10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2010

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

For the transition period from _____ to _____.

Commission File No. 333-132056

HUIHENG MEDICAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	20-4078899
(State or Other Jurisdiction Of Incorporation or Organization)	(I.R.S. Employer Identification Number)
Huiheng Building, Gaoxin 7 Street South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057	N/A
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code 86-755-25331366

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 oNo x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes oNo o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-3 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes oNo x

As of May 13, 2010, there were 13,935,290 shares of the issuer’s $0.001 par value common stock issued and outstanding.

HUIHENG MEDICAL, INC.

FORM 10-Q INDEX

	Page
PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Balance Sheets at March 31, 2010 (Unaudited) and December 31, 2009	1
Consolidated Statements of Income for the Three Months Ended March 31, 2010 and 2009 (Unaudited)	2
Consolidated Statements of Changes in Stockholders’ Equity and Other comprehensive Income for the Three Months Ended March 31, 2010 (Unaudited)	3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited)	4
Notes to the Consolidated Financial Statements (Unaudited)	5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	25
Item 4T.  Controls and Procedures	25
PART II – OTHER INFORMATION
Item 1.  Legal Proceedings	26
Item 1A.  Risk Factors	26
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.  Defaults Upon Senior Securities	26
Item 4.  [Removed and Reserved]	26
Item 5.  Other Information	26
Item 6.  Exhibits	26
Signature Page	28

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

HUIHENG MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

( IN US DOLLARS)

	March 31, 2010
	(Unaudited)			December 31, 2009
ASSETS
CURRENT ASSETS:
Cash	$	46,570		$	84,962
Accounts receivable, net of allowance for doubtful accounts of $897,464 and $897,319,  as of March 31, 2010 and December 31, 2009, respectively		16,995,819			16,499,819
Prepaid expenses		3,149,494			3,058,465
Other receivables, net of allowance for doubtful accounts of $732,504 and $732,386, as of March 31, 2010 and December 31, 2009, respectively		305,322			248,790
Inventories		1,525,828			1,359,900
Total Current Assets		22,023,033			21,251,936
INVESTMENT IN AFFILIATE		32,619			43,152
PROPERTY, PLANT AND EQUIPMENT		2,463,333			2,520,787
LAND USE RIGHT, NET		934,932			939,575
INTANGIBLE ASSETS, NET		756,577			777,086
OTHER RECEIVABLES, net of current portion		1,512,028			1,582,093
Total Assets	$	27,722,522		$	27,114,629
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	741,709		$	844,539
Amount due to related parties		24,564			24,560
Income tax payable		457,015			389,632
Accrued liabilities and other payables		1,722,684			1,676,639
Total Liabilities, all current		2,945,972			2,935,370
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 1,000,000 shares authorized;
Designated 300,000 shares of Series A convertible preferred stock;
220,467 shares issued and outstanding with
liquidation preference of $8,267,513 at March 31, 2010 and
December 31, 2009		220			220
Common stock, $0.001 par value; 74,000,000 shares authorized;
23,635,290 shares issued, 13,935,290 shares outstanding		23,635			23,635
Treasury stock, 9,700,000 common shares, at cost		(9,700	)		(9,700	)
Additional paid-in capital		7,498,086			7,498,086
Retained earnings		14,455,904			13,799,481
Accumulated other comprehensive income
Foreign currency translation gain		1,760,339			1,756,510
Non-controlling interests		1,048,066			1,111,027
Total Stockholders' Equity		24,776,550			24,179,259
Total Liabilities and Stockholders' Equity	$	27,722,522		$	27,114,629

See accompanying notes to the consolidated financial statements.

1

HUIHENG MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(IN US DOLLARS)

	ForTheThreeMonthsEnded March31,
	2010			2009
REVENUES	$	1,400,853		$	1,398,619
COST OF REVENUES		96,432			142,346
GROSS PROFIT		1,304,421			1,256,273
OPERATING EXPENSES:
Sales and marketing expenses		62,123			65,461
General and administrative expenses		495,748			893,606
Research and development costs		15,340			89,404
Total Operating Expenses		573,211			1,048,471
OPERATING INCOME		731,210			207,802
OTHER (EXPENSES) / INCOME:
Interest income		43			116
Equity in (loss) / income of affiliate		(10,540	)		27,430
Total Other (Expenses) / Income		(10,497	)		27,546
NET INCOME BEFORE INCOME TAXES		720,713			235,348
INCOME TAXES		127,427			133,677
NET INCOME		593,286			101,671
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		63,137			75,635
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	656,423		$	177,306
EARNINGS PER SHARE
- Basic	$	0.05		$	0.01
- Diluted	$	0.04		$	0.01
Weighted Common Shares Outstanding
- Basic		13,935,290			13,907,279
- Diluted		16,251,113			16,251,113

See accompanying notes to the consolidated financial statements.

2

HUIHENG MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)

(IN US DOLLARS)

	Series A Preferred Stock				Common Stock
	Number of Shares		Amount		Number of Shares		Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling interests			Total Stockholders’ Equity
Balance, December 31, 2009		220,467	$	220		13,935,290	$	13,935	$	7,498,086	$	13,799,481	$	1,756,510	$	1,111,027		$	24,179,259
Comprehensive income:
Net income / (loss)		-		-		-		-		-		656,423		-		(63,137	)		593,286
Foreign currency translation gain		-		-		-		-		-		-		3,829		176			4,005
Total comprehensive income		-		-		-		-		-		-		-		-			597,291
Balance, March 31, 2010		220,467	$	220		13,935,290	$	13,935	$	7,498,086	$	14,455,904	$	1,760,339	$	1,048,066		$	24,776,550

See accompanying notes to the consolidated financial statements

3

HUIHENG MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN US DOLLARS)

	For The Three Months Ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net income	$	593,286		$	101,671
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation of property, plant and equipment		60,647			62,572
Amortization of land use rights		4,794			3,191
Amortization of intangible assets		20,633			20,600
Write off of deferred offering costs		-			460,209
Equity in loss (income) of affiliate		10,540			(27,430	)
Changes in assets and liabilities:
Accounts receivable		(496,000	)		(504,952	)
Prepaid expenses		(91,029	)		(154,788	)
Other receivables		13,533			279,102
Inventories		(165,928	)		(134,037	)
Accounts payable		(102,830	)		(227,860	)
Income tax payable		67,383			133,711
Accrued liabilities and other payables		46,045			(13,709	)
Net cash used in operating activities		(38,926	)		(1,720	)
Cash flows from investing activities:
Capital expenditures on addition of property, plant and equipment		(2,791	)		-
Payment for land use right		-			(956,226	)
Net cash used in investing activities		(2,791	)		(956,226	)
Net decrease in cash		(41,717	)		(957,946	)
Effect on change of exchange rates		3,325			(28,238	)
Cash as of January 1		84,962			1,019,176
Cash as of March 31	$	46,570		$	32,992
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid	$	-		$	-
Income tax paid	$	60,109		$	-

See accompanying notes to the consolidated financial statements.

4

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 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 China.

5

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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 in consolidation.

The accompanying unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete consolidated financial statements. All adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the consolidated financial statements have been included. Nevertheless, these financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on April 15, 2010. The results of operation for the three months ended March 31, 2010, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

The Company's common stock is listed on the Over-the-counter Bulletin Board ("OTCBB") market and traded under the symbol "MBSN".

 

Summary of significant accounting policies

Estimates

The preparation of the financial statements in accordance with US GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the years.  Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables and realizable values for inventories.  Actual results could differ from those estimates in consolidation.

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 $897,464 and $897,319 for doubtful accounts respectively as of March 31, 2010 and December 31, 2009.

Outstanding account balances are reviewed individually for collectability.  Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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.

6

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

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.  The estimated useful lives of the assets are as follows:

	Estimated  Life
Building improvements	3 to 5
Buildings	20
Production equipment	3 to 5
Furniture fixtures and office equipment	3 to 5
Motor vehicles	5 to 10

Land use right

Land use right is recorded at cost less accumulated amortization.  Under ASC 350 “Intangibles, Goodwill and Other,” land use right is classified as a definite lived intangible asset and is amortized over its useful life.  According to the laws of the PRC, the government owns all of the land in the PRC.  Companies or individuals are authorized to possess and use the land only through land use rights granted by the PRC government.  The Company’s land use right is amortized using the straight-line method over the lease term of 50 years.

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	20
Software	5

7

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

Investment in affiliate

The Company owns a 50% equity interest of Beijing Yuankang Kbeta Nuclear Technology Company, Ltd. (“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.

Impairment of long-lived assets

Long-lived assets, which include tangible assets 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.  At March 31, 2010 and 2009, the Company determined that there was no impairment of value.

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, prepaid expenses 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.

Revenue recognition

The Company generates revenue primarily from sales of medical equipment and the sale of maintenance and support services.  Revenue is recognized as follows:

(i) 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.

8

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

Revenue recognition (…/Cont’d)

(i) Sales of medical equipment (…/Cont’d)

In the PRC, value added tax (“VAT”) of 17% on invoiced amounts 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.

(ii) 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 replace 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 confirmation of tax position of Changdu Huiheng 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.

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 and included in Accounts receivable.  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.

9

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

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 $15,340 and $89,404 for the three months ended March 31, 2010 and 2009, respectively.

Income taxes

The Company accounts for income taxes under ASC 740 “Income Taxes.”  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

During 2008, the Company adopted ASC740 “Income Taxes,” which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return.  This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

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 period.  The related transaction adjustments are reflected in “Accumulated other comprehensive income / (loss)” in the equity section of our consolidated balance sheet.

The average monthly exchange rates for period ended March 31, 2010 and the closing rate as of March 31, 2010 were RMB 6.8262 and RMB 6.8259 to one USD, respectively.  The average monthly exchange rates for the period ended March 31, 2009 and the closing rate as of March 31, 2009 were RMB 6.8371 and RMB 6.8336 to one USD, respectively.

Stock Option Plan

During 2009, the Company adopted a stock option plan (the “Plan”) for selected employees, directors, consultants to promote the success of the Company’s business by offering these individuals an opportunity to acquire a proprietary interest in the Company.  The Plan provides both for direct awards of shares and for the granting of options to purchase shares as determined by the Administrator at the time of the grant.  The Plan replaces the Company’s 2007 Share Plan which was never approved by the Company’s shareholders.  Under the Plan, 1,566,666 shares have been reserved for awards.  The number of shares reserved under the Plan is the same number that was reserved under the Company’s 2007 Stock Option Plan. 

Awards under the Plan will be accounted for in accordance with ASC 718 “Stock Compensation.”
 

10

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

Other comprehensive income

The Company has adopted ASC 220 “Comprehensive Income.”  This statement establishes rules for the reporting of other comprehensive income and its components.  Other 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 Changes in Stockholders’ Equity.

Earnings per share

The value of basic earnings per share is computed on the basis of the weighted-average number of shares of our common stock outstanding during the period.  Diluted earnings per share is computed on the basis of the weighted-average number of shares of our 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 common share:

	For the Three Months Ended March 31,
	2010		2009
Net income per common share	$	656,423	$	177,306
Weighted average outstanding shares of common stock		13,935,290		13,907,279
Dilutive effect of Convertible Preferred Stock		2,315,823		2,343,834
Diluted weighted average outstanding shares		16,251,113		16,251,113
Earnings per common share:
Basic	$	0.05	$	0.01
Diluted	$	0.04	$	0.01

For the three months ended March 31, 2010 options to purchase 30,000 common shares were not included in diluted earnings per share because the effect would be anti-dilutive.

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.

11

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

Segment reporting

ASC 280 “Segment Reporting” 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 12.

Financial instruments with characteristics of both liabilities and equity

The Company accounts for its Series A Preferred Stock in accordance with ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging.”  We have determined that our Series A Preferred Stock is not mandatorily redeemable.  Accordingly, the Company accounts for the Preferred stock as permanent equity.

Non-controlling interest in consolidated financial statements

In December 2007, the FASB issued authoritative guidance related to non-controlling interests in consolidated financial statements, which was an amendment of ARB No. 51.  This guidance is set forth in Topic 810 in the Accounting Standards Codification (ASC 810).  ASC 810 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  This accounting standard is effective for fiscal years beginning after December 15, 2008.  The Company adopted the presentation and disclosure requirements of ASC 810 retrospectively to the December 31, 2008 financial statements.
 

Impact of new accounting standards

We describe below recent pronouncements that have had or may have a significant effect on our financial statements.  We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.

12

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Impact of new accounting standards  (…/Cont’d)

In June 2009, the FASB issued Updates No. 2009-01, which establishes the FASB Accounting Standards Codification TM (the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP).  The Codification is effective for interim and annual periods ending after September 15, 2009.  We adopted the Codification when referring to GAAP in this quarterly report on Form 10-Q for the fiscal period ending March 31, 2010.  The adoption of the Codification did not have an impact on our consolidated results.

The FASB issued authoritative guidance related to subsequent events in May 2009, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued.  This guidance is set forth in Topic 855 in the Accounting Standards Codification (ASC 855).  ASC 855 provides guidance on the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  We adopted ASC 855 and its application had no impact on our consolidated financial statements.

13

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

Summary of significant accounting policies (…/Cont’d)

Impact of new accounting standards  (…/Cont’d)

In October 2009, FASB issued authoritative guidance that amends existing guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist, and provides guidance for allocating and recognizing revenue based on those separate deliverables.  The guidance is expected to result in more multiple-deliverable arrangements being separable than under current guidance and is required to be applied prospectively to new or significantly modified revenue arrangements.  This guidance, for which the Company is currently assessing the impact on its financial condition and results of operations, will become effective for the Company on January 1, 2011.

In January 2010, FASB issued authoritative guidance intended to improve disclosures about fair value measurements.  The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels and the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3).  Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3).  This guidance is effective for interim and annual periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010.  As this guidance provides only disclosure requirements, the adoption of this guidance will not impact the Company’s financial condition or 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.

14

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 3 – INVENTORIES

Inventories consisted of the following:

	March 31, 2010		December 31, 2009
Raw materials	$	283,743	$	281,112
Work-in-progress		1,242,085		1,078,788
	$	1,525,828	$	1,359,900

Final assembly of our products, including installation of radioactive source materials, is conducted on site at our customers’ 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.

NOTE 4 – OTHER RECEIVABLES

Other receivables, net, consisted of the following:

	March 31, 2010			December 31, 2009
Other receivables
- construction in progress paid on behalf of landlord (a)	$	1,668,813		$	1,738,852
- loan or advance to staff for business travelling		78,241			43,072
- utilities and rental deposits		1,948			1,948
- prepaid expenses made by director		2,930			2,930
- others		797,922			776,467
Total other receivables		2,549,854			2,563,269
Less: allowance for doubtful debts		(732,504	)		(732,386	)
Other receivables, net	$	1,817,350		$	1,830,883
Current portion	$	305,322		$	248,790
Non-current portion	$	1,512,028		$	1,582,093

(a) During the year ended December 31, 2008, an amount of $1,191,066 was transferred from Construction in progress under Property, Plant and Equipment to Other Receivables and $757,040 was transferred from Prepaid expenses to Other Receivables, representing amounts paid on construction in progress on behalf of the landlord in 2007 and 2008.  Such amounts will be offset against future years lease payments (Note 16).

15

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	March 31, 2010			December 31, 2009
Building improvements	$	172,260		$	172,232
Buildings		2,307,922			2,307,550
Production equipment		657,775			656,423
Furniture, fixture and office equipment		368,474			366,868
Motor vehicles		187,338			187,308
		3,693,769			3,690,381
Less: Accumulated depreciation		(1,230,436	)		(1,169,594	)
	$	2,463,333		$	2,520,787

Depreciation expense is included in the consolidated statements of income.  For the three months ended March 31, 2010 and 2009, depreciation expenses were $60,647 and $62,572, respectively.

NOTE 6 - LAND USE RIGHT

Land use right consisted of the following:

	March 31, 2010		December 31, 2009
Land use right	$	934,932	$	939,575

Land use right represents prepaid lease payments to the Local Government for land use right held for a period of 50 years from Jan 20, 2009 to December 26, 2058 in Wuhan, People’s Republic of China.

Land use right is amortized using the straight-line method over the lease term of 50 years.  The amortization expense for the period ended March 31, 2010 and 2009 were $4,794 and $3,191, respectively.

NOTE 7 – INTANGIBLE ASSETS

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.

For the three months ended March 31, 2010 and 2009, amortization expense was $20,633 and $20,600.

16

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 8 – ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables consisted of the following:

	March 31, 2010		December 31, 2009
Accrued expenses	$	416,873	$	365,923
Accrued payroll and welfare		267,253		188,125
Value added tax, other taxes payable and surcharges		1,033,886		1,121,406
Customer deposits		4,672		1,185
	$	1,722,684	$	1,676,639

NOTE 9 – NON-CONTROLLING INTEREST

Non-controlling interest included in the Company’s balance sheets as of March 31, 2010 represent 25% equity interest in Shenzhen Hyper.

NOTE 10 –AMOUNTS DUE TO RELATED PARTIES

A summary of related party payables at March 31, 2010 (unaudited) and December 31, 2009 is as follows:

Amounts due to related parties at March 31, 2010 and December 31, 2009 represent the remaining balance due to Clear Honest International Limited pursuant to the 2007 share redemption as well as advances related to the acquisition of Changdu Huiheng.

NOTE 11 –STOCKHOLDERS’ EQUITY

(a) Capital

The Company has authorized 74,000,000 shares of Common stock.  As of March 31, 2010, 23,635,290 shares were issued and 13,935,290 shares were outstanding, which is net of 9,700,000 treasury shares contributed from Mill Basin’s shareholders.

The Company has authorized 1,000,000 shares of Preferred stock, with 300,000 shares designated as Series A convertible preferred stock.  As of March 31, 2010, 220,467 shares were issued and outstanding with a liquidation preference of $8,267,513.

17

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 11 – STOCKHOLDERS’ EQUITY (…/Cont’d)

(b) Retained Earnings

As of March 31, 2010, 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.

Statutory surplus reserve

In accordance with PRC Company Law, Changdu Huiheng is required to appropriate at least 10% of the profit to the statutory surplus reserve.  Appropriation to the statutory surplus reserve by Changdu Huiheng is based on profits 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 equity.  This statutory surplus reserve is not distributable in the form of cash dividends.

18

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 12 – SEGMENT REPORTING

The Group has two reportable segments: products and services.

The following table presents information about the Company’s operating segments for the periods ended March 31, 2010 and 2009:

	March 31, 2010		March 31, 2009		Annual % change
Revenues:
Products	$	-	$	-		-
Services		1,400,853		1,398,619		0.16	%
Other		-		-		-
	$	1,400,853	$	1,398,619		0.16	%

	March 31, 2010			March 31, 2009			Annual % change
Operating (loss) income:
Products	$	-		$	(51,231	)		-100.00	%
Services		1,277,803			1,282,073			-0.33	%
Other		-			-			-
		1,277,803			1,230,842			3.82	%
Corporate expenses		(546,593	)		(1,023,040	)		-46.57	%
Operating income	$	731,210		$	207,802			251.88	%

19

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 13 – INCOME TAXES

Huiheng Medical, Inc. is a non-operating holding company.  All of the Company’s income before income taxes and related tax expenses are from PRC sources.  The Company’s PRC subsidiaries file income tax returns under the Income Tax Law of the People’s Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws.

Income tax expense for the three months ended March 31, 2010 and 2009 was $127,427 and $133,677, respectively.

As Changdu Huiheng, Huiheng’s subsidiary, 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 Changdu Huiheng is 12% (2009: 12%).

Wuhan Kangqiao is a high-tech enterprise with operations in an economic-technological development area in the PRC.  Therefore, the applicable tax rate is 25%.

Shenzhen Hyper is a high-tech manufacturing company located in the Shenzhen special economic region.  Therefore, the applicable tax rate is also 15% (2009:18%).  According to local tax regulation, Shenzhen Hyper is entitled to a tax-free period for the first two years, commencing from the first profit-making year and a 50% reduction in state income tax rate for the next six years.

A reconciliation of the expected income tax expense to the actual income tax expense for the period ended March 31, 2010 and 2009 are as follows:

	Three Months Ended March 31,
	2010			2009
Income before income taxes	$	720,713		$	235,348
Expected PRC income tax expense at statutory tax rate of 25% (25%)		180,178			58,837
Non-deductible expenses		234			17,148
Others		58,225			169,434
Tax rate differences		(111,210	)		(111,742	)
Actual income tax expense	$	127,427		$	133,677

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.

No deferred tax liability has been provided as the amount involved is immaterial.

NOTE 14 – CONCENTRATION OF CREDIT RISK

Customers’ concentrations

Customers accounting for 10% or more of the Group's net revenue as follows:

	Three months ended March 31,
	2010			2009
	%			%
Customer A		54	%		65	%
Customer B		35	%		35	%
Customer C		11	%		N/A

Three customers accounted for 100% and two customers accounted for 100% of revenue for the periods ended March 31, 2010 and 2009, respectively. These customers also accounted for 84% and 77% of accounts receivable as of March 31, 2010 and 2009, 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.

Except as disclosed above, no other single customer accounted for 10% or more of the Group's net revenue for the periods ended March 31, 2010 and 2009.

20

HUIHENG MEDICAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

NOTE 14 – CONCENTRATION OF CREDIT RISK (…/Cont’d)

Other credit risks

As of March 31, 2010, 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 March 31, 2010.

NOTE 15 - FOREIGN OPERATIONS

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.

Dividends and reserves

Under the 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 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 equity owners.

NOTE 16 - OPERATING LEASE COMMITMENTS

As of March 31, 2010, the total future minimum lease payments under non-cancellable operating leases in respect of premises are $4.95 million (RMB33.76 million), which was based on the closing rate as of March 31, 2010.  The amounts payable are as follows:

For the twelve months ended
March 31
2010	$	277,338
2011		277,338
2012		277,338
2013		277,338
2014		277,338
Thereafter		3,559,178
TOTAL	$	4,945,868

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

We design and sell precision radiotherapy equipment used for the treatment of cancerous tumours in the People’s Republic of China (“PRC” or “China”).  In addition to providing 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 tumour treatment analysis, software upgrades and patient care consulting.

Comparison of three months ended March 31, 2010 and 2009

Operating revenues

For the three months ended March 31, 2010, revenues amounted to $1,400,853, an increase of $2,234 compared to $1,398,619 for the same period of the prior year.  Operating revenues remain steady due to the fact that no units were installed in the period covered by this Quarterly Report, which was also the case for the quarter ending March 31, 2009.  We had the same number of service contracts during the three months ended March 31, 2010 that we did in the same period of the prior year.

Revenues from product sales, services and tax refunds and subsidies are broken down below.

There was no revenue from product sales for the three months ended March 31, 2010, representing no change from the amount of product sales from the same period of the prior year.  No units were installed in the three months ended March 31, 2010, nor were any units installed in the three months ended March 31, 2009.  The lack of any unit installation was due primarily to two factors: (i) the first quarter of the year is typically the lowest season for our business (due partially to the occurrence of the Chinese New Year), and (ii) the unit sales process took longer than expected in the quarter.

Revenues from services were $1,400,853 for the three months ended March 31, 2010, representing an increase of $2,234 compared to $1,398,619 in revenue from services from the same period of the prior year.  Revenues from services remain steady as we had the same number of service contracts during the three months ended March 31, 2010 that we did in the same period of the prior year.

For the three months ended March 31, 2010, revenues from tax refunds and subsidies totalled $0, representing no change compared to $0 in tax refunds and subsidies for the same period of the prior year.  Since our tax refunds are processed by the government and based on the amount of taxes paid in the prior year, the payment of any tax refund we are owed could be delayed for processing time.

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 the applicable period.  The backlog as of March 31, 2010 amounted to $11.76 million, representing an increase of $1.79 million compared to $9.97 million as of March 31, 2009.  The increase in backlog was due to an increased demand from customers as well as delays in certain local government approval processes, which caused some of the units to stay in our backlog longer than we expected.

22

The purchase orders are not cancellable and are subject to certain conditions, including but not limited to, customers obtaining approval from their local governments for the purchase of our products.  Notwithstanding, we expect the purchase orders comprising the revenue backlog to be installed in the second half of 2010 and in 2011.

Cost of Revenues

For the three months ended March 31, 2010, the total cost of revenues amounted to $96,432, a decrease of $45,914 compared to $142,346 for the same period of the prior year.  This decrease was due to decreased travel expenses for service engineers and appreciation of RMB verses USD.

Gross Margin

As a percentage of total revenues, the overall gross margin increased to 93.12% for the three months ended March 31, 2010 as compared with 89.82% for the same period in the prior year. This increase was due to less direct spare parts costs and less direct travel expenses of service engineers in the three months ended March 31, 2010 as compared to the same period last year.  As a result, this had a positive impact on our gross margin for the period.

Operating Expenses

Sales and marketing expenses

Sales and marketing expenses mainly consist 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 $62,123 for the three months ended March 31, 2010, a decrease of $3,338 compared with $65,461 for the same period of the prior year.  The decrease was the result of less marketing activity in this period compared with the same period of the prior year.

General and administrative expenses

General and administrative expenses amounted to $495,748 for the three months ended March 31, 2010, representing a decrease of $397,858, or 45%, compared to $893,606 for the same period of the prior year.  The decrease in general and administrative expenses resulted from a decrease in fees paid to our legal counsel and auditors.

Research and development expenses

Research and development expenses are comprised primarily of employee compensation, materials consumed and experiment expenses for specific new product research and development, and any expenses incurred for basic research for advanced technologies.  Research and development expenses were $15,340 for the three months ended March 31, 2010, a decrease of $74,064 compared to $89,404 in the same period of the prior year.  This decrease was primarily due to the fact that the Company incurred less expenses related to research and development in the applicable period for this Quarterly Report.

23

Income Tax Provision

For the three months ended March 31, 2010, the Company’s income tax provision was $127,427 compared to $133,677 for the same period of the prior year, representing a decrease of $6,250.  The decrease in income tax was due to the Company experiencing a lower taxable income in the three months ended March 31, 2010 compared to the same period of the prior year.

Net Income

For the three months ended March 31, 2010, the Company’s net income amounted to $656,423, an increase of $479,117 compared to $177,306 for the same period of the prior year.  This increase was attributable to the significant decrease of general and administrative costs over the period covered by this Quarterly Report.

Other Comprehensive Income

For the three months ended March 31, 2010, the Company’s other comprehensive income, which reflects the change in foreign currency translations on net income, amounted to a gain of $4,005, a difference of $37,995 compared to a loss of $33,990 for the same period of the prior year.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have financed our operations primarily through the issuance of equity and cash flow from operations.  We currently do not have any outstanding short-term or long-term bank debt.  Our relatively high margins have historically provided 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 margins.  We have longstanding, positive relationships with our vendors and have maintained favorable payment terms and believe that we will continue to maintain such 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 to help finance a number of expansion initiatives including new product development.

Comparison of three months ended March 31, 2010 and 2009

As of March 31, 2010, the Company had total assets of $27,722,522.  Our cash was $46,570, accounts receivable were $16,995,819, prepayment and other receivables were $3,454,816 and inventories were $1,525,828.  Working capital was approximately $19,077,061.  The current ratio was approximately 7.48.  The quick ratio was approximately 6.96.

Net cash used in operating activities totalled $38,926 for the three months ended March 31, 2010, an increase of $37,206 from $1,720 for the same quarter of the previous year.  This increase resulted primarily from the following changes in the operating assets and liabilities:

•  $496,000 increase in accounts receivables;

•  $165,928 increase in inventories;

•  $77,496 increase in prepayments and other receivables;

•  $102,830 decrease in accounts payable;

24

• $67,383 increase in tax payable; and

• $46,045 decrease in accrued liabilities and other payables;

The increase in accounts receivable was due to a combination of factors:

First, the majority of our product sales and installations in 2009 occurred during the last quarter of the year.  As a result of the short amount of time between the time of installation and the end of the period, our cash collection in the three months ended March 31, 2010 was lower than the cash we collected over the same period of the prior year.

Second, due to our strong, long-standing relationships with our customers, we have extended their payment terms and are confident that we will collect all the money owed by these customers.

The increase in prepayments and other receivables was attributed primarily to an increase in payments made to our manufacturing suppliers for parts and services needed to manufacture the radiotherapy units that comprise our backlog.

Net cash used in investing activities was $2,791 and $956,226 for the three months ended March 31, 2010 and 2009, respectively.  The cash used in investing activities was primarily used to purchase equipment this year, whereas last year, we used the case to purchase land usage rights for our new manufacturing facility in Wuhan.

Cash flows from (used in) financing activities amounted to $0 for the three months ended March 31, 2010 and 2009.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4T.  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 quarterly report.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this quarterly report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

To the best of management’s knowledge, there are no material legal proceedings pending against the Company.

Item 1A.  Risk Factors

Not Applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  [REMOVED AND RESERVED]

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibit No	Description
3.1	Articles of Incorporation, as revised, of Huiheng Medical, Inc. (1)
3.2	Amended and Restated Bylaws of Huiheng Medical, Inc. (2)
4.1	Amended and Restated Certificate of Designations of Rights and Preferences of the Series A 7% Convertible Preferred Stock (3)
10.1	Huiheng Medical, Inc. 2009 Share Plan (4)
31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32	Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith

(1) Incorporated by reference to the exhibit to the registrant’s annual report on Form 10-KSB filed with the SEC on April 10, 2008.

26

(2) Incorporated by reference to the exhibit to the registrant’s annual report on Form 10-KSB filed with the SEC on April 10, 2008.

(3) Incorporated by reference to the exhibit to the registrant’s current report on Form 8-K filed with the SEC on January 16, 2008.

(4) Incorporated by reference to the exhibit to the registrant’s current report on Form 8-K filed with the SEC on June 10, 2009.

27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HUIHENG MEDICAL, INC.
Date:       May 17, 2010	By:	/s/ Hui Xiaobing
		Hui Xiaobing
		Chief Executive Officer
		(Principal Executive Officer)
Date:       May 17, 2010	By:	/s/ Richard Shen
		Richard Shen
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

28

EX-31.1

EXHIBIT 31.1

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

I, Hui Xiaobing, certify that:

1.   I have reviewed this Quarterly Report of Huiheng Medical, Inc. on Form 10-Q for the period ending March 31, 2010;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      May 17, 2010	By:	/s/ Hui Xiaobing
		Hui Xiaobing
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

OFFICER’S CERTIFICATE

PURSUANT TO SECTION 302

I, Richard Shen, certify that:

1.   I have reviewed this Quarterly Report of Huiheng Medical, Inc. on Form 10-Q for the period ending March 31, 2010;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      May 17, 2010	By:	/s/ Richard  Shen
		Richard  Shen
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Huiheng Medical, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Hui Xiaobing, Chief Executive Officer, and Richard Shen, Chief Financial Officer, on the date indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date:      May 17, 2010
By:	/s/ Hui Xiaobing
	Hui Xiaobing
	Chief Executive Officer
	(Principal Executive Officer)

Date:      May 17, 2010
By:	/s/ Richard Shen
	Richard Shen
	Chief Financial Officer
	(Principal Accounting and Financial Officer)

A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Huiheng Medical, Inc. and will be retained by Huiheng Medical, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.