CMIM Changming Industrial Management Group Holding (CE)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A
Amendment No. 4

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) July 24, 2008

CHINA HEALTH CARE CORPORATION
(Exact name of registrant as specified in its charter)

Wyoming
(State or other jurisdiction of incorporation)

333-127016
(Commission File Number)

98-0463119
(IRS Employer Identification No.)

T Plaza Center, Suite 400, 15950 North Dallas Parkway, Dallas, TX 75249
(Address of principal executive offices and Zip Code)

(972) 361-8033
Registrant's telephone number, including area code

__________________________________________________
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions:

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

FORWARD LOOKING STATEMENTS

This current report contains forward-looking statements as that term is defined in section 27A of the United States Securities Act of 1933, as amended, and section 21E of the United States Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" commencing on page 3 of this current report, which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

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As used in this current report and unless otherwise indicated, the terms "we", "us" and "our" refer to China Health Care Corporation, a Wyoming corporation and our recently acquired subsidiary, United Premier Medical Group Limited, a Cayman corporation. Unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares in our capital stock.

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

SHARE EXCHANGE WITH UNITED PREMIER MEDICAL GROUP LIMITED

On January 20, 2008, we entered into a share exchange agreement with United Premier Medical Group Limited, a Cayman corporation, and the shareholders of United Premier Medical Group Limited. The closing of the transactions contemplated in the share exchange agreement and the acquisition of all of the issued and outstanding common shares in the capital of United Premier Medical Group Limited occurred on July 24, 2008. In accordance with the closing of the share exchange agreement, we issued 42,658,000 shares of our common stock to the former shareholders of United Premier Medical Group Limited in exchange for the acquisition, by our company, of all of the 21,329 issued and outstanding shares of United Premier Medical Group Limited on the basis of 2,000 common shares of our company for every one common share of United Premier Medical Group Limited.

As set out in the share exchange agreement, the closing of the share exchange agreement was subject to the satisfaction of certain conditions precedent, including, among others, the following:

1.	The representations and warranties of United Premier Medical Group Limited, its shareholders and our company set forth in the share exchange agreement were true, correct and complete in all respects as of the closing;
2.	All of the covenants and obligations that the respective parties were required to perform or to comply with pursuant to the share exchange agreement at or prior to the closing must have been performed and complied with in all material respects;
3.	United Premier Medical Group Limited and our company having received duly executed copies of all third party consents and approvals contemplated by the share exchange agreement, if any;
4.	United Premier Medical Group Limited and our company having been reasonably satisfied with their due diligence investigations of the other party that is reasonable and customary in a similar transaction;
5.	United Premier Medical Group Limited delivering to our company audited financial statements prepared in accordance with United States GAAP and audited by an independent auditor registered with the Public Company Accounting Oversight Board in the United States; and
6.	Our company adopting resolutions appointing nominees of United Premier Medical Group Limited to the board of directors of our company.

Our company had 50,148,000 common shares issued and outstanding as of July 24, 2008, as a result of the issuance of 42,658,000 common shares in connection with the closing of the share exchange agreement. As of the closing date, the former shareholders of United Premier Medical Group Limited held approximately 85.1% of the issued and outstanding common shares of our company. The issuance of the 42,658,000 common shares to the former shareholders of United Premier Medical Group Limited was deemed to be a reverse acquisition for accounting purposes. United Premier Medical Group Limited, the acquired entity, is regarded as the predecessor entity as of July 24, 2008. Starting with the periodic report for the quarter in which the acquisition was consummated, our company will file annual and quarterly reports based on the September 30th fiscal year end of United Premier Medical Group Limited. Such financial statements will depict the operating results of United Premier Medical Group Limited, including the acquisition of our company, from July 24, 2008.

RISK FACTORS

In addition to other information in this current report, the following risk factors should be carefully considered in evaluating our business because such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements.

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Additional risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, operating results, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition could be materially affected in an adverse manner. Under such circumstances, the trading price of our securities could decline, and you may lose all or part of your investment.

Risks Related to our Business

We have a limited operating history, and it is difficult to evaluate our financial performance and prospects. There is no assurance that we will achieve profitability or that we will not discover problems with our business model.

We have a limited operating history. As such, it is difficult to evaluate our future prospects and performance, and therefore we cannot ensure that we will operate profitably in the future.

We have limited funds available for operating expenses. If we do not obtain funds when needed, we will have to cease our operations.

Currently, we have limited operating capital. As of June 30, 2008, our cash available was approximately $9,404. In the foreseeable future, we expect to incur significant expenses when developing our business. We may be unable to locate sources of capital or may find that capital is not available on terms that are acceptable to us to fund our additional expenses. There is the possibility that we will run out of funds, and this may affect our operations and thus our profitability. If we cannot obtain funds when needed, we may have to cease our operations.

We depend on attracting and retaining qualified employees, the failure of which could result in a material decline in our revenues.

We are a provider of healthcare consultancy services. Our revenues and future growth depend on our ability to attract and retain qualified employees. This is especially crucial to our business, as these employees will generate revenue by providing the services that are the staple product that we offer. We may face difficulties in recruiting and retaining sufficient numbers of qualified employees because the market may not have enough of such personnel. In addition, we compete with other companies for qualified employees. If we are unable to retain such employees, we could face a material decline in our revenue.

We derive most of our revenue from treatment facilities rested with our host hospitals that are located in the People’s Republic of China, which makes us particularly sensitive to regulatory and economic conditions in those cities where our facilities are, or will be located.

For the year ended September 30, 2007, our facilities rested with our host hospitals in the People’s Republic of China, or the PRC, accounted for most of our total revenue. If our treatment facilities are adversely affected by changes in regulatory and economic conditions within China, our revenue and profitability may decline.

We may have difficulty opening new medical facilities and operating them profitably. We have limited experience in opening new treatment facilities. If we are unable to execute our strategy, our growth may be restrained and our operating results could be adversely affected.

Our growth strategy includes developing and opening new medical facilities throughout the PRC, and, to date, we have limited experience in opening new treatment facilities. Planning and opening new treatment facilities can be complex and may be delayed, and, in some circumstances, prevented, by a variety of forces, including local zoning and land use regulations, health facility licensing, community opposition and other political issues. Healthcare laws and other rules and regulations may also impede or increase the cost of opening new facilities. If we are unable to open new treatment facilities on time and on budget, our rate of growth and operating results may be adversely affected.

Even if we are able to open new treatment facilities, we may not be able to staff them. In addition, there can be no assurance that, once completed, new treatment facilities will be able to generate operating profits. Developing new facilities involves significant upfront capital investment and expense and, if we are unable to attract patients quickly and/or enter into contracts or extend our existing contracts with third party payers for these facilities, these facilities may not be profitable and our operating results could be adversely affected.

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If we fail to cultivate new or maintain established relationships with patient referral sources, our revenue may decline.

Our ability to grow or maintain our existing level of business depends significantly on our ability to establish and maintain close working relationships with patient referral sources. We may not be able to maintain our existing referral source relationships or develop and maintain new relationships in existing or new markets. If we lose existing relationships with our referral sources, the number of patients we treat may decline, which may adversely affect our revenue. If we fail to develop new referral relationships, our growth may be restrained.

If we fail to implement our business strategy, our business, financial condition and results of operations could be materially and adversely affected.

Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. We may not be able to implement our business strategy successfully or achieve the anticipated benefits of our business plan. If we are unable to do so, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all.

If we fail to use the brand of Johns Hopkins International, financial conditions results of operations could be materially and adversely affected.

Our current performance and success are dependent in certain extent upon the educational and consulting services provided by Johns Hopkins International, LLC. If we are unable to receive such services, our profitability may be adversely affected and our operating results may not improve to the extent we anticipate.

Our success depends on our ability to manage growth effectively. If we do not manage growth effectively, we may not be able to maintain profitability.

Even if we are successful in obtaining new business, failure to manage our growth could adversely affect our financial condition. We may experience extended periods of very rapid growth. If we are not able to manage our growth effectively, our business and financial condition could materially suffer. Our growth may significantly strain our managerial, operational and financial resources and systems. To manage our growth effectively, we will have to continue to implement and improve our operational, financial and management controls, reporting systems and procedures. In addition, we must effectively expand, train and manage our employees. We will be unable to manage our businesses effectively if we are unable to alleviate the strain on resources caused by growth in a timely and successful manner. We may not be able to manage our growth and a failure to do so could have a material adverse effect on our business.

If the PRC government finds that the agreements that establish the structure for operating our business operations within the PRC do not comply with PRC governmental regulations on foreign investment in the medical industry, we could be subject to penalties. Such penalties may impact our ability to maintain profitability.

If we or our operating subsidiaries or affiliates are found to be in violation of any existing or future PRC laws or regulations, we could be subject to severe penalties, including but not limited to: (i) revocation of our business and operating licenses; (ii) discontinuing or restricting our operations; (iii) imposition of conditions or requirements with which we may not be able to comply; (iv) requirement that we restructure the relevant ownership structure or operation; and (v) restriction or prohibition on our use of the proceeds of our business operations to further finance our operations in the PRC.

We rely on contractual arrangements with PRC obstetric and gynecologic hospitals, which may not be as effective in providing operational control as direct ownership. If we cannot maintain these arrangements, we may have to cease operations.

We rely on contractual arrangements with PRC obstetric and gynecologic hospitals to operate our business. These contractual arrangements may not be as effective in providing us with control over our operations as direct ownership. Under the current contractual arrangements, if the PRC obstetric and gynecologic hospitals fail to perform their respective obligations under these contractual arrangements, we may have to incur substantial costs to enforce such arrangements and rely on legal remedies available under PRC law, which may not be effective to allow us to maintain our business operations. Additionally, many of these contractual arrangements are governed by PRC

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law and, accordingly, will be interpreted in accordance with PRC law, and any disputes would be resolved according to PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operations, and our ability to conduct our business may be negatively affected.

Contractual arrangements we have entered into among our subsidiaries and affiliated entities may be subject to scrutiny by the PRC tax authorities. Such scrutiny may lead to additional tax liability and fines, which would hinder our ability to achieve or maintain profitability.

Risks Relating to the People’s Republic of China

Substantially all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in the PRC. Accordingly, our business, financial condition, results of operations, and prospects are subject, to a significant extent, to economic, political and legal developments in the PRC.

The PRC’s economic, political and social conditions, as well as governmental policies, could affect the financial markets in the PRC, our liquidity and access to capital, and our ability to operate our business.

Our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and to guide the allocation of resources. The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC are still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over its economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government has implemented a number of measures, such as raising bank reserves against deposit rates to place additional limitations on the ability of commercial banks to make loans and raise interest rates, in order to slow down specific segments of the PRC’s economy. These actions, as well as future actions and policies of the PRC government, could materially affect our liquidity and access to capital and our ability to operate our business.

The PRC legal system embodies uncertainties which could limit the legal protections available to us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation has been significantly enhanced protections afforded to various forms of foreign investment in the PRC. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, because PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. Also, intellectual property rights and confidentiality protections in the PRC may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the medical industry, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us.

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U.S. investors may experience difficulties in attempting to enforce judgments based upon U.S. federal securities laws against us and our non-U.S. resident directors.

All of our operations and our assets are located outside the United States and some of our directors and officer are foreign citizens. As a result, it may be difficult or impossible for U.S. investors to enforce judgments of U.S. courts for civil liabilities against any of our individual directors or officers.

Risks Relating to Our Common Shares

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common shares and make it difficult for our shareholders to resell their shares.

Our common shares are quoted on the OTC Bulletin Board service. Trading in shares quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common shares for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, shareholders may have difficulty reselling any of the shares.

Our share is a penny stock. Trading of our share may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our shares.

Our share is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the shares that are subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common shares.

FINRA sales practice requirements may also limit a shareholder's ability to buy and sell our share.

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority, or FINRA, has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our share.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common shares.

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DESCRIPTION OF BUSINESS

Corporate Overview

The address of our principal executive office is T Plaza Center, Suite 400, 15950 North Dallas Parkway, Dallas. Our telephone number is (972) 361-8033.

Our common shares became listed on the OTC Bulletin Board on March 22, 2007, under the symbol “CVLG”. Prior to this date, there was no public market for our common shares.

On May 13, 2008, the Secretary of State of Wyoming effected a change of name of our company from The Cavalier Group to China Health Care Corporation, as approved by our shareholders. The name change became effective with the Over-the-Counter Bulletin Board at the opening for trading on May 16, 2008 under the new stock symbol “CNHL”.

Corporate History

We were incorporated in the state of Wyoming on February 11, 2005. Since our incorporation, we had been in the business of the exploration and development of a mineral property approximately 1,320 acres in size in northeastern, Ontario. Our property was without known reserves and our program was exploratory in nature. Because we were not successful in implementing our business plan, we abandoned it and focused on the identification of suitable businesses with which to enter into a business opportunity or business combination.

On January 20, 2008, we entered into a share exchange agreement with United Premier Medical Group Limited, a Cayman corporation, and the shareholders of United Premier Medical Group Limited. The share exchange agreement contemplated our company acquiring all of the issued and outstanding common shares in the capital of United Premier Medical Group Limited in exchange for the issuance by our company of 42,658,000 shares of our common stock. As of the closing date of July 24, 2008, the former shareholders of United Premier Medical Group Limited held approximately 85.1% of the issued and outstanding common shares of our company.

Business Subsequent to the Acquisition of United Premier Medical Group Limited

As of the closing date of the share exchange agreement on July 24, 2008, we commenced the business of providing premium specialty medical services in the People’s Republic of China (“PRC”), with a prime focus on the provision of services to women and children. Specifically, we provide consultancy services to the VIP Maternity & Gynecological Centers (the “VIP Birthing Centers”) in the PRC. Our first VIP Birthing Center was operated in October 2002 at the International Peace Maternity & Child Health Hospital, supported by the consultation services of Johns Hopkins International, LLC. (“JHI”). JHI is a leader in patient care, medical research, teaching and training in the United States.

Over the past several years, we have signed co-operative agreements with a number of well respected hospitals in Obstetrics /Gynecology (“OB/GYN”) across the major PRC cities including Beijing, Shanghai, Guangzhou, Foshan, Wuxi, Xiamen, Changsha and Hangzhou. In 2006, we signed a management agreement with the University Hospital at Macau University of Science and Technology (“UH-MUST”). We currently have contracts to provide consultancy services to a total of five VIP Birthing Centers in the PRC and to manage a private hospital in Macau. In the future, we intend to seek direct ownership of hospitals and clinics.

We have adopted a tri-partite approach of medical consultancy, hospital management and specialty hospital joint ventures in the PRC. We plan to develop a chain of specialized healthcare operations on a nation-wide scale across the PRC. Our target markets are affluent PRC cities and regions, such as the Changjiang River Delta, the Pearl River Delta and the Huabei region.

We have a distinct business model to achieve our business objectives through partnering with western medical institutes and local hospitals in the PRC. We can utilize our partners' hospital buildings, medical facilities and equipment in the PRC while employing medical technology and know-how from the United States of America. This business model can minimize risk and facilitate business access into the Chinese market. We plan to cooperate with the specialty units of carefully selected hospitals and to place an emphasis on western trained local medical professionals.

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We currently use the name of JHI in two of our VIP Birthing centers including the ones in Wuxi and Xiamen . We keep negotiating co-operation agreements with a number of hospital management organizations in the United States, in order to sustain our competitiveness in providing premium education and consultation services for our VIP birthing centers, satellite health centers and specialty hospitals.

Since 2002, we have established a reputable chain of hotel-style VIP Maternity & GYN Centers, delivering premium OB/GYN services primarily targeting the affluent middle and upper classes in China. Our services emphasize quality, safety and privacy, and are well supported by consultation services of qualified western standards, typically from the United States. Our past and present agreements with hospitals wherein we provided premium specialty medical services are as follows:

We currently have contracts to provide consultancy services to a total of five VIP Birthing Centers in the PRC and to manage a private hospital in Macau. These centers are located in Wuxi (“the Wuxi Center”), Xiamen (“the Xiamen Center”), Changsha (“the Changsha Center”), Foshan (“the Foshan Center”) and Hangzhou (“the Hangzhou Center”). For the Wuxi Center, Xiamen Center and the hospital in Macau, they are operated under our service contract and regularly paying us a monthly service fee. For the Changsha Center, it is still under our service contract but the host hospital of this center has stopped paying us since June 2007 while still using the JHI brand name. We have engaged a law firm in the PRC to negotiate with the host hospital for a settlement for the sake of not taking any legal action. For the Foshan Center, it is still operated under our service contract but the host hospital has stopped paying us since October 2006 and no longer used the JHI brand name. We engaged a law firm in the PRC to negotiate with the host hospital for a settlement for the sake of not taking any legal action. For the Hangzhou Center, though our service contract is still valid, we have not been paid since the commencement of its operation. We are identifying a law firm in the PRC to negotiate with its host hospital for a possible settlement.

The center in Guangzhou (“the Guangzhou Center”) ceased its operation in March 2007 and our invested assets were sold back to its host hospital. The net receipt of this asset sale amounted to $968,000. For the VIP Birthing Center in Shanghai (“the Shanghai Center”), we have not been paid since January 2006 and we have taken legal action against the host hospital for breach of contract. The case was accepted by and filed in the Shanghai No.1 Intermediate People’s Court in the PRC on April 10, 2007. Our proposed claim is about $2,900,000 (equivalent to Renminbi (“RMB”)22,600,000).

During the period from June 15, 2002 to June 10, 2004, Proactive Medical Enterprise (Hong Kong) Ltd. ('PME-HK"), one of our subsidiaries, entered into a number of agreements with JHI, including an educational and consulting services agreement, a licensing agreement, two novation and assignment agreements for the licensing agreement dated June 15, 2002 and two amendment agreements to the licensing agreement and one amendment agreement to the educational and consulting service agreement dated June 15, 2002. Pursuant to these agreements, JHI provides PME-HK certain educational and consulting services related to obstetrics and gynecology primarily through the Department of Obstetrics and Gynecology of The Johns Hopkins Hospital (the "Department") in enhancing the quality of services delivered to our VIP Birthing Centers in China. PME-HK is permitted to have limited use of the names of JHI and of the Department (herein collectively called the “Mark”) and is allowed to disclose that its service has consulted with JHI and / or the Department in connection with the establishment of specific clinical programs.

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On April 11, 2003, PME-HK, JHI and Proactive Medicare Enterprise, Inc. (“PMEI”) entered into an agreement of novation and assignment for education and consulting services (the “JHI Assignment Agreement”). PMEI is an entity related to the Company in that PMEI was formed and owned by Herbert Wong a brother of Wong Yao Wing, a director of UPMG. Herbert Wong died in June 2006. PMEI was subsequently dissolved in November 2007 (See Note 5). Pursuant to the JHI Assignment Agreement, PME-HK assigned to PMEI all the rights, benefits and obligations of PME-HK under the JHI Consulting Agreements. On April 11, 2003, PME-HK and PMEI entered into a services agreement (the “Service Agreement”) to re-establish the terms between the parties regarding the consultation services from PMEI to PME-HK in International Peace Maternity & Child Health Hospital. On March 28, 2004, PME-HK and PMEI entered into a project consultancy agreement (the “Consultancy Agreement”) to supersede the Service Agreement. In the Consultancy Agreement, PME-HK appoints PMEI as project consultant to provide services related to establishment, management and development of healthcare services in the PRC.

We are currently in dispute with JHI mainly on the fee structure, outstanding fee owing to JHI and use of “JHI” brand in future, and we are actively negotiating with JHI for settlement. As indicated in an email from JHI dated April 22, 2008, the Company believes that JHI is willing to give limited support dependent on JHI’s receiving advance payment for any services requested. The Company also believes that JHI is willing to proceed with settlement negotiations with the Company as long as the Company is willing to pay an amount of $300,000. Given the positive attitude of JHI shown to the Company, the Company believes the negotiation outcome would be positive and constructive.

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Corporate History of United Premier Medical Group Limited and Corporate Structure

The United Premier Medical Group (the “Group”) was founded in 2001 with United Premier Medical Group Limited (“UPMG”) as the ultimate holding company. UPMG was incorporated as a Cayman corporation on March 28, 2003 and directly wholly owns UPMG International Limited (“UPMGI”), a British Virgin Islands corporation, which in turn holds a number of subsidiaries in the PRC, Hong Kong and Macau.

The following is a table which describes corporate structure of United Premier Medical Group:

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The Market *

The healthcare industry in China has been growing rapidly since its economy took off in 1980s. National healthcare expenditures was found to increase robustly at 15% in compound annual growth rate (“CAGR”) from approximately RMB 215 billion in 1995 to RMB 866 billion in 2005. Per capita healthcare expenditure, in overall, increased by 2.72 times from RMB177.9 in 1995 to RMB662.3 in 2005, while the per capita growth in urban areas was 1.8 times during the same period.

Source: 2007 National Health Economics Institute – Report on Health Expenditure in China

The chart below shows the national healthcare expenditures of China from 1980 to 2005:

Source: 2007 Health Statistics – Ministry of Health, P.R. China

Under the past centralized planning system, virtually all hospitals and healthcare facilities in China were invested, owned and run by government or state-owned business entities. As of year 2000, there were 16,318 hospitals in the PRC, of which most were built during 1950s and 1990s with common defects in design and engineering. Major defects are characterized by incomplete functional layout, little consideration of hospital safety systems, lack of environmental friendly concept, deficiency in patient-first philosophy as well as poor installation and use of medical equipment and hospital management system. Such shortcomings are far too outdated to effectively help combating emergency medical crisis and safeguard human life.

Hospital construction market has demonstrated itself a fast growing sector in China. During 1950 and 2000, China built an average of 270 hospitals per year and about 488 hospitals per year from 2000 to 2006. SARS directly caused an economic loss of RMB300 billion in China, which was partially attributed to the poor and outdated design and planning of existing healthcare facilities, and is believed to be an important contributor to the improved market growth. Over the past 10 years, the number of hospitals was found to increase at a CAGR of 2%, from 15,833 hospitals in 1996 to 19,246 hospitals in 2006, of which specialized hospitals increased at a CAGR of 10% from 2,271 in 2003 to 3,022 in 2006. Obstetric & Gynecologic (“OB/GYN”) hospitals represented a high growth sub-sector, increasing by 29.5% in CAGR from 81 in 2003 to 176 in 2006 due to the general rise in birth rate and growing health awareness of women in China.

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Source: Center for Health Statistics and Information, Ministry of Health, P.R. China – Report on the National Health Services Survey of China, 2006

The medical service market in China is still primitive in the sense that public medical institutions lack competent manpower, financial resources, material resources, and generally lag behind in medical technologies. The situation seems improved a lot as the industry gradually open to the world after China’s accession to World Trade Organization (WTO). In 2005, the industry revenue was estimated at RMB 480 billion with annual growth of over 10%, making it a lucrative market that has tempted investments from different parts of the world. Consequently, massive inflow of capital has in turn triggered new changes in the medical system of the country.

The niche market for high quality, patient-oriented medical services in China, though remains small at the moment, is found to have encouraging growth over the past years. It is estimated, so far, about 1% to 2% of the Chinese population can afford top-end Western medical care. As the standard of living gradually improves, more people are willing to spend for quality medical services. According to a survey by China Association of Branding Strategy (CABS), about 175 million or 13.5% of Chinese consumers can afford a variety of luxury brands. China, being the world’s largest consumer of high-end luxury goods, accounted for about 12% of global luxury sales in 2005, already a dominant contributor of global luxury market when compared with developed countries like Japan (41%), the United States (17%) and the European countries (16%). Large hospitals in China are on the move to deliver high quality medical services so as to meet the increasing demand from affluent middle to upper classes. Star-class hospital environment, warm and personalized care services, patient safety and privacy, quality management as well as other indicators of quality services become the keys to out-compete in this niche market.

Shanghai – the most important economic and financial center in China, has already incubated a huge population of affluent class. The Changjiang delta that houses Shanghai, Nanjing, Wuxi, Suzhou, Changzhou, Zhenjiang, Nantong, Taizhou, Hangzhou and Ningbo, represents one of the most affluent and populous regions in China, generating great demand for premium medical services given its high living standard and strong consumption power.

A summary of the medical environment in the Changjiang delta region is shown as follow:

Source: China Statistical Yearbook 2007 – National Bureau of Statistics of P.R.China

* The Tenth Five-Year Plan of the Medicine Industry and Its Development – by BizChina, the business arm of ChinaDaily.com.cn

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Government Regulation

We have witnessed favorable government policies toward the healthcare industry in China and several positive measures were implemented to reform the industry. Pursuant to the “Guidance of Healthcare System Reform in Towns and Cities” promulgated in 2000, commercial or privately owned hospitals are now operating under more ‘business-friendly’ guidelines. While government entities (including certain state-owned enterprises) continue to operate public non-profit making hospitals, providing healthcare services to the general public, commercial hospitals are given greater flexibility in pricing their services and higher autonomy in operation and administration. To further encourage the development of the private hospital industry, private hospitals enjoy both reductions and exemptions to various taxes during the first three years of operation. The Guidance also encourages hospitals to adopt measures to improve their operational efficiencies and technical capabilities.

As per China’s WTO commitments, “Foreign service suppliers are permitted to establish joint venture hospitals or clinics with local Chinese partners with quantitative limitations in line with China’s needs. Foreign majority ownership is permitted.” In accordance with the “Interim Regulations on Administration of Sino-Foreign Joint Venture and Cooperative Medical Institutions” jointly issued by the Ministry of Health (“MOH”) and the Ministry of Foreign Trade and Economic Cooperation (“MOFTEC”, now called Ministry of Commerce – “MOFCOM”) in 2000, the Chinese party of Sino-foreign joint ventures and cooperative medical institutions shall hold no less than 30% of shares and legal rights or interest, which also mean foreign investors are allowed to hold a maximum stake of 70%. Such regulations also specify that the establishment of Sino-foreign joint venture and cooperative medical institutions should be approved respectively by MOH and MOFCOM. In other words, foreigners are allowed to run hospitals or clinics in the form of equity or co-operative joint ventures with an equity interest up to 70% and duration for co-operation up to 20 years. A private joint-venture healthcare facility in China therefore has the critical advantages of being a private hospital overseas, including clear ownership, flexibility and independence to implement new management practices, and the ability to change prices and services rapidly in response to market demand.

Competition

Despite the emergence of commercial (for-profit) healthcare services, they remain an insignificant portion in terms of total hospitals in China whilst public hospitals continue to account for most of the healthcare services in China. However, it is a different scenario in the OB/GYN sector where private hospitals are playing a more dominant role. In 2006, there were a total of 176 OB/GYN hospitals in China, of which about 30% or 52 hospitals are state-owned whereas the private-owned accounted for about 40% of total or 70 hospitals. United Family Hospitals is one of our close competitors. It is one of the internationally funded and managed facilities in mainland China having small hospitals each of about 50 beds located in Beijing and Shanghai. Besides, there are international clinics in every major urban center of Beijing, Shanghai and Guangzhou. Another competitor, International SOS, has the clinics principally catering the expatriate communities of these cities. Other competitors include Parkway Health Hospital & Clinics, which has a major presence in Shanghai, and Shanghai East International Medical Center which is a joint venture hospital located on the campus of the local Shanghai East Hospital. Joint-venture hospitals in China are mainly high-end players serving foreign employees and their dependents from Europe, Japan, South Korea, Taiwan and Hong Kong.

Sales and Marketing

So far, most hospitals in China still rely heavily on referrals and repeat customers. Having established our “UPMG” brand awareness in China, we have the marketing strategy mainly based on the “Words of Mouth” from our patients, medical professionals and industry expert in terms of three major directions.

1)	Reaching the Right Targets
	We focus on the more affluent peers like high-end community groups, residential clubhouses, chambers of commerce and corporate clients and emphasize value added services like Patient Safety, Customer Service, Help Desk and Healthcare Education.
2)	Membership System
	Membership-based hospitals are very popular among the high-income community in affluent PRC cities like Shanghai. This system helps linking up our prenatal care program, postnatal care program, well women program and well baby program. We offer membership to first-time patients who are then entitled to certain benefits like annual medical checkup and 24-hour house call. Other value-added services include computerized

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	health records, which are accessible on the Internet, hence making them possible to conduct long-distance joint consultation with experts in other parts of the world.
3)	Recruitment of Healthcare Professionals Through Wu Ji Ping Foundation
	The Wu Ji Ping Foundation has an extensive hospital network and great connections with the PRC government officials, which are of great help to recruit high quality medical professionals – an effective means to retain our customers.

Employees

United Premier Medical Group Limited currently has three officers. Siew Man Pang is the chief executive officer, Edwin Chan is the chief financial officer and Dr. Kenneth Lee is the chief operating officer. UPMG also employs a total of 12 employees and consultant in Hong Kong and the PRC, including one deputy project director, three managers, four assistants, three general staff and one consultant. United Premier Medical Group Limited is not a party to any collective bargaining agreement. We believe our relations with the United Premier Medical Group Limited employees are satisfactory.

REPORTS TO SECURITY HOLDERS

We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission and our filings are available to the public over the internet at the Securities and Exchange Commission’s website at http://www.sec.gov. The public may read and copy any materials filed by us with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street N.E. Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-732-0330. The SEC also maintains an Internet site that contains reports, proxy and formation statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read in conjunction with the United Premier Medical Group Limited financial statements and the related notes included herein. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in the section entitled “Risk Factors”.

The United Premier Medical Group Limited financial statements are stated in United States Dollars and are prepared in accordance with United States generally accepted accounting principles.

We were incorporated in the State of Wyoming on February 11, 2005. Since our incorporation, we had been in the business of the exploration and development of a mineral property approximately 1,320 acres in size in north-eastern Ontario. Because we were not successful in implementing our business plan, we considered various alternatives to ensure the viability and solvency of our company.

On January 20, 2008, we entered into a share exchange agreement with United Premier Medical Group Limited, a Cayman corporation, and the shareholders of United Premier Medical Group Limited, a company engaged in the provision of premium medical services in the People’s Republic of China. The share exchange agreement contemplated our company acquiring all of the issued and outstanding common shares in the capital of United Premier Medical Group Limited in exchange for the issuance by our company of 42,658,000 shares of our common stock.

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As of the closing date of the share exchange agreement on July 24, 2008, we have contracts to provide consultancy services to a total of five VIP Birthing Centers in the PRC and to manage a private hospital in Macau. These centers are located in Wuxi (“the Wuxi Center”), Xiamen (“the Xiamen Center”), Changsha (“the Changsha Center”), Foshan (“the Foshan Center”) and Hangzhou (“the Hangzhou Center”). For the Wuxi Center, Xiamen Center and the hospital in Macau, they are operated under our service contracts and regularly paying us a monthly service fee. For the Changsha Center, it is still under our service contracts but the host hospital of this center has stopped paying us since June 2007 but still using the JHI brand name. We have engaged a law firm in the PRC to negotiate with the host hospital for a settlement for the sake of not taking any legal action. For the Foshan Center, it is still operated under our service contract but the host hospital has stopped paying us since October 2006 and no longer using the JHI brand name. We engaged a law firm in the PRC to negotiate with the host hospital for a settlement for the sake of not taking any legal action. For the Hangzhou Center, though our service contract is still valid, we have not been paid since the commencement of its operation. We are identifying a law firm in the PRC to negotiate with its host hospital for a possible settlement. The center in Guangzhou (“the Guangzhou Center”) ceased its operation in March 2007 and our invested assets were sold back to its host hospital. The net receipt of this asset sale amounted to $968,000. For the center in Shanghai (“the Shanghai Center”), we have not been paid since January 2006 and we have taken legal action against the host hospital for breach of contract. The case was accepted by and filed in the Shanghai No.1 Intermediate People’s Court in the PRC on April 10, 2007. Our proposed claim is about $2,900,000 (equivalent to RMB22,600,000). These hospitals stopped paying for our services mainly due to 1) the newly appointed hospital directors who do not honor their predecessors’ contractual commitment with the Company as the case of the Changsha Center and the Shanghai Center; 2) poor sense of contractual commitment of existing hospital management as in the case of the Foshan Center that the host hospital intends to keep all the profits once the knowledge transfer on how to run a successful unit has been essentially completed. We believe these events may negatively impact our net income, but only limited to those non-paid VIP Birthing Centers. However, we seek to minimize this risk for our remaining centers by implementing additional safeguard on intellectual property right while maintaining a strong political and personal relationship with relevant stakeholders. We are currently in dispute with JHI mainly on the fee structure, outstanding fee owing to JHI and use of the “JHI” name in future, and we are actively negotiating with JHI for a possible settlement.

We have devised a five-year business development plan in order to capture substantial market share in China within a short period. This plan follows a proactive pace of acquiring or establishing at least 15 specialty hospitals and 45 satellite health centers in major PRC cities. Our targets include those medium size hospitals each with 30 to 40 patient rooms. The first target region in China will be the more affluent Changjiang Delta Region. The first acquisition will be our model hospital that aims to provide a proven success for future expansion.

Over the next twelve months, we plan to acquire 4 hospitals / health centers. Letters of Intent have been negotiated with a total of 4 acquisitions / management contract across Greater China. These potential targets are currently unrelated to us. We expect to go through at least several rounds of negotiation and the comprehensive due diligent process before closing these deals, which are scheduled to complete within 6 months from now. The due diligent process is considered a necessary process before negotiation the details of acquisition agreements. These acquisitions are typically in the more affluent cities like Beijing, Shanghai, Nanjing and Macau. Such acquisitions will include fully licensed small specialty hospitals each with about 30 to 40 beds as well as established satellite clinics. Additional merger & acquisition targets have been identified for the pipeline and negotiations are ongoing. We intend to finance these acquisitions through private placement to institutional investors. As a result, our future business will typically consist of three major revenue drivers, namely, VIP Birthing Center, Satellite Health Center and Specialty Hospital.

VIP Birthing Center is typically a hotel-style integrated healthcare center consisting of 11 to 30 bedrooms. These centers are specialized in providing premium obstetric and gynecologic services to high-income locals and expatriates in the PRC. We emphasize home-feel facilities and environment, professional clinical services, sophisticated clinical indicators and reviews, high-end customer services, effective pain management and infection control - all of them have attained the stringent U.S. quality standards. More importantly, our customized and personalized services provide much flexibility and allow our patients to choose their own specialty medical services and surgery experts. To ensure service quality, safety and patient privacy, our one-stop services is a continuous flow ranging from ultrasound diagnosis, laboratory analysis to dispensary.

Satellite Health Center provides full scope of premium outpatient services. Strategically, it is better than the VIP Birthing Centers in the sense that we own the operating license of the clinic and hence has full control of revenue received. Such business model can substantially increase the flexibility in utilizing our resources in outpatient services. Besides, it will play an important role in the overall network development of our specialty hospitals by referring patients to specialty hospitals. At the initial stage, we will target a ratio of 1 specialty hospital associated with 3 satellite health centers.

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Specialty Hospital Chain refers to a chain of medium size hospitals in the PRC providing specialty healthcare services primarily for women and children. For the coming years, we target to acquire about 15 hospitals, each having 30 to 40 bedrooms in size, and convert them into specialty hospitals with outpatient services, inpatient services and minor surgery services principally in the categories of Obstetrics, Gynecology, Pediatrics, Urology and Infertility.

Services provided by our VIP Birthing Centers, Specialty Hospitals and Satellite Health Centers are summarized as follow:

Services of VIP Birthing Center:

Services of Specialty Hospital:

Services of Satellite Health Center:

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Significant Accounting Policies

Method of Accounting

The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

Basis of Consolidation

The consolidated financial statements include the accounts of United Premier Medical Group Limited (“UPMG) and its consolidated subsidiaries. UPMG wholly owns UPMGI, which in turn directly holds 12 wholly-own subsidiaries and indirectly holds 4 subsidiaries including HB-GZ (100% in equity interest), BK-SH (90% in equity interest), UBK-SZ (100% in equity interest) and UPMG-MU (50% in equity interest). Besides, UPMG holds 51% in equity interest of PHL, which in turn, wholly owns two direct subsidiaries and holds 62% in equity interest of UPMGIG, which in turn wholly owns UPMGGC. All of the UPMG subsidiaries are included in the consolidated financial statements. Inter-company transactions, such as due to/due from balances, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These estimates and assumptions include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation of useful lives of property, plant, and equipment. Actual results could differ from these estimates.

Revenue Recognition

The Company’s revenues are derived from its share of operating profit from VIP Birthing Centers at hospitals where it has invested in capital equipment, leasehold improvements, and human capital in the form of technical training for hospital staff. The Company’s share of operating profit from the VIP Birthing Centers depends upon the contractual terms with each hospital. The typical share of operating profit ranges between 70% and 80% of the total operating profit of the VIP Birthing Center. Financial statements are provided by the hospitals each month to the Company for review, verification, and approval. When the financial statements of the VIP Birthing Centers have been approved, the Company recognizes revenue by recording its portion of the total operating profit to its financial statements. Revenues that have been both recognized in accordance to their respective contracts and financial statements provided by the hospitals can be reasonably expected to be collectible.

Cost of Revenue

Cost of revenue is primarily comprised of depreciation, wages, and licensing fees that must be paid to JHI for facilities with continuing operation. The Company believes that the depreciation of property and equipment matches the substantial initial investment equipment and leasehold improvements with revenues that are earned overtime. The Company charges wages paid to doctors and medical personnel who provide the initial training and hospital management expertise to the hospital when the VIP Birthing centers are initially setup and on a non-fixed on-going basis.

Selling and Marketing Expenses

Selling expenses are comprised of client entertainment, commissions and salaries for sales personnel, marketing, and travel and lodging expenses. Selling and marketing expenses are charged to expense as incurred.

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General & Administrative Expenses

General and administrative expenses include outside consulting services, research & development, executive compensation, quality control, and general overhead such as finance and administrative staff, and depreciation expense. They are charged to expense as incurred.

Comprehensive Income

The Company has adopted SFAS 130, “Reporting Comprehensive Income”, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

Foreign Currency Translation

The Company maintains its financial statements in the functional currency, which is the Renminbi (RMB). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is Hong Kong dollars (“HK$”). Equity accounts of the consolidated financial statements are translated into United States dollars from HK$ at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. Translation adjustments are not included in determining net income but are included in foreign currency translation adjustment in other comprehensive income, a component of stockholders’ equity.

Share-based Compensation / Share Option Expenses

Given that UPMG is a private company, UPMG estimates fair value of its common shares based on the number of shares granted and the subscription price of UPMG's common shares to its investors on the date of grant after the adjustments for factors such as lack of marketability and lack of control. The fair value of share options is estimated based on the fair value of UPMG’s share. Share compensation expense recognized is based on awards expected to vest, and there were no estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

Income Taxes

The Company uses the accrual method of accounting to determine and report its taxable income for the year. The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The Company also adopted FIN 48, Accounting for Uncertainty in Tax Positions.

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Income tax liabilities computed according to the United States, People’s Republic of China (PRC), Hong Kong SAR and Macau SAR laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be taxable or deductible when the assets and liabilities are recovered of settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes. A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

Segment Reporting

UPMG currently operates in one operating segment in accordance with the provisions of SFAS 131. The only operating segment of UPMG refers to the provision of consultancy services to the VIP Birthing Centers in the PRC.

Cash and Cash Equivalents

The Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. Management regularly reviews the Company’s outstanding receivables balance, and will provide allowance for doubtful accounts based on its assessment. Bad debts are charged against allowances when outstanding receivables have been determined to be uncollectible.

Fair Value of Financial Instruments

UPMG's financial instruments include cash and cash equivalents, accounts receivable, prepayments, deposits, other receivables, due from directors, short-term loan, accrued expenses, accounts payables, other payables and due to directors. Management has estimated that the carrying amount approximates their fair value due to their short-term nature or long-term debt interest rates approximate the current market rates.

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Equipment

Property and equipment are stated at cost less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation of equipment is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the equipment are as follows:

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to the statement of operations as incurred, whereas significant renewals and betterments are capitalized.

Goodwill

Goodwill is accounted for in accordance with the provisions of SFAS 142, "Goodwill and Other Intangible Assets" (“SFAS 142”). Under SFAS 142, goodwill, including any goodwill included in the carrying value of investments accounted for using the equity method of accounting, and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and such indefinite-lived intangible assets are assessed for impairment at least annually based on comparisons of their respective fair values to their carrying values.

Earnings per Share

The Company computes earnings per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a net loss of $1,218,980 and a cash outflow from operations of $828,656 for the period ended September 30, 2007 and a working capital deficiency of $3,676,602 and a shareholders’ deficit of $13,208,262 at September 30, 2007. These matters raise substantial doubt about the Company’s ability to continue as a going concern if the Company does not secure new outside financing. The Company is currently and continues to make efforts to procure outside financing to strengthen its financial position.

We will need to obtain additional financing to fund our cash needs and continue our operations beyond September 2008. Additional financing, whether through public or private equity or debt financing, arrangements with stockholders or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us. Our ability to maintain sufficient liquidity is dependent on our ability to raise additional capital. If we issue additional equity securities to raise funds, the ownership percentage of our existing shareholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing shareholders of our common stock. Debt incurred by us would be senior to equity in the ability of debt holders to make claims on our assets. The terms of any debt issued could impose restrictions on our operations. If adequate funds are not available to satisfy either medium or long-term capital requirements, our operations and liquidity could be materially adversely affected

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and we could be forced to cut back our operations.

Economic and Political Risks

UPMG's operations are conducted in the PRC. Accordingly, UPMG's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. UPMG's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. UPMG's results may be adversely affected by changes in the political, economic and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standard Board ("FASB") issued SFAS 157, "Fair Value Measurements" (“SFAS 157”), which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007 and to interim periods within those fiscal years. UPMG is currently in the process of evaluating the effect, if any, the adoption of SFAS 157 will have on its consolidated results of operations, financial position, or cash flows.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007. The adoption of the provisions of SFAS 159 is not expected to have a material effect on UPMG's consolidated financial statements.

In December 2007, the FASB issued SFAS 141R, "Business Combinations" ("SFAS 141R"). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, the goodwill acquired, and any non-controlling interest in the acquiree. This statement also establishes disclosure requirements to enable the evaluation of the nature and financial effect of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008.

In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements --an amendment of ARB 51" ("SFAS 160"). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We have evaluated the provisions of SFAS 160 and the guidance will not have an impact on UPMG's financial condition or results of operations.

In March 2008, the FASB issued Statement of Financial Accounting Standard 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133" ("SFAS 161"). SFAS 161 amends and expands the disclosure requirements of FASB Statement 133 with the intent to provide users of financial statement with an enhanced understanding of (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and the related hedged items are accounted for under FASB Statement 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect and entity's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for years and interim periods beginning after November 15, 2008. The effect of adopting SFAS 161 is not expected to have a significant effect on our reported financial position or results of operations.

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Results of Operations

For the Fiscal Year Ended September 30, 2007 as compared to the Fiscal Year Ended September 30, 2006

								Increase /
		2007			2006			(Decrease) in			Percentage
		(Audited)			(Audited)			Amount			Change			2007			2006
		$			$			$			(%)			(%)			(%)
Revenue		570,217			157,999			412,218			260.90%			100.00%			100.00%
Gross profit		418,033			61,708			356,325			577.44%			73.31%			39.06%
Operating expenses		(945,463	)		(2,897,522	)		1,952,059			-67.37%			-165.81%			-1833.89%
Other income (expenses)		(1,550,444	)		(970,675	)		(579,769	)		59.73%			-271.90%			-614.36%
Provision for income tax		(20,510	)		(4,716	)		(15,794	)		334.90%			-3.60%			-2.98%
Minority interest in net income		499,950			(152,555	)		652,505			-427.72%			87.68%			-96.55%
Gain (loss) from discontinued operations, net of taxes		379,454			(1,994,966	)		2,374,420			-119.02%			66.55%			-1262.64%
Net income (loss)		(1,218,980	)		(5,958,725	)		4,739,745			-79.54%			213.77%			-3771.37%

Revenue

The Company’s revenues are derived from its share of operating profit from VIP Birthing Centers at hospitals where it has invested in capital equipment, leasehold improvements, and human capital in the form of technical training for hospital staff. The Company’s share of operating profit from the VIP Birthing Centers depends upon the contractual terms with each hospital. The typical share of operating profit ranges between 70% and 80% of the total operating profit of the VIP Birthing Center. Revenue for the year ended September 30, 2007 was $570,217. Revenue for the year ended September 30, 2006 was $157,999. The increase in revenue of $412,218 for the year ended September 30, 2007 was primarily due to the increase in income attributable to improved performance in terms of the number of inpatient and outpatient visits of the VIP Birthing Center in Wuxi and Xiamen, the PRC. The performance of inpatient revenue is usually indicated by the bed use rate. Bed use rate is defined as the number of bed days occupied by inpatients in a year divided by the total number bed days available in that year. For the VIP Birthing Center in Xiamen, the bed use rate increased steadily over the past months from 44% in November 2006 to 72% in September 2007.For the VIP Birthing Center in Wuxi, the bed use rate increased steadily from 52% in November 2006 to 80% in September 2007.

Cost of Revenue

Cost of revenue is primarily comprised of depreciation, wages, and licensing fees that must be paid to JHI for facilities with continuing operation. The Company believes that the depreciation of property and equipment matches the substantial initial investment equipment and leasehold improvements with revenues that are earned overtime. The Company charges wages paid to doctors and medical personnel who provide the initial training and hospital management expertise to the hospital when the VIP Birthing centers are initially setup and on a non-fixed on-going basis. Some costs in 2007 were classified as cost of revenue. These involved the cost of trading baby beds and the minimum guarantee amount incurred in our VIP Birthing Center in Wuxi, the PRC. Cost of revenue for the year ended September 30, 2007 was $152,184 whilst there was $96,291 cost of revenue for the year ended September 30, 2006.

Operating Expenses

UPMG operating expenses mainly represent general and administrative expenses, selling and marketing expenses. Operating expenses for the year ended September 30, 2007 were $945,463. Operating expenses for the year ended September 30, 2006 were $2,897,522. The decrease in operating expenses of $1,952,059 for the year ended

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September 30, 2007 as compared to 2006 was primarily due to the significant decrease in selling and marketing expenses and consultancy fees in 2007.

General and administrative expenses mainly include staff salaries and allowances, consultancy fees and professional fees. General and administrative expenses for the year ended September 30, 2007 were $794,663. General and administrative expenses for the year ended September 30, 2006 were $2,364,278. The decrease in administrative expenses of $1,569,615 for the year ended September 30, 2007 as compared to 2006 was primarily due to the decrease in staff salaries and allowance and consultancy fees in 2007.

Selling and marketing expenses for the year ended September 30, 2007 was $150,800. Selling and marketing expenses for the year ended September 30, 2006 was $533,243. The decrease in selling and marketing expenses of $382,443 for the year ended September 30, 2007 as compared to 2006 was primarily due to absence of license fees and service fees as well as the decrease in traveling expense in 2007.

Income Tax

Corporation Income Tax (“CIT”)

In accordance with the relevant tax laws and regulations of Hong Kong, the CIT rate applicable to the subsidiaries of UPMG in Hong Kong is 17.5% of taxable income. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (“the “New CIT Law”), effective from January 1, 2008. Under the New CIT Law, the corporate income tax rate applicable to the subsidiaries of UPMG in the PRC starting from January 1, 2008 is 25%, replacing the currently applicable tax rate of 33%. The New CIT Law has an impact on the deferred tax assets and liabilities of UPMG. Effects arising from the enforcement of New CIT law have been reflected into the accounts by using new tax rate.

Business Tax (“BT”)

Enterprises or individuals who provide services in the PRC are subject to a service tax in accordance with the PRC laws. The standard rate of BT is 5% of the gross revenue. The BT was included in cost of service in the accompanying consolidated statements of operations and income.

Minority Interest

BK-SH is a subsidiary directly held 90% in common shareholding by PME-HK. The financials of BK-SH have been consolidated under the financial statements of UPMG whereas the 10% common shareholding held by a third party is classified as a minority interest of UPMG. UPMG-MU is a subsidiary directly held 50% in common shareholding by UPMG-HK. The financials of UPMG-MU have been consolidated under the financial statements of UPMG whereas the 50% common shareholding held by a third party is classified as a minority interest of UPMG. PHL is a subsidiary directly held 51% in common shareholding by UPMG. The financials of PHL have been consolidated under the financial statements of UPMG whereas the 49% common shareholding held by a third party is classified as a minority interest of UPMG. UPMGIG is a subsidiary directly held 62% in common shareholding by PHL. The financials of UPMGIG have been consolidated under the financial statements of UPMG whereas the 38% common shareholding held by a third party is classified as a minority interest of UPMG. Minority interest for the year ended September 30, 2007 recorded a gain of $499,950 whereas minority interest for the year ended September 30, 2006 recorded a loss of $152,555. The increase in gain of minority interest was primarily due to the increase in shared loss of our subsidiaries by minority shareholders.

Net Loss Attributable to Common Shareholders

For the year ended September 30, 2007, the Company incurred a net loss attributable to common shareholders of $1,218,980. The loss was primarily due to the substantial administrative expenses and the dividends paid to the convertible preference share holders. For the year ended September 30, 2006, the Company incurred a loss of $5,958,725. The loss was primarily due to the substantial operating expenses in administration, selling and marketing as well as the dividends paid to the convertible preference share holders.

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Results of Operations for the Three-Month Periods Ended June 30, 2008 as compared to the Three-Month Periods Ended June 30, 2007

		Three months ended June 30,			Increase (Decrease)
		2008			2007			Amount			Percentage
		($)			($)			($)			(%)
		(Unaudited)			(Unaudited)
Revenue	$	127,482		$	198,526		$	(71,044	)		-35.79%
Gross profit		79,901			161,937			(82,036	)		-50.66%
Other income (expenses)		(51,889	)		84,683			(136,572	)		-161.27%
Operating expenses		(121,558	)		(356,637	)		235,079			-65.92%
Provision for income tax		(7,402	)		1,699			(9,101	)		-535.67%
Minority interests in net income (loss) of subsidiaries		7,796			(27,163	)		34,959			-128.70%
Gain (loss) from discontinued operations		-			331,812			(331,812	)		na
Net loss attributable to common shareholders	$	(93,152	)	$	(135,747	)	$	42,595			-31.38%

Revenue

The Company’s revenues are derived from its share of operating profit from VIP Birthing Centers at hospitals where it has invested in capital equipment, leasehold improvements, and human capital in the form of technical training for hospital staff. The Company’s share of operating profit from the VIP Birthing Centers depends upon the contractual terms with each hospital. The typical share of operating profit ranges between 70% and 80% of the total operating profit of the VIP Birthing Center. Financial statements are provided by the hospitals each month to the Company for review, verification, and approval. When the financial statements of the VIP Birthing Centers have been approved, the Company recognizes revenue by recording its portion of the total operating profit to its financial statements. Revenues that have been both recognized in accordance to their respective contracts and financial statements provided by the hospitals can be reasonably expected to be collectible.

Revenue for the three-month period ended June 30, 2008 was $127,482. Revenue for the three-month period ended June 30, 2007 was $198,526. The decrease in revenue of $71,044 for the three-month period ended June 30, 2008 was primarily due to the (i) absence of revenue contribution from the Changsha Center, (ii) revised management fee of the Macau Center, and (iii) absence of a non-recurrent income from trading of baby beds as incurred in 2007. The Changsha Center had ceased paying us service fee since June 2007 and we agreed to revise the monthly service fee of the Macau Center from about $12,820 (equivalent to HK$100,000) to about $5,128 (equivalent to HK$40,000) effective from June 2007.

Cost of Revenue

Cost of revenue is primarily comprised of depreciation, wages, and licensing fees that must be paid to JHI for facilities with continuing operation. The Company believes that the depreciation of property and equipment matches the substantial initial investment equipment and leasehold improvements with revenues that are earned overtime. The Company charges wages paid to doctors and medical personnel who provide the initial training and hospital management expertise to the hospital when the VIP Birthing centers are initially setup and on a non-fixed on-going basis. Cost of revenue for the three-month period ended June 30, 2008 was $47,581 whilst cost of revenue for the three-month period ended June 30, 2007 was $36,589.

Selling Expenses

Selling expenses are comprised of client entertainment, commissions and salaries for sales personnel, marketing, and travel and lodging expenses. Selling and marketing expenses for the three-month period ended June 30, 2008 were $25,005. Selling and marketing expenses for the three-month period ended June 30, 2007 were $34,288. The

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decrease in selling expenses of $9,283 for the three-month period ended June 30, 2008 as compared to 2007 was primarily due to the decrease in travel expenses related to business development

General and Administrative Expenses

General and administrative expenses include outside consulting services, research & development, executive compensation, quality control, and general overhead such as finance and administrative staff, and depreciation expense. General and administrative expenses for the three-month period ended June 30, 2008 were $96,553. Administrative expenses for the three-month period ended June 30, 2007 were $322,349. The decrease in administrative expenses of $225,796 for the three-month period ended June 30, 2008 as compared to 2007 was primarily due to the decrease in consultancy fees and professional fees.

Income Tax

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either, expire before the Company is able to realize their benefits, or future realization is uncertain. In accordance with the relevant tax laws and regulations of Hong Kong, the Corporate Income Tax (“CIT”) rate applicable to our subsidiaries in Hong Kong is 17.5% of taxable income. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”), effective from January 1, 2008. Under the new CIT Law, the corporate income tax rate applicable to our subsidiaries in the PRC starting from January 1, 2008 will be 25%, replacing the currently applicable tax rate of 33%. We recorded income tax expense amounted to $7,402 for the three-month period ended June 30, 2008 and income tax gain $1,699 for the three-month period ended June 30, 2007. The income tax gain in 2007 was primarily due to over provision in previous quarters.

Minority Interest

Minority interest for the three-month period ended June 30, 2008 recorded an income of $7,796 whereas minority interest for the three-month period ended June 30, 2007 recorded a loss of $27,163. The increase in minority interest of $34,959 for the three-month period ended June 30, 2008 was primarily due to the absence of shared loss in the Guangzhou Center.

Net Loss Attributable to Common Shareholders

For the three-month period ended June 30, 2008, the Company incurred a net loss attributable to common shareholders of $93,152. The loss was primarily due to the decrease in revenue. For the three-month period ended June 30, 2007, the Company incurred net loss of $135,747. The loss was primarily due to the dividends paid to convertible preferred share holders.

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Results of Operations for the Nine-Month Periods Ended June 30, 2008 as compared to the Nine-Month Periods Ended June 30, 2007

		Nine months ended June 30,			Increase (Decrease)
		2008			2007			Amount			Percentage
		( $ )			( $ )			( $ )			( % )
		(Unaudited)			(Unaudited)
Revenue	$	358,959		$	542,364		$	(183,405	)		-33.82%
Gross profit		220,433			407,502			(187,069	)		-45.91%
Operating expenses		(2,234,505	)		(1,023,973	)		(1,210,532	)		118.22%
Other income (expenses)		(75,059	)		40,536			(115,595	)		-285.17%
Provision for income tax		(26,444	)		(175	)		(26,269	)		15010.86%
Minority interests in net income (loss)		15,817			(22,598	)		38,415			-169.99%
Gain (loss) from discontinued operations, net of taxes		-			313,385			(313,385	)		-100.00%
Net loss attributable to common shareholders	$	(2,248,082	)	$	(1,073,133	)	$	(1,174,949	)		109.49%

Revenue

The Company’s revenues are derived from its share of operating profit from VIP Birthing Centers at hospitals where it has invested in capital equipment, leasehold improvements, and human capital in the form of technical training for hospital staff. The Company’s share of operating profit from the VIP Birthing Centers depends upon the contractual terms with each hospital. The typical share of operating profit ranges between 70% and 80% of the total operating profit of the VIP Birthing Center. Financial statements are provided by the hospitals each month to the Company for review, verification, and approval. When the financial statements of the VIP Birthing Centers have been approved, the Company recognizes revenue by recording its portion of the total operating profit to its financial statements. Revenues that have been both recognized in accordance to their respective contracts and financial statements provided by the hospitals can be reasonably expected to be collectible.

Revenue for the nine-month period ended June 30, 2008 was $358,959. Revenue for the nine-month period ended June 30, 2007 was $542,364. The decrease in revenue of $183,405 for the nine-month period ended June 30, 2008 was primarily due to the (i) absence of revenue contribution from the Changsha Center, (ii) revised management fee of the Macau Center, and (iii) absence of a non-recurrent income from trading of baby beds as incurred in 2007. The Changsha Center had ceased paying us service fee since June 2007 and we agreed to revise the monthly service fee of the Macau Center from about $12,820 (equivalent to HK$100,000) to about $5,128 (equivalent to HK$40,000) effective from June 2007.

Cost of Revenue

Cost of revenue is primarily comprised of depreciation, wages, and licensing fees that must be paid to JHI for facilities with continuing operation. The Company believes that the depreciation of property and equipment matches the substantial initial investment equipment and leasehold improvements with revenues that are earned overtime. The Company charges wages paid to doctors and medical personnel who provide the initial training and hospital management expertise to the hospital when the VIP Birthing centers are initially setup and on a non-fixed on-going basis. Cost of revenue for the nine-month period ended June 30, 2008 was $138,526 whilst cost of revenue for the nine-month period ended June 30, 2007 was $134,862.

Selling Expenses

Selling expenses are comprised of client entertainment, commissions and salaries for sales personnel, marketing, and travel and lodging expenses. Selling and marketing expenses for the nine -month period ended June 30, 2008 were $107,124 . Selling and marketing expenses for the nine-month period ended June 30, 2007 were $127,715. The decrease in selling expenses of $20,591 for the nine-month period ended June 30, 2008 as compared to 2007 was

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primarily due to the decrease in travel expenses related to business development

General and Administrative Expenses

General and administrative expenses include outside consulting services, research & development, executive compensation, quality control, and general overhead such as finance and administrative staff, and depreciation expense. General and administrative expenses for the nine-month period ended June 30, 2008 were $2,127,381 . Administrative expenses for the nine-month period ended June 30, 2007 were $896,258. The increase in administrative expenses of $1,231,123 for the nine-month period ended June 30, 2008 as compared to 2007 was primarily due to the increase in consultancy fees and professional fees.

Income Tax

The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either, expire before the Company is able to realize their benefits, or future realization is uncertain. In accordance with the relevant tax laws and regulations of Hong Kong, the Corporate Income Tax (“CIT”) rate applicable to our subsidiaries in Hong Kong is 17.5% of taxable income. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”), effective from January 1, 2008. Under the new CIT Law, the corporate income tax rate applicable to our subsidiaries in the PRC starting from January 1, 2008 will be 25%, replacing the currently applicable tax rate of 33%. We recorded income tax expense amounted to $26,444 and $175 for the nine-month periods ended June 30, 2008 and 2007 respectively. The increase in income tax expense of $26,269 for the nine-month period ended June 30, 2008 was primarily due to the increase in business tax in 2008 and over provision in 2007.

Minority Interest

Minority interest for the nine-month period ended June 30, 2008 recorded an income of $15,817 whereas minority interest for the nine-month period ended June 30, 2007 recorded a loss of $22,598. The increase in minority interest of $38,415 for the nine-month period ended June 30, 2008 was primarily due to the absence of shared loss in the Guangzhou Center

Net Loss Attributable to Common Shareholders

For the nine-month period ended June 30, 2008, the Company incurred a net loss attributable to common shareholders of $2,248,082 . The loss was primarily due to the decrease in revenue and the increase in general and administrative expenses. For the nine-month period ended June 30, 2007, the Company incurred a net loss attributable to common shareholders of $1,073,133. The loss was primarily due to the dividends paid to the convertible preference shareholders.

Liquidity and Capital Resources

For the year ended September 30, 2007, the Company funded its operations mainly through two aspects 1) cash generated from its operations, and 2) cash proceeds from issuance of securities such as preferred stock. Cash from operations is only enough to fund its onsite personnel. The sale of preferred stock has providing the funding for the Company’s investment in capital expenditures, and the cost of medical and management expertise that are heavily involved in the early stages of building out the VIP Birthing Centers and training of the personnel that staff those VIP Birthing Centers. For the year ended September 30, 2006, the Company financed its mainly through issuance of securities such as preferred stock.

The Company expects that with the expansion into new markets and development of its business model, it can gain economies scale on its heavy investment medical and hospital management experts. Related parties and directors have also provided the working capital during the most recent operating periods in order to maintain the business a

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going concern. The Company is actively seeking external financing to strengthen its financial position.

As of the date of this report, the Company has not experienced any difficulty in equity financing, and we have not experienced any liquidity problems in settling our payables in the normal course of business and paying dividends to our convertible preference shareholders when they fall due.

The following table sets forth the summary of the Company’s cash flows for the periods indicated:

		Year Ended Sep 30,			Nine Months Ended Jun 30,
		2007			2006			2008			2007
		(Audited)			(Audited)			(Unaudited)			(Unaudited)
Net cash used in operating activities	$	(828,656	)	$	(5,456,903	)	$	(761,422	)	$	( 811,018	)
Net cash provided by (used in) investing activities		942,798			1,491,967			(11,835	)		932,034
Net cash provided by financing activities		432,871			4,202,345			413,334			346,418
Net increase (decrease) in cash and cash equivalents		547,013			237,409			(359,923	)		467,434
Cash and cash equivalents, beginning of year		35,513			25,176			406,396			32,672
Effect of exchange rate changes on cash and cash equivalents		(165,821	)		(227,072	)		(37,069	)		56,595
Cash and cash equivalents, at end of year	$	416,705		$	35,513		$	9,404		$	556,701

As at June 30, 2008, UPMG had $9,404 in cash and cash equivalents and a working capital deficiency of $5,824,423 compared to $556,701 in cash and cash equivalents and a working capital deficiency of 3,833,088 as of June 30, 2007.

Cash Flows from Operating Activities

For the year ended September 30, 2007 the Company’s operating activities used cash of $828,656 . For the year ended September 30, 2006, the Company’s operating activities used cash of $5,456,903 . The decrease in cash used in operating activities of $4,628,247 for the year ended September 30, 2007 was primarily due to the decrease in net loss, the decrease in impairment of assets and the increase in accrued expenses.

For the nine months ended June 30, 2008 the Company’s operating activities used cash of $761,422. For the nine months ended June 30, 2007, the Company’s operating activities used cash of $811,018. The decrease in cash used in operating activities of $49,596 for the nine months ended June 30, 2008 was primarily due to the improvement in collection of overall accounts receivable that resulted in a decrease in accounts receivable.

Cash Flows from Investing Activities

For the year ended September 30, 2007 investing activities generated cash of $942,798. For the year ended September 30, 2006 investing activities generated cash of $1,491,967. The decrease in cash generated in investing activities of $549,169 for the year ended September 30, 2007, was primarily due to the decrease in proceeds from the disposals of equipment and disposal of discontinued operation.

For the nine months ended June 30, 2008 the Company’s investing activities used cash of $11,835. For the nine months ended June 30, 2007, the Company’s investing activities generated cash of $932,034. The decrease in cash generated in investing activities of $943,869 for the nine months ended June 30, 2008 was primarily due to the absence of proceeds from disposals of assets.

Cash Flows from Financing Activities

For the year ended September 30, 2007, financing activities generated cash of $432,871. For the year ended

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September 30, 2006 financing activities generated cash of $4,202,345. The decrease in cash generated in financing activities of $3,769,474 for the year ended September 30, 2007, was primarily due to decrease in proceeds from issuance of convertible preferred shares, sales and subscription of common shares.

For the nine months ended June 30, 2008, the Company’s financing activities generated cash of $413,334. For the nine months ended June 30, 2007, the Company’s financing activities generated cash of $346,418. The increase in cash generated in financing activities of $66,916 for the nine months ended June 30, 2008 was primarily due to the decrease in dividends paid to convertible preferred share (CPS) holders.

The Company does not expect any more cash payment or accrued payment for dividends in near term as the majority of the CPS has been converted.

Working Capital

During the period from June 20, 2007, to January 25, 2008, Innotech loaned a total of $1,670,000 (equivalent to HK$13,000,000) to UPMG for use as working capital and the original repayment date was June 22, 2008. Pursuant to an agreement dated April 29, 2008 signed between Innotech and UPMG for the extension of loan repayment, it is agreed that repayment of full amount of the above-mentioned loans is extended as scheduled below, and hence we believe there is no repayment pressure in the short run.

Date of Loan Agreement	Loan Amount ($)	Original Repayment Date	New Repayment Date
June 20, 2007	$772,777 (HK$6,000,000)	June 22, 2008	June 22, 2009
January 10, 2008	$384,615 (HK$3,000,000)	January 9, 2009	July 9, 2009
January 25, 2008	$512,820 (HK$4,000,000)	January 24, 2009	July 24, 2009

UPMG’s working capital deficiency increased by $715,394 to $3,676,602 at September 30, 2007, as compared to $2,961,208 at September 30, 2006, primarily due to the increase in dividend payable to convertible preferred share holders and the increase in the loan from related parties including the directors of the Company and Innotech.

Capital Expenditures

No capital expenditure was incurred during the years ended September 30, 2006 and 2007 Depending the availability of equity financing, over the next twelve months, we expect to spend about $5,500,000 on capital expenditures, mainly for purchase of medical equipment, facilities and operating licenses and center renovation in the future acquisition of specialty hospitals, health centers and VIP birthing centers in the PRC.

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QUANTITATIVE AND QUALIATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

UPMG exposure to interest rate risk for changes in interest rates relates primarily to the interest expense incurred by the related-party loans and the interest income generated by the loans to our related parties or bank deposits. We have not used any derivative financial instruments in our investment portfolio or for cash management purposes. Interest-earning instruments carry a degree of interest rate risk. UPMG has not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future interest expense or interest income may increase of expectations due to changes in interest rates in the PRC.

Foreign Exchange Risk

UPMG does not hold any derivative instruments and do not engage in any hedging activities. Since most of our purchases and sales are made in Renminbi (“RMB”), any exchange rate change affecting the value of the RMB relative to the United States dollar (“U.S. dollar”) could have an effect on our financial results as reported in the U.S. dollars. Were the RMB to depreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly increased.

Off-Balance Sheet Arrangements

UPMG has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to shareholders.

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DESCRIPTION OF PROPERTY

Our principal office is located at T Plaza Center, Suite 400, 15950 North Dallas Parkway, Dallas. Our telephone number is (972) 361-8033. Our principal office is held under a one year lease to expire on August 2009. We rent this office space at a cost of $95 per month plus administrative expenses. We believe that the condition of our principal office is satisfactory, suitable and adequate for our current needs.

We also maintain our office in Hong Kong at Room 904, Tung Wai Commercial Building, 109 – 111 Gloucester Road, Wan Chai, Hong Kong. Our telephone number is (852) 2511-8008. Our Hong Kong office is held under a lease with a term from August 1, 2008 to June 15, 2009 with rent of HK$30,000 per month.

UPMG also holds the following property interests:

Location	Tenant	Term of Lease	Rent
Room 1505, Block A, Hui Ya Garden 251 Tian He Bie Road, Tian He District, Guangzhou, PRC	Guangzhou Inno-Proactive Medicare Consultancy Limited	July 1, 2004 – June 30, 2006	RMB5,300 per month
Flat 5M-5O, Block A, Cai Fu Square 7060 Shen Nam Da Road, Fu Tian District Zhenzhen, PRC	UPMG (US) Limited	July 20, 2005 – July 20, 2007	RMB2,500 per month
Room 3C2, Dian Wu Zhoung He Lou Jian Yi Zhi Street, Tian Shou Road Tian He District, Guangzhou, PRC	Guangzhou Inno-Proactive Medicare Consultancy Limited	June 16, 2007 – June 15, 2008	RMB1,980 per month
Building 16, 302, Ding Xiang Apartment 800 Hua Shan Road Shanghai, PRC	Guangzhou Inno-Proactive Medicare Consultancy Limited	June 16, 2007 – June 15, 2008	RMB7,500 per month
Room 1204, Tung Wai Commercial Building, 109-111 Gloucester Road, Wanchai, HK	Proactive Medicare Enterprise (Hong Kong) Limited	January 1, 2008 – December 31, 2008	$2,275 per month

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Shareholders

The following table sets forth, as of December 19, 2008, certain information with respect to the beneficial ownership of our common shares by each shareholder known by us to be the beneficial owner of more than 5% of our common shares, as well as by each of our current directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.

Name and Address of Beneficial Owner	Title of Class	Amount and Nature of Beneficial Ownership	Percentage of Class (1)
Andrew B. Kramer 622 Third Avenue 32nd Floor New York, NY 10017	Common Share	262,000	0.52%
Wong Yuen Yee Flat E, 12/F, Monticello, 48 Kennedy Road, Wanchai, Hong Kong	Common Share	1,287,587	2.57%
Wong Yao Wing Flat 27D, Blk 4, Tolo Place, Ma On Shan, Shatin, N.T. Hong Kong	Common Share	1,231,175	2.46%
Siew Man Pang 23F, Blk 43, Baguio Villa, 550 Victoria Rd., Pokfulam, Hong Kong	Common Share	314,000	0.63%
Edwin Chan 40A, Tower 7, Discovery Park, Tsuen Wan, Hong Kong	Common Share	Nil	0%
Kenneth Lee International City, Building 3, Suite 2101, 1501 Zhang Yang Road, Shanghai, PRC	Common Share	Nil	0%
Directors and Executive Officers as a Group	Common Share	3,094,762	6.17%
Autoscale Resource Ltd. Rm 903, Tung Wai Commercial Building 109 – 111 Gloucester Road Wan Chai, Hong Kong	Common Share	12,000,000	23.9%
Gerald W. Williams 5728 – 125A Street Surrey, BC V3X 3G8	Common Share	4,000,000	7.8%

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*	Less than one percent of issued and outstanding common shares.
(1)	Based on 50,148,000 shares of common stock issued and outstanding as of December 19, 2008. Except as otherwise indicated, we believe that the beneficial owners of the common shares listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following individuals serve as the directors and executive officers of our company effective on closing of the acquisition of UPMG. All directors of our company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

Name	Position Held with Our Company	Age	Date First Elected or Appointed
Siew Man Pang	Chief Executive Officer	58	October 1, 2008
Edwin Chan	Chief Financial Officer	43	July 24, 2008
Kenneth Lee	Chief Operating Officer	46	July 24, 2008
Wong Yuen Yee	Director	46	July 24, 2008
Wong Yao Wing	Director	50	July 24, 2008
Andrew B. Kramer	Director	46	July 24, 2008

Effective October 1, 2008, Mr. Henry J. Macfarland resigned as our Chief Executive Officer. As a result of Mr. Macfarland’s resignation on October 1, 2008, we appointed Mr. Siew Man Pang as our Chief Executive Officer.

Business Experience

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

Siew Man Pang, MHA – Chief Executive Officer

Mr. Pang has over 30 years of senior management experience in the healthcare industries of Hong Kong, China, Australia, Singapore and Malaysia. Mr. Pang was most recently the Group Executive Director of Health

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Management International Limited, a Singapore-listed regional healthcare service and education provider. Mr Pang was the Executive Director and Senior Vice President of United Premier Medical Group (UPMG). Before that, he was the Director of Medical Services of ChinaCare Investments Holdings Ltd, a company specializing in innovative investments in the China’s healthcare market. Prior to ChinaCare, Mr. Pang was the Executive Director of Quality HealthCare Asia Ltd (QHA), the first public-listed healthcare services company in the main board of the Hong Kong Stock Exchange (Stock No. 593), and Chairman and Chief Executive of its Managed Care division, Quality HealthCare Medical Services Ltd. From 1990 to 1998, Mr. Pang was the Chief Development Officer and Deputy Director of the Hong Kong Hospital Authority. He was recruited from Australia by the then newly formed Authority to help integrate and reform the 45 Government and Government-subvented hospitals to better serve the changing healthcare needs of the people of Hong Kong.

Mr. Pang obtained his B.SC, Master of Health Administration and Business Computing degrees from Australia and senior management training at Stanford University. Currently he is a trained surveyor on healthcare facilities accreditation of the Australian Council on Healthcare Standards, a national accreditation body of Australia.

Kenneth Lee, M.D., Chief Operating Officer

Dr. Kenneth Lee has over 17 years of experience working in various sectors of the healthcare industry in the United States, mainland China and Macao. Prior to his current position, he was the Chief Operating Officer of the University Hospital of Macau University of Science and Technology Foundation. Before joining United Premier Medical Group, he was the founder and Chief Executive Officer of American-Sino Human Resources Internationalization and Consulting, Ltd, a PRC wholly foreign-owned enterprise. He also served as Medical Director of Huashan Hospital American-Sino OB/GYN Services (ASOG) in Shanghai and Senior Management Consultant for ASOG in Beijing. Prior to moving to China, he was the Regional Care Management Medical Director for United Health Group, the largest health insurance company in the United States. He has also served on the Board of Managers for the Northern Ohio Alliance for Health, Ltd., an 11-hospital coalition, providing managed care leadership. Dr. Lee has also served as the Director of the Resurrection Healthcare Family Medicine Residency program in Chicago. In the early 1990’s, Dr. Lee was also the founder and Managing Director of a single specialty group practice in Ohio, USA.

Dr. Lee obtained his doctor of medicine (M.D.) degree from the Medical University of Ohio and graduate degrees in Master of Business Administration (MBA) and Master of Public Health (MPH) from the University of South Florida. In addition, he is board certified in family medicine (FAAFP), managed care medicine (CMCM) and as certified physician executive (CPE) by the American College of Physician Executive.

Edwin Chan, Chief Financial Officer

Mr. Edwin Chan was a director of Biopack Environmental Solutions Inc. (a publicly listed OTC Bulletin Board company) from March 2007 to March 2008 and was the chief financial officer of the company for the third quarter of 2007, where he was responsible for financial reporting, corporate finance and investment analysis of the company. From 2004 to 2006, Mr. Chan was a Senior Manager at China Everbright Securities (HK) Limited, a PRC-based investment banking firm, where he was responsible for sales and brokerage of securities to institutional investors in the Greater China Region. From 2002 to 2004, he was the Senior Manager (Business Valuation) of Vigers Appraisal & Consulting Limited. From 2000 to 2002, Mr. Chan was the Research Manager for Asia Financial Securities Limited.

Mr. Chan was awarded an MBA degree in 1999 from the Schulich School of Business, York University, Canada, with a specialization in Corporate Finance, Investment and Financial Management. He has also obtained an LL.B. degree from Tsinghua University in the Peoples Republic of China, a Bachelor of Science degree from the Chinese University of Hong Kong and a postgraduate certificate in Education from the University of Hong Kong.

Wong Yuen Yee, Director

Ms. Y. Y. Wong has over fifteen years of practical business experience in the PRC. She is responsible for the overall strategic planning and development of UPMG. In addition to the position held at UPMG, Ms. Wong founded Inno-tech Holdings Ltd. (8202.HK), which was successfully listed in the Hong Kong Growth Enterprise Market (“GEM”)

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market in 2002. Ms. Wong is the Chairman of Inno-Tech Holdings Ltd. - a listed company on the Share Exchange of Hong Kong focusing on sales and marketing of innovative smart home products in the PRC and also the acquisition, development and management of budget hotels in the PRC. Ms. Wong graduated from the University of Hong Kong with a Bachelor of Social Science degree and a Masters degree in Business Administration. She is enthusiastic about the welfare of China’s women and children. Ms. Wong is a Director of the Shanghai Soong Ching Ling Foundation. The foundation is dedicated to developing the welfare of Chinese women and children.

Wong Yao Wing, Director

Mr. Robert Wong is a typical entrepreneur who founded his first IT business in Hong Kong 15 years ago. His IT business was proven a great success and was soon acquired by Legend Holdings Limited. Subsequently, Mr. Wong joined HealthAnswers Inc. - a U.S. based comprehensive and integrated health communications company providing health information and service to patients through the continuum of healthcare, and set up the Asia Division of HealthAnswers. Mr. Wong’s tenure at HealthAnswers granted him good exposure of the healthcare industry in the region. After then, Mr. Wong founded Inno-tech Holdings Ltd. (8202.HK), which was successfully listed in the Hong Kong GEM market in 2002. Mr. Wong is now the Deputy Chairman of the company. Mr. Wong graduated from the University of Hong Kong with a Bachelor of Science Honor degree, a Certification of Education and a Masters degree in Business Administration. Mr. Wong received the Chief Executive’s Commendation for Community Service in July 2005.

Andrew B. Kramer, Director

Mr. Andrew Kramer is a Registered Investment Advisor. He is President and Portfolio Manager at Kramer Capital Management an investment firm managing over 100 million dollars. Mr. Kramer has been an investment professional for over twenty years the last 15 he has been associated with Third Avenue Management, the value investment firm founded by the legendary value investor Martin J. Whitman. In addition to Kramer’s duties at Kramer Capital he chairs The Board of Trustees of a 12 million dollar annual budget non profit organization and is a board member of various private companies. He was a graduate of Colgat University 1984 with a double major in English and History.

Involvement in Certain Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

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 offences;
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; or
4.	being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

EXECUTIVE COMPENSATION

Executive Compensation

The particulars of the compensation paid to the following persons:

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	(a)	our principal executive officer;
	(b)	each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended September 30, 2007; and
	(c)	up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the year ended September 30, 2007,

who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:

SUMMARY COMPENSATION TABLE
Name and Principal Position	Year	Salary ($)	Bonus ($)	Share Awards ($)	Option Awards ($)	Non- Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensa tion ($)	Total ($)
Gerald W. Williams Former President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director (1)	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil
Henry J. Macfarland Former Chief Executive Officer (3) (5)	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil
Siew Man Pang Chief Executive Officer (5)	2008 2007 2006	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil	Nil Nil Nil
Edwin Chan Chief Financial Officer (4)	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil
Dr. Kenneth Lee Chief Operating Officer (2)	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	113,905 Nil	113,905 Nil
Wong Yuen Yee	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil
Wong Yao Wing	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil
Andrew B. Kramer	2007 2006	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil

(1)	Mr. Williams resigned as our president, chief executive officer, secretary and treasurer on July 24, 2008 when Henry J. Macfarland was appointed as chief executive officer of our company following the closing of the share exchange agreement.
(2)	On October 26, 2006, United Premier Medical Group (Hong Kong) Limited and American-Sino Human Resources Consulting & Management (Shanghai) Ltd. entered into a management service agreement concerning the appointment of Dr. Kenneth K. Lee as the Chief Operating Officer of United Premier Medical Group Limited and its subsidiaries and provision of related consulting services. A combined management and
(3)	On October 15, 2007, United Premier Medical Group Limited and Stonebridge Healthcare Consulting, LLC entered into a consulting agreement concerning the engagement of Mr. Henry J. Macfarland as the Chief Executive Officer of United Premier Medical Group Limited and its subsidiaries and provision of related consulting services. An hourly fee of $150 but not to exceed a maximum of $1,200 per day is paid as the sole compensation for these consulting services. There is no arrangement or plan in which pension, retirement or similar benefits under this agreement.

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(4)	On November 1, 2007, UPMG (International) Limited and Asset Spring Investments Ltd. entered into a consulting agreement concerning the engagement of Mr. Chan Kam-fai, Edwin as the Chief Financial Officer of United Premier Medical Group Limited and its subsidiaries and provision of related consulting services. A monthly consulting fee of about $4,493 is paid as the sole compensation for these consulting services. There is no arrangement or plan in which pension, retirement or similar benefits under this agreement.
(5)	On October 1, 2008, Mr. Macfarland resigned as our Chief Executive Officer. As a result of Mr. Macfarland’s resignation we appointed Mr. Siew Man Pang. On October 1, 2008, the Company entered into an employment agreement with Mr. Siew Man Pang as the Chief Executive Officer of the Company and its subsidiaries with a monthly compensation of $15,384 plus two months salary as the bonus. Mr. Pang is also entitled to a total of 500,000 share options of the Company exercisable at $0.70 after the first anniversary of his employment with the Company. There is no arrangement or plan in which pension, retirement or similar benefits under this agreement.

We have not entered into any employment agreement or consulting agreements with our directors. There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive share options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that share options may be granted at the discretion of our board of directors.

Share Option Plan

On October 23, 2006, the UPMG Board of Directors adopted a share option scheme (“The Scheme”). The Scheme provides for the grant of options to directors and consultants. The Scheme is administered directly by our board of directors. Subject to the provisions of the Scheme, our board of directors determines who receives share options, the number of shares of common stock that may be covered by the option grants, the time and manner of the exercise of the options and exercise prices, as well as any other pertinent terms of the options. There are two tranches of options that are fully vested at grant date. The first tranche consists of 900 units and is exercisable within 10 years at an exercise price of $1,428 per share. The second tranche consists of 1,000 units and is exercisable within 3 years at an exercise price of $1,428 per share. As of September 30, 2007, total share options outstanding are 1,900 units. As of December 4, 2007, the Scheme was formally terminated with all unexercised options being cancelled. We had notified all Option holders about the termination of this option scheme. Currently, we do not have any option scheme .

Mr. Siew Man Pang, the Chief Executive Officer of the Company is entitled to a total of 500,000 share options of the Company exercisable at $0.70 after the first anniversary of his employment with the Company, i.e. October 1, 2009. We do not have any other stock option plan in favor of our directors, other officers, consultants or employees of our company.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values

There were no options exercised during our fiscal year ended September 30, 2007 by any officer or director of our company.

Compensation of Directors

We do not have any agreements for compensating our directors for their services in their capacity as directors, although such directors are expected in the future to receive share options to purchase shares of common stock as awarded by our board of directors.

Our board of directors has determined that it does not have a member of its audit committee that qualifies as an "audit committee financial expert" as defined in Item 401(e) of Regulation S-B, and is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

We believe that the members of our board of directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date. In addition, we currently do not have nominating,

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compensation or audit committees or committees performing similar functions nor do we have a written nominating, compensation or audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes the functions of such committees can be adequately performed by our board of directors.

Our board of directors has determined that we do not have a board member that qualifies as "independent" as the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934 , as amended, and as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules.

Indebtedness of Directors, Senior Officers, Executive Officers and Other Management

None of the directors or executive officers of our company or any associate or affiliate of our company during the last two fiscal years, is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

Family Relationships

There are no family relationships between any of our directors, executive officers or directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Other than set out below, we have not been a party to any transaction, proposed transaction, or series of transactions during the last two years in which the amount involved exceeded $60,000, and in which, to our knowledge, any of the following persons had, or is to have, a direct or indirect material interest: a director or executive officer of our company; a nominee for election as a director of our company; a beneficial owner of more than five percent of the outstanding shares of our common stock; or any member of the immediate family of any such person.

Loan from Companies Associated with United Premier Medical Group Limited

On June 20, 2007, Inno-Tech Holdings Limited (“Innotech”), a shareholder of UPMG, loaned $772,777 (equivalent to HK$6,000,000) to UPMG for use as working capital and the repayment date is June 22, 2008. Pursuant to an agreement dated April 29, 2008 signed between Innotech and UPMG for the extension of loan repayment, it is agreed that repayment of full amount of the above-mentioned loans is extended as scheduled below:

On January 10, 2008, Innotech loaned $384,615 (equivalent to HK$3,000,000) to UPMG with the repayment date on January 9, 2009. On January 25, 2008, Innotech loaned another $512,820 (equivalent to HK$4,000,000) to UPMG with the repayment date on January 24, 2009. Pursuant to an agreement dated April 29, 2008 signed between Innotech and UPMG for the extension of loan repayment, it is agreed that repayment of full amount of the above-mentioned loans is extended as scheduled below:

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Corporate Governance

We currently act with three (3) directors: Wong Yuen Yee, Wong Yao Wing and Andrew B. Kramer.

Committees of the Board

All proceedings of the board of directors for the year ended September 30, 2007 were conducted by resolutions consented to in writing by the board of directors and filed with the minutes of the proceedings of our board of directors. Our company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our company have a written nominating, compensation or audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by the board of directors.

Our company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.

A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our president at the address appearing on the first page of this prospectus.

Audit Committee Financial Expert

Our board of directors has determined that we do not have a board member that qualifies as an "audit committee financial expert" as defined in Item 401(e) of Regulation S-B, nor do we have a board member that qualifies as "independent" as the term is used in Rule 4200(a)(15) of the NASDAQ Marketplace Rules.

We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because management believes that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the stage of our development and the fact that we have not generated any positive cash flows from operations to date.

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DESCRIPTION OF SECURITIES

Our authorized capital share consists of 200,000,000 shares of common stock, par value $0.001 per share. The holders of our common shares:

• have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our board of directors;

• are entitled to share ratably in all of our assets available for distribution to holders of common shares upon liquidation, dissolution or winding up of our affairs;

• do not have pre-emptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and

• are entitled to one non-cumulative vote per share on all matters on which shareholders may vote.

Our common shares are not subject to any future call or assessment and all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the common shares and they all rank at equal rate or " pari passu" , each with the other, as to all benefits, which might accrue to the holders of the common shares.

Holders of shares of our common shares do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.

LEGAL PROCEEDINGS AND CONTINGENCIES

We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

Proactive Medicare Enterprise (HK) Limited, a subsidiary of UPMG, is a plaintiff of a legal proceeding regarding a civil claim against a hospital in the PRC namely, International Peace Maternity & Child Health Hospital of the China Welfare Institute (“IPMCHH” or the “defendant”) who refused to pay consultancy fees to PME-HK since April 2005.

On April 10, 2007, Proactive Medicare Enterprise (HK) Limited (“PME-HK”) brought a civil action to the Shanghai No. 1 Intermediate People’s Court (the “Shanghai Court”) in the PRC against IPMCCH for breach of contract. A statement claim from PME-HK was sent to the Shanghai Court for acceptance of review. The proposed claims regarding this civil action included: (i) To order IPMCHH to honor the co-operative agreement signed between PME-HK and IPMCHH on February 2, 2004; (ii) To order IPMCHH to pay the consultant fee amounted $2,890,000 (equivalent to RMB22,677,123) in arrears owed to PME-HK, and (iii) IPMCHH shall bear the cost of this action.

On April 12, 2007, the statement of claim was legally accepted and filed by the Shanghai Court (Notification of Acceptance: (2007) Hu Yi Zhong Min Wu (Shang) Chu Zi No. 93). On May 29, 2007, the first instance of the case was held to establish the case. On January 23, 2008, the second instance of the case was held to further negotiate a mutually accepted settlement plan. Through the mediation of the Shanghai Court, PME-HK and IPMCHH, so far, have gone through several rounds of negotiation for a mutually agreed settlement amount in recent months but a final settlement amount has yet to be confirmed

We have also engaged a law firm in the PRC to negotiate with another two hospitals in the PRC which are under contracts to pay us for the consultancy services provided to their affiliated VIP Birthing Centers in Foshan and Changsha in the PRC. The proposed claim in each case is about one million US dollars. We have gone through several rounds of negotiation for an agreed settlement amount in recent months and a final settlement amount has yet to be confirmed. For the Hangzhou Center, we are identifying a suitable PRC lawyer to negotiate with the host hospital for a mutually accepted settlement plan.

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The results of these negotiations / claim cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on our business (either in the near-term or in the long-term), financial position, results of operations, or cash flows. Although our management believes a portion of our investment in these affiliated VIP Birthing Centers may be recovered, we have reasonably estimated the uncertain portion and have eliminated their revenue contribution in 2007.

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MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS

Market Information

Our shares of common stock began trading on the OTC Bulletin Board on March 21, 2007 under the symbol “CVLG”. Prior to this date, there was no public market for our common shares. On May 13, 2008, we effected a change of name of our company from The Cavalier Group to China Health Care Corporation. The name change became effective with the OTC Bulletin Board at the opening for trading on May 16, 2008 under the new stock symbol “CNHL”.

The following table reflects the high and low bid information for our common stock obtained from Stockwatch and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

The high and low bid prices of our common stock for the periods indicated below are as follows:

	(1)	This refers to the trade record on September 16, 2008. There was no trading record during the period from September 16, 2008 to September 30, 2008.
	(2)	This refers to the trade record on May 30, 2008. There was no trading record during the period from May 30, 2008 to June 30, 2008.

On December 19, 2008, the closing price for the common stock as reported by the quotation service operated by the OTC Bulletin Board was $0.06.

As of December 19, 2008, there were 133 holders of record of our common stock. As of such date, 50,148,000 common shares were issued and outstanding.

Our common shares are issued in registered form. The registrar and transfer agent for our shares of common stock is Pacific Stock Transfer Company (Telephone: 702-361-3033).

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INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Wyoming Business Corporation Act permits a corporation to limit or eliminate the personal monetary liability of directors or officers to a corporation or its shareholders by reason of their conduct as directors or officers, except for (i) instances where a director receives financial benefits to which he is not entitled; (ii) any intentional infliction of harm on the corporation or its shareholders; (iii) the making of unlawful distributions; and (iv) intentional violations of criminal law.

Insofar as indemnification by us for liabilities arising under the Securities Exchange Act of 1934 may be permitted to our directors, officers and controlling persons pursuant to provisions of the articles of incorporation and bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Exchange Act and will be governed by the final adjudication of such issue.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods, including the interim period up through the date the relationship ended.

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ITEM 3.02 – UNREGISTERED SALES OF EQUITY SECURITIES

On July 24, 2008, we issued 42,658,000 shares of our common stock to the former shareholders of United Premier Medical Group Limited in consideration for the acquisition of all of the issued and outstanding common shares in the capital of United Premier Medical Group Limited. We issued the securities to non-U.S. persons, as that term is defined in Regulation S of the Securities Act of 1933, as amended, relying on Regulation S and/or Section 4(2) of the Securities Act and to U.S. accredited investors pursuant to the exemption from registration provided under Rule 506 of Regulation D, promulgated under the United States Securities Act of 1933, as amended.

ITEM 5.01 – CHANGES IN CONTROL OF REGISTRANT

Upon closing of the transactions contemplated by the share exchange agreement on July 24, 2008, we issued 42,658,000 shares of our common stock to the former shareholders of United Premier Medical Group in consideration for the acquisition of all of the issued and outstanding common shares in the capital of United Premier Medical Group.

As of the closing date, the former shareholders of United Premier Medical Group held approximately 85.1% of the issued and outstanding common shares of our company.

ITEM 5.02 – DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS

On July 24, 2008, in connection with the closing of the share exchange agreement, new directors were appointed to our board of directors. At the same time, Gerald Williams and Roy West resigned as directors. The new directors are Wong Yuen Yee, Wong Yao Wing and Andrew B. Kramer.

Descriptions of business experience over the past five years and compensatory arrangements of the new directors and officers can be found in the sections entitled “Directors, Executive Officers, Promoters and Control Persons” and “Executive Compensation”.

ITEM 5.06 CHANGE IN SHELL COMPANY STATUS

Management has determined that, as of the closing of the share exchange agreement, our company has ceased to be a shell company as defined in Rule 12b-2 of the United States Securities Exchange Act of 1934, as amended. Please refer to Item 2.01 of this current report for a detailed description of the share exchange agreement and the business of our company following the closing date.

ITEM 9.01 – FINANCIAL STATEMENTS AND EXHIBITS

(a)	Financial Statements for United Premier Medical Group Limited
(b)	Exhibits

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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 hereunto duly authorized.

CHINA HEALTH CARE CORPORATION

 

/s/ Siew Man Pang
Siew Man Pang
Chief Executive Officer

Dated: January 20, 2009

 

CHINA HEALTH CARE CORPORATION

 

/s/ Edwin Chan
Edwin Chan
Chief Financial Officer

Dated: January 20, 2009

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United Premier Medical Group Limited

Unaudited Financial Statements

June 30, 2008 and 2007

(Stated in US Dollars)

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United Premier Medical Group Limited

 

Contents	Pages
Report of Registered Independent Public Accounting Firm	1
Consolidated Balance Sheets	2 -3
Consolidated Statements of Operations	4
Consolidated Statements of Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to the Financial Statements	7 – 22

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Board of Directors and Stockholders
United Premier Medical Group Limited

Report of Registered Independent Public Accounting Firm

We have reviewed the accompanying interim consolidated balance sheet of United Premier Medical Group Limited (the “Company”) as of June 30, 2008, and the related consolidated statement of operations, changes in stockholders’ equity, and cash flows for the three-month and nine-month periods ended June 30, 2008. These interim consolidated financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1, the Company continued to incur losses and working capital deficiencies that raise doubt over its ability to continue as a going concern. The accompanying financial statements do not include any adjustments to the financial statements that might be necessary should the company be unable to continue as a going concern.

The September 30, 2007 financial statements were audited by K.P. Cheng & Co. (Hong Kong), and they expressed an unqualified opinion on them with a report dated July 24, 2008. We have not performed any auditing procedures for those periods covered in their report.

 

South San Francisco, California	Samuel H. Wong & Co., LLP
September 26, 2008	Certified Public Accountants

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United Premier Medical Group Limited
Consolidated Balance Sheets
At June 30, 2008, and September 30, 2007
(Stated in US Dollars)

					June 30,			September 30,
Assets		Note			2008			2007
					(unaudited)
Current assets
Cash		2 (d)		$	9,404		$	406,396
Accounts receivable		2 (e) ,3			77,107			54,250
Related party receivables		4			-			68,427
Prepaid expenses		5			90,790			237,981
Total current assets					177,301			767,054
Non-current assets
Property and equipment		2 (f), 6			916,628			1,123,317
Goodwill		7			154,143			154,881
Discontinued operations
Accounts receivable		15			10,922			45,594
Total assets				$	1,258,994		$	2,090,846
Liabilities, Minority Interest, and Stockholders’ Deficit
Current liabilities
Accounts payable					1,333,489			1,853,896
Dividends payable					24,777			-
Related party payables		8			2,083,041			470,377
Accrued liabilities		9			663,881			621,125
Convertible preferred stock - $0 par value, 10,000 shares
authorized; 760 and 4,605 shares issued and outstanding at June
30, 2008, and September 30, 2007, respectively		10			1,896,536			-
Total current liabilities					6,001,724			2,945,398
Non-current liabilities
Dividends payable					-			1,385,573
Related party payables - long term		8			-			772,777
Liabilities of discontinued operations
Accrued liabilities		15			4,180			4,200
Total liabilities				$	6,005,904		$	5,107,948
Minority interest				$	83,808		$	99,625

See Accompanying Notes to the Financial Statements and Accountant’s Report.

2

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United Premier Medical Group Limited
Consolidated Balance Sheets
At June 30, 2008, and September 30, 2007
(Stated in US Dollars)

					June 30,			September 30,
		Note			2008			2007
					(unaudited)			(audited)
Stockholders’ deficit
Convertible preferred stock - $0 par value, 10,000 shares
authorized; 760 shares (reclassified to liabilities) and 4,605
shares issued and outstanding at June 30, 2008, and September
30, 2007, respectively
		10		$	-		$	10,225,269
Common stock - $0.001 par value, 200,000,000 shares
authorized; 49,828,000 and 39,314,000 shares issued and
outstanding at June 30, 2008, and September 30, 2007,
respectively					49,828			39,314
Additional paid in capital					21,163,716			10,416,271
Accumulated deficits					(25,892,993	)		(23,644,911	)
Accumulated other comprehensive income (loss)					(151,269	)		(152,670	)
Total stockholders' deficit				$	(4,830,718	)		(3,116,727	)
Total liabilities, minority interest, and stockholders' deficit				$	1,258,994		$	2,090,846

See Accompanying Notes to the Financial Statements and Accountant’s Report.

3

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United Premier Medical Group Limited
Consolidated Statement of Operations
for the three and nine months ended June 30, 2008, and 2007
(Stated in US Dollars)

See Accompanying Notes to the Financial Statements and Accountant’s Report.

4

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United Premier Medical Group Limited
Consolidated Statement of Operations
for the three and nine months ended June 30, 2008, and 2007
(Stated in US Dollars)

United Premier Medical Group Limited
Consolidated Statements of Changes in Stockholders’ Deficit
for the nine months ended June 30, 2008 and year end September 30, 2007
(Stated in US Dollars)

	Convertible											Additional						Accumulated
	Preferred Stock					Common Stock						Paid						Other
	Shares			Par		Shares			Par			in			Accumulated			Comprehensive
	Outstanding			Amount		Outstanding			Amount			Capital			Deficit			Income (loss)			Total
Balance, October 1, 2006	4,545		$	10,075,320		38,856,000		$	38,856		$	10,172,370		$	(22,376,133	)	$	(108,876	)	$	(2,198,463	)
Issuance of common stock for cash						418,000			418			215,322									215,740
Issuance of common stock as
compensation						40,000			40			28,579									28,619
Issuance of preferred stock for cash	60			149,949																	149,949
Net loss															(355,078	)					(355,078	)
Preferred dividends declared															(913,700	)					(913,700	)
Foreign currency translation adjustment																		(43,794	)		(43,794	)
Balance, September 30, 2007	4,605		$	10,225,269		39,314,000		$	39,314		$	10,416,271		$	(23,644,911	)	$	(152,670	)	$	(3,116,727	)
Balance, October 1, 2007	4,605		$	10,225,269		39,314,000		$	39,314		$	10,416,271		$	(23,644,911	)	$	(152,670	)	$	(3,116,727	)
Convertible preferred stock issued to
settle previously accrued cash dividends	459			1,060,086																	1,060,086
Conversion of preferred stock	(4,304	)		(9,388,819	)	8,608,000			8,608			9,380,211									-
Preferred stock reclassified to liabilities	(760	)		(1,896,536	)																(1,896,536	)
Issuance of common stock						1,906,000			1,906			1,367,234									1,369,140
Net loss															(2,099,758	)					(2,099,758	)
Preferred dividends declared															(148,324	)					(148,324	)
Foreign currency translation adjustment																		1,401			1,401
Balance, June 30, 2008	-		$	-		49,828,000		$	49,828		$	21,163,716		$	(25,892,993	)	$	(151,269	)	$	(4,830,718	)

See Accompanying Notes to the Financial Statements and Accountant’s Report.

5

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United Premier Medical Group Limited
Consolidated Statements of Cash Flows
for the three and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

		3 months			3 months			9 months			9 months
		ended			ended			ended			ended
		June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
Cash Flow from Operating Activities
Net income (loss)	$	(93,152	)	$	196,331		$	(2,099,758	)	$	(285,323	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest		(7,795	)		27,231			(15,817	)		22,598
Non-cash compensation		-			787,783			708,122			816,362
Amortization and depreciation		70,082			130,884			210,344			411,097
(Gain)/loss on disposal of discontinued operations		-			(331,812	)		-			(313,385	)
Accounts receivable		(368,027	)		(1,278,618	)		(22,857	)		(1,693,650	)
Accounts receivables of discontinued operations		-			-			34,672			(229,013	)
Prepaid expenses		63,102			(90,297	)		147,191			(35,650	)
Accounts and other payables		247,900			(302,107	)		276,701			105,563
Accrued liabilities of discontinued operations		(20	)		-			(20	)		390,383
Cash provided by operating activities		(87,910	)		(860,605	)		(761,422	)		(811,018	)
Cash Flows from Investing Activities
Proceeds from disposals of assets		-			960,821			-			960,821
Purchases of equipment		(1,392	)		(5,944	)		(11,835	)		(28,787	)
Cash used in investing activities		(1,392	)		954,877			(11,835	)		932,034
Cash Flows from Financing Activities
Cost of issuance of common stock		-			-			-			(83,570	)
Proceeds from issuance of preferred stock		-			-			-			-
Loan proceeds from related parties		153,520			1,298,045			934,403			1,220,928
Repayment of loans to related parties		-			-			(125,768	)		-
Dividends paid		(66,392	)		(790,940	)		(395,301	)		(790,940	)
Cash Sourced/(Used) in Financing Activities		87,128			507,105			413,334			346,418
Net Increase/(Decrease) in Cash & Cash
Equivalents for the Period		(2,174	)		601,377			(359,923	)		467,434
Effect of Currency Translation		(3,750	)		(48,764	)		(37,069	)		56,595
Cash & Cash Equivalents at Beginning of Period		15,328			4,088			406,396			32,672
Cash & Cash Equivalents at End of Period	$	9,404		$	556,701		$	9,404		$	556,701

See Accompanying Notes to the Financial Statements and Accountant’s Report.

6

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES
	History
	United Premier Medical Group Limited (“the Company”) is a medical consultancy service provider in the People’s Republic of China (“PRC”) providing services in the areas of hospital management and specialty medical consultancy. UPMG’s primary focus is the health care needs of women and children.
	The business was founded in 2001, with UPMG as the ultimate holding company. UPMG was organized under the laws of Cayman Island on March 28, 2003, whereas UPMG International Limited (“UPMGI”) was incorporated in the British Virgin Islands on September 15, 2003. The intention is to build the Company using a holding company structure, with a top-level entity owing interests in operating entities. Separate operating entities are established in each geographic region. At times, the company owns less than 100% of an operating entity because this enables the use of resources and expertise of local partners.
	There were a number of restructuring events, which occurred over the past several years. These events would include:
	•	On July 19, 2001, UPMGI acquired 50% of the operating entity Proactive Medicare Enterprise (Hong Kong) Limited (“PME-HK”). At the same time, PME-HK held 90% in equity interest of the operating entity Shanghai Proactive Medicare Health Education Center Limited (“BK-SH”).
	•	On May 5, 2003, UPMG acquired 100% of UPMGI and hence UPMGI became a wholly-owned subsidiary of UPMG.
	•	On March 17, 2004, UPMGI increased its ownership of the operating entity PME-HK from 50% to 100% and hence PME-HK became a wholly-owned subsidiary of UPMGI.
	•	Pro-Innovative Holdings Limited (“PHL”), an investment holding company, was incorporated on January 22, 2004 with 51% in equity interest held by UPMG.
	•	On February 17, 2004, UPMG transferred all common shareholding in Ideamart Holdings Limited (“Ideamart”) to PHL. Ideamart, which incorporated on May 28, 2003, is a dormant company.
	•	On March 19, 2004, UPMG International (Guangdong) Limited (“UPMGIG”) increased its ownership of UPMG (Guangdong) Company Limited (“UPMGGC”) from 99% to 100%.
	•	On May 7, 2004, PHL transferred 100% of its ownership in UPMG (Hong Kong) Limited (“UPMG-HK”) and UPMG (US) Limited (“UPMG-US”) to UPMGI and hence UPMG-HK and UPMG-US became the wholly-owned subsidiaries of UPMGI.
	•	In April 2007, UPMG-HK disposed of its 100% interest in Broad Prosper Limited.

7

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

Current Structure & Basis of Presentation

The Company owned the following subsidiaries at June 30, 2008:

8

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

The consolidated financial statements include the accounts of UPMG and its consolidated subsidiaries. UPMG wholly owns UPMGI, which in turn directly holds 12 wholly-owned subsidiaries and indirectly holds 4 subsidiaries including HB-GZ (100% in equity interest), BK-SH (90% in equity interest), UBK-SZ (100% in equity interest), and UPMG-MU (50% in equity interest). Besides, UPMG holds 51% in equity interest of PHL, which in turn, wholly owns two direct subsidiaries and holds 62% in equity interest of UPMGIG, which in turn wholly owns UPMGGC

Business

The Company provides consultancy services to the VIP Maternity & Gynecological Centers (the “VIP Birthing Centers”) in the PRC. These services are provided in conjunction with Johns Hopkins International, LLC, a U.S. based healthcare provider, and based upon a Consultancy Agreement with JHI. (The Company and JHI are currently disputing certain material terms of the consultancy agreement – see below, and note 14). The first VIP Birthing Center commenced operations in October 2002 at the International Peace Maternity & Child Health Hospital in Shanghai. Over the past six years, the Company has signed co-operative agreements with a number of hospitals in Obstetrics / Gynecology (“OB/GYN”) across the PRC in cities including Beijing, Shanghai, Guangzhou, Foshan, Wuxi, Xiamen, Changsha, and Hangzhou. In 2006, the Company signed a management agreement with the University Hospital at Macau University of Science and Technology (“UH-MUST”) whereby the Company provides general hospital management consultancy service.

The Company is currently under contracts to provide consultancy services to a total of five VIP Birthing Centers in the PRC and to manage a private hospital in Macau. These centers are located in Wuxi (“the Wuxi Center”), Xiamen (“the Xiamen Center”), Changsha (“the Changsha Center”), Foshan (“the Foshan Center”), and Hangzhou (“the Hangzhou Center”). The Wuxi Center, the Xiamen Center, and the hospital in Macau are operated under our service contracts, and the Company receives a monthly fee for our services. The Company has had difficulty enforcing these contracts, and three of the VIP Birthing Centers have ceased complying with our payment terms (the Changsha Center, the Foshan Center, and the Hangzhou Center). The Company engaged lawyers to negotiate with the host hospitals for settlement. The Company also had a VIP Birthing Center in Shanghai (“the Shanghai Center”). The Company has not been paid by the Shanghai Center since January 2006 and the Company has taken legal action against the host hospital for breach of contract.

The Company had an additional VIP Birthing Center in Guangzhou (“the Guangzhou Center”) which ceased its operation in March 2007. Our invested assets were sold back to its host hospital. Our net receipt on this asset sale amounted to $1,296,944. For the abovementioned centers that the Company has difficulty enforcing our contracts, the Company has not accrued any revenue for the years ended September 30, 2007 and 2006.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a net loss of $2,099,758 and a negative cash flow from operations of $761,422 for the period ended June 30, 2008 and a working capital deficiency of $5,824,423, and a shareholders’ deficit of $4,830,718 at June 30, 2008. These matters raise substantial doubt about the Company’s ability to continue as a going concern if the

9

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

	Company does not secure new outside financing. The Company is currently and continues to make efforts to procure outside financing to strengthen its financial position.
2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	(a)	Method of Accounting
		The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.
	(b)	Consolidation
		Inter-company transactions, such as due to/due from balances, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.
	(c)	Use of Estimates
		In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These estimates and assumptions include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation of useful lives of property, plant, and equipment. Actual results could differ from these estimates.
	(d)	Cash and Cash Equivalents
		The Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.
	(e)	Accounts Receivable
		Accounts receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. Management regularly reviews the Company’s outstanding receivables balance, and will provide allowance for doubtful accounts based on its assessment. Bad debts are charged against allowances when outstanding receivables have been determined to be uncollectible. See Note 3 – Accounts Receivable.
	(f)	Property and Equipment
		Property and equipment are stated at cost less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation of equipment is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the equipment are as follows:

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

		The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to the statement of operations as incurred, whereas significant renewals and betterments are capitalized. See Note 6 – Equipment.
	(g)	Revenue Recognition
		The Company’s revenues are derived from its share of operating profit from VIP Birthing Centers at hospitals where it has invested in capital equipment, leasehold improvements, and human capital in the form of technical training for hospital staff. The Company’s share of operating profit from the VIP Birthing Centers depends upon the contractual terms with each hospital. The typical share of operating profit ranges between 70% and 80% of the total operating profit of the VIP Birthing Center. Financial statements are provided by the hospitals each month to the Company for review, verification, and approval. When the financial statements of the VIP Birthing Centers have been approved, the Company recognizes revenue by recording its portion of the total operating profit to its financial statements. Revenues that have been both recognized in accordance to their respective contracts and financial statements provided by the hospitals can be reasonably expected to be collectible.
	(h)	Cost of Revenue
		Cost of revenue is primarily comprised of depreciation, wages, and licensing fees that must be paid to JHI for facilities with continuing operation. The Company believes that the depreciation of property and equipment matches the substantial initial investment equipment and leasehold improvements with revenues that are earned overtime. The Company charges wages paid to doctors and medical personnel who provide the initial training and hospital management expertise to the hospital when the VIP Birthing centers are initially setup and on a non-fixed on-going basis.
	(i)	Selling Expenses
		Selling expenses are comprised of client entertainment, commissions and salaries for sales personnel, marketing, and travel and lodging expenses.
	(j)	General & Administrative Expenses
		General and administrative expenses include outside consulting services, research & development, executive compensation, quality control, and general overhead such as finance and administrative staff, and depreciation expense.
	(k)	Income Taxes
		The Company uses the accrual method of accounting to determine and report its taxable income for the year. The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The Company also adopted FIN 48, Accounting for Uncertainty in Tax Positions.
		Income tax liabilities computed according to the United States, People’s Republic of China (PRC), Hong Kong SAR and Macau SAR laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be taxable or deductible when the assets and liabilities are recovered of settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes. A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

	(l)	Earnings (Loss) Per Share
		The Company computers earnings per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS NO. 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
	(m)	Other Comprehensive Income (Loss)
		Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.
	(n)	Foreign Currency Translation
		The Company maintains its financial statements in the functional currency, which is the Renminbi (RMB). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
		For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
		The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is Hong Kong dollars (“HK$”). Equity accounts of the consolidated financial statements are translated into United States dollars from HK$ at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. Translation adjustments are not included in determining net income but are included in foreign currency translation adjustment in other comprehensive income, a component of stockholders’ equity.

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

(o)

Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 161 requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). Statement 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles."

In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis.

The Company is currently evaluating the potential impact, if any, of the adoption of the above recent accounting pronouncements on its consolidated results of operations and financial condition.

3.	ACCOUNTS RECEIVABLE

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

4.	RELATED PARTY RECEIVABLE
	Amounts due from directors and shareholders were both repaid in their entirety at June 30, 2008. The balances at September 30, 2007, of $32,214, and $36,213, owed by the directors and shareholders, respectively, were set-off against payables owed to related parties via duly endorsed netting agreement. The balances that were previously owed to Company by the Directors and Shareholders did not affect the Company’s result of operations. See Note 8 – Related Party Payables.
5.	PREPAID EXPENSES
	The prepaid expenses at June 30, 2008 and September 30, 2007 are shown in the following table: -

			At June 30,			At September 30,
			2008			2007
	Professional and legal expenses	$	12,814		$	151,217
	Purchases of baby beds		65,610			65,924
	Various miscellaneous		12,366			20,840
		$	90,790		$	237,981

6.            PROPERTY AND EQUIPMENT

Property and equipment, which are stated at cost less depreciation, were comprised of the following: -

			At June 30,			At September 30,
			2008			2007
	Category of Asset
	Furniture & fixtures	$	490,509		$	59,011
	Office equipment		8,265			505,172
	Computer software		42,288			42,490
	Leasehold improvement		259,391			260,634
	Center equipment		919,115			-
	Machinery		-			848,606
			1,719,568			1,715,913
	Less: Accumulated Depreciation
	Furniture & fixtures		199,331			10,853
	Office equipment		1,080			181,270
	Computer software		16,530			10,266
	Leasehold improvement		94,084			74,215
	Center equipment		491,915			-
	Machinery		-			315,992
			802,940			592,596
	Equipment, net	$	916,628		$	1,123,317

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

7.	GOODWILL
	Goodwill amounting to $154,143 and $154,881 as of June 30, 2008 and September 30, 2007 is related to the acquisition of the minority interest of PME-WX, for which the company’s subsidiary, UMPGI, purchased the remaining 20% of interest from other stockholder in 2004. Management annually reviews the carry value of goodwill using the sum of the undiscounted cash flows generated by PME-WX to determine if an impairment charge is necessary. The Company has determined no impairment to the goodwill as of date.
8.	RELATED PARTY PAYABLES
	The following table presents the balances the Company owed to related parties.

Due to Director

Payables owed to the Company’s directors are non- interest- bearing and, payable on demand. There is no impact to the statement of operations as result of the payables to the directors.

Loan from Innotech

On June 20, 2007, Inno-Tech Holdings Limited (“Innotech”), a shareholder of United Premier Medical Group Limited (“UPMG”), loaned $772,777 (equivalent to HK$6,000,000) to UPMG for use as working capital. The repayment date was originally June 22, 2008, but was subsequently extended to December 22, 2008.

On January 10, 2008, Innotech loaned $384,615 (HK$3,000,000) to UPMG with the original repayment date on January 9, 2009. On January 25, 2008, Innotech loaned another $512,820 (HK$4,000,000) to UPMG with the original repayment date on January 24, 2009. These loan repayment dates have been extended. During the period ended June 30, 2008 and 2007, the Company incurred interest expense of $45,860 and $1,517 respectively.

The following table summarizes the loan from related party: -

15

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

On April 29, 2008, the loan from related party was extended as below:

9.	ACCRUED LIABILITIES

	PMEI was once in negotiation with JHI concerning the amount owed to JHI for services and the use of the JHI trademarks for the period June 2005 through March 2006. JHI has invoiced a total of $550,000 for these services. As PMEI was dissolved in November 2007, the amount to be paid to JHI will ultimately be a liability of the Company, and the Company has accrued the amount of $550,000 and subsequently paid $100,213 resulting in outstanding balance of $449,787.
	The accrued interest of $37,931 reflects the cost of the redemption premium of the convertible preferred stock. The premium, which is 2% of the original purchase price of the shares, is based on the 760 shares outstanding at June 30, 2008.
10.	CONVERTIBLE PREFERRED STOCK
	From June 30, 2005 to September 30, 2007, the UPMG entered into a continuous securities subscription agreement with private investors for the sale of UPMG Convertible Preferred Stock. UPMG issued a total of 4,605 shares of Convertible Preferred Stock at a subscription price of $2,500 per shares for aggregate net proceeds of $10,225,269, after accounting for issuance costs and professional fees. The shares bear an 8% per annum preferred dividend payable semi-annually. The terms of the subscription agreement call for a conversion ratio of one Convertible Preferred Stock to one common share of UPMG, which in turn can be exchanged for 2,000 shares of the Company. The shares of Convertible Preferred Stock have no voting rights. Under the subscription agreement, mandatory conversion of the shares would be triggered by UPMG listing its shares in a public market. Should no public listing occur within three years (subject to extension under certain conditions), the Convertible Preferred Stock would be mandatorily redeemable at a price of $2,500 per share plus a premium of 2%. The Company believes the conversion feature of the Convertible Preferred Stock is not a beneficial conversion feature. At the time of their issuance, the UPMG was not a publicly traded corporation.
	On December 4, 2007, the Board of Directors of the UPMG resolved and notified the holders of the Convertible Preferred Stock that UPMG intended to force conversion of all the shares into common shares because the Company was to subsequently undertake a reverse merger transaction, which would transform the company into a public company.

16

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

	In December 2007, UPMG agreed to issue an additional 459 of Convertible Preferred Stock in lieu of paying out dividends in cash, which UPMG had accrued under dividends payable. The additional 459 shares of Convertible Preferred Stock were equivalent to $1,060,086 of dividends.
	From February to June 30, 2008, 4,304 shares of Convertible Preferred Stock were converted to 4,304 shares of UPMG common stock. The outstanding number of shares of Convertible Preferred Stock at June 30, 2008 was 760. The converted shares were subsequently exchanged for shares in the Company pursuant to the share exchange agreement detailed Note 12. Of the 760 shares that were outstanding at June 30, 2008, 160 shares were subsequently converted to UPMG shares on July 11, 2008, and then in turn exchanged for shares in the Company. Since the Company accounted for the share exchange transaction as a recapitalization transaction, the equity of the Company has been retroactively restated to the first period presented. The shares that had been converted at June 30, 2008 have been included in the Company’s common stock. The remaining 760 shares of convertible preferred stock at June 30, 2008 have been accounted for as a current liability because during the three months ended June 30, 2008, the Company re-examined the characteristics of the Convertible Preferred Stock. The Company concluded the mandatory redemption feature, liquidation preference to common stockholders, and cumulative dividends were characteristics akin to liabilities. The Company has booked the redemption premium as interest expenses for the period.
	The Company is currently in arbitration with the holders of the remaining 600 shares of Convertible Preferred Stock over the Company’s intension to force conversion of their shares into common shares. The Company has retained counsel to represent it in arbitration.
	The related outstanding dividends payable for the Convertible Preferred Stock at June 30, 2008, and September 30, 2007 were $24,777 and $1,385,573, respectively.
11.	INCOME TAXES
	In accordance with the relevant tax laws and regulations of Hong Kong, the corporate income tax rate applicable to the subsidiaries of the Company in Hong Kong is 17.5% of taxable income. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), effective from January 1, 2008. Under the New CIT Law, the corporate income tax rate applicable to the subsidiaries of the Company in the PRC starting from January 1, 2008 is 25%, replacing the currently applicable tax rate of 33%. The New CIT Law has an impact on the deferred tax assets and liabilities of the Company. Effects arising from the enforcement of New CIT law have been reflected into the accounts by applying the new tax rate. Income tax expense for the nine months ended June 30, 2008 and 2007 are summarized as follows:

17

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

12.	SUBSEQUENT EVENTS
	Share Exchange Transaction
	On January 20, 2008, United Premier Medical Group Limited (“UPMG”) and its shareholders entered into a share exchange agreement with China Health Care Corporation formerly known as The Cavalier Group (“Company”), a corporation incorporated in the state of Wyoming of the United States. The closing of the transactions contemplated in the share exchange agreement and the acquisition of all of the issued and outstanding common shares in the capital of UPMG occurred on July 24, 2008. In accordance with the closing of the share exchange agreement, China Health Care Corporation issued 42,658,000 shares of its common share to the former shareholders of UPMG in exchange for the acquisition, by China Health Care Corporation, of all of the 21,329 issued and outstanding shares of UPMG on the basis of 2,000 common shares of Cavalier for every one common share of UPMG.
13.	STOCK COMPENSATION EXPENSE
	During the nine months ended June 30, 2007, the UPMG issued 20 shares of its common stock as compensation. The 20 shares of UPMG were equivalent to 40,000 shares of the Company’s common stock. The value of the common stock was $28,619, or $1,428 on per share basis of UPMG common stock or equivalent to $0.7155 per share of the Company’s common stock. The valuation of these shares was determined by using the same price that other UPMG stockholders bought their common stock. As result of the lack of secondary market at time of issuance of UPMG’s common stock as compensation, the Company believes that the use of a price that other investors had paid was a reasonable fair market value.
	The company including any of its subsidiaries did not grant options or rights at any time to create any of such outstanding as of June 30, 2008.

18

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

14.	EARNINGS PER SHARE
	Components of basic and diluted earnings per share were as follows:

			Three months			Three months			Nine months			Nine months
			ended			ended			ended			ended
			June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
	Loss from continuing operations		(93,152	)		(135,481	)		(2,099,758	)		(598,708	)
	Net income		(93,152	)		196,331			(2,099,758	)		(285,323	)
	Preferred dividends		-			(332,078	)		(148,324	)		(787,810	)
	Loss attributable to common stockholders		(93,152	)		(135,747	)		(2,248,082	)		(1,073,133	)
	Original shares		47,720,000			39,314,000			39,314,000			38,856,000
	– Addition to common stock from issuance		-			-			1,207,204			382,586
	– Addition to common stock from actual
	conversion		1,154,769			-			3,221,577			-
	Basic weighted average shares outstanding		48,874,769			39,314,000			43,742,781			39,238,586
	Dilutive Shares:
	– Addition to common stock if preferred
	stock had been converted *		-			-			-			-
	Diluted Weighted Average Shares
	Outstanding:		48,874,769			39,314,000			43,742,781			39,238,586
	Earnings (Loss) Per Share
	– basic	$	(0.0019	)	$	(0.0035	)	$	(0.0514	)	$	(0.0273	)
	– diluted	$	(0.0019	)	$	(0.0035	)	$	(0.0514	)	$	(0.0273	)
	Weighted average shares outstanding
	– basic		48,874,769			39,314,000			43,742,781			39,238,586
	– diluted		48,874,769			39,314,000			43,742,781			39,238,586
	Supplemental Data
	Earnings (loss) per share from continuing
	operations	$	(0.0019	)	$	(0.0119	)	$	(0.0514	)	$	(0.0353	)

* If the preferred stock had been converted it would have been antidilutive, accordingly there was no potentially dilutive effect from them.

19

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

15.	DISCONTINUED OPERATIONS
	The Company had a VIP Birthing Center in Guangzhou (“the Guangzhou Center”). The Company ceased operation of the Center in March 2007. The invested assets were sold back to the hospital where the center had been located. The proceeds from the sale of this operation were $1,296,944. The Company has accounted for the disposition of the assets of discontinued operation in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. A gain of $331,812 was recorded to the Company’s statement of operations during the nine months ended June 30, 2007. See the following for a summary of its financial positions and results of operations.

	Guangzhou VIP Birthing Center
	Financial Position
	At June 30, 2008, and September 30, 2007
	(Stated in US Dollars)		June 30, 2008			September 30, 2007
			(unaudited)
	Current assets
	Cash	$	-		$	-
	Account receivables		10,922			45,594
	Total current assets		10,922			45,594
	Non-current assets
	Property and equipment		-			-
	Total assets		10,922			45,594
	Current liabilities
	Accrued liabilities		4,180			4,200
	Total current liabilities		4,180			4,200
	Total liabilities		4,180			4,200
	Net assets	$	6,742		$	41,394
	Guangzhou VIP Birthing Center
	Results of Operations		9 months			9 months
	for the nine months ended June 30, 2008		ended			ended
	(Stated in US Dollars)		June 30, 2008			June 30, 2007
	Revenue	$	-		$	-
	Cost of revenue		-			18,980
	Gross profit		-			(18,980	)
	Selling expenses		-			-
	General and administrative expenses		-			(553	)
						(553	)
	Total operating expenses		-
	Gain on sale of assets		-			331,812
	Taxes		-			-
	Net income (loss)	$	-		$	313,385

20

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

16.	RISKS
	Doing Business in the PRC
	The Company’s operations are conducted in the People’s Republic of China (the “PRC”). Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
	Concentrations
	For the nine months ended June 30, 2008, the Company derived its revenue from three VIP Birthing Centers. Each VIP Birthing Center unto itself can be considered single customers, and, as such, by virtue of there were only three centers, there was a concentration of risk in the Company’s revenues. The following provides a table of each centers’ contribution by amount and percentage for the nine months presented.

17.	COMMITMENTS AND CONTINGENCIES
	A. Legal proceeding against IPMCHH
	Proactive Medicare Enterprise (HK) Limited, a subsidiary of UPMG, is a plaintiff of a legal proceeding regarding a civil claim against a hospital in the PRC namely, International Peace Maternity & Child Health Hospital of the China Welfare Institute (“IPMCHH” or the “defendant”) who refused to pay consultancy fees to PME-HK since April 2005, which may aggregate to $2,890,000
	On April 10, 2007, Proactive Medicare Enterprise (HK) Limited (“PME-HK”) brought a civil action to the Shanghai No. 1 Intermediate People’s Court (the “Shanghai Court”) in the PRC against IPMCCH for breach of contract. A statement of claim from PME-HK was sent to the Shanghai Court for acceptance of review. The proposed claims regarding this civil action included: (i) To order IPMCHH to honor the co-operative agreement signed between PME-HK and IPMCHH on February 2, 2004; (ii) To order IPMCHH to pay the consultant fee amounted $2,890,000 (equivalent to RMB22,677,123) in arrears owed to PME-HK, and (iii) IPMCHH shall bear the cost of this action.
	On April 12, 2007, the statement of claim was legally accepted and filed by the Shanghai Court (Notification of Acceptance: (2007) Hu Yi Zhong Min Wu (Shang) Chu Zi No. 93). On May 29, 2007, the first instance of the case was held to establish the case. On January 23, 2008, the second instance of the case was held to further negotiate a mutually accepted settlement plan. Through the mediation of the Shanghai Court, PME-HK and IPMCHH, so far, have gone through several rounds of negotiation for a mutually agreed settlement amount in recent months but a final settlement amount has yet to be confirmed.
	The result of this claim cannot be predicted, and it is possible that the ultimate resolution of the matters, individually or in the aggregate, may have a material adverse effect on the Company’s business (either in the near-term or in the long-term), financial position, results of operations, or cash flows. Though the management of the Company believes a portion of this claim may be recovered, the Company has reasonably estimated the uncertain portion and has eliminated their revenue contribution in 2007.

21

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United Premier Medical Group Limited
Notes to the Consolidated Financial Statements
at June 30, 2008 and September 30, 2007
and for the three months and nine months ended June 30, 2008 and 2007
(Stated in US Dollars)

B. Contingent claims against other three hospitals in the PRC

The Company has also engaged a law firm in the PRC to negotiate with another two hospitals in the PRC, which are under contract to pay the Company for the consultancy services provided to their affiliated VIP Birthing Centers in Foshan and Changsha in the PRC. The proposed claim in each case is about one million US dollars. The Company has gone through several rounds of negotiation for an agreed settlement amount in recent months and a final settlement amount has yet to be confirmed.

For the Hangzhou Center, the Company is identifying a suitable PRC lawyer to negotiate with its host hospital for a mutually accepted settlement plan.

C. Contingent relationship with JHI

The Company is currently in dispute with JHI mainly on the fee structure, outstanding fee owing to JHI and use of “JHI” brand in future, and the Company is actively negotiating with JHI for settlement. As indicated in an email from JHI dated April 22, 2008, the Company believes that JHI is willing to provide limited support depending on JHI’s receiving advance payment for any services requested. The Company also believes that JHI is willing to proceed with settlement negotiations with the Company as long as the Company commits to pay a lump sum of $300,000 as the settlement of consulting services provided before. Given the positive attitude of JHI, the Company believes the negotiation outcome would be positive and constructive. The amount to be paid to JHI will ultimately be a liability of the Company, and the Company has accrued the amount of $550,000 during the year ended September 30, 2006. This amount appears as Accrued Liabilities on the Company’s balance sheet at September 30, 2007 and 2006.

22

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United Premier Medical Group

Audited Financial Statements

September 30, 2007 and 2006

(Stated in US Dollars)

---

United Premier Medical Group

 

Contents	Pages
Report of Registered Independent Public Accounting Firm	1
Consolidated Balance Sheets	2 -3
Consolidated Statements of Operations	4
Consolidated Statements of Stockholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to the Financial Statements	7 – 24

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Board of Directors and Stockholders
United Premier Medical Group Limited

Report of Registered Independent Public Accounting Firm

We have audited the accompanying consolidated balance sheets of United Premier Medical Group as of September 30, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Premier Medical as of September 30, 2007 and 2006, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1, the Company continued to incur losses and working capital deficiencies that raise doubt over its ability to continue as a going concern. The accompanying financial statements do not include any adjustments to the financial statements that might be necessary should the company be unable to continue as a going concern.

 

South San Francisco, California	Samuel H. Wong & Co., LLP
December 22, 2008	Certified Public Accountants

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United Premier Medical Group
Consolidated Balance Sheets
At September 30, 2007 and 2006
(Stated in US Dollars)

					At			At
Assets		Note			September 30,			September 30,
					2007			2006
Current assets
Cash		2 (d)		$	416,705		$	35,513
Accounts receivable		2 (e) ,3			220,557			141,248
Related party receivables		4			330,068			171,171
Prepaid expenses		5			2,161			21,250
Total current assets					969,491			369,182
Non-current assets
Property and equipment, net		2 (f), 6			1,106,665			1,701,257
Goodwill		7			154,692			154,400
Rent and utility deposits					79,677			11,548
Total non-current assets					1,341,034			1,867,205
Assets of Discontinued operations
Accounts receivable		15			-			12,342
Related party receivables		15			179,540			1,878
Prepaid expense		15			69,871			19,443
Property and equipment, net		15			-			416,627
Total discontinued operations					249,411			450,290
Total assets				$	2,559,936		$	2,686,677
Liabilities, Minority Interest, and Stockholders’ Deficit
Current liabilities
Accounts payable				$	847,182		$	1,482,296
Dividends payable					1,383,880			823,612
Related party payables		8			1,693,273			17,351
Accrued liabilities		9			721,758			976,325
Customer deposit					-			30,806
Total current liabilities					4,646,093			3,330,390
Non-current liabilities
Convertible preferred stock - $0 par value, 10,000 shares
authorized; 4,605 and 4,545 shares issued and outstanding at
September 30, 2007 and 2006, respectively		10			10,172,376			10,040,758
Liabilities of discontinued operations
Accounts payable		15			927,644			1,005,510
Related party payables		15			-			385,075
Accrued liabilities		9,15			22,085			84,969
					949,729			1,475,554

See Accompanying Notes to the Financial Statements and Accountant’s Report.

2

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United Premier Medical Group
Consolidated Balance Sheets
At September 30, 2007 and 2006
(Stated in US Dollars)

					At			At
		Note			September 30,			September 30,
					2007			2006
Total liabilities				$	15,768,198		$	14,846,702
Minority interest					-			-
Stockholders’ deficit
Common stock - $0.00128 par value, 10,000 shares
authorized; 15,912 and 15,683 shares issued and outstanding at
September 30, 2007 and 2006, respectively					37,827			20
Additional paid in capital					10,479,310			10,215,864
Accumulated deficits					(23,609,499	)		(22,390,519	)
Accumulated other comprehensive income (loss)					(115,900	)		14,610
Total stockholders' deficit					(13,208,262	)		(12,160,025	)
Total liabilities, minority interest, and stockholders' deficit				$	2,559,936		$	2,686,677

See Accompanying Notes to the Financial Statements and Accountant’s Report.

3

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United Premier Medical Group
Consolidated Statement of Operations
for the twelve months ended September 30, 2007 and 2006
(Stated in US Dollars)

					twelve months			twelve months
					ended			ended
		Note			September 30,			September 30,
					2007			2006
Revenue		2 (g), 16		$	570,217		$	157,999
Cost of revenue		2 (h)			152,184			96,291
Gross profit/(loss)					418,033			61,708
Selling expenses		2(i)			150,800			533,243
General and administrative expenses		2(j)			794,663			2,364,278
Total operating expenses					945,463			2,897,522
Other income (expenses)
Other income					-			55,272
Interest income					932			107
Interest expense					(935,012	)		(859,765	)
Other expenses					(616,364	)		(166,289	)
Total other income (expenses)					(1,550,444	)		(970,675	)
Loss before income tax and minority interest					(2,077,874	)		(3,806,488	)
Provision for income tax		2 (k) , 11			(20,510	)		(4,716	)
Loss before minority interest					(2,098,384	)		(3,811,204	)
less : Minority interest in net income (loss)					499,950			(152,555	)
Loss from continuing operations					(1,598,434	)		(3,963,759	)
Gain (loss) from discontinued operations, net of taxes		15			379,454			(1,994,966	)
Net income (loss)				$	(1,218,980	)	$	(5,958,725	)
Earnings (loss) per share		2 (l), 14
Basic and diluted					(76.74	)		(385.90	)
Weighted average shares outstanding
Basic and diluted					15,884			15,441

See Accompanying Notes to the Financial Statements and Accountant’s Report.

4

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United Premier Medical Group
Consolidated Statement of Operations
for the twelve months ended September 30, 2007 and 2006
(Stated in US Dollars)

					twelve months			twelve months
					ended			Ended
Statement of Comprehensive		Note			September 30,			September 30,
Income (Loss):					2007			2006
Net income (loss)				$	(1,218,980	)	$	(5,958,725	)
Other comprehensive income (loss)		2 (m)
Foreign currency translation adjustment		2( n)			(130,510	)		582,752
Total comprehensive income				$	(1,349,490	)	$	(5,375,973	)

United Premier Medical Group
Consolidated Statements of Changes in Stockholders’ Deficit
for the twelve months ended September 30, 2007 and 2006
(Stated in US Dollars)

														Accumulated
		Common stock						Additional						Other
		Shares			Par			paid in			Accumulated			comprehensive
		outstanding			amount			capital			deficit			Income (loss)			Total
Balance, October 1, 2005		15,143		$	19		$	9,304,730		$	(16,431,794	)	$	(568,142	)	$	(7,695,187	)
Issuance of stock for cash		129			-			184,212									184,212
Issuance of stock for cash		186			-			372,000									372,000
Issuance of stock as compensation		225			1			354,922									354,923
Net loss											(5,958,725	)					(5,958,725	)
Foreign currency translation adjustment														582,752			582,752
Balance, September 30, 2006		15,683		$	20		$	10,215,864		$	(22,390,519	)	$	14,610		$	(12,160,025	)
Balance, October 1, 2006		15,683		$	20		$	10,215,864		$	(22,390,519	)	$	14,610		$	(12,160,025	)
Issuance of stock for cash		209			37,807			195,759									233,566
Issuance of stock as compensation		20			-			67,687									67,687
Net loss											(1,218,980	)					(1,218,980	)
Foreign currency translation adjustment														(130,510	)		(130,510	)
Balance, September 30, 2007		15,912		$	37,827		$	10,479,310		$	(23,609,499	)	$	(115,900	)	$	(13,208,262	)

See Accompanying Notes to the Financial Statements and Accountant’s Report.

5

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United Premier Medical Group
Consolidated Statements of Cash Flows
for the twelve months ended September 30, 2007 and 2006
(Stated in US Dollars)

		twelve months			twelve months
		ended			Ended
		September 30,			September 30,
		2007			2006
Cash Flow from Operating Activities
Net income (loss)	$	(1,218,980	)	$	(5,958,725	)
Adjustments to reconcile net loss to net cash used in operating activities:
Preferred dividends included in interest		1,473,819			682,531
Minority interest		(494,166	)		122,037
Depreciation		(384,074	)		-
Impairment of assets
Decrease/(Increase) in accounts receivable		(66,967	)		(67,839	)
Decrease/(Increase) in related party receivable		(336,559	)		560,052
Decrease/(Increase) in prepaid expenses		(31,339	)		45,580
(Decrease)/Increase in accounts payables		(712,980	)		(199,488	)
(Decrease)/Increase in accrued liabilities		(317,451	)		(157,142	)
(Decrease)/Increase in related party payable		1,290,847			(514,715	)
(Decrease)/Increase in customer deposit		(30,806	)		30,806
Cash Sourced from/(Used in) operating activities		(828,656	)		(5,456,903	)
Cash Flows from Investing Activities
Rent and utility (deposits paid)/deposits refund		(68,129	)		143,144
(Acquisition of minority interest at premium generating goodwill)		(292	)		(154,400	)
Proceeds from sales of/(purchase of) equipment		1,011,219			1,503,223
Cash Sourced from/(Used in) investing activities		942,798			1,491,967
Cash Flows from Financing Activities
Proceeds from issuance of stock		301,253			915,792
Issuance of convertible preferred stock		131,618			3,286,553
Dividends paid
Cash Sourced from/(Used in) Financing Activities		432,871			4,202,345
Net Increase/(Decrease) in Cash & Cash Equivalents for the Period		547,013			237,409
Effect of Currency Translation		(165,821	)		(227,072	)
Cash & Cash Equivalents at Beginning of Period		35,513			25,176
Cash & Cash Equivalents at End of Period	$	416,705		$	35,513

See Accompanying Notes to the Financial Statements and Accountant’s Report.

6

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES
	History
	United Premier Medical Group Limited (the “Company”) is a medical consultancy service provider in the People’s Republic of China (“PRC”) providing services in the areas of hospital management and specialty medical consultancy. UPMG’s primary focus is the health care needs of women and children.
	The business was founded in 2001, with the Company as the ultimate holding company. the Company was organized under the laws of Cayman Island on March 28, 2003, whereas UPMG International Limited (“UPMGI”) was incorporated in the British Virgin Islands on September 15, 2003. The intention is to build the Company using a holding company structure, with a top-level entity owing interests in operating entities. Separate operating entities are established in each geographic region. At times, the company owns less than 100% of an operating entity because this enables the use of resources and expertise of local partners.
	There were a number of restructuring events, which occurred over the past several years. These events would include:
	•	On July 19, 2001, UPMGI acquired 50% of the operating entity Proactive Medicare Enterprise (Hong Kong) Limited (“PME-HK”). At the same time, PME-HK held 90% in equity interest of the operating entity Shanghai Proactive Medicare Health Education Center Limited (“BK-SH”).
	•	On May 5, 2003, UPMG acquired 100% of UPMGI and hence UPMGI became a wholly-owned subsidiary of UPMG.
	•	On March 17, 2004, UPMGI increased its ownership of the operating entity PME-HK from 50% to 100% and hence PME-HK became a wholly-owned subsidiary of UPMGI.
	•	Pro-Innovative Holdings Limited (“PHL”), an investment holding company, was incorporated on January 22, 2004 with 51% in equity interest held by UPMG.
	•	On February 17, 2004, UPMG transferred all common shareholding in Ideamart Holdings Limited (“Ideamart”) to PHL. Ideamart, which incorporated on May 28, 2003, is a dormant company.
	•	On March 19, 2004, UPMG International (Guangdong) Limited (“UPMGIG”) increased its ownership of UPMG (Guangdong) Company Limited (“UPMGGC”) from 99% to 100%.
	•	On May 7, 2004, PHL transferred 100% of its ownership in UPMG (Hong Kong) Limited (“UPMG-HK”) and UPMG (US) Limited (“UPMG-US”) to UPMGI and hence UPMG-HK and UPMG-US became the wholly-owned subsidiaries of UPMGI.
	•	In April 2007, UPMG-HK disposed of its 100% interest in Broad Prosper Limited.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

Current Structure & Basis of Presentation

The Company owned the following subsidiaries at September 30, 2007:

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

The consolidated financial statements include the accounts of UPMG and its consolidated subsidiaries. UPMG wholly owns UPMGI, which in turn directly holds 12 wholly-owned subsidiaries and indirectly holds 4 subsidiaries including HB-GZ (100% in equity interest), BK-SH (90% in equity interest), UBK-SZ (100% in equity interest) and UPMG-MU (50% in equity interest). Besides, UPMG holds 51% in equity interest of PHL, which in turn, wholly owns two direct subsidiaries and holds 62% in equity interest of UPMGIG, which in turn wholly owns UPMGGC

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

Business

The Company provides consultancy services to the VIP Maternity & Gynecological Centers (the “VIP Birthing Centers”) in the PRC. These services are provided in conjunction with Johns Hopkins International, LLC, a U.S. based healthcare provider, and based upon a Consultancy Agreement with JHI. (The Company and JHI are currently disputing certain material terms of the consultancy agreement – see below, and note 14). The first VIP Birthing Center commenced operations in October 2002 at the International Peace Maternity & Child Health Hospital in Shanghai. Over the past six years, we have signed co-operative agreements with a number of hospitals in Obstetrics / Gynecology (“OB/GYN”) across the PRC in cities including Beijing, Shanghai, Guangzhou, Foshan, Wuxi, Xiamen, Changsha and Hangzhou. In 2006, we signed a management agreement with the University Hospital at Macau University of Science and Technology (“UH-MUST”) whereby we provide general hospital management consultancy service.

The Company currently under contracts to provide consultancy services to a total of five VIP Birthing Centers in the PRC and to manage a private hospital in Macau. These centers are located in Wuxi (“the Wuxi Center”), Xiamen (“the Xiamen Center”), Changsha (“the Changsha Center”), Foshan (“the Foshan Center”) and Hangzhou (“the Hangzhou Center”). The Wuxi Center, the Xiamen Center and the hospital in Macau are operated under the Company’s service contracts, and the Company receive a monthly fee for the Company’s services. The Company have had difficulty enforcing these contracts, and three of the VIP Birthing Centers have ceased complying with the Company payment terms (the Changsha Center, the Foshan Center, and the Hangzhou Center). The Company engaged lawyers to negotiate with the host hospitals for settlement. The Company also had a VIP Birthing Center in Shanghai (“the Shanghai Center”). The Company have not been paid by the Shanghai Center since January 2006 and the Company have taken legal action against the host hospital for breach of contract.

The Company had an additional VIP Birthing Center in Guangzhou (“the Guangzhou Center”) which ceased its operation in March 2007. The Company invested assets were sold back to its host hospital. The Company’s net receipt on this asset sale amounted to $1,296,944. For the abovementioned centers that the Company has difficulty enforcing its contracts, the Company have not accrued any revenue for the years ended September 30, 2007 and 2006.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company had a net loss of $1,218,980 and a cash outflow from operations of $828,656 for the period ended September 30, 2007 and a working capital deficiency of $23,609,499 and a shareholders’ deficit of $13,208,262 at September 30, 2007. These matters raise substantial doubt about the Company’s ability to continue as a going concern if the Company does not secure new outside financing. The Company is currently and continues to make efforts to procure outside financing to strengthen its financial position.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	(a)	Method of Accounting
		The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.
	(b)	Consolidation
		Inter-company transactions, such as due to/due from balances, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.
	(c)	Use of Estimates
		In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These estimates and assumptions include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation of useful lives of property, plant, and equipment. Actual results could differ from these estimates.
	(d)	Cash and Cash Equivalents
		The Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.
	(e)	Accounts Receivable
		Accounts receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. Management regularly reviews the Company’s outstanding receivables balance, and will provide allowance for doubtful accounts based on its assessment. Bad debts are charged against allowances when outstanding receivables have been determined to be uncollectible. See Note 3 – Accounts Receivable.
	(f)	Property and Equipment
		Property and equipment are stated at cost less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation of equipment is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the equipment are as follows:

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to the statement of operations as incurred, whereas significant renewals and betterments are capitalized. See Note 6 –Equipment.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

	(g)	Revenue Recognition
		The Company’s revenues are derived from its share of operating profit from VIP Birthing Centers at hospitals where it has invested in capital equipment, leasehold improvements, and human capital in the form of technical training for hospital staff. The Company’s share of operating profit from the VIP Birthing Centers depends upon the contractual terms with each hospital. The typical share of operating profit ranges between 70% and 80% of the total operating profit of the VIP Birthing Center. Financial statements are provided by the hospitals each month to the Company for review, verification, and approval. When the financial statements of the VIP Birthing Centers have been approved, the Company recognizes revenue by recording its portion of the total operating profit to its financial statements. Revenues that have been both recognized in accordance to their respective contracts and financial statements provided by the hospitals can be reasonably expected to be collectible.
	(h)	Cost of Revenue
		Cost of revenue is primarily comprised of depreciation, wages, and licensing fees that must be paid to JHI for facilities with continuing operation. The Company believes that the depreciation of property and equipment matches the substantial initial investment equipment and leasehold improvements with revenues that are earned overtime. The Company charges wages paid to doctors and medical personnel who provide the initial training and hospital management expertise to the hospital when the VIP Birthing centers are initially setup and on a non-fixed on-going basis.
	(i)	Selling Expenses
		Selling expenses are comprised of client entertainment, commissions and salaries for sales personnel, marketing, and travel and lodging expenses.
	(j)	General & Administrative Expenses
		General and administrative expenses include outside consulting services, research & development, executive compensation, quality control, and general overhead such as finance and administrative staff, and depreciation expense.
	(k)	Income Taxes
		The Company uses the accrual method of accounting to determine and report its taxable income for the year. The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The Company also adopted FIN 48, Accounting for Uncertainty in Tax Positions.
		Income tax liabilities computed according to the United States, People’s Republic of China (PRC), Hong Kong SAR and Macau SAR laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be taxable or deductible when the assets and liabilities are recovered of settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes. A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

	(l)	Earnings (Loss) Per Share
		The Company computes earnings per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
	(m)	Other Comprehensive Income (Loss)
		Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.
	(n)	Foreign Currency Translation
		The Company maintains its financial statements in the functional currency, which is the Renminbi (RMB). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
		For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
		The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is Hong Kong dollars (“HK$”). Equity accounts of the consolidated financial statements are translated into United States dollars from HK$ at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the year. Translation adjustments are not included in determining net income but are included in foreign currency translation adjustment in other comprehensive income, a component of stockholders’ equity.

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United PremiPremier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

	(o)	Recent Accounting Pronouncements
		In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 161 requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
		In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). Statement 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles."
		In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis.
		In September 2008, FASB issued FSP No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees”, an amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161. This FSP is intended to improve disclosures about credit derivatives by requiring more information about the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of credit derivatives. The provisions of the FSP that amend Statement 133 and FIN 45 are effective for reporting periods (annual or interim) ending after November 15, 2008.
		The Company is currently evaluating the potential impact, if any, of the adoption of the above recent accounting pronouncements on its consolidated results of operations and financial condition.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

3.	ACCOUNTS RECEIVABLE

4.	RELATED PARTY RECEIVABLE

5.	PREPAID EXPENSES
	The prepaid expenses at September 30, 2007 and 2006 are shown in the following table: -

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

6.	PROPERTY AND EQUIPMENT
	Property and equipment for both continuing and discontinued operations are stated at cost less depreciation shown the in table below: -

7.	GOODWILL
	Goodwill amounting to $154,692 and $154,400 as of September 30, 2007 and 2006 is related to the acquisition of the minority interest of PME-WX, for which the company’s subsidiary, UMPGI, purchased the remaining 20% of interest from other stockholder in 2004. Management annually reviews the carrying value of goodwill using the sum of the undiscounted cash flows generated by PME-WX to determine if an impairment charge is necessary. The Company has determined that were was no impairment to goodwill for the years ended September 30, 2008 and 2007.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

8.	RELATED PARTY PAYABLES
	The following table presents the balances the Company owed to related parties.

				At			At
				September 30,			September 30,
				2007			2006
	Due to Director: Yuen Yee Wong			891,631			-
	Due to Director: Robert Yao Wing Wong			18,749			17,351
	Jin Ming			-			385,075
	Autoscale			612			-
	Loan from Innotech			782,281			-
			$	1,693,273		$	402,426

Due to Director

Payables owed to the Company’s directors are non- interest- bearing and, payable on demand. There is no impact to the statement of operations as result of the payables to the directors. “Intended Repayment Date”

Loan from Innotech

On June 20, 2007, Inno-Tech Holdings Limited (“Innotech”), a shareholder of United Premier Medical Group Limited (“UPMG”), loaned $772,777 (equivalent to HK$6,000,000) to UPMG for use as working capital. The repayment date was originally June 22, 2008, but was subsequently extended to December 22, 2008.

On January 10, 2008, Innotech loaned $384,615 (HK$3,000,000) to UPMG with the original repayment date on January 9, 2009. On January 25, 2008, Innotech loaned another $512,820 (HK$4,000,000) to UPMG with the original repayment date on January 24, 2009. These loan repayment dates have been extended. During the period ended September 30, 2007 and 2006, the Company incurred interest expense of $46,237 and $859,765 respectively.

The following table summarizes the loan from related party: -

On April 29, 2008, the loan from related party was extended as below:

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

9.	ACCRUED LIABILITIES

PMEI was once in negotiation with JHI concerning the amount owed to JHI for services and the use of the JHI trademarks for the period June 2005 through March 2006. JHI has invoiced a total of $550,000 for these services. As PMEI was dissolved in November 2007, the amount to be paid to JHI will ultimately be a liability of the Company, and the Company has accrued the amount of $550,000 as of September 30, 2007, and will subsequently be paid entirely by the end of 2008.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

10.	CONVERTIBLE PREFERRED STOCK
	From June 30, 2005 to September 30, 2007, the UPMG entered into a continuous securities subscription agreement with private investors for the sale of UPMG Convertible Preferred Stock. UPMG issued a total of 4,605 shares of Convertible Preferred Stock at a subscription price of $2,500 per shares for aggregate net proceeds of $10,225,269, after accounting for issuance costs and professional fees. The shares bear an 8% per annum preferred dividend payable semi-annually. The terms of the subscription agreement call for a conversion ratio of one Convertible Preferred Stock to one common share of UPMG, which in turn can be exchanged for 2,000 shares of the Company. The shares of Convertible Preferred Stock have no voting rights. Under the subscription agreement, mandatory conversion of the shares would be triggered by UPMG listing its shares in a public market. Should no public listing occur within three years (subject to extension under certain conditions), the Convertible Preferred Stock would be mandatorily redeemable at a price of $2,500 per share plus a premium of 2%. The Company believes the conversion feature of the Convertible Preferred Stock is not a beneficial conversion feature. At the time of their issuance, the UPMG was not a publicly traded corporation. The Company believes that based on the characteristics of the security, such as the mandatory redemption feature, liquidation preference ahead of common stockholders, and cumulative dividends are characteristics akin to liabilities. Accordingly, the Company recognizes the convertible preferred stock as a liability. Any corresponding preferred dividends are regularly accrued according to the terms of the agreement and the redemption features are booked when the securities are issued. The Company typically books the entries for by recording a debit to interest expense and an offsetting credit to credit to preferred dividends payable.
	On December 4, 2007, the Board of Directors of the UPMG resolved and notified the holders of the Convertible Preferred Stock that UPMG intended to force conversion of all the shares into common shares because the Company was to subsequently undertake a reverse merger transaction, which would transform the company into a public company. All the preferred shares have been subsequently converted except for 600 shares.
	In December 2007, UPMG agreed to issue an additional 459 of Convertible Preferred Stock in lieu of paying out dividends in cash, which UPMG had accrued under dividends payable. The additional 459 shares of Convertible Preferred Stock were equivalent to $1,060,086 of dividends.
	The Company is currently in arbitration with the holders of the remaining 600 shares of Convertible Preferred Stock over the Company’s intension to force conversion of their shares into common shares. The Company has retained counsel to represent it in arbitration.
	The related outstanding dividends payable for the Convertible Preferred Stock at September 30, 2008 and September 30, 2007 were $24,884 and $1,385,573, respectively.
11.	INCOME TAXES
	In accordance with the relevant tax laws and regulations of Hong Kong, the corporate income tax rate applicable to the subsidiaries of the Company in Hong Kong is 17.5% of taxable income. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), effective from January 1, 2008. Under the New CIT Law, the corporate income tax rate applicable to the subsidiaries of the Company in the PRC starting from January 1, 2008 is 25%, replacing the previously applicable tax rate of 33%. The New CIT Law has an impact on the deferred tax assets and liabilities of the Company. Effects arising from the enforcement of New CIT law have been reflected into the accounts by applying the new tax rate.
12.	SUBSEQUENT EVENTS
	The Company through its ultimate holding Company China Health Care Corporation appointed Mr. Siew Man Pang as Chief Executive Officer effective October 1, 2008. He replaced Mr. Jay Macfarland who will stay on as Senior Group Advisor. See the Form 8-K filed by the Company’s ultimate holding Company on October 10, 2008 for further details.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

13.	STOCK COMPENSATION EXPENSE
	During the twelve months ended September 30, 2007, and 2006 the UPMG issued 20 shares and 225 shares of its common stock as compensation, respectively. The 20 shares and 225 shares of UPMG were equivalent to 40,000 shares and 250,000 shares of the Company’s common stock. The values of the 20 and 225 shares of common stock that were expenses to the company’s statements of income were $67,687 and $341,665. The valuation of these shares was determined by using price similar to that which was used for the sale of common shares to other UPMG stockholders. As result of the lack of secondary market at time of issuance of UPMG’s common stock as compensation, the Company believes that the use of a price that other investors had paid was a reasonable fair market value.
14.	EARNINGS PER SHARE
	Components of basic and diluted earnings per share were as follows:

			twelve months			twelve months
			ended			ended
			September 30,			September 30,
			2007			2006
	Loss from continuing operations		(1,598,434	)		(3,963,759	)
	Net income/(loss)		(1,218,980	)		(5,958,725	)
	Original shares		15,683			15,143
	– Addition to common stock from issuances		201			298
	Basic weighted average shares outstanding		15,884			15,441
	Dilutive Shares:
	– Addition to common stock if preferred stock had been converted *		-			-
	Diluted Weighted Average Shares Outstanding:		15,884			15,441
	Earnings (Loss) Per Share
	– basic		(76.74	)		(385.90	)
	– diluted		(76.74	)		(385.90	)
	Weighted average shares outstanding
	– basic		15,884			15,441
	– diluted		15,884			15,441
	Supplemental Data
	Earnings (loss) per share from continuing operations		(100.63	)		(256.70	)

* If the preferred stock had been converted it would have been antidilutive, accordingly there was no potentially dilutive effect from them.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

15.	DISCONTINUED OPERATIONS

The Company did not accrue additional allowance for doubtful accounts for the accounts receivable for discontinued operations.

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

16.	RISKS
	Doing Business in the PRC
	The Company’s operations are conducted in the People’s Republic of China (the “PRC”). Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
	Concentrations
	For the twelve months ended September 30, 2008, the Company derived its revenue from three VIP Birthing Centers. Each VIP Birthing Center unto itself can be considered single customers, and, as such, by virtue of there were only three centers, there was a concentration of risk in the Company’s revenues. The following provides a table of each centers’ contribution by amount and percentage for the nine months presented.

			for the twelve months ended					for the twelve months ended
			September 30, 2007					September 30, 2006
					Percentage					Percentage
	Operating VIP				Contribution to					Contribution to
	Birthing Centers		Amount		Revenue			Amount		Revenue
	Xiamen	$	120,533		21.14%		$	-		0.00%
	Wuxi		292,322		51.27%			107,967		68.33%
	Macau		157,362		27.59%			50,032		31.67%
		$	570,217		100.00%		$	157,999		100.00%

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United Premier Medical Group
Notes to Consolidated Financial Statements
At and for the years ended September 30, 2007 and 2006
(Stated in US Dollars)

17.	COMMITMENTS AND CONTINGENCIES

A. Legal proceeding against IPMCHH

Proactive Medicare Enterprise (HK) Limited, a subsidiary of UPMG, is a plaintiff of a legal proceeding regarding a civil claim against a hospital in the PRC namely, International Peace Maternity & Child Health Hospital of the China Welfare Institute (“IPMCHH” or the “defendant”) who refused to pay consultancy fees to PME-HK since April 2005 which may aggregate to $2,890,000

On April 10, 2007, Proactive Medicare Enterprise (HK) Limited (“PME-HK”) brought a civil action to the Shanghai No. 1 Intermediate People’s Court (the “Shanghai Court”) in the PRC against IPMCCH for breach of contract. A statement of claim from PME-HK was sent to the Shanghai Court for acceptance of review. The proposed claims regarding this civil action included: (i) To order IPMCHH to honor the co-operative agreement signed between PME-HK and IPMCHH on February 2, 2004; (ii) To order IPMCHH to pay the consultant fee amounted $2,890,000 (equivalent to RMB22,677,123) in arrears owed to PME-HK, and (iii) IPMCHH shall bear the cost of this action.

On April 12, 2007, the statement of claim was legally accepted and filed by the Shanghai Court (Notification of Acceptance: (2007) Hu Yi Zhong Min Wu (Shang) Chu Zi No. 93). On May 29, 2007, the first instance of the case was held to establish the case. On January 23, 2008, the second instance of the case was held to further negotiate a mutually accepted settlement plan. Through the mediation of the Shanghai Court, PME-HK and IPMCHH, so far, have gone through several rounds of negotiation for a mutually agreed settlement amount in recent months but a final settlement amount has yet to be confirmed.

The result of this claim cannot be predicted, and it is possible that the ultimate resolution of the matters, individually or in the aggregate, may have a material adverse effect on the Company’s business (either in the near-term or in the long-term), financial position, results of operations, or cash flows. Though the management of the Company believes a portion of this claim may be recovered, the Company has reasonably estimated the uncertain portion and has eliminated their revenue contribution in 2007.

B. Contingent claims against other three hospitals in the PRC

The Company has also engaged a law firm in the PRC to negotiate with another two hospitals in the PRC, which are under contract to pay the Company for the consultancy services provided to their affiliated VIP Birthing Centers in Foshan and Changsha in the PRC. The proposed claim in each case is about one million US dollars. The Company has gone through several rounds of negotiation for an agreed settlement amount in recent months and a final settlement amount has yet to be confirmed.

For the Hangzhou Center, the Company is identifying a suitable PRC lawyer to negotiate with its host hospital for a mutually accepted settlement plan.

C. Contingent relationship with JHI

The Company is currently in dispute with JHI mainly on the fee structure, outstanding fee owing to JHI and use of “JHI” brand in future, and we are actively negotiating with JHI for settlement. As indicated in an email from JHI dated April 22, 2008, the Company believes that JHI is willing to provide limited support depending on JHI’s receiving advance payment for any services requested. The Company also believes that JHI is willing to proceed with settlement negotiations with the Company as long as the Company commits to pay a lump sum of $300,000 as the settlement of consulting services provided before. Given the positive attitude of JHI, the Company believes the negotiation outcome would be positive and constructive. The amount to be paid to JHI will ultimately be a liability of the Company, and the Company has accrued the amount of $550,000 during the year ended September 30, 2006. This amount appears as Accrued Liabilities on the Company’s balance sheet at September 30, 2007 and 2006.

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