acceptance of the use of Western style medicine and treatment
                approaches;




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




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




**Corporate
      Structure**




We
      are a
      Nevada holding company and conduct all of our business through our operating
      subsidiaries as described in the chart below. 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 Treatment System and
      Body
      Gamma Treatment System. Shenzhen Hyper focuses on research and development
      and
      production management of the Super Gamma System and our multileaf collimator
      product that is used in conjunction with a linear accelerator for cancer
      treatment. Beijing Kbeta focuses on installation and replacement of the Cobalt
      60 radioactive sources used in our GTS products. The remaining equity interests
      in Shenzhen Hyper and Beijing Kbeta are owned by unrelated, unaffiliated
      parties.




5









**Previous
      Operations**




Prior
      to
      a 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.





6





***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 growth of the radiotherapy equipment industry
      in the PRC. We operate in an industry characterized by technological change,
      short product life cycles and margin pressures. It is possible that innovations
      in the treatment of tumors or improvements in radiotherapy equipment developed
      by others will make our products uncompetitive, 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 hospital
      or clinic and they generally do not reorder our products. As a result, the
      continued growth of our business involves making sales to an increasing number
      of new hospitals and clinics each year. The failure to find and sell to a
      significant number of new end users each year would limit our revenues and
      profits.




We
      also
      make significant decisions related to 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
      would
      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 could 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.




**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 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 customers may be discouraged from buying our products, which
      would reduce our sales. We may need to decrease the price of our products to
      provide our customers acceptable financial 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.




**Failure
      to optimize our sourcing activities and cost structure could materially increase
      our expenses, 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 depends in part on our success in
      accurately forecasting demand for our products 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 pressures 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 equipment 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.





7




Some
      of
      our larger competitors, especially the multinational companies, have, among
      them:





·
            greater
                financial and other resources;





·
            a
                larger variety of products that have received regulatory
                approvals;





·
            more
                extensive research and development and technical
                capabilities;





·
            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
      remaining profitable. Furthermore, our competitors may develop technologies
      and
      products that are more effective than ours 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 equipment industry
      in
      China still occur, although it is difficult to quantify. To increase sales,
      certain manufacturers or distributors of medical equipment 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 equipment 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.**




Our
      success depends on our ability to anticipate technology development trends
      and
      to 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.




8




Whether
      we will be successful in developing and commercializing new products will depend
      on our ability to:





·
            obtain
                regulatory clearances or approvals in a timely and cost efficient
                manner;





·
            optimize
                our procurement processes to control
                costs;





·
            manufacture
                and deliver quality products in a timely
                manner;





·
            increase
                customer awareness and acceptance of our new
                products;





·
            compete
                effectively with other medical equipment
                companies;





·
            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 distribute our products in a timely manner, or at all, 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 products, 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
      experienced unexpected delays in obtaining regulatory approval for our HGTS
      and
      MLC products. We believe these delays resulted from a combination of the
      reorganization of the SFDA within the PRC Ministry of Health and greater
      scrutiny of pending applications by the SFDA following corruption charges
      against previous administrators. Based on our review of announced approvals,
      we
      believe that no new applications for medical equipment incorporating advanced
      technologies have been approved in almost two years, 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 could
      have
      the effect of delaying or prolonging the regulatory clearance or approval for
      our existing or new products. For example, in 2007 the SFDA introduced a new
      safety standard to its approval process for new medical equipment which we
      believe has increased the typical time period required to obtain 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 systems, 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.





9




In
      addition, the management of our growth will require, among other
      things:





·
            enhancement
                of our research and development
                capabilities;





·
            stringent
                cost controls;





·
            adequate
                working capital and financial
                resources;





·
            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.




**If
      we are unable to effectively and efficiently improve and maintain our controls
      and procedures, there could be a material adverse effect on our operations
      or
      financial results.**




As
      a
      public company, we are subject to the reporting requirements of the Securities
      Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. These requirements
      may
      place a strain on our systems and resources, especially as we grow into other
      markets and develop our own manufacturing capabilities. The Securities Exchange
      Act requires, among other things, that we file annual, quarterly and current
      reports with respect to our business and financial condition. The Sarbanes-Oxley
      Act requires, among other things, that we maintain effective disclosure controls
      and procedures and internal control over financial reporting. We are currently
      reviewing and further documenting our internal control procedures. We expect
      to
      devote significant resources to maintain and improve the effectiveness of our
      disclosure controls and procedures and internal control over financial
      reporting.




Effective
      internal controls are necessary for us to provide reliable financial reports.
      If
      we cannot provide reliable financial reports, our business and operating results
      could be harmed. We have in the past discovered, and may in the future discover,
      areas of our internal controls that need improvement. For example, in July
      2008
      we determined that our controls and procedures needed to be improved to ensure
      that the information required to be disclosed by us in the reports that we
      file
      and furnish under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported, within the time periods specified in the Securities
      and
      Exchange Commission’s rules and regulations. The significant deficiencies we
      have found include: (1) lack of sufficient staff with appropriate knowledge,
      experience, and training in the application of U.S. GAAP, and (2) needed
      improvement in our enterprise risk management system to address enterprise
      risk
      and internal policies over enterprise level controls.




Because
      of these deficiencies in our controls and procedures, we are undertaking the
      following remedial measures to: (1) recruit accountants with appropriate
      knowledge and experience in U.S. GAAP and arrange for the training of our
      accounting department staff in the application of U.S. GAAP, and (2) work with
      professional advisors to analyze, re-design and remediate key internal controls
      over financial reporting in order to standardize internal policies and
      procedures.




Any
      failure to implement and maintain the improvements in the controls over our
      financial reporting, or difficulties encountered in the implementation of these
      improvements in our controls, could cause us to fail to meet our reporting
      obligations. Any failure to improve our internal controls to address these
      identified deficiencies could also cause investors to lose confidence in our
      reported financial information, which could have a negative impact on the
      trading price of our stock.




**Compliance
      with rules and regulations concerning corporate governance may be costly, which
      could harm our business.**





We
      will
      continue to incur significant legal, accounting and other expenses to comply
      with regulatory requirements. The Sarbanes-Oxley Act of 2002, together with
      rules implemented by the Securities and Exchange Commission has required and
      will require us to make changes in our corporate governance, public disclosure
      and compliance practices. In addition, we have incurred significant costs and
      will continue to incur costs in connection with ensuring that we are in
      compliance with rules promulgated by the Securities and Exchange Commission
      regarding internal controls over financial reporting pursuant to Section 404
      of
      the Sarbanes-Oxley Act of 2002. Compliance with these rules and regulations
      has
      increased our legal and financial compliance costs, which have had, and may
      continue to have, an adverse effect on our profitability.




10




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




The
      typical terms on which we sell our products provide 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,
      typically with the final 10% payment due 12 months after the customer accepts
      the product as meeting the specifications. Customers frequently pay slower
      than
      the terms established in our agreements. 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.




**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. We
      currently have just four products in our portfolio, and we added the fourth
      product, our MLC, in 2007. 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 customer 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. 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.**




In
      order
      to grow, remain competitive, develop new products and expand distribution,
      we
      may require additional capital. Our ability to obtain additional capital will
      be
      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 equipment
                and
                related companies;





·
            investor
                demand for new offerings by issuers with small market capitalizations;
                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 stockholder
      dilution.




11




**Products
      we develop may contain design or manufacturing defects, which could result
      in
      reduced demand for our products and services and increased customer claims
      against us, 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 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 equipment, 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 could result in an unsafe condition or injury to the patient.
      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, and they could have a material adverse effect on our
      business, financial condition and results of operations. We are currently unable
      to insure against this type of liability in China.




**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 devoted to expansion of our business, even if we
      ultimately prevail.**




We
      currently possess 15 patents issued in the PRC, one in the U.S. and one in
      the
      European Union. 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 and harm our financial condition.




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.




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.




12




**We
      may develop new products that do not gain market acceptance, and the significant
      costs in designing and manufacturing such product solutions could hurt our
      profitability and operations.**




We
      operate in an industry characterized by frequent technological advances, the
      introduction of new products and new design and manufacturing technologies.
      We
      expect to introduce four new products over the next several years. 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; expanding
      our
      manufacturing capabilities and continually enhancing design processes and
      techniques. Delays in product approval by regulatory authorities could further
      increase our 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
      costs in design and manufacturing services for new products that do not result
      in sufficient revenue to make those investments profitable, or in any revenue
      at
      all.




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




Shenzhen
      Hyper commenced operations in September 2001, and we installed our first Super
      Gamma System (“SGS”) in that year and installed our first MLC in March 2007.
      Wuhan Kangqiao also commenced operations in September 2001, and we installed
      our
      first Body Gamma Treatment System (“BGTS”) in 2003 and our first 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
                what we believe (based solely on management’s knowledge of the industry)
                is our leading position in the GTS market in
                China;





·
            acquire
                and retain customers;





·
            attract,
                train, motivate and retain qualified
                personnel;





·
            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 hospital equipment investors;
                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 and quality
      standards, causing us to experience outsourced manufacturing delays, which
      may
      harm our relationships with current or prospective customers and reduce
      sales.**




We
      acquire the components of our equipment from third parties. This exposes 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 and cost effective basis, we may experience outsourced
      manufacturing delays, which could harm our relationships with current or
      prospective customers and reduce sales.




13




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




As
      our
      main products are medical equipment 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, whether or not successful, are
      often 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 equipment 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 develop suitable products or technologies or to 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.




**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 intended to enhance or complement our
      technology, to provide additional know-how, components or supplies, and to
      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. Our Chairman, Mr. Hui Xiaobing, has been, and will continue to be,
      instrumental to our success. In addition, 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 effect 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. The 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.




14




***Risks
      Related to our Activities in China***




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




We
      are
      subject to oversight at the provincial and local levels of 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 interpreting and
      enforcing our rights under these laws and regulations is limited, and our future
      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.




**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 of the
      United States. 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 of the United
      States.




**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 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.




**Our
      management may fail to meet the obligations under Chinese law that enable the
      distribution of profits earned in the PRC to entities outside of the
      PRC.**




A
      circular 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 in our business 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 Moral. 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.




15




**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
      stockholders.**




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 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.




**National,
      provincial and local governments have established many regulations governing
      our
      business operations.**




We
      are
      also subject to numerous national, provincial 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 requirements, limitations on hours worked, working
      and safety conditions, citizenship requirements, work permits and travel
      restrictions. These local labor laws and regulations 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. These regulations 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.




***Risks
      Related to International Operations***




***We
      currently conduct most of our business in the PRC. However, we have plans to
      expand internationally, 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.***




**The
      failure of China to continue its policy of economic reforms could, among other
      things, result in an increase in tariffs and trade restrictions on our products,
      making our products less attractive in international markets and potentially
      reducing our future 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 according to governmental plans and pre-set targets
      or
      quotas.




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.




16




**In
      order to market our products internationally, we will be required to obtain
      relevant regulatory approvals for our products in the countries in which we
      intend to sell.**




Our
      products will be subject to review by governmental agencies prior to being
      eligible for sale in new markets. We lack the expertise to navigate such
      approval processes outside of China We will be required to rely on our
      distributors and advisors to obtain such approvals, and we will have very little
      influence over their activities. The failure of our partners to obtain and
      maintain required approvals will limit our ability to sell our products
      internationally and harm our prospects for future revenues and
      profitability.




**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
      is less recognized. To 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 China. 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.




**If**  **we
      begin to do business internationally, we will be subject to significant
      worldwide political, economic, legal and other
      uncertainties.**




Today,
      substantially all of our assets are located in the PRC. Should we begin selling
      our products to customers worldwide, we will have receivables from, and goods
      in
      transit, to those locations.




In
      addition, international operations will expose us to other risks,
      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;





·
            reliance
                on our international distributors for compliance with foreign regulatory
                approvals and sales;





·
            export
                license requirements;




17


·
            unauthorized
                re-export of our products;





·
            potentially
                adverse tax consequences; and





·
            the
                inability to effectively enforce contractual or legal
                rights.





The
      additional risks and costs of our intended international expansion could harm
      our profitability and financial condition.




**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 U.S. dollar.**




The
      value
      of the Renminbi, or RMB, 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 RMB into foreign currencies such as the U.S.
      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 RMB. As a result,
      the exchange rate of the RMB to the U.S. dollar was about 6.86 on June 27,
      2008
      as compared to an average of approximately 7.60 during 2007. This floating
      exchange rate, and any appreciation of the RMB 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. It is not
      possible to predict if the net effects of the appreciation of the RMB, 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.**




The
      Renminbi 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.




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 revenues 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 stockholders 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. and has subsidiaries and other operations in the
      PRC
      and the British Virgin Islands. We 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 Huiheng’s earnings generally will be subject to
      U.S. taxation, because U.S. companies are generally taxed on their world-wide
      income. This may be true even if Huiheng does not repatriate any of its foreign
      earnings to the U.S. For certain types of income (generally, income from an
      active trade or business), U.S. companies are not required to pay tax on that
      income until they repatriate those earnings to the U.S. (such as for use in
      paying dividends or repurchasing shares). As a result, repatriation of earnings
      would trigger more immediate tax obligations. As a result of the imposition
      of
      U.S. taxes, Huiheng’s after-tax profits could decrease and could be below the
      level that would have been obtained if Huiheng were incorporated outside the
      U.S. The amount of taxes payable in the U.S. generally depends on the
      profitability of our various operations and the application of available tax
      credits and tax treaties. We are not currently receiving the benefit of any
      U.S.
      tax credit, and we are not currently conducting a material amount of business
      in
      a country with an advantageous tax treaty. Since the effect of tax credits
      and
      tax treaties depends on the profitability of operations in various
      jurisdictions, the amount of our tax will vary over time as we change the
      geographic scope of our activities. However, for the near term we expect that
      our total tax rate will be significantly influenced by the taxes we pay in
      China., so that our total tax obligation might decrease as a result of favorable
      tax treatment in China even though we were subject to additional U.S. taxes.
      In
      the future, Huiheng may 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.




18




**Because
      Chinese law will govern almost all of our material agreements, we may not be
      able to enforce our legal rights internationally, 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.




**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.




***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 due to variations
      in
      our operating results, news announcements, our limited trading volume, general
      market trends both domestically and internationally, currency movements, sales
      of common shares by our officers, directors and our principal stockholders,
      and
      sales of common shares by existing investors. 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. In addition,
      a
      change in sentiment by U.S. investors for China-based companies could have
      a
      negative impact on the stock price. 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.




19




**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 never be an active, liquid trading market for our common
      stock.**




There
      has
      been very little trading in our shares of common stock to date. 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 currently meet all of the requirements for listing except for the
      required number of round lot holders, which we believe we will meet upon the
      closing of our pending public offering. Even if we are listed on the Nasdaq
      Capital Market, we cannot assure investors that an active trading market will
      develop for our shares.




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
      do not expect to pay dividends.**




We
      expect
      to apply our future earnings, if any, 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 generally
      would become subject to U.S. taxation. Thus, the liquidity of your investment
      is
      dependent upon your ability to sell your shares at an acceptable price, rather
      than receiving an income stream from your investment. The price of our stock
      may
      decline and fluctuations in market price coupled with limited trading volume
      in
      our shares may limit your ability to realize any value from your investment,
      including recovering the initial purchase price.





20





**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 equipment 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
      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.




In
      2006,
      we established Allied Moral Holdings, Ltd. in the British Virgin Islands as
      a
      holding company and Allied Moral acquired 100% of the ownership interests of
      Changdu Huiheng as part of an ownership restructuring to facilitate investments
      by foreign investors. As discussed below in “Business – Huiheng Medical’s
      Background,” the stockholders of Allied Moral engaged in a share exchange
      transaction with our company in May 2007.




Our
      company is led by Mr. Hui Xiaobing, a pioneer in the GTS industry in the
      PRC. Through his experience and relationships, Mr. Hui maintains access to
      China’s hospitals and our 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 15 patents issued in the PRC,
      one patent in the U.S., one patent in the European Union, and additional patent
      applications pending. Our SGS and BGTS products are approved for use in China
      by
      the State Food and Drug Administration (“SFDA”), an agency of the Ministry of
      Healthcare of the PRC.




Currently,
      the focus of our research and development efforts is on four main projects.
      The
      first project is the development of next-generation SGS unit that will
      incorporate advanced 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 a 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 half of 2008. The other major projects
      include the development of an integrated linear accelerator (“LINAC”) and
      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 used for, among other things, preserving
      food through irradiation. These projects are in various stages of
      development.




We
      sell
      our products primarily to hospital equipment investors in China, who install
      our
      systems in hospitals or clinics, and occasionally we sell directly to hospitals
      or clinics. 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, medical
      expert training, clinical trial analysis, patient tumor treatment analysis,
      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 equipment technology
      leaders to provide high quality, low cost manufacturing services and China-based
      distribution for their products.




21




**Our
      Operating Subsidiaries**




*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 cancerous tumors for customers throughout China. Shenzhen Hyper
      developed the 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. Shenzhen Hyper has also developed a MLC device that
      is
      used in conjunction with a LINAC to provide conformal shaping of radiotherapy
      treatment beams, which increases the precision of the beam and reduces the
      damage caused to surrounding tissues. We are currently developing our own LINAC
      with which we will integrate our MLC.




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 cancerous 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 the 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. 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.




*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 our customers, taking into account the prices of competing
      products in the market. We believe that our products offer quality features
      at a
      competitive price in China.




If
      the
      provincial governments in China reduce the treatment fee rates for radiotherapy,
      some hospitals and hospital equipment 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.




Under
      existing regulations, we are permitted to install a limited number of units,
      and
      to be reimbursed for the equipment and installation costs, prior to the receipt
      of the regulatory registration for that equipment. Those installations
      frequently are used to conduct clinical trials or for other research purposes.
      Our installations of the HGTS units and the MLC units have been made under
      this
      exemption. While those limited installations are not considered “sales” or
      commercial distribution for regulatory purposes, they do result in revenues
      to
      us as a result of the cost reimbursements. However, this cost reimbursement
      is
      below the price at which we intend to sell our products following regulatory
      approval.




**REVENUES**




We
      derive
      our revenues from selling our products to third party investors and hospitals
      and from selling service contracts to the buyers of our products.




Our
      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.




22




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
      revenues, growth and results of operations depend on many 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 the medical community about our products, our relationships with
      hospitals and hospital equipment investors, 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 three customers (all
      of whom were hospital equipment investors) accounted for 89% of our revenues.
      For the year ended December 31, 2007, two customers (both of whom were hospital
      equipment investors) accounted for 76% of our revenues.




**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 products under 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 revenues,
      to develop new products and applications and to improve the 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. Our sales are
      currently made primarily to hospital equipment investors, rather than directly
      to hospitals or clinics. As a result, our sales and marketing expenses as a
      percentage of revenues are significantly lower than medical equipment 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 revenues, 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.




23




*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
      revenues, as we hire additional personnel and incur costs related to the
      anticipated growth of our business and ongoing expenses associated with being
      a
      publicly listed company in the U.S.




**TAXES
      AND INCENTIVES**




The
      discussion of taxes that follows denotes financial obligations and thresholds
      in
      RMB, since that is the currency in which those amounts are measured. These
      amounts have been translated into U.S. dollars using the exchange rate in effect
      on December 31, 2007. The actual future value of taxes expressed in USD will
      vary depending upon future rates of exchange.




**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
      would be imposed on payments of dividends.




**Changdu
      Huiheng**




Under
      the
      current PRC laws, Changdu Huiheng is subject to the Enterprise Income Tax
      (“EIT”) and the Value Added Tax (“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 123,119). 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 the annual VAT owed exceed
      RMB
      1 million (USD 136,799) and RMB 1.5 million (USD 205,198), respectively. This
      tax incentive policy will be valid for 5 years from the commencement of the
      tax
      refund, which began in fiscal 2006.




**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 its 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 the first year of its tax-free period according to local
      tax
      regulations. We expect Shenzhen Hyper to begin the first year of its tax-free
      period in 2008.




The
      VAT
      is charged based on the selling price of products at a general rate of 17%
      and
      our 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 $173,077 (RMB 1.35 million) for the
      fiscal year ended 2006. There were no VAT refunds for fiscal year ending
      December 31, 2005.




24




**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% for all three
      years.




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.




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 Significant Accounting Policies discussed below.





**(a)** **Principles
        of Consolidation**





The
      consolidated financial statements include the company and its subsidiaries.
      All
      significant intercompany balances and transactions have been eliminated in
      consolidation.




**(b)**  **Cash**





Cash
      consists of cash on hand and in the 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
      performs ongoing credit evaluations of its customers’ financial conditions. The
      company provided an allowance of $5,059 and $4,446 for doubtful accounts
      respectively as of December 31, 2007 and 2006.




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.





25





**(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.





The
      final
      steps of assembly of our products, including installation of radioactive service
      materials, are completed at customer locations. Accordingly, the company
      generally does not carry finished goods (inventory held for sale in the ordinary
      course of business) inventory.





**(e)**  **Property,
      Plant, and Equipment**





Property,
      plant 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, plant 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 are amortized on a straight-line basis over the estimated
      useful life. Depreciation of property, plant and equipment are stated at cost
      less accumulated depreciation. Upon sale or retirement of property, plant 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 are stated at cost, representing the fair value at the time such
      intangibles were contributed to the company by the minority owner of a
      subsidiary in exchange for equity interests. Fair value was supported by cash
      contributed contemporaneously by another investor. Intangible assets are carried
      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





26





**(g)**  **Investment
      in Affiliated Company**





The
      company owns a 50% equity interest of Beijing Kbeta and accounts for the
      investment using the equity method of accounting. The equity method is utilized
      as 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.





**(h)**  **Impairment
      of Long-Lived Assets**





Long-lived
      assets, which include property, plant 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
      provision of maintenance and support services. Revenue is recognized as
      follows:




*Sales
      of medical equipment*




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 services, which generally take about 1 month. 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 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.




27




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” in the consolidated statements of income
      and is recorded on an accrual basis.




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” in the consolidated statements of income
      and is recorded on an accrual basis.




The
      medical equipment sold by the company has embedded self-developed software
      which
      can also be sold on a standalone basis.




*Provision
      of maintenance and support services*




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. Under
      existing service agreements, the company provides the exchange of cobalt
      sources, 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.




*Government
      subsidies*




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% of business tax
      payment will be refundable by Tibet Finance Bureau provided that the business
      tax payment exceeds RMB 1.0 million for a year. The 38.75% of value added tax
      payment will be refundable by Tibet Finance Bureau provided that the value
      added
      tax payment exceeds RMB 1.5 million for a year. All tax incentive policies
      will
      be valid for five (5) years from the year of commencement of tax refund,
      starting from September 2006.





**(k)**  **Research
      and Development Costs**




Research
      and development costs are charged to expense as incurred. Research and
      development costs mainly consist of remuneration for the research and
      development staff and material costs for research and development. The company
      incurred $263,314 and $124,283 for the years ended December 31, 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 year
      that includes the enactment date.





28





**(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 generally within twelve months from the date of sale. The
      company’s purchase contracts generally allow the customer to withhold up to 10%
      of the total purchase price for the duration of the warranty period. 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 cost 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 the company consolidated balance
      sheet.




The
      average monthly exchange rates for 2007 and the closing rate of December 31,
      2007 were Rmb 7.5973 and Rmb 7.2946 to one USD, respectively. The average
      monthly exchange rates for 2006 and the closing rate as of December 31, 2006
      were Rmb 7.9579 and Rmb 7.8041 to one USD, respectively.





**(q)**  **Earning
      Per Share**





Basic
      earnings per share are computed on the basis of the weighted-average number
      of
      shares of the company common stock outstanding during the year. Diluted earnings
      per share is computed on the basis of the weighted-average number of shares of
      the company common stock plus the effect of dilutive potential common shares
      outstanding during the period using the if-converted method. Dilutive potential
      common shares include Series A Preferred Stock.




The
      following table sets forth the computation of basic and diluted net income
      per
      share:





**2007**
              
              **2006**Net
                  income
              
              $
              9,015,769
              
              $
              6,816,474Weighted-average
                  outstanding shares of common stock
              
              
              13,283,562
              
              
              13,000,000Diluted
                  effect of Preferred Stock
              
              
              2,801,113
              
              
              -Diluted
                  weighted average outstanding shares
              
              
              16,084,675
              
              
              13,000,000**Earnings
                  per share:**$
              0.68
              
              $
              0.52$
              0.56
              
              $
              0.52





29




The
      weighted-average number of common shares outstanding during the period from
      January 1, 2006 through the May 2007 share exchange is based on the number
      of
      shares of Allied Moral multiplied by the exchange ratio in the merger agreement.
      The weighted-average number of common shares outstanding from the acquisition
      date through December 31, 2007 is based upon the actual number of shares
      outstanding during the period.





**(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**





SFAS
      No.
      131, Disclosure About Segments of an Enterprise and Related Information,
      establishes standards for reporting information on operating segments in interim
      and annual financial statements. The company operates in two segments (i)
      selling the medical equipment and, (ii) providing the consultancy, repairs
      and
      maintenance services for the customers. The chief operating decision-makers
      review the company’s operation results on an aggregate basis and manage the
      operations as two operating segments as disclosed in note 13.





**(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.




**(u)**  **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.




**(v)**  **Financial
      Instruments with Characteristics of both Liabilities and
      Equity**





The
      company accounts for its Series A Preferred Stock in accordance with SFAS
      Statement No. 150, Accounting for Certain Financial Instruments with
      Characteristics of both Liabilities and Equity (SFAS 150) and SFAS Statement
      No.
      133, Accounting for Derivative Instruments and Hedging Activities, as amended
      (SFAS 133). We have determined that our Series A Preferred Stock is not
      mandatorily redeemable. Accordingly, the company accounts for the Preferred
      stock as permanent equity.




30





**(w)**  **Impact
      of New Accounting Standards**





In
      July
      2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty
      in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
      prescribes 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 on July 1, 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 adoption of this statement did not 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.




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 that begins after December 15, 2008. 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.




31




In
      December 2007, SAB 109 supersedes SAB 105, “Application of Accounting Principles
      to Loan Commitments”, provided that the expected net future cash flows related
      to the associated servicing of the loan should be included in the measurement
      of
      all written loan commitments that are accounted for at fair value through
      earnings. SAB 105 also indicated that internally-developed intangible assets
      should not be recorded as part of the fair value of a derivative loan
      commitment. The company does not believe that the adoption of this statement
      will have a material effect on the company’s financial condition and results of
      operations.




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.




**Incentive
      Share and After-tax Profit Targets**




As
      an
      additional payment under the Allied Moral Holdings Securities Exchange
      Agreement, the previous holders of common stock of Allied Moral Holdings will
      be
      issued, on an all or none basis, 400,000 shares of common stock each year over
      four years (up to an aggregate of 1,600,000 shares of common stock), if on
      a
      consolidated basis, the company has after-tax profits in the following amounts
      for the indicated periods:





Years
                Ending December 31,
            
            After-tax Profit
              in USD2008
            
            
            13,100,0002009
            
            
            18,500,0002010
            
            
            26,200,0002011
            
            
            34,060,000





**OUR
      SELECTED RESULTS OF OPERATIONS**




***Comparison
      of the years ended December 31, 2006 and 2007***




*Operating
      revenues*




For
      the
      year ended December 31, 2007, revenues were $16.20 **** million,
      an increase of $3.53 million, or 28%, compared to $12.67 million for the same
      period of the prior year. This increase in total revenues was due to higher
      revenues from product sales, services, and tax refunds and subsidies in 2007
      compared 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 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 in 2007 compared with 2006 was due to increased demand in the market
      for our products.




Total
      revenues from services were $5.03 million for 2007, an increase of $0.36 million
      or 7.5%, compared to $4.68 million for 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
      $16.20 million of revenues, approximately $1.64 million related to tax refunds
      and subsidies, an increase of approximately $255,888 **** or
      18%
      over the $1.38 million in tax refunds and subsidies for the prior year. Tax
      refunds and subsidies accumulate each year and are paid to us, and recognized
      as
      revenue during, the following year. Since our total revenue and taxable income
      in 2007 was higher than in 2006, our revenues from tax refunds and subsidies
      will be larger in 2008 than in 2007.




32




*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 that period. The backlog
      as of December 31, 2007 amounted to $2.47 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 2007.
      However, in the first quarter of 2008, we received a total of 10 purchase
      orders, which increased our backlog to $12.24 million as of March 31, 2008.
      These purchase orders are not cancelable and we expect to complete the
      installation of all units under these contracts during 2008.




*Cost
      of revenues*




The
      total
      cost of revenues amounted to $4.03 million for the year ended December 31,
      2007, an increase of $1.05 million or 35%, compared to $2.98 million for the
      prior year. The increase was due to an increase in the number of units sold
      in
      2007 compared with 2006.




*Gross
      margin*




As
      a
      percentage of total revenues, the overall gross margin decreased to 75% for
      the
      year ended December 31, 2007 from 76.5% for 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. We
      anticipate that revenue from product sales will continue to increase as a
      percentage of total revenue in 2008. As a result, we anticipate that our gross
      margins will decrease slightly in 2008 compared with 2007.




*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 34%, or roughly $41,000 compared to approximately $123,300
      for the prior year. The decrease was due to 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 our products and to
      control selling expenses. We expect that our selling expenses will increase
      above 2007 levels as we increase our efforts to expand sales, particularly
      internationally, where our brand is not known.




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
      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 the year and from additional expenses resulting from becoming a
      publicly-listed company in the U.S.




Research
      and development expenses .
      Research and development expenses include 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 for the prior year. This was due to
      new
      product development including our MLC, linear accelerator and next-generation
      SGS device.




33




*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 was 15% and at Shenzhen Hyper was 0%. In 2007, a
      greater percentage of the company’s income was earned at Shenzhen Hyper, and
      therefore subject to a 0% tax rate. This occurred for two reasons: Shenzhen
      Hyper sold proportionally more SGS units in 2007 than in 2006, 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 Shenzhen Hyper, which is located in the
      most favorable tax jurisdiction in comparison to our other subsidiaries, which
      produced a reduction in 2007 taxes relative to 2006. In addition to reducing
      the
      effective tax rate, that shift in income generation also reduced the income
      tax
      expense by nearly 33%, to $938,000 in 2007 from $1.4 million in 2006. 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 or 32.3% compared to $6.82 million for
      the
      prior year. This increase was attributable primarily to the increase in product
      sales.




*Comprehensive
      income*




For
      the
      year ended December 31, 2007, the company’s comprehensive income amounted to
      $9.72 million, an increase of $2.90 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.




**LIQUIDITY
      AND CAPITAL RESOURCES**




To
      date,
      the company has financed its operations primarily through the issuance of equity
      and cash flows from operations. We currently do not have any outstanding
      short-term or long-term debt. Our relatively high margins provide 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 have
      maintained favorable payment terms. Also, we believe that we can defer certain
      tax payments, if we choose to do so. We plan to raise additional equity 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. Our cash
      was
      $866,585, accounts receivable were $8.04 million, prepayment and other
      receivables were $3.48 million and inventories were $1.07 million. **** Working
      capital was approximately $11.07 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 $4.10 million for the year
      ended
      December 31, 2007, a decrease of $6.22 million from $10.32 million for the
      prior
      year. This decrease resulted primarily from the following changes in the
      operating assets and liabilities:





·
            $5.39
                million increase in accounts
                receivables;




·
            $553,000
                decrease in inventories;




34




·
            $692,000
                increase in prepayments and other
                receivables;





·
            $76,853
                increase in accounts payable;




·
            $620,168
                decrease in tax payable; and





·
            $521,023
                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
      used for investing activities was $10.24 million and $1.17 million for the
      years
      ended December 31, 2007 and 2006, respectively. Cash used during 2007 includes
      the expenses of equipping our new office facility into which we moved to support
      our growing operations and to pay the consideration owed for the acquisition
      of
      Changdu Huiheng in August of 2006.




Cash
      flows provided by financing activities amounted to $5.62 million for the year
      ended December 31, 2007 and a use of cash of $9.16 million during 2006. For
      the
      year ended December 31, 2007, cash flows generated by financing activities
      consisted of $9.12 million from the sale of Series A Preferred Stock in February
      2007 and a $3.49 million payment for the redemption of common
      shares.




**OPERATING
      LEASE COMMITMENTS**




Rental
      expenses for obligations under operating leases were $43,880 (RMB
      349,200) and $50,413 (RMB 383,000) 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 related to our facilities were
      $5.01 million (RMB 35.57 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 $21,060 (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 U.S. 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.




35




*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 distributable as dividends. These rules and possible changes
      could restrict a company in China from repatriating funds to us and our
      stockholders as dividends.




*Interest
      Rate Risk*




Historically
      we have financed our operations from the issuance of equity and internally
      generated cash flow. As we have not relied on debt, we have had limited exposure
      to interest rate risk. However, as our operations expand, we may explore the
      use
      of debt. If this occurs then the cost associated with such debt could influence
      our profitability.





36





**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 Rules 13a-15(e) and Rule 15d-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.





Subsequent
      to the evaluation discussed in the preceding paragraph, we discovered additional
      information that indicated deficiencies in the controls and procedures we use
      to
      ensure that information we are required to disclose in our reports to the SEC
      is
      summarized and reported within the required periods. As a result of this
      additional information we believe that our disclosure controls and procedures
      are not effective and need to be improved. We are working to address these
      areas
      and implement the improvements that are discussed below.





**Management’s
      Report on Internal Control Over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15(f) and 15d-15(f). Under the supervision and with the participation of
      our
      management, including our principal executive officer and principal financial
      officer, we conducted an evaluation of the effectiveness of our internal control
      over financial reporting based on the framework in *Internal
      Control – Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. In
      conducting this assessment, we recognized that the transition in 2007 of our
      operating subsidiaries to become the principal operating entities of a public
      company and the continued development of our business presented additional
      challenges and requirements on our internal control systems and procedures
      that
      had not been present for earlier periods. For example, while we had developed
      strong accounting systems and procedures to prepare the reports required of
      a
      privately held company in China, the transactions in 2007 meant that we would
      have to convert our financial reporting to prepare financial statements under
      generally accepted accounting principles in the U.S. (“US GAAP”). Similarly,
      although we have historically relied on direct and extensive oversight of our
      systems and operations by our experienced management team, we recognized that
      we
      would need to implement additional and improved controls and procedures as
      our
      company grew and developed. Based on the evaluation of our internal control
      over
      financial reporting, we determined that we had two significant deficiencies
      which could adversely affect our ability to initiate, authorize, record, process
      or report financial data in accordance with US GAAP. While the areas we
      identified are sources of potential risk, we do not believe that these potential
      risks have affected our financial statements or that there are any errors in
      our
      previously reported financial statements that would require restatement. The
      significant deficiencies we found were: (1) lack of sufficient accounting staff
      with appropriate knowledge, experience and training in the application of US
      GAAP; and (2) needed improvements in both our enterprise risk management system
      to address enterprise risks and related policies over enterprise level controls.
      Based on our evaluation under the framework in *Internal
      Control – Integrated Framework* and
      because of the significant deficiencies we identified, our management concluded
      that our internal control over financial reporting was not effective as of
      December 31, 2007.





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.





**Remediation
      Activities**





We
      have
      disclosed the significant deficiencies identified above to the members of our
      Audit Committee and to our independent accountants. We have begun recruiting
      additional accounting personnel with knowledge or experience in US GAAP and
      have
      arranged training for our accounting staff in the application of US GAAP.
      Additionally, we have engaged a consultant to help us analyze, re-design and
      implement improved policies and procedures affecting our business (including
      our
      enterprise level controls) and our related internal control over financial
      reporting, as part of our comprehensive review we are undertaking to prepare
      for
      a future independent auditor attestation of management’s evaluation, which will
      be required by the rules of the Securities and Exchange Commission.





37




**Changes
      in Internal Controls Over Financial Reporting**





There
      have been no 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.





38





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





In
      connection with the share exchange, Mill Basin’s officers and directors resigned
      and were completely replaced with Allied Moral’s officers and
      directors.




The
      following table and text set forth the names and ages (as of May 31, 2008)
      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 stockholders and until their successors are elected and
      qualified, or until their earlier death, retirement, resignation or removal.
      Except for Mr. Huang being the brother-in-law of Mr. Hui, there are no family
      relationships among directors and executive officers.




Each
      of
      our directors, other than Mr. Hui and Mr. Huang, 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 United States Federal securities laws.





Name
            
            Age
            
            PositionHui
                Xiaobing
            
            54
            
            Chairman
                and CEOHuang
                Jian
            
            51
            
            Vice
                President and DirectorLi
                Bo
            
            36
            
            Corporate
                SecretaryRichard
                Shen
            
            42
            
            Chief
                Financial OfficerCui
                Zhi
            
            38
            
            Chief
                Technology OfficerTang
                Shucheng
            
            45
            
            Director
                of MarketingJoe
                Chang
            
            43
            
            DirectorKenneth
                Borow
            
            60
            
            DirectorEdward
                Meng
            
            40
            
            DirectorLi
                Daxi
            
            60
            
            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.
      He
      is the former CEO of Everbright Securities, a major Chinese financial
      institution. Mr. Hui holds a Masters degree in Regional Economics from Tongji
      University.




***Huang
      Jian, Vice President and Director***




Mr.
      Huang, 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
      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.




39




***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.




***Cui
      Zhi, Chief Technology Officer***




Mr.
      Cui
      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
      Shucheng, Director of Marketing***




Mr.
      Tang
      is responsible for the sales and marketing functions of Tibet Changdu 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.
      Chang
      has been a director since November 2007 and is a member of the company’s
      Compensation Committee. He 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 M.D. 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 M.D. Anderson Cancer Center lung cancer SPORE (NIH grant),
      among other research grants, honors and awards. He has published more than
      110
      papers and 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.
      Borow
      has been a director since November 2007 and is Chairman of the company’s
      Compensation Committee. For the seven years beginning in 2000 he was President
      and Chief Executive Officer at Encorium Group, Inc., a Nasdaq 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.




40




***Edward
      Meng, Director***




Mr.
      Meng
      has been a director since November 2007 and is Chairman of the company’s Audit
      Committee. Since 2007, Mr. Meng has also served as an independent director
      and
      chairman of the audit committee of China Housing and Land Development Limited,
      a
      Chinese real estate development company listed on the NASDAQ Capital Market.
      From October 2007 to April 2008, he served as Vice President, Finance/Chief
      Financial Officer of Terex Corporation, Beijing Representative Office. Terex
      Corporation is a diversified global manufacturer of a broad range of equipment
      for use in various industries, including the construction, infrastructure,
      quarrying, surface mining, shipping, transportation, refining and utility
      industries. Mr. Meng also previously served as part-time Chief Financial Officer
      and a director of Navstar Media Holdings, Inc., a public U.S. holding company
      with PRC operating subsidiaries specializing in media content production and
      distribution, in 2007, as Senior Financial Consultant to Shell (China) Limited
      from 2006 to 2007 and as the Chief Financial Officer of Koch Materials (China)
      Co. from 2003 to 2006. Prior to that, he served in executive and senior
      managerial positions at Intelsat, Inc. from 1997 to 2003 and Schenker
      International AG (China) from 1992 to 1995. A Certified Public Accountant,
      Mr.
      Meng is experienced in both PRC and U.S. GAAP accounting. Mr. Meng received
      his
      MBA from Georgetown University and a bachelors degree in English from Sichuan
      International Studies University in China. He is fluent in both Mandarin and
      English.




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




Dr.
      Li
      has been a director since November 2007 and is a member of the company’s Audit
      Committee and Compensation Committee. He founded the Chinese Association of
      Science and Business, an 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 is
      a member of the company’s Audit Committee. Dr. Li received a Ph.D. in high
      energy physics from the City University of New York.




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




Mr.
      Slate
      has been a director since November 2007 and is a member of the company’s Audit
      Committee. He 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 SEC 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.





41





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





Clear
      Honest International, Ltd. (“Clear Honest”), 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 share exchange with Allied Moral in May 2007. As
      discussed more fully under the caption “Business-Huiheng Medical’s Background,”
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
      Securities Exchange Agreement. This incentive share program was negotiated
      as
      part of the Securities Exchange Agreement to provide the stockholders who
      controlled Allied Moral with an incentive to achieve or exceed the stated growth
      in the company earnings, which will benefit all of our
      stockholders.




In
      April
      2006, Changdu Huiheng (our subsidiary) was owned by Mr. Hui Xiaobing, our CEO
      (1%) and Huiheng Industry (99%), an entity owned by Mr. Hui Xiaobing. In April
      2006, Changdu Huiheng paid a total of $1,537,653 to Huiheng Industry as part
      of
      the consideration owed for the acquisition of Huiheng Industry’s 64% interest in
      Wuhan Kangqiao in September 2005. The remaining balance owed to Huiheng Industry
      and Mr. Hui Xiaobing was paid in full by Shenzhen Jiancheng to offset an
      existing liability of the same amount owed by Shenzhen Jiancheng to Changdu
      Huiheng. The offsetting liability had been incurred by Shenzhen Jiancheng in
      November when Shenzhen Jiancheng had acquired its initial equity interest in
      Changdu Huiheng. The unpaid consideration was interest free and payable on
      demand.




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




As
      of
      December 31, 2006, Huiheng Industry, which is owned by Mr. Hui Xiaobing, our
      CEO, owed Changdu Huiheng, a subsidiary of the company **,** a total
      of $688,100. This consisted of (i) an interest free and unsecured advance of
      $47,410 to Huiheng Industry for working capital, and (ii) $640,690 associated
      with the acquisition of its equity interest in Changdu Huiheng in 2004. These
      amounts due from Huiheng Industry had increased to $685,438 and $60,045,
      respectively, as of December 31, 2007, due to exchange rate differences on
      amounts denominated in RMB. The amounts are payable three months following
      demand by Changdu Huiheng.




Immediately
      following the sale of Series A Preferred Stock in February of 2007, Allied
      Moral
      (our subsidiary) redeemed 957,265 shares of its common stock held by Clear
      Honest for $3,589,744, of which a total of $3,494,836 was paid by Allied Moral
      to Clear Honest in February 2007. As a result, a balance of $94,908 is owed
      by
      Allied Moral to Clear Honest as of December 31, 2007 in connection with the
      redemption.





In
      addition to the outstanding balance owed to Clear Honest in connection with
      the
      redemption, as of December 31, 2007 there is an additional outstanding balance
      of $21,160 owed to Clear Honest by Allied Moral as a result of advances related
      to the acquisition of Changdu Huiheng in August 2006 .The advances from Clear
      Honest to Allied Moral were made to cover expenses associated with the
      acquisition of Changdu Huiheng in August 2006. The amounts are payable three
      months following demand by Clear Honest.




*Indebtedness
      of Management*




There
      have been no borrowings by management from the company.





42





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





*(a)*  *Financial
      Statements:*




**Page**Report
                of Independent Registered Accounting Firm
            
            F-1Consolidated
                Balance Sheet at December 31, 2007
            
            F-2Consolidated
                Statements of Operations for the Years Ended December 31, 2007 and
                2006
            
            F-3Consolidated
                Statements of Shareholders’ Equity for the Years Ended December 31, 2007
                and 2006
            
            F-4Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007 and
                2006
            
            F-5
                - F-6Notes
                to Consolidated Financial Statements
            
            F-7 - F-36









**HUIHENG
      MEDICAL, INC.**


**REPORT
          AND CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 
  **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-2Consolidated
                      Balance Sheets
                  F-3Consolidated
                      Statements of Income
                  F-4Consolidated
                      Statements of Stockholders' Equity
                  F-5Consolidated
                      Statements of Cash Flows
                  F-6
                      - F-7Notes
                      to the Consolidated Financial Statements
                  F-8
                      - F-37
  
  **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. The Company is not
                required to
                have, nor were we engaged to perform, an audit of its internal control
                over
                financial reporting. Our audit included consideration of internal
                control over
                financial reporting as a basis for designing audit procedures that
                are
                appropriate in the circumstances, but not for the purpose of expressing
                an
                opinion on the effectiveness of the Company’s internal control over financial
                reporting. Accordingly, we express no such opinion. 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 accounting principles generally accepted in the United States
                of America.
 
 
 
 
 
 
 
 
 
 UHY
                VOCATION HK CPA LIMITED
 (Formerly
                known as UHY ZTHZ HK CPA Limited)
 Hong
                Kong, the People’s Republic of China,
 July
                3,
                2008
 F-2
 **HUIHENG
          MEDICAL, INC.**
 **CONSOLIDATED
          BALANCE SHEETS**
 
 **2007**
                  
                  **2006**Notes
                  
                  **December
                      31**
                  
                  **December
                      31****USD**
                  
                  **USD****Assets**Current
                      assetsCash
                  
                  
                  3(b)
                      & 4
                  
                  
                  866,585
                  
                  
                  338,039Accounts
                      receivable
                  
                  
                  3(c)&
                  
                  
                  8,040,015
                  
                  
                  2,649,300Prepayments
                      and other receivables
                  
                  
                  6
                  
                  
                  3,478,518
                  
                  
                  2,786,518Amount
                      due from a related party
                  
                  
                  15(b)
                  
                  
                  745,483
                  
                  
                  688,100Inventories
                  
                  
                  3(d)
                      & 7
                  
                  
                  1,071,613
                  
                  
                  1,624,675Deferred
                      income tax assets
                  
                  
                  14
                  
                  
                  20,630
                  
                  
                  18,879**Total
                      current assets**
                  
                  
                  
                  
                  
                  14,222,844
                  
                  
                  8,105,511Property,
                      plant and equipment
                  
                  
                  3(e)
                      & 8
                  
                  
                  3,701,692
                  
                  
                  435,705Intangible
                      assets
                  
                  
                  3(f)
                      & 9
                  
                  
                  881,738
                  
                  
                  896,363Investment
                      in affiliate
                  
                  
                  3(g)
                  
                  
                  48,326
                  
                  
                  63,689Deferred
                      income tax assets
                  
                  
                  14
                  
                  
                  5,753
                  
                  
                  5,377**Total
                      assets**
                  
                  
                  
                  
                  
                  18,860,353
                  
                  
                  9,506,645**Liabilities,
                      minority interest and stockholders' equity**Current
                      liabilitiesAccounts
                      payable
                  
                  
                  
                  
                  
                  714,837
                  
                  
                  637,984Income
                      tax payable
                  
                  
                  
                  
                  
                  207,660
                  
                  
                  827,828Accrued
                      liabilities and other payables
                  
                  
                  10
                  
                  
                  2,109,287
                  
                  
                  1,588,264Amount
                      due to related parties
                  
                  
                  15(c)
                  
                  
                  117,162
                  
                  
                  6,407,912**Total
                      current liabilities**
                  
                  
                  
                  
                  
                  3,148,946
                  
                  
                  9,461,988**Minority
                      interest**
                  
                  
                  11
                  
                  
                  1,353,511
                  
                  
                  940,630**Stockholders'
                      equity / (deficit)**
                  
                  
                  12Preferred
                      stock, $0.001 par value; 1,000,000 shares authorized;Designated
                      Series A convertible preferred stock, $0.001 par value;300,000
                      shares authorized; 266,666 shares issued and oustandingwith
                      liquidation preference of $9,999,975
                  
                  
                  
                  
                  
                  267
                  
                  
                  -Common
                      stock, $0.001 par value; 74,000,000 shares authorized;23,150,000
                      shares issued and 13,450,000 shares outstanding
                  
                  
                  
                  
                  
                  13,450
                  
                  
                  13,000Additional
                      paid-in capital
                  
                  
                  
                  
                  
                  7,498,086
                  
                  
                  (1,616,554
                  )Retained
                      earnings
                  
                  
                  
                  
                  
                  6,147,877
                  
                  
                  712,279Accumulated
                      other comprehensive incomeForeign
                      currency translation gain / (loss)
                  
                  
                  
                  
                  
                  698,216
                  
                  
                  (4,698
                  )**Total
                      stockholders' equity / (deficit)**
                  
                  
                  
                  
                  
                  14,357,896
                  
                  
                  (895,973
                  )**Total
                      liabilities, minority interest and****stockholders'
                      equity**
                  
                  
                  
                  
                  
                  18,860,353
                  
                  
                  9,506,645
  See
          accompanying notes to the consolidated financial statements.
  F-3
  **HUIHENG
          MEDICAL, INC.**
 **CONSOLIDATED
          STATEMENTS OF INCOME**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 **Note**
                  
                  **2007**
                  
                  **2006****USD**
                  
                  **USD**Revenues
                  
                  
                  13
                  
                  
                  16,203,566
                  
                  
                  12,669,866Cost
                      of revenues
                  
                  
                  
                  
                  
                  (4,028,029
                  )
                  
                  (2,975,889
                  )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 affiliate
                  
                  
                  
                  
                  
                  (19,023
                  )
                  
                  5,942**Income
                      before income taxes and****minority interest**
                  
                  
                  13
                  
                  
                  10,287,196
                  
                  
                  8,176,593Income
                      taxes
                  
                  
                  14
                  
                  
                  (938,078
                  )
                  
                  (1,395,786
                  )**Net
                      income before minority interest**
                  
                  
                  
                  
                  
                  9,349,118
                  
                  
                  6,780,807Minority
                      interest
                  
                  
                  
                  
                  
                  (333,349
                  )
                  
                  35,667**Net
                      income**
                  
                  
                  
                  
                  
                  9,015,769
                  
                  
                  6,816,474**Translation
                      adjustments**
                  
                  
                  
                  
                  
                  702,914
                  
                  
                  3,992**Comprehensive
                      income**
                  
                  
                  
                  
                  
                  9,718,683
                  
                  
                  6,820,466Earnings
                      per share-
                      Basic
                  
                  
                  3q
                  
                  
                  0.68
                  
                  
                  0.52-
                      Diluted
                  
                  
                  
                  
                  
                  0.56
                  
                  
                  0.52Weighted
                      common shares outstanding-
                      Basic
                  
                  
                  
                  
                  
                  13,283,562
                  
                  
                  13,000,000
                  
                  
                  *-
                      Diluted
                  
                  
                  
                  
                  
                  16,084,675
                  
                  
                  13,000,000
                  
                  
                  *
  *
          As
          restated to reflect the reverse merger acquisition.
 
 See
          accompanying notes to the consolidated financial statements.
  F-4
 
 **HUIHENG
          MEDICAL, INC.**
 **CONSOLIDATED
          STATEMENTS OF STOCKHOLDERS' EQUITY**
 **YEARS
          ENDED DECEMBER 31, 2007 AND 2006**
 
 Series A Preferred Stock
                  $0.001 Par Value
                
                Common Stock, $.001 Par Value
                
                Additional
                
                
                
                Accumulated Other
                
                TotalNumber
                    of
                
                
                
                Number
                    of
                
                
                
                Paid-in
                
                Retained
                
                Comprehensive
                
                Stockholders'Shares
                
                Amount
                
                Shares
                
                Amount
                
                Capital
                
                Earnings
                
                Income
                
                EquityBalance,
                    December 31, 2005
                
                
                -
                
                
                -
                
                
                13,000,000
                
                $
                13,000
                
                $
                (1,616,554
                )
                $
                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
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (9,164,866
                )
                
                
                
                
                (9,164,866
                )Balance,
                    December 31, 2006
                
                
                -
                
                
                -
                
                
                13,000,000
                
                
                13,000
                
                
                (1,616,554
                )
                
                712,279
                
                
                (4,698
                )
                
                (895,973
                )Recapitalization
                    - reverse merger
                
                
                266,666
                
                
                267
                
                
                450,000
                
                
                450
                
                
                (717
                )
                
                
                
                
                
                
                
                -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 ofcommon
                    shares
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,580,171
                )
                
                
                
                
                (3,580,171
                )Balance,
                    December 31, 2007
                
                
                266,666
                
                $
                267
                
                
                13,450,000
                
                $
                13,450
                
                $
                7,498,086
                
                $
                6,147,877
                
                $
                698,216
                
                $
                14,357,896
  See
          accompanying notes to the consolidated financial statements
  F-5
  **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
                
                
                9,015,769
                
                
                6,816,474**Adjustments
                    to reconcile net income to net cash provided by operating
                    activities:**Depreciation
                    of property, plant and equipment
                
                
                79,399
                
                
                152,082Amortization
                    of intangible assets
                
                
                91,758
                
                
                175,049Minority
                    interest
                
                
                333,349
                
                
                (35,667
                )Equity
                    in losses/(earnings) of affiliate
                
                
                19,023
                
                
                (5,942
                )Deferred
                    taxes
                
                
                (415
                )
                
                2,637**Changes
                    in assets and liabilities:**Accounts
                    receivable
                
                
                (5,390,715
                )
                
                4,727,915Prepayments
                    and other receivables
                
                
                (692,000
                )
                
                (123,618
                )Inventories
                
                
                553,062
                
                
                (184,542
                )Accounts
                    payable
                
                
                76,853
                
                
                (90,015
                )Income
                    tax payable
                
                
                (620,168
                )
                
                556,852Amount
                    due to related parties
                
                
                116,068
                
                
                -Accrued
                    liabilities and other payables
                
                
                521,023
                
                
                (1,672,898
                )**Net
                    cash provided by operating activities**
                
                
                4,103,006
                
                
                10,318,327
  F-6
 
 **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 of Property, plant and equipment
                  
                  
                  (3,371,037
                  )
                  
                  (78,019
                  )Advances
                      to related parties
                  
                  
                  (12,635
                  )
                  
                  (47,410
                  )Advances
                      from related parties
                  
                  
                  -
                  
                  
                  1,023Payment
                      of the acquisition of subsidiary
                  
                  
                  (6,854,386
                  )
                  
                  (1,537,653
                  )Repayment
                      of advances to third parties
                  
                  
                  -
                  
                  
                  675,266Advances
                      to third parties
                  
                  
                  -
                  
                  
                  (194,770
                  )**Net
                      cash used in investing activities**
                  
                  
                  (10,238,058
                  )
                  
                  (1,173,605
                  )**Cash
                      flows from financing activities:**Contribution
                      to capital
                  
                  
                  9,115,357
                  
                  
                  -Payment
                      for redemption of common shares
                  
                  
                  (3,494,836
                  )
                  
                  -Dividend
                      paid
                  
                  
                  -
                  
                  
                  (9,164,866
                  )**Net
                      cash from / (used in) financing activities**
                  
                  
                  5,620,521
                  
                  
                  (9,164,866
                  )Effect
                      on change of exchange rates
                  
                  
                  1,043,077
                  
                  
                  221,575**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 the consolidated financial
          statements.
  F-7
  **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 ("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
            (or “by
            an
            unrelated and unaffiliated party”).
  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 in
          exchange for 13,000,000 shares of Mill Basin’s common stock, and (ii) all of the
          issued and outstanding Series A Convertible Preferred Stock of Allied Moral
          in
          exchange for 266,666 shares of Mill Basin’s Series A Preferred Stock. In
          connection with the share exchange, Mill Basin agreed to change its name
          to
“Huiheng Medical, Inc.” Prior to the share exchange, Mill Basin had 10,150,000
          shares of its common stock outstanding. In contemplation of the share exchange,
          Mill Basin shareholders contributed 9,700,000 common shares to treasury,
          resulting in 450,000 shares of Mill Basin's common stock outstanding immediately
          prior to the share exchange. Taking into account the 13,000,000 shares
          of Mill
          Basin common stock issued for the exchange with Allied Moral's shareholders,
          Mill Basin then had 13,450,000 shares of common stock issued and outstanding,
          of
          which 13,000,000 (96.65%) shares were held by Allied Moral's former
          shareholders, with the balance being held by Mill Basin shareholders. In
          addition, following the completion of the share exchange, 266,666 shares
          of
          Series A Preferred Stock were issued and outstanding, all of which were
          held by
          former holders of Allied Moral's Series A Convertible Preferred
          Stock.
  F-8
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
  **1.**
                **Organization
                    and Operations (.../Cont'd)**
 
 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”). Remaining equity interests in Shenzhen Hyper and Beijing
          Kbeta are still owned by unrelated and unaffiliated parties.
 
 **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.
  The
          share
          exchange with Allied Moral was 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.
  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.
  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.
  F-9
  **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)**
 
 **Reverse
          Acquisition Merger**
  Prior
          to
          the May 2007 share exchange, Allied Moral was a non-reporting privately
          held
          company. The post-acquisition Company is accounted for as a recapitalization
          using accounting principles applicable to reverse acquisitions with Allied
          Moral
          being treated as the accounting parent (acquirer) and Huiheng, the legal
          parent,
          being treated as the accounting subsidiary (acquiree). Prior to the consummation
          of the acquisition in May 2007, Mill Basin was an inactive public shell
          with no
          material assets, liabilities, or net stockholders' equity. In accordance
          with
          the provisions governing the accounting for reverse acquisitions, the historical
          figures presented are those of the Allied Moral.
 
 Additional
                  Paid-InCommon
                    StockShares
                
                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
                
                
                -Treasury
                    stock
                
                
                (9,700,000
                )
                
                (9,700
                )
                
                9,700Shares
                    issued on date of Merger (May 15, 2007), par value $0.001-
                    Common stock
                
                
                13,000,000
                
                
                13,000
                
                
                (13,000
                )-
                    Series A convertible preferred stock
                
                
                -
                
                
                -
                
                
                (267
                )Contribution
                    to capital, net-
                    Share premium
                
                
                -
                
                
                -
                
                
                9,973,333-
                    Less: Transactions 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-10
  **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 subsidiaries.
            All
            significant intercompany balances and transactions have been eliminated
            in
            consolidation.
 
 **(b)**
                **Cash**
 
 Cash
          consists of cash on hand and in the 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
          performs ongoing credit evaluations of its customers' financial conditions.
          The
          Company provided an allowance of $5,059 and $4,446 for doubtful accounts
          respectively as of December 31, 2007 and 2006.
 
 Outstanding
          account balances are reviewed individually for collectibility. Account
          balance s are
          charged off against the allowance after all means of collection have been
          exhausted and the potential for recovery is considered remote.
 
 **(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.
  The
          final
          steps of assembly of our products, including installation of radioactive
          service
          materials, are completed at customer locations. Accordingly, the Company
          generally does not carry finished goods (inventory held for sale in the
          ordinary
          course of business) inventory.
  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)**
 
 **(e)**
                **Property,
                    Plant, and Equipment**
 
 Property,
          plant 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, plant 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 are amortized on a straight-line basis over the estimated
          useful life. Depreciation of property, plant and equipment are stated at
          cost
          less accumulated depreciation. Upon sale or retirement of property, plant
          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:
 
 **Estimated Life**Building
                    improvements
                3
                    to 5Buildings
                20Production
                    equipment
                3
                    to 5Furniture,
                    fixtures and office equipment
                3
                    to 5Motor
                    vehicles
                5
                    to 10
  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)**
 
 **(f)**
                **Intangible
                    Assets**
 
 Intangible
          assets are stated at cost, representing the fair value at the time such
          intangibles were contributed to the Company by the minority owner of a
          subsidiary in exchange for equity interests. Fair value was supported by
          cash
          contributed contemporaneously by another investor. Intangible assets are
          carried
          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:
 
 **Estimated Life**Patented
                    technology
                20Software
                5
  **(g)**
                **Investment
                    in Affiliate**
 
 The
          Company owns a 50% equity interest of Beijing Kbeta and accounts for the
          investment using the equity method of accounting. The equity method is
          utilized
          as 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-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)**
 
 **(h)**
                **Impairment
                    of Long-Lived Assets**
 
 Long-lived
          assets, which include property, plant 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-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**
 
 The
          Company generates revenue primarily from sales of medical equipment and
          provision of maintenance and support services. Revenue is recognized as
          follows:
 
 **Sales
          of medical equipment**
  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 services, which generally take about 1 month. 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 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" in the consolidated statements of
          income
          and is recorded on an accrual basis.
  The
          medical equipment sold by the Company has embedded self-developed software
          which
          can also be sold on a standalone basis.
  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)**
 
 **(j)**
                **Revenue
                    Recognition (.../Cont'd)**
  **Provision
          of maintenance and support services**
  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 equipments.
          In
          accordance with the agreements, the Company provides comprehensive services
          including exchange of cobalt, additional training to users of the medical
          equipment, maintenance of medical equipment, software upgrades and consulting.
          Fees for these services are recognized over the life of the contract on
          a
          monthly basis.
  **Government
          subsidies**
  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% of business
          tax
          payment will be refundable by Tibet Finance Bureau provided that the business
          tax payment exceeds RMB 1.0 million for a year. The 38.75% of value added
          tax
          payment will be refundable by Tibet Finance Bureau provided that the value
          added
          tax payment exceeds RMB 1.5 million for a year. All tax incentive policies
          will
          be valid for five (5) years from the year of commencement of tax refund,
          starting from September 2006.
 
 **(k)**
                **Research
                    and Development Costs**
 
 Research
          and development costs are charged to expense as incurred. Research and
          development costs mainly consist of remuneration for the research and
          development staff and material costs for research and development. The
          Company
          incurred $263,314 and $124,283 for the years ended December 31, 2007 and
          2006,
          respectively.
  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)**
 
 **(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
          year
          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 generally within twelve months from the date of sale.
          The
          Company's purchase contracts generally allow the customer to withhold up
          to 10%
          of the total purchase price for the duration of the warranty period. 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 cost 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-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)**
 
 **(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 the Company consolidated balance
          sheet.
 
 The
          average monthly exchange rates for 2007 and the closing rate of December 31,
          2007 were Rmb 7.5973 and Rmb 7.2946 to one USD, respectively. The average
          monthly exchange rates for 2006 and the closing rate as of December 31,
          2006
          were Rmb 7.9579 and Rmb 7.8041 to one USD, respectively.
 
 **(q)**
                **Earnings
                    Per Share**
 
 Basic
          earnings per share are computed on the basis of the weighted-average number
          of
          shares of the Company common stock outstanding during the year. Diluted
          earnings
          per share is computed on the basis of the weighted-average number of shares
          of
          the Company common stock plus the effect of dilutive potential common shares
          outstanding during the period using the if-converted method. Dilutive potential
          common shares include Series A Convertible Preferred Stock.
 
 The
          following table sets forth the computation of basic and diluted net income
          per
          share:
 
 **December
                      31,****2007**
                  
                  **2006**Net
                      income
                  
                  $
                  9,015,769
                  
                  $
                  6,816,474Weighted
                      average outstanding shares of common stock
                  
                  
                  13,283,562
                  
                  
                  13,000,000Dilutive
                      effect of Convertible Preferred Stock
                  
                  
                  2,801,113
                  
                  
                  -Diluted
                      weighted average outstanding shares
                  
                  
                  16,084,675
                  
                  
                  13,000,000**Earnings
                      per share:**Basic
                  
                  $
                  0.68
                  
                  $
                  0.52Diluted
                  
                  $
                  0.56
                  
                  $
                  0.52
  The
          weighted-average number of common shares outstanding during the period
          from
          January 1, 2006 through the May 2007 share exchange is based on the number
          of
          shares of Allied Moral multiplied by the exchange ratio in the merger agreement.
          The weighted-average number of common shares outstanding from the acquisition
          date through December 31, 2007 is based upon the actual number of shares
          outstanding during the period.
  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)**
 
 **(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**
 
 SFAS
          No.
          131, Disclosure About Segments of an Enterprise and Related Information,
          establishes standards for reporting information on operating segments in
          interim
          and annual financial statements. The Company operates in two segments (i)
          selling the medical equipment and, (ii) providing the consultancy, repairs
          and
          maintenance services for the customers. The chief operating decision-makers
          review the Company's operation results on an aggregate basis and manage
          the
          operations as two operating segments as disclosed in note 13.
 
 **(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.
 
 **(u)**
                **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.
 
 **(v)**
                **Financial
                    Instruments with Characteristics of both Liabilities and
                    Equity**
 
 The
          Company accounts for its Series A Preferred Stock in accordance with SFAS
          Statement No. 150, Accounting for Certain Financial Instruments with
          Characteristics of both Liabilities and Equity (SFAS 150) and SFAS Statement
          No.
          133, Accounting for Derivative Instruments and Hedging Activities, as amended
          (SFAS 133). We have determined that our Series A Preferred Stock is not
          mandatorily redeemable. Accordingly, the Company accounts for the Preferred
          stock as permanent equity.
  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)**
 
 **(w)**
                **Impact
                    of New Accounting
                    Standards**
 
 In
          July
          2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty
          in Income Taxes, an Interpretation of FASB Statement No. 109 ("FIN 48").
          FIN 48
          prescribes 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 on July 1, 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 adoption of this statement did not have a material effect
          on the
          Company's financial condition and results of operations.
  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)**
  **(w)
            Impact of New Accounting Standards (.../Cont'd)**
  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.
  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 that begins after December 15, 2008. 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.
  F-21
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **3.**
                  **Summary
                      of Significant Accounting Policies (.../Cont'd)**
  **(w)
            Impact of New Accounting Standards (.../Cont'd)**
 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.
  In
            December 2007, SAB 109 supersedes SAB 105, "Application of Accounting
            Principles
            to Loan Commitments", provided that the expected net future cash flows
            related
            to the associated servicing of the loan should be included in the measurement
            of
            all written loan commitments that are accounted for at fair value through
            earnings. SAB 105 also indicated that internally-developed intangible
            assets
            should not be recorded as part of the fair value of a derivative loan
            commitment. The Company does not believe that the adoption of this statement
            will have a material effect on the Company's financial condition and
            results of
            operations.
 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 the 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.
  F-22
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **5.**
                  **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.
 
 **6.**
                  **Prepayments
                      and Other Receivables**
 
 **2007**
                  
                  **2006****USD**
                  
                  **USD**Prepayments
                      to suppliers
                  
                  
                  2,333,901
                  
                  
                  1,568,007Advances
                      to third parties (a)
                  
                  
                  866,669
                  
                  
                  810,087Other
                      receivables-
                      VAT tax refund
                  
                  
                  102,523
                  
                  
                  95,830-
                      loan or advance to staff for business travelling
                  
                  
                  91,496
                  
                  
                  69,666-
                      utilities and rental deposits
                  
                  
                  12,394
                  
                  
                  12,336-
                      prepayment made to Jilin University for research
                  
                  
                  41,126
                  
                  
                  --
                      prepaid expenses made by director
                  
                  
                  6,854
                  
                  
                  --
                      tax deposit
                  
                  
                  -
                  
                  
                  216,433-
                      prepayment made to Shanghai Measuring and Testing
                      Institute
                  
                  
                  -
                  
                  
                  10,892-
                      others
                  
                  
                  23,555
                  
                  
                  3,2673,478,518
                  
                  
                  2,786,518
  (a)
                  Advances
                      to third parties represent unsecured, interest-free advances
                      due from
                      Shenzhen Hui Xin Nano Technology Development Company Limited
                      (Hui Xin) and
                      advances due from Shenzhen Jiancheng Investment Co., Limited
                      ("Jiancheng").
  The
            balances due at December 31, 2007 and 2006 of $181,230 and $169,398,
            respectively, resulted from advances made during prior periods in contemplation
            of a business acquisition of Hui Xin which has since been abandoned.
            Payments
            received on the advances during 2006 approximated $311,119 (none in 2007).
            All
            the advances outstanding at December 31, 2007 are repayable to the Company
            in
            accordance with a fixed repayment schedule beginning in June 2008.
  The
              balances due at December 31, 2007 and 2006 of
              $685,439 and $640,689, respectively, resulted from advances made to
              Jiancheng, a
              distributor of the Company's products, in prior periods also in contemplation
              of
              a business acquisition which has since been abandoned. Pursuant to
              an agreement,
              Jiancheng has agreed to repay the advances during the periods from
              June to
              December 2008.
 
 During
              2006, additional advances of $194,770 were made to a third party, Shenzhen
              Hui
              Si Rui Technology Development Company Limited (Hui Si Rui). Such advances
              were
              unsecured and interest-free. Payments received on the advances during 2006
              were $364,147 representing the repayment of the 2006 advances as well
              as
              advances made in periods prior to 2006.
 
   F-23
  **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 consisted of the following:
  **2007**
                  
                  **2006****USD**
                  
                  **USD**Raw
                      materials
                  
                  
                  338,637
                  
                  
                  844,835Work-in-progress
                  
                  
                  732,976
                  
                  
                  779,8401,071,613
                  
                  
                  1,624,675
  Final
            assembly of our products, including installation of radioactive source
            materials, is conducted on site at our customer locations. Our products
            are not
            considered to be finished good (available for sale in the normal course
            of
            business) until such time as the source material is installed in the
            units.
  **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
  Depreciation
            expense is included in the consolidated statements of income. For the
            year ended
            December 31, 2007 and 2006, depreciation expenses were $79,399 and $164,810,
            respectively.
  Construction
            in progress included costs associated with the refurbishment of the new
            office.
            Building which was completed in early 2008.
  F-24
  **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**
                    **USD**
                  
                  **Software**
                    **USD**
                  
                  **Total**
                    **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 production of medical equipment and is amortized over
            its
            estimated useful life.
  **** Estimated
            amortization expenses for the years ending 2008 - 2012 is $74,155 per
            year,
            based on the average exchange rate in 2007.
  F-25
  **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
                  
                  
                  300,558Advance
                      from third party
                  
                  
                  -
                  
                  
                  168,9032,109,287
                  
                  
                  1,588,264
  Advance
            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.
  **12.**
                  **Stockholders'
                      Equity**
  **(a)
            Stockholders' Capital**
  The
            Company has authorized 74,000,000 shares of Common stock. As of December
            31,
            2007, 23,150,000 shares were issued and 13,450,000 shares were outstanding.
  The
            Company has authorized 1,000,000 shares of Preferred stock, with 300,000
            shares
            designated as Series A convertible preferred stock. As of December 31,
            2007,
            266,666 shares were issued and outstanding with liquidation preference
            of
            $9,999,975.
  F-26
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **12.**
                  **Stockholders'
                      Equity (.../Cont'd)**
  **(a)**
                  **Stockholders'
                      Capital (.../Cont'd)**
  During
            2008, the Company modified the terms of its Series A Convertible Preferred
            Stock. The modifications:
  -
                  removed
                      the redemption provisions,
  -
                  revised
                      the dividend provisions whereby dividends are only payable
                      on a
                      liquidation event and would not be payable in the event of
                      a voluntary
                      conversion or an automatic conversion on a qualifying public
                      offering,
  -
                  authorized
                      stock dividends as long as the preferred stock conversion ratio
                      is
                      adjusted’ and
  -
                  removed
                      the requirement for an automatic conversion in the event of
                      a public
                      offering.
  The
            Company has classified the preferred stock as permanent equity.
  **Acquisition
            of Changdu Huiheng**
  In
            July
            2006, Mr. Hui Xiaobing, the sole owner of Changdu Huiheng, established
            Allied
            Moral Holdings, Ltd. ("Allied Moral") in the British Virgin Islands as
            a holding
            company to facilitate investments by foreign investors. Allied Moral
            then
            purchased 100% of the ownership interests of Changdu Huiheng.
  **Private
            placement**
  In
            February 2007, Allied Moral issued 2,666,666 shares of its Series A preferred
            stock at stated value of $3.75 per share for gross proceeds of approximately
            $10,000,000. Net proceeds to the Company after deducting offering expenses,
            resulted in a capital contribution of $9,115,357.
  **Redemption
            of shares**
  In
            January, 2007, 957,265 shares were redeemed by Allied Moral at $3.75
            per share
            resulting in 13,000,000 common shares left outstanding.
  F-27
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **12.**
                  **Stockholders'
                      Equity (.../Cont'd)**
  **Reverse
            merger**
  Prior
            to
            the share exchange, Mill Basin had 10,150,000 shares of its common stock
            outstanding. In contemplation of the share exchange, Mill Basin shareholders
            contributed 9,700,000 common shares to treasury, resulting in 450,000
            shares of
            Mill Basin's common stock outstanding immediately prior to the share
            exchange.
            Taking into account the 13,000,000 shares of Mill Basin common stock
            issued for
            the exchange with Allied Moral's shareholders, Mill Basin then had 13,450,000
            shares of common stock issued and outstanding, of which 13,000,000 (96.65%)
            shares were held by Allied Moral's former shareholders, with the balance
            being
            held by Mill Basin shareholders. In addition, following the completion
            of the
            share exchange, 266,666 shares of Series A Preferred Stock were issued
            and
            outstanding, all of which were held by former holders of Allied Moral's
            Series A
            Convertible Preferred Stock.
  **Preferred
            stock - Certificate of Correction**
  In
            September 2007, Huiheng filed a Certificate of Correction to correct
            the
            Certificate of Designation of the Series A Preferred Stock. The filing
            corrected
            the initial Conversion Price of the Preferred Stock 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.
  **Series
            A Conversion**
  In
            February 2008, certain shareholders of the Series A Preferred Stock converted
            a
            total of 33,333 shares into common stock, at a rate of 1 share Series
            A
            Preferred stock to 10.5042 shares common stock resulting in the issuance
            of
            350,137 shares of common stock.
  **(b) Retained
            earnings**
  Retained
            earnings at December 31, 2006 and December 31, 2007 include a General
            Reserve
            Fund of $1,310,516. The General Reserve Fund includes statutory surplus
            reserve
            and statutory public welfare reserve.
  F-28
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **12.**
                  **Stockholders'
                      Equity (.../Cont'd)**
  **(b)
            Retained earnings (.../Cont'd)**
  **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 stockholders' capital.
            This
            statutory surplus reserve is not distributable in the form of cash dividends.
  **Statutory
            Public Welfare Reserve**
  In
            accordance with PRC Company Law, Changdu Huiheng appropriated 5% of the
            profit
            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.
  The
            statutory public welfare reserve 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.
  F-29
 
 **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **12.**
                  **Stockholders'
                      Equity (.../Cont'd)**
  **(c)**
                  **Dividend**
  Pursuant
            to the resolution passed at the Board of Directors' meeting in 2006,
            total
            dividends of $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 and was paid
            prior to
            the recapitalization of the Company.
  **13.**
                  **Segment
                      Reporting**
 ****
 The
            Group
            has two reportable segments: products and services.
 ****
 The
            following table presents information about the Company's operating segments
            for
            the years ended December 31, 2006 and 2007:
 ****
 **2007**
                  
                  **2006**
                  
                  Annual % change**USD**
                  
                  **USD**Revenues:Products
                  
                  
                  9,530,071
                  
                  
                  6,605,273
                  
                  
                  44.28
                  %Services
                  
                  
                  5,034,683
                  
                  
                  4,681,669
                  
                  
                  7.54
                  %Other
                  
                  
                  1,638,812
                  
                  
                  1,382,924
                  
                  
                  18.50
                  %16,203,566
                  
                  
                  12,669,866
                  
                  
                  27.89
                  %Operating
                      income:Products
                  
                  
                  5,796,585
                  
                  
                  3,937,843
                  
                  
                  47.20
                  %Services
                  
                  
                  4,600,109
                  
                  
                  4,337,419
                  
                  
                  6.06
                  %Other
                  
                  
                  1,638,812
                  
                  
                  1,382,924
                  
                  
                  18.50
                  %12,035,506
                  
                  
                  9,658,186
                  
                  
                  24.61
                  %Corporate
                      expenses
                  
                  
                  (1,734,556
                  )
                  
                  (1,488,710
                  )
                  
                  16.51
                  %Operating
                      income
                  
                  
                  10,300,950
                  
                  
                  8,169,476
                  
                  
                  26.09
                  %
 ****
 Other
            revenue consists principally of government financial subsidies to Changdu
            Huiheng.
 ****
 F-30
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **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 Changdu Huiheng is 10% in 2007 and 15% in
            2006.
  Wuhan
            Kangqiao is a high-tech enterprise with operations in an economic-technological
            development area in the PRC. Therefore, the applicable tax rate is 15%.
  Shenzhen
            Hyper is a high-tech manufacturing company located in the 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.
  F-31
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **14.**
                  **Income
                      Taxes (.../Cont'd)**
  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 income taxes and minority interest
                  
                  
                  10,287,196
                  
                  
                  8,176,593Expected
                      PRC income tax expense at statutory tax rate of 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
                  )
                  
                  2,637Others
                  
                  
                  52,020
                  
                  
                  170,622Tax
                      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. The Company remains open to examination by the major jurisdictions
            to
            which the Company is subject to, in this case the PRC tax authorities.
  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:Provision
                      for other receivables
                  
                  
                  20,630
                  
                  
                  18,879Current
                      deferred tax assets
                  
                  
                  20,630
                  
                  
                  18,879Non-current
                      deferred tax assets:Deferred
                      expenses
                  
                  
                  5,753
                  
                  
                  5,377Non-current
                      deferred tax assets
                  
                  
                  5,753
                  
                  
                  5,377Total
                      deferred tax assets
                  
                  
                  26,383
                  
                  
                  24,256
  F-32
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **14.**
                  **Income
                      Taxes (.../Cont'd)**
  Management
            considers many factors when assessing the likelihood of future realization
            of
            deferred tax assets, including but not limited to future reversals of
            temporary
            differences, recent cumulative earnings experience and expectations of
            future
            taxable income, tax planning opportunities and other relevant factors.
            Based on
            management's assessment, it is more likely than not that deferred tax
            assets
            will be realized and a valuation allowance is not necessary.
  **15.**
                  **Related
                      Party Transactions**
  (a)
            A
            summary of significant related party transactions during 2007 and 2006
            follows:
  Shenzhen
            Huiheng Industry Co., Ltd. ("Huiheng Industry")
  During
            2007 and 2006, the Company advanced, for working capital purposes, $12,635
            and
            $47,410 to Huiheng Industry. Huiheng industry is owned by Mr. Hui Xiaobing.
  Changdu
            Huiheng Acquisition
  In
            August
            2006, the Company acquired its ownership interest in Changdu Huiheng
            from
            Huiheng Industry and Mr. Hui Xiaobing for total consideration of $6,269,699
            based upon the exchange rate on the acquisition date. The purchase consideration
            was paid during 2007 and amounted to $6,854,386 (as adjusted for exchange
            rates
            in effect as of the date paid).
  Wuhan
            Kangqiao Acquisition
  During
            2005, the Company acquired Wuhan Kangqiao from Huiheng Industry. The
            balance of
            the consideration for the acquisition was paid during 2006 and amounted
            to
            $1,537,653.
  Share
            Redemption
  In
            February 2007, prior to the share exchange with Mill Basin, the Company
            redeemed
            957,265 common shares held by Clear Honest International, Ltd. ("Clear
            Honest"),
            an entity owned by Mr. Hui Xiaobing, for $3,589,744. Amounts paid during
            2007
            related to the redemption totalled $3,494,836.
  F-33
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **15.**
                  **Related
                      Party Transactions (.../Cont'd)**
  (b)
            A
            summary of related party receivables at December 31, 2007 and 2006 follows:
  Amounts
            due from a related party at December 31, 2007 and 2006 includes amounts
            due from
            Huiheng Industry related to the original acquisition of Changdu Huiheng
            in 2004
            together with working capital advances (described above) during 2007
            and 2006.
            Amounts due from Huiheng Industry are payable pursuant to contractual
            agreements.
  (c)
            A
            summary of related party payables at December 31, 2007 and 2006 follows:
 ****
 **2007**
                  
                  **2006****USD**
                  
                  **USD**Huiheng
                      Industry (i)
                  
                  
                  -
                  
                  
                  6,342,820Hui
                      Xiaobing
                  
                  
                  1,094
                  
                  
                  65,092Clear
                      Honest International Limited (ii)
                  
                  
                  116,068
                  
                  
                  -117,162
                  
                  
                  6,407,912
  (i)
                  Due
                      to Huiheng Industry at December 31, 2006 represents the amounts
                      due (as
                      adjusted for exchange rate differences) related to the 2006
                      Changdu
                      Huiheng acquisition. As described above, such amounts were
                      repaid during
                      2007.
  (ii)
                  Amounts
                      due to Clear Honest at December 31, 2007 represent the remaining
                      balance
                      due pursuant to the 2007 share redemption ($94,908), as well
                      as advances
                      related to the acquisition of Changdu Huiheng.
  F-34
  **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 $52,526 and $55,103 for the years ended December 31, 2006 and
            2007
            respectively.
  The
            Company has no other obligation to make payments in respect to retirement
            benefits of its employees.
  **17.**
                  **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.
  **18.**
                  **Concentration
                      of Credit Risk**
  **(a)**
                  **Customers
                      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.
  F-35
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **18.**
                  **Concentration
                      of credit risk (.../Cont'd)**
  **(b)**
                  **Other
                      Credit Risks**
  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. Therefore, no loss in respect of the
            cash and
            cash equivalent were recognized as of December 31, 2007.
  **19.**
                  **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.
  **(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 stockholders'
            equity; (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 $1,310,516.
  F-36
  **HUIHENG
            MEDICAL, INC.**
 **NOTES
            TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **YEARS
            ENDED DECEMBER 31, 2007 AND 2006**
 
 **20.**
                  **Operating
                      lease commitments**
  Rental
              expense for obligations under operating leases was $44,746 (RMB349,200)
              and
              $52,504 (RMB383,000) 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 was $5.22 million, which was
              based on the closing rate in 2007. The amounts payable are as follows:
  **USD**December
                          312008
                      
                      
                      263,2092009
                      
                      
                      263,2092010
                      
                      
                      263,2092011
                      
                      
                      263,2092012
                      
                      
                      263,209Thereafter
                      
                      
                      3,904,2555,220,300
  F-37
 (b)*Exhibits:*




**Exhibit
                No.**
            
            **Document
                Description**3.1
            
            Articles
                of Incorporation, as revised (incorporated by reference to the exhibit
                to
                the registrant's annual report on Form 10-KSB filed with the Securities
                and Exchange Commission on April 10, 2008)3.2
            
            Amended
                and Restated By-Laws (incorporated by reference to the exhibit to
                the
                registrant's annual report on Form 10-KSB filed with the Securities
                and
                Exchange Commission on April 10, 2008)4.1
            
            Certificate
                of Designation for Series A Preferred Stock (incorporated by reference
                to
                the exhibit to the registrant's current report on Form 8-K filed
                with the
                Securities and Exchange Commission on January 16, 2008)10.1
            
            Securities
                Exchange Agreement dated May 15, 2007 (incorporated by reference
                to the
                exhibit to the registrant’s current report on Form 8-K filed with the
                Securities and Exchange Commission on May 15, 2007)10.2
            
            Huiheng
                2007 Share Plan (incorporated by reference to the exhibit to the
                Amendment
                No. 2 to Form SB-2 filed with the Securities and Exchange Commission
                on
                February 1, 2008)10.3
            
            Stock
                Purchase Agreement dated September 1, 2006 (incorporated by reference
                to
                the exhibit to the registrant’s annual report on Form 10-KSB filed with
                the Securities and Exchange Commission on February 28,
                2007)10.4
            
            Office
                Lease (incorporated by reference to the exhibit to the Amendment
                No. 1 to
                Form SB-2 filed with the Securities and Exchange Commission on December
                5,
                2007)10.5
            
            Investors’
                Right Agreement among Allied Moral Holdings and the purchasers of
                Series A
                Preferred Stock (incorporated by reference to the exhibit to the
                Amendment
                No. 2 on Form S-1 to Form SB-2 filed with the Securities and Exchange
                Commission on July 7, 2008)10.6
            
            Amendment
                to Investors’ Rights Agreement (incorporated by reference to the exhibit
                to the Amendment No. 2 on Form S-1 to Form SB-2 filed with the Securities
                and Exchange Commission on July 7, 2008)10.7
            
            Sample
                Form of Equipment Sales Contract (incorporated by reference to the
                exhibit
                to the Amendment No. 2 to Form SB-2 filed with the Securities and
                Exchange
                Commission on February 1, 2008)10.8
            
            Sample
                Form of Purchase Contract for Cobalt-60 Radiation Sources (incorporated
                by
                reference to the exhibit to the Amendment No. 2 on Form S-1 to Form
                SB-2
                filed with the Securities and Exchange Commission on July 7,
                2008)




43




10.9
            
            Sample
                Form of Contract for Commissioned Manufacturing of Parts (incorporated
                by
                reference to the exhibit to the Amendment No. 2 on Form S-1 to Form
                SB-2
                filed with the Securities and Exchange Commission on July 7,
                2008)10.10
            
            Sample
                Form of Contract for Commissioned Manufacturing (incorporated by
                reference
                to the exhibit to the Amendment No. 2 on Form S-1 to Form SB-2 filed
                with
                the Securities and Exchange Commission on July 7, 2008)10.11
            
            Capital
                Contribution Transfer Agreement between Shenzhen Huiheng Industry
                Co.,
                Ltd. and Allied Moral Holdings Limited dated August 21, 2006 (incorporated
                by reference to the exhibit to the Amendment No. 2 on Form S-1 to
                Form
                SB-2 filed with the Securities and Exchange Commission on July 7,
                2008)10.13
            
            Creditor’s
                Rights and Liability Confirmation Agreement (incorporated by reference
                to
                the exhibit to the Amendment No. 2 on Form S-1 to Form SB-2 filed
                with the
                Securities and Exchange Commission on July 7, 2008)10.14
            
            Letter
                Agreement between Allied Moral Holdings Limited and Clear Honest
                International Co. Ltd., dated January 5, 2008 (incorporated by reference
                to the exhibit to the Amendment No. 2 on Form S-1 to Form SB-2 filed
                with
                the Securities and Exchange Commission on July 7, 2008)10.15
            
            Letter
                Agreement between Shenzhen Huiheng Industry Co., Ltd. And Tibet Changdu
                Huiheng Development Co., Ltd. dated January 5, 2008 (incorporated
                by
                reference to the exhibit to the Amendment No. 2 on Form S-1 to Form
                SB-2
                filed with the Securities and Exchange Commission on July 7,
                2008)10.16
            
            Capital
                Contribution Transfer Agreement between Shenzhen Huiheng Industry
                Co.,
                Ltd. and Tibet Changdu Huiheng Development Co., Ltd. dated February
                25,
                2006 (incorporated by reference to the exhibit to the Amendment No.
                2 on
                Form S-1 to Form SB-2 filed with the Securities and Exchange Commission
                on
                July 7, 2008)10.17
            
            Capital
                Contribution Transfer Agreement between Hui Xiaobing and Tibet Changdu
                Huiheng Development Co., Ltd. dated February 25, 2006 (incorporated
                by
                reference to the exhibit to the Amendment No. 2 on Form S-1 to Form
                SB-2
                filed with the Securities and Exchange Commission on July 7,
                2008)31.1
            
            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.




44





**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 August 25, 2008.





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





August
        25, 2008




45