|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549           
|                                  
|FORM
 10-K/A                      

|           |                   | 
|---------- | ----------------- | 
|(Mark One) | (Amendment No. 2) | 

|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|x  | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     
|   | For the
 fiscal year ended December
 31, 2008                                             
|or
|o  | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|   | For the
 transition period from ___________________________to
 ___________________________

|                                                      
|------------------------------------------------------
|Commission file number: 000-50140                     
|                                                      
|ACL
 Semiconductors Inc.                              
|(Exact name of Registrant as specified in its charter)

|                                                                                                    |  |                                          
|--------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Delaware                                                                                            |  | 16-1642709                               
|                                                                                                    |  |                                          
|State or other jurisdiction of incorporation or organization                                        |  | (I.R.S. Employer Identification Number)  
|                                                                                                    |  |                                          
|Room 1701, 17/F., Tower 1, Enterprise
 Square, 9 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong.
|                                                                                                   
|(Address of
 principal executive offices)                                                           |  | (Zip Code)                               
|                                                                                                    |  |                                          
|Registrants
 telephone number including area code: 011-852-2799-1996                              
|                                                                                                    |  |                                          
|Securities
 registered pursuant to Section 12(b) of the Act:                                       
|                                                                                                    |  |                                          
|Title of each class                                                                                 |  | Name of each exchange on which registered
|Common Stock, $0.001 par value                                                                      |  | Over-the-Counter Bulletin Board          
|                                                                                                    |  |                                          
|Securities registered pursuant to Section 12(g) of the Act:                                        

| |                  | 
| | ---------------- | 
| | NONE             | 
| |                  | 
| | (Title of class) | 

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. o Yes x No


Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. o Yes x No


Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x Yes o No


Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.) o Yes o No


Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K,
or any amendment to this Form 10-K. o


Indicate by
check mark whether the registrant is large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act.

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

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-5
of the Act). o Yes x No


The aggregate
market value of the voting common equity held by non-affiliates of the
registrant as of June 30, 2008 was approximately $1,427,985 based upon the
closing price of $0.24 of the registrants common stock on the OTC Bulletin
Board. (For purposes of determining this amount, only directors, executive
officers, and 10% or greater stockholders have been deemed affiliates).

The number of
shares of Registrants Common Stock outstanding as of April 13, 2009 was
28,729,936.

DOCUMENTS
INCORPORATED BY REFERENCE

NONE

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Table of Contents

Form 10-K Index

|                                           |                                                                                                                   |     |     
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------- | --- | ----
|                                           |                                                                                                                   |     | PAGE
|                                           |                                                                                                                   |     |     
|                                           | EXPLANATORY NOTE                                                                                                  |     | 1   
|                                           |                                                                                                                   |     |     
|                                           | FORWARD LOOKING STATEMENT                                                                                         |     | 2   
|                                           |                                                                                                                   |     |     
|                                           | PART I                                                                                                            |     |     
|                                           |                                                                                                                   |     |     
|Item 1.                                    | Business                                                                                                          |     | 2   
|Item 1A.                                   | Risk Factors                                                                                                      |     | 5   
|Item 1B.                                   | Unresolved Staff Comments                                                                                         |     | 8   
|Item 2.                                    | Properties                                                                                                        |     | 8   
|Item 3.                                    | Legal Proceedings                                                                                                 |     | 9   
|Item 4.                                    | Submission of Matters to a Vote of Security Holders                                                               |     | 9   
|                                           |                                                                                                                   |     |     
|                                           | PART II                                                                                                           |     |     
|                                           |                                                                                                                   |     |     
|Item 5.                                    | Market for the Registrants Common Equity, Related Stockholder
 Matters and Issuer Purchases of Equity Securities |     | 10  
|Item 6.                                    | Selected Financial Data                                                                                           |     | 11  
|Item 7.                                    | Managements Discussion and Analysis of Financial Condition and
 Results of Operations                            |     | 11  
|Item 7A.                                   | Quantitative and Qualitative Disclosures About Market Risk                                                        |     | 19  
|Item 8.                                    | Financial Statements and Supplementary Data                                                                       |     | 19  
|Item 9.                                    | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure                             |     | 19  
|Item 9AT.                                  | Controls and Procedures                                                                                           |     | 20  
|Item 9B.                                   | Other Information                                                                                                 |     | 22  
|                                           |                                                                                                                   |     |     
|                                           | PART III                                                                                                          |     |     
|                                           |                                                                                                                   |     |     
|Item 10.                                   | Directors, Executive Officers and Corporate Governance                                                            |     | 23  
|Item 11.                                   | Executive Compensation                                                                                            |     | 24  
|Item 12.                                   | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters                   |     | 27  
|Item 13.                                   | Certain Relationships and Related Transactions, and Director
 Independence                                        |     | 28  
|Item 14.                                   | Principal Accounting Fees and Services                                                                            |     | 30  
|                                           |                                                                                                                   |     |     
|                                           | PART IV                                                                                                           |     |     
|                                           |                                                                                                                   |     |     
|Item 15.                                   | Exhibits and Financial Statement Schedules                                                                        |     | 31  
|Signatures                                 |                                                                                                                   | 34 
|Index to Consolidated Financial Statements |                                                                                                                   | F-1

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EXPLANATORY
NOTE

This
Amendment No. 2 to ACL Semiconductors, Inc.s (the Company)
Annual Report on Form 10-K/A for the year ended December 31, 2008 is being made
principally as a result of the Companys recent determination on March 23,
2010 that Aristo Technologies Limited (Aristo), a related company
solely owned by Mr. Chung-Lun Yang, is a variable interest entity under FASB
ASC 810-10-25 and is subject to consolidation with the Company.

This
Form 10-K/A amends and restates Item 1 of Part I, Item 1A of Part I, Item 7 of
Part II, Item 9AT of Part II, Item 10 of Part II, Item 11 of Part II, Item 13
of Part III, Report of Independent Registered Public Accounting Firm,
Consolidated Financial Statements and the Notes to Consolidated Financial
Statements of Part IV. This amendment also adds a restatement footnote as Note
15 of the Notes to Consolidated Financial Statements of Part IV. No other
information included in the original Form 10-K is amended hereby.

For
convenience and ease of reference, the Company is filing the Annual Report in
its entirety with applicable changes. Unless otherwise stated, all information
contained in this amendment is as of April 14, 2009, the filing date of the
original Annual Report. Except as stated herein, this Form 10-K/A does not
reflect events or transactions occurring after such filing date or modify or
update those disclosures in the Annual Report that may have been affected by
events or transactions occurring subsequent to such filing date. No information
in the Annual Report other than as set forth above is amended hereby.
Currently-dated certifications from our Chief Executive Officer and our Chief
Financial Officer have been included as exhibits to this amendment.

1

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FORWARD
LOOKING STATEMENTS

This Annual Report on Form 10-K and the
documents incorporated herein contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking
statements. When used in this Annual Report, statements that are not statements
of current or historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words plan, intend, may, will,
expect, believe, could, anticipate, estimate, or continue or
similar expressions or other variations or comparable terminology are intended
to identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statements, whether as a result of new information,
future events or otherwise.

Any reference to ACL, the Company, we,
us, our or the Registrant means ACL Semiconductors Inc. and its
subsidiaries.

PART
I

|        |         
|------- | --------
|Item 1. | Business

General

ACL
Semiconductors Inc. (the Company) was incorporated under the laws of the
State of Delaware on September 17, 2002. Our predecessor, Print Data Corp.
(Historic Print Data) was incorporated under the laws of the State of
Delaware on August 15, 1984 as a business forms distributor and supplier of
office and computer environment supply needs.

On
September 8, 2003, the Company entered into a Share Exchange and Reorganization
Agreement (the Exchange Agreement) with Atlantic Components Limited, a Hong
Kong corporation (Atlantic), and Mr. Chung-Lun Yang, the sole beneficial
stockholder of Atlantic (Mr. Yang), which set forth the terms and conditions
of the exchange by Mr. Yang of his common shares of Atlantic, representing all
of the issued and outstanding capital stock of Atlantic, in exchange for the
issuance by the Company to Mr. Yang and certain financial advisors of an
aggregate of twenty five million (25,000,000) shares of common stock, par value
$0.001 per share (the Common Stock), of the Company (the Transaction).
Pursuant to the Exchange Agreement, the Company and Atlantic agreed, inter alia,
to elect Mr. Yang and Mr. Ben Wong to the board of directors (Board of
Directors) of the Company upon the closing of the Transaction (the Closing),
effective as of that date (the Closing Date), at which time, all of the
Companys existing directors resigned.

The
Closing occurred on September 30, 2003, upon the satisfaction or waiver of the
conditions to the Closing set forth in the Exchange Agreement, as a result of
which (i) Atlantic became a wholly-owned subsidiary of the Company, (ii) Mr.
Yang received an aggregate of 22,380,000 shares of Common Stock, (iii) the
Companys existing directors resigned and Mr. Yang and Mr. Wong were appointed
to fill their vacancies and became the only members of the Board of Directors,
and (iv) certain financial advisors to Atlantic became entitled to receive an
aggregate of 2,620,000 shares of Common Stock. Giving effect to the Closing
(including required issuances to financial advisors), Mr. Yang held
approximately 80.4% of the outstanding Common Stock immediately following the
Closing.

On
December 16, 2003, the Company filed a Certificate of Amendment with the
Secretary of State of the State of Delaware changing its name from Print Data
Corp. to ACL Semiconductors Inc.

On
March 23, 2010, the Company concluded that Aristo Technologies Limited
(Aristo), a related company solely owned by Mr. Yang, is a variable interest
entity under FASB ASC 810-10-25 and is therefore subject to consolidation with
the Company beginning fiscal year 2007 under the guidance applicable to
variable interest entities.

Business

Atlantic
is one of the authorized distributors in the Hong Kong and southern region of
the Peoples Republic of China (Southern China) markets of memory products of
Samsung Electronics Hong Kong Co., Ltd. (Samsung), a wholly-owned subsidiary
of Samsung Electronics Co., Ltd., the worlds largest producer of memory chips
and a global producer of memory products, pursuant to a distributorship
agreement with Samsung (the Distribution Agreement) since 1993. Atlantic was
established as a Hong Kong corporation in May 1991 by Mr. Yang as a regional
distributor of memory products of various manufacturers. In 1993, Samsung
appointed Atlantic as its authorized distributor and marketer of Samsungs
memory products in Hong Kong and overseas markets. In 2001, Atlantic
established a representative office in Shenzhen, China and began concentrating
its distribution and marketing efforts in Southern China.

Since
1993, Atlantic has diversified its product portfolio to include all of
Samsungs memory products marketed under the Samsung brand name which
comprise Dynamic Random Access Memory (DRAM), Double Data Rate RAM (DDR),
Graphic Random Access Memory (Graphic RAM), NAND Flash, NOR Flash, and
Multi-Chip Packing (MCP). Atlantic believes it is one of the largest and most
successful distributors of Samsung memory products in Hong Kong and Southern
China.

2

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Aristo
is engaged in the marketing, selling and servicing of computer products and
accessories including semiconductors, LCD products, mass storage devices,
consumer electronics, computer peripherals and electronic components. In
addition to Samsung-branded products, Aristo sells Hynix, Micro, Elpida,
Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond branded products.

The
Companys business objective is to build the best memory solutions platform for
electronics manufacturers in the region. It also aims to offer updated market
intelligence to Samsung in connection with the Hong Kong and Southern China
markets demand in memory products and secure high-quality Samsung products in
order to meet the market demands of individual and corporate users in Hong Kong
and Southern China. The Company works closely with Samsung and presents Samsung
with updated market information that its collects from retail channels and
corporate users to assist Samsung to plan their production and allocation
schedule in advance. The Companys business strategy is to assist Samsung in
implementing their production planning using market intelligence to balance the
supply and demand of memory products in the Hong Kong and Southern China
markets. Accordingly, the Company maintains and develops a sales and market
research team to answer marketing questions from Samsung on a regular basis. In
addition, the Company has established distribution channels covering retail
outlets and major corporate users in the region which allows those retail or
ultimate customers a secure stable supply of Samsungs memory products with
competitive prices. The Company is a non-exclusive distributor of Samsung, and
enjoys a minimum guaranteed gross profit margin range of approximately 1.5% to
2% of products sold in form of sales rebate payable by Samsung.

Approximately
80% of the Companys revenues are derived from sales of Samsung memory
products. As of December 31, 2008, pricing for the Samsung memory products
ranged from approximately $0.17 to $750 per product depending on the product
specifications.

The
Distribution Agreement has a one-year term and contains certain sales quotas to
be met by the Company. The Distribution Agreement has been renewed more than
ten times, most recently on March 1, 2009. The Company has never failed to meet
the sales quotas set forth in the Distribution Agreement.

Products

Synchronous
Dynamic Random Access Memory (SDRAMs), or mobile SDRAM, are the most widely
used semiconductor memory component in computer peripheral (HDD), Digital Still
Camera (DSC), Modems, ADSL Applications, DVD player, Set-top Box (STB), Digital
TV, High Definition TV (HDTV) and Portable Multimedia Players (PMP).

DDRs
(DDR1, DDR2 and DDR3) are random access memory components that transfer data on
both 0-1 and 1-0 clock transitions, theoretically yielding twice the data
transfer rate of normal RAM or SDRAM. Currently, the market has been dominated
by DDR2 and DDR3, which are also starting to penetrate into the mainstream
markets in PCs and graphic cards. The DDR1 is nearly fading out in the market.

Flash
memory is a specialized type of memory component used to store user data and
program code; it retains this information even when the power is off. Although
Flash memory is currently used predominantly in mobile phones and PDAs, it is
commonly used in multi-media digital storage applications for products such as
MP3 players, DSC, Digital Voice Recorders, USB Disks, Flash Cards, etc. In
addition, Solid State Disk hard disks (SSD) will be the next arena that NAND
Flash is expected by the Company to penetrate in the marketplace. The SSD hard
disk has the potential to dominate the traditional hard disk for notebook
markets. Samsung is a major supplier in the world of Flash products. In 2008,
Samsung NAND Flash revenue was approximately US$4,614 million, representing
40.4% of Flashs (NAND + NOR) market share.

Graphic
RAM is a special purpose DDR (GDDR1, GDDR2, GDDR3, GDDR4) as graphic products
require high-speed 3-dimensional calculation performance and large memory size
as data storage buffer for DVD and computer game display. The current GDDR4
currently is the fastest graphic memory in volume production.

The
LCD panel is the major component used in most consumer electronics such as LCD
TV, notebook, digital phone frame, portable game console, mobile phone, etc.

Mass
storage devices such as micro SD card, SD card, and CF card are widely used for
digital camera, mobile phone, portable game console, MP3 player, etc.

Industry Background

Memory
products are integral parts of a wide variety of consumer products and industry
applications including personal computer systems, notebooks, workstations and
servers, handheld computer devices, cellular phones, camcorders, MP3 music
players, digital answering machines and game boxes, DVD player, STB (set-top
box), HDTV and PMP, among others. Market trends, such as increased emphasis on
high-through put applications, including networking, graphics, multimedia,
computer, consumer, and telecommunications products, have created opportunities
for high performance memory products. At present, NAND Flash, DDR2 and SDRAM
are the major memory products and will continue to be sold in the future for
Consumer Electronics, PC field and Home Appliance products, and Samsung is
among the worlds largest developers and manufacturers of those memory
products.

3

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Customers

As
of December 31, 2008, the Company had over 150 active customers in Hong Kong
and Southern China, the majority of whom are memory product traders and
PC/Servers OEM manufacturers. Other than the Companys most significant
customer who accounted for 43% of the Companys net sales for the year ended
December 31, 2008, no other customer accounted for more than 25% of the Companys
net sales for 2008 and 2007, respectively. In order to control the Companys
credit risks, the Company does not offer any credit terms to its customers
other than a small number of clients who have long-established business
relationships with the Company.

Sales and Marketing

As
of December 31, 2008, the Company employed a total of 24 sales and marketing
personnel, each of whom has several years experience in the memory products
industry. 11 of these salespeople are stationed in the Companys headquarters
in Hong Kong, and 13 of them work out of the Companys China offices. These
sales personnel co-operate with key memory product retailers and PC/Servers OEM
manufacturers to ensure that clients are supplied promptly with Samsung memory
products.

Market Research

The
Company invests significant resources in market research for its own account to
provide prompt and accurate market intelligence and feedback on a daily, weekly
and monthly basis to Samsung in order to assist Samsungs production planning
and products allocation functions and thus maintains a close business
relationship with Samsung.

Suppliers

As
of December 31, 2008, a majority of the distributed products are Samsung memory
products. Since 1993, our procurement operations have been supported by Samsung
to ensure there are enough supplies of memory products according to our monthly
sales quota although there is no written long-term distribution agreement in
place with Samsung. Samsung is allocated quantities of its memory products each
year based on anticipated demand for such products by the customers of the
various distributors of Samsung memory products in Hong Kong and in the PRC.
The distributors that are supported by Samsung provide Samsung with their own
annual estimates of product demand. In case of unexpected strong demand in the
market exceeding our monthly sales quota, there is no assurance that Samsung
will be able to supply sufficient memory products to us and other non-exclusive
distributors to meet such demand in excess of Samsungs global allocation
policy to Samsung. In the event of a supply shortage, the market prices of such
memory products will rise and any loss of income attributable to our inability
to fulfill all of our orders would be offset by the increase in income as a
result of any increase in the market prices of such memory products.

Atlantic
relies on Samsung to supply it with memory products for distribution to its
clients. Atlantics relationship with Samsung is primarily maintained through
Mr. Yang, the founder of the Company.

In
addition to Samsung-branded products, Aristo sells brands such as Hynix, Micro,
Elpida, Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond. Aristo is not
an authorized distributor of any of these brands but instead is a trader of a
broad range of products and brands in the computer accessories market.

Competition

The
memory products industry in the Hong Kong and Southern China markets is very
competitive. However, as one of the worlds largest memory products
manufacturers, Samsungs memory products are competitively priced and have an
established reputation for product quality and brand name recognition in the
retail and PC/Server OEM & Consumer Electronic segments. The Company, as
one of the largest distributors of Samsungs memory products for the Hong Kong
and Southern China markets, believes it is in a strong competitive position
against other US, European, Japanese and Taiwanese memory products
manufacturers and distributors.

Samsungs
principal competitors in the Hong Kong and Southern China markets include Hynix
and other Taiwanese manufacturers such as Nanya, PSC, Promos, ISSI and ESMT.
The Companys principal competitors also include the five other non-exclusive
distributors of Samsung memory products in the Hong Kong and Southern China
markets. Samsung may, in its sole discretion, increase the number of
distributors of its products in Hong Kong and Southern China which would result
in increased competition for the Company.

Regulation

As
of December 31, 2008, the Companys business operations were not subject to the
regulations of any jurisdiction other than the Peoples Republic of China.
Although the Company is not formally authorized to do business in the Peoples
Republic of China, it has been permitted by the Chinese authorities to
establish a representative office in Shenzhen, China to carry out liaison works
for its customers in Southern China. The Company executes its sales contracts and
delivers its products in Hong Kong for its Chinese customers and there have
been no restrictions imposed on the Company by the mainland Chinese authorities
with respect to the Companys pursuit of business growth and opportunities in
China.

4

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Employees

As
of December 31, 2008, the Company had 54 employees. Of the 54 employees, 24
employees are in sales and marketing, 15 employees are in administration, 5
employees are in engineering and 10 employees are in customer service and liaison.
None of the Company employees are represented by labor unions.

The
Companys primary hiring sources for its employees include referrals from
existing employees, print and Internet advertising and direct recruiting. All
of the Companys employees are highly skilled and educated and subject to
rigorous recruiting standards appropriate for a company involved in the
distribution of brand name memory products. The Company attracts talent from
numerous sources, including higher learning institutions, colleges and
industry. Competition for these employees is intense. The Company believes its
relationship with its employees to be good. However, the Companys ability to
achieve its financial and operational objectives depends in large part upon its
continuing ability to attract, integrate, retain and motivate highly qualified
personnel, and upon the continued service of its senior management and key
personnel, especially Mr. Yang.

|         |             
|-------- | ------------
|Item 1A. | Risk Factors

We
are subject to a number of risks. Some of these risks are endemic to the
high-technology and semiconductor industry and are the same or similar to those
disclosed in our previous SEC filings. This section should be read in
conjunction with the consolidated financial statements and the accompanying
notes thereto, and Managements Discussion and Analysis of Financial Condition
and Results of Operations included in this Annual Report. The risks and
uncertainties set out below are not the only risks and uncertainties we face.
Our business could be harmed by any of these risks. The trading price of our
common stock could decline due to any of these risks and investors may lose all
or part of their investment. The information included in this Annual Report is
provided as of the filing date with the SEC and future events or circumstances
could differ significantly from the forward-looking statements included herein.

The restatement of our financial statements
may result in litigation or government enforcement actions. Any such action
would likely harm our business, prospects, financial condition and results of
operations.

Our
management recently concluded that Aristo Technologies Limited (Aristo),
a related party, is a variable interest entity under FASB ASC 810-10- 25.
Consequently, we are consolidating the financial statements of Aristo with
those of the Company for the period effective and are restating our previously
filed annual and interim financial statements in this amended Form 10-K for
the year ended 2008 and in an amended Form 10-K for the year
ended 2007 to correct the errors related to accounting for variable interest
entities. The financial statements as originally filed for those periods should
not be relied upon. The restatement of our financial statements may expose us
to risks associated with litigation, regulatory proceedings and government enforcement
actions. In addition, securities class action litigation has often been brought
against companies who have been unable to provide current public information
or who have restated previously filed financial statements. Any of these actions
could result in substantial costs, divert managements attention and resources,
and harm our business, prospects, financial condition and results of operations.

Failure to maintain effective internal
control over financial reporting in accordance with Section 404 of the Sarbanes
Oxley Act of 2002 may result in actions filed against us by regulatory agencies
or in a reduction in the price of our common stock.

We are
required to maintain effective internal control over financial reporting under
the Sarbanes Oxley Act of 2002 and related regulations. Any material weakness
in our internal control over financial reporting that needs to be addressed, or
disclosure of a material weakness in managements assessment of internal
control over financial reporting, may reduce the price of our common shares
because investors may lose confidence in our financial reporting. Our failure
to maintain effective internal control over financial reporting could also lead
to actions being filed against us by regulatory agencies. We identified
material weaknesses in internal control over financial reporting as more fully
discussed in Controls and Procedures at Item 9AT of this Annual Report.
Currently, we have plans for certain remediation actions, but they will take
time to implement because of their cost. There can be no assurance when
remediation will be complete, if at all. Therefore, future reports may have
statements indicating that our controls and procedures are not effective. We
cannot assure you that even if we remediate our internal control over financial
reporting relating to the identified material weaknesses that it will establish
the effectiveness of our internal control over financial reporting or that we
will not be subject to material weaknesses in the future.

5

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If our relationship with Samsung is
terminated, we may not be able to continue operations.

We
rely ultimately on Samsung to provide us with memory products for distribution
to our clients though with the consent of Samsung, we can purchase the required
memory products from other Samsung distributors. Our relationship with Samsung
is primarily maintained through our Chairman Mr. Chung-Lun Yang, who has
verbally agreed to remain with us. If our relationship with Samsung is
terminated or if Mr. Yang terminates his employment with us, we may be unable
to replace or retain Samsung on favorable terms.

Although
we are not an exclusive distributor of Samsungs memory products, we believe we
are the largest Samsung memory products distributor for the Hong Kong and
Southern China markets. Although the Distribution Agreement is subject to
annual renewal at Samsungs option, we do not foresee, based upon the long-term
business relationship with Samsung established by Mr. Yang and our sales
history with respect to the distribution of Samsungs memory products, any
significant obstacles to obtaining renewals of the Distribution Agreement in
the foreseeable future. However, no assurances can be given that Samsung will
definitely renew the Distribution Agreement or, if renewed, on terms
satisfactory to us.

In
addition, Samsung has the right to increase the number of distributors of its
memory products in Hong Kong and the Southern China markets without consulting
us. If Samsung significantly increases the number of authorized distributors of
its memory products, competition among Samsung distributors, would increase and
we may not be able to meet our annual sales quota, which could increase the
likelihood that Samsung would not renew the Distribution Agreement, or if
renewed, that we could operate profitably.

If the growth rate of either memory products
sold or the amount of memory used in each product decreases, sales of our
products could decrease.

We
are dependent on the computer and consumer electronics market as many of the
memory products that we distribute are used in PCs or peripheral products.
DRAMs are the most widely used semiconductor components in PCs and FLASH
products are mostly used in the consumer electronics products. In recent years,
the growth rate of PCs sold has slowed or declined. If there is a continued
reduction in the growth rate of either PCs sold or the average amount of
semiconductor memory included in each PC, sales of our memory products built
for those markets could decrease, and our results of operations, cash flows and
financial condition could be adversely affected. However, the continued growth
of consumer electronics markets over the past several years has favorably
affected our operations, cash flow and financial condition.

If Samsung is unable to respond to customer
demand for diversified semiconductor memory products or is unable to do so in a
cost-effective manner, we may lose market share and our results of operations
may be adversely affected.

In
recent periods, the semiconductor memory market has become relatively
segmented, with diverse memory needs being driven by the different requirements
of desktop and notebook PCs, servers, workstations, handheld devices, and
communications, industrial and other applications that demand specific memory
solutions. Samsung currently offers customers a variety of memory products
including DDR, Graphic RAM and Flash.

Samsung
needs to dedicate significant resources to product design and development to
respond to customer demand for the continued diversification of memory
products. If Samsung is unable or unwilling to invest sufficient resources to
meet the diverse memory needs of customers, we, as a Samsung memory products
major distributor may lose market share. In addition, as we diversify our
product lines, we may encounter difficulties penetrating certain markets,
particularly markets where we do not have existing customers. If we are unable
to respond to customer demand for market diversification in a cost-effective
manner, our results of operations may be adversely affected.

If
Samsungs global allocation process results in Samsung not having sufficient
supplies of memory products to meet all of our customer orders, this would have
a negative impact on our sales and could result in our loss of customers.
However, such shortages are infrequent. On the other hand, no assurance can be
given that such shortages will not occur in the future.

If Samsungs manufacturing process is disrupted,
our results of operations, cash flows and financial condition could be
adversely affected.

Samsung
manufactures products using highly complex processes that require
technologically advanced equipment and continuous modification to improve
yields and performance. Difficulties in the manufacturing process can reduce
yields or disrupt production. From time to time, we have experienced minor
disruptions in product deliveries from Samsung and we may be unable to meet our
customers requirements and they may purchase products from other suppliers.
This could result in loss of revenues or affect our customer relationships.

We are heavily dependent upon the electronics
industry, and excess capacity or decreased demand for products produced by this
industry could result in increased price competition as well as a decrease in
our gross margins and unit volume sales.

Our
business is heavily dependent on the electronics industry. A majority of our
revenues are generated from the networking, high-end computing and computer
peripherals segments of the electronics industry, which is characterized by
intense competition, relatively short product life-cycles and significant
fluctuations in product demand. Furthermore, these segments are subject to
economic cycles, which have occurred in the past and are likely to occur in the
future. A recession or any other event leading to excess capacity or a downturn
in these segments of the electronics industry could result in intensified price
competition, a decrease in our gross margins and unit volume sales and
materially affect our business, prospects, financial condition and results of
operations.

6

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The memory product industry is highly
competitive.

We
face intense competition from a number of companies, some of which are large
corporations or conglomerates that may have greater resources to withstand
downturns in the semiconductor memory market, invest in technology and
capitalize on growth opportunities. To the extent Samsung memory products
become less competitive, our ability to effectively compete against
distributors of other memory products will diminish.

Current economic and political conditions may
harm our business.

Global
economic conditions and the effects of military or terrorist actions may cause
significant disruptions to worldwide commerce. If these disruptions result in
delays or cancellations of customer orders, a decrease in corporate spending on
information technology or our inability to effectively market, manufacture or
ship our products, our results of operations, cash flows and financial
condition could be adversely affected. In addition, our ability to raise
capital for working capital purposes and ongoing operations is dependent upon
ready access to capital markets. During times of adverse global economic and
political conditions, accessibility to capital markets could decrease. If we
are unable to access the capital markets over an extended period of time, we
may be unable to fund operations, which could materially adversely affect our
results of operations, cash flows and financial condition.

We believe that we will require additional
equity financing to reduce our long-term debts and implement our business plan.

We
anticipate that we will require additional equity financing in order to reduce
our long-term debts and implement our business plan of increasing sales in the
Southern China markets. There can be no assurance that we will be able to
obtain the necessary additional capital on a timely basis or on terms
acceptable to us. If we obtain such financing, the holders of our Common Stock
may experience substantial dilution.

Our major stockholder controls our business,
and could delay, deter or prevent a change of control or other business combination.

One
shareholder, Mr. Yang, our Chief Executive Officer and Chairman of the Board of
Directors, holds approximately 78.9% of our outstanding Common Stock. By virtue
of his stock ownership, Mr. Yang will control all matters submitted to our
board and our stockholders, including the election of directors, and will be
able to exercise control over our business, policies and affairs. Since he has
substantial voting power, he could cause us to take actions that we would not
otherwise consider, or could delay, deter or prevent a change of control or
other business combination that might otherwise be beneficial to our
stockholders.

Our stock price has been volatile and may
fluctuate in the future.

There
has been significant volatility in the market prices for publicly traded shares
of computer related companies, including ours. From September 30, 2003, the
effective date of the reverse-acquisition of Atlantic, to March 31, 2009, the
closing price of our Common Stock fluctuated from a per share high of $2.95 to
a low of $0.06 per share. The per share price of our Common Stock may not
remain at or exceed current levels. The market price for our Common Stock, and
for the stock of electronic companies generally, has been highly volatile. The
market price of our Common Stock may be affected by: (1) incidental level of
demand and supply of the stock; (2) daily trading volume of the stock; (3)
number of public stockholders in our stock; (4) fundamental results announced
by ACL; and (5) any other unpredictable and uncontrollable factors.

If additional authorized shares of our Common
Stock available for issuance or shares eligible for future sale were introduced
into the market, it could hurt our stock price.

We
are authorized to issue 50,000,000 shares of Common Stock. As of December 31,
2008, there were 28,329,936 shares of our Common Stock issued and outstanding.

Currently,
outstanding shares of Common Stock are eligible for resale. We are unable to
estimate the amount, timing or nature of future sales of outstanding Common
Stock. Sales of substantial amounts of the Common Stock in the public market by
these holders or perceptions that such sales may take place may lower the
Common Stocks market price.

If penny stock regulations impose
restrictions on the marketability of our Common Stock, the ability of our
stockholders to sell shares of our stock could be impaired.

The
SEC has adopted regulations that generally define a penny stock to be an
equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share subject to certain exceptions.
Exceptions include equity securities issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for more than three years, or (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require that prior to
any transaction involving a penny stock, a risk of disclosure schedule must be
delivered to the buyer explaining the penny stock market and its risks. Our
Common Stock is currently trading at under $5.00 per share. Although we
currently fall under one of the exceptions, if at a later time we fail to meet
one of the exceptions, our Common Stock will be considered a penny stock. As
such the market liquidity for the Common Stock will be limited to the ability
of broker-dealers to sell it in compliance with the above-mentioned disclosure
requirements.

7

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| |                                                                                                                                                                     |                                                                                                                                                                          
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | You should
 be aware that, according to the SEC, the market for penny stocks has suffered
 in recent years from patterns of fraud and abuse. Such patterns include:
| |                                                                                                                                                                     |                                                                                                                                                                          
| |                                                                                                                                                                    | Control of
 the market for the security by one or a few broker-dealers;                                                                                                  
| |                                                                                                                                                                     |                                                                                                                                                                          
| |                                                                                                                                                                    | Boiler
 room practices involving high-pressure sales tactics;                                                                                                          
| |                                                                                                                                                                     |                                                                                                                                                                          
| |                                                                                                                                                                    | Manipulation
 of prices through prearranged matching of purchases and sales;                                                                                             
| |                                                                                                                                                                     |                                                                                                                                                                          
| |                                                                                                                                                                    | The release
 of misleading information;                                                                                                                                  
| |                                                                                                                                                                     |                                                                                                                                                                          
| |                                                                                                                                                                    | Excessive
 and undisclosed bid-ask differentials and markups by selling broker-dealers;
 and                                                                             
| |                                                                                                                                                                     |                                                                                                                                                                          
| |                                                                                                                                                                    | Dumping of
 securities by broker-dealers after prices have been manipulated to a desired
 level, which hurts the price of the stock and causes investors to suffer
 loss.

We
are aware of the abuses that have occurred in the penny stock market. Although
we do not expect to be in a position to dictate the behavior of the market or
of broker-dealers who participate in the market, we will strive within the
confines of practical limitations to prevent such abuses with respect to our
Common Stock.

Section 203 of the Delaware General
Corporation Law may deter a third party from acquiring us.

Section
203 of the Delaware General Corporation Law prohibits a merger with a 15%
shareholder within three years of the date such shareholder acquired 15%,
unless the merger meets one of several exceptions. The exceptions include, for
example, approval by two-thirds of the shareholders (not counting the 15%
shareholder), or approval by the Board prior to the 15% shareholder acquiring
its 15% ownership. This provision makes it difficult for a potential acquirer
to force a merger with or takeover of the Company, and could thus limit the
price that certain investors might be willing to pay in the future for shares
of our Common Stock.

|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments

We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.

|        |           
|------- | ----------
|Item 2. | Properties

Our
principal offices occupy approximately 4,989 square feet and are located at
B24-B27, 1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon
Bay, Kowloon, Hong Kong, which was acquired from Classic, a related party, on
July 21, 2006 (see Item 13  Certain Relationships and Related Transactions).
Mr. Ben Wong, one of our directors, is also a director of Classic.

We
lease a warehouse unit of approximately 1,846 square feet that is located at
B14-15, 1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon
Bay, Kowloon, Hong Kong. The lease is for two years, from May 23, 2007 to May
22, 2009, from Lin Chin Hsiung with monthly lease payments of HK$16,800
(approximately US$2,154).

We
lease a warehouse unit of approximately 873 square feet that is located at B9,
1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon Bay,
Kowloon, Hong Kong. The lease is for two years from Systematic Information
Limited expiring on August 31, 2010, with monthly rental payments of HK$5,000
(approximately US$641). Mr. Ben Wong, one of our directors, is also a director
of Systematic Information Limited.

We
lease a warehouse unit of approximately 968 square feet that is located at B10,
1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon Bay,
Kowloon, Hong Kong. The lease was for two years with Solution Semiconductor
(China) Ltd. and expired on March 31, 2009, with monthly rentals of HK$8,500
(approximately US$1,090). The lease continues on a month-to-month basis and the
Company expects to renew it. Mr. Ben Wong, one of our directors, is also a 99%
shareholder of Solution Semiconductor (China) Ltd.

We
leased a warehouse unit of approximately 3,000 square feet located at 6/F,
Kevin Wong Development Building, 11 Tai Yip Street, Kwun Tong, Kowloon, Hong
Kong. The lease was for two years with Kevin Wong Holding Limited and expired
on January 24, 2009, with monthly rental payments of HK$12,800 (approximately
US$1,641).

We
lease an office unit of approximately 2,682.9 square feet that is located at
Room 2208, 22/F., Building A, United Plaza, No.5022 Binhe Road, Futian Centre,
Shenzhen, China. The lease is from August 24, 2007 to August 23, 2010 with
monthly lease payments of RMB20,122 (approximately US$2,719).

We
own an investment property of approximately 3,000 square feet located at No.
76, 5th Street, Hong Lok Yuen, Tai Po, New Territories, Hong Kong, which is
leased to Macdermid Hong Kong Limited from August 1, 2007 to August 31, 2009
with monthly lease income of HK$58,000 (approximately US$7,436).

We
own a property of approximately 3,000 square feet that is used for Mr. Yangs
personal residence and is located at No. 78, 5th Street, Hong Lok Yuen, Tai Po,
New Territories, Hong Kong.

In
the event that the above facilities become unavailable, we believe that
alternative facilities could be obtained on a competitive basis.

8

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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In
the ordinary course of business the Company may be subject to litigation from
time to time. There is no past, pending or, to the Companys knowledge,
threatened litigation or administrative action (including litigation or action
involving the Companys officers, directors or other key personnel) which in
the Companys opinion has, had, or is expected to have, a material adverse
effect upon its business, prospects, financial condition or operations.

|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders

No
matters were submitted to a vote of security holders during the three months
ended December 31, 2008.

9

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PART II

|        |                                                                                                              
|------- | -------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
 Related Stockholder Matters and Issuer Purchases of Equity Securities

|                                     |  |      |      |     |   |      | 
|------------------------------------ |  | ---- | ---- | --- | - | ---- | 
|Quarters
 ended                      |  | High |      | Low |  
|Quarter ended March 31, 2009         |  |      |      |     |   |      | 
|Quarter
 ended March 31, 2009        |  | $    | 0.28 |     | $ | 0.14 | 
|                                     |  |      |      |     |   |      | 
|Fiscal Year ended December 31, 2008: |  |      |      |     |   |      | 
|Quarter
 ended December 31, 2008     |  | $    | 0.40 |     | $ | 0.15 | 
|Quarter
 ended September 30, 2008    |  | $    | 0.40 |     | $ | 0.21 | 
|Quarter
 ended June 30, 2008         |  | $    | 0.27 |     | $ | 0.12 | 
|Quarter
 ended March 31, 2008        |  | $    | 0.15 |     | $ | 0.09 | 
|                                     |  |      |      |     |   |      | 
|Fiscal Year ended December 31, 2007  |  |      |      |     |   |      | 
|Quarter
 ended December 31, 2007     |  | $    | 0.10 |     | $ | 0.07 | 
|Quarter
 ended September 30, 2007    |  | $    | 0.14 |     | $ | 0.07 | 
|Quarter
 ended June 30, 2007         |  | $    | 0.15 |     | $ | 0.10 | 
|Quarter
 ended March 31, 2007        |  | $    | 0.11 |     | $ | 0.10 | 

Stock
price information has been derived from Yahoo Finance. Such quotations reflect
inter-dealer bids, without retail mark-up, mark-down or commissions, and may
not reflect actual transactions.

As
of April 6, 2009, the last reported sale price of our Common Stock, as reported
by the OTC Bulletin Board, was $0.20 per share.

As
of April 6, 2009, there were approximately 209 holders of record of our Common
Stock.

Dividend Policy

Since
our recapitalization with Atlantic, effective September 30, 2003, we have never
paid cash dividends on our Common Stock. We currently anticipate that we will
retain all available funds for use in the operation and expansion of our
business, and do not anticipate paying any cash dividends in the foreseeable
future.

Equity Compensation Plan
Information

2006 STOCK
OPTION PLAN

On
March 31, 2006, the Board of Directors adopted the 2006 Equity Incentive Stock
Plan (the Plan) and the majority stockholder approved the Plan by written
consent. The purpose of the Plan is to provide additional incentive to
employees, directors and consultants and to promote the success of the
Companys business. The Plan permits the Company to grant both incentive stock
options (Incentive Stock Options or ISOs) within the meaning of Section 422
of the Internal Revenue Code (the Code), and other options which do not
qualify as Incentive Stock Options (the Non-Qualified Options) and stock
awards.

Unless
earlier terminated by the Board of Directors, the Plan (but not outstanding
options) terminates on March 31, 2016, after which no further awards may be
granted under the Plan. The Plan is administered by the full Board of Directors
or, at the Board of Directors discretion, by a committee of the Board of
Directors consisting of at least two persons who are disinterested persons
defined under Rule 16b-2(c)(ii) under the Securities Exchange Act of 1934, as
amended (the Committee).

Recipients
of options under the Plan (Optionees) are selected by the Board of Directors
or the Committee. The Board of Directors or Committee determines the terms of
each option grant, including (1) the purchase price of shares subject to
options, (2) the dates on which options become exercisable and (3) the
expiration date of each option (which may not exceed ten years from the date of
grant). The minimum per share purchase price of options granted under the Plan
for Incentive Stock Options and Non-Qualified Options is the fair market value
(as defined in the Plan) on the date the option is granted.

Optionees
will have no voting, dividend or other rights as stockholders with respect to
shares of Common Stock covered by options prior to becoming the holders of
record of such shares. The purchase price upon the exercise of options may be paid
in cash, by certified bank or cashiers check, by tendering stock held by the
Optionee, as well as by cashless exercise either through the surrender of other
shares subject to the option or through a broker. The total number of shares of
Common Stock available under the Plan, and the number of shares and per share
exercise price under outstanding options will be appropriately adjusted in the
event of any stock dividend, reorganization, merger or recapitalization or
similar corporate event.

10

---



The
Board of Directors may at any time terminate the Plan or from time to time make
such modifications or amendments to the Plan as it may deem advisable and the
Board of Directors or Committee may adjust, reduce, cancel and regrant an
unexercised option if the fair market value declines below the exercise price
except as may be required by any national stock exchange or national market
association on which the Common Stock is then listed. In no event may the Board
of Directors, without the approval of stockholders, amend the Plan if required
by any federal, state, local or foreign laws or regulations or any stock
exchange or quotation system on which the Common Stock is listed or quoted and
the applicable laws of any other country or jurisdiction where options or stock
purchase rights are granted under the Plan.

Subject
to limitations set forth in the Plan, the terms of option agreements will be
determined by the Board of Directors or Committee, and need not be uniform
among Optionees.

As
of December 31, 2008, there were no options outstanding under the Plan.

|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial Condition and
 Results of Operations

This
Managements Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain forward-looking
information that involve risks and uncertainties. The Companys actual results
could differ materially from those anticipated by the forward-looking
information. Factors that may cause such differences include, but are not
limited to, availability and cost of financial resources, product demand,
market acceptance and other factors discussed in this report under the heading
Risk Factors. This Managements Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Companys financial statements and the related notes included elsewhere in this
report.

Overview

Corporate Background

We
are engaged primarily in the business of distribution of memory products under
the Samsung brand name which comprise DRAM, Graphic RAM and Flash for the
Hong Kong and Southern China markets.

As
of December 31, 2008, we had over 150 active customers in Hong Kong and
Southern China.

Depending
on the product specifications, pricing for the Samsung memory products range
from approximately $0.17 to $750. We sell our products in Hong Kong and
Southern China and do not anticipate selling our products outside of these
regions in the foreseeable future.

For
the years ended December 31, 2008 and 2007, the largest 5 customers accounted
for 62% and 51% of our net sales, respectively. As of December 31, 2008, we had
net current liabilities of $11,153,759 and an accumulated deficit of
$1,968,298. We generated net sales of $209,556,926 for the year ended December
31, 2008 and recorded a net loss of $172,872. In addition, during the year
ended December 31, 2008, net cash provided by operating activities amounted to
$2,181,184.

We
are in the mature stage of operations and, as a result, the relationships
between revenue, cost of revenue, and operating expenses reflected in the
financial information included in this document to a large extent represent
future expected financial relationships. Much of the cost of sales and
operating expenses reflected in our consolidated financial statements are
recurring costs in nature.

Plan of Operations

Our
business objectives are to offer updated market intelligence to Samsung in
connection with the Hong Kong and Southern China markets demand in memory
products and secure high-quality Samsung products in order to meet the market
demands of individual and corporate users in Hong Kong and Southern China. Each
quarter, we work closely with Samsung to present updated market information
collected from retail channels and corporate users to assist Samsung to plan
their production and allocation schedule six months in advance. Our business
strategy is to assist Samsung in implementing their production planning using market
intelligence to balance the supply and demand of memory products in the Hong
Kong and Southern China markets. Accordingly, we maintain and develop a sales
and market research team to answer marketing questions from Samsung on a
regular basis. In addition, our established distribution channels covering
retail outlets and major corporate users in the region allow those retail or
ultimate customers a secure stable supply of Samsungs memory products with
competitive prices. We are a non-exclusive distributor of Samsung, and enjoy a
minimum guaranteed gross profit margin range of approximately 1.5% to 2% of
products sold in form of sales rebate payable by Samsung.

11

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Net sales

Net
sales are recognized upon the transfer of legal title of the electronic
components to customers. As of December 31, 2008 we had over 150 active
customers.

Net sales for fiscal year 2008
 were $209,556,926, which increased by
25.7% or $42,785,320 compared to fiscal year 2007. The major sales increase
came from the first half of 2008 due to expansion in China market share and the
reduction in production capacities by Samsungs rival, Hynix, and other memory
makers, which led to larger demand for Samsungs products. The net sales for
the quarter ended December 31, 2008 (2008 4th Quarter) was
$57,613,777, representing an increase of 7.5% compared to $53,600,270 for the
quarter ended December 31, 2007 (2007 4th Quarter). The sales
increase is clearly smaller due to the impacts on market demand, financial
support and cash flow due to recent economic conditions. More memory makers
such as Qimonda, Elpida and Micron reported strong cutbacks in production
capacities to clear up excess supply. With large amounts of supplies pouring
into the market, the prices of memory components have dropped significantly.
Through the Companys expanded network, sales volume has increased
significantly to maintain high sales turnover during recent economic
conditions.

The
Companys gross profit for fiscal year 2008 was $4,168,640, representing a 8.6%
increase compared to $3,837,950 for fiscal year 2007. The growth was due to the
successful promotional campaign with Samsung in the second quarter and the high
demand for consumer electronics from the Olympic Games in the third quarter. The
gross profit for 2008 4th Quarter was $696,623, as compared to
$867,600 for 2007 4thQuarter, representing a 19.7% decrease. The
gross profit margin for the Company for 2008 4th Quarter was 1.2%,
compared to 1.6% for the corresponding quarter in 2007. The decrease in gross
profit margin was mainly due to low unit prices caused by oversupply of
products. Even though manufacturers reduced their production capacities, recent
economic conditions still have a strong impact on market demand. This has led
to inventory consumption problems and caused manufacturers to dump excess
inventories at very low prices. Due to slow price adjustments from Samsung, the
Company had to bear the difference between the contract prices and market
prices, which caused the gross profit margin to decrease. Furthermore, it has
also affected the Companys rebate income.

The
Company predicts that the demand for memory components will start to increase
as supplies decrease due to the reduction in production capacities and as excess
inventory levels decrease. The Company forecasts that the unit price of memory
components will increase in the first quarter of 2009. Moreover, the Company
believes that Samsung will further strengthen its cost competitiveness by
increasing its 56nm DRAM market share, and its 35nm and 42nm NAND flash market
share. This would greatly increase the Companys gross profit margin.
Furthermore, the Company believes that the current situation may present
opportunities for Samsung to further increase its market share while the other
memory makers are reducing their production capacities or restructuring. The
Company believes its sales turnover and gross profit margin will increase by a
sufficient amount in 2009.

Cost of Sales

Cost
of revenues consists of costs of goods purchased from our principal supplier,
Samsung and purchases from other Samsung authorized distributors. Many factors
affect our gross margin, including, but not limited to, the volume of
production orders placed on behalf of our customers, the competitiveness of the
memory products industry and the availability of cheaper Samsung memory
products from overseas Samsung distributors due to regional demand and supply
situation. Nevertheless, our procurement operations are supported by Samsung,
although there is no written long-term supply agreement in place between us and
Samsung. Our cost of goods, as a percentage of total revenues, amounted to
approximately 98.0% for the year ended December 31, 2008 and approximately
97.7% for the year ended December 31, 2007.

Operating Expenses

Our
operating expenses for the years ended December 31, 2008 and 2007 were
comprised of sales and marketing, general and administrative expenses.

Selling
and marketing expenses consisted primarily of costs associated with
transportation and marketing activities.

General
and administrative expenses include all corporate and administrative functions
that serve to support our current and future operations and provide an
infrastructure to support future growth. Major items in this category include
management and staff salaries, rent/leases, professional services, and travel
and entertainment. We expect these expenses to remain at approximately the same
level in 2009. Sales and marketing costs are expected to fluctuate due to the
addition of sales personnel and various marketing activities planned throughout
the year.

Interest
expense, including finance charges, relate primarily to our short-term and
long-term bank borrowings.

12

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Critical Accounting Policies

The
U.S. Securities and Exchange Commission (SEC) recently issued Financial
Reporting Release No. 60, Cautionary
Advice Regarding Disclosure About Critical
Accounting Policies (FRR 60), suggesting companies provide
additional disclosure and commentary on their most critical accounting
policies. In FRR 60, the SEC defined the most critical accounting policies as
the ones that are most important to the portrayal of a companys financial
condition and operating results, and require management to make its most
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
our most critical accounting policies include: inventory valuation, which
affects cost of sales and gross margin; policies for revenue recognition, and
allowance for doubtful accounts. The methods, estimates and judgments we use in
applying these most critical accounting policies have a significant impact on
our results we report in our consolidated financial statements.

Revenue Recognition

The
Company derives revenues from resale of computer memory products. The Company
recognizes revenue in accordance with the SEC Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). Under SAB 104, revenue is recognized when
there is persuasive evidence of an arrangement, delivery has occurred or
services are rendered, the sales price is determinable, and collectability is
reasonably assured. Revenue typically is recognized at time of shipment. Sales
are recorded net of discounts, rebates, and returns, which historically were
not material.

Inventory Valuation

Our
policy is to value inventories at the lower of cost or market on a part-by-part
basis. This policy requires us to make estimates regarding the market value of
our inventories, including an assessment of excess or obsolete inventories. We
determine excess and obsolete inventories based on an estimate of the future
demand for our products within a specified time horizon, generally 12 months.
The estimates we use for demand are also used for near-term capacity planning
and inventory purchasing and are consistent with our revenue forecasts. If our
demand forecast is greater than our actual demand we may be required to take
additional excess inventory charges, which will decrease gross margin and net
operating results in the future. In addition, as a result of the downturn in
demand for our products, we have excess capacity in our manufacturing
facilities. Currently, we are not capitalizing any inventory costs related to
this excess capacity as the recoverability of such costs is not certain. The
application of this policy adversely affects our gross margin.

Allowance for Doubtful Accounts

We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Our allowance for
doubtful accounts is based on our assessment of the collectability of specific
customer accounts, the aging of accounts receivable, our history of bad debts,
and the general condition of the industry. If a major customers credit
worthiness deteriorates, or our customers actual defaults exceed our
historical experience, our estimates could change and impact our reported
results.

Results of Operations

The
following table sets forth audited consolidated statements of operations data
for the years ended December 31, 2008 and 2007 and should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and our financial statements and the related notes
appearing elsewhere in this document.

|                                            |  |                                 |              |                  |   |              |  
|------------------------------------------- |  | ------------------------------- | ------------ | ---------------- | - | ------------ | -
|                                            |  | Year Ended December 31, 
 (US$) |             
|                                            |  | 2008
 (Restated)                |              | 2007
 (Restated) |  
|                                            |  |                                 |              |                  |  
|                                            |  |                                 |              |                  |   |              |  
|Net sales                                   |  | $                               | 209,556,926  |                  | $ | 166,771,606  |  
|Cost of sales                               |  |                                 | (205,388,286 | )                |   | (162,933,656 | )
|                                            |  |                                 |              |                  |   |              |  
|Gross profit                                |  |                                 | 4,168,640    |                  |   | 3,837,950    |  
|                                            |  |                                 |              |                  |   |              |  
|Operating expenses:                         |  |                                 |              |                  |   |              |  
|Sales and marketing                         |  |                                 | (82,285      | )                |   | (73,508      | )
|General and administrative                  |  |                                 | (3,315,840   | )                |   | (3,066,995   | )
|                                            |  |                                 |              |                  |   |              |  
|Total operating expenses                    |  |                                 | (3,398,125   | )                |   | (3,140,503   | )
|                                            |  |                                 |              |                  |   |              |  
|                                            |  |                                 |              |                  |   |              |  
|Income from operations                      |  |                                 | 770,515      |                  |   | 697,447      |  
|Other income (expenses)                     |  |                                 | (977,258     | )                |   | (230,771     | )
|                                            |  |                                 |              |                  |   |              |  
|(Loss) income before income taxes provision |  |                                 | (206,743     | )                |   | 466,676      |  
|Income taxes (provision) reversal           |  |                                 | 33,871       |                  |   | (187,833     | )
|                                            |  |                                 |              |                  |   |              |  
|Net (loss) income                           |  |                                 | (172,872     | )                |   | 278,843      |  
|                                            |  |                                 |              |                  |   |              |  

13

---



Year Ended December 31, 2008 Compared to the
Year Ended December 31, 2007

Net Sales

| |                         |             |      |   |             |  |  |       | 
| | ----------------------- | ----------- | ---- | - | ----------- |  |  | ----- | 
| | Year Ended December 31, |             |      |   |            
| | 2008                    |             | 2007 |   | % Change    | 
| |                         |             |      |   |             | 
| |                         |             |      |   |             | 
| | $                       | 209,556,926 |      | $ | 166,771,606 |  |  | 25.7% | 

Sales
increased by $42,785,320 or 25.7% from $166,771,606 for the year ended December
31, 2007 to $209,556,926 for the year ended December 31, 2008. The increase was
mainly due to expansion in South China market share and the reduction in
production capacities by Samsung, resulting in a higher turnover when compared
to the year ended December 31, 2007.

Cost of Sales

| |                         |             |      |   |             |  |  |       | 
| | ----------------------- | ----------- | ---- | - | ----------- |  |  | ----- | 
| | Year Ended December 31, |             |      |   |            
| | 2008                    |             | 2007 |   | % Change    | 
| |                         |             |      |   |             | 
| |                         |             |      |   |             | 
| | $                       | 205,388,286 |      | $ | 162,933,656 |  |  | 26.1% | 

Cost
of sales increased $42,454,630 or 26.1%, from $162,933,656 for the year ended
December 31, 2007 to $205,388,286 for the year ended December 31, 2008. The
cost of sales increased in proportion to the increase of net sales and
reduction of rebate by Samsung.

Gross Profit

| |                         |           |      |   |           |  |  |      | 
| | ----------------------- | --------- | ---- | - | --------- |  |  | ---- | 
| | Year Ended December 31, |           |      |   |          
| | 2008                    |           | 2007 |   | % Change  | 
| |                         |           |      |   |           | 
| |                         |           |      |   |           | 
| | $                       | 4,168,640 |      | $ | 3,837,950 |  |  | 8.6% | 

Gross
profit increased by $330,690 or 8.6% from $3,837,950 for the year ended
December 31, 2007 to $4,168,640 for the year ended December 31, 2008. The
slight increase in gross profit amount is mainly due to the increase in net sales.
The gross profit percentage decreased to 2% of revenue for the year ended
December 31, 2008 compared to 2.3% of revenue for the year ended December 31,
2007, as a result of recent economic conditions that have had a strong impact
on market demand and low unit prices caused by oversupply. We expect the gross
profit for the year ended December 31, 2009 to remain at approximately the same
level as in the year ended December 31, 2008.

Sales and Marketing

| |                         |        |      |   |          |  |  |       | 
| | ----------------------- | ------ | ---- | - | -------- |  |  | ----- | 
| | Year Ended December 31, |        |      |   |         
| | 2008                    |        | 2007 |   | % Change | 
| |                         |        |      |   |          | 
| |                         |        |      |   |          | 
| | $                       | 82,285 |      | $ | 73,508   |  |  | 11.9% | 

Sales
and marketing expenses increased by $8,777, or 11.9%, from $73,508 for the year
ended December 31, 2007 to $82,285 for the year ended December 31, 2008. The
increase was in proportion to the increase in net sales for the year 2008. We
expect the sales and marketing expenses for the year ended December 31, 2009 to
remain at approximately the same level as the year ended December 31, 2008.

General and Administrative

| |                         |           |      |   |           |  |  |      | 
| | ----------------------- | --------- | ---- | - | --------- |  |  | ---- | 
| | Year Ended December 31, |           |      |   |          
| | 2008                    |           | 2007 |   | % Change  | 
| |                         |           |      |   |           | 
| |                         |           |      |   |           | 
| | $                       | 3,315,840 |      | $ | 3,066,995 |  |  | 8.1% | 

General
and administrative expenses increased $248,845 or 8.1% from $3,066,995 for the
year ended December 31, 2007 to $3,315,840 for the year ended December 31,
2008. This increase was primarily attributable to an increase in Shenzhen
office expenses during the year 2008. We intend to continue to keep general and
administrative expenses for the year ended December 31, 2009 at approximately
    the same level as the year ended December 31, 2008.

14

---



Income from Operations

| |                         |         |      |   |          |  |  |       | 
| | ----------------------- | ------- | ---- | - | -------- |  |  | ----- | 
| | Year Ended December 31, |         |      |   |         
| | 2008                    |         | 2007 |   | % Change | 
| |                         |         |      |   |          | 
| |                         |         |      |   |          | 
| | $                       | 770,515 |      | $ | 697,447  |  |  | 10.5% | 

Income
from operations was $770,515 for the year ended December 31, 2008 compared to
$697,447 for the year ended December 31, 2007, an increase of $73,068. This
increase was mainly due to increase in gross profit.

Interest Expense

| |                         |           |      |   |           |  |  |      | 
| | ----------------------- | --------- | ---- | - | --------- |  |  | ---- | 
| | Year Ended December 31, |           |      |   |          
| | 2008                    |           | 2007 |   | % Change  | 
| |                         |           |      |   |           | 
| |                         |           |      |   |           | 
| | $                       | 1,073,798 |      | $ | 1,009,010 |  |  | 6.4% | 

Interest
expense increased $64,788, or 6.4%, from interest expense of $1,009,010 in the
year ended December 31, 2007, to $1,073,798 in the year ended December 31,
2008. This increase was mainly due to an increase in the Companys need to open
and draw down on letters of credit to obtain goods from its suppliers. We
expect to keep interest expenses for the year ended December 31, 2009 at
approximately the same level as in the year ended December 31, 2008.

Unrealized Gains on Pledged Marketable
Securities

| |                         |    |      |   |          |  |  |     | 
| | ----------------------- | -- | ---- | - | -------- |  |  | --- | 
| | Year Ended December 31, |    |      |   |         
| | 2008                    |    | 2007 |   | % Change | 
| |                         |    |      |   |          | 
| |                         |    |      |   |          | 
| | $                       |  |      | $ | 404,780  |  |  | N/A | 

Unrealized
gains on pledged marketable securities decreased by $404,780 from $404,780 in
the year ended December 31, 2007, to $0 in the year ended December 31, 2008.
This decrease was mainly due to all pledged marketable securities being sold
during the year ended December 31, 2008. The profits were reclassified to the
loss on disposal of marketable securities.

Loss on Dispositions of Marketable Securities

| |                         |          |      |   |          |  |  |     | 
| | ----------------------- | -------- | ---- | - | -------- |  |  | --- | 
| | Year Ended December 31, |          |      |   |         
| | 2008                    |          | 2007 |   | % Change | 
| |                         |          |      |   |          | 
| |                         |          |      |   |          | 
| | $                       | (227,781 | )    | $ |        |  |  | N/A | 

Loss
on disposal of marketable securities increased by $227,781, from $0 in the year
ended December 31, 2007 to $227,781 in the year ended December 31, 2008. This
increase was due to sales of marketable securities at profits of $176,999
during the year end December 31, 2008, adjusted to reflect losses of $227,781 after
deductions of $404,780 of unrealized gains as recognized revenue in the year
ended December 31, 2007.

Net Income on Cash Flow Hedge

| |                         |         |      |   |          |  |  |        | 
| | ----------------------- | ------- | ---- | - | -------- |  |  | ------ | 
| | Year Ended December 31, |         |      |   |         
| | 2008                    |         | 2007 |   | % Change | 
| |                         |         |      |   |          | 
| |                         |         |      |   |          | 
| | $                       | 161,288 |      | $ | 64,590   |  |  | 149.7% | 

Net
income on cash flow hedge increased by $96,698 from $64,590 in the year ended
December 31, 2007 to $161,288 in the year ended December 31, 2008. This
increase was due to the Company entering into more currency hedging contracts
through its banks in 2008. Details of the currency hedging contracts can be
found in Note 12 of the Notes to Consolidated Financial Statements.

Interest Income

| |                         |        |      |   |          |  |  |        | 
| | ----------------------- | ------ | ---- | - | -------- |  |  | ------ | 
| | Year Ended December 31, |        |      |   |         
| | 2008                    |        | 2007 |   | % Change | 
| |                         |        |      |   |          | 
| |                         |        |      |   |          | 
| | $                       | 90,706 |      | $ | 169,055  |  |  | -46.3% | 

Interest
income decreased by $78,349 from $169,055 in the year ended December 31, 2007
to $90,706 in the year ended December 31, 2008 principally as a result of a
reduction in interest rates during 2008.

15

---



Income Tax Provision (reversal)

| |                         |         |      |   |          |  |  |         | 
| | ----------------------- | ------- | ---- | - | -------- |  |  | ------- | 
| | Year Ended December 31, |         |      |   |         
| | 2008                    |         | 2007 |   | % Change | 
| |                         |         |      |   |          | 
| |                         |         |      |   |          | 
| | $                       | (33,871 | )    | $ | 187,833  |  |  | -118.0% | 

Income
tax provision decreased by $221,704 from $187,833 for the year ended December
31, 2007 compared to income tax credits of $33,871 for the year ended December
31, 2008. This decrease in income tax provision in 2008 was attributable to a
refund for income tax expenses paid in previous years rather than a decrease in
net income in 2008 from 2007. The effective tax rate is 0% for 2008 as compared
to 40% for 2007.

Net Income

| |                         |          |      |   |          |  |  |         | 
| | ----------------------- | -------- | ---- | - | -------- |  |  | ------- | 
| | Year Ended December 31, |          |      |   |         
| | 2008                    |          | 2007 |   | % Change | 
| |                         |          |      |   |          | 
| |                         |          |      |   |          | 
| | $                       | (172,872 | )    | $ | 278,843  |  |  | -162.0% | 

Our
net income decreased by $451,715 from $278,843 for the year ended December 31,
2007 compared to a net loss of $172,872 for the year ended December 31, 2008.
This decrease was mainly due to the decrease in profit margin and other income.

Liquidity and capital resources

Our
principal sources of liquidity have been cash from operations, bank lines of
credit and credit terms from suppliers. Our principal uses of cash have been
for operations and working capital. We anticipate these uses will continue to
be our principal uses of cash in the future.

As
of December 31, 2008, the Company had revolving lines of credit and loan
facilities in the aggregate amount of $30,943,589, of which $11,334,309 was
available for drawdown as short-term loans repayable within 90 days. Detailed
disclosures regarding our outstanding credit facilities are set forth in Notes
4 and 5 of the Notes to Consolidated Financial Statements, including the
amounts of the facilities, outstanding balances, interest rates, maturity
periods (for long term loans) and pledge of assets.

Our
ability to draw down under our various credit and loan facilities is, in each
case, subject to the ongoing willingness of the relevant lending institution to
make advances thereunder, and security coverage ratios as required from time to
time. No assurance can be given that we will continue to have access to these
or other lines of credit in the same amount or at all. Subsequent to December
31, 2008, the Company terminated two credit lines with the banks in an
aggregate amount of $2,884,616 or 9.3% of the Companys total credit and loan
facilities. In connection therewith, $1,597,436 of restricted bank deposits
which were previously used to secure such lines of credit were released to the
Company. As a result of the general tightening of credit markets in Hong Kong
and Asia, many lenders have revised the terms of their revolving credit lines
to levels the Company did not deem commercially reasonable. Accordingly, on a
case by case basis, the Company has elected to terminate or not renew several
of its credit facilities resulting in a significant reduction in the Companys
available short term borrowings.

To
address the reduction in available credit facilities, the Company is relying on
its own cash reserves and cash flows from operations to fund its ongoing
operations and has tightened the credit terms it extends to its customers. As a
result, the Company does not expect that the reduction in available credit
facilities is going to have a materially adverse impact upon its operations for
the foreseeable future.

The
Company intends to continue to seek additional sources of available financing
on acceptable terms; however, there can be no assurance that the Company will
be able to obtain the necessary additional capital on a timely basis or on
acceptable terms, if at all. In addition, if the results are negatively
impacted and delayed as a result of political and economic factors beyond
managements control, our capital requirements may increase.

The
short-term borrowings from banks to finance the cash flow required to finance
the purchase of Samsung memory products from Samsung HK must be made a day in
advance of the release of goods from Samsung HKs warehouse before receiving
payments from customers upon physical delivery of such goods in Hong Kong
which, in most instances, take approximately two days from the date of such
delivery.

The
following factors, among others, could have a negative impact on the Companys
results of operations and financial position: the termination or change in
terms of the Distributorship Agreement; pricing pressures in the industry; a
continued downturn in the economy in general or in the memory products sector;
an unexpected decrease in demand for Samsungs memory products; the Companys ability
to attract new customers; an increase in competition in the memory products
market; and the ability of some of the Companys customers to obtain financing.

Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this report to conform them to actual results or
to make changes in our expectations.

16

---



Net Cash Provided by Operating Activities

In
the year ended December 31, 2008, net cash provided by operating activities
amounted to $2,181,184 while in the year ended December 31, 2007, it amounted
to $7,170,779, a decrease of $4,989,595. This decrease was primarily due to a
$2,750,961 increase in accounts receivable, which was partially offset by a
$1,127,565 decrease in inventory, and decreases of $3,411,728 in accounts
payable and increase of $331,679 in accrued expenses.

Net Cash Used for Investing Activities

In
the year ended December 31, 2008, net cash used for investing activities
amounted to $2,527,948 while in the year ended December 31, 2007, it amounted
to $12,394,037, a decrease of $9,866,089. This decrease was primarily due to
sales of investments in marketable securities, decrease in amount due to Aristo
/ Mr. Yang, and no real property acquisition activity during the year 2008.

Net Cash Provided by Financing Activities

In
the year ended December 31, 2008, net cash provided by financing activities
amounted to $629,171 while in the year ended December 31, 2007, it amounted to
$5,436,828, a decrease of $4,807,657. This decrease was due to the Company
repayment of certain bank lines of credit and cancellation of bank facilities.

Contractual
Obligations

The following
table presents our contractual obligations as of December 31, 2008 over the
next five years and thereafter:

|                                               |  |        |            |                    |   |            |  |            |         |                |   |         |  |   |           | 
|---------------------------------------------- |  | ------ | ---------- | ------------------ | - | ---------- |  | ---------- | ------- | -------------- | - | ------- |  | - | --------- | 
|Payments
 by Period                           
|                                              
|                                               |  | Amount |            | Less
 Than
 1 Year |   | 1-3
 Years |  | 4-5
 Years |         | After 5
 Years |  
|                                               |  |        |            |                    |   |            |  |            |         |                |  
|Operating Leases                               |  |        | 78,433     |                    |   | 53,333     |  |            | 25,100  |                |   |        |  |   |          | 
|Line of credit and notes payable 
 short-term |  |        | 16,447,742 |                    |   | 16,447,742 |  |            |        |                |   |        |  |   |          | 
|Short term loans                               |  |        | 10,016     |                    |   | 10,016     |  |            |        |                |   |        |  |   |          | 
|Long term loans                                |  |        | 2,613,994  |                    |   | 209,114    |  |            | 359,232 |                |   | 257,789 |  |   | 1,787,859 | 
|                                               |  |        |            |                    |   |            |  |            |         |                |   |         |  |   |           | 
|Total Contractual Obligations                  |  | $      | 19,150,185 |                    | $ | 16,720,205 |  | $          | 384,332 |                | $ | 257,789 |  | $ | 1,787,859 | 
|                                               |  |        |            |                    |   |            |  |            |         |                |   |         |  |   |           | 

Off-Balance Sheet
Arrangements

None.

Related Party Transactions

We
conduct business with several affiliated companies. All the related party
transactions taking place during the reporting periods were conducted during
the normal course of business. The prices of products sold to or purchased from
these related entities are in the same price ranges as those offered to other
non-related customers or purchased from other vendors.

Dependence of Samsung

We
are highly dependent on the product supplies from Samsung. If the relationship
with Samsung is terminated, we may not be able to continue our business. We
have been taking necessary steps to reduce our dependence on Samsung, including
looking into the potential acquisition of a company.

Impact of Inflation

We
believe that our results of operations are not dependent upon moderate changes
in inflation rates as we expect to be able to pass along component price
increases to our customers.

Seasonality

We
have not experienced any material seasonality in sales fluctuations over the
past 2 years in the memory products markets.

New Accounting
Pronouncements

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|ASC 105, Generally Accepted Accounting Principles
         (ASC 105) (formerly Statement of Financial Accounting Standards
         No. 168, The FASB Accounting Standards Codification and the Hierarchy
         of Generally Accepted Accounting Principles a replacement of FASB Statement
         No. 162) reorganized by topic existing accounting and reporting guidance
         issued by the Financial Accounting Standards Board (FASB)
         into a single source of authoritative generally accepted accounting
         principles (GAAP) to be applied by nongovernmental entities.
         All guidance contained in the Accounting Standards Codification (ASC)
         carries an equal level of authority. Rules and interpretive releases
         of the Securities and Exchange Commission (SEC) under authority
         of federal securities laws are also sources of authoritative GAAP for
         SEC registrants. Accordingly, all other accounting literature will be
         deemed
     non-authoritative. ASC 105 is effective on a prospective basis
     for financial statements issued for interim and annual periods ending after
     September 15, 2009. The Company has implemented the guidance included in
     ASC 105 as of July 1, 2009. The implementation of this guidance changed
     the Companys references to GAAP authoritative guidance but did not
    impact the Companys financial position or results of operations.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 
|ASC 855,
   Subsequent Events (ASC 855) (formerly Statement of Financial Accounting
   Standards No. 165, Subsequent Events) includes guidance that was issued by
   the FASB in May 2009, and is consistent with current auditing standards in
   defining a subsequent event. Additionally, the guidance provides for
   disclosure regarding the existence and timing of a companys evaluation of
   its subsequent events. ASC 855 defines two types of subsequent events,
   recognized and non-recognized. Recognized subsequent events provide
   additional evidence about conditions that existed at the date of the balance
   sheet and are required to be reflected in the financial statements.
   Non-recognized subsequent events provide evidence about conditions that did
   not exist at the date of the balance sheet but arose after that date and,
   therefore; are not required to be reflected in the financial statements.
   However, certain non-recognized subsequent events may require disclosure to
   prevent the financial statements from being misleading. This guidance was
   effective prospectively for interim or annual financial periods ending after
   June 15, 2009. The Company implemented the guidance included in ASC 855 as of
   April 1, 2009. The effect of implementing this guidance was not material to
   the Companys financial position or results of operations.                                                                
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17

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|ASC 944,
   Financial Services  Insurance (ASC 944) contains guidance that was
   previously issued by the FASB in May 2008 as Statement of Financial
   Accounting Standards No. 163, Accounting for Financial Guarantee Insurance
   Contracts  an interpretation of FASB Statement No. 60 that provides for
   changes to both the recognition and measurement of premium revenues and claim
   liabilities for financial guarantee insurance contracts that do not qualify
   as a derivative instrument in accordance with ASC 815, Derivatives and
   Hedging (formerly included under Statement of Financial Accounting Standards
   No. 133, Accounting for Derivative Instruments and Hedging Activities). This
   financial guarantee insurance contract guidance also expands the disclosure
   requirements related to these contracts to include such items as a companys
   method of tracking insured financial obligations with credit deterioration,
   financial information about the insured financial obligations, and
   managements policies for placing and monitoring the insured financial
   obligations. ASC 944, as it relates to financial guarantee insurance
   contracts, was effective for fiscal years beginning after December 15, 2008,
   except for certain disclosures related to the insured financial obligations,
   which were effective for the third quarter of 2008. The Company does not have
   financial guarantee insurance products, and, accordingly, the implementation
   of this portion of ASC 944 did not have an effect on the Companys results of
   operations or financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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|ASC 805,
   Business Combinations (ASC 805) (formerly included under Statement of
   Financial Accounting Standards No. 141 (revised 2007), Business Combinations)
   contains guidance that was issued by the FASB in December 2007. It requires
   the acquiring entity in a business combination to recognize all assets
   acquired and liabilities assumed in a transaction at the acquisition-date fair
   value, with certain exceptions. Additionally, the guidance requires changes
   to the accounting treatment of acquisition related items, including, among
   other items, transaction costs, contingent consideration, restructuring
   costs, indemnification assets and tax benefits. ASC 805 also provides for a
   substantial number of new disclosure requirements. ASC 805 also contains
   guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets
   Acquired and Liabilities Assumed in a Business Combination That Arise from
   Contingencies which was intended to provide additional guidance clarifying
   application issues regarding initial recognition and measurement, subsequent
   measurement and accounting, and disclosure of assets and liabilities arising
   from contingencies in a business combination. ASC 805 was effective for
   business combinations initiated on or after the first annual reporting period
   beginning after December 15, 2008. The Company implemented this guidance
   effective January 1, 2009. Implementing this guidance did not have an effect
   on the Companys financial position or results of operations; however it will
   likely have an impact on the Companys accounting for future business
   combinations, but the effect is dependent upon acquisitions, if any, that are
   made in the future.                                                                                                                                                                                                                                                                                                   
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|ASC
          810, Consolidation (ASC 810) includes new guidance issued
          by the FASB in December 2007 governing the accounting for and reporting
          of noncontrolling interests (previously referred to as minority interests).
          This guidance established reporting requirements which include, among
          other things, that noncontrolling interests be reflected as a separate
          component of equity, not as a liability. It also requires that the
          interests of the parent and the noncontrolling interest be clearly
          identifiable. Additionally, increases and decreases in a parents
          ownership interest that leave control intact shall be reflected as
          equity transactions, rather than step acquisitions or dilution gains
          or losses. This guidance also requires changes to the presentation
          of information in the financial statements and provides for additional
          disclosure requirements. ASC 810 was effective for fiscal years beginning
          on or after December 15, 2008. The Company implemented this guidance
          as of January 1, 2009. The Company is in the process of evaluating
          ASC 810 and will make necessary changes accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|ASC
          825, Financial Instruments (ASC 825) includes guidance
          which was issued in February 2007 by the FASB and was previously included
          under Statement of Financial Accounting Standards No. 159, The Fair
          Value Option for Financial Assets and Financial Liabilities Including
          an amendment of FASB Statement No. 115. The related sections within
          ASC 825 permit a company to choose, at specified election dates, to
          measure at fair value certain eligible financial assets and liabilities
          that are not currently required to be measured at fair value. The specified
          election dates include, but are not limited to, the date when an entity
          first recognizes the item, when an entity enters into a firm commitment
          or when changes in the financial instrument causes it to no longer
          qualify for fair value accounting under a different accounting standard.
          An entity may elect the fair value option for eligible items that exist
          at the effective date. At that date, the difference between the carrying
          amounts and the fair values of eligible items for which the fair value
          option is elected should be recognized as a cumulative effect adjustment
          to the opening balance of retained earnings. The fair value option
          may be elected for each entire financial instrument, but need not be
          applied to all similar instruments. Once the fair value option has
          been elected, it is irrevocable. Unrealized gains and losses on items
          for which the fair value option has been elected will be reported in
          earnings. This guidance was effective as of the beginning of fiscal
          years that began after November 15, 2007. The Company does not have
          eligible financial assets and liabilities, and, accordingly, the implementation
          of ASC 825 did not have an effect on the Companys results of
          operations or financial position.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|ASC
          820, Fair Value Measurements and Disclosures (ASC 820)
          (formerly included under Statement of Financial Accounting Standards
          No. 157, Fair Value Measurements) includes guidance that was issued
          by the FASB in September 2006 that created a common definition of fair
          value to be used throughout generally accepted accounting principles.
          ASC 820 applies whenever other standards require or permit assets or
          liabilities to be measured at fair value, with certain exceptions.
          This guidance established a hierarchy for determining fair value which
          emphasizes the use of observable market data whenever available. It
          also required expanded disclosures which include the extent to which
          assets and liabilities are measured at fair value, the methods and
          assumptions used to measure fair value and the effect of fair value
          measures on earnings. ASC 820 also provides additional guidance for
          estimating fair value when the volume and level of activity for the
          asset or liability have significantly decreased. The emphasis of ASC
          820 is that fair value is the price that would be received to sell
          an asset or paid to transfer a liability in an orderly transaction
          between willing market participants, under current market conditions.
          ASC 820 also further clarifies the guidance to be considered when determining
          whether or not a transaction is orderly and clarifies the valuation
          of securities in markets that are not active. This guidance includes
          information related to a companys use of judgment, in addition
          to market information, in certain circumstances to value assets which
          have inactive markets.                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 
|Fair
          value guidance in ASC 820 was initially effective for fiscal years
          beginning after November 15, 2007 and for interim periods within those
          fiscal years for financial assets and liabilities. The effective date
          of ASC 820 for all non-recurring fair value measurements of nonfinancial
          assets and nonfinancial liabilities was fiscal years beginning after
          November 15, 2008. Guidance related to fair value measurements in an
          inactive market was effective in October 2008 and guidance related
          to orderly transactions under current market conditions was effective
          for interim and annual reporting periods ending after June 15, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

18

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
|The Company
   applied the provisions of ASC 820 to its financial assets and liabilities
   upon adoption at January 1, 2008 and adopted the remaining provisions
   relating to certain nonfinancial assets and liabilities on January 1, 2009.
   The difference between the carrying amounts and fair values of those
   financial instruments held upon initial adoption, on January 1, 2008, was
   recognized as a cumulative effect adjustment to the opening balance of
   retained earnings and was not material to the Companys financial position or
   results of operations. The Company implemented the guidance related to
   orderly transactions under current market conditions as of April 1, 2009,
   which also was not material to the Companys financial position or results of
   operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
|In August
   2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and
   Disclosures (Topic 820): Measuring Liabilities at Fair Value (ASC Update No.
   2009-05). This update amends ASC 820, Fair Value Measurements and
   Disclosures and provides further guidance on measuring the fair value of a
   liability. The guidance establishes the types of valuation techniques to be
   used to value a liability when a quoted market price in an active market for
   the identical liability is not available, such as the use of an identical or
   similar liability when traded as an asset. The guidance also further
   clarifies that a quoted price in an active market for the identical liability
   at the measurement date and the quoted price for the identical liability when
   traded as an asset in an active market when no adjustments to the quoted
   price of the asset are required are both Level 1 fair value measurements. If
   adjustments are required to be applied to the quoted price, it results in a
   level 2 or 3 fair value measurement. The guidance provided in the update is
   effective for the first reporting period (including interim periods)
   beginning after issuance. The Company does not expect that the implementation
   of ASC Update No. 2009-05 will have a material effect on its financial
   position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
|In September
   2009, the FASB issued ASC Update No. 2009-12, Fair Value Measurements and
   Disclosures (Topic 820): Investments in Certain Entities that Calculate Net
   Asset Value per Share (or Its Equivalent) (ASC Update No. 2009-12). This
   update sets forth guidance on using the net asset value per share provided by
   an investee to estimate the fair value of an alternative investment.
   Specifically, the update permits a reporting entity to measure the fair value
   of this type of investment on the basis of the net asset value per share of
   the investment (or its equivalent) if all or substantially all of the
   underlying investments used in the calculation of the net asset value is consistent
   with ASC 820. The update also requires additional disclosures by each major
   category of investment, including, but not limited to, fair value of
   underlying investments in the major category, significant investment
   strategies, redemption restrictions, and unfunded commitments related to
   investments in the major category. The amendments in this update are
   effective for interim and annual periods ending after December 15, 2009 with
   early application permitted. The Company does not expect that the implementation
   of ASC Update No. 2009-12 will have a material effect on its financial
   position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
|In June
   2009, FASB issued Statement of Financial Accounting Standards No. 167,
   Amendments to FASB Interpretation No. 46(R) (Statement No. 167). Statement
   No. 167 amends FASB Interpretation No. 46R, Consolidation of Variable
   Interest Entities an interpretation of ARB No. 51 (FIN 46R) to require an
   analysis to determine whether a company has a controlling financial interest
   in a variable interest entity. This analysis identifies the primary
   beneficiary of a variable interest entity as the enterprise that has a) the
   power to direct the activities of a variable interest entity that most
   significantly impact the entitys economic performance and b) the obligation
   to absorb losses of the entity that could potentially be significant to the
   variable interest entity or the right to receive benefits from the entity
   that could potentially be significant to the variable interest entity. The statement
   requires an ongoing assessment of whether a company is the primary
   beneficiary of a variable interest entity when the holders of the entity, as
   a group, lose power, through voting or similar rights, to direct the actions
   that most significantly affect the entitys economic performance. This
   statement also enhances disclosures about a companys involvement in variable
   interest entities. Statement No. 167 is effective as of the beginning of the
   first annual reporting period that begins after November 15, 2009. Although
   Statement No. 167 has not been incorporated into the Codification, in
   accordance with ASC 105, the standard shall remain authoritative until it is
   integrated. The Company is in the process of evaluating Statement No. 167 and
   will make necessary change if required.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
|In June 2009, the FASB issued Statement of
         Financial Accounting Standards No. 166, Accounting for Transfers of
         Financial Assets an amendment of FASB Statement No. 140 (Statement
         No. 166). Statement No. 166 revises FASB Statement of Financial
         Accounting Standards No. 140, Accounting for Transfers and Extinguishment
         of Liabilities a replacement of FASB Statement 125 (Statement
         No. 140) and requires additional disclosures about transfers of
         financial assets, including securitization transactions, and any continuing
         exposure to the risks related to transferred financial assets. It also
         eliminates the concept of a qualifying special-purpose entity,
         changes the requirements for derecognizing financial assets, and enhances
         disclosure requirements. Statement No. 166 is effective prospectively,
         for annual periods beginning after November 15, 2009, and interim and
         annual periods thereafter. Although Statement No. 166 has not been incorporated
         into the Codification, in accordance with ASC 105, the standard shall
         remain authoritative until it is integrated. The Company does not expect
         the adoption of Statement No. 166 will have a material impact on its
    financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 

|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk

We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and are not required to provide the information required under this item.

|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Attached
hereto and filed as a part of this Annual Report on Form 10-K are our
Consolidated Financial Statements, beginning on page F-1.

|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure

None.

19

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|          |                        
|--------- | -----------------------
|Item 9AT. | Controls and Procedures

We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934, as amended (the Exchange Act), is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission (SEC) rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as
appropriate, to allow timely decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting

In
connection with the preparation of this Form 10-K, we carried out an evaluation
under the supervision and with the participation of our management, including
the CEO and CFO, of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act. This evaluation was retrospective and
conducted as of December 31, 2008, the last day of the fiscal year covered by
this Form 10-K. Based upon that evaluation, our CEO and CFO have concluded that
our disclosure controls and procedures were not effective as of December 31,
2008 because we have not completed the remediation discussed elsewhere in this
Item 9AT of our Annual Report on Form 10-K for the fiscal year ended December
31, 2008.

Our
management has concluded that there are material weaknesses in our internal
controls over financial reporting. These weaknesses include:

Company-level controls. We did not
maintain effective company-level controls as defined in the Internal
ControlIntegrated Framework published by COSO. These deficiencies related to
each of the five components of internal control as defined by COSO (control
environment, risk assessment, control activities, information and
communication, and monitoring). These deficiencies resulted in more than a
remote likelihood that a material misstatement of our annual or interim
financial statements would not be prevented or detected. Specifically,

|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our control environment did not
 sufficiently promote effective internal control over financial reporting
 throughout our organizational structure, and this material weakness was a
 contributing factor to the other material weaknesses described in this Item
 9AT;                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
| | Our board of directors has not established
 adequate financial reporting monitoring activities to mitigate the risk of
 management override, specifically:                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                 | none of our board of directors is
 independent;                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | no financial expert on our board of
 directors has been designated;                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | no formally documented financial analysis
 is presented to our board of directors, specifically fluctuation, variance,
 trend analysis or business performance reviews;
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | an effective whistleblower program has not
 been established;                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | there is insufficient oversight of external
 audit specifically related to fees, scope of activities, executive sessions,
 and monitoring of results;                  
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | there is insufficient oversight of
 accounting principle implementation;                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | there is insufficient review of related
 party transactions; and                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 | there is insufficient review of recording
 of stock transactions.                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                        
| | We have not maintained sufficient competent
 evidence to support the effective operation of our internal controls over
 financial reporting, specifically related to our board of directors
 oversight of quarterly and annual SEC filings; and managements review of SEC
 filings, journal entries, account analyses and reconciliations, and critical
 spreadsheet controls;
|  |                                                                                                                                                                                                                                                                                                                                                                                 
| | We had inadequate risk assessment controls,
 including inadequate mechanisms for anticipating and identifying financial
 reporting risks; and for reacting to changes in the operating environment
 that could have a material effect on financial reporting;                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                 
| | There was inadequate communication from
 management to employees regarding the general importance of controls and
 employees duties and control responsibilities;                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                 
| | We had inadequate monitoring controls,
 including inadequate staffing and procedures to ensure periodic evaluations
 of internal controls to ensure that appropriate personnel regularly obtain
 evidence that controls are functioning effectively and that identified
 control deficiencies are remediated timely;                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                 
| | We had an inadequate number of trained
 finance and accounting personnel with appropriate expertise in U.S. generally
 accepted accounting principles. Accordingly, in certain circumstances, an
 effective secondary review of technical accounting matters was not performed;                                                                                                 

20

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|  |                                                                                                                                                                                                                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We had inadequate controls over our
 management information systems related to program changes, segregation of
 duties, and access controls;                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                       
| | We had inadequate access and change
 controls over end-user computing spreadsheets. Specifically, our controls
 over the completeness, accuracy, validity and restricted access and review of
 certain spreadsheets used in the period-end financial statement preparation
 and reporting process were not designed appropriately or did not operate as
 designed; and
|  |                                                                                                                                                                                                                                                                                                                                                                       
| | We were unable to assess effectiveness of
 our internal control over financial reporting in a timely matter.                                                                                                                                                                                                                                                          

Financial
      statement preparation and review procedures.
We had inadequate policies, procedures and personnel to ensure that accurate,
reliable interim and annual consolidated financial statements were prepared and
reviewed on a timely basis. Specifically, we had insufficient: a) levels of
supporting documentation; b) review and supervision within the accounting and
finance departments; c) preparation and review of footnote disclosures
accompanying our financial statements; and d) technical accounting resources.
These deficiencies resulted in errors in the financial statements and more than
a remote likelihood that a material misstatement of our annual or interim
financial statements would not be prevented or detected. In addition, as
discussed in Note 2 in Notes to the Consolidated Financial Statements of this
Form 10-K, we recently determined that Aristo Technologies Limited (Aristo),
a related party, is a variable interest entity under FASB ASC 810-10-25.
Consequently, we are consolidating the financial statements of Aristo with those
of the Company for the period effective
and are restating our previously filed annual and interim financial statements
in this amended Form 10-K for the year ended 2008 and in amended Form 10-K for
year ended 2007 to reflect the disclosure in accordance with ASC 810-10-25.

Inadequate reviews
of account reconciliations, analyses and journal entries. We had
inadequate review procedures over account reconciliations, account and
transaction analyses, and journal entries. Specifically, deficiencies were
noted in the following areas: a) management review of supporting documentation,
calculations and assumptions used to prepare the financial statements,
including spreadsheets and account analyses; and b) management review of
journal entries recorded during the financial statement preparation process.
These deficiencies resulted in a more than a remote likelihood that a material
misstatement of our annual or interim financial statements would not be
prevented or detected.

Inadequate
controls over purchases and disbursements. We had inadequate
controls over the segregation of duties and authorization of purchases, and the
disbursement of funds. These weaknesses increase the likelihood that
misappropriation of assets and/or unauthorized purchases and disbursements
could occur and not be detected in a timely manner. These deficiencies resulted
in errors in the financial statements and in more than a remote likelihood that
a material misstatement of our annual or interim financial statements would not
be prevented or detected. Specifically,

|  |                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We had inadequate procedures and controls
 to ensure proper segregation of duties within our purchasing and
 disbursements processes and accounting systems;
|  |                                                                                                                                                             
| | We had inadequate procedures and controls
 to ensure proper authorization of purchase orders; and                                                           
|  |                                                                                                                                                             
| | We had inadequate approvals for payment of
 invoices and wire transfers.                                                                                    

This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only
managements report in this annual report.

As
of December 31, 2008, we had not completed the remediation of any of these
material weaknesses. In addition, although we are including our management
report in this Annual Report on Form 10K/A, our failure to file a management
report for the periods ended December 31, 2008 and December 31, 2007 in a
timely manner renders our disclosure controls and procedures ineffective.

We
are addressing the outstanding material weaknesses described above, as well as
our control environment. We also expect to undertake the following remediation
efforts:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We plan to evaluate the composition of our
 board of directors and to determine whether to add independent directors or
 to replace an inside director with an independent director, in both cases, in
 order to have a majority of our board of directors become independent;                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | We plan on drafting quarterly financial
 statement variance analysis of actual versus budget with relevant
 explanations of variances for distribution to our board of directors.                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | We are in the process of developing,
 documenting, and communicating a formal whistleblower program to employees.
 We expect to post the policy on the Company web site in the governance
 section and in the common areas in the office. We plan on providing a toll
 free number for reporting complaints and will hire a specific third party
 whistleblower company to monitor the hotline and provide monthly reports of
 activity to our board of directors.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Management intends to continue to provide
 SEC and US GAAP training for employees and retain external consultants with
 appropriate SEC and US GAAP expertise to assist in financial statement
 review, account analysis review, review and filing of SEC reports, policy and
 procedure compilation assistance, and other related advisory services.                                                                                                             

21

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We intend on developing an internal control
 over financial reporting evidence policy and procedures which contemplates,
 among other items, a listing of all identified key internal controls over
 financial reporting, assignment of responsibility to process owners within the
 Company, communication of such listing to all applicable personnel, and
 specific policies and procedures around the nature and retention of evidence
 of the operation of controls.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | We intend on undertaking a restricted
 access review to analyze all financial modules and the list of persons
 authorized to have edit access to each. We will remove or add authorized
 personnel as appropriate to mitigate the risks of management or other
 override; and                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | We plan to re-assign roles and
 responsibilities in order to improve segregation of duties.                                                                                                                                                                                                                                                                                                                                                                              

These
specific actions are part of an overall program that we are currently
developing in an effort to remediate the material weaknesses described above.

Attached
as exhibits to this report are certifications of our CEO and CFO, which are
required in accordance with Rule 13a-14 of Securities Exchange Act of 1934, as
amended. The discussion above in this Item 9AT includes information concerning
the controls and controls evaluation referred to in the certifications and
those certifications should be read in conjunction with this Item 9AT for a
more complete understanding of the topics presented.

We
are committed to improving our internal control processes and will continue to
diligently review our internal control over financial reporting and our
disclosure controls and procedures. The failure to implement adequate controls
may result in deficient and inaccurate reports under the Exchange Act.

Changes in Internal Control over Financial
Reporting

Except
as described above, there have been no changes in our internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fourth quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

|         |                  
|-------- | -----------------
|ITEM 9B. | Other Information

None.

22

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PART III

|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

Our directors
and executive officers, as of December 31, 2008, and their biographical
information are set forth below:

|                      |  |     |  |                                                                
|--------------------- |  | --- |  | ---------------------------------------------------------------
|NAME                  |  | AGE |  | POSITION                                                       
|                      |  |     |  |                                                                
|Chung-Lun
 Yang       |  | 47  |  | Chairman of
 the Board of Directors and Chief Executive Officer
|Ben Wong              |  | 45  |  | Director                                                       
|Kenneth
 Lap-Yin Chan |  | 46  |  | Chief
 Financial Officer                                       

Chung-Lun Yang, Chairman of the Board and
Chief Executive Officer. Mr. Yang became a Director on September 30, 2003. Mr.
Yang is the founder of Atlantic and has been a director of Atlantic since 1991.
Mr. Yang graduated from The Hong Kong Polytechnic in 1982 with a degree in
electronic engineering. From October 1982 until April 1985, he was the sales
engineer of Karin Electronics Supplies Ltd. From June 1986 until September
1991, he was Director of Sales (Samsung Components Distribution) of Evertech
Holdings Limited, a Hong Kong based company. Mr. Yang has over 15 years
extensive experience in the electronics distribution business. The breadth of
Mr. Yangs sales and operational experience led the Board of Directors to
believe this individual is qualified to serve as a director of the Company. Mr.
Yang is also a member of The Institution of Electrical Engineers, United
Kingdom.

Ben Wong, Director. Mr. Wong became a
Director on September 30, 2003. Since 1992, Mr. Wong has been the
vice-president of Atlantic and is responsible for the purchasing, sales and
marketing of Atlantics products. The breadth of Mr. Wong sales experience led
the Board of Directors to believe this individual is qualified to serve as a
director of the Company. Mr. Wong graduated from the Chinese Culture University
of Taiwan in 1986 with a Bachelors Degree of Science in Mechanical
Engineering.

Kenneth Lap-Yin Chan, Chief Financial
Officer. Mr. Chan was appointed our Chief Financial Officer effective September
30, 2003. Mr. Chan has been with Atlantic since 2001 serving as Financial
Controller. From 1998 to 2001, Mr. Chan worked for Standard Chartered Bank.
Prior to September 2001, Mr. Chan worked for a number of other banks in Hong
Kong, including Dao Heng Bank and Asia Commercial Bank. He has more than 12
years of experience in corporate and commercial finance. Mr. Chan graduated
from the University of Toronto in 1986 with a Bachelors Degree in Commerce.

Each
director holds office (subject to our By-Laws) until the next annual meeting of
shareholders and until such directors successor has been elected and
qualified. All of our executive officers are serving until the next annual
meeting of directors and until their successors have been duly elected and
qualified. There are no family relationships between any of our directors and
executive officers.

There
have been no events under any bankruptcy act, no criminal proceedings and no
judgments, orders or decrees material to the evaluation of the ability and
integrity of any director or executive officer of the Company during the past
five years.

Board Meetings

During
the fiscal year ended December 31, 2008, our Board of Directors held 4
meetings. No director who served during the fiscal year ended December 31, 2008
attended fewer than 75% of the meetings of the Board of Directors during that
year.

Committees of the Board

Our
Board of Directors does not have a separate Compensation Committee, Audit
Committee or Nominating Committee. All of the members of our Board of Directors
are acting as our audit committee. None of the members of our Board of
Directors is deemed an audit committee financial expert. We are in the process
of recruiting an appropriate candidate to be our audit committee financial
expert. Our Board of Directors plans to expand the number of members on the
board and create an independent Compensation Committee, Audit Committee and a
Nominating Committee.

Board Leadership Structure and Risk Oversight
Role

Our
Chief Executive Officer also serves as Chairman of our Board of Directors and
we do not presently maintain a Lead Independent Director. We believe that
such a leadership structure is suitable for the Company at its present stage of
development, and that the interests of the Company are best served by the
combination of the roles of Chairman of the Board and Chief Executive Officer.

As
a matter of regular practice, and as part of its oversight function, our Board
of Directors undertakes a review of the significant risks in respect of our
business. Such review is supplemented as necessary by outside professionals
with expertise in substantive areas germane to our business. With our current
governance structure, our Board of Directors and senior executives are the same
individuals, and consequently, there is not a significant division of oversight
and operational responsibilities in managing the material risks facing the
Company.

23

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Code of Business Conduct and Ethics

We
have adopted a written code of business conduct and ethics, known as our Code
of Business Conduct and Ethics which applies to all of our directors, officers,
and employees, including our principal executive officer and our principal
financial and accounting officer. A copy of the Code of Business Conduct and
Ethics is attached as Exhibit 14 to the Annual Report on Form 10-K for the
period ended December 31, 2003. To receive a copy of our Code of Business
Conduct and Ethics, at no cost, requests should be directed to the Secretary,
ACL Semiconductor, Inc., Room 1701,
17/F., Tower 1, Enterprise Square, 9 Sheung Yuet Road, Kowloon Bay, Kowloon,
Hong Kong. We intend to disclose any amendment to, or waiver of, a
provision of the Code of Business Conduct and Ethics in a report filed under
the Securities Exchange Act of 1934, as amended, within four business days of
the amendment or waiver.

Stockholder Communications

Stockholders
and other interested parties may contact the Board of Directors or the
non-management directors as a group at the following address: Board of
Directors or Outside Directors, ACL Semiconductor, Inc., Room 1701, 17/F., Tower 1, Enterprise Square,
9 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong. All communications
received at the above address will be relayed to the Board of Directors or the
non-management directors, respectively. Communications regarding accounting,
internal accounting controls or auditing matters may also be reported to the
Board of Directors using the above address.

Typically,
we do not forward to our directors communications from our stockholders or
other communications which are of a personal nature or not related to the
duties and responsibilities of the Board, including:

|  |                                          
|- | -----------------------------------------
| | Junk mail
 and mass mailings             
|  |                                          
| | New product
 suggestions                 
|  |                                          
| | Resumes and
 other forms of job inquiries
|  |                                          
| | Opinion
 surveys and polls               
|  |                                          
| | Business
 solicitations or advertisements

Compliance with Section 16(A) of The
Securities Exchange Act of 1934

Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors and
executive officers and persons who own more than ten percent of a registered
class of our equity securities (collectively, Reporting Person) to file with
the SEC initial reports of ownership and reports of changes in ownership of our
Common Stock and other equity securities of the Company. Reporting Persons are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file. To our knowledge, based solely on a review of the
copies of such reports furnished to us, we believe that during fiscal year
ended December 31, 2008 all Reporting Persons complied with all applicable
filing requirements.

|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

Summary

Our
approach to executive compensation is influenced by our belief in rewarding
people for consistently strong execution and performance. We believe that the
ability to attract and retain qualified executive officers and other key
employees is essential to our long term success.

Our
plan to obtain and retain highly skilled employees is to provide significant
market competitive salaries and also incentive awards. Our approach is to link
individual employee objectives with overall company strategies and results, and
to reward executive officers and significant employees for their individual
contributions to those strategies and results. We use compensation and
performance data from comparable companies in the electronics distribution
industry to establish market competitive compensation and performance standards
for our employees. Furthermore, we believe that equity awards serve to align
the interests of our executives with those of our stockholders. As such, we
intend for equity to become a key component of our compensation program.

Named Executive Officers

The
named executive officers for the fiscal year ended December 31, 2008 are
Chung-Lun Yang, our Chief Executive Officer, and Kenneth Lap-Yin Chan, our
Chief Financial Officer. These individuals are referred to collectively in this
Annual Report on Form 10-K/A as the Named Executive Officers.

24

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OUR EXECUTIVE COMPENSATION PROGRAM

Overview

The
primary elements of our executive compensation program are base salary,
incentive cash and stock bonus opportunities and equity incentives typically
    in the form of stock option grants. Although we provide other types of compensation,
these three elements are the principal means by which we may provide the Named
Executive Officers with compensation opportunities.

ELEMENTS OF OUR EXECUTIVE COMPENSATION
PROGRAM

Base Salary

We
pay a base salary to our Named Executive Officers. In general, base
salaries for the Named Executive Officers are determined by evaluating the
responsibilities of the executives position, the executives experience
and the competitive marketplace. Base salary adjustments are considered and take
into account changes in the executives responsibilities, the executives
performance and changes in the competitive marketplace. We believe that the
base salaries of the Named Executive Officers are appropriate within the
context of the compensation elements provided to the executives and because
they are at a level which remains competitive in the marketplace.

Bonuses

The
Board of Directors may authorize us to give discretionary bonuses, payable in
cash or shares of Common Stock, to the Named Executive Officers and other key
employees. Such bonuses are designed to motivate the Named Executive Officers
and other employees to achieve specified corporate, business unit and/or
individual, strategic, operational and other performance objectives.

Stock Options

Stock
options constitute performance-based compensation because they have value to
the recipient only if the price of our Common Stock increases. We have not
granted any stock options to any of our Named Executive Officers and the grant of
stock options to Named Executive Officers is not a material factor in making
compensation determinations with respect to our Named Executive Officers.
However, we have in the past used stock options as incentives for our other
employees. Stock options generally vest over time, obtainment of a corporate
goal or a combination. The grant of stock options is designed to motivate our
employees to achieve our short term and long term corporate goals.

Retirement and Deferred Compensation Benefits

We
do not have any arrangements with the Named Executive Officers to provide them
with retirement and/or deferred compensation benefits.

Perquisites

There
were no perquisites provided to the Named Executive Officers.

Post-Termination/Change of Control
Compensation

We
do not have any arrangements with the Named Executive Officers to provide them
with compensation following termination of employment.

Tax Implications of Executive Compensation

Our
aggregate deductions for each Named Executive Officer compensation are
potentially limited by Section 162(m) of the Internal Revenue Code to the
extent the aggregate amount paid to an executive officer exceeds $1 million,
unless it is paid under a predetermined objective performance plan meeting
certain requirements, or satisfies one of various other exceptions specified in
the Internal Revenue Code. At our 2008 Named Executive Officer compensation
levels, we did not believe that Section 162(m) of the Internal Revenue Code
would be applicable, and accordingly, we did not consider its impact in
determining compensation levels for our Named Executive Officers in 2008.

Hedging Policy

We
do not permit the Named Executive Officers to hedge ownership by engaging in
short sales or trading in any options contracts involving our securities.

Option Exercises and Stock Vested

No
options have been exercised by our Named Executive Officers during the fiscal
year ended December 31, 2008.

25

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Pension Benefits

Under
the Mandatory Provident Fund (MPF) Scheme Ordinance in Hong Kong, the Company
is required to set up or participate in an MPF scheme to which both the Company
and employees must make continuous contributions throughout their employment
based on 5% of the employees earnings, subject to maximum and minimum level of
income. For those earning less than the minimum level of income, they are not
required to contribute but may elect to do so. However, regardless of the
employees election, their employers must contribute 5% of the employees
income. Contributions in excess of the maximum level of income are voluntary.
All contributions to the MPF scheme are fully and immediately vested with the
employees accounts. The contributions must be invested and accumulated until
the employees retirement.

Nonqualified Deferred Compensation

We
do not have any defined contribution or other plan that provides for the
deferral of compensation on a basis that is not tax-qualified.

Employment Agreements

We
have not entered into any employment agreements with any of our Named Executive
Officers.

Executive Officer Compensation

The
following table sets forth the annual and long-term compensation of our Named
Executive Officers for services in all capacities to the Company for the last
two fiscal years ended December 31, 2008 and December 31, 2007.

Summary Compensation Table

|                                                  |  |      |      |           |   |          |  |                  |   |                   |  |                                             |  |                                                                                  |   |                               |  |          |  |  |   |  |   |        |  |   |         | 
|------------------------------------------------- |  | ---- | ---- | --------- | - | -------- |  | ---------------- | - | ----------------- |  | ------------------------------------------- |  | -------------------------------------------------------------------------------- | - | ----------------------------- |  | -------- |  |  | - |  | - | ------ |  | - | ------- | 
|Name and
 Principal Position                      |  | Year |      | Salary($) |   | Bonus($) |  | Stock
 Awards($) |   | Option
 Awards($) |  | Non-Equity
 Incentive Plan
 Compensation($) |  | Change in
 Pension Value
 and
 Nonqualified
 Deferred
 Compensation
 Earnings($) |   | All Other
 Compensation(1)($) |  | Total($) | 
|                                                  |  |      |      |           |   |          |  |                  |   |                   |  |                                             |  |                                                                                  |   |                               |  |          | 
|Chung-Lun Yang,                                   |  |      | 2008 |           | $ | 735,026  |  |                  |  |                   |  |                                            |  |                                                                                  |  |                               |  |         |  |  |  |  |   |       |  | $ | 735,026 | 
|Chief Executive Officer and Chairman of the Board |  |      | 2007 |           | $ | 812,821  |  |                  |  |                   |  |                                            |  |                                                                                  |  |                               |  |         |  |  |  |  | $ | 17,521 |  | $ | 830,342 | 
|                                                  |  |      |      |           |   |          |  |                  |   |                   |  |                                             |  |                                                                                  |   |                               |  |          |  |  |   |  |   |        |  |   |         | 
|Kenneth Lap Yin                                   |  |      | 2008 |           | $ | 64,615   |  |                  |  |                   |  |                                            |  |                                                                                  |  |                               |  |         |  |  |  |  |   |       |  | $ | 64,615  | 
|Chan, Chief Financial Officer                     |  |      | 2007 |           | $ | 72,435   |  |                  |  |                   |  |                                            |  |                                                                                  |  |                               |  |         |  |  |  |  |   |       |  | $ | 72,435  | 

|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Yangs
 other annual compensation includes rent and housing allowance in the amount
 of $0 for the year ended December 31, 2008 and $17,521 for the year ended
 December 31, 2007.

Outstanding equity awards at fiscal year-end

None.

Compensation
of Directors

Except
with respect to Ben Wong who was paid fees of $64,615 during the year ended
December 31, 2008 for his role as Sales Director of Atlantic, none of our
directors who served during the year ended December 31, 2008 received
compensation for serving as such, other than reimbursement for out of pocket
expenses incurred in attending director meetings.

26

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|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
 Owners and Management and Related Stockholder Matters

The
following table sets forth certain information regarding beneficial ownership
of our Common Stock as of December 31, 2008: (i) by each person who is known by
us to own beneficially more than 5% of the Common Stock, (ii) by each of our
directors, (iii) by each of our executive officers and (iv) by all our
directors and executive officers as a group. On such date, we had 28,329,936
shares of Common Stock outstanding.

As
used in the table below, the term beneficial ownership with respect to a
security consists of sole or shared voting power, including the power to vote
or direct the vote, and/or sole or shared investment power, including the power
to dispose or direct the disposition, with respect to the security through any
contract, arrangement, understanding, relationship, or otherwise, including a
right to acquire such power(s) during the 60 days immediately following
December 31, 2008. Except as otherwise indicated, the stockholders listed in
the table have sole voting and investment powers with respect to the shares
indicated

|                                                                                                   |  |                        |            |                       |  |      |  
|-------------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- | --------------------- |  | ---- | -
|Name and
 Address of                                                                               |  | Shares of Common Stock |            | Percentage of Class   | 
|                                                                                                   |  |                        |            |                       | 
|Beneficial
 Owner                                                                                  |  | Beneficially Owned     |            | Beneficially Owned(1) | 
|                                                                                                   |  |                        |            |                       | 
|Chung-Lun
 Yang (2) (3)
 No. 78, 5th Street, Hong Lok Yuen, Tai Po, New Territories, Hong Kong     |  |                        | 22,380,000 |                       |  | 78.9 | %
|                                                                                                   |  |                        |            |                       |  |      |  
|Ben Wong (3)
 19B, Tower 8, Bellagio, 33 Castle Peak Road, Sham Tseng,
 New Territories, Hong Kong |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                   |  |                        |            |                       |  |      |  
|Kenneth
 Lap-Yin Chan (2)
 Flat B, 8/F., Block 19, South Horizons, Aplei Chau, Hong Kong           |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                   |  |                        |            |                       |  |      |  
|All
 Directors and Officers as a Group                                                             |  |                        | 22,380,000 |                       |  | 78.9 | %

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Applicable
 percentage of ownership is based on 28,329,936 shares of Common Stock
 outstanding as of December 31, 2008, together with securities exercisable or
 convertible into shares of Common Stock within 60 days of December 31, 2008,
 for each stockholder. Beneficial ownership is determined in accordance with
 the rules of the United States Securities and Exchange Commission and
 generally includes voting or investment power with respect to securities.
 Shares of Common Stock subject to securities exercisable or convertible into
 shares of Common Stock that are currently exercisable or exercisable within
 60 days of December 31, 2008, are deemed to be beneficially owned by the
 person holding such securities for the purpose of computing the percentage of
 ownership of such person, but are not treated as outstanding for the purpose
 of computing the percentage ownership of any other person. The Common Stock
 is the only outstanding class of equity securities of the Company.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | Executive
 Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(3) | Director
 Except as otherwise set forth, information on the stock ownership of these
 persons was provided to us by such persons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

27

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|         |                                                                           
|-------- | --------------------------------------------------------------------------
|Item 13. | Certain Relationships and Related Transactions, and Director
 Independence

All
related person transactions are reviewed and, as appropriate, may be approved
or ratified by the Board of Directors. Related person transactions are approved
by the Board of Directors only if, based on all of the facts and circumstances,
they are in, or not inconsistent with, our best interests and our stockholders,
as the Board of Directors determines in good faith. The Board of Directors
takes into account, among other factors it deems appropriate, whether the
transaction is on terms generally available to an unaffiliated third-party
under the same or similar circumstances and the extent of the related persons
interest in the transaction. The Board of Directors may also impose such
conditions as it deems necessary and appropriate on us or the related person in
connection with the transaction.

In
the case of a transaction presented to the Board of Directors for ratification,
the Board of Directors may ratify the transaction or determine whether
rescission of the transaction is appropriate.

CERTAIN RELATED PERSON TRANSACTIONS

Transactions with Aristo Technologies Limited
/ Mr. Yang

As of December
31, 2008 and 2007, we had an outstanding receivable from Mr. Yang,
    the President and Chairman of our Board of Directors, totaling $7,900,404
    and $6,057,488 respectively. These advances bear no interest and are payable
    on demand. The receivable due from Mr. Yang to the Company is derived from
    the consolidation of the financial statements of Aristo, a variable interest
    entity, with the Company. A repayment plan has been entered into (see Note
14 to consolidated financial statements).

For the years
ended December 31, 2008 and 2007, we recorded compensation to Mr. Yang of
$735,026 and $812,821 respectively, and paid $735,026 and $812,821 respectively
to Mr. Yang as compensation to him.

During each of
the years ended December 31, 2008 and 2007, we paid rent of $0 and $17,521
respectively for Mr. Yangs personal residence as fringe benefits to him. All
such payments have been recorded as compensation expense in the accompanying
financial statements.

Transactions with Classic Electronic Limited

Mr. Ben Wong,
one of our directors, is a 99.9% shareholder of Classic Electronic Ltd.
(Classic). The remaining 0.1% of Classic is owned by a non-related party.
During the years ended December 31, 2008 and 2007, we sold products for $0 and
$366,840 respectively, to Classic. As of December 31, 2008 and 2007, the
Company had outstanding accounts receivable from Classic totaling $1,717,320
and $1,717,859 respectively. This account receivable has been outstanding for
more than 12 months.

Classic has
historically met its payment obligations to the Company and the Company has no
reason to believe that Classics receivables are not collectible. Pursuant
to a written personal guarantee agreement, Mr. Yang has personally guaranteed
up to $10.0 million of the outstanding accounts receivable from Classic. The
Company has received verbal assurances from Mr. Yang of his intent and ability
to perform under the above-referenced guarantee and based on information provided
by Mr. Yang, his net worth is approximately $17 million. In addition, as
discussed in Note 14 to Consolidated Financial Statements, the Company has
entered into a payment plan with Classic, and the amount due from Classic had
been settled.

Transactions with Solution Semiconductor
(China) Limited

Mr. Ben Wong,
one of our directors, is a 99% shareholder of Solution Semiconductor (China)
Ltd. (Solution). The remaining 1% of Solution is owned by a non-related
party. On April 1, 2007, we entered into a lease agreement with Solution
pursuant to which we lease one facility. The lease agreement for this facility
expires on March 31, 2009. The monthly lease payment for this lease is $1,090.
We incurred and paid an aggregate rent expense of $13,077 and $12,385 to
Solution during the years ended December 31, 2008 and 2007.

Two facilities
located in Hong Kong owned by Solution were used by the Company as collateral
for loans from Citic Ka Wah Bank Limited (Citic) and Standard Chartered Bank
(Hong Kong) Limited (SCB) respectively.

Transactions with Systematic Information
Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is a
director and shareholder of Systematic Information Ltd. (Systematic
Information) with a total of 100% interest. On September 1, 2008, we entered
into a lease agreement with Systematic Information pursuant to which we lease
one facility. The lease agreement for this facility expires on August 31, 2010.
The monthly lease payment for this lease totals $641. We incurred and paid an
aggregate rent expense of $7,692 and $7,692 to Systematic Information during
the years ended December 31, 2008 and 2007.

During the
years ended December 31, 2008 and 2007, we received service charges of $0 and
$11,538 respectively from Systematic Information. The service fee was charged
for back office support for Systematic Information.

During the
years ended December 31, 2008 and 2007, we sold products for $1,913,071 and
$666,742 respectively, to Systematic Information. As of December 31, 2008 and
2007, there were no outstanding accounts receivables from Systematic
Information.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $1,446,680
and $1,523,238 respectively from Systematic Information. As of December 31,
2008 and 2007, there were no outstanding accounts payable to Systematic
Information.

28

---



On April 1,
2005, we entered into a lease agreement with Systematic Information pursuant to
which we lease one residential property for Mr. Yangs personal use for a
monthly lease payment of $3,205. Upon expiration of the lease on June 15, 2007,
ACL acquired this residential property from Systematic Information. We incurred
and paid an aggregate rent expense of $0 and $17,521 to Systematic Information
during the years ended December 31, 2008 and 2007.

A workshop
located in Hong Kong owned by Systematic Information was used by the Company as
collateral for loans from SCB.

Transactions with Global Mega Development
Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is the
sole beneficial owner of the equity interest of Global Mega Development Ltd.
(Global). During the years ended December 31, 2008 and 2007, we received
management fees of $0 and $5,769 respectively from Global. As of December 31,
2008 and 2007, there were no outstanding accounts receivables from Global. The
management fees were charged for back office support for Global.

During the
years ended December 31, 2008 and 2007, we sold products for $0 and $25,337
respectively, to Global. As of December 31, 2008 and 2007, there were no
outstanding accounts receivables from Global.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $2,323 and
$18,294 respectively from Global. As of December 31, 2008 and 2007, there were
no outstanding accounts payable to Global.

Transactions with Intelligent Network
Technology Limited

Mr. Yang the
Companys Chief Executive Officer, majority shareholder and a director, is a
director and 80% shareholder of Intelligent Network Technology Ltd. (Intelligent).
The remaining 20% of Intelligent is owned by a non-related party. During the
years ended December 31, 2008 and 2007, we purchased inventories of $0 and
$1,343,501 respectively from Intelligent. As of December 31, 2008 and 2007,
there were no outstanding accounts payable to Intelligent.

Transactions with Systematic Semiconductor
Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is the
sole beneficial owner of the equity interest of Systematic Semiconductor Ltd.
(Systematic). During the years ended December 31, 2008 and 2007, we received
a management fee of $15,384 and $16,026 respectively from Systematic. The
management fee was charged for back office support for Systematic.

During the
years ended December 31, 2008 and 2007, we sold products for $275,766 and
$779,879 respectively, to Systematic. As of December 31, 2008 and 2007, there
were no outstanding accounts receivables from Systematic.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $560,750
and $1,007,352 respectively from Systematic. As of December 31, 2008 and 2007,
there were no outstanding accounts payable to Systematic.

Transactions with Aristo Components Limited

Mr. Ben Wong,
one of our directors, is a 90% shareholder of Aristo Components Ltd. (Aristo
Comp). The remaining 10% of Aristo Comp is owned by a non-related party.
During the years ended December 31, 2008 and 2007, we received a management fee
of $8,077 and $0 respectively from Aristo Comp. The management fee was charged
for back office support for Aristo Comp.

During the
years ended December 31, 2008 and 2007, we sold products for $67,968 and
$349,327 respectively, to Aristo Comp. As of December 31, 2008 and 2007, there
were no outstanding accounts receivables from Aristo Comp.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $37,665 and
$0 respectively, from Aristo Comp. As of December 31, 2008 and 2007, there were
no outstanding accounts payable to Aristo Comp.

Transactions with Atlantic Storage Devices Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is a
40% shareholder of Atlantic Storage Devices Ltd. (Atlantic Storage). The
remaining 60% of Atlantic Storage is owned by a non-related party. During the
years ended December 31, 2008 and 2007, we sold products for $575,386 and
$1,471,471 respectively, to Atlantic Storage. As of December 31, 2008 and 2007,
there were no outstanding accounts receivables from Atlantic Storage.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $679,048
and $581,444 respectively, from Atlantic Storage. As of December 31, 2008 and
2007, there were no outstanding accounts payable to Atlantic Storage.

Transactions with Rambo Technologies Limited

Mr. Ben Wong,
one of our directors, is a 60% shareholder of Rambo Technologies Ltd.
(Rambo). The remaining 40% of Rambo is owned by a non-related party. During
the years ended December 31, 2008 and 2007, we sold products for $1,077,653 and
$2,574,096 respectively, to Rambo. As of December 31, 2008 and 2007, there were
no outstanding accounts receivables from Rambo.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $10,314 and
$0 respectively, from Rambo. As of December 31, 2008 and 2007, there were no
outstanding accounts payable to Rambo

29

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Transactions with Usmart Electronic Products
Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is the
sole beneficial owner of the equity interest of Usmart Electronic Products Ltd.
(Usmart). During the years ended December 31, 2008 and 2007, we sold products
for $5,509 and $703,683 respectively, to Usmart. As of December 31, 2008 and
2007, there were no outstanding accounts receivables from Usmart.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $199,712
and $736,888 respectively, from Usmart. As of December 31, 2008 and 2007, there
were no outstanding accounts payable to Usmart.

Transactions with Imax Technology Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is the
sole beneficial owner of the equity interest of Imax Technology Ltd. (Imax).
During the years ended December 31, 2008 and 2007, we sold products of $0 and
$51,060 respectively, to Imax. As of December 31, 2008 and 2007, there were no
outstanding accounts receivables from Imax.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $3,167 and
$0 respectively, from Imax. As of December 31, 2008 and 2007, there were no
outstanding accounts payable to Imax.

Transactions with Kadatco Co Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is a
99.99% shareholder of Kadatco Co Ltd. (Kadatco). The remaining 0.01% of
Kadatco is owned by a non-related party. During the years ended December 31,
2008 and 2007, we sold products for $0 and $518,040 respectively, to Kadatco.
As of December 31, 2008 and 2007, there were no outstanding accounts receivables
from Kadatco.

During the
years ended December 31, 2008 and 2007, we purchased inventories of $0 and
$590,742 respectively, from Kadatco. As of December 31, 2008 and 2007, there
    were no outstanding accounts payable to Kadatco.

Transactions with City Royal Limited

Mr. Yang, the
Companys Chief Executive Officer, majority shareholder and a director, is a
50% shareholder of City Royal Limited (City). The remaining 50% of City is
owned by the wife of Mr. Yang. A residential property located in Hong Kong
owned by City was used by the Company as collateral for loans from DBS Bank
(Hong Kong) Limited (DBS Bank).

|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services

The following
table presents fees, including reimbursements for expenses, for professional
audit services rendered by JTC Fair Song CPA Firm for the audits of our annual
financial statements and interim reviews of our quarterly financial statements
for the years ended December 31, 2008 and December 31, 2007 and fees billed for
other services rendered by JTC Fair Song CPA Firm during those periods.

|                        |  |             |        |             |   |        | 
|----------------------- |  | ----------- | ------ | ----------- | - | ------ | 
|                        |  | Fiscal 2008 |        | Fiscal 2007 |  
|Audit Fees
 (1)         |  | $           | 35,000 |             | $ | 35,000 | 
|Audit
 Related Fees (2) |  | $           |       |             | $ |       | 
|Tax Fees (3)            |  | $           |       |             | $ |       | 
|All Other
 Fees (4)     |  | $           |       |             | $ |       | 
|                        |  |             |        |             |   |        | 
|Total                   |  | $           | 35,000 |             | $ | 35,000 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit Fees
 consist of fees billed for professional services rendered for the audit of
 the Companys consolidated annual financial statements and review of the
 interim consolidated financial statements included in quarterly reports and
 services that are normally provided by JTC Fair Song CPA Firm in connection
 with statutory and regulatory filings or engagements.
|    |                                                                                                                                                                                                                                                                                                                                                                                  
|(2) | Audit-Related
 Fees consist of fees billed for assurance and related services that are
 reasonably related to the performance of the audit or review of the Companys
 consolidated financial statements and are not reported under Audit Fees.
 There were no such fees in fiscal year 2008 or 2007.                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                  
|(3) | Tax Fees
 consist of fees billed for professional services rendered for tax compliance,
 tax advice and tax planning. There were no such fees in fiscal year 2008 or
 2007.                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                  
|(4) | All Other
 Fees consist of fees for products and services other than the services
 reported above. There were no such fees in fiscal year 2008 or 2007.                                                                                                                                                                                                                          

30

---



PART IV

|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

|                                                                          |                                                   |                                                                                                                         
|------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------
|(a)                                                                       | Documents
 filed as part of this Report          
|                                                                          |                                                   |                                                                                                                         
|                                                                          | (1)                                               | The
 financial statements listed in the Index to Consolidated Financial Statements
 are filed as part of this report    
|                                                                          |                                                   |                                                                                                                         
|                                                                          | (2)                                               | The financial
 statements listed in the Index are filed a part of this report.                                          
|                                                                          |                                                   |                                                                                                                         
|                                                                          |                                                   | Schedule II
  Valuation and Qualifying Accounts and Reserves. Schedule II on page S-1 is
 filed as part of this report.
|                                                                          |                                                   |                                                                                                                         
|                                                                          |                                                   | Schedule III
  Quarterly Information (Unaudited). Schedule II on page S-1 is filed as part
 of this report.            
|                                                                          |                                                   |                                                                                                                         
|                                                                          | (3)                                               | List of
 Exhibits                                                                                                       
|                                                                          |                                                   |                                                                                                                         
|                                                                          |                                                   | See Index to
 Exhibits in paragraph (b) below.                                                                          
|                                                                          |                                                   |                                                                                                                         
|The Exhibits
 are filed with or incorporated by reference in this report.
|                                                                          |                                                   |                                                                                                                         
|(b)                                                                       | Exhibits
 required by Item 601 of Regulation S-K.

|             |  |                                                                                                                                                                                                                                                                                                         
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                                                                                                                                                                                                             
|3.1          |  | Certificate
 of incorporation of the Company, together with all amendments thereto, as
 filed with the Secretary of State of the State of Delaware, incorporated by
 reference to Exhibit 3.1 to the Form 8-K filed with the Securities and
 Exchange Commission on December 19, 2003.                  
|             |  |                                                                                                                                                                                                                                                                                                         
|3.2          |  | By-Laws of
 the Company, as amended, incorporated by reference to Exhibit 3.2 to the
 Companys Registration Statement.                                                                                                                                                                                 
|             |  |                                                                                                                                                                                                                                                                                                         
|4.1(a)       |  | Form of
 specimen certificate for common stock of the Company.                                                                                                                                                                                                                                          
|             |  |                                                                                                                                                                                                                                                                                                         
|10.1         |  | Share
 Exchange and Reorganization Agreement, dated as of September 8, 2003, among
 Print Data Corp., Atlantic Components Limited and Mr. Chung-Lun Yang,
 incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the
 Securities and Exchange Commission on October 16, 2003.            
|             |  |                                                                                                                                                                                                                                                                                                         
|10.2         |  | Conveyance
 Agreement, dated as of September 30, 2003, between Print Data Corp. and New
 Print Data Corp., incorporated by reference to Exhibit 10.2 to the Form 8-K
 filed with the Securities and Exchange Commission on October 16, 2003.                                                            
|             |  |                                                                                                                                                                                                                                                                                                         
|10.3         |  | Securities
 Purchase Agreement, dated October 1, 2003, among Print Data Corp, Jeffery
 Green, Phyllis Green and Joel Green, incorporated by reference to Exhibit
 10.3 to the Form 8-K filed with the Securities and Exchange Commission on
 October 16, 2003.                                          
|             |  |                                                                                                                                                                                                                                                                                                         
|10.4         |  | Sales
 Restriction Agreement, dated September 30, 2003, between Print Data Corp. and
 Phyllis Green, incorporated by reference to Exhibit 10.4 to the Form 8-K
 filed with the Securities and Exchange Commission on October 16, 2003.                                                                  
|             |  |                                                                                                                                                                                                                                                                                                         
|10.5         |  | Sales
 Restriction Agreement, dated September 30, 2003, between Print Data Corp. and
 Jeffery Green, incorporated by reference to Exhibit 10.5 to the Form 8-K
 filed with the Securities and Exchange Commission on October 16, 2003.                                                                  
|             |  |                                                                                                                                                                                                                                                                                                         
|10.6         |  | Distribution
 Agreement, dated May 1, 1993, by and between Samsung Electronics Co., Ltd.
 and Atlantic Components Limited, incorporated by reference to Exhibit 10.6 to
 the Form 8-K filed with the Securities and Exchange Commission on October 16,
 2003.                                           
|             |  |                                                                                                                                                                                                                                                                                                         
|10.7         |  | Renewal of
 Distributorship Agreement, dated March 1, 2002, by and between Samsung
 Electronics Co., Ltd. and Atlantic Components Limited, incorporated by
 reference to Exhibit 10.7 to the Form 8-K filed with the Securities and
 Exchange Commission on October 16, 2003.                           
|             |  |                                                                                                                                                                                                                                                                                                         
|10.8         |  | Form of Note
 Subscription, dated as of December 31, 2003, by and between the Company and
 Professional Traders Fund LLC, a New York limited liability company (PTF),
 incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the
 Securities and Exchange Commission on March 24, 2004.
|             |  |                                                                                                                                                                                                                                                                                                         
|10.9         |  | Form of 12%
 Senior Subordinated Convertible Note due December 31, 2004 in the aggregate
 principal amount of $250,000 issued by the Company to PTF, incorporated by
 reference to Exhibit 10.2 to the Form 8-K filed with the Securities and
 Exchange Commission on March 24, 2004.                   

31

---



|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10 |  | Form of
 Limited Guaranty and Security Agreement, dated as of December 31, 2003, by
 and among, the Company, PTF, Orient Financial Services Limited, Mr. Li
 Wing-Kei and Emerging Growth Partners, Inc., incorporated by reference to
 Exhibit 10.3 to the Form 8-K filed with the Securities and Exchange
 Commission on March 24, 2004.                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.11 |  | Form of
 Stock Purchase and Escrow Agreement, dated as of December 31, 2003, by and
 among, PTF, Orient Financial Services Limited, Mr. Li Wing-Kei and Emerging
 Growth Partners, Inc., and the law firm of Sullivan & Worcester LLP, as
 escrow agent, incorporated by reference to Exhibit 10.4 to the Form 8-K filed
 with the Securities and Exchange Commission on March 24, 2004.
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.12 |  | Form of
 Letter Agreement, dated as of December 31, 2003, by and between the Company
 and PTF, incorporated by reference to Exhibit 10.5 to the Form 8-K filed with
 the Securities and Exchange Commission on March 24, 2004.                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.13 |  | Letter of
 Intent, dated December 29, 2003, between the Company and Classic Electronics,
 Ltd., incorporated by reference to Exhibit 10.1 to the Form 8-K filed with
 the Securities and Exchange Commission on March 25, 2004.                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.14 |  | Note
 Subscription, dated as of December 31, 2003, by and between the Company and
 Professional Traders Fund LLC, a New York limited liability company (PTF),
 incorporated by reference to Exhibit 10.6 to the Form 8-K/A filed with the
 Securities and Exchange Commission on April 13, 2004.                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.15 |  | 12% Senior
 Subordinated Convertible Note due December 31, 2004 in the aggregate
 principal amount of $250,000 issued by the Company to PTF, incorporated by reference
 to Exhibit 10.7 to the Form 8-K/A filed with the Securities and Exchange
 Commission on April 13, 2004.                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.16 |  | Limited
 Guaranty and Security Agreement, dated as of December 31, 2003, by and among,
 the Company, PTF, Orient Financial Services Limited, Mr. Li Wing-Kei and
 Emerging Growth Partners, Inc., incorporated by reference to Exhibit 10.8 to
 the Form 8-K/A filed with the Securities and Exchange Commission on April 13,
 2004.                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.17 |  | Stock
 Purchase and Escrow Agreement, dated as of December 31, 2003, by and among,
 PTF, Orient Financial Services Limited, Mr. Li Wing-Kei and Emerging Growth
 Partners, Inc., and the law firm of Sullivan & Worcester LLP, as escrow
 agent, incorporated by reference to Exhibit 10.9 to the Form 8-K/A filed with
 the Securities and Exchange Commission on April 13, 2004.      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.18 |  | Letter
 Agreement, dated as of December 31, 2003, by and between the Company and PTF,
 incorporated by reference to Exhibit 10.10 to the Form 8-K/A filed with the
 Securities and Exchange Commission on April 13, 2004.                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.19 |  | Stock
 Purchase Agreement, dated as of December 30, 2005, by and among the Company,
 Classic Electronics, Ltd. (Classic) and the shareholders of Classic,
 incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the
 Securities and Exchange Commission on January 6, 2006.                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.20 |  | 2006
 Incentive Equity Stock Plan, incorporated by reference to Exhibit 4.1 to the
 Form S-8 filed with the Securities and Exchange Commission on April 27, 2006.                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|14    |  | Code of Business
 Conduct and Ethics of the Company incorporated by reference to Exhibit 14 to
 the Form 10-K for the period ended December 31, 2003.                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|16.1  |  | Letter dated
 March 19, 2008 from Jeffrey Tsang & Co., incorporated by reference to
 Exhibit 16.1 to the Form 8-K filed with the Securities and Exchange
 Commission on March 24, 2008.                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|21    |  | Subsidiaries
 of the Company                                                                                                                                                                                                                                                                                                                                                            
|      |  | Atlantic
 Components Limited, a Hong Kong corporation                                                                                                                                                                                                                                                                                                                                   
|      |  | Alpha
 Perform Technologies Limited, a British Virgin Islands corporation                                                                                                                                                                                                                                                                                                               
|      |  | Aristo
 Technologies Limited, a Hong Kong corporation (variable interest entity)                                                                                                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|23.1* |  | Consent of
 Albert Wong & Co.                                                                                                                                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|31.1  |  | Certification
 of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
 the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|31.2  |  | Certification
 of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
 the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                             

32

---



|     |  |                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|32.1 |  | Certification
 of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|     |  |                                                                                                                                                      
|32.2 |  | Certification
 of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed
herewith

|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(c) | Financial
 statements required by Regulation S-X which are excluded from the annual
 report to shareholders by Rule 14a-3(b).

33

---



SIGNATURES

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

| |                          |                         
| | ------------------------ | ------------------------
| | ACL
 SEMICONDUCTORS INC.
|
| | By: /s/                  | Chung-Lun Yang          
| |                          | Chung-Lun Yang          
| |                          | Chief
 Executive Officer
|
| | Dated: May
 4, 2010     

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                          |  |                                      |             |  |      | 
|------------------------- |  | ------------------------------------ | ----------- |  | ---- | 
|Signature                 |  |                                      | Title       |  | Date | 
|                          |  |                                      |             |  |      | 
|/s/ Chung-Lun Yang        |  | Chief
 Executive                     | May 4, 2010
|                          |  | Officer and
 Chairman of the         |            
|Chung-Lun Yang            |  | Board of
 Directors                  |            
|                          |  | (Principal
 Executive                |            
|                          |  | Officer)                             |            
|                          |  |                                      |            
|                          |  |                                      |            
|/s/ Kenneth
 Lap-Yin Chan |  | Chief
 Financial Officer             | May 4, 2010
|                          |  | (Principal
 Financial and Accounting |            
|Kenneth
 Lap-Yin Chan     |  | Officer)                             |            
|                          |  |                                      |            
|                          |  |                                      |            
|/s/ Ben Wong              |  | Director                             | May 4, 2010
|                          |  |                                      |            
|Ben Wong                  |  |                                      |            

34

---



|                                                            
|------------------------------------------------------------
|ACL
 Semiconductors Inc. and Subsidiaries                   
|Consolidated Financial Statements                           
|As of
 December 31, 2008 and December 31, 2007 and          
|the Years
 Ended December 31, 2008 and 2007                 
|With Report of Independent Registered Public Accounting Firm

---



Index to
Consolidated Financial Statements

|                                                                                            |  |     
|------------------------------------------------------------------------------------------- |  | ----
|                                                                                            |  | Page
|                                                                                            |  |     
|                                                                                            |  |     
|Report of Independent Registered Public
 Accounting Firm                                    |  | F-2 
|                                                                                            |  |     
|Financial Statements:                                                                       |  |     
|Consolidated
 Balance Sheets                                                                |  | F-3 
|Consolidated
 Statements of Income and Comprehensive Income                                 |  | F-5 
|Consolidated
 Statements of Stockholders Equity and Accumulated Other Comprehensive Income |  | F-6 
|Consolidated
 Statements of Cash Flows                                                      |  | F-7 
|Notes to
 Consolidated Financial Statements                                                 |  | F-9 
|                                                                                            |  |     
|Schedule II  Valuation and Qualifying Accounts                                             |  | S-1 
|                                                                                            |  |     
|Schedule III  Quarterly Information                                                        |  | S-1 

F-1

---



|                                             
|---------------------------------------------
|ALBERT
 WONG & CO.                           
|CERTIFIED
 PUBLIC ACCOUNTANTS                
|7th Floor,
 Nan Dao Commercial Building      
|359-361
 Queens Road Central                
|Hong Kong                                    
|Tel: 2851
 7954                              
|Fax: 2545
 4086                              
|                                             
|ALBERT WONG                                  
|B.Soc., Sc., ACA., LL.B., C.P.A. (Practising)
|                                             
|                                             

To: The board
of directors and stockholders of

ACL
Semiconductors Inc. (the Company)

Report of
Independent Registered Public Accounting Firm

We have
audited the accompanying balance sheets of the Company as of December 31, 2008
and 2007 and the related statements of income, stockholders equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted
our audit in accordance with 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2008 and 2007 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.

As discussed
in Note 13 to the consolidated financial statements, the Company does have
numerous significant transactions with businesses and affiliates controlled by,
and/or with personnel who are related to, the officers and directors of the
Company.

|                  |                              
|----------------- | -----------------------------
|Hong Kong,
 China | Albert Wong
 & Co.           
|April 14,
 2010   | Certified
 Public Accountants

F-2

---



ACL SEMICONDUCTORS INC. AND SUBSDIARIES

CONSOLIDATED
BALANCE SHEETS 
AS AT DECEMBER 31, 2008 AND 2007 
(Stated in US Dollars)

ASSETS

|                                                                                        |  |       |   |      |            |            |            |   |            | 
|--------------------------------------------------------------------------------------- |  | ----- | - | ---- | ---------- | ---------- | ---------- | - | ---------- | 
|                                                                                        |  | Notes |   | 2008 |            | 2007       |           
|                                                                                        |  |       |   |      |            |            |           
|                                                                                        |  |       |   |      | (Restated) |            | (Restated) |  
|Current assets:                                                                         |  |       |   |      |            |            |            |   |            | 
|Cash and cash equivalents                                                               |  |       |   |      | $          | 1,943,463  |            | $ | 1,661,056  | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Restricted cash                                                                         |  |       |   |      |            | 5,169,753  |            |   | 4,203,057  | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Accounts receivable, net of allowance for
 doubtful accounts of $0 for 2008 and 2007    |  |       |   |      |            | 10,342,453 |            |   | 7,627,017  | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Accounts receivable, related parties                                                    |  |       |   |      |            | 1,717,320  |            |   | 1,717,859  | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Inventories, net                                                                        |  |       |   |      |            | 3,668,568  |            |   | 3,768,155  | 
|Restricted marketable securities                                                        |  |       |   |      |            | 500,000    |            |   | 769,231    | 
|Marketable securities                                                                   |  |       |   |      |            |           |            |   | 404,780    | 
|Income tax refundable                                                                   |  |       |   |      |            |           |            |   | 49,375     | 
|Other current assets                                                                    |  |       |   |      |            | 525,918    |            |   | 89,183     | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Total current assets                                                                    |  |       |   |      |            | 23,867,475 |            |   | 20,289,713 | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Property, equipment and improvements, net
 of accumulated depreciation and amortization |  |       | 3 |      |            | 6,922,623  |            |   | 6,933,998  | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Other deposits                                                                          |  |       |   |      |            | 396,900    |            |   | 387,245    | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Amounts due from Aristo / Mr. Yang                                                      |  |       |   |      |            | 7,900,404  |            |   | 6,057,488  | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 
|Total Assets                                                                            |  |       |   |      | $          | 39,087,402 |            | $ | 33,668,444 | 
|                                                                                        |  |       |   |      |            |            |            |   |            | 

See accompanying notes to the consolidated
financial statements

F-3

---



ACL SEMICONDUCTORS INC. AND SUBSDIARIES

CONSOLIDATED BALANCE SHEETS 
AS AT DECEMBER 31, 2008 AND 2007 
(Stated in US Dollars)

LIABILITIES AND STOCKHOLDERS EQUITY

|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- | - | ---- | ---------- | ---------- | ---------- | - | ---------- | -
|                                                                                                                                                 |  | Notes |   | 2008 |            | 2007       |           
|                                                                                                                                                 |  |       |   |      |            |            |           
|                                                                                                                                                 |  |       |   |      | (Restated) |            | (Restated) |  
|Current liabilities:                                                                                                                             |  |       |   |      |            |            |            |   |            |  
|Accounts payable                                                                                                                                 |  |       |   |      | $          | 17,318,949 |            | $ | 12,870,200 |  
|Accrued expenses                                                                                                                                 |  |       |   |      |            | 409,367    |            |   | 195,956    |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Lines of credit and loan facilities                                                                                                              |  |       | 4 |      |            | 16,447,742 |            |   | 15,610,488 |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Current portion of long-term debt                                                                                                                |  |       | 5 |      |            | 160,447    |            |   | 135,237    |  
|Current portion of capital lease                                                                                                                 |  |       | 6 |      |            | 58,683     |            |   | 44,991     |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Income tax payable                                                                                                                               |  |       |   |      |            | 5,588      |            |   |           |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Due to shareholders for converted pledged
 collateral                                                                                            |  |       |   |      |            | 112,385    |            |   | 112,385    |  
|Other current liabilities                                                                                                                        |  |       |   |      |            | 508,073    |            |   | 268,572    |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Total current liabilities                                                                                                                        |  |       |   |      |            | 35,021,234 |            |   | 29,237,829 |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Long-term liabilities                                                                                                                            |  |       |   |      |            |            |            |   |            |  
|Long-term debt, less current portion                                                                                                             |  |       | 5 |      |            | 2,361,711  |            |   | 2,539,242  |  
|Capital lease, less current portion                                                                                                              |  |       | 6 |      |            | 43,055     |            |   | 49,971     |  
|Deferred tax liabilities                                                                                                                         |  |       |   |      |            | 8,343      |            |   | 15,471     |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Total long-term liabilities                                                                                                                      |  |       |   |      |            | 2,413,109  |            |   | 2,604,684  |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Total liabilities                                                                                                                                |  |       |   |      |            | 37,434,343 |            |   | 31,842,513 |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Commitments and contingencies                                                                                                                    |  |       |   |      |            |           |            |   |           |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Stockholders equity (deficit):                                                                                                                  |  |       |   |      |            |            |            |   |            |  
|Common stock - $0.001 par value, 50,000,000
 shares authorized, 28,329,936 issued and outstanding as of December 31, 2008
 and 2007 respectively |  |       |   |      |            | 28,330     |            |   | 28,330     |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Additional paid-in capital                                                                                                                       |  |       |   |      |            | 3,593,027  |            |   | 3,593,027  |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Accumulated losses                                                                                                                               |  |       |   |      |            | (1,968,298 | )          |   | (1,795,426 | )
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|Total stockholders equity                                                                                                                       |  |       |   |      |            | 1,653,059  |            |   | 1,825,931  |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  
|                                                                                                                                                 |  |       |   |      | $          | 39,087,402 |            | $ | 33,668,444 |  
|                                                                                                                                                 |  |       |   |      |            |            |            |   |            |  

See accompanying notes to the consolidated
financial statements

F-4

---



ACL SEMICONDUCTORS INC. AND SUBSDIARIES

CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 
(Stated in US Dollars)

|                                                       |  |       |   |      |            |              |            |   |              |  
|------------------------------------------------------ |  | ----- | - | ---- | ---------- | ------------ | ---------- | - | ------------ | -
|                                                       |  | Notes |   | 2008 |            | 2007         |           
|                                                       |  |       |   |      |            |              |           
|                                                       |  |       |   |      | (Restated) |              | (Restated) |  
|                                                      
|Net sales                                              |  |       |   |      | $          | 209,556,926  |            | $ | 166,771,606  |  
|Cost of sales                                          |  |       |   |      |            | (205,388,286 | )          |   | (162,933,656 | )
|                                                       |  |       |   |      |            |              |            |   |              |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Gross profit                                           |  |       |   |      |            | 4,168,640    |            |   | 3,837,950    |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Selling and distribution costs                         |  |       |   |      |            | (82,285      | )          |   | (73,508      | )
|General and administrative expenses                    |  |       |   |      |            | (3,315,840   | )          |   | (3,066,995   | )
|                                                       |  |       |   |      |            |              |            |   |              |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Income from operations                                 |  |       |   |      |            | 770,515      |            |   | 697,447      |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Other income (expenses):                               |  |       |   |      |            |              |            |   |              |  
|Rental income                                          |  |       |   |      |            | 89,231       |            |   | 37,179       |  
|Interest expense                                       |  |       |   |      |            | (1,073,798   | )          |   | (1,009,010   | )
|Loss on disposal of marketable securities              |  |       |   |      |            | (227,781     | )          |   |             |  
|Unrealized gain on marketable securities               |  |       |   |      |            |             |            |   | 404,780      |  
|Management and service income                          |  |       |   |      |            | 23,462       |            |   | 33,333       |  
|Net income on cash flow hedge                          |  |       |   |      |            | 161,288      |            |   | 64,590       |  
|Interest income                                        |  |       |   |      |            | 90,706       |            |   | 169,055      |  
|Director life insurance policy refund                  |  |       |   |      |            |             |            |   | 29,617       |  
|Exchange differences                                   |  |       |   |      |            | (48,677      | )          |   | 34,672       |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Miscellaneous                                          |  |       |   |      |            | 8,311        |            |   | 5,013        |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|(Loss) income before income taxes provision            |  |       |   |      |            | (206,743     | )          |   | 466,676      |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Income taxes reversal (provision)                      |  |       | 7 |      |            | 33,871       |            |   | (187,833     | )
|                                                       |  |       |   |      |            |              |            |   |              |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Net (loss) income                                      |  |       |   |      | $          | (172,872     | )          | $ | 278,843      |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|(Loss) earnings per share - basic and
 diluted         |  |       |   |      | $          | (0.01        | )          | $ | 0.01         |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|                                                       |  |       |   |      |            |              |            |   |              |  
|Weighted average number of shares - basic
 and diluted |  |       | 8 |      |            | 28,329,936   |            |   | 28,329,936   |  
|                                                       |  |       |   |      |            |              |            |   |              |  

See accompanying notes to the consolidated
financial statements

F-5

---



|                                                    
|----------------------------------------------------
|ACL SEMICONDUCTORS INC. AND SUBSDIARIES             
|                                                    
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS
 EQUITY AND
|ACCUMULATED OTHER COMPREHENSIVE INCOME              
|FOR THE YEARS ENDED DECEMBER 31, 2008 AND
 2007     
|(Stated in US Dollars)                              

|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|----------------------------- |  | ------------ | ---------- | ---------------------------- | - | -------------------------------------- |  | - | --------- | --------------------------------------- | - | -------- | - | - | ---------- | - | - | --------- | -
|                              |  |              |            |                              |   | Due
 (from)/to
 stockholder/
 Director |  |   |           | Total
 stockholders
 Equity
 (deficit) |  
|                              |  | Common stock |            | Additional
 paid-in
 capital |   |                                        |  |   |          
|                              |  |              |            |                              |   | Accumulated
 deficit                   |  |  
|                              |  | Shares       |            | Amount                       |   |                                        |  |   |          
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Balance at
 January 1, 2007   |  |              | 28,329,936 |                              | $ | 28,330                                 |  | $ | 3,593,027 |                                         | $ | 913,463  |   | $ | (2,074,269 | ) | $ | 2,460,551 |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Reclassification              |  |              |           |                              |   |                                       |  |   |          |                                         |   | (913,463 | ) |   |           |   |   | (913,463  | )
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Net income                    |  |              |           |                              |   |                                       |  |   |          |                                         |   |         |   |   | 278,843    |   |   | 278,843   |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Balance at
 December 31, 2007 |  |              | 28,329,936 |                              |   | 28,330                                 |  |   | 3,593,027 |                                         |   |         |   |   | (1,795,426 | ) |   | 1,825,931 |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Balance at
 January 1, 2008   |  |              | 28,329,936 |                              |   | 28,330                                 |  |   | 3,593,027 |                                         |   |         |   |   | (1,795,426 | ) |   | 1,825,931 |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Net loss                      |  |              |           |                              |   |                                       |  |   |          |                                         |   |         |   |   | (172,872   | ) |   | (172,872  | )
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  
|Balance at
 December 31, 2008 |  |              | 28,329,936 |                              | $ | 28,330                                 |  | $ | 3,593,027 |                                         | $ |         |   | $ | (1,968,298 | ) | $ | 1,653,059 |  
|                              |  |              |            |                              |   |                                        |  |   |           |                                         |   |          |   |   |            |   |   |           |  

See accompanying notes to the consolidated
financial statements

F-6

---



|                                                 
|-------------------------------------------------
|ACL SEMICONDUCTORS INC. AND SUBSDIARIES          
|                                                 
|CONSOLIDATED STATEMENTS OF CASH FLOWS            
|INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS
|FOR THE YEARS ENDED DECEMBER 31, 2008 AND
 2007  
|(Stated in US Dollars)                           

|                                                                                        |  |            |            |            |   |             |  
|--------------------------------------------------------------------------------------- |  | ---------- | ---------- | ---------- | - | ----------- | -
|                                                                                        |  | 2008       |            | 2007       |  
|                                                                                        |  |            |            |            |  
|                                                                                        |  | (Restated) |            | (Restated) |  
|Cash flows provided by (used for) operating activities:                                 |  |            |            |            |   |             |  
|Net income (loss)                                                                       |  | $          | (172,872   | )          |   | $278,843    |  
|Depreciation and amortization                                                           |  |            | 238,477    |            |   | 230,614     |  
|Change in inventory reserve                                                             |  |            | (190,000   | )          |   | 323,077     |  
|Gain on disposal of equipment                                                           |  |            |           |            |   | (218        | )
|Loss (Gain) on disposal of marketable
 securities                                       |  |            | 227,781    |            |   | (404,780    | )
|                                                                                        |  |            |            |            |   |             |  
|Adjustments to reconcile net loss to net cash used in operating
 activities:            |  |            |            |            |   |             |  
|Accounts receivable  other                                                             |  |            | (2,715,435 | )          |   | (5,618,543  | )
|Accounts receivable  related parties                                                   |  |            | 539        |            |   | 5,654,608   |  
|Inventories                                                                             |  |            | 289,588    |            |   | (837,977    | )
|Refundable deposits                                                                     |  |            | (9,656     | )          |   | (6,207      | )
|Income tax refundable                                                                   |  |            | 49,375     |            |   |            |  
|Other current assets                                                                    |  |            | (436,734   | )          |   | (48,246     | )
|Other assets                                                                            |  |            |           |            |   |            |  
|Accounts payable                                                                        |  |            | 4,448,749  |            |   | 7,860,477   |  
|Accrued expenses                                                                        |  |            | 213,411    |            |   | (118,268    | )
|Income tax payable                                                                      |  |            | 5,588      |            |   | (124,214    | )
|Other current liabilities                                                               |  |            | 239,501    |            |   | (33,858     | )
|Deferred tax                                                                            |  |            | (7,128     | )          |   | 15,471      |  
|                                                                                        |  |            |            |            |   |             |  
|Total adjustments                                                                       |  |            | 2,077,798  |            |   | 6,891,936   |  
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Net cash provided by (used for) operating activities                                    |  |            | 2,181,184  |            |   | 7,170,779   |  
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Cash flows used for investing activities:                                               |  |            |            |            |   |             |  
|Advanced (to) from Aristo / Mr. Yang                                                    |  |            | (1,842,916 | )          |   | (6,970,951  | )
|Increase in restricted cash                                                             |  |            | (966,696   | )          |   | (1,494,480  | )
|Increase in restricted marketable
 securities                                           |  |            | (500,000   | )          |   | (769,231    | )
|Cash Proceeds from sales of marketable
 securities and restricted marketable securities |  |            | 946,229    |            |   |            |  
|Cash Proceeds from sales of equipment                                                   |  |            |           |            |   | 385         |  
|Purchases of property, equipment and
 improvements                                      |  |            | (164,565   | )          |   | (3,159,760  | )
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Net cash used for investing activities                                                  |  |            | (2,527,948 | )          |   | (12,394,037 | )
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Cash flows provided by financing activities:                                            |  |            |            |            |   |             |  
|Net borrowings on lines of credit and notes
 payable                                    |  |            | 837,254    |            |   | 4,772,021   |  
|Borrowing under long-term debt                                                          |  |            |           |            |   | 801,723     |  
|Principal payments under long-term debt                                                 |  |            | (152,321   | )          |   | (91,625     | )
|Principal payments under capital lease
 obligation                                      |  |            | (55,762    | )          |   | (45,291     | )
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Net cash provided by financing activities                                               |  |            | 629,171    |            |   | 5,436,828   |  
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Net cash and
 cash equivalents sourced (used)                                           |  |            | 282,407    |            |   | 213,570     |  
|                                                                                        |  |            |            |            |   |             |  
|Cash and
 cash equivalents, beginning of year                                           |  |            | 1,661,056  |            |   | 1,447,486   |  
|                                                                                        |  |            |            |            |   |             |  
|                                                                                        |  |            |            |            |   |             |  
|Cash and cash equivalents, end of year                                                  |  | $          | 1,943,463  |            | $ | 1,661,056   |  
|                                                                                        |  |            |            |            |   |             |  

F-7

---



|                                                 
|-------------------------------------------------
|ACL SEMICONDUCTORS INC. AND SUBSDIARIES          
|                                                 
|CONSOLIDATED STATEMENTS OF CASH FLOWS            
|INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS
|FOR THE YEARS ENDED DECEMBER 31, 2008 AND
 2007  
|(Stated in US Dollars)                           

|                                                                                         |  |            |           |            |   |           | 
|---------------------------------------------------------------------------------------- |  | ---------- | --------- | ---------- | - | --------- | 
|                                                                                         |  | 2008       |           | 2007       |  
|                                                                                         |  |            |           |            |  
|                                                                                         |  | (Restated) |           | (Restated) |  
|Supplemental cash flow information:                                                      |  |            |           |            |   |           | 
|                                                                                         |  |            |           |            |   |           | 
|Interest paid                                                                            |  | $          | 1,073,798 |            | $ | 1,009,010 | 
|Income tax paid                                                                          |  |            | 57,582    |            |   | 305,389   | 
|Income tax refund                                                                        |  |            | 139,289   |            |   |          | 
|                                                                                         |  |            |           |            |  
|                                                                                         |  |            |           |            |   |           | 
|Supplement schedule of non-cash investing and financing activities:                      |  |            |           |            |   |           | 
|Income tax provision                                                                     |  | $          | 17,411    |            | $ |          | 
|                                                                                         |  |            |           |            |   |           | 
|Capital lease obligations incurred when
 capital leases were entered for new automobiles |  | $          | 62,538    |            | $ | 95,898    | 
|                                                                                         |  |            |           |            |  

See accompanying notes to the consolidated
financial statements

F-8

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 1. | ORGANIZATION AND PRINCIPAL ACTIVITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Organization and Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | On September
 8, 2003, ACL Semiconductors Inc. (formerly Print Data Corp.) (ACL) entered
 into a Share Exchange and Reorganization Agreement with Atlantic Components
 Ltd. (Atlantic), a Hong Kong based company, and Mr. Chung-Lun Yang (Mr.
 Yang), the then sole beneficial stockholder of Atlantic. Under the terms of
 the agreement, ACL issued 22,380,000 of its shares to Mr. Chung-Lun Yang and
 2,620,000 of its shares to certain financial advisors in exchange for 100% of
 the issued and outstanding shares of Atlantics capital stock. The Company
 recorded an expense of $2,753,620 related to the issuance of 2,620,000 shares
 of its common stock to these advisors, which was computed based on the quoted
 market price of $1.05 on September 30, 2003, the effective date of the merger
 and was classified as merger cost in the accompanying consolidated statements
 of operations for the year ended December 31, 2003.                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | The share
 exchange agreement closed and became effective on September 30, 2003. Upon
 the completion of this transaction, Atlantic became the wholly owned
 subsidiary of ACL, and Mr. Yang became the owner of approximately 80% of
 ACLs issued and outstanding shares of common stock. In addition, ACLs
 directors and officers resigned and were replaced by directors and officers
 of Atlantic. For accounting purposes, the acquisition was accounted for as a
 reverse-acquisition, whereby Atlantic was deemed to have acquired ACL.
 Because the acquisition was accounted for as a purchase of ACL, the
 historical financial statements of Atlantic became the historical financial
 statements of ACL after this transaction.                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | In
 connection with this transaction, ACL entered into a Conveyance Agreement on
 September 30, 2003 with New Print Data Corp. (NewCo). Under the terms of
 this agreement, effective September 30, 2003, ACL conveyed its historic
 operations of providing supplies used in a computer or office environment to
 NewCo, by assigning all of the assets and liabilities related to such
 operations to NewCo which accepted the assignment and assumed all such
 liabilities in exchange for 1,000,000 shares of common stock of NewCo.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | On October
 1, 2003, Print Data Corp. entered into a Securities Purchase Agreement with
 the holders of Print Data Corp.s Series A Preferred Stock. Under the terms
 of this agreement, Print Data Corp. sold its 1,000,000 shares of NewCo common
 stock in exchange for the cancellation of the issued and outstanding 500,400
 shares of ACLs Series A Preferred Stock (representing 100% of Print Data
 Corp.s issued and outstanding preferred stock previously held by three
 preferred stockholders).                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | On December
 16, 2003, Print Data Corp. filed a Certificate of Amendment with the
 Secretary of State of the State of Delaware changing its name from Print Data
 Corp. to ACL Semiconductors Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | Business Activity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | ACL
 Semiconductors Inc. (Company or ACL) was incorporated in the State of
 Delaware on September 17, 2002. Through a reverse-acquisition of Atlantic
 Components Ltd., a Hong Kong based company, effective September 30, 2003, the
 Companys principal activities are distribution of electronic components
 under the Samsung brand name which comprise DRAM and graphic RAM, Flash,
 SRAM and MASK ROM for the Hong Kong and Southern China markets. Atlantic
 Components Ltd., its wholly owned subsidiary, was incorporated in Hong Kong
 on May 30, 1991 with limited liability. On October 2, 2003, the Company set
 up a wholly-owned subsidiary, Alpha Perform Technology Limited (Alpha), a
 British Virgin Islands company, to provide services on behalf of the Company
 in jurisdictions outside of Hong Kong. Effective January 1, 2004, the Company
 ceased the operations of Alpha and all the related activities are
 consolidated with those of Atlantic.

F-9

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|        |                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | (a)                                        | Method of Accounting                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                            | The Company
 maintains its general ledger and journals with the accrual method accounting
 for financial reporting purposes. The consolidated 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
 consolidated financial statements.
|        |                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | (b)                                        | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                            | The
 consolidated financial statements are presented in US Dollars and include the
 accounts of the Company and its subsidiary. All significant inter-company
 balances and transactions are eliminated in consolidation.                                                                                                                                                                                                                      
|        |                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                            | The Company
 owned its subsidiary soon after its inception and continued to own the
 equitys interests through December 31, 2008. The following table depicts the
 identity of the subsidiary:                                                                                                                                                                                                                                                

| |                                   |  |                         |  |                                 |  |                    
| | --------------------------------- |  | ----------------------- |  | ------------------------------- |  | -------------------
| | Name of subsidiary                |  | Place of
 Incorporation |  | Attributable
 equity
 Interest% |  | Registered
 Capital
| | Alpha
 Perform Technology Limited |  | BVI                     |  | 100                             |  | $    1,000         
| |                                   |  |                         |  |                                 |  |                    
| | Atlantic Components
 Ltd          |  | Hong Kong               |  | 100                             |  | $384,615           
| |                                   |  |                         |  |                                 |  |                    
| | *Aristo
 Technologies Limited     |  | Hong Kong               |  | 100                             |  | $    1,282         

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | *Note:
 Deemed variable interest entity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Variable
 Interests Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | According to
 ASC 810-10-25 which codified FASB Interpretation No. 46 (Revised December
 2003), Consolidation of Variable Interest Entities  an interpretation of ARB
 No. 51 (FIN 46R), an entity that has one or more of the three characteristics
 set forth therein is considered a variable interest entity. One of such characteristics
 is that the equity investment at risk in the relevant entity is not
 sufficient to permit the entity to finance its activities without additional
 subordinated financial support provided by any parties, including the equity
 holders. Based on a review of the equity investment at risk, the Company
 concluded that Aristo Technologies Limited (Aristo) is a variable interest
 entity and is therefore subject to consolidation with the Company under the
 guidance applicable to variable interest entities.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Aristo Technologies Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Aristo is
 engaged in the marketing, selling and servicing of computer products and
 accessories including semiconductors, LCD products, mass storage devices,
 consumer electronics, computer peripherals and electronic components for
 various brands such as Samsung, Hynix, Micro, Elpida, Qimonda, Lexar,
 Dane-Elec, Elixir, SanDisk and Winbond.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Company
 sells to Aristo in order to fulfill Aristos periodic need for
 Samsung memory products based on prevailing market prices, which products
 Aristo, in turn, sells to its customers. For fiscal year 2008, sales to Aristo
 were $9,076,034 with accounts receivable of $6,695,409 as of December 31,
 2008. For fiscal year 2007, sales to Aristo were $17,165,728 with accounts
 receivable of $6,237,905 as of December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Company
 purchases from Aristo, from time to time, LCD panels, Samsung memory chips, DRAM,
     Flash memory, central processing units, external hard disks, DVD readers
     and writers from Aristo that the Company cannot obtain from Samsung directly
     due to supply limitations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-10

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | (c)                                                    | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                        | The
 preparation of the consolidated financial statements in conformity with
 generally accepted accounting principles in the United States of America
 requires management to make estimates and assumptions that affect the
 reported amounts of assets and liabilities and disclosure of contingent
 assets and liabilities at the date of the consolidated financial statements
 and the reported amounts of revenues and expenses during the reporting
 periods. Management makes these estimates using the best information
 available at the time the estimates are made; however actual results could
 differ materially from those estimates.
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | (d)                                                    | Economic and political risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                        | The
 Companys operation is conducted in Hong Kong. Accordingly, the Companys
 business, financial condition and results of operations may be influenced by
 the political, economic and legal environment in Hong Kong, and by the
 general state of Hong Kong economy.                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                        | The
 Companys operations in Hong Kong 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. The
 Companys results may be adversely affected by changes in the political and
 social conditions in Hong Kong, 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.     
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | (e)                                                    | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                        | Plant and
 equipment are carried at cost less accumulated depreciation. Depreciation is
 provided over their estimated useful lives, using the straight-line method.
 Estimated useful lives of the plant and equipment are as follows:                                                                                                                                                                                                                                                                                                                                                                                                               



|                       |  |                         
|---------------------- |  | ------------------------
|Automobiles            |  | 3 1/3 years             
|Computers              |  | 5 years                 
|Leasehold
 improvement |  | 5 years                 
|Land and
 buildings    |  | By estimated useful life
|Office
 equipment      |  | 5 years                 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (f) | Account receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Accounts
 receivable is carried at the net invoiced value charged to customer. The
 Company records an allowance for doubtful accounts to cover estimated credit
 losses. Management reviews and adjusts this allowance periodically based on
 historical experience and its evaluation of the collectability of outstanding
 accounts receivable. The Company evaluates the credit risk of its customers
 utilizing historical data and estimates of future performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (g) | Accounting for impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | The Company
 periodically evaluates the carrying value of long-lived assets to be held and
 used, including intangible assets subject to amortization, when events and
 circumstances warrant such a review, pursuant to the guidelines established
 in ASC No. 360 (formerly Statement of Financial Accounting Standards No.
 144). The carrying value of a long-lived asset is considered impaired when
 the anticipated undiscounted cash flow from such asset is separately
 identifiable and is less than its carrying value. In that event, a loss is
 recognized based on the amount by which the carrying value exceeds the fair
 market value of the long-lived asset. Fair market value is determined
 primarily using the anticipated cash flows discounted at a rate commensurate
 with the risk involved. Losses on long-lived assets to be disposed of are
 determined in a similar manner, except that fair market values are reduced
 for the cost to dispose.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | During the
 reporting years, there was no impairment loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-11

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (h)                                                    | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | The Company
 considers all highly liquid investments purchased with original maturities of
 three months or less to be cash equivalents. The Company maintains bank
 accounts in Hong Kong. The Company does not maintain any bank accounts in the
 United States of America.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (i)                                                    | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | Inventories
 are stated at the lower of cost or market and are comprised of purchased
 computer technology resale products. Cost is determined using the first-in,
 first-out method. The reserve for obsolescence was decreased by $190,000 for
 2008 and increased by $323,077 for 2007. Inventory obsolescence reserves were
     $374,103 and $564,103 as of December 31, 2008 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (j)                                                    | Lease assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | Leases that
 substantially transfer all the benefits and risks of ownership of assets to
 the company are accounted for as capital leases. At the inception of a
 capital lease, the asset is recorded together with its long term obligation
 (excluding interest element) to reflect the purchase and the financing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | Leases which
 do not transfer substantially all the risks and rewards of ownership to the
 Company are classified as operating leases. Payments made under operating
 leases are charged to the income statement in equal installments over the
 accounting periods covered by the lease term. Lease incentives received are
 recognized in the income statement as an integral part of the aggregate net
     lease payments made. Contingent rentals are charged to income statement
     in the accounting period which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (k)                                                    | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | Deferred tax
 assets and liabilities are recognized for the future tax consequences
 attributable to differences between the financial statement carrying amounts
 of existing assets and liabilities and their respective tax bases. Deferred
 tax assets, including tax loss and credit carry forwards, and liabilities are
 measured using enacted tax rates expected to apply to taxable income in the
 years in which those temporary differences are expected to be recovered or
 settled. The effect on deferred tax assets and liabilities of a change in tax
 rates is recognized in income in the period that includes the enactment date.
 Deferred income tax expense represents the change during the period in the
 deferred tax assets and deferred tax liabilities. The components of the
 deferred tax assets and liabilities are individually classified as current
 and non-current based on their characteristics. Realization of the deferred
 tax asset is dependent on generating sufficient taxable income in future
 years. Deferred tax assets are reduced by a valuation allowance when, in the
 opinion of management, it is more likely than not that some portion or all of
 the deferred tax assets will not be realized.
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (l)                                                    | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | The
 accompanying consolidated financial statements are presented in United States
 dollars. The functional currency of the Company is the Hong Kong Dollar
 (HK$). The consolidated financial statements are translated into United
 States dollars from HK$US$1.00=HKD7.80, a fixed exchange rate maintained
 between Hong Kong and United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (m)                                                    | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | The Company
 derives revenues from resale of computer memory products. The Company
 recognizes revenue in accordance with the SEC Staff Accounting Bulletin No.
 104, Revenue Recognition (SAB 104). Under SAB 104, revenue is recognized
 when there is persuasive evidence of an arrangement, delivery has occurred or
 services are rendered, the sales price is determinable, and collectability is
 reasonably assured. Revenue typically is recognized at time of shipment.
 Sales are recorded net of discounts, rebates, and returns, which historically
 were not material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | (n)                                                    | Advertising                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        | The Company
 expensed all advertising costs as incurred. Advertising expenses included in
 selling expenses were $7,118 and $7,937 for the years ended December 31, 2008
 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-12

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | (o)                                                    | Segment reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        | The
 Companys sales are generated from Hong Kong and the rest of China and
 substantially all of its assets are located in Hong Kong.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | (p)                                                    | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        | The carrying
 amount of the Companys cash and cash equivalents, accounts receivable, lines
 of credit, convertible debt, accounts payable, accrued expenses, and
 long-term debt approximates their estimated fair values due to the short-term
 maturities of those financial instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | (q)                                                    | Comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        | 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 consolidated financial statements. The Company has no items that
 represent other comprehensive income and, therefore, has not included a
 schedule of comprehensive income in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | (r)                                                    | Basic and diluted earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        | In
 accordance with ASC No. 260 (formerly SFAS No. 128), Earnings Per Share,
 the basic earnings (loss) per common share is computed by dividing net
 earnings (loss) available to common stockholders by the weighted average
 number of common shares outstanding. Diluted earnings (loss) per common share
 is computed similarly to basic earnings (loss) per common share, except that
 the denominator is increased to include the number of additional common
 shares that would have been outstanding if the potential common shares had
 been issued and if the additional common shares were dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | (s)                                                    | Reclassification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        | Certain
 amounts in the prior year have been reclassified to conform to the current
 years presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | (t)                                                    | Recently implemented standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        | ASC 105,
 Generally Accepted Accounting Principles (ASC 105) (formerly Statement of
 Financial Accounting Standards No. 168, The FASB Accounting Standards
 Codification and the Hierarchy of Generally Accepted Accounting Principles a
 replacement of FASB Statement No. 162) reorganized by topic existing
 accounting and reporting guidance issued by the Financial Accounting
 Standards Board (FASB) into a single source of authoritative generally
 accepted accounting principles (GAAP) to be applied by nongovernmental
 entities. All guidance contained in the Accounting Standards Codification
 (ASC) carries an equal level of authority. Rules and interpretive releases
 of the Securities and Exchange Commission (SEC) under authority of federal
 securities laws are also sources of authoritative GAAP for SEC registrants.
 Accordingly, all other accounting literature will be deemed
 non-authoritative. ASC 105 is effective on a prospective basis for
 financial statements issued for interim and annual periods ending after
 September 15, 2009. The Company has implemented the guidance included in ASC
 105 as of July 1, 2009. The implementation of this guidance changed the
 Companys references to GAAP authoritative guidance but did not impact the
 Companys financial position or results of operations.

F-13

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | (t)                                                    | Recently implemented standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                        | ASC 855,
 Subsequent Events (ASC 855) (formerly Statement of Financial Accounting
 Standards No. 165, Subsequent Events) includes guidance that was issued by
 the FASB in May 2009, and is consistent with current auditing standards in
 defining a subsequent event. Additionally, the guidance provides for
 disclosure regarding the existence and timing of a companys evaluation of
 its subsequent events. ASC 855 defines two types of subsequent events,
 recognized and non-recognized. Recognized subsequent events provide
 additional evidence about conditions that existed at the date of the balance
 sheet and are required to be reflected in the financial statements.
 Non-recognized subsequent events provide evidence about conditions that did
 not exist at the date of the balance sheet but arose after that date and,
 therefore; are not required to be reflected in the financial statements.
 However, certain non-recognized subsequent events may require disclosure to
 prevent the financial statements from being misleading. This guidance was
 effective prospectively for interim or annual financial periods ending after
 June 15, 2009. The Company implemented the guidance included in ASC 855 as of
 April 1, 2009. The effect of implementing this guidance was not material to
 the Companys financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                        | ASC 944,
 Financial Services  Insurance (ASC 944) contains guidance that was
 previously issued by the FASB in May 2008 as Statement of Financial
 Accounting Standards No. 163, Accounting for Financial Guarantee Insurance
 Contracts  an interpretation of FASB Statement No. 60 that provides for
 changes to both the recognition and measurement of premium revenues and claim
 liabilities for financial guarantee insurance contracts that do not qualify
 as a derivative instrument in accordance with ASC 815, Derivatives and
 Hedging (formerly included under Statement of Financial Accounting Standards
 No. 133, Accounting for Derivative Instruments and Hedging Activities). This
 financial guarantee insurance contract guidance also expands the disclosure
 requirements related to these contracts to include such items as a companys
 method of tracking insured financial obligations with credit deterioration,
 financial information about the insured financial obligations, and
 managements policies for placing and monitoring the insured financial
 obligations. ASC 944, as it relates to financial guarantee insurance
 contracts, was effective for fiscal years beginning after December 15, 2008,
 except for certain disclosures related to the insured financial obligations,
 which were effective for the third quarter of 2008. The Company does not have
 financial guarantee insurance products, and, accordingly, the implementation
 of this portion of ASC 944 did not have an effect on the Companys results of
 operations or financial position.                                                                                                                                                           
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                        | ASC 805,
 Business Combinations (ASC 805) (formerly included under Statement of
 Financial Accounting Standards No. 141 (revised 2007), Business Combinations)
 contains guidance that was issued by the FASB in December 2007. It requires
 the acquiring entity in a business combination to recognize all assets
 acquired and liabilities assumed in a transaction at the acquisition-date fair
 value, with certain exceptions. Additionally, the guidance requires changes
 to the accounting treatment of acquisition related items, including, among
 other items, transaction costs, contingent consideration, restructuring
 costs, indemnification assets and tax benefits. ASC 805 also provides for a
 substantial number of new disclosure requirements. ASC 805 also contains
 guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets
 Acquired and Liabilities Assumed in a Business Combination That Arise from
 Contingencies which was intended to provide additional guidance clarifying
 application issues regarding initial recognition and measurement, subsequent
 measurement and accounting, and disclosure of assets and liabilities arising
 from contingencies in a business combination. ASC 805 was effective for
 business combinations initiated on or after the first annual reporting period
 beginning after December 15, 2008. The Company implemented this guidance
 effective January 1, 2009. Implementing this guidance did not have an effect
 on the Companys financial position or results of operations; however it will
 likely have an impact on the Companys accounting for future business
 combinations, but the effect is dependent upon acquisitions, if any, that are
 made in the future.

F-14

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | (t)                                                    | Recently implemented standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                        | ASC 810,
 Consolidation (ASC 810) includes new guidance issued by the FASB in
 December 2007 governing the accounting for and reporting of noncontrolling
 interests (previously referred to as minority interests). This guidance
 established reporting requirements which include, among other things, that
 noncontrolling interests be reflected as a separate component of equity, not
 as a liability. It also requires that the interests of the parent and the
 noncontrolling interest be clearly identifiable. Additionally, increases and
 decreases in a parents ownership interest that leave control intact shall be
 reflected as equity transactions, rather than step acquisitions or dilution
 gains or losses. This guidance also requires changes to the presentation of
 information in the financial statements and provides for additional
 disclosure requirements. ASC 810 was effective for fiscal years beginning on
 or after December 15, 2008. The Company implemented this guidance as of January
 1, 2009. The Company is in the process of evaluating ASC 810 and will make
 necessary changes accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                        | ASC 825,
 Financial Instruments (ASC 825) includes guidance which was issued in
 February 2007 by the FASB and was previously included under Statement of
 Financial Accounting Standards No. 159, The Fair Value Option for Financial
 Assets and Financial Liabilities Including an amendment of FASB Statement No.
 115. The related sections within ASC 825 permit a company to choose, at
 specified election dates, to measure at fair value certain eligible financial
 assets and liabilities that are not currently required to be measured at fair
 value. The specified election dates include, but are not limited to, the date
 when an entity first recognizes the item, when an entity enters into a firm
 commitment or when changes in the financial instrument causes it to no longer
 qualify for fair value accounting under a different accounting standard. An
 entity may elect the fair value option for eligible items that exist at the
 effective date. At that date, the difference between the carrying amounts and
 the fair values of eligible items for which the fair value option is elected
 should be recognized as a cumulative effect adjustment to the opening balance
 of retained earnings. The fair value option may be elected for each entire
 financial instrument, but need not be applied to all similar instruments.
 Once the fair value option has been elected, it is irrevocable. Unrealized
 gains and losses on items for which the fair value option has been elected
 will be reported in earnings. This guidance was effective as of the beginning
 of fiscal years that began after November 15, 2007. The Company does not have
 eligible financial assets and liabilities, and, accordingly, the implementation
 of ASC 825 did not have an effect on the Companys results of operations or
 financial position.
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                        | ASC 820,
 Fair Value Measurements and Disclosures (ASC 820) (formerly included under
 Statement of Financial Accounting Standards No. 157, Fair Value Measurements)
 includes guidance that was issued by the FASB in September 2006 that created
 a common definition of fair value to be used throughout generally accepted
 accounting principles. ASC 820 applies whenever other standards require or
 permit assets or liabilities to be measured at fair value, with certain
 exceptions. This guidance established a hierarchy for determining fair value
 which emphasizes the use of observable market data whenever available. It
 also required expanded disclosures which include the extent to which assets
 and liabilities are measured at fair value, the methods and assumptions used
 to measure fair value and the effect of fair value measures on earnings. ASC
 820 also provides additional guidance for estimating fair value when the
 volume and level of activity for the asset or liability have significantly
 decreased. The emphasis of ASC 820 is that fair value is the price that would
 be received to sell an asset or paid to transfer a liability in an orderly
 transaction between willing market participants, under current market
 conditions. ASC 820 also further clarifies the guidance to be considered when
 determining whether or not a transaction is orderly and clarifies the
 valuation of securities in markets that are not active. This guidance
 includes information related to a companys use of judgment, in addition to
 market information, in certain circumstances to value assets which have
 inactive markets.                                                                                                                                                                                           
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |                                                        | Fair value
 guidance in ASC 820 was initially effective for fiscal years beginning after
 November 15, 2007 and for interim periods within those fiscal years for
 financial assets and liabilities. The effective date of ASC 820 for all
 non-recurring fair value measurements of nonfinancial assets and nonfinancial
 liabilities was fiscal years beginning after November 15, 2008. Guidance
 related to fair value measurements in an inactive market was effective in
 October 2008 and guidance related to orderly transactions under current
 market conditions was effective for interim and annual reporting periods
 ending after June 15, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-15

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | (t)                                                    | Recently implemented standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                        | The Company
 applied the provisions of ASC 820 to its financial assets and liabilities
 upon adoption at January 1, 2008 and adopted the remaining provisions
 relating to certain nonfinancial assets and liabilities on January 1, 2009.
 The difference between the carrying amounts and fair values of those
 financial instruments held upon initial adoption, on January 1, 2008, was
 recognized as a cumulative effect adjustment to the opening balance of
 retained earnings and was not material to the Companys financial position or
 results of operations. The Company implemented the guidance related to
 orderly transactions under current market conditions as of April 1, 2009,
 which also was not material to the Companys financial position or results of
 operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                        | In August
 2009, the FASB issued ASC Update No. 2009-05, Fair Value Measurements and
 Disclosures (Topic 820): Measuring Liabilities at Fair Value (ASC Update No.
 2009-05). This update amends ASC 820, Fair Value Measurements and
 Disclosures and provides further guidance on measuring the fair value of a
 liability. The guidance establishes the types of valuation techniques to be
 used to value a liability when a quoted market price in an active market for
 the identical liability is not available, such as the use of an identical or
 similar liability when traded as an asset. The guidance also further
 clarifies that a quoted price in an active market for the identical liability
 at the measurement date and the quoted price for the identical liability when
 traded as an asset in an active market when no adjustments to the quoted
 price of the asset are required are both Level 1 fair value measurements. If
 adjustments are required to be applied to the quoted price, it results in a
 level 2 or 3 fair value measurement. The guidance provided in the update is
 effective for the first reporting period (including interim periods)
 beginning after issuance. The Company does not expect that the implementation
 of ASC Update No. 2009-05 will have a material effect on its financial
 position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                        | In September
 2009, the FASB issued ASC Update No. 2009-12, Fair Value Measurements and
 Disclosures (Topic 820): Investments in Certain Entities that Calculate Net
 Asset Value per Share (or Its Equivalent) (ASC Update No. 2009-12). This
 update sets forth guidance on using the net asset value per share provided by
 an investee to estimate the fair value of an alternative investment.
 Specifically, the update permits a reporting entity to measure the fair value
 of this type of investment on the basis of the net asset value per share of
 the investment (or its equivalent) if all or substantially all of the
 underlying investments used in the calculation of the net asset value is consistent
 with ASC 820. The update also requires additional disclosures by each major
 category of investment, including, but not limited to, fair value of
 underlying investments in the major category, significant investment
 strategies, redemption restrictions, and unfunded commitments related to
 investments in the major category. The amendments in this update are
 effective for interim and annual periods ending after December 15, 2009 with
 early application permitted. The Company does not expect that the implementation
 of ASC Update No. 2009-12 will have a material effect on its financial
 position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |                                                        | In June
 2009, FASB issued Statement of Financial Accounting Standards No. 167,
 Amendments to FASB Interpretation No. 46(R) (Statement No. 167). Statement
 No. 167 amends FASB Interpretation No. 46R, Consolidation of Variable
 Interest Entities an interpretation of ARB No. 51 (FIN 46R) to require an
 analysis to determine whether a company has a controlling financial interest
 in a variable interest entity. This analysis identifies the primary
 beneficiary of a variable interest entity as the enterprise that has a) the
 power to direct the activities of a variable interest entity that most
 significantly impact the entitys economic performance and b) the obligation
 to absorb losses of the entity that could potentially be significant to the
 variable interest entity or the right to receive benefits from the entity
 that could potentially be significant to the variable interest entity. The statement
 requires an ongoing assessment of whether a company is the primary
 beneficiary of a variable interest entity when the holders of the entity, as
 a group, lose power, through voting or similar rights, to direct the actions
 that most significantly affect the entitys economic performance. This
 statement also enhances disclosures about a companys involvement in variable
 interest entities. Statement No. 167 is effective as of the beginning of the
 first annual reporting period that begins after November 15, 2009. Although
 Statement No. 167 has not been incorporated into the Codification, in
 accordance with ASC 105, the standard shall remain authoritative until it is
 integrated. The Company is in the process of evaluating Statement No. 167 and
 will make necessary change if required.

F-16

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | (t)                                                    | Recently implemented standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |                                                        | In June
 2009, the FASB issued Statement of Financial Accounting Standards No. 166,
 Accounting for Transfers of Financial Assets an amendment of FASB Statement
 No. 140 (Statement No. 166). Statement No. 166 revises FASB Statement of
 Financial Accounting Standards No. 140, Accounting for Transfers and
 Extinguishment of Liabilities a replacement of FASB Statement 125 (Statement
 No. 140) and requires additional disclosures about transfers of financial
 assets, including securitization transactions, and any continuing exposure to
 the risks related to transferred financial assets. It also eliminates the
 concept of a qualifying special-purpose entity, changes the requirements
 for derecognizing financial assets, and enhances disclosure requirements.
 Statement No. 166 is effective prospectively, for annual periods beginning
 after November 15, 2009, and interim and annual periods thereafter. Although
 Statement No. 166 has not been incorporated into the Codification, in
 accordance with ASC 105, the standard shall remain authoritative until it is
 integrated. The Company does not expect the adoption of Statement No. 166
 will have a material impact on its financial position or results of
 operations.
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Note 3. | PROPERTY, PLANT AND EQUIPMENT, NET                    
|        |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | A summary is
 as follows:                             

|                                                 |  |      |           |      |   |           |  
|------------------------------------------------ |  | ---- | --------- | ---- | - | --------- | -
|                                                 |  | 2008 |           | 2007 |  
|                                                 |  |      |           |      |  
|Land and
 buildings                              |  | $    | 6,754,351 |      | $ | 6,794,629 |  
|Office
 equipment                                |  |      | 152,185   |      |   | 148,568   |  
|Leasehold
 improvements                          |  |      | 194,896   |      |   | 150,822   |  
|Furniture
 and fixtures                          |  |      | 13,273    |      |   | 13,273    |  
|Automobiles                                      |  |      | 405,467   |      |   | 226,056   |  
|                                                 |  |      |           |      |   |           |  
|                                                 |  |      |           |      |   |           |  
|                                                 |  |      | 7,520,172 |      |   | 7,333,348 |  
|Less:
 accumulated depreciation and amortization |  |      | (597,549  | )    |   | (399,350  | )
|                                                 |  |      |           |      |   |           |  
|                                                 |  |      |           |      |   |           |  
|                                                 |  | $    | 6,922,623 |      | $ | 6,933,998 |  
|                                                 |  |      |           |      |   |           |  

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | Depreciation
 and amortization expense for property, equipment, and improvements amounted
 to $238,477 and $230,614 for the years ended December 31, 2008 and 2007
 respectively.                                                                                                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Note 4. | REVOLVING LINES OF CREDIT AND LOAN FACILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company
 has available to it a $5,128,205 revolving line of credit with DBS Bank with
 an outstanding balance of $4,722,616 at December 31, 2008 and $5,635,176 at
 December 31, 2007. The line of credit bears interest at the banks standard
 bills rate less 1.25% for HKD borrowings and at the banks standard bills
 rate less 0.75% for other currency borrowings as of December 31, 2008. The
 weighted average interest rate approximated 4.4% for 2008 and 6.7% for 2007.                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company
 has available to it a $5,769,231 factoring facility without recourse with DBS
 Bank without any outstanding balance at December 31, 2008. The factoring
 facility bears a discounting charge at the banks standard bills rate less
 1.25% for advance in HKD or the banks standard bills rate less 0.75% for
 advance in other currency as of December 31, 2008. The weighted average
 interest rate approximated 4.4% for 2008 and 6.7% for 2007.                                           
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company
 has available to it a $384,615 letter of guarantee with DBS Bank with an
 outstanding balance of $384,615 at December 31, 2008 and the letter of
 guarantee will expire on October 31, 2009. The line of credit bears a
 commission of 1.5% per annum which will be refunded on a pro-rata basis upon
 return and cancellation of the letter of guarantee.                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company
 has available to it a $6,410,256 revolving line of credit with SCB with an
 outstanding balance of $5,742,934 at December 31, 2008 and $3,709,379 at
 December 31, 2007. The line of credit bears interest at a rate of the banks
 standard bills rate less 0.5% for HKD facilities and at a rate of the banks
 standard bills rate plus 1% for other foreign currency facilities as of
 December 31, 2008. The weighted average interest rate approximated 5.1% for
 2008 and 7.4% for 2007.

F-17

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 4. | REVOLVING LINES OF CREDIT AND LOAN FACILITIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The Company
 has available to it a $5,128,205 factoring facility with SCB with an
 outstanding balance of $1,753,562 at December 31, 2008. The factoring
 facility bears discounting charges at the banks standard bills rate less
 0.75% rate for advances in HKD or the banks standard bills rates less 0.75%
 for advances in other currency as of December 31, 2008. The weighted average
 interest rate approximated 4.9% for 2008 and 7.2% for 2007.                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The Company
 has available to it a $2,307,692 revolving line of credit with The Bank of
 East Asia, Limited (BEA) with an outstanding balance of $2,060,747 at
 December 31, 2008 and $2,303,868 at December 31, 2007. The line of credit
 bears interest at the higher of Hong Kong prime rate plus 0.25% or HIBOR plus
 1% for HKD facilities and LIBOR plus 2% for other currency facilities as of
 December 31, 2008. The weighted average interest rate approximated 5.9% for
 2008 and 7.9% for 2007.     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The Company
 has available to it a $1,153,846 revolving line of credit with Citic with an
 outstanding balance of $1,014,883 at December 31, 2008 and $2,297,061 at December
 31, 2007. The line of credit bears interest at the higher of the Hong Kong
 prime rate less 1.5% or HIBOR plus 2% as of December 31, 2008. The weighted
 average interest rate approximated 4.1% for 2008 and 7.4% for 2007.                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The line of
 credit granted by Hang Seng Bank Limited (Hang Seng) to the Company matured
 on September 19, 2008. The outstanding balances with Hang Seng were $0 at
 December 31, 2008 and $1,665,003 at December 31, 2007. The line of credit
 bore interest at a rate of the Hong Kong prime rate less 0.5% for HKD
 facilities and at a rate of the banks board rate less 0.25% for USD
 facilities as of December 31, 2007. The weighted
 average interest rate approximated 5% for 2008 and 7.4% for 2007.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The Company
 has available to it a $1,602,564 revolving line of credit with the ICBC with
 an outstanding balance of $1,153,000. The line of credit bears interest at
 the higher of the Hong Kong prime rate less 0.5% or HIBOR plus 3% for HKD
 facilities and a rate of the banks board rate less 0.5% for foreign currency
 facilities as of December 31, 2008. The weighted average interest rate
 approximated 5.1% for 2008.                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | The summary
 of banking facilities at December 31, 2008 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                     |  |                    |            |                     |   |                         |  |   |            | 
|-------------------- |  | ------------------ | ---------- | ------------------- | - | ----------------------- |  | - | ---------- | 
|                     |  | Granted Facilities |            | Utilized Facilities |   | Not Utilized Facilities | 
|                     |  |                    |            |                     |   |                         | 
|Overdraft            |  | $                  | 282,051    |                     | $ |                        |  | $ | 282,051    | 
|Installment
 Loan    |  |                    | 2,776,923  |                     |   | 2,522,273               |  |   | 254,650    | 
|Factoring
 Loan      |  |                    | 10,897,436 |                     |   | 1,753,562               |  |   | 9,143,874  | 
|Import/Export
 Loan  |  |                    | 16,602,564 |                     |   | 14,694,180              |  |   | 1,908,384  | 
|Letter of
 Guarantee |  |                    | 384,615    |                     |   | 384,615                 |  |   |           | 
|                     |  |                    |            |                     |   |                         |  |   |            | 
|                     |  |                    |            |                     |   |                         |  |   |            | 
|                     |  | $                  | 30,943,589 |                     | $ | 19,354,630              |  | $ | 11,588,959 | 
|                     |  |                    |            |                     |   |                         |  |   |            | 

| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | With the
 exception of the $384,615 letter of guarantee issued by DBS Bank, which will
 expire on 31 October, 2009, amounts borrowed by the Company under the
 revolving lines of credit and loan facilities described above are repayable
 within a period of three (3) months of drawdown

F-18

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|        |                                            
|------- | -------------------------------------------
|Note 5. | LONG-TERM DEBTS                            
|        |                                            
|        | A summary is
 as follows as of December 31:

|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                                                                                                                                                                                                                                                                                                          |  | 2008 |           | 2007 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |  
|                                                                                                                                                                                                                                                                                                                                         
|Installment
 loan having a maturity date in July 2026 and carrying an interest rate of
 2.75% below the Hong Kong dollar Prime Rate (7.25% and 5.25% at December 31,
 2007 and 2008) from DBS Bank. The monthly installments are approximately $9,663
 including interest through December 2008 without any balloon payment
 requirements |  | $    | 1,648,222 |      | $ | 1,719,704 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Installment
 loan having a maturity date in July 2011 and carrying an interest rate of 2%
 below the Hong Kong dollar Prime Rate (7.25% and 5.25% at December 31, 2007
 and 2008) from DBS Bank. The monthly installments are approximately $3,782 including
 interest through December 2008 without any balloon payment requirements     |  |      | 112,312   |      |   | 153,052   |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Installment
 loan having a maturity date in July 2023 and carrying an interest rate of
 2.5% below the Hong Kong dollar Prime Rate (7.25% and 5.25% at December 31,
 2008) from DBS Bank. The monthly installments are approximately $5,240
 including interest through December 2008 without any balloon payment
 requirements           |  |      | 761,624   |      |   | 801,723   |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      | 2,522,158 |      |   | 2,674,479 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Less: current
 maturities                                                                                                                                                                                                                                                                                                                 |  |      | (160,447  | )    |   | (135,237  | )
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  | $    | 2,361,711 |      | $ | 2,539,242 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|An analysis
 of long-term debt as of December 31 is as follows:                                                                                                                                                                                                                                                                           |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Current
 portion                                                                                                                                                                                                                                                                                                                          |  | $    | 160,447   |      | $ | 135,237   |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|After 1
 year, but within 2 years                                                                                                                                                                                                                                                                                                         |  |      | 316,063   |      |   | 290,618   |  
|After 2
 years, but within 5 years                                                                                                                                                                                                                                                                                                        |  |      | 257,789   |      |   | 247,571   |  
|After 5
 years                                                                                                                                                                                                                                                                                                                            |  |      | 1,787,859 |      |   | 2,001,053 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      | 2,361,711 |      |   | 2,539,242 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                          |  | $    | 2,522,158 |      | $ | 2,674,479 |  
|                                                                                                                                                                                                                                                                                                                                          |  |      |           |      |   |           |  

F-19

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 5. | LONG-TERM DEBTS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | With respect
 to all of the above referenced debt and credit arrangements in Note 4, the
 Company pledged its assets as collateral collectively to a bank group in Hong
 Kong comprised of DBS Bank. (formerly Overseas Trust Bank Limited), SCB, BEA,
 Citic and Industrial and Commercial Bank of China (Asia) Limited (ICBC) for
 all current and future borrowings from the bank group by the Company. In
 addition to the above pledged collateral, the debt is also secured by:
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | a fixed cash
 deposit of $641,025 (HK$5,000,000), a security interest on two residential
 properties and a workshop located in Hong Kong owned by Atlantic Components
 Ltd (Atlantic), a wholly owned subsidiary of ACL, a security interest on a
 residential property located in Hong Kong owned by City, a related party,
 plus a personal guarantee by Mr. Yang as collateral for loans from DBS Bank;
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | a fixed cash
 deposit of $1,380,010 (HK$10,764,075) plus an unlimited personal guarantee by
 Mr. Yang, as collateral for loans from BEA;                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | a cash
 deposit/securities not less than $2,051,282 (HK$16,000,000), a security
 interest on a workshop located in Hong Kong owned by Systematic Information,
 a related party, a security interest on a workshop located in Hong Kong owned
 by Solution, a related party, plus an unlimited personal guarantee by Mr.
 Yang as collateral for loans from SCB;                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | a cash
 deposit not less than $1,015,407 (US$756,402 plus HK$2,020,236), a security
 interest on a workshop located in Hong Kong owned by Solution, a related
 party, plus a personal guarantee by Mr. Yang as collateral for loans from
 Citic;                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | a cash
 deposit not less than $641,025 (HK$5,000,000) plus an unlimited personal
 guarantee by Mr. Yang as collateral for loans from ICBC.                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|Note 6. | CAPITAL LEASE OBLIGATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                             
|        | The Company
 has several non-cancelable capital leases relating to automobiles:                                                                                                                                                                                                                                                                                                                                                                                                        

|                                                                                        |  |      |         |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                        |  | 2008 |         | 2007 |  
|                                                                                        |  |      |         |      |  
|                                                                                        |  |      |         |      |  
|Current
 portion                                                                        |  | $    | 58,683  |      | $ | 44,991  |  
|Non-current
 portion                                                                    |  |      | 43,055  |      |   | 49,971  |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      | 101,738 |      |   | 94,962  |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|At December
 31, the value of automobiles under capital leases as follows:              |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  | 2008 |         | 2007 |  
|                                                                                        |  |      |         |      |  
|                                                                                        |  |      |         |      |   |         |  
|Cost                                                                                    |  | $    | 193,514 |      | $ | 145,890 |  
|Less:
 depreciation                                                                     |  |      | (51,463 | )    |   | (39,344 | )
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      | 142,051 |      |   | 106,546 |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|At December
 31, the company had obligations under capital leases repayable as follows: |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  | 2008 |         | 2007 |  
|                                                                                        |  |      |         |      |  
|                                                                                        |  |      |         |      |  
|Total
 minimum lease payments                                                           |  |      |         |      |   |         |  
|-Within one year                                                                        |  | $    | 65,055  |      | $ | 50,381  |  
|- After one year but within 5 years                                                     |  |      | 47,329  |      |   | 56,081  |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      | 112,384 |      |   | 106,462 |  
|                                                                                        |  |      |         |      |   |         |  
|Interest
 expenses relating to future periods                                           |  |      | (10,646 | )    |   | (11,500 | )
|                                                                                        |  |      |         |      |   |         |  
|                                                                                        |  |      |         |      |   |         |  
|Present
 value of the minimum lease payments                                            |  | $    | 101,738 |      | $ | 94,962  |  
|                                                                                        |  |      |         |      |   |         |  

F-20

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|        |                                                                                                                                                                                                                                                                                                                           
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 7. | INCOME TAXES                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                           
|        | Income tax
 (refund) expense amounted to $(33,871) for 2008 and $187,833 for 2007 (an
 effective rate of 0% for 2008 and 40% for 2007). A reconciliation of the
 provision for income taxes with amounts determined by applying the statutory
 federal income tax rate of 34% to income before income taxes is as follows:

|                                                                                             |  |      |            |      |   |            |  
|-------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                             |  | 2008 |            | 2007 |  
|                                                                                             |  |      |            |      |  
|Computed tax at federal statutory rate                                                       |  | $    | (70,292    | )    | $ | 158,670    |  
|                                                                                             |  |      |            |      |   |            |  
|Tax rate differential on foreign earnings
 of Atlantic and Aristo, Hong Kong based companies |  |      | (121,297   | )    |   | (65,717    | )
|                                                                                             |  |      |            |      |   |            |  
|Expenses not deductible for tax                                                              |  |      | 166,477    |      |   |           |  
|                                                                                             |  |      |            |      |   |            |  
|Unrecognized timing difference                                                               |  |      | 23,480     |      |   |           |  
|                                                                                             |  |      |            |      |   |            |  
|Tax under/(over) provision for Atlantic                                                      |  |      | (97,973    | )    |   | 61,428     |  
|                                                                                             |  |      |            |      |   |            |  
|Net operating loss carry forward                                                             |  |      | 65,734     |      |   | 33,452     |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|Other                                                                                        |  |      |           |      |   |           |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  | $    | (33,871    | )    | $ | 187,833    |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|The income tax provision consists of the
 following components:                              |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  | 2008 |            | 2007 |  
|                                                                                             |  |      |            |      |  
|                                                                                             |  |      |            |      |   |            |  
|Federal                                                                                      |  | $    |           |      | $ |           |  
|Foreign                                                                                      |  |      | (33,871    | )    |   | 187,833    |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  | $    | (33,871    | )    | $ | 187,833    |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|The Components of the deferred tax assets
 and liabilities are as follow                     |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  | 2008 |            | 2007 |  
|                                                                                             |  |      |            |      |  
|                                                                                             |  |      |            |      |   |            |  
|Net operating losses                                                                         |  | $    | 1,122,726  |      | $ | 1,056,992  |  
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  |      |            |      |   |            |  
|Total deferred tax assets                                                                    |  | $    | 1,122,726  |      | $ | 1,056,992  |  
|Less: valuation allowance                                                                    |  |      | (1,122,726 | )    |   | (1,056,992 | )
|                                                                                             |  |      |            |      |   |            |  
|                                                                                             |  | $    |           |      | $ |           |  
|                                                                                             |  |      |            |      |   |            |  

|        |                                                                                                                                                                                                                                                                                                                                                            
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 8. | WEIGHTED AVERAGE NUMBER OF SHARES                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                            
|        | The Company
 has a 2006 Incentive Equity Stock Plan, under which the Company may grant
 options to its employees for up to 5 million shares of common stock. There
 was no dilutive effect to the weighted average number of shares for the years
 ended December 31, 2008 and 2007 since there were no outstanding options at
 December 31, 2008 and 2007.

F-21

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 9.  | CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | The Company
 has a non-exclusive Distributorship Agreement with Samsung Electronics Hong
 Kong Co., Ltd. (Samsung), which was initially entered into in May 1993 and
 has been renewed annually. Under the terms of the agreement, Samsung
 appointed the Company on a non-exclusive basis as Samsungs distributor to
 distribute and market its products in the designated territory. The Company
 has the right to market and sell the products of other manufacturers and
 render service related to such activities, unless such activities result in
 the Companys inability to fulfill its obligations under the Agreement.
 However, the Company shall not purchase to sell any of the same product lines
 as Samsung produces and deals in from any other Korean manufacturer during
 the term of this Agreement. The most recent renewal of the Distributorship
 Agreement expired on February 28, 2010. As of March 1, 2010, Samsung has
 confirmed the annual renewal of such agreement for one year. Official signed
 agreement should be received by the Company in May 2010.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | The Companys
 distribution operations are dependent on the availability of an adequate
 supply of electronic components under the Samsung brand name which
 have historically been principally supplied to the Company by the Hong Kong
 office of Samsung. The Company purchased 48% and 66% of materials from Samsung
 for the years ended December 31, 2008 and 2007, respectively. However, there
 is no written supply contract between the Company and Samsung and, accordingly,
 there is no assurance that Samsung will continue to supply sufficient
 electronic components to the Company on terms and prices acceptable to the
 Company or in volumes sufficient to meet the Companys current and
 anticipated demand, nor can assurance be given that the Company would be able
 to secure sufficient products from other third party supplier(s) on
 acceptable terms.                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | In addition,
 the Companys operations and business viability are to a large extent
 dependent on the provision of management services and financial support by
 Mr. Yang. See Note 5 for details for Mr. Yangs support of the Companys
 banking facilities. At December 31, 2008 and 2007, included in accounts
 payable were $8,675,069 and $9,562,199, respectively, to Samsung. Termination
 of such distributorship by Samsung will significantly impair and adversely
 affect the continuation of the Companys business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | As of
 December 31, 2008 and 2007, Samsung has withheld a total of $350,000 of
 rebate due to the Company as deposits. As agreed with Samsung, the rebate
 deposits were fully refunded to the Company on January 22, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Note 10. | RETIREMENT PLAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | Under the
 Mandatory Provident Fund (MPF) Scheme Ordinance in Hong Kong, the Company
 is required to set up or participate in an MPF scheme to which both the
 Company and employees must make continuous contributions throughout their
 employment based on 5% of the employees earnings, subject to maximum and
 minimum level of income. For those earning less than the minimum level of
 income, they are not required to contribute but may elect to do so. However,
 regardless of the employees election, their employers must contribute 5% of
 the employees income. Contributions in excess of the maximum level of income
 are voluntary. All contributions to the MPF scheme are fully and immediately
 vested with the employees accounts. The contributions must be invested and
 accumulated until the employees retirement. The Company contributed and
 expensed $29,650 for 2008 and $29,062 for 2007.                                                                                                                                                             

F-22

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                  
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 11. | COMMITMENTS                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                  
|         | The Company
 leases its facilities. The following is a schedule by years of future minimum
 rental payments required under operating leases that have non-cancellable
 lease terms in excess of one year as of December 31, 2008:

|                          |  |               |        |       |   |        |  |   |        | 
|------------------------- |  | ------------- | ------ | ----- | - | ------ |  | - | ------ | 
|                          |  | Related Party |        | Other |   | Total  | 
|                          |  |               |        |       |   |        | 
|Year ending
 December 31, |  |               |        |       |   |        |  |   |        | 
|2009                      |  | $             | 10,961 |       | $ | 42,372 |  | $ | 53,333 | 
|2010                      |  |               | 5,128  |       | $ | 19,972 |  | $ | 25,100 | 
|Thereafter                |  |               |       |       | $ |       |  | $ |       | 
|                          |  |               |        |       |   |        |  |   |        | 
|                          |  |               |        |       |   |        |  |   |        | 
|Total                     |  | $             | 16,089 |       | $ | 62,344 |  | $ | 78,433 | 
|                          |  |               |        |       |   |        |  |   |        | 

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | See Note 13
 for related party leases. All leases expire prior to December 31, 2010. Real
 estate taxes, insurance, and maintenance expenses are obligations of the
 Company. It is expected that in the normal course of business, leases that
 expire will be renewed or replaced by leases on other properties; thus, it is
 anticipated that future minimum lease commitments will likely be more than
 the amounts shown for 2008. Rent expense for the years ended December 31,
 2008 and 2007 are $142,985 and $120,942, respectively.                                                                                                                                                              
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Note 12. | DERIVATIVE INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | On February
 1, 2009, the Company adopted SFAS 161 as referenced in Note 2. The adoption
 of SFAS 161 requires additional disclosures about Companys objectives and
 strategies for using derivative instruments, the accounting for the
 derivative instruments and related hedged items under SFAS No. 133,
 Accounting for Derivative Instruments and Hedging Activities (SFAS 133),
 and the effect of derivative instruments and related hedged items on the
 financial statements. The adoption had no financial impact on the
 consolidated condensed financial statements.                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | Since all of
 the Company sales are done in USD, the bank is exposed to foreign currency
 exchange rate fluctuations in the normal course of its business. As part of
 its risk management strategy, the Company purchases FX forward contracts from
 the banks to secure the exchange rate for a period of time in order to hedge
 any FX exposure between HKD and USD throughout the purchase and sale
 period. The Company applies hedge accounting based upon the criteria
 established by SFAS 133, whereby the Company designates its derivatives as
 cash flow hedges. Cash flows from the derivative programs were classified as
 operating activities in the Consolidated Statement of Cash Flows.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | As at
 December 31, 2008 there is a participating forward currency option agreement
 between the Company and SCB for the Company to buy US$500,000 from SCB at a
 contract rate of 7.735 at specified dated up to January 7, 2010. According to
 the terms of the agreement, the Company will buy USD in triple amounts if the
 spot rate is less than the contract rate at specified dates. The gain on this
 forward contract during the year ended December 31, 2008 was $36,346.                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | As at
 December 31, 2008, there is a target redemption forward currency option
 agreement between the Company and SCB for the Company to buy US$750,000 from
 SCB at a lower strike contract rate of 7.75 and an upper strike contract rate
 of 7.85 at specified dates up to April 29, 2010. According to the terms of
 the agreement, the Company will buy USD in triple amounts if the spot rate is
 less than the lower strike contract rate or greater than the upper strike
 contract rate at specified dates. The gain on this forward contract during
 the year ended December 31, 2008 was $56,433.                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | As at
 December 31, 2008, there is a pivot bonus forward currency option agreement
 between the Company and SCB for the Company to buy US$1,000,000 from SCB at a
 lower strike contract rate of 7.73 and an upper strike contract rate 7.749 at
 specified dates up to July 2, 2009. According to the terms of the agreement,
 the Company will buy in triple amounts if the spot rate is less than the
 lower strike contract rate. The gain on this forward contract during the year
 ended December 31, 2008 was $56,410.                                                                                                                                                                              
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         | As at
 December 31, 2008, the Company has holdings of US$500,000 Commodity Basket Linked
 Notes which were issued by SCB at specified dates up to February 17, 2009.
 According to the terms of agreements, the Company will receive interest at a
 rate equal to 6% if the Basket Return is larger than 0% and 100% redeemed if
 the Basket Return is less than or equal to 0% on the maturity date. The
 Company fully redeemed the securities at cost value on the maturity date of
 February 17, 2009.                                                                                                                                                                                                 

F-23

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 12. | DERIVATIVE INSTRUMENTS (Continued)                                                                                                                 
|         |                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | There are
 three foreign currency exchange agreements matured as of December 31, 2008.
 These agreements are:                                      
|         |                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                    | Ratio par
 forward contract agreement between the Company and DBS Bank for the Company
 to buy US$500,000 from DBS Bank at a contract rate of 7.735 at specified
 dated up to March 18, 2008. According to the terms of the agreement, the
 Company will buy USD in double amounts if the spot rate is less than the
 contract rate at specified dates. The gain on this forward contract during
 the year ended December 31, 2008 was $11,538.
|         |                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                    | Ratio par
 forward contract agreement between the Company and DBS Bank for the Company
 to buy US$500,000 from DBS Bank at a contract rate of 7.74 at specified dated
 up to May 27, 2008. According to the terms of the agreement, the Company will
 buy USD in double amounts if the spot rate is less than the contract rate at
 specified dates. The gain on this forward contract during the year ended
 December 31, 2008 was $17,917.   
|         |                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                    | Ratio par
 forward contract agreement between the Company and SCB for the Company to buy
 US$200,000 from SCB at a contract rate of 7.725 at specified dated up to July
 3, 2008. According to the terms of the agreement, the Company will buy USD in
 double amounts if the spot rate is less than the contract rate at specified
 dates. The gain on this forward contract during the year ended December 31,
 2008 was $12,644.            
|         |                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | The gross
 notional and fair values of derivative financial instruments in the Consolidated
 Balance Sheet as of December 31, 2008 were as follows:

|                                                                       |  |                         |           |                       |  |                                                      |  |                             |   |                    |  |   |  |  |   | 
|---------------------------------------------------------------------- |  | ----------------------- | --------- | --------------------- |  | ---------------------------------------------------- |  | --------------------------- | - | ------------------ |  | - |  |  | - | 
|                                                                       |  | As of December 31, 2008 |          
|                                                                       |  |                         |          
|                                                                       |  | Gross
 Notional(1)      |           | Other Current
 Assets |  | Long-term
 Financing
 Receivables
 and Other
 Assets |  | Other
 Accrued
 Liabilities |   | Other
 Liabilities | 
|                                                                       |  |                         |           |                       |  |                                                      |  |                             |   |                    |  |   |  |  |   | 
|Derivatives designated as hedging
 instruments under ASC 815           |  |                         |           |                       |  |                                                      |  |                             |   |                    |  |   |  |  |   | 
|Cash flow hedges:                                                      |  |                         |           |                       |  |                                                      |  |                             |   |                    |  |   |  |  |   | 
|Foreign exchange contracts                                             |  | $                       | 2,250,000 |                       |  |                                                     |  |                             |  |                    |  |  |  |  |  | 
|Total derivatives not designated as hedging
 instruments under ASC 815 |  |                         | 500,000   |                       |  | 500,000                                              |  |                             |  |                    |  |  |  |  |  | 
|                                                                       |  |                         |           |                       |  |                                                      |  |                             |   |                    |  |   |  |  |   | 
|Total derivatives                                                      |  | $                       | 2,750,000 |                       |  | 500,000                                              |  |                             |  |                    |  |  |  |  |  | 

| |     |                                                                                         
| | --- | ----------------------------------------------------------------------------------------
| | (1) | Represents
 the face amounts of contracts that were outstanding as of December 31, 2008.

F-24

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                       
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 12. | DERIVATIVE INSTRUMENTS (Continued)                                                                                                                                    
|         |                                                                                                                                                                       
|         | The
 before-tax effect of derivative instruments in cash flow and net investment
 hedging relationships for the year ended December 31, 2008 and 2007 was as
 follows:

|                                                   |  |                                         |                         |                                |   |                                |   |   |        | 
|-------------------------------------------------- |  | --------------------------------------- | ----------------------- | ------------------------------ | - | ------------------------------ | - | - | ------ | 
|                                                   |  | Gain Recognized in Income on Derivative |                        
|                                                   |  | Location                                |                         | Year ended
 December 31,
 2008 |   | Year ended
 December 31,
 2007 |  
|                                                   |  |                                         |                         |                                |   |                                |  
|                                                   |  |                                         |                         |                                |   |                                |   |   |        | 
|Cash flow
 hedges:                                 |  |                                         |                         |                                |   |                                |   |   |        | 
|                                                   |  |                                         |                         |                                |   |                                |   |   |        | 
|Foreign
 exchange contracts US$200,000 (HKD/USD)   |  |                                         | Interest and other, net |                                | $ | 12,644                         |   | $ | 20,897 | 
|Foreign
 exchange contracts USD500,000 (HKD/USD)   |  |                                         | Interest and other, net |                                |   | 36,346                         |   |   | 6,449  | 
|Foreign
 exchange contracts US$500,000 (HKD/USD)   |  |                                         | Interest and other, net |                                |   | 11,538                         |   |   | 37,244 | 
|Foreign
 exchange contracts USD500,000 (HKD/USD)   |  |                                         | Interest and other, net |                                |   | 17,917                         |   |   |       | 
|Foreign
 exchange contracts US$2,000,000 (CNY/USD) |  |                                         | Interest and other, net |                                |   | (30,000                        | ) |   |       | 
|Foreign
 exchange contracts USD750,000 (HKD/USD)   |  |                                         | Interest and other, net |                                |   | 56,433                         |   |   |        | 
|Foreign
 exchange contracts US$1,000,000 (HKD/USD) |  |                                         | Interest and other, net |                                |   | 56,410                         |   |   |       | 
|                                                   |  |                                         |                         |                                |   |                                |   |   |        | 
|                                                   |  |                                         |                         |                                |   |                                |   |   |        | 
|Total cash
 flow hedges                            |  |                                         |                         |                                | $ | 161,288                        |   | $ | 64,590 | 
|                                                   |  |                                         |                         |                                |   |                                |   |   |        | 

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 13. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | Transactions with Aristo Technologies Limited / Mr. Yang                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | As of
 December 31, 2008 and 2007, we had an outstanding receivable from Mr. Yang,
 the President and Chairman of our Board of Directors, totaling $7,900,404 and
 $6,057,488 respectively. These advances bear no interest and are payable on
     demand. The receivable due from Mr. Yang to the Company is derived from
     the consolidation of the financial statements of Aristo, a variable interest
     entity, with the Company. A repayment plan has been entered into (See Note
     14 for details).                                                                                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | For the
 years ended December 31, 2008 and 2007, we recorded compensation to Mr. Yang
 of $735,026 and $812,821 respectively, and paid $735,026 and $812,821
 respectively to Mr. Yang as compensation to him.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | During each
 of the years ended December 31, 2008 and 2007, we paid rent of $0 and $17,521
 respectively for Mr. Yangs personal residence as fringe benefits to him. All
 such payments have been recorded as compensation expense in the accompanying
 financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | Transactions with Classic Electronic Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | Mr. Ben
 Wong, one of our directors, is a 99.9% shareholder of Classic Electronics
 Ltd. (Classic). The remaining 0.1% of Classic is owned by a non-related
 party. During the years ended December 31, 2008 and 2007, we sold products
 for $0 and $366,840 respectively, to Classic. As of December 31, 2008 and
 2007, the Company had outstanding accounts receivable from Classic totaling
 $1,717,320 and $1,717,859 respectively. This account receivable has been
 outstanding for more than 12 months.                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | Classic has
 historically met its payment obligations to the Company and the Company has
 no reason to believe that Classics receivables are not collectible. Pursuant
 to a written personal guarantee agreement, Mr. Yang has personally guaranteed
 up to $10.0 million of the outstanding accounts receivable from Classic. The
 Company has received verbal assurances from Mr. Yang of his intent and
 ability to perform under the above-referenced guarantee and based on
 information provided by Mr. Yang, his net worth is approximately $17 million.
 In addition, as discussed in Note 14, the Company has entered into a payment
 plan with Classic and the amount due from Classic has been settled.

F-25

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 13. | RELATED PARTY TRANSACTIONS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Transactions with Solution Semiconductor (China) Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Mr. Ben
 Wong, one of our directors, is a 99% shareholder of Solution Semiconductor
 (China) Ltd. (Solution). The remaining 1% of Solution is owned by a
 non-related party. On April 1, 2007, we entered into a lease agreement with
 Solution pursuant to which we lease one facility. The lease agreement for
 this facility expires on March 31, 2009. The monthly lease payment for this
 lease is $1,090. We incurred and paid an aggregate rent expense of $13,077
 and $12,385 to Solution during the years ended December 31, 2008 and 2007.                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Two
 facilities located in Hong Kong owned by Solution were used by the Company as
 collateral for loans from Citic Ka Wah Bank Limited (Citic) and Standard
 Chartered Bank (Hong Kong) Limited (SCB) respectively.                                                                                                                                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Transactions with Systematic Information Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is a director and shareholder of Systematic Information Ltd. (Systematic
 Information) with a total of 100% interest. On September 1, 2008, we entered
 into a lease agreement with Systematic Information pursuant to which we lease
 one facility. The lease agreement for this facility expires on August 31,
 2010. The monthly lease payment for this lease totals $641. We incurred and
 paid an aggregate rent expense of $7,692 and $7,692 to Systematic Information
 during the years ended December 31, 2008 and 2007.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | During the
 years ended December 31, 2008 and 2007, we received service charges of $0 and
 $11,538 respectively from Systematic Information. The service fee was charged
 for back office support for Systematic Information.                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | During the
 years ended December 31, 2008 and 2007, we sold products for $1,913,071 and
 $666,742 respectively, to Systematic Information. As of December 31, 2008 and
 2007, there were no outstanding accounts receivables from Systematic
 Information.                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of
 $1,446,680 and $1,523,238 respectively from Systematic Information. As of
 December 31, 2008 and 2007, there were no outstanding accounts payable to
 Systematic Information.                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | On April 1,
 2005, we entered into a lease agreement with Systematic Information pursuant
 to which we lease one residential property for Mr. Yangs personal use for a
 monthly lease payment of $3,205. Upon expiration of the lease on June 15,
 2007, ACL acquired this residential property from Systematic Information. We
 incurred and paid an aggregate rent expense of $0 and $17,521 to Systematic
 Information during the years ended December 31, 2008 and 2007.                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | A workshop
 located in Hong Kong owned by Systematic Information was used by the Company
 as collateral for loans from SCB.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Transactions with Global Mega Development Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is the sole beneficial owner of the equity interest of Global Mega
 Development Ltd. (Global). During the years ended December 31, 2008 and
 2007, we received management fees of $0 and $5,769 respectively from Global.
 As of December 31, 2008 and 2007, there were no outstanding accounts
 receivables from Global. The management fees were charged for back office
 support for Global.                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | During the
 years ended December 31, 2008 and 2007, we sold products for $0 and $25,337
 respectively, to Global. As of December 31, 2008 and 2007, there were no
 outstanding accounts receivables from Global.                                                                                                                                                                                                                                                                                                                                                                                                          
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $2,323
 and $18,294 respectively from Global. As of December 31, 2008 and 2007, there
 were no outstanding accounts payable to Global.                                                                                                                                                                                                                                                                                                                                                                                                    

F-26

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 13. | RELATED PARTY TRANSACTIONS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Transactions with Systematic Semiconductor Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is the sole beneficial owner of the equity interest of Systematic
 Semiconductor Ltd. (Systematic). During the years ended December 31, 2008
 and 2007, we received a management fee of $15,384 and $16,026 respectively
 from Systematic. As of December 31, 2008 and 2007, there were no outstanding
 accounts receivables from Systematic. The management fee was charged for back
 office support for Systematic.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we sold products for $275,766 and
 $779,879 respectively, to Systematic. As of December 31, 2008 and 2007, there
 were no outstanding accounts receivables from Systematic.                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $560,750
 and $1,007,352 respectively from Systematic. As of December 31, 2008 and
 2007, there were no outstanding accounts payable to Systematic.                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Transactions with Intelligent Network Technology Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Mr. Yang the
 Companys Chief Executive Officer, majority shareholder and a director, is a
 director and 80% shareholder of Intelligent Network Technology Ltd.
 (Intelligent). The remaining 20% of Intelligent is owned by a non-related
 party.                                                                                                                                                                                                                                                           
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $0 and
 $1,343,501 respectively from Intelligent. As of December 31, 2008 and 2007,
 there were no outstanding accounts payable to Intelligent.                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Transactions with Aristo Components Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Mr. Ben
 Wong, one of our directors, is a 90% shareholder of Aristo Components Ltd.
 (Aristo Comp). The remaining 10% of Aristo Comp is owned by a non-related
 party. During the years ended December 31, 2008 and 2007, we received a
 management fee of $8,077 and $0 respectively from Aristo Comp. The management
 fee was charged for back office support for Aristo Comp.                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we sold products for $67,968 and
 $349,327 respectively, to Aristo Comp. As of December 31, 2008 and 2007,
 there were no outstanding accounts receivables from Aristo Comp.                                                                                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $37,665
 and $0 respectively, from Aristo Comp. As of December 31, 2008 and 2007, there
 were no outstanding accounts payable to Aristo Comp.                                                                                                                                                                                                                                                                                  
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Transactions with Atlantic Storage Devices Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is a 40% shareholder of Atlantic Storage Devices Ltd. (Atlantic Storage).
 The remaining 60% of Atlantic Storage is owned by a non-related party. During
 the years ended December 31, 2008 and 2007, we sold products for $575,386 and
 $1,471,471 respectively, to Atlantic Storage. As of December 31, 2008 and
 2007, there were no outstanding accounts receivables from Atlantic Storage.                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $679,049
 and $581,444 respectively, from Atlantic Storage. As of December 31, 2008 and
 2007, there were no outstanding accounts payable to Atlantic Storage.                                                                                                                                                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Transactions with Rambo Technologies Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | Mr. Ben
 Wong, one of our directors, is a 60% shareholder of Rambo Technologies Ltd.
 (Rambo). The remaining 40% of Rambo is owned by a non-related party. During
 the years ended December 31, 2008 and 2007, we sold products for $1,077,653
 and $2,574,096 respectively, to Rambo. As of December 31, 2008 and 2007,
 there were no outstanding accounts receivables from Rambo.                                                                                                                         
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $10,314
 and $0 respectively, from Rambo. As of December 31, 2008 and 2007, there were
 no outstanding accounts payable to Rambo.                                                                                                                                                                                                                                                                                              

F-27

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 13. | RELATED PARTY TRANSACTIONS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                   
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Transactions with Usmart Electronic Products Limited                                                                                                                                                                                                                                                                                                                                                                                     
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is the sole beneficial owner of the equity interest of Usmart Electronic
 Products Ltd. (Usmart). During the years ended December 31, 2008 and 2007,
 we sold products for $5,509 and $703,683 respectively, to Usmart. As of
 December 31, 2008 and 2007, there were no outstanding accounts receivables
 from Usmart.                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $199,712
 and $736,888 respectively, from Usmart. As of December 31, 2008 and 2007, there
 were no outstanding accounts payable to Usmart.                                                                                                                                                                                                               
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Transactions with Imax Technology Limited                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is the sole beneficial owner of the equity interest of Imax Technology Ltd.
 (Imax). During the years ended December 31, 2008 and 2007, we sold products
 of $0 and $51,060 respectively, to Imax. As of December 31, 2008 and 2007,
 there were no outstanding accounts receivables from Imax.                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $3,167
 and $0 respectively, from Imax. As of December 31, 2008 and 2007, there were
     no outstanding accounts payable to Imax.                                                                                                                                                                                                                       
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Transactions with Kadatco Company Limited                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director, a
 99.99% shareholder of Kadatco Company Limited (Kadatco). The remaining
 0.01% of Kadatco is owned by a non-related party. During the years ended
 December 31, 2008 and 2007, we sold products for $0 and $518,040
 respectively, to Kadatco. As of December 31, 2008 and 2007, there were no
 outstanding accounts receivables from Kadatco.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | During the
 years ended December 31, 2008 and 2007, we purchased inventories of $0 and
 $590,742 respectively, from Kadatco. As of December 31, 2008 and 2007, there
 was no outstanding accounts payable to Kadatco.                                                                                                                                                                                                                    
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Transactions with City Royal Limited                                                                                                                                                                                                                                                                                                                                                                                                     
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | Mr. Yang,
 the Companys Chief Executive Officer, majority shareholder and a director,
 is a 50% shareholder of City Royal Limited (City). The remaining 50% of
 City is owned by the wife of Mr. Yang. A residential property located in Hong
 Kong owned by City was used by the Company as collateral for loans from DBS
 Bank (Hong Kong) Limited (DBS Bank).                                                                    

F-28

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007 
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 14. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | In preparing
 these financial statements, the Company evaluated the events and transactions
 that occurred from January 1, 2009 through May 3, 2010, the date these
 financial statements were issued. The Company has made the required
 additional disclosures in reporting periods in which subsequent events occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | After year
 ended December 31, 2008, two banks canceled the banking facilities granted to
 the Company and restricted bank deposits were released. One bank reduced the
 amount of facilities granted to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | Effective as
 of October 1, 2009, Classic, a related party, and the Company agreed to a
 payment plan for the pay down of accounts receivable from Classic of
 $1,717,320 as of June 30, 2009 according to which Classic has agreed to pay
 to the Company $650,000 before the end of 2009 with the remainder of the
 accounts receivable balance to be paid during 2010. Mr. Alan Yang, our Chief
 Executive Officer, director and majority stockholder has personally
 guaranteed up to $10 million of outstanding accounts receivable of Classic.
 As of December 31, 2009, the accounts receivable from Classic has been fully
 settled.                                                                                                                                                                                                                                                                                 
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | On November
 2, 2009, the Company entered into two leases for office space. The leases
 expire on November 30, 2014. The monthly lease payments are $4,487 and
 $7,051, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | As discussed
 in Note 9 of the consolidated financial statements, the Company is dependent
 on one single vendor to supply its inventories. This vendor accounted for the
 majority of the Companys purchases for 2009. The Companys non-exclusive
 distributorship agreement with this vendor has a one year term and contains
 certain sales quotas to be met by the Company. This agreement has been
 renewed more than ten times, most recently on March 1, 2009 and expired on
 February 28, 2010. As of March 1, 2010, this vendor has confirmed the annual
 renewal of such agreement for one year. The Company has already signed a
 renewal agreement with Samsung. The Company expects to receive the return of
 a fully executed renewal agreement in the next two months. Termination of
 such distributorship agreement by this vendor would have a material adverse
 effect on the operations of the Company.
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|         | Aristo
 agreed to repay the Company a monthly payment of HK$1,000,000 (approximately
 $128,205) over the course of 5 years beginning June 1, 2010. The repayment
 plan is subject to review by the Company from time to time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-29

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
(Stated in US Dollars)

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 15. | RESTATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|         | On January
 7, 2010, the Company filed the consolidated balance sheets as of December 31,
 2008 and 2007, its consolidated statements of income, stockholders equity
 and cash flow for the year ended December 31, 2007 and 2008, in Form 10K/A
 (Amendment No. 1) Part IV Item 15 Page F-1- F-26 with the Securities and
 Exchange Commission (SEC). The Company received a comment letter from the
 Office of the Chief Accountant of the Division of Corporation Finance of SEC
 regarding certain disclosures in the Companys financial statements for
 the year ended December 31, 2007 and 2008. The Company determined to re-do the
 2007 and 2008 audit and restate the financial statements. The effects of the
 restatements are shown in the following tables.

CONSOLIDATED BALANCE SHEETS

|                                                                                     |  |                |            |                |   |            | 
|------------------------------------------------------------------------------------ |  | -------------- | ---------- | -------------- | - | ---------- | 
|                                                                                     |  | December 31,   |           
|                                                                                     |  | 2008
 Original |            | 2008
 Restated |  
|                                                                                     |  |                |            |                |  
|ASSETS                                                                               |  |                |            |                |   |            | 
|Current assets                                                                       |  |                |            |                |   |            | 
|Cash and cash equivalents                                                            |  | $              | 1,784,355  |                | $ | 1,943,463  | 
|Restricted cash                                                                      |  |                | 5,169,753  |                |   | 5,169,753  | 
|Accounts receivable, net of allowance for
 doubtful accounts of $0 for 2008 and 2007 |  |                | 10,230,464 |                |   | 10,342,453 | 
|Accounts receivable, related parties                                                 |  |                | 8,412,729  |                |   | 1,717,320  | 
|Inventories, net                                                                     |  |                | 2,060,195  |                |   | 3,668,568  | 
|Restricted marketable securities                                                     |  |                | 500,000    |                |   | 500,000    | 
|Income tax refundable                                                                |  |                |           |                |   |           | 
|Other current assets                                                                 |  |                | 30,051     |                |   | 525,918    | 
|                                                                                     |  |                |            |                |   |            | 
|                                                                                     |  |                |            |                |   |            | 
|Total current assets                                                                 |  | $              | 28,187,547 |                | $ | 23,867,475 | 
|Property, plant and equipment, net                                                   |  |                | 6,007,456  |                |   | 6,922,623  | 
|Other deposits                                                                       |  |                | 392,069    |                |   | 396,900    | 
|Amounts due from Aristo / Mr. Yang                                                   |  |                |           |                |   | 7,900,404  | 
|                                                                                     |  |                |            |                |   |            | 
|                                                                                     |  |                |            |                |   |            | 
|TOTAL ASSETS                                                                         |  | $              | 34,587,072 |                | $ | 39,087,402 | 
|                                                                                     |  |                |            |                |   |            | 

F-30

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED BALANCE SHEETS (Continued)

|                                                      |  |                |            |                |   |            | 
|----------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ---------- | 
|                                                      |  | December 31,   |           
|                                                      |  | 2008
 Original |            | 2008
 Restated |  
|                                                      |  |                |            |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY                  |  |                |            |                |   |            | 
|Current liabilities                                   |  |                |            |                |   |            | 
|Accounts
 payable                                     |  | $              | 13,669,779 |                |   | 17,318,949 | 
|Accruals                                              |  |                | 396,755    |                |   | 409,367    | 
|Lines of
 credit and loan facilities                  |  |                | 16,447,742 |                |   | 16,447,742 | 
|Current
 portion of long-term debt                    |  |                | 160,447    |                |   | 160,447    | 
|Current
 portion of capital lease                     |  |                | 58,683     |                |   | 58,683     | 
|Income tax
 payable                                   |  |                | 5,588      |                |   | 5,588      | 
|Due to
 shareholders for converted pledged collateral |  |                | 112,385    |                |   | 112,385    | 
|Other
 current liabilities                            |  |                | 301,076    |                |   | 508,073    | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Total current liabilities                             |  | $              | 31,152,455 |                | $ | 35,021,234 | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Long-term liabilities                                 |  |                |            |                |   |            | 
|Long-term
 debt, less current portion                 |  |                | 2,361,711  |                |   | 2,361,711  | 
|Capital
 lease, less current portion                  |  |                | 43,055     |                |   | 43,055     | 
|Deferred tax
 liabilities                             |  |                |           |                |   | 8,343      | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Total long-term liabilities                           |  |                | 2,404,766  |                |   | 2,413,109  | 
|Deferred tax                                          |  |                | 8,343      |                |   |           | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|TOTAL LIABILITIES                                     |  |                | 33,565,564 |                |   | 37,434,343 | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Commitments and contingencies                         |  | $              |           |                | $ |           | 
|                                                      |  |                |            |                |   |            | 

F-31

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED BALANCE SHEETS (Continued)

|                                                                                                                                                      |  |                |            |                |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ---------- | -
|                                                                                                                                                      |  | December 31,   |           
|                                                                                                                                                      |  | 2008
 Original |            | 2008
 Restated |  
|                                                                                                                                                      |  |                |            |                |  
|STOCKHOLDERS EQUITY                                                                                                                                  |  |                |            |                |   |            |  
|Common stock, $.001 par value; 50,000,000
 shares authorized; 28,329,936 shares issued and outstanding as of December
 31, 2008 and 2007 respectively |  | $              | 28,330     |                | $ | 28,330     |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|Additional paid in capital                                                                                                                            |  |                | 3,593,027  |                |   | 3,593,027  |  
|Amount due (from) to stockholder/director                                                                                                             |  |                | (39,633    | )              |   |           |  
|Accumulated losses                                                                                                                                    |  |                | (2,560,216 | )              |   | (1,968,298 | )
|                                                                                                                                                      |  |                |            |                |   |            |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|                                                                                                                                                      |  |                | 1,021,508  |                |   | 1,653,059  |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                            |  | $              | 34,587,072 |                | $ | 39,087,402 |  
|                                                                                                                                                      |  |                |            |                |   |            |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result
 of restatement of the consolidated balance sheet as of December 31, 2008,
 total assets increased from $34,587,072 as originally reported, to
 $39,087,402, an increase of $4,500,330. The increase of total assets was
 derived from an increase of $159,108 in cash and cash equivalents, an increase
 of $111,989 in accounts receivable, a decrease of $6,695,409 in accounts receivables
 from related parties, an increase of $1,608,373 in inventories, an increase
     of $495,867 in other current assets, an increase of $915,167 in property,
     plant and equipment, an increase of $4,831 in other deposits, and an increase
     of $7,900,404 in amounts due from stockholder/director.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The total
 liabilities increased from $33,565,564 as originally reported, to
 $37,434,343, an increase of $3,868,779. The increase of total liabilities was
 derived from an increase of $3,649,170 in accounts payable, an increase of $12,612
     in accruals, and an increase of $206,997 in other current liabilities.                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The total
 stockholders equity was restated from $1,021,508 as originally reported,
 to $1,653,059, an increase of $631,551. The increase of total stockholders equity
 was derived from a decrease of $591,918 in accumulated losses, and a reclassification
 of $39,633 in amount due (from) to stockholder/director from stockholders
 equity.                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The total
 liabilities and stockholders equity was restated from $34,587,072 as
 originally reported, to $39,087,402, an increase of $4,500,330.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-32

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED BALANCE SHEETS (Continued)

|                                                                                     |  |                |            |                |   |            | 
|------------------------------------------------------------------------------------ |  | -------------- | ---------- | -------------- | - | ---------- | 
|                                                                                     |  | December 31,   |           
|                                                                                     |  | 2007
 Original |            | 2007
 Restated |  
|                                                                                     |  |                |            |                |  
|ASSETS                                                                               |  |                |            |                |   |            | 
|Current assets                                                                       |  |                |            |                |   |            | 
|Cash and cash equivalents                                                            |  | $              | 1,597,674  |                | $ | 1,661,056  | 
|Restricted cash                                                                      |  |                | 4,203,057  |                |   | 4,203,057  | 
|Accounts receivable, net of allowance for
 doubtful accounts of $0 for 2007 and 2006 |  |                | 7,594,784  |                |   | 7,627,017  | 
|Accounts receivable, related parties                                                 |  |                | 7,955,764  |                |   | 1,717,859  | 
|Inventories, net                                                                     |  |                | 3,483,994  |                |   | 3,768,155  | 
|Restricted marketable securities                                                     |  |                | 769,231    |                |   | 769,231    | 
|Marketable securities                                                                |  |                | 404,780    |                |   | 404,780    | 
|Income tax refundable                                                                |  |                | 49,375     |                |   | 49,375     | 
|Other current assets                                                                 |  |                | 83,061     |                |   | 89,183     | 
|                                                                                     |  |                |            |                |   |            | 
|                                                                                     |  |                |            |                |   |            | 
|Total current assets                                                                 |  | $              | 26,141,720 |                | $ | 20,289,713 | 
|Property, plant and equipment, net                                                   |  |                | 6,933,998  |                |   | 6,933,998  | 
|Other deposits                                                                       |  |                | 387,245    |                |   | 387,245    | 
|Amounts due from Aristo / Mr. Yang                                                   |  |                |           |                |   | 6,057,488  | 
|                                                                                     |  |                |            |                |   |            | 
|                                                                                     |  |                |            |                |   |            | 
|TOTAL ASSETS                                                                         |  | $              | 33,462,963 |                | $ | 33,668,444 | 
|                                                                                     |  |                |            |                |   |            | 

F-33

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED BALANCE SHEETS (Continued)

|                                                      |  |                |            |                |   |            | 
|----------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ---------- | 
|                                                      |  | December 31,   |           
|                                                      |  | 2007
 Original |            | 2007
 Restated |  
|                                                      |  |                |            |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY                  |  |                |            |                |   |            | 
|Current liabilities                                   |  |                |            |                |   |            | 
|Accounts payable                                      |  | $              | 12,592,685 |                |   | 12,870,200 | 
|Accruals                                              |  |                | 186,738    |                |   | 195,956    | 
|Lines of credit and loan facilities                   |  |                | 15,610,488 |                |   | 15,610,488 | 
|Current portion of long-term debt                     |  |                | 135,237    |                |   | 135,237    | 
|Current portion of capital lease                      |  |                | 44,991     |                |   | 44,991     | 
|Due to shareholders for converted pledged
 collateral |  |                | 112,385    |                |   | 112,385    | 
|Other current liabilities                             |  |                | 268,573    |                |   | 268,572    | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Total current
 liabilities                            |  | $              | 28,951,097 |                | $ | 29,237,829 | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Long-term liabilities                                 |  |                |            |                |   |            | 
|Long-term debt, less current portion                  |  |                | 2,539,242  |                |   | 2,539,242  | 
|Capital lease, less current portion                   |  |                | 49,971     |                |   | 49,971     | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Total long-term liabilities                           |  |                | 2,589,213  |                |   | 2,589,213  | 
|Deferred tax                                          |  |                | 15,471     |                |   | 15,471     | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|TOTAL LIABILITIES                                     |  |                | 31,555,781 |                |   | 31,842,513 | 
|                                                      |  |                |            |                |   |            | 
|                                                      |  |                |            |                |   |            | 
|Commitments and contingencies                         |  | $              |           |                | $ |           | 
|                                                      |  |                |            |                |   |            | 

F-34

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED BALANCE SHEETS (Continued)

|                                                                                                                                                      |  |                |            |                |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ---------- | -
|                                                                                                                                                      |  | December 31,   |           
|                                                                                                                                                      |  | 2007
 Original |            | 2007
 Restated |  
|                                                                                                                                                      |  |                |            |                |  
|STOCKHOLDERS EQUITY                                                                                                                                  |  |                |            |                |   |            |  
|Common stock, $.001 par value; 50,000,000
 shares authorized; 28,329,936 shares issued and outstanding as of December
 31, 2007 and 2006 respectively |  | $              | 28,330     |                | $ | 28,330     |  
|Additional paid in capital                                                                                                                            |  |                | 3,593,027  |                |   | 3,593,027  |  
|Amount due to stockholder/director                                                                                                                    |  |                | (75,998    | )              |   |           |  
|Accumulated losses                                                                                                                                    |  |                | (1,638,177 | )              |   | (1,795,426 | )
|                                                                                                                                                      |  |                |            |                |   |            |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|                                                                                                                                                      |  | $              | 1,907,182  |                | $ | 1,825,931  |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|                                                                                                                                                      |  |                |            |                |   |            |  
|TOTAL LIABILITIES AND
 STOCKHOLDERS EQUITY                                                                                                           |  | $              | 33,462,963 |                | $ | 33,668,444 |  
|                                                                                                                                                      |  |                |            |                |   |            |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result
 of restatement of the consolidated balance sheet as of December 31, 2007,
 total assets increased from $33,462,963 as originally reported, to
 $33,668,444, an increase of $205,481. The increase of total assets was derived
 from an increase of $63,382 in cash and cash equivalents, an increase of $32,232
     in accounts receivable, a decrease of $6,237,905 in accounts receivables
     from related parties, an increase of $284,161 in inventories, an increase
     of $6,121 in other current assets, and an increase of $6,057,488 in amounts
     due from stockholder/director.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The total
 liabilities increased from $31,555,781 as originally reported, to
 $31,842,513, an increase of $286,732. The increase of total liabilities was
 derived from an increase of $277,515 in accounts payable, an increase of $9,218
     in accruals, and a decrease of $1 in other current liabilities.                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The total
 stockholders equity was restated from $1,907,182 as originally reported,
 to $1,825,931, a decrease of $81,251. The increase of total stockholders equity
 was derived from a decrease of $157,249 in accumulated losses, and a decrease
 of $75,998 in amount due (from) to stockholder/director.                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The total
 liabilities and stockholders equity was restated from $33,462,963 as
 originally reported, to $33,668,444, an increase of $205,481.                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-35

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

|                                                       |  |                |              |                |   |              |  
|------------------------------------------------------ |  | -------------- | ------------ | -------------- | - | ------------ | -
|                                                       |  | December 31,   |             
|                                                       |  | 2008
 Original |              | 2008
 Restated |  
|                                                       |  |                |              |                |  
|                                                       |  |                |              |                |   |              |  
|Net
 sales                                             |  | $              | 206,082,770  |                | $ | 209,556,926  |  
|Costs
 of sales                                        |  |                | (201,880,793 | )              |   | (205,388,286 | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Gross
 profit                                          |  | $              | 4,201,977    |                | $ | 4,168,640    |  
|Selling
 and distribution costs                        |  |                | (76,072      | )              |   | (82,285      | )
|General
 and administrative expenses                   |  |                | (4,099,249   | )              |   | (3,315,840   | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Income
 from operation                                 |  | $              | 26,656       |                | $ | 770,515      |  
|Other
 income (expenses)                               |  |                |              |                |   |              |  
|Rental income                                          |  |                | 89,231       |                |   | 89,231       |  
|Profit on disposals of equipment                       |  |                |             |                |   |             |  
|Loss on disposal of marketable securities              |  |                | (227,781     | )              |   | (227,781     | )
|Unrealized gain on disposal of marketable
 securities  |  |                |             |                |   |             |  
|Management and service income                          |  |                | 23,462       |                |   | 23,462       |  
|Net income on cash flow hedge                          |  |                | 161,288      |                |   | 161,288      |  
|Director life insurance policy refund                  |  |                |             |                |   |             |  
|Exchange differences                                   |  |                | (48,677      | )              |   | (48,677      | )
|Interest income                                        |  |                | 90,706       |                |   | 90,706       |  
|Interest expenses                                      |  |                | (1,073,795   | )              |   | (1,073,798   | )
|Miscellaneous                                          |  |                | 3,000        |                |   | 8,311        |  
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Loss
 before income taxes                              |  | $              | (955,910     | )              | $ | (206,743     | )
|Income taxes                                           |  | $              | 33,871       |                | $ | 33,871       |  
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Net loss                                               |  | $              | (922,039     | )              | $ | (172,872     | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Loss
 per share  basic and diluted                    |  | $              | (0.03        | )              | $ | (0.01        | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Weighted
 average number of shares  basic and diluted |  |                | 28,329,936   |                |   | 28,329,936   |  
|                                                       |  |                |              |                |   |              |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result
 of the restatement of consolidated income and comprehensive income for the year
 ended December 31, 2008, total net loss decreased from $922,039 as originally
 reported to $172,872, a decrease of $749,167. The decreased loss was composed
 of an increase of $3,474,156 in net sales, an increase of $3,507,493 in costs
     of sales, an increase of $6,213 in selling and distribution costs, a decrease
     of $783,409 in general and administrative expenses, an increase of $3 in
     interest expenses, and an increase of $5,311 in miscellaneous income.

F-36

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (Continued)

|                                                       |  |                |              |                |   |              |  
|------------------------------------------------------ |  | -------------- | ------------ | -------------- | - | ------------ | -
|                                                       |  | December 31,   |             
|                                                       |  | 2007
 Original |              | 2007
 Restated |  
|                                                       |  |                |              |                |  
|                                                       |  |                |              |                |   |              |  
|Net
 sales                                             |  | $              | 160,404,924  |                | $ | 166,771,606  |  
|Costs
 of sales                                        |  |                | (156,533,635 | )              |   | (162,933,656 | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Gross
 profit                                          |  | $              | 3,871,289    |                | $ | 3,837,950    |  
|Selling
 and distribution costs                        |  |                | (69,260      | )              |   | (73,508      | )
|General
 and administrative expenses                   |  |                | (2,942,542   | )              |   | (3,066,995   | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Income
 from operation                                 |  | $              | 859,487      |                | $ | 697,447      |  
|Other
 income (expenses)                               |  |                |              |                |   |              |  
|Rental income                                          |  |                | 37,179       |                |   | 37,179       |  
|Unrealized gain on disposal of marketable
 securities  |  |                | 404,780      |                |   | 404,780      |  
|Management and service income                          |  |                | 33,333       |                |   | 33,333       |  
|Net income on cash flow hedge                          |  |                | 64,590       |                |   | 64,590       |  
|Exchange differences                                   |  |                | 34,672       |                |   | 34,672       |  
|Director life insurance policy refund                  |  |                | 29,617       |                |   | 29,617       |  
|Interest income                                        |  |                | 169,055      |                |   | 169,055      |  
|Interest expenses                                      |  |                | (1,009,006   | )              |   | (1,009,010   | )
|Miscellaneous                                          |  |                | 218          |                |   | 5,013        |  
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Income
 before income taxes                            |  | $              | 623,925      |                | $ | 466,676      |  
|Income taxes                                           |  |                | (187,833     | )              |   | (187,833     | )
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Net income                                             |  | $              | 436,092      |                | $ | 278,843      |  
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Earnings
 per share  basic and diluted                |  | $              | 0.02         |                | $ | 0.01         |  
|                                                       |  |                |              |                |   |              |  
|                                                       |  |                |              |                |   |              |  
|Weighted
 average number of shares  basic and diluted |  |                | 28,329,936   |                |   | 28,329,936   |  
|                                                       |  |                |              |                |   |              |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result
 of the restatement of consolidated income and comprehensive income for the year
 ended December 31, 2007, total net income decreased from $436,092 as
 originally reported to $278,843, a decrease of $157,249. The decreased income
 was composed of an increase of $6,366,682 in net sales, an increase of $6,400,021
     in costs of sales, an increase of $4,248 in selling and distribution costs,
     an increase of $124,453 in general and administrative expenses, an increase
     of $4 in interest expenses, and an increase of $4,795 in miscellaneous
     income.

F-37

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                        |  |                |            |                |   |            |  
|--------------------------------------------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ---------- | -
|                                                                                        |  | December 31,   |           
|                                                                                        |  | 2008
 Original |            | 2008
 Restated |  
|                                                                                        |  |                |            |                |  
|                                                                                        |  |                |            |                |  
|Cash flows from operating activities                                                    |  |                |            |                |   |            |  
|Net (loss) income                                                                       |  | $              | (922,039   | )              | $ | (172,872   | )
|Depreciation and amortization                                                           |  |                | 238,477    |                |   | 238,477    |  
|Change in inventory reserve                                                             |  |                | (190,000   | )              |   | (190,000   | )
|Loss (gain) on disposal of marketable
 securities                                       |  |                | 227,782    |                |   | 227,781    |  
|Loss on revaluation of properties                                                       |  |                | 883,116    |                |   |           |  
|                                                                                        |  |                |            |                |   |            |  
|Adjustments
 to reconcile net loss to net cash used in operating activities:            |  |                |            |                |   |            |  
|Accounts receivable  other                                                             |  |                | (2,635,680 | )              |   | (2,715,435 | )
|Accounts receivable  related parties                                                   |  |                | (456,965   | )              |   | 539        |  
|Inventories                                                                             |  |                | 1,613,799  |                |   | 289,588    |  
|Refundable deposits                                                                     |  |                |           |                |   | (9,656     | )
|Income tax refundable                                                                   |  |                | 49,375     |                |   | 49,375     |  
|Other current assets                                                                    |  |                | 53,010     |                |   | (436,734   | )
|Other assets                                                                            |  |                | (4,824     | )              |   |           |  
|Accounts payable                                                                        |  |                | 1,077,094  |                |   | 4,448,749  |  
|Accrued expenses                                                                        |  |                | 210,017    |                |   | 213,411    |  
|Income tax payable                                                                      |  |                | 5,588      |                |   | 5,588      |  
|Other current liabilities                                                               |  |                | 32,503     |                |   | 239,501    |  
|Deferred tax                                                                            |  |                | (7,128     | )              |   | (7,128     | )
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Net cash provided by operating activities                                               |  | $              | 174,125    |                | $ | 2,181,184  |  
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Cash flows from investing activities                                                    |  |                |            |                |   |            |  
|Advance (to) from stockholders                                                          |  | $              | 36,365     |                | $ | (1,842,916 | )
|Increase in restricted cash                                                             |  |                | (966,696   | )              |   | (966,696   | )
|Increase in restricted marketable
 securities                                           |  |                | (500,000   | )              |   | (500,000   | )
|Cash proceeds from sales of marketable
 securities and restricted marketable securities |  |                | 946,229    |                |   | 946,229    |  
|Purchase of property, plant and equipment                                               |  |                | (132,513   | )              |   | (164,565   | )
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Net cash used in investing activities                                                   |  | $              | (616,615   | )              | $ | (2,527,948 | )
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Cash flows from financing activities                                                    |  |                |            |                |   |            |  
|Net borrowings on lines of credit and
 notes payable                                    |  | $              | 837,254    |                | $ | 837,254    |  
|Principal payments under long-term debt                                                 |  |                | (152,321   | )              |   | (152,321   | )
|Principal payments under capital lease
 obligation                                      |  |                | (55,762    | )              |   | (55,762    | )
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Net cash provided by financing activities                                               |  | $              | 629,171    |                | $ | 629,171    |  
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Net cash and cash equivalents sourced                                                   |  |                | 186,681    |                |   | 282,407    |  
|                                                                                        |  |                |            |                |   |            |  
|Cash and cash equivalentsbeginning of year                                             |  |                | 1,597,674  |                |   | 1,661,056  |  
|                                                                                        |  |                |            |                |   |            |  
|                                                                                        |  |                |            |                |   |            |  
|Cash and cash equivalentsend of year                                                   |  |                | 1,784,355  |                |   | 1,943,463  |  
|                                                                                        |  |                |            |                |   |            |  

F-38

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

|                                                                        |  |                |           |                |   |           | 
|----------------------------------------------------------------------- |  | -------------- | --------- | -------------- | - | --------- | 
|                                                                        |  | December 31,   |          
|                                                                        |  | 2008
 Original |           | 2008
 Restated |  
|                                                                        |  |                |           |                |  
|                                                                        |  |                |           |                |   |           | 
|Supplementary
 cash flow information:                                   |  |                |           |                |   |           | 
|Interest paid                                                           |  | $              | 1,073,795 |                | $ | 1,073,798 | 
|Income tax paid                                                         |  |                | 57,582    |                |   | 57,582    | 
|Income tax refund                                                       |  |                | 139,289   |                |   | 139,289   | 
|                                                                        |  |                |           |                |   |           | 
|                                                                        |  |                |           |                |   |           | 
|Supplementary
 schedule of non-cash investing and financing activities: |  |                |           |                |   |           | 
|Capital lease obligations incurred when
 capital                        |  |                |           |                |   |           | 
|leases were entered for new automobiles                                 |  | $              | 62,538    |                | $ | 62,538    | 
|                                                                        |  |                |           |                |   |           | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result
 of the restatement, the net cash provided by operating activities for the year
 ended December 31, 2008 increased by $2,007,059 from $174,125 as originally
 reported, to $2,181,184; net cash used in investing activities increased by
 $1,911,333 from $616,615 as originally reported, to $2,527,948; the cash and
 cash equivalents at beginning of year were increased by $63,382 from
 $1,597,674 as originally reported, to $1,661,056. The cash and cash
 equivalents at end of year were increased by $159,108 from $1,784,355 as
 originally reported, to $1,943,463.

F-39

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

|                                                                             |  |                |            |                |   |             |  
|---------------------------------------------------------------------------- |  | -------------- | ---------- | -------------- | - | ----------- | -
|                                                                             |  | December 31,   |           
|                                                                             |  | 2007
 Original |            | 2007
 Restated |  
|                                                                             |  |                |            |                |  
|Cash flows
 from operating activities                                        |  |                |            |                |   |             |  
|Net income                                                                   |  | $              | 436,092    |                | $ | 278,843     |  
|Depreciation and amortization                                                |  |                | 230,614    |                |   | 230,614     |  
|Change in inventory reserve                                                  |  |                | 323,077    |                |   | 323,077     |  
|Gain on disposal of equipment                                                |  |                | (218       | )              |   | (218        | )
|Gain on disposal of marketable securities                                    |  |                | (404,780   | )              |   | (404,780    | )
|                                                                             |  |                |            |                |   |             |  
|Adjustments
 to reconcile net loss to net cash used in operating activities: |  |                |            |                |   |             |  
|Accounts receivable  other                                                  |  |                | (5,586,310 | )              |   | (5,618,544  | )
|Accounts receivable  related parties                                        |  |                | (583,297   | )              |   | 5,654,608   |  
|Inventories                                                                  |  |                | (553,816   | )              |   | (837,977    | )
|Refundable deposits                                                          |  |                |           |                |   | (6,207      | )
|Income tax refundable                                                        |  |                | (49,375    | )              |   |            |  
|Other current assets                                                         |  |                | (42,124    | )              |   | (48,246     | )
|Other assets                                                                 |  |                | (6,207     | )              |   |            |  
|Accounts payable                                                             |  |                | 7,582,962  |                |   | 7,860,477   |  
|Accrued expenses                                                             |  |                | (127,486   | )              |   | (118,268    | )
|Income tax payable                                                           |  |                | (74,839    | )              |   | (124,214    | )
|Other current liabilities                                                    |  |                | (25,044    | )              |   | (33,858     | )
|Deferred tax                                                                 |  |                | 6,658      |                |   | 15,471      |  
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Net cash
 provided by (used in) operating activities                         |  | $              | 1,125,907  |                | $ | 7,170,779   |  
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Cash flows
 from investing activities                                        |  |                |            |                |   |             |  
|Advance (to) from stockholders                                               |  | $              | (989,461   | )              | $ | (6,970,951  | )
|Increase in restricted cash                                                  |  |                | (1,494,480 | )              |   | (1,494,480  | )
|Increase in restricted marketable
 securities                                |  |                | (769,231   | )              |   | (769,231    | )
|Cash proceeds from sales of equipment                                        |  |                | 385        |                |   | 385         |  
|Purchase of property, plant and equipment                                    |  |                | (3,159,760 | )              |   | (3,159,760  | )
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Net cash
 used in investing activities                                       |  | $              | (6,412,547 | )              | $ | (12,394,037 | )
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Cash flows
 from financing activities                                        |  |                |            |                |   |             |  
|Net borrowings on lines of credit and notes
 payable                         |  | $              | 4,772,021  |                | $ | 4,772,021   |  
|Borrowing under long-term debt                                               |  |                | 801,723    |                |   | 801,723     |  
|Principal payments under long-term debt                                      |  |                | (91,625    | )              |   | (91,625     | )
|Principal payments under capital lease
 obligation                           |  |                | (45,291    | )              |   | (45,291     | )
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Net cash
 provided by financing activities                                   |  | $              | 5,436,828  |                | $ | 5,436,828   |  
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Net cash and
 cash equivalents sourced (used)                                |  | $              | 150,188    |                | $ | 213,570     |  
|                                                                             |  |                |            |                |   |             |  
|Cash and
 cash equivalentsbeginning of year                                 |  |                | 1,447,486  |                |   | 1,447,486   |  
|                                                                             |  |                |            |                |   |             |  
|                                                                             |  |                |            |                |   |             |  
|Cash and
 cash equivalentsend of year                                       |  | $              | 1,597,674  |                | $ | 1,661,056   |  
|                                                                             |  |                |            |                |   |             |  

F-40

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
(Stated in US Dollars)

|         |                         
|-------- | ------------------------
|Note 15. | RESTATEMENTS (Continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

|                                                                                         |  |                |           |                |   |           | 
|---------------------------------------------------------------------------------------- |  | -------------- | --------- | -------------- | - | --------- | 
|                                                                                         |  | December 31,   |          
|                                                                                         |  | 2007
 Original |           | 2007
 Restated |  
|                                                                                         |  |                |           |                |  
|Supplementary
 cash flow information:                                                    |  |                |           |                |   |           | 
|Interest paid                                                                            |  | $              | 1,009,006 |                | $ | 1,009,010 | 
|Income tax paid                                                                          |  |                | 305,389   |                |   | 305,389   | 
|                                                                                         |  |                |           |                |   |           | 
|                                                                                         |  |                |           |                |   |           | 
|Supplementary
 schedule of non-cash investing and financing activities:                  |  |                |           |                |   |           | 
|Capital lease obligations incurred when
 capital leases were entered for new automobiles |  | $              | 91,752    |                | $ | 95,898    | 
|                                                                                         |  |                |           |                |   |           | 

As a result of
the restatement, the net cash provided by operating activities for the year
ended December 31, 2007 increased by $6,044,872 from $1,125,907 as originally
reported, to $7,170,779; net cash used in investing activities increased by
$5,981,490 from $6,412,547 as originally reported, to $12,394,037. The cash and
cash equivalents at end of year were increased by $63,382 from $1,597,674 as
originally reported, to $1,661,056.

F-41

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

SCHEDULE
II

VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
YEARS ENDED DECEMBER 31, 2008 AND 2007

|                                              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|--------------------------------------------- |  | -------------------------------------- | --------- | ------------------------------- | - | ------- |  | -------------------------------- | ------- |  | - | --------- | 
|                                              |  | Balance
 at the Beginning
 of the Year |           | Charged
 to Costs
 and Expenses |   |         |  | Balance
 At the End
 of the Year |        
|                                              |  |                                        |           |                                 |   |        
|                                              |  |                                        |           | Deductions                      |   |        
|                                              |  |                                        |           |                                 |   |         |  |                                  |        
|Allowance
 for Doubtful Accounts:             |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|                                              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|Year ended
 December 31, 2007                 |  | $                                      |          |                                 | $ |        |  | $                                |        |  | $ |          | 
|Year ended
 December 31, 2008                 |  | $                                      |          |                                 | $ |        |  | $                                |        |  | $ |          | 
|                                              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|Inventory
 Obsolescence Reserve:              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|                                              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|Year ended
 December 31, 2007                 |  | $                                      | 241,026   |                                 | $ | 323,077 |  | $                                |        |  | $ | 564,103   | 
|Year ended
 December 31, 2008                 |  | $                                      | 564,103   |                                 | $ |        |  | $                                | 190,000 |  | $ | 374,103   | 
|                                              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|Valuation
 Allowance for Deferred Tax Assets: |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|                                              |  |                                        |           |                                 |   |         |  |                                  |         |  |   |           | 
|Year ended
 December 31, 2007                 |  | $                                      | 987,840   |                                 | $ | 69,152  |  | $                                |        |  | $ | 1,056,992 | 
|Year ended
 December 31, 2008                 |  | $                                      | 1,056,992 |                                 | $ | 65,734  |  | $                                |        |  | $ | 1,122,726 | 

SCHEDULE
III

QUARTERLY INFORMATION (UNAUDITED)
(Stated in US Dollars)

The summarized
quarterly financial data presented below reflects all adjustments, which in the
opinion of management, are of a normal and recurring nature necessary to
present fairly the results of operations for the periods presented.

|                              |  |                                              |         |        |   |        |   |        |        |       |   |        |   |   |        |  
|----------------------------- |  | -------------------------------------------- | ------- | ------ | - | ------ | - | ------ | ------ | ----- | - | ------ | - | - | ------ | -
|                              |  | (dollars in thousands except per share data) |        
|                              |  |                                              |        
|                              |  | Total                                        |         | Fourth |   | Third  |   | Second |        | First |  
|                              |  |                                              |         |        |   |        |   |        |        |       |  
|2008                          |  |                                              |         |        |   |        |   |        |        |       |   |        |   |   |        |  
|Total net
 sales              |  | $                                            | 209,557 |        | $ | 57,614 |   | $      | 51,849 |       | $ | 46,603 |   | $ | 53,491 |  
|Gross profit                  |  |                                              | 4,169   |        |   | 697    |   |        | 1,747  |       |   | 1,394  |   |   | 331    |  
|Net income (loss)             |  |                                              | (173    | )      |   | (294   | ) |        | 571    |       |   | 365    |   |   | (815   | )
|Net income
 (loss) per share: |  |                                              |         |        |   |        |   |        |        |       |   |        |   |   |        |  
|basic and diluted             |  |                                              | (0.01   | )      |   | (0.01  | ) |        | 0.02   |       |   | 0.01   |   |   | (0.03  | )
|                              |  |                                              |         |        |   |        |   |        |        |       |   |        |   |   |        |  
|2007                          |  |                                              |         |        |   |        |   |        |        |       |   |        |   |   |        |  
|Total net
 sales              |  | $                                            | 166,772 |        | $ | 53,601 |   | $      | 45,655 |       | $ | 34,102 |   | $ | 33,414 |  
|Gross profit                  |  |                                              | 3,838   |        |   | 868    |   |        | 1,835  |       |   | 558    |   |   | 577    |  
|Net income
 (loss)            |  |                                              | 279     |        |   | 16     |   |        | 706    |       |   | (145   | ) |   | (298   | )
|Net income
 (loss) per share: |  |                                              |         |        |   |        |   |        |        |       |   |        |   |   |        |  
|basic and diluted             |  |                                              | 0.01    |        |   | 0.00   |   |        | 0.03   |       |   | (0.01  | ) |   | (0.01  | )

S-1

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