UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

|           |           | 
|---------- | --------- | 
|(Mark One) | FORM 10-K | 

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|-- | -----------------------------------------------------------------------------------------
|x  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|   | For the
 fiscal year ended December 31, 2010                                             
|   |                                                                                          
|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: 011-852-3666-9939                               |           
|                                                                                                    |           
|Securities
 registered pursuant to Section 12(b) of the Act:                                        |           

|                                                            |  |                                          
|----------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                         |  | Name of each exchange on which registered
|NONE                                                        |  | N/A                                      
|                                                            |  |                                          
|Securities registered pursuant to Section 12(g) of the Act:
|                                                            |  |                                          
|Common Stock, $0.001 par value                             
|                                                           
|(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 NoIndicate by check mark if the registrant is not required
      to file reports pursuant to Section 13 or 15(d) of the Act.
      o Yes xNo 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
 filero (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).
      oYes x No The aggregate market value of the voting common equity held
      by non-affiliates of the registrant as of June 30, 2010 was approximately
$3,174,968 based upon the closing price of $0.50 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
March 30,
2011 was 28,779,936.

DOCUMENTS
INCORPORATED BY REFERENCE

NONE

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Table
of Contents

Form 10-K Index

|                                           |  |                                                                                                                   |  |     
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|                                           |  |                                                                                                                   |  | PAGE
|                                           |  | FORWARD LOOKING STATEMENT                                                                                         |  | 1   
|                                           |  |                                                                                                                   |  |     
|PART I                                     |  |                                                                                                                  
|                                           |  |                                                                                                                   |  |     
|Item 1.                                    |  | Business                                                                                                          |  | 1   
|Item 1A.                                   |  | Risk Factors                                                                                                      |  | 5   
|Item 1B.                                   |  | Unresolved Staff Comments                                                                                         |  | 8   
|Item 2.                                    |  | Properties                                                                                                        |  | 9   
|Item 3.                                    |  | Legal
 Proceedings                                                                                                |  | 9   
|Item 4.                                    |  | (Removed and Reserved)                                                                                            |  | 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                                                                       |  | 20  
|Item 9.                                    |  | Changes in and Disagreements with
 Accountants on Accounting and Financial Disclosure                             |  | 20  
|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                                                                                            |  | 26  
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners and Management and
 Related Stockholder Matters                   |  | 29  
|Item 13.                                   |  | Certain Relationships and Related Transactions, and Director
 Independence                                        |  | 30  
|Item 14.                                   |  | Principal Accounting Fees and Services                                                                            |  | 32  
|                                           |  |                                                                                                                   |  |     
|PART IV                                    |  |                                                                                                                  
|                                           |  |                                                                                                                   |  |     
|Item 15.                                   |  | Exhibits and Financial Statement Schedules                                                                        |  | 33  
|Signatures                                 |  |                                                                                                                   |  | 36  
|Index to Consolidated Financial Statements |  | F-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 (Mr. 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.

On December
14, 2010, the Company set up a wholly-owned subsidiary, ACL
International Holdings Limited (ACL Holdings) in Hong Kong. On December 17,
2010 the Company restructured the group; the Companys wholly owned subsidiary,
Atlantic, was transferred to become a wholly owned subsidiary of ACL Holdings.

1

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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 most of Samsungs
memory products marketed under the Samsung brand name which comprise Dynamic
Random Access Memory (DRAM), Double Data Rate Random Access Memory (DDR
RAM), Graphic Random Access Memory (Graphic RAM), and NAND Flash. Atlantic
believes it is one of the largest distributors of Samsung memory products in
Hong Kong and Southern China.

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 different
generations of computer related products.
In
addition to Samsung-branded products, Aristo sells Hynix, Micron, Elpida,
Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond branded products. Aristo will provide value-added services to
its products and  resell it to its customers.

The
Companys business objective is to build the best memory solutions platform for
electronics manufacturers in the region. The Company also aim to i) Provide
current market intelligence to Samsung regarding the demand for memory products
in the Hong Kong and Southern China markets and ii) 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 to provide Samsung with up-to-date market information collected from
retail channels and corporate users to assist Samsung in planning 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 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, 2010, pricing for the Samsung memory products
ranged from approximately $0.30 to $250 per product depending on the product specifications.

The
Distribution Agreement has a one-year term. The Distribution Agreement has been
renewed more than ten times, most recently on March 1, 2010 and expired on
February 28, 2011. As of March 1, 2011, Samsung has confirmed the annual
renewal of such agreement for one year.

2

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Products

Synchronous
Dynamic Random Access Memory (SDRAMs), or mobile SDRAM, are the most widely
used semiconductor memory component in computer peripherals such as Hard Disk
Drives (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 tablets, 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, mobile handsets, particularly smartphones, and tablets are expected
by the Company to create impressive NAND Flash revenue growth in 2011. Samsung
is a major supplier in the world of Flash products. Flash Cards such as micro
SD cards, SD cards, and CF cards are widely used for digital cameras, mobile phones,
portable game consoles, MP3 players, etc. In the third quarter of 2010,
Samsungs NAND Flash revenue was approximately US$2,029 million, representing
39.7% of NAND Flashs 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 GDDR4 is
currently the fastest graphic memory in volume production.

LCD panels
are a major component in most consumer electronics such as LCD TVs, tablets,
smartphones, notebooks, digital phone frames, portable game consoles, etc.

Industry
Background

Memory
products are integral to a wide variety of consumer and industrial
applications, including; Personal computer systems, workstations and servers,
and handheld devices such as notebooks, netbooks, tablets, smartphones,
e-Readers, etc. A market trend of increasingly high-throughput applications
(including, networking, graphics, multimedia etc) is creating demand for high
performance memory products. At present, NAND Flash, DDR2 and SDRAM are the
dominant memory products and Samsung is the worlds largest developer and
manufacturer of these memory products.

Customers

As of
December 31, 2010, the Company had over 150 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 53% of the Companys net sales for the year ended December 31, 2010, no
other customer accounted for more than 25% of the Companys net sales for 2010
and 2009. 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, 2010, the Company employed a total of 14 sales and marketing
personnel, each of whom has several years experience in the memory products
industry. Eight of these salespeople are stationed in the Companys
headquarters in Hong Kong, and six 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 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 product allocation
functions and thus maintains a close business relationship with Samsung.

3

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Suppliers

As of
December 31, 2010, the majority of the Companys 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 allocates quantities of
its memory products each year based upon anticipated demand for such products
by the customers of Samsungs various distributors in Hong Kong and the Peoples Republic of China. 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 or other non-exclusive
distributors due to Samsungs global allocation policy. In the event of such a
supply shortage, we anticipate the market prices of memory products will rise
and offset any loss of income attributable to our inability to fulfill all of
our orders.

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, Micron, 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 the worlds largest memory products manufacturer,
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 highly competitive position
compared to other US, European, Japanese and Taiwanese memory products
manufacturers and distributors.

Samsungs
principal competitors in the Hong Kong and Southern China markets for memory
products include Toshiba, 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, at 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, 2010, the Companys
business operations were not subject to the regulations of any jurisdiction
other than Hong Kong SAR and 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.

Employees

As of
December 31, 2010, the Company had 43 employees. Of the 43 employees, 14
employees are in sales and marketing, 16 employees are in administration, 5
employees are in engineering, 8 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.

4

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|         |             
|-------- | ------------
|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.

In
March 2010, our management 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 restated our
previously filed annual and interim financial statements in amended Form
10-Ks for years ended 2007 and 2008 to correct the errors related to accounting
for variable interest entities. 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.

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 Chief Executive Officer and Chairman Mr.
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
Samsung has renewed our distribution agreement in the past, 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 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, as a result, our 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.

5

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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, netbooks, 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 major Samsung memory
products 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, the results of our 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, the results of our 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 on our largest supplier, Samsung, and factors affecting
Samsung could have a great impact on our business operations.

Samsung
    is one of our largest supplier of memory products and therefore any factors
    that impact Samsung could have a great impact on our business operations.
    For example, Samsung relies heavily on silicon wafer producers to produce
    the raw material, silicon wafers, for its products that we distribute, therefore,
earthquakes, typhoons or other natural disasters in areas where silicon wafer
are produced would Samsungs supply of silicon wafers, which in turn, would
negatively impact our business, financial condition, and operational results.

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. The majority of our
revenue is generated from the networking, high-end computing and computer
peripherals segments of the electronics industry, which are 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.

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.

6

---



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 77.6% 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 of publicly traded shares in
computer related companies, including ours. From September 30, 2003, the
effective date of the reverse-acquisition of Atlantic, to December 31, 2010,
the closing price of our Common Stock fluctuated from a per share high of $3.00
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, 2010,
there were 28,779,936 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.

| |                                                                                                                                                                     |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

7

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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.

8

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

Our
principal office occupies approximately 7,643 square feet and is located at
Room 1701, 17/F., Tower 1, Enterprise Square, 9 Sheung Yuet Road, Kowloon Bay,
Kowloon, Hong Kong. The lease is for five years, expiring November 30, 2014
with monthly lease payments of HK$90,000 (approximately US$11,538).

We own an
office unit of approximately 4,989 square feet, which is located at B24-B27,
1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon Bay,
Kowloon, Hong Kong, and which was acquired from Classic Electronic Limited, a
non-related party, on July 21, 2006. Mr. Ben Wong, one of our directors, who has resigned from his director position with
the Company effective since June 11, 2010, is also a director of Classic
Electronic Limited. After the date of
his resignation, all companies under his personal control were no longer
considered related parties.

We lease a
warehouse unit of approximately 873 square feet, from Systematic Information
Limited, a non-related party, which 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 expiring on August 31, 2012, with monthly rental payments of HK$5,000
(approximately US$641). Mr. Ben Wong, one of our directors, who has resigned from his director position with
the Company effective since June 11, 2010, is also a director of
Systematic Information Limited. After the date of his resignation, all companies
under his personal control were no longer considered related parties.

We lease a
warehouse unit of approximately 968 square feet from Solution Semiconductor
(China) Limited (Solution), a related party, which is located at B10, 1/F.,
Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon Bay, Kowloon,
Hong Kong. The lease is on a month-to-month basis, with monthly rentals of
HK$8,500 (approximately US$1,090). Mr. Yang, our Chief Executive Officer and director, is a director and the
sole beneficial owner of the equity interests of Solution.

We lease a
warehouse unit of approximately 1,070 square feet, which is located at B11,
1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon Bay,
Kowloon, Hong Kong. The lease is for two years expiring on June 30, 2011, with
monthly rentals of HK$10,000 (approximately US$1,282).

We
lease a warehouse unit of approximately 873 square feet, which is located at B13,
1/F., Block B, Proficient Industrial Centre, 6 Wang Kwun Road, Kowloon Bay,
Kowloon, Hong Kong. The lease is for two years, expiring May 10, 2012 with
monthly lease payments of HK$8,000 (approximately US$1,026).

We lease an
office unit of approximately 2,682.9 square feet, which is located at Room
2208, 22/F., Building A, United Plaza, No.5022 Binhe Road, Futian Centre,
Shenzhen, China. The lease is for three years expiring on February 23, 2013
with monthly lease payments of RMB20,122 (approximately US$2,719).

We own an
investment property of approximately 3,000 square feet, which is located at No.
76, 5th Street, Hong Lok Yuen, Tai Po, New Territories, Hong Kong. The current
lease is for two years expiring on August 31, 2011 with monthly lease income of
HK$48,000 (approximately US$6,154).

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.

We own an
investment property of approximately 2,670 square feet, which is located at
House 19, Casas Domingo, 8 Kam Ka Street, New Territories, Hong Kong with 2
parking lots namely No. 39 and No. 40 of the estate.

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

|        |                  
|------- | -----------------
|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. | (Removed and Reserved)

9

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PART II

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

|                                     |  |      |      |     |   |      | 
|------------------------------------ |  | ---- | ---- | --- | - | ---- | 
|                                     |  | High |      | Low |  
|Fiscal Year ended December 31, 2010: |  |      |      |     |   |      | 
|Quarter
 ended December 31, 2010     |  | $    | 0.53 |     | $ | 0.25 | 
|Quarter
 ended September 30, 2010    |  | $    | 0.70 |     | $ | 0.39 | 
|Quarter
 ended June 30, 2010         |  | $    | 0.60 |     | $ | 0.45 | 
|Quarter
 ended March 31, 2010        |  | $    | 0.70 |     | $ | 0.41 | 
|                                     |  |      |      |     |   |      | 
|Fiscal Year ended December 31, 2009: |  |      |      |     |   |      | 
|Quarter
 ended December 31, 2009     |  | $    | 0.96 |     | $ | 0.43 | 
|Quarter
 ended September 30, 2009    |  | $    | 1.01 |     | $ | 0.21 | 
|Quarter
 ended June 30, 2009         |  | $    | 0.24 |     | $ | 0.17 | 
|Quarter
 ended March 31, 2009        |  | $    | 0.28 |     | $ | 0.14 | 

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
February 18, 2011, the last reported sale price of our Common Stock, as
reported by the OTC Bulletin Board, was $0.55 per share.

As of March
7, 2011, there were approximately 199 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.

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 re-grant 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.

10

---



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, 2010, 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 distributing memory products under the
Samsung brand name, specifically DRAM, Graphic RAM and Flash for the Hong
Kong and Southern China markets.

As of
December 31, 2010, we had over 150 customers in Hong Kong and Southern China.

Depending
on the product specifications, pricing for the Samsung memory products range
from approximately $0.30 to $250. 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, 2010 and 2009, the largest 5 customers accounted for 73% and
70% of our net sales, respectively. As of December 31, 2010, we had net current
liabilities of $15,205,215 and accumulated earnings of $2,887,446. We generated
net sales of $408,762,128 for the year ended December 31, 2010 and recorded a
net income of $1,933,261. In addition, during the year ended December 31, 2010,
net cash used for operating activities amounted to $39,852, net cash used for
investing activities amounted to $2,640,845, net cash provided by financing
activities amounted to $2,258,308.

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 i) Provide current market intelligence to Samsung
regarding the demand for memory products in the Hong Kong and Southern China
markets and ii) 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 up-to-date market
information collected from retail channels and corporate users to assist
Samsung in planning their production and allocation schedule for the following
six months. 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 guaranteed gross profit margin range of
approximately 1.5% to 2% of products sold in form of sales rebate payable by
Samsung.

11

---



Net sales

Net sales
are recognized upon the transfer of legal title of the electronics components
to the customers. The quantity of memory products the Company sells fluctuates
with changes in demand from its customers. The suggested prices set by our suppliers that we charged our
customers are subject to change by us based on prevailing economic conditions
and their impact on the market.

Net sales
for the fiscal year 2010 were $408,762,128, up $104,106,969 from the 2009
fiscal year. This increase in net sales was largely due to renewed demand for
consumer electronics, and an associated increase in average semiconductor
content within those products. Some residual upward price pressure also persisted
following 2009 inventory shortages. The Companys net sales percentage growth
of 34% even exceeded the global semiconductor markets percentage net sales
increase. The growth in net sales also provided higher rebate income from
Samsung.

The Companys
gross profit for the fiscal year 2010 was $7,389,322, representing a decrease
of 12.9% from the fiscal year 2009. Gross profit margin for fiscal year 2010
eased to 1.8% from 2.8% in fiscal year 2009. These results are due to
increasing costs of sales associated with the Companys continued focus on the
promotion of Samsungs high density NAND Flash (4GB and above), which has
greatly increased our sales volume but lowered profit margin. Income before tax
in the fiscal year 2010 was down to $2,322,676 from $3,573,873 in the fiscal
year 2009 due to the Companys reduced gross profits combined with an increase
in general and administrative expenses from $4,549,182 in the fiscal year 2009
to $4,754,404 in the fiscal year 2010. This increase in general and
administrative costs is mainly derived from the higher rental expense from our
head office.

The Company
recorded a net income of $1,933,261 for the fiscal year 2010, down from
$2,922,483 in the fiscal year 2009. This decrease was largely due to reduced
average selling prices from rebalancing of inventories across the semiconductor
market, following the supply shortages in 2009 when selling prices were
temporarily higher than normal.

The Company
anticipates significant demand driven revenue growth for NAND Flash in 2011,
due largely to the rapidly expanding smartphone and tablet markets. DRAM will
also benefit from the growth throughout the consumer electronics markets.
Although DRAM average selling prices were relatively low, due to robust
inventories in 2010, they are currently recovering following the recent Japan
earthquake. Future selling price, and hence future revenue from, DRAM is
currently uncertain.

The Company
does not believe the supply of semiconductors from Samsung will be affected by
the recent Japan earthquake. Neither does the Company expect that its
customers, located in southern China and Hong Kong, will reduce their demand
for the products. However, the earthquake has created uncertainty and
semiconductor market prices may experience some volatility.

Supply
chain disruption in parts of Japan has created a threat of semiconductor supply
shortages. During March this led to increases in the spot market prices of NAND
(approximately 5% to 15%) and DRAM (approximately 3% to 7%), although currently
contract prices have remained steady. Consumer electronics manufacturers may,
however, reduce their demand for semiconductors: Some Japanese firms have
suspended their operations; and there is the potential for supply shortages of
other components (e.g. LCDs).

The
semiconductor and consumer electronics industries in Japan seem to have avoided
severe damage. The degree and duration of the earthquakes impact on the global
semiconductor market is likely to be dependant on the speed of infrastructure
repair.

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.
Nevertheless, our procurement operations are supported by Samsung, although
there is no written long-term supply agreement in place between our Company and
Samsung. Our cost of goods, as a percentage of total revenues, amounted to
approximately 98.2% for the year ended December 31, 2010 and approximately
97.2% for the year ended December 31, 2009.

Operating Expenses

Our
operating expenses for the years ended December 31, 2010 and 2009 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 2011. 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 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 ASC 605 Revenue Recognition. Under ASC 605,
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.
In addition, we write down unproven, excess and obsolete inventories to net
realizable value. This policy requires us to make a number of estimates and
assumptions including market and economic conditions, product lifecycles and
forecast demand for our product to value our inventory. To the extent actual
results differ from these estimates and assumptions, the balances of reported
inventory and cost of products sold will change accordingly. Since Aristo supplies
different generations of computer related products, older generation products will move
slowly owing to lower market demand. According to the management experience and estimation
on the actual market situation, old generation products carrying on hand for ten years will
have no re-sell value. Therefore, these inventories on hand over ten years will be
written-off by Aristo immediately.

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, 2010 and 2009 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$) |             
|                                      |  | 2010                           |              | 2009 |  
|                                      |  |                                |              |      |  
|Net sales                             |  | $                              | 408,762,128  |      | $ | 304,655,159  |  
|Cost of
 sales                        |  |                                | (401,372,806 | )    |   | (296,176,177 | )
|Gross profit                          |  |                                | 7,389,322    |      |   | 8,478,982    |  
|                                      |  |                                |              |      |   |              |  
|Operating
 expenses:                  |  |                                |              |      |   |              |  
|Sales and marketing                   |  |                                | (113,772     | )    |   | (139,124     | )
|General and administrative            |  |                                | (4,754,404   | )    |   | (4,549,182   | )
|                                      |  |                                |              |      |   |              |  
|Total operating expenses              |  |                                | (4,868,176   | )    |   | (4,688,306   | )
|                                      |  |                                |              |      |   |              |  
|Income from
 operations               |  |                                | 2,521,146    |      |   | 3,790,676    |  
|Other income
 (expenses)              |  |                                | (198,470     | )    |   | (216,803     | )
|                                      |  |                                |              |      |   |              |  
|Income before
 income taxes provision |  |                                | 2,322,676    |      |   | 3,573,873    |  
|Income taxes
 provision               |  |                                | (389,415     | )    |   | (651,390     | )
|                                      |  |                                |              |      |   |              |  
|Net income                            |  | $                              | 1,933,261    |      | $ | 2,922,483    |  
|                                      |  |                                |              |      |   |              |  

13

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Year Ended December 31, 2010 Compared to the
Year Ended December 31, 2009

Net Sales

|                        |             |      |   |             |  |  |       | 
|----------------------- | ----------- | ---- | - | ----------- |  |  | ----- | 
|Year Ended December 31, |             |      |  
|2010                    |             | 2009 |   | % Change    | 
|                        |             |      |   |             | 
|                        |             |      |   |             |  |  |       | 
|$                       | 408,762,128 |      | $ | 304,655,159 |  |  | 34.2% | 

Sales
increased by $104,106,969 or 34.2% from $304,655,159 for the year ended
December 31, 2009 to $408,762,128 for the year ended December 31, 2010. The
increase was mainly due to increase of sales volume to the PRC market,
resulting in a higher sales turnover when compared to the year ended December
31, 2009.

Cost of Sales

|                        |             |      |   |             |  |  |       | 
|----------------------- | ----------- | ---- | - | ----------- |  |  | ----- | 
|Year Ended December 31, |             |      |  
|2010                    |             | 2009 |   | % Change    | 
|                        |             |      |   |             | 
|                        |             |      |   |             |  |  |       | 
|$                       | 401,372,806 |      | $ | 296,176,177 |  |  | 35.5% | 

Cost of
sales increased by $105,196,629 or 35.5%, from $296,176,177 for the year ended
December 31, 2009 to $401,372,806 for the year ended December 31, 2010. The
increase was mainly due to increase of sales volume and higher cost of sales.
The higher cost of sales are to the smaller profit margin on the majority of
our products sold in 2010.

Gross Profit

|                        |           |      |   |           |  |  |        | 
|----------------------- | --------- | ---- | - | --------- |  |  | ------ | 
|Year Ended December 31, |           |      |  
|2010                    |           | 2009 |   | % Change  | 
|                        |           |      |   |           | 
|                        |           |      |   |           |  |  |        | 
|$                       | 7,389,322 |      | $ | 8,478,982 |  |  | -12.9% | 

Gross
profit decreased by $1,089,660 or 12.9% from $8,478,982 for the year ended
December 31, 2009 to $7,389,322 for the year ended December 31, 2010. The gross
profit percentage decreased to 1.8% of revenue for the year ended December 31,
2010 compared to 2.8% of revenue for the year ended December 31, 2009. The
decrease in gross profit was mainly due to a decrease in average selling prices
caused by market saturation and high inventory levels in the market, and
increased sales of low profit margin products. We expect the gross profit for
the year ended December 31, 2011 to remain at approximately the same level as
in the year ended December 31, 2010.

Sales and Marketing

|                        |         |      |   |          |  |  |        | 
|----------------------- | ------- | ---- | - | -------- |  |  | ------ | 
|Year Ended December 31, |         |      |  
|2010                    |         | 2009 |   | % Change | 
|                        |         |      |   |          | 
|                        |         |      |   |          |  |  |        | 
|$                       | 113,772 |      | $ | 139,124  |  |  | -18.2% | 

Sales and
marketing expenses decreased by $25,352, or 18.2%, from $139,124 for the year
ended December 31, 2009 to $113,772 for the year ended December 31, 2010. The
decrease was directly attributable to effective controlling of transportation
expenses by encouraging customers to collect their goods during the fiscal year
2010. We expect the sales and marketing expenses for the year ended December
31, 2011 to remain at approximately the same level as the year ended December
31, 2010.

General and Administrative

|                        |           |      |   |           |  |  |      | 
|----------------------- | --------- | ---- | - | --------- |  |  | ---- | 
|Year Ended December 31, |           |      |  
|2010                    |           | 2009 |   | % Change  | 
|                        |           |      |   |           | 
|                        |           |      |   |           |  |  |      | 
|$                       | 4,754,404 |      | $ | 4,549,182 |  |  | 4.5% | 

General and
administrative expenses increased by $205,222 or 4.5% from $4,549,182 for the
year ended December 31, 2009 to $4,754,404 for the year ended December 31,
2010. This increase was primarily attributable to an increase in the rental
expense of our head office during fiscal year 2010. We intend to continue to
keep general and administrative expenses for the year ended December 31, 2011
at approximately the same level as the year ended December 31, 2010.

14

---



Income from Operations

|                        |           |      |   |           |  |  |        | 
|----------------------- | --------- | ---- | - | --------- |  |  | ------ | 
|Year Ended December 31, |           |      |  
|2010                    |           | 2009 |   | % Change  | 
|                        |           |      |   |           | 
|                        |           |      |   |           |  |  |        | 
|$                       | 2,521,146 |      | $ | 3,790,676 |  |  | -33.5% | 

Income from
operations was $2,521,146 for the year ended December 31, 2010 compared to
$3,790,676 for the year ended December 31, 2009, a decrease of $1,269,530. This
decrease was mainly due to a decrease in gross profit and an increase in
general and administrative expenses.

Interest Expense

|                        |         |      |   |          |  |  |       | 
|----------------------- | ------- | ---- | - | -------- |  |  | ----- | 
|Year Ended December 31, |         |      |  
|2010                    |         | 2009 |   | % Change | 
|                        |         |      |   |          | 
|                        |         |      |   |          |  |  |       | 
|$                       | 416,846 |      | $ | 460,329  |  |  | -9.4% | 

Interest
expense decreased $43,483, or 9.4%, from interest expense of $460,329 in the
year ended December 31, 2009, to $416,846 in the year ended December 31, 2010.
This decrease was mainly due to a decrease in the use of letters of credit by
the Company to obtain goods from suppliers. We expect to keep interest expenses
for the year ended December 31, 2011 at approximately the same level as in the
year ended December 31, 2010.

Net Income on Cash Flow Hedge

|                        |        |      |   |          |  |  |        | 
|----------------------- | ------ | ---- | - | -------- |  |  | ------ | 
|Year Ended December 31, |        |      |  
|2010                    |        | 2009 |   | % Change | 
|                        |        |      |   |          | 
|                        |        |      |   |          |  |  |        | 
|$                       | 15,410 |      | $ | 78,978   |  |  | -80.5% | 

Net income
on cash flow hedge decreased by $63,568 or 80.5%, from $78,978 in the year
ended December 31, 2009 to $15,410 in the year ended December 31, 2010. This
decrease was due to the expiration or termination of several currency hedging
contracts in the first quarter of 2010.

Interest Income

|                        |       |      |   |          |  |  |        | 
|----------------------- | ----- | ---- | - | -------- |  |  | ------ | 
|Year Ended December 31, |       |      |  
|2010                    |       | 2009 |   | % Change | 
|                        |       |      |   |          | 
|                        |       |      |   |          |  |  |        | 
|$                       | 1,280 |      | $ | 38,576   |  |  | -96.7% | 

Interest
income decreased by $37,296 or 96.7% from $38,576 in the year ended December
31, 2009 to $1,280 in the year ended December 31, 2010. This decrease was due
to a bank interest refund by the customers in fiscal year 2009, no such refund
occurred in fiscal year 2010.

Income Tax Provision (reversal)

|                        |         |      |   |          |  |  |        | 
|----------------------- | ------- | ---- | - | -------- |  |  | ------ | 
|Year Ended December 31, |         |      |  
|2010                    |         | 2009 |   | % Change | 
|                        |         |      |   |          | 
|                        |         |      |   |          |  |  |        | 
|$                       | 389,415 |      | $ | 651,390  |  |  | -40.2% | 

Income tax
provision decreased by $261,975 or 40.2% from $651,390 for the year ended
December 31, 2009 to $389,415 for the year ended December 31, 2010. This
decrease was due to a decrease in the estimated Hong Kong taxes payable by
Atlantic. The effective income tax rate is 17% for 2010 as compared to 18% for
2009.

Net Income

|                        |           |      |   |           |  |  |        | 
|----------------------- | --------- | ---- | - | --------- |  |  | ------ | 
|Year Ended December 31, |           |      |  
|2010                    |           | 2009 |   | % Change  | 
|                        |           |      |   |           | 
|                        |           |      |   |           |  |  |        | 
|$                       | 1,933,261 |      | $ | 2,922,483 |  |  | -33.8% | 

Our net
income decreased by $989,222 from $2,922,483 for the year ended December 31,
2009 compared to income of $1,933,261 for the year ended December 31, 2010.
This decrease was mainly due to a decrease in gross profit and an increase in
general and administrative expenses.

15

---



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, 2010, the Company had revolving lines of credit and loan
facilities in the aggregate amount of $20,841,802, of which $5,224,210 was available for drawdown
as short-term loans repayable within 90 days. Detailed disclosures regarding
our outstanding credit facilities are set forth in Notes 7 and 8 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 prior consent of the relevant lending institution to make
advances at the time of the requested advance and each facility (other than
with respect to certain long term mortgage loans) is payable within 90 days of
drawdown. Accordingly, on a case by case basis, we may elect to terminate or
not renew several of our credit facilities if significant reduction in our
available short term borrowings that we do not deem it is commercially
reasonable. The Company has obtained a $20 million purchase credit from
Samsung. The Company plans to obtain an additional $30 million line of credit
from various lenders.

We will
continue to seek additional sources of available financing on acceptable terms;
however, there can be no assurance that we 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.

Net Cashused for Operating
Activities

In the year
ended December 31, 2010, net cash used for operating activities amounted to $39,852 while net cash provided by operating activities in the year ended
December 31, 2009, it amounted to $7,865,309, a decrease of $7,905,161. This decrease was
primarily due to a $989,222 decrease in operating income, a $1,760,681 increase of accounts
receivable from other, and a $3,444,354
decrease in accounts payable, which was partially offset by a $3,149,536 decrease in inventory.

Net Cash Used for Investing

In the year
ended December 31, 2010, net cash used for investing activities amounted to $2,640,845 while in the year ended
December 31, 2009, amounted to $696,233, an increase of $1,944,613. This increase was primarily
due to an increase of restricted cash and purchases of automobiles, equipments and fixtures, and amount due from Aristo
/ Mr. Yang in 2010.

16

---



Net Cash Provided by Financing Activities

In the year
ended December 31, 2010, net cash provided by financing activities amounted to
$2,258,308
while net cash used for financing activities in the year ended December 31,
2009, amounted to $7,110,735, an increase of $9,369,043. This increase was due to an increase of the Company
borrowings on certain bank lines of credit and notes payable and short-term
borrowing.

Contractual
Obligations

The
following table presents our contractual obligations as of December 31, 2010
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                              |  | $      | 614,976    |                    | $ | 198,299    |  | $          | 151,292 |                | $ | 138,462 |  | $ | 126,923 | 
|Capital Leases                                 |  |        | 279,574    |                    |   | 178,659    |  |            | 100,915 |                |   |        |  |   |        | 
|Line of
 credit and notes payable  short-term |  |        | 11,153,021 |                    |   | 11,153,021 |  |            |        |                |   |        |  |   |        | 
|Bank Loans                                     |  |        | 3,572,572  |                    |   | 3,572,572  |  |            |        |                |   |        |  |   |        | 
|                                               |  |        |            |                    |   |            |  |            |         |                |   |         |  |   |         | 
|Total Contractual Obligations                  |  | $      | 15,620,143 |                    | $ | 15,102,551 |  | $          | 252,207 |                | $ | 138,462 |  | $ | 126,923 | 
|                                               |  |        |            |                    |   |            |  |            |         |                |   |         |  |   |         | 

Off-Balance Sheet
Arrangements

None.

Related
Party Transactions

We conduct
business with several affiliated companies. All of 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 product supplies from Samsung. If the relationship with
Samsung is terminated, we may not be able to continue our business. We have
been working on diversifying our product line and seeking new market
opportunities.

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.

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 obligation with credit deterioration, financial information about
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 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.

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, 2010
and made necessary changes accordingly including but not limited to filing
amendments for the prior periods to comply with all applicable requirements.

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

18

---



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.

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.

ASC
 810-10-05 to 10-65 Variable Interest Entity codified No. 167,
Amendments to FASB Interpretation No. 46(R) and 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. The Company has adopted ASC 810-10-5 to 10-65 and filed
all necessary amendments to comply with ASC 810-10-5 to 10-65.

In
2010, the FASB issued ASC Update (ASU) No.2010-21, Accounting for Technical
Amendments to Various SEC Rules and Schedules. This update amends various SEC
paragraphs in the FASB Accounting Standards Codification pursuant to SEC Final
Rule, Technical Amendments to Rules Forms, Schedules and Codification of
Financial Reporting Policies. The adoption of this update did not have any
material impact on the Companys financial statements.

In
2010, the FASB issued ASC Update (ASU) No.2010-22, Accounting for Various
Topics. This update amends various SEC paragraphs in the FASB Accounting
Standards Codification based on external comments received and the issuance of
Staff Accounting Bulletin (SAB) No. 112 which amends or rescinds portion of
certain SAB topics. SAB 112 was issued to existing SEC guidance into conformity
with ASC 805 Business Combination and ASC 810 Consolidation. The adoption
of this update did not have any material impact on the Companys financial
statements.

|         |                                                            
|-------- | -----------------------------------------------------------
|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.

19

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|        |                                            
|------- | -------------------------------------------
|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.

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

(a) Disclosure 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.

Limitations
on the Effectiveness of Disclosure Controls. In designing and evaluating
the Companys disclosure controls and procedures, management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, Company management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.

Evaluation
of Disclosure Controls and Procedures. The Companys CEO and CFO have
evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) as of December 31, 2010, and based on this evaluation, the
Companys principal executive and financial officers have concluded that the
Companys disclosure controls and procedures were not effective to ensure that
material information is recorded, processed, summarized and reported by
management of the Company on a timely basis in order to comply with the
Companys disclosure obligations under the Exchange Act and the rules and
regulations promulgated thereunder. The Companys principal executive and
financial officers conclusion regarding the Companys disclosure controls and
procedures is based on managements conclusion that the Companys internal
control over financial reporting are ineffective, as described below.

(b) Management Report on Internal Control
over Financial Reporting

The
Companys CEO and CFO are responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Our internal control system was designed to
provide reasonable assurance to the companys management and board of directors
regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.

In making
its assessment of internal control over financial reporting management used the
criteria issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Because of the
material weakness described in the following paragraphs, management believes
that, as of December 31, 2010, the companys internal control over financial
reporting was not effective based on those criteria.

Managements
evaluation was retrospective and conducted as of December 31, 2010, the last
day of the fiscal year covered by this Form 10-K. Based upon managements
evaluation, our CEO and CFO have concluded that our internal controls over
financial reporting were not effective as of December 31, 2010 because we have
not completed the remediation (discussed elsewhere in this document) for the
fiscal year ended December 31, 2010 due to the following material weaknesses:

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;

20

---



|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our
 board of directors had not established adequate financial reporting
 monitoring activities to mitigate the risk of management override,
 specifically:                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                | no
 formally documented financial analysis was presented to our board of
 directors, specifically fluctuation, variance, trend analysis or business
 performance reviews;
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                | an
 effective whistleblower program had not been established;                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                | there
 was insufficient oversight of external audit specifically related to fees,
 scope of activities, executive sessions, and monitoring of results;                   
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                | there
 was insufficient oversight of accounting principle implementation;                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                | there
 was insufficient review of related party transactions; and                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                | there
 was insufficient review of recording of stock transactions.                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
| | We
 did 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 were
 functioning effectively and that identified control deficiencies were
 remediated in a timely manner;                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
| | 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;                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                          
| | 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 the
 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 of the 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 amended Form 10-Ks
for years ended 2007 and 2008 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,

21

---



|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                         | 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, 2010, we had not completed the remediation of any of these
 material weaknesses.                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|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 on formalizing 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.                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                         | 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
 have restricted access to all financial modules. In order to mitigate the
 risks of management or other override, only authorized persons 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
 have re-assigned roles and responsibilities, and intend to continue improving
 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

During the
fourth quarter ended December 31, 2010, we have restricted
access to all financial modules. In order to mitigate the risks of management
or other override, only certain authorized persons have edit access to
financial modules. Other than as just described, there are no other
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) that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None.

22

---



PART III

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

Directors and Executive Officers

Our directors and executive officers, as of December 31, 2010, and
their biographical information are set forth below:

|                      |  |     |  |                                                                
|--------------------- |  | --- |  | ---------------------------------------------------------------
|NAME                  |  | AGE |  | POSITION                                                       
|                      |  |     |  |                                                                
|Chung-Lun
 Yang       |  | 49  |  | Chairman of
 the Board of Directors and Chief Executive Officer
|Kenneth
 Lap-Yin Chan |  | 48  |  | Director and Chief Operating Officer                           
|Kun Lin Lee           |  | 45  |  | Director and Chief Financial Officer                           
|Ming Yan
 Leung       |  | 42  |  | Chief
 Technology Officer                                      
|Man Sing Lai          |  | 42  |  | Director                                                       
|Ho Man Yeung          |  | 55  |  | Director                                                       
|Wing Sun
 Leung       |  | 47  |  | Director                                                       
|Hung Ming
 Joseph Chu |  | 55  |  | Director                                                       

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 University 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 of 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.

Kenneth Lap-Yin Chan, Director and Chief Operating Officer. Mr. Chan became a Director and Chief Operating Officer on June 11, 2010.
Mr. Chan was previously serving the Company as the Chief Financial
Officer since 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.

Kun Lin Lee,
Director and
Chief Financial Officer. Mr. Lee became a Director and Chief Financial
Officer on June 11, 2010. Prior
to appointment as the Companys Chief Financial Officer, Mr. Lee held various
executive positions, including VP Finance/Business Development at the Company
from November, 2009 to May 2010 and Director of Internal Audits, at Sigma
Designs Inc and Catalyst Semiconductor from May, 2006 to May, 2007 and April,
2005 to October 2006, respectively where he oversaw its finance, strategy,
business development, regulatory compliance and risk management. Mr. Lee
started his public accounting career with Arthur Andersen in December, 1997 and
later joined BDO Siedman in December, 2004. He later joined an investment
banking firm VIA, Inc. servicing semiconductor clients in merger &
acquisition, business valuation, and fundraising. Mr. Lee received his B.B.A.
degree in Finance from University of Hawaii at Manoa, and his MS from Golden
Gate University. In addition, Mr. Lee is a Certified Public Accountant,
Certified Information Technology Professional, Certified Financial Forensic
Accountant and a graduate of CalCPA Leadership Institute.

Ming Yan
Leung, Chief Technology Officer. Mr. Leung was appointed as our
Chief Technology Officer on June 11, 2010. Prior to joining the Company, Mr.
Leung was Chief Architect Officer of RV Technology Ltd., where he oversaw
various mobile solutions and services for enterprises and end users. In 1997,
Mr. Leung ran the banking solution team at the Tech-Trans Group where he led
the implementation of SWIFT-related solution for various banking institutes and
a mobile workforce system for an electricity supply company. Mr. Leung holds a
Masters in Engineering Management from the University of Technology, Sydney,
and a Postgraduate degree in Investment Decision Making from Wuhan University
of Technology.

23

---



Man Sing Lai,
Director. Mr. Lai became an Independent Director on December 1, 2010. As a
member of the Board of Directors to the Company, the Company approved a monthly
compensation of $1,282 (HK$10,000). Mr. Lai has been Chief Financial Officer of
Mainland Headwear Holdings Limited since 2008, a headwear manufacturer whose
shares are publicly traded on the main board of the Hong Kong Stock Exchange.
From 2007 to 2008 Mr. Lai was Financial Controller of J.I.C. Technology Company
Limited, a LCD manufacturer whose shares are publicly traded on the main board
of the Hong Kong Stock Exchange. From 2001 to 2007, Mr. Lai was the Director of
Finance at GVG Digital Technology Holdings (HK) Ltd a DVD player manufacturer
in China. Mr. Lai graduated with a BSc in Management Science from the London
School of Economics in 1990, a Bachelors of Business in 1994 from the
University of Southern Queensland in Australia and a Masters in Business
Administration in 2007 from the University of Western Sydney in Australia. Mr.
Lai is a member of the HKICPA and CPA Australia.

Ho Man Yeung,
Director. Mr. Yeung became an Independent Director on December 1, 2010. As a
member of the Board of Directors to the Company, the Company approved a monthly
compensation of $1,282 (HK$10,000). Mr. Yeung has been a Director of Avnet
Sunrise Ltd. since 2002. Avnet Sunrise Ltd. is a subsidiary of Avnet, Inc.
[NYSE: AVT] a global distributor of electronic components and devices. Mr.
Yeung has over twenty-five years of experience in the electronic distribution
industry. Mr. Yeung graduated from University of Salford with a BSc in
Electronics and earned a Certified Diploma of Accounting at Manchester
Polytechnic University.

Wing Sun
Leung, Director. Mr. Leung became an Independent Director on
December 1, 2010. As a member of the Board of Directors to the Company, the
Company approved a monthly compensation of $1,282 (HK$10,000). Mr. Leung has
been Project Director since April 2010 at German Alternative Investment
(Shenzhen) Company Co. Ltd. an investment and advisory services firm. From 2007
to 2009, Mr. Leung was Vice President and Senior Consultant at Shenzhen Everich
Industrial Co. Ltd., an importer and exporter of electronics. Prior to that,
Mr. Leung was Sales Director at Sigmatel Asia Inc., a distributor of electronic
components in China and Hong Kong. Mr. Leung has over twenty years of
experience in the electronics distribution industry in the United States, China
and Hong Kong. Mr. Leung graduated from the Chinese University of Hong Kong
with a BSc in Social Science.

Dr.
      Hung Ming Joseph Chu, Director. Dr. Chu became an Independent Director
      on January 1, 2011. As a member of the Board of Directors to the Company,
      the Company approved a monthly compensation of $1,282 (HK$10,000). Dr.
      Chu is Vice President of Global Business Development at Sydaap Technologies
      Pvt. Ltd. Previously, from 2008, Mr. Chu was Vice President of Mirics Semiconductor,
      a developer of silicon and software solutions for analog and digital broadcast
reception. From 2005 to 2008, Mr. Chu was Vice President and Director of
Business Development at Parlex Corp. [NASDAQ: PRLX] now a subsidiary of Johnson
Electric. Mr. Chu has over 25 years of experience in the communication and
semiconductor industry, with 18 of those years spent focusing on business
development and marketing activities in Asia. Mr. Chu earned an MSc in
      Engineering from Kings College of the University of London
      and is a member of the Chartered Management Institute (formerly known as
      British Institute of Management).

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, 2010, our Board of Directors held 5 meetings. No
director who served during the fiscal year ended December 31, 2010 attended
fewer than 80% of the meetings of the Board of Directors during that year.

Committees of the Board

On January
20, 2011, the Board of Directors establishes an Audit Committee, Nominating
Committee and Compensation Committee of the Board of Directors, and elected:

| |       |                                                                                                                                                                                                         
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Mr. Man Sing Lai, Mr. Ho Man Yeung and Mr. Wing Sun Leung to serve on
 the Audit Committee, and Mr. Man Sing Lai to act as the Chairman of the Audit
 Committee;                                        
| |       |                                                                                                                                                                                                         
| | (ii)  | Mr. Man Sing Lai, Mr. Ho Man Yeung, Mr. Wing Sun Leung and Mr. Hung
 Ming Joseph Chu to serve on the Nominating Committee, and Mr. Man Sing Lai to
 act as the Chairman of the Nominating Committee; and
| |       |                                                                                                                                                                                                         
| | (iii) | Mr. Man Sing Lai, Mr. Ho Man Yeung and Mr. Wing Sun Leung to serve on
 the Compensation Committee, and Mr. Man Sing Lai to act as the Chairman of
 the Compensation Committee.                          

24

---



Board Leadership Structure and Risk Oversight
Role

Our Chief
Executive Officer also serves as Chairman of our Board of Directors. Our Board
of Directors contains 7 Directors, and 4 of the Directors are Independent
Directors. 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 to 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, there is not a significant division of oversight and
operational responsibilities in managing the material risks facing the Company.

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 the 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, 2010 all Reporting Persons complied
with all applicable filing requirements.

25

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|         |                       
|-------- | ----------------------
|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 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, 2010 are: Chung-Lun Yang, our Chief
Executive Officer; Kun Lin Lee, our
Chief Financial Officer; Kenneth Lap-Yin Chan, our Chief Operating
Officer; and Ming Yan Leung, our Chief Technology Officer. These individuals
are referred to collectively in this Annual Report on Form 10-K as the Named
Executive Officers.

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 provide the Named Executive
Officers with compensation opportunities.

The
emphasis on the annual bonus opportunity and equity compensation components of
the executive compensation program reflect our belief that a large portion of
an executives compensation should be performance-based. This compensation is
performance-based because payment is tied to the achievement of corporate
performance goals. To the extent that performance goals are not achieved,
executives will receive a lesser amount of total compensation. We have entered
into employment agreements with four of our Named Executive Officers. Such
employment agreements set forth base salaries, bonuses and stock option grants.
Such stock option grants are predicated on our achievement of corporate
performance goals as set forth in such agreements.

ELEMENTS OF OUR EXECUTIVE COMPENSATION
PROGRAM

Base Salary

We
pay a base salary to certain of the 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 competitiveness of the marketplace. Base salary adjustments are considered
and take into account changes in the executives responsibilities, the
executives performance and changes in the competitiveness of the 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, with obtainment of a
corporate goal, or a combination of the two. 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.

26

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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 2010 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 2010.

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, 2010.

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
entered into employment agreements with our Mr. Yang, which sets the base
salary as set forth in our summary compensation table.

27

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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, 2010 and December 31, 2009.

Summary Compensation Table

|                                                   |  |      |      |              |   |            |  |                    |           |                     |  |                                               |  |                                                                                     |   |                              |  |            |  |  |   |  |  |   |  |   |           | 
|-------------------------------------------------- |  | ---- | ---- | ------------ | - | ---------- |  | ------------------ | --------- | ------------------- |  | --------------------------------------------- |  | ----------------------------------------------------------------------------------- | - | ---------------------------- |  | ---------- |  |  | - |  |  | - |  | - | --------- | 
|Name and
 Principal Position                       |  | Year |      | Salary 
 ($) |   | Bonus
 ($) |  | Stock
 Awards
 ($) |           | Option
 Awards
 ($) |  | Non-Equity
 Incentive Plan
 Compensation
 ($) |  | Change in
 Pension Value
 and
 Non-qualified
 Deferred
 Compensation
 Earnings
 ($) |   | All Other
 Compensation
 ($) |  | Total
 ($) | 
|                                                   |  |      |      |              |   |            |  |                    |           |                     |  |                                               |  |                                                                                     |   |                              |  |            | 
|                                                  
|Chung-Lun Yang,                                    |  |      | 2010 |              | $ | 443,590    |  |                    | 800,000   |                     |  |                                              |  |                                                                                     |  |                              |  |           |  |  |  |  |  |  |  | $ | 1,243,590 | 
|                                                   |  |      |      |              |   |            |  |                    |           |                     |  |                                               |  |                                                                                     |   |                              |  |            |  |  |   |  |  |   |  |   |           | 
|Chairman
 of the Board and Chief Executive Officer |  |      | 2009 |              | $ | 200,000    |  |                    | 1,100,000 |                     |  |                                              |  |                                                                                     |  |                              |  |           |  |  |  |  |  |  |  | $ | 1,300,000 | 

Outstanding equity awards at fiscal year-end

None.

Compensation of Directors

The
following table sets forth the Director compensation for service on the Board of
Directors of the Company for the fiscal year ended December 31, 2010.

|                     |  |                                     |       |                    |  |                      |  |                                               |   |                                                      |  |                              |  |            |   |  |  |   |  |   |       | 
|-------------------- |  | ----------------------------------- | ----- | ------------------ |  | -------------------- |  | --------------------------------------------- | - | ---------------------------------------------------- |  | ---------------------------- |  | ---------- | - |  |  | - |  | - | ----- | 
|Name
 (a)            |  | Fees
 Earned or
 Paid in
 Cash
 ($) |       | Stock
 Awards
 ($) |  | Option
 Awards
 ($)* |  | Non-Equity
 Incentive Plan
 Compensation
 ($) |   | Non-qualified
 Deferred
 Compensation
 Earnings
 ($) |  | All Other
 Compensation
 ($) |  | Total
 ($) |  
|                     |  |                                     |       |                    |  |                      |  |                                               |   |                                                      |  |                              |  |            |  
|                    
|Man Sing Lai         |  | $                                   | 1,282 |                    |  |                     |  |                                               |  |                                                      |  |                             |  |            |  |  |  |  |  | $ | 1,282 | 
|Ho Man Yeung         |  | $                                   | 1,282 |                    |  |                     |  |                                               |  |                                                      |  |                             |  |            |  |  |  |  |  | $ | 1,282 | 
|Wing Sun Leung       |  | $                                   | 1,282 |                    |  |                     |  |                                               |  |                                                      |  |                             |  |            |  |  |  |  |  | $ | 1,282 | 
|Kun Lin Lee          |  |                                     |      |                    |  |                     |  |                                               |  |                                                      |  |                             |  |            |  |  |  |  |  |   |      | 
|Kenneth Lap-Yin Chan |  |                                     |      |                    |  |                     |  |                                               |  |                                                      |  |                             |  |            |  |  |  |  |  |   |      | 
|Ben Wong             |  |                                     |      |                    |  |                     |  |                                               |  |                                                      |  |                             |  |            |  |  |  |  |  |   |      | 

We
compensate our independent directors an amount of $1,282 per month for serving
on our board of directors, in addition to reimbursement for out of pocket
expenses incurred in attending director meetings. We do not compensate our
executive directors for serving on the board of directors. Ben Wong has
resigned as the Director of the Company and Sales Director of Atlantic on June 11,
2010.

28

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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, 2010: (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 28,779,936
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, 2010. 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            |  |                        | 22,343,000 |                       |  | 77.6 | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Kun Lin Lee
 (2) (3) 7F, No 16 Huan-her East Road Sec 4, Yuan Ho City, Taipei, Taiwan                     |  |                        | 50,000     |                       |  | 0.2  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Kenneth
 Lap-Yin Chan (2) (3) Flat B, 8/F., Block 19, South Horizons, Aplei Chau, Hong
 Kong              |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Ming Yan
 Leung (2) G/F., 11 Ka Fuk Lane, Tuen Mun, New Territories, Hong Kong                            |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Man Sing Lai
 (3) Flat B, 23/F., Block 31, Laguna City, Cha Kwo Ling Road, Kwun Tong,
 Kowloon, Hong Kong |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Ho Man Yeung
 (3) Block 4, 7/F. Unit B, The Grand Panorama, 10 Robinson Road, Central, Hong
 Kong         |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Wing Sun Leung
 (3) 5658 Owens Drive, #202, Pleasanton, CA 94588, USA                                     |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|Hung Ming
 Joseph Chu (3) 8D, Block 6, The Sherwood, Tuen Mun, New Territories, Hong
 Kong                |  |                        | 0          |                       |  | 0.0  | %
|                                                                                                          |  |                        |            |                       |  |      |  
|All
 Directors and Officers as a Group                                                                    |  |                        | 22,393,000 |                       |  | 77.8 | %

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Applicable percentage of ownership is based on 28,779,936 shares of
 Common Stock outstanding as of December 31, 2010, together with securities
 exercisable or convertible into shares of Common Stock within 60 days of
 December 31, 2010, 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, 2010, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

29

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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

Related party receivables are payable on demand upon the same terms as
receivables from unrelated parties.

Transactions with Aristo Technologies Limited
/ Mr. Yang

As of
December 31, 2010 and 2009, we had an outstanding receivable from Aristo / Mr.
Yang, the President and Chairman of our Board of Directors, totaling
$13,647,827 and $11,233,839, respectively. These advances bear no interest and
are payable on demand. The receivable due from Aristo / 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
with Mr. Yang.

For the
years ended December 31, 2010 and 2009, we recorded compensation to Mr. Yang of
$1,243,590 and $1,300,000 respectively, and paid $1,243,590 and $1,300,000
respectively to Mr. Yang as compensation for his services.

Transactions with Solution Semiconductor
(China) Limited

Mr. Yang is
a director and the sole beneficial owner of the equity interests of Solution
Semiconductor (China) Ltd. (Solution). On April 1, 2009, 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, 2012. The monthly lease
payment for this lease is $1,090. We incurred and paid an aggregate rent
expense of $13,077 and $13,077 to Solution during the year ended December 31,
2010 and 2009.

During the
years ended December 31, 2010 and 2009, we purchased inventories of $43,123 and
$10,138 respectively from Solution. As of December 31, 2010 and 2009, there
were no outstanding accounts payable to Solution.

Two
facilities located in Hong Kong owned by Solution were used by the Company as
collateral for loans from DBS Bank (Hong Kong) Limited (DBS Bank) (formerly
Overseas Trust Bank Limited) and The Bank of East Asia, Limited (BEA Bank)
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, 2010, 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, 2012.
The monthly lease payment for this lease totals $641. We incurred and paid an
aggregate rent expense of $7,692 to Systematic Information during the years
ended December 31, 2010 and 2009.

During the
years ended December 31, 2010 and 2009, we received service charges of $8,154
and $5,436 respectively from Systematic Information. The service fee was
charged for back office support for Systematic Information.

During the
years ended December 31, 2010 and 2009, we sold products for $767,981 and
$326,578 respectively, to Systematic Information. As of December 31, 2010 and
2009, there were no outstanding accounts receivables from Systematic Information.

During the
years ended December 31, 2010 and 2009, we purchased inventories of $0 and
$74,688 respectively from Systematic Information. As of December 31, 2010 and
2009, there were no outstanding accounts payable to Systematic Information.

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

Transactions with Global Mega Development
Limited

Mr. Yang is
the sole beneficial owner of the equity interests of Global Mega Development
Ltd. (Global). During the years ended December 31, 2010and 2009, we sold
products for $8,292 and $1,393 respectively, to Global. As of December 31, 2010
and 2009, there were no outstanding accounts receivables from Global.

During the
years ended December 31, 2010 and 2009, we purchased inventories of $2,308 and
$0 respectively from Global. As of December 31, 2010 and 2009, there were no
outstanding accounts payable to Global.

30

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Transactions with Systematic Semiconductor
Limited

Mr. Yang is
a director and sole beneficial owner of the equity interests of Systematic
Semiconductor Ltd. (Systematic). During the years ended December 31, 2010 and
2009, we received a management fee of $7,692 and $9,615 respectively from
Systematic. The management fee was charged for back office support for
Systematic.

During the
years ended December 31, 2010 and 2009, we sold products for $0 and $19,914
respectively, to Systematic. As of December 31, 2010 and 2009, there were no
outstanding accounts receivables from Systematic.

Transactions with Atlantic Storage Devices
Limited

Mr. Yang is
a director and 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, 2010 and 2009, we sold products for
$9,589 and $337,946 respectively, to Atlantic Storage. As of December 31, 2010
and 2009, there were no outstanding accounts receivables from Atlantic Storage.

During the
years ended December 31, 2010 and 2009, we purchased inventories of $28,800 and
$0 respectively, from Atlantic Storage. As of December 31, 2010 and 2009, there
were no outstanding accounts payable to Atlantic Storage.

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.

Transactions with Kasontech Electronics
Limited

Mr. Kenneth
Lap-Yin Chan, the Companys Director and Chief Operating Officer, is a 33%
shareholder of Kasontech Electronics Limited (Kasontech). During the years
ended December 31, 2010 and 2009, we received a management fee of $12,821 and
$0 respectively from Kasontech. The management fee was charged for back office
support for Kasontech. As of December 31, 2010 and 2009, there were no
outstanding accounts receivables from Kasontech.

Transactions with Aristo Components Limited

Mr. Ben
Wong resigned from his director position with the Company effective on June 11,
2010. He is a 90% shareholder of Aristo Components Ltd. (Aristo Comp). The
remaining 10% of Aristo Comp is owned by a non-related party. After the date of
his resignation, all companies under his personal control will no longer be a
related party and will not enjoy privileged treatment and will be subject to
the same trading terms as other ordinary outside parties. During the years
ended December 31, 2010 and 2009, we received a management fee of $12,308 and
$11,923 respectively from Aristo Comp. The management fee was charged for back
office support for Aristo Comp.

During the
years ended December 31, 2010 and 2009, we sold products for $120,282 and
$12,060 respectively, to Aristo Comp. As of December 31, 2010 and 2009, there
were no outstanding accounts receivables from Aristo Comp.

During the
years ended December 31, 2010 and 2009, we purchased inventories of $276 and
$241,367 respectively from Aristo Comp. As of December 31, 2010 and 2009, there
were no outstanding accounts payable to Aristo Comp.

Transactions with Rambo Technologies Limited

Mr. Ben
Wong resigned from his director position with the Company effective on June 11,
2010. He is a director and 60% shareholder of Rambo Technologies Ltd.
(Rambo). The remaining 40% of Rambo is owned by a non-related party. After
the date of his resignation, all companies under his personal control will no
longer be a related party and will not enjoy privileged treatment and will be
subject to the same trading terms as other ordinary outside parties. During the
years ended December 31, 2010 and 2009, we sold products for $47,408 and
$73,219 respectively, to Rambo. As of December 31, 2010 and 2009, there were no
outstanding accounts receivables from Rambo.

During the
years ended December 31, 2010 and 2009, we purchased inventories of $264,744
and $54,930 respectively, from Rambo. As of December 31, 2010 and 2009, there
were no outstanding accounts payable to Rambo.

31

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Transactions with
Usmart Electronic Products Limited

Mr.
Ben Wong, resigned from his director position with the Company effective on
June 11, 2010. He is a director and sole beneficial owner of the equity
interests of Usmart Electronic Products Ltd. (Usmart). After the date of his
resignation, all companies under his personal control will no longer be a
related party and will not enjoy privileged treatment and will be subject to
the same trading terms as other ordinary outside parties. Prior to April 1,
2010, Mr. Yang, our Chief Executive Officer, was the sole beneficial owner of
equity interests in Usmart before transferring these ownership interests to Mr.
Ben Wong.

On
October 7, 2009, we entered into a leasing payment agreement with Usmart
pursuant to which we lease one lot machinery facility to Usmart. The leasing
payment agreement for this facility expires on September 16, 2011. The monthly
lease income for this lease totals $3,846. We received aggregate lease income
of $46,154 and $13,333 from Usmart during the years ended December 31, 2010 and
2009.

During
the years ended December 31, 2010 and 2009, we sold products for $5,316 and
$4,837 respectively, to Usmart. As of December 31, 2010 and 2009, there were no
outstanding accounts receivables from Usmart.

During
the years ended December 31, 2010 and 2009, we purchased inventories of $2,023
and $42,596 respectively, from Usmart. As of December 31, 2010 and 2009, there
were no outstanding accounts payable to Usmart.

Transactions with
Ibcom Electronics (HK) Limited

Mr.
Ben Wong resigned from his director position with the Company effective on June
11, 2010. He is a director and 50% shareholder of Ibcom Electronics (HK)
Limited (Ibcom). After the date of his resignation, all companies under his
personal control will no longer be a related party and will not enjoy
privileged treatment and will be subject to the same trading terms as other
ordinary outside parties.

During
the years ended December 31, 2010 and 2009, we sold products for $2,194,115 and
$0 respectively, to Ibcom. As of December 31, 2010 and 2009, there were no
outstanding accounts receivables from Ibcom.

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

The
following table presents fees, including reimbursements for expenses,
professional audit services and other services rendered by JTC Fair Song and
Albert Wong & Co. CPA firms during the years ended December 31, 2010 and 2009. JTC Fair Song CPA Firm conducted interim reviews of our
quarterly financial statements for the quarter ended March 31, 2009, June 30,
2009 and September 30, 2009. Albert Wong & Co. has re-audited our annual
financial statements for the years ended December 31, 2008 and 2007 and audited
our annual financial statements for the year ended December 31, 2009 and 2010.

|                        |  |             |        |             |   |        | 
|----------------------- |  | ----------- | ------ | ----------- | - | ------ | 
|                        |  | Fiscal 2010 |        | Fiscal 2009 |  
|Audit Fees
 (1)         |  | $           | 58,000 |             | $ | 75,000 | 
|Audit
 Related Fees (2) |  | $           |       |             | $ |       | 
|Tax Fees (3)            |  | $           |       |             | $ |       | 
|All Other
 Fees (4)     |  | $           |       |             | $ |       | 
|                        |  |             |        |             |   |        | 
|Total                   |  | $           | 58,000 |             | $ | 75,000 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 and
 Albert Wong & Co. CPA firms in connection with statutory and regulatory
 filings or engagements. Audit Fees billed by Albert Wong & Co. CPA firm
 includes re-audited fees for auditing our annual financial statements and
 interim reviews for the fiscal year 2007 to 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(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 2010 or 2009.                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(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 2010
 or 2009.                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(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 2010 or 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                    

32

---



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.
|                                                                          |                                                   |                                                                                                                         
|                                                                          | (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.                   

33

---



|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.21 |  | Compensation Agreement with Kun Lin Lee, Chief Financial Officer
 executed on February 21, 2011 incorporated by reference to Exhibit 10.1 to
 the Form 8-K filed with the Securities and Exchange Commission on February
 25, 2011.                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|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.                                                                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|21.1  |  | Subsidiaries of the Company, incorporated by reference to Exhibit 21.1
to the Form 10-K/A filed with the Securities and Exchange Commission on April 22, 2010.                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|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.*                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                         
|32.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
 Section 1350, as adopted pursuant to Section 906 of the                                                                                                                                                                                                                                                                 

34

---



|                 |  |                                                                                                                                                      
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  | 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).

35

---



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: March
 31, 2011  

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                     |  | March 31,
 2011
|                          |  | Officer and
 Chairman of the         |  |                
|Chung-Lun Yang            |  | Board of
 Directors                  |  |                
|                          |  | (Principal
 Executive                |  |                
|                          |  | Officer)                             |  |                
|                          |  |                                      |  |                
|/s/ Kun Lin
 Lee          |  | Chief
 Financial Officer             |  | March 31,
 2011
|                          |  | (Principal
 Financial and Accounting |  |                
|Kun Lin Lee               |  | Officer) and
 Director               |  |                
|                          |  |                                      |  |                
|/s/ Kenneth
 Lap Yin Chan |  | Chief
 Operating Officer             |  | March 31,
 2011
|                          |  | and Director                         |  |                
|Kenneth Lap
 Yin Chan     |  |                                      |  |                
|                          |  |                                      |  |                
|/s/ Man Sing
 Lai         |  | Director                             |  | March 31,
 2011
|                          |  |                                      |  |                
|Man Sing Lai              |  |                                      |  |                
|                          |  |                                      |  |                
|/s/ Ho Man
 Yeung         |  | Director                             |  | March 31,
 2011
|                          |  |                                      |  |                
|Ho Man Yeung              |  |                                      |  |                
|                          |  |                                      |  |                
|/s/ Hung
 Ming Joseph Chu |  | Director                             |  | March 31,
 2011
|                          |  |                                      |  |                
|Hung Ming
 Joseph Chu     |  |                                      |  |                
|                          |  |                                      |  |                
|/s/ Wing Sun
 Leung       |  | Director                             |  | March 31,
 2011
|                          |  |                                      |  |                
|Wing Sun
 Leung           |  |                                      |  |                

36

---



ACL
Semiconductors Inc. and Subsidiaries Consolidated Financial StatementsAs of December 31, 2010 and December 31, 2009
and 
the Years Ended December 31, 2010
and 2009 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 ACCOUNTANTS7th
Floor, Nan Dao Commercial
Building
359-361 Queens Road Central
Hong Kong
Tel: 2851 7954
Fax: 2545 4086ALBERT
WONGB.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 consolidated balance sheets of the Company as of December 31, 2010
and 2009 and the related
consolidated statements of income and
comprehensive income, consolidated stockholders equity and accumulated other
comprehensive income and consolidated 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,
2010 and 2009 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 6 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.

|                  |                              
|----------------- | -----------------------------
|                  | /s/
 Albert Wong & Co.       
|Hong
 Kong, China | Albert
 Wong & Co.           
|March
 28, 2011   | Certified
 Public Accountants

F-2

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Stated in US Dollars)

CONSOLIDATED BALANCE SHEETS

|                                                                                    |  |       |  |   |            |  |   |            | 
|----------------------------------------------------------------------------------- |  | ----- |  | - | ---------- |  | - | ---------- | 
|                                                                                    |  | Notes |  |   | 2010       |  |   | 2009       | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|ASSETS                                                                              |  |       |  |   |            |  |   |            | 
|Current assets                                                                      |  |       |  |   |            |  |   |            | 
|Cash and cash equivalents                                                           |  |       |  | $ | 1,579,416  |  | $ | 2,001,805  | 
|Restricted cash                                                                     |  |       |  |   | 2,088,374  |  |   | 2,086,504  | 
|Accounts receivable, net of allowance for doubtful accounts of $0 for 2010 and 2009 |  |       |  |   | 14,195,067 |  |   | 12,434,386 | 
|Accounts receivable, related parties                                                |  |       |  |   |           |  |   |           | 
|Inventories, net                                                                    |  | 3     |  |   | 3,064,567  |  |   | 6,048,116  | 
|Restricted marketable securities                                                    |  |       |  |   |           |  |   |           | 
|Other current assets                                                                |  |       |  |   | 117,233    |  |   | 274,351    | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|Total current
 assets                                                               |  |       |  | $ | 21,044,657 |  | $ | 22,845,162 | 
|Property, plant and equipment, net                                                  |  | 4     |  |   | 8,227,546  |  |   | 8,179,765  | 
|Other deposits                                                                      |  |       |  |   | 71,564     |  |   | 213,535    | 
|Amounts due from Aristo / Mr. Yang                                                  |  |       |  |   | 13,647,827 |  |   | 11,233,839 | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|TOTAL ASSETS                                                                        |  |       |  | $ | 42,991,594 |  | $ | 42,472,301 | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|                                                                                   
|LIABILITIES                                                                         |  |       |  |   |            |  |   |            | 
|Current liabilities                                                                 |  |       |  |   |            |  |   |            | 
|Accounts payable                                                                    |  |       |  | $ | 20,394,399 |  | $ | 23,838,753 | 
|Accruals                                                                            |  |       |  |   | 718,416    |  |   | 527,582    | 
|Lines of credit and loan facilities                                                 |  | 7     |  |   | 11,153,021 |  |   | 9,013,813  | 
|Bank loan                                                                           |  | 8     |  |   | 2,750,024  |  |   | 2,793,953  | 
|Current portion of capital lease                                                    |  | 5     |  |   | 178,659    |  |   | 318,135    | 
|Income tax payable                                                                  |  |       |  |   | 70,157     |  |   | 505,078    | 
|Due to shareholders for converted pledged
 collateral                               |  |       |  |   | 112,385    |  |   | 112,385    | 
|Other current liabilities                                                           |  |       |  |   | 872,811    |  |   | 282,475    | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|                                                                                    |  |       |  |   |            |  |   |            | 
|Total current
 liabilities                                                          |  |       |  | $ | 36,249,872 |  | $ | 37,665,174 | 
|                                                                                    |  |       |  |   |            |  |   |            | 

F-3

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Stated in US Dollars)

|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - |  | - | ---------- |  | - | ---------- | 
|Long-term liabilities                                                                                                                                     |  |   |  |   |            |  |   |            | 
|Capital lease, less current portion                                                                                                                       |  | 5 |  | $ | 100,915    |  | $ | 146,117    | 
|Deferred tax liabilities                                                                                                                                  |  |   |  |   | 45,504     |  |   | 19,468     | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|Total long-term liabilities                                                                                                                               |  |   |  |   | 146,419    |  |   | 165,585    | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|TOTAL LIABILITIES                                                                                                                                         |  |   |  | $ | 36,396,291 |  | $ | 37,830,759 | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|NET
 ASSETS                                                                                                                                               |  |   |  | $ | 6,595,303  |  | $ | 4,641,542  | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|Commitments and contingencies                                                                                                                             |  |   |  | $ |           |  | $ |           | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|STOCKHOLDERS EQUITY                                                                                                                                      |  |   |  |   |            |  |   |            | 
|Preferred stock, 20,000,000 shares
 authorized; 0 shares issued and outstanding as of December 31, 2010 and 2009                                          |  |   |  |   |           |  |   |           | 
|Common stock, $0.001 par value; 50,000,000
 shares authorized; 28,779,936 and 28,729,936 shares issued and
 outstanding as of December 31, 2010
 and 2009 |  |   |  |   | 28,780     |  |   | 28,730     | 
|Additional paid in capital                                                                                                                                |  |   |  |   | 3,679,077  |  |   | 3,658,627  | 
|Retained earnings                                                                                                                                         |  |   |  |   | 2,887,446  |  |   | 954,185    | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                |  |   |  | $ | 6,595,303  |  | $ | 4,641,542  | 
|                                                                                                                                                          |  |   |  |   |            |  |   |            | 

See
accompanying
notes to the consolidated
financial statements

F-4

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009(Stated in US Dollars)

CONSOLIDATED
STATEMENTS OF INCOMEAND
COMPREHENSIVE INCOME

|                                                       |  |       |  |      |              |      |   |              |  
|------------------------------------------------------ |  | ----- |  | ---- | ------------ | ---- | - | ------------ | -
|                                                       |  |       |  | 2010 |              | 2009 |  
|                                                       |  | Notes |  |      |              |      |   |              |  
|                                                       |  |       |  |      |              |      |   |              |  
|Net
 sales                                             |  |       |  | $    | 408,762,128  |      | $ | 304,655,159  |  
|Costs
 of sales                                        |  |       |  |      | (401,372,806 | )    |   | (296,176,177 | )
|                                                       |  |       |  |      |              |      |   |              |  
|Gross
 profit                                          |  |       |  | $    | 7,389,322    |      | $ | 8,478,982    |  
|Selling
 and distribution costs                        |  |       |  |      | (113,772     | )    |   | (139,124     | )
|General
 and administrative expenses                   |  |       |  |      | (4,754,404   | )    |   | (4,549,182   | )
|                                                       |  |       |  |      |              |      |   |              |  
|Income
 from operation                                 |  |       |  | $    | 2,521,146    |      | $ | 3,790,676    |  
|Other
 income (expenses)                               |  |       |  |      |              |      |   |              |  
|Rental income                                          |  |       |  |      | 120,000      |      |   | 96,154       |  
|Interest expenses                                      |  |       |  |      | (416,846     | )    |   | (460,329     | )
|Loss on disposal of marketable securities              |  |       |  |      |             |      |   |             |  
|Management and service income                          |  |       |  |      | 40,974       |      |   | 28,257       |  
|Net income on cash flow hedge                          |  |       |  |      | 15,410       |      |   | 78,978       |  
|Interest income                                        |  |       |  |      | 1,280        |      |   | 38,576       |  
|Profit on disposals of equipment                       |  |       |  |      | 39,564       |      |   | 18,946       |  
|Exchange differences                                   |  |       |  |      | (36,135      | )    |   | (25,217      | )
|Miscellaneous                                          |  |       |  |      | 37,283       |      |   | 7,832        |  
|                                                       |  |       |  |      |              |      |   |              |  
|                                                       |  |       |  |      |              |      |   |              |  
|Income
 before income taxes                            |  |       |  | $    | 2,322,676    |      | $ | 3,573,873    |  
|                                                       |  |       |  |      |              |      |   |              |  
|Income taxes                                           |  | 9     |  |      | (389,415     | )    |   | (651,390     | )
|                                                       |  |       |  |      |              |      |   |              |  
|Net income                                             |  |       |  | $    | 1,933,261    |      | $ | 2,922,483    |  
|                                                       |  |       |  |      |              |      |   |              |  
|Earnings
 per share  basic and diluted                |  |       |  | $    | 0.07         |      | $ | 0.10         |  
|                                                       |  |       |  |      |              |      |   |              |  
|                                                       |  |       |  |      |              |      |   |              |  
|Weighted
 average number of shares  basic and diluted |  | 10    |  |      | 28,741,854   |      |   | 28,681,717   |  
|                                                       |  |       |  |      |              |      |   |              |  

F-5

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND
2009 
(Stated in US Dollars)

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME

|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 
|--------------------------- |  | ----------------- | ---------- | ------ | - | ---------------------------- |  | ------------------------------------------ | --------- | ----- | - | ---------- | - | - | --------- | 
|                            |  | Number
 of shares |            | Amount |   | Additional
 paid-in
 capital |  | Retained
 earnings/
 (accumulated
 losses) |           | Total |  
|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 
|Balance,
 January 1, 2009   |  |                   | 28,329,936 |        | $ | 28,330                       |  | $                                          | 3,593,027 |       | $ | (1,968,298 | ) | $ | 1,653,059 | 
|Issue of
 capital           |  |                   | 400,000    |        |   | 400                          |  |                                            | 65,600    |       |   |           |   |   | 66,000    | 
|Net income                  |  |                   |           |        |   |                             |  |                                            |          |       |   | 2,922,483  |   |   | 2,922,483 | 
|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 
|Balance,
 December 31, 2009 |  |                   | 28,729,936 |        | $ | 28,730                       |  | $                                          | 3,658,627 |       | $ | 954,185    |   | $ | 4,641,542 | 
|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 
|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 
|Balance,
 January 1, 2010   |  |                   | 28,729,936 |        | $ | 28,730                       |  | $                                          | 3,658,627 |       | $ | 954,185    |   | $ | 4,641,542 | 
|Issue of
 capital           |  |                   | 50,000     |        |   | 50                           |  |                                            | 20,450    |       |   |           |   |   | 20,500    | 
|Net income                  |  |                   |           |        |   |                             |  |                                            |          |       |   | 1,933,261  |   |   | 1,933,261 | 
|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 
|Balance,
 December 31, 2010 |  |                   | 28,779,936 |        | $ | 28,780                       |  | $                                          | 3,679,077 |       | $ | 2,887,446  |   | $ | 6,595,303 | 
|                            |  |                   |            |        |   |                              |  |                                            |           |       |   |            |   |   |           | 

See accompanying notes to the consolidated
financial statements

F-6

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND
2009 
(Stated in US Dollars)

CONSOLIDATED STATEMENTS
OF CASH FLOWS

|                                                                                              |  |      |            |      |   |            |  
|--------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                              |  | 2010 |            | 2009 |  
|                                                                                              |  |      |            |      |   |            |  
|Cash flows
 provided by (used for) operating activities:                                      |  |      |            |      |   |            |  
|Net income                                                                                    |  | $    | 1,933,261  |      | $ | 2,922,483  |  
|                                                                                              |  |      |            |      |   |            |  
|                                                                                              |  |      |            |      |   |            |  
|Adjustments to reconcile net income to net
 cash provided by (used for) operating activities: |  |      |            |      |   |            |  
|Depreciation and amortization                                                                 |  |      | 418,611    |      |   | 291,968    |  
|Bad debts                                                                                     |  |      |           |      |   | 697,803    |  
|Change in inventory reserve                                                                   |  |      | (165,987   | )    |   | (26,970    | )
|Issuance of common stocks to consultant as:                                                   |  |      |            |      |   |            |  
|- professional fee under share option
 scheme                                                 |  |      |           |      |   | 66,000     |  
|- professional fee under financial
 consultant agreement                                      |  |      | 20,500     |      |   |           |  
|Gain on disposal of fixed assets                                                              |  |      | (39,564    | )    |   | (18,946    | )
|                                                                                             
|Changes in assets and liabilities:                                                            |  |      |            |      |   |            |  
|(Increase) decrease in assets                                                                 |  |      |            |      |   |            |  
|                                                                                              |  |      |            |      |   |            |  
|Accounts receivable  other                                                                   |  |      | (1,760,681 | )    |   | (2,789,737 | )
|Accounts receivable  related parties                                                         |  |      |           |      |   | 1,717,320  |  
|Inventories                                                                                   |  |      | 3,149,536  |      |   | (2,352,579 | )
|Other current assets                                                                          |  |      | 157,118    |      |   | 251,566    |  
|Other assets                                                                                  |  |      | 141,971    |      |   | 183,365    |  
|Increase
 (decrease) in liabilities                                                           |  |      |            |      |   |            |  
|Accounts payable                                                                              |  |      | (3,444,354 | )    |   | 6,519,804  |  
|Accrued expenses                                                                              |  |      | 190,834    |      |   | 118,215    |  
|Income tax payable                                                                            |  |      | (434,921   | )    |   | 499,490    |  
|Other current liabilities                                                                     |  |      | (232,212   | )    |   | (225,598   | )
|Deferred tax                                                                                  |  |      | 26,036     |      |   | 11,125     |  
|                                                                                              |  |      |            |      |   |            |  
|Net cash
 provided by (used for) operating activities                                         |  | $    | (39,852    | )    | $ | 7,865,309  |  
|                                                                                              |  |      |            |      |   |            |  
|                                                                                              |  |      |            |      |   |            |  
|Cash flows
 used for investing activities:                                                    |  |      |            |      |   |            |  
|Advanced from Aristo / Mr. Yang                                                               |  | $    | 6,756,897  |      | $ | 6,414,900  |  
|Advanced to Aristo / Mr. Yang                                                                 |  |      | (9,170,885 | )    |   | (9,748,335 | )
|Increase in restricted cash                                                                   |  |      | (1,870     | )    |   | 3,083,249  |  
|Increase in restricted marketable
 securities                                                 |  |      |           |      |   | 500,000    |  
|Cash proceeds from sales of fixed assets                                                      |  |      | 122,178    |      |   | 48,077     |  
|Purchase of fixed assets                                                                      |  |      | (347,165   | )    |   | (994,124   | )
|                                                                                              |  |      |            |      |   |            |  
|Net cash
 provided by (used for) investing activities                                         |  | $    | (2,640,845 | )    | $ | (696,233   | )
|                                                                                              |  |      |            |      |   |            |  

F-7

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND
2009 
(Stated in US Dollars)

|                                                                                                     |  |   |           |   |   |            |  
|---------------------------------------------------------------------------------------------------- |  | - | --------- | - | - | ---------- | -
|Cash flows
 provided by (used for) financing activities:                                             |  |   |           |   |   |            |  
|Net borrowings (repayments) on lines of
 credit and notes payable                                    |  | $ | 2,139,208 |   | $ | (7,433,929 | )
|Principal payments to bank                                                                           |  |   | (390,531  | ) |   | (392,384   | )
|Borrowing from bank                                                                                  |  |   | 896,150   |   |   | 937,180    |  
|Principal payments under capital lease
 obligation                                                   |  |   | (386,519  | ) |   | (221,602   | )
|                                                                                                     |  |   |           |   |   |            |  
|Net cash
 provided by (used for) financing activities                                                |  | $ | 2,258,308 |   | $ | (7,110,735 | )
|                                                                                                     |  |   |           |   |   |            |  
|                                                                                                     |  |   |           |   |   |            |  
|Net increase
 (decrease) in cash and cash equivalents                                                |  | $ | (422,389  | ) | $ | 58,341     |  
|Cash and
 cash equivalentsbeginning of year                                                         |  |   | 2,001,805 |   |   | 1,943,463  |  
|                                                                                                     |  |   |           |   |   |            |  
|Cash and
 cash equivalentsend of year                                                               |  | $ | 1,579,416 |   | $ | 2,001,805  |  
|                                                                                                     |  |   |           |   |   |            |  
|                                                                                                     |  |   |           |   |   |            |  
|Supplementary
 disclosure of cash flow information:                                                  |  |   |           |   |   |            |  
|Interest paid                                                                                        |  | $ | 416,846   |   | $ | 460,329    |  
|Income tax paid                                                                                      |  |   | 798,300   |   |   | 140,775    |  
|                                                                                                     |  |   |           |   |   |            |  
|                                                                                                     |  |   |           |   |   |            |  
|Supplementary
 schedule of non-cash investing and financing activities:                              |  |   |           |   |   |            |  
|Capital lease obligations incurred when
 capital leases were enter for new automobiles and machinery |  | $ | 201,841   |   | $ | 584,117    |  
|Income tax provision                                                                                 |  |   | 389,415   |   |   | 651,390    |  
|                                                                                                     |  |   |           |   |   |            |  
|Compensation received from insurance
 company related to bad debt under Factoring coverage           |  | $ |          |   | $ | 719,711    |  
|                                                                                                     |  |   |           |   |   |            |  

See accompanying notes to the consolidated
financial statements

F-8

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|        |                                    
|------- | -----------------------------------
|NOTE 1. | ORGANIZATION AND PRINCIPAL ACTIVITY

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Organization and Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | On
 September 8, 2003, ACL Semiconductors Inc. (formerly Print Data Corp.)
 (Company or 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). This 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
 from 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | On
 December 14, 2010, the Company set up a wholly-owned subsidiary, ACL
 International Holdings Limited (ACL Holdings) in Hong Kong. On December 17,
 2010 the Company restructured the group; the Companys wholly owned
 subsidiary, Atlantic, was transferred to become a wholly owned subsidiary of
 ACL Holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Business Activity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ACL
 Semiconductors Inc. (Company or ACL) was incorporated in the State of
 Delaware on September 17, 2002 and acquired Atlantic Components Ltd., a Hong
 Kong based company (Atlantic) through a reverse-acquisition that was
 effective September 30, 2003. The Companys principal activities are
 distribution of electronic components under the Samsung brand name which
 comprise Dynamic Random Access Memory (DRAM), Graphic Random Access Memory
 (Graphic RAM), and Flash for the Hong Kong Special Administrative Region
 and Republic of China markets. Atlantic was incorporated in Hong Kong on May
 30, 1991. 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

|        |                                            
|------- | -------------------------------------------
|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, 2010. The following table depicts
 the identity of the subsidiary:                                                                                                                                                                                                                                                

|                                                                         |  |                        |           |                                |  |                    |  |   |         | 
|------------------------------------------------------------------------ |  | ---------------------- | --------- | ------------------------------ |  | ------------------ |  | - | ------- | 
|Name of Subsidiary                                                       |  | Place of Incorporation |           | Attributable Equity Interest % |  | Registered Capital | 
|ACL
 International Holdings Limited                                      |  |                        | Hong Kong |                                |  | 100                |  | $ | 0.13    | 
|Alpha
 Perform Technology Limited                                        |  |                        | BVI       |                                |  | 100                |  | $ | 1,000   | 
|Atlantic
 Components Limited (1)                                         |  |                        | Hong Kong |                                |  | 100                |  | $ | 384,615 | 
|Aristo
 Technologies Limited (2)                                         |  |                        | Hong Kong |                                |  | 100                |  | $ | 1,282   | 
|                                                                         |  |                        |           |                                |  |                    |  |   |         | 
|Note: (1)
 Wholly owned subsidiary of ACL International Holdings Limited
|(2) 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.                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ASC 810-05-08A specifies the two characteristics of a controlling
 financial interest in a variable interest entity (VIE): (1) the power to
 direct the activities of a VIE that most significantly impact the VIEs
 economic performance; and (2) the obligation to absorb losses of the VIE that
 could potentially be significant to the VIE or the right to receive benefits
 from the VIE that could potentially be significant to the VIE. The Company is
 the primary beneficiary of Aristo because the Company can direct the
 activities of Aristo through the common director and major shareholder. Also,
 the Company extended substantial accounts receivable to Aristo and created an
 obligation to absorb loss if Aristo failed. Moreover, ASC 810-25-42 & 43
 provides guidance on related parties treatment of VIE and specifies the
 relationship of de-facto agent and principal. This guidance will help to
 determine whether the Company will consolidate Aristo.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Owing to the extent of outstanding large amounts of accounts
 receivable since 2007 together with the nominal amount of paid-up capital
 contributed by Mr. Yang when Aristo was formed, it has been determined that
 Aristo cannot finance its operations without subordinated financial support
 from ACL and accordingly, ACL is considered to be the de facto principal of
 Aristo, Aristo is considered to be the de facto subsidiary of the Company,
 and Mr. Yang is considered to be a related party of both the Company and
 Aristo.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | By virtue of the above analysis, it has been determined that the
 Company is the primary beneficiary of Aristo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-10

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 2. | SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Principles of consolidation (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Aristo Technologies Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company sells Samsung memory chips to Aristo and allows long
 grace periods for Aristo to repay the open accounts receivable. Being the
 biggest creditor, the Company does not require Aristo to pledge assets or
 enter into any agreements to bind Aristo to specific repayment terms. The
 Company does not provide any bad debt provision or experience derived from
 Aristo. Although, the Company is not involved in Aristos daily operation, it
 believes that there will not be significant additional risk derived from the
 trading relationship and transactions with Aristo.                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | 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 different generations of computer related
     products. Aristo carries various brands of products such as Samsung, Hynix,
     Micron, Elpida, Qimonda, Lexar, Dane-Elec, Elixir, SanDisk and Winbond.
     Aristo 2010 and 2009 sales were around 15 million and 30 million; it was
     only a small distributor that accommodated special requirements for specific
     customers.                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Aristo supplies different generations of computer related products.
Old generation products will move slowly owing to lower market demand. According to the management experience and
estimation on the actual market situation, old products carrying on hand for ten years will have no resell value.
Therefore, inventories on hand over ten years will be written-off by Aristo immediately.                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company sells to Aristo in order to fulfill Aristos periodic
 need for Samsung memory products based on prevailing market prices, which
 Aristo, in turn, sells to its customers. The sales to Aristo for fiscal year
 2010 were $7,123,769
 with accounts receivable of $14,073,937
 as of December 31, 2010. For fiscal year 2009, sales to Aristo were
 $13,160,521 with accounts receivable of $10,315,388 as of December 31, 2009.
 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 that the Company cannot obtain from
 Samsung directly due to supply limitations.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(c) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The preparation of consolidated financial statements that conform
 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, however, actual results could differ materially from
 those estimates.                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(d) | Economic andpoliticalrisks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Companys operations are
 conducted in Hong Kong. A large number of customers are located in Southern
 China. 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 China, and by the general state of the economy
 in Hong Kong and China.                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Companys operations in
 Hong Kong and customers in Hong Kong and Southern China 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 environments, and
 foreign currency exchange. The Companys results may be adversely affected by
 changes in the political and social conditions in Hong Kong and China, 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.

F-11

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 2. | SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES(Continued)

|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(e) | Property, plant andequipment                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                        
|    | 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                 
|Machinery             |  | 10 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 theimpairment oflong-livedassets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(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 increased by $165,987 from $347,133 as of
 December 31, 2009 to $513,120 as of December 31, 2010. The reserve for
 obsolescence had been decreased by $26,970 from 2008 to 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-12

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 2. | SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 income statement in equal installments over the accounting periods
 covered by the lease term. Lease incentives received are recognized in 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 of 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company did not have any
 interest or penalty recognized in the income statements for the period ended
 December 31, 2010 and December 31, 2009 or the balance sheet, as of December
 31, 2010 and December 31, 2009. The Company did not have uncertainty tax
 positions or events leading to uncertainty tax position within the next 12
 months. The Companys 2008, 2009 and 2010 U.S. federal income tax returns are
 subject to U.S. Internal Revenue Service examination and the Companys
 2004/5, 2005/6, 2006/7, 2007/8, 2008/9, 2009/2010, 2010/11 Hong Kong Company
 Income Tax filing are subject to Hong Kong Inland Revenue Department
 examination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(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$). The consolidated
 financial statements are translated into United States dollars from HK$with a
 ratio of US$1.00=HKD7.80, a fixed exchange rate maintained between Hong Kong
 and United States derived from the Hong Kong Monetary Authority pegging HKD
 and USD monetary policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(m) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company derives revenues from resale of computer memory products.
The Company recognizes revenue in accordance with the ASC 605 Revenue Recognition. Under ASC 605,
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 Group expensed all
 advertising costs as incurred. Advertising expenses included in general and
 administrative expenses were $5,256 and $5,377 for the years ended December
 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-13

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|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 period have been reclassified to conform to the current
 consolidated financial statement 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-14

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 2. | SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(t) | Recently implemented standards(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | ASC 855 Subsequent Events
 codified SFAS No. 165, Subsequent Events, which establishes general
 standards of accounting for and disclosure of events that occur after the
 balance sheet date but before financial statements. The standard was
 subsequently amended by FASB ASU 2010-09 which exempts an entity that is an
 SEC filer from the requirement to disclose the date through which subsequent
 events have been evaluated. In February 2010, the FASB issued Accounting
 Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855). The
 amendments remove the requirements for an SEC filer to disclose a date, in
 both issued and revised financial statements, through which subsequent events
 have been reviewed. Revised financial statements include financial statements
 revised as a result of either correction of an error or retrospective
 application of U.S. GAAP. ASU 2010-09 is effective for interim or annual
 financial periods ending after June 15, 2010. The provisions of ASU 2010-09
 did not have a material effect on the Companys consolidated financial
 statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 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.                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 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, 2010 and made all
 necessary changes accordingly including but not limited to filing amendments
 for the prior relevant periods to comply with all applicable requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 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.

F-15

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 2. | SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(t) | Recently implemented standards(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | 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.                                                                                                                                                                                                                                                                                                 

F-16

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(t) | Recently implemented standards (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | ASC 810-10-5 to 10-65 Variable Interest Entity codified Statement
 of Financial Accounting Standards No. 167, Amendments to FASB Interpretation
 No. 46(R), 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. The Company
 has adopted ASC 810-10-5 to 10-65 and filed all necessary amendments to
 comply with ASC 810-10-5 to 10-65.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | In 2010, the FASB issued ASC Update (ASU) No.2010-21, Accounting
 for Technical Amendments to Various SEC Rules and Schedules. This update
 amends various SEC paragraphs in the FASB Accounting Standards Codification
 pursuant to SEC Final Rule, Technical Amendments to Rules Forms, Schedules
 and Codification of Financial Reporting Policies. The adoption of this
 update did not have any material impact on the Companys financial
 statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | In 2010, the FASB issued ASC Update (ASU) No.2010-22, Accounting
 for Various Topics. This update amends various SEC paragraphs in the FASB
 Accounting Standards Codification based on external comments received and the
 issuance of Staff Accounting Bulletin (SAB) No. 112 which amends or rescinds
 portion of certain SAB topics. SAB 112 was issued to existing SEC guidance
 into conformity with ASC 805 Business Combination and ASC 810
 Consolidation. The adoption of this update did not have any material impact
 on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|        |            
|------- | -----------
|NOTE 3. | INVENTORIES

| |                                         
| | ----------------------------------------
| | Inventories
 consisted of the following:

|                                                  |  |                   |           |                   |   |           |  
|------------------------------------------------- |  | ----------------- | --------- | ----------------- | - | --------- | -
|                                                  |  | December 31, 2010 |           | December 31, 2009 |  
|                                                  |  |                   |           |                   |   |           |  
|                                                  |  |                   |           |                   |   |           |  
|Finished goods                                    |  | $                 | 3,577,687 |                   | $ | 6,395,249 |  
|                                                  |  |                   |           |                   |   |           |  
|Less allowance for excess and obsolete
 inventory |  |                   | (513,120  | )                 |   | (347,133  | )
|                                                  |  |                   |           |                   |   |           |  
|Inventories, net                                  |  | $                 | 3,064,567 |                   | $ | 6,048,116 |  
|                                                  |  |                   |           |                   |   |           |  

| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The
 following is a summary of the change in the Companys inventory valuation
 allowance:

|                                                      |  |                   |         |                   |   |          |  
|----------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | -------- | -
|                                                      |  | December 31, 2010 |         | December 31, 2009 |  
|                                                      |  |                   |         |                   |   |          |  
|                                                      |  |                   |         |                   |   |          |  
|Inventory valuation allowance, beginning of
 the year |  | $                 | 347,133 |                   | $ | 374,103  |  
|                                                      |  |                   |         |                   |   |          |  
|Obsolete inventory sold                               |  |                   | (30,215 | )                 |   | (283,357 | )
|                                                      |  |                   |         |                   |   |          |  
|Additional inventory provision                        |  |                   | 196,202 |                   |   | 256,387  |  
|                                                      |  |                   |         |                   |   |          |  
|Inventory valuation allowance, end of the
 year       |  | $                 | 513,120 |                   | $ | 347,133  |  
|                                                      |  |                   |         |                   |   |          |  

F-17

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                                   
|------- | ----------------------------------
|NOTE 4. | PROPERTY, PLANT AND EQUIPMENT, NET

| |                                                            
| | -----------------------------------------------------------
| | Property,
 plant and equipment, net comprise the following:

|                               |  |      |            |      |   |           |  
|------------------------------ |  | ---- | ---------- | ---- | - | --------- | -
|                               |  | 2010 |            | 2009 |  
|                               |  |      |            |      |  
|At cost                        |  |      |            |      |   |           |  
|Land and buildings             |  | $    | 7,663,340  |      | $ | 7,663,340 |  
|Automobiles                    |  |      | 565,412    |      |   | 449,713   |  
|Office equipment               |  |      | 191,206    |      |   | 168,181   |  
|Leasehold improvements         |  |      | 422,420    |      |   | 218,462   |  
|Furniture and fixtures         |  |      | 31,230     |      |   | 13,273    |  
|Machinery                      |  |      | 499,614    |      |   | 499,614   |  
|                               |  |      |            |      |   |           |  
|                               |  | $    | 9,373,222  |      | $ | 9,012,583 |  
|Less: accumulated depreciation |  |      | (1,145,676 | )    |   | (832,818  | )
|                               |  |      |            |      |   |           |  
|                               |  | $    | 8,227,546  |      | $ | 8,179,765 |  
|                               |  |      |            |      |   |           |  

| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Depreciation and amortization expense included in the general and
 administrative expenses for the years ended December 31, 2010 and 2009 were
 $418,611 and $291,968 respectively.
| |                                                                                                                                                                                    
| | Automobiles and machinery include the following amounts under capital
 leases:                                                                                                     

|                              |  |                   |          |                   |   |          |  
|----------------------------- |  | ----------------- | -------- | ----------------- | - | -------- | -
|                              |  | December 31, 2010 |          | December 31, 2009 |  
|                              |  |                   |          |                   |  
|                              |  |                   |          |                   |   |          |  
|Cost                          |  | $                 | 842,698  |                   | $ | 716,855  |  
|Less accumulated depreciation |  |                   | (133,165 | )                 |   | (106,393 | )
|                              |  |                   |          |                   |   |          |  
|Total                         |  |                   | 709,533  |                   |   | 610,462  |  
|                              |  |                   |          |                   |   |          |  

F-18

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                          
|------- | -------------------------
|NOTE 5. | CAPITAL LEASE OBLIGATIONS

| |                                                                                 
| | --------------------------------------------------------------------------------
| | The Company
 has several non-cancellable capital leases relating to automobiles:

|                    |  |      |         |      |   |         | 
|------------------- |  | ---- | ------- | ---- | - | ------- | 
|                    |  | 2010 |         | 2009 |  
|                    |  |      |         |      |  
|Current portion     |  | $    | 178,659 |      | $ | 318,135 | 
|Non-current portion |  |      | 100,915 |      |   | 146,117 | 
|                    |  |      |         |      |   |         | 
|                    |  | $    | 279,574 |      | $ | 464,252 | 
|                    |  |      |         |      |   |         | 

| |                                                                           
| | --------------------------------------------------------------------------
| | At December
 31, the value of automobiles under capital leases as follows:

|                               |  |      |          |      |   |          |  
|------------------------------ |  | ---- | -------- | ---- | - | -------- | -
|                               |  | 2010 |          | 2009 |  
|                               |  |      |          |      |  
|Cost                           |  | $    | 716,855  |      | $ | 716,855  |  
|Less: accumulated depreciation |  |      | (106,393 | )    |   | (106,393 | )
|                               |  |      |          |      |   |          |  
|                               |  | $    | 610,462  |      | $ | 610,462  |  
|                               |  |      |          |      |   |          |  

| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | At December
 31, the Company had obligations under capital leases repayable as follows:

|                                              |  |      |         |      |   |         |  
|--------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                              |  | 2010 |         | 2009 |  
|                                              |  |      |         |      |  
|Total minimum lease payments                  |  |      |         |      |   |         |  
|-Within one year                              |  | $    | 194,036 |      | $ | 338,502 |  
|- After one year but within 5 years           |  |      | 107,962 |      |   | 156,078 |  
|                                              |  |      |         |      |   |         |  
|                                              |  | $    | 301,998 |      | $ | 494,580 |  
|Interest expenses relating to future
 periods |  |      | (22,424 | )    |   | (30,328 | )
|                                              |  |      |         |      |   |         |  
|Present value of the minimum lease payments   |  | $    | 279,574 |      | $ | 464,252 |  
|                                              |  |      |         |      |   |         |  

F-19

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|        |                            
|------- | ---------------------------
|NOTE 6. | RELATED PARTY
 TRANSACTIONS

Related party receivables are payable on demand upon the same terms as
receivables from unrelated parties.

Transactions with
Aristo Technologies Limited / Mr. Yang

As of December 31, 2010 and 2009, we had an outstanding receivable from
Aristo / Mr. Yang, the President and Chairman of our Board of Directors,
totaling $13,647,827 and $11,233,839, respectively. These advances bear no
interest and are payable on demand. The receivable due from Aristo / 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 with Mr. Yang.

For the years ended December 31, 2010 and 2009, we recorded
compensation to Mr. Yang of $1,243,590 and $1,300,000 respectively, and paid
$1,243,590 and $1,300,000 respectively to Mr. Yang as compensation to him.

Transactions with
Solution Semiconductor (China) Limited

Mr. Yang is a director and the sole beneficial owner of the equity
interests of Solution Semiconductor (China) Ltd. (Solution). On April 1,
2009, 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,
2012. The monthly lease payment for this lease is $1,090. We incurred and paid
an aggregate rent expense of $13,077 and $13,077 to Solution during the year
ended December 31, 2010 and 2009.

During the years ended December 31, 2010 and 2009, we purchased
inventories of $43,123 and $10,138 respectively from Solution. As of December
31, 2010 and 2009, there were no outstanding accounts payable to Solution.

Two facilities located in Hong Kong owned by Solution were used by the
Company as collateral for loans from DBS Bank (Hong Kong) Limited (DBS Bank)
(formerly Overseas Trust Bank Limited) and The Bank of East Asia, Limited (BEA
Bank) 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, 2010,
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, 2012. The monthly lease payment for this lease totals $641. We incurred and
paid an aggregate rent expense of $7,692 to Systematic Information during the
years ended December 31, 2010 and 2009.

During the years ended December 31, 2010 and 2009, we received service
charges of $8,154 and $5,436 respectively from Systematic Information. The
service fee was charged for back office support for Systematic Information.

During the years ended December 31, 2010 and 2009, we sold products for
$767,981 and $326,578 respectively, to Systematic Information. As of December
31, 2010 and 2009, there were no outstanding accounts receivables from Systematic
Information.

During the years ended December 31, 2010 and 2009, we purchased
inventories of $0 and $74,688 respectively from Systematic Information. As of
December 31, 2010 and 2009, there were no outstanding accounts payable to
Systematic Information.

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

Transactions with
Global Mega Development Limited

Mr. Yang is the sole beneficial owner of the equity interests of Global
Mega Development Ltd. (Global). During the years ended December 31, 2010and
2009, we sold products for $8,292 and $1,393 respectively, to Global. As of
December 31, 2010 and 2009, there were no outstanding accounts receivables from
Global.

During the years ended December 31, 2010 and 2009, we purchased
inventories of $2,308 and $0 respectively from Global. As of December 31, 2010
and 2009, there were no outstanding accounts payable to Global.

Transactions with
Systematic Semiconductor Limited

Mr. Yang is a director and sole beneficial owner of the equity
interests of Systematic Semiconductor Ltd. (Systematic). During the years
ended December 31, 2010 and 2009, we received a management fee of $7,692 and
$9,615 respectively from Systematic. The management fee was charged for back
office support for Systematic.

During the years ended December 31, 2010 and 2009, we sold products for
$0 and $19,914 respectively, to Systematic. As of December 31, 2010 and 2009,
there were no outstanding accounts receivables from Systematic.

F-20

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|        |                                        
|------- | ---------------------------------------
|NOTE 6. | RELATED PARTY
 TRANSACTIONS (Continued)

Transactions with
Atlantic Storage Devices Limited

Mr. Yang is a director and 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, 2010 and 2009, we sold products for $9,589 and $337,946
respectively, to Atlantic Storage. As of December 31, 2010 and 2009, there were
no outstanding accounts receivables from Atlantic Storage.

During the years ended December 31, 2010 and
2009, we purchased inventories of $28,800 and $0 respectively, from Atlantic
Storage. As of December 31, 2010 and 2009, there were no outstanding accounts
payable to Atlantic Storage.

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.

Transactions with
Kasontech Electronics Limited

Mr. Kenneth Lap-Yin Chan, the Companys
Director and Chief Operating Officer, is a 33% shareholder of Kasontech
Electronics Limited (Kasontech). During the years ended December 31, 2010 and
2009, we received a management fee of $12,821 and $0 respectively from
Kasontech. The management fee was charged for back office support for
Kasontech. As of December 31, 2010 and 2009, there were no outstanding accounts
receivables from Kasontech.

Transactions with
Aristo Components Limited

Mr. Ben Wong resigned from his director
position with the Company effective on June 11, 2010. He is a 90% shareholder
of Aristo Components Ltd. (Aristo Comp). The remaining 10% of Aristo Comp is
owned by a non-related party. After the date of his resignation, all companies
under his personal control will no longer be a related party and will not enjoy
privileged treatment and will be subject to the same trading terms as other
ordinary outside parties. During the years ended December 31, 2010 and 2009, we
received a management fee of $12,308 and $11,923 respectively from Aristo Comp.
The management fee was charged for back office support for Aristo Comp.

During the years ended December 31, 2010 and
2009, we sold products for $120,282 and $12,060 respectively, to Aristo Comp.
As of December 31, 2010 and 2009, there were no outstanding accounts
receivables from Aristo Comp.

During the years ended December 31, 2010 and
2009, we purchased inventories of $276 and $241,367 respectively from Aristo
Comp. As of December 31, 2010 and 2009, there were no outstanding accounts payable
to Aristo Comp.

Transactions with
Rambo Technologies Limited

Mr. Ben Wong resigned from his director
position with the Company effective on June 11, 2010. He is a director and 60%
shareholder of Rambo Technologies Ltd. (Rambo). The remaining 40% of Rambo is
owned by a non-related party. After the date of his resignation, all companies
under his personal control will no longer be a related party and will not enjoy
privileged treatment and will be subject to the same trading terms as other
ordinary outside parties. During the years ended December 31, 2010 and 2009, we
sold products for $47,408 and $73,219 respectively, to Rambo. As of December
31, 2010 and 2009, there were no outstanding accounts receivables from Rambo.

During the years ended December 31, 2010 and 2009, we purchased
inventories of $264,744 and $54,930 respectively, from Rambo. As of December
31, 2010 and 2009, there were no outstanding accounts payable to Rambo.

F-21

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|        |                                        
|------- | ---------------------------------------
|NOTE 6. | RELATED PARTY
 TRANSACTIONS (Continued)

Transactions with
Usmart Electronic Products Limited

Mr. Ben Wong, resigned from his director
position with the Company effective on June 11, 2010. He is a director and sole
beneficial owner of the equity interests of Usmart Electronic Products Ltd.
(Usmart). After the date of his resignation, all companies under his personal
control will no longer be a related party and will not enjoy privileged
treatment and will be subject to the same trading terms as other ordinary
outside parties. Prior to April 1, 2010, Mr. Yang, our Chief Executive Officer,
was the sole beneficial owner of equity interests in Usmart before transferring
these ownership interests to Mr. Ben Wong.

On October 7, 2009, we entered into a leasing
payment agreement with Usmart pursuant to which we lease one lot machinery
facility to Usmart. The leasing payment agreement for this facility expires on
September 16, 2011. The monthly lease income for this lease totals $3,846. We received
aggregate lease income of $46,154 and $13,333 from Usmart during the years
ended December 31, 2010 and 2009.

During the years ended December 31, 2010 and
2009, we sold products for $5,316 and $4,837 respectively, to Usmart. As of
December 31, 2010 and 2009, there were no outstanding accounts receivables from
Usmart.

During the years ended December 31, 2010 and
2009, we purchased inventories of $2,023 and $42,596 respectively, from Usmart.
As of December 31, 2010 and 2009, there were no outstanding accounts payable to
Usmart.

Transactions with
Ibcom Electronics (HK) Limited

Mr. Ben Wong resigned from his director
position with the Company effective on June 11, 2010. He is a director and 50%
shareholder of Ibcom Electronics (HK) Limited (Ibcom). After the date of his
resignation, all companies under his personal control will no longer be a
related party and will not enjoy privileged treatment and will be subject to
the same trading terms as other ordinary outside parties.

During the years ended December 31, 2010 and
2009, we sold products for $2,194,115 and $0 respectively, to Ibcom. As of
December 31, 2010 and 2009, there were no outstanding accounts receivables from
Ibcom.

F-22

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|        |                                              
|------- | ---------------------------------------------
|NOTE 7. | 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 $5,127,000 at December 31, 2010 and $5,378,000 at
December 31, 2009. The line of credit bears interest at the banks standard
bills rate less 1% for HKD borrowings and at the banks standard bills rate
less 0.50% for other currency borrowings as of December 31, 2010. The weighted
average interest rate approximated 4.25% for 2010 and 2009.

The Company has
available to it a $4,230,769 factoring facility without recourse with DBS Bank
with an outstanding balance of $2,951,106 at December 31, 2010 and $0 at
December 31, 2009. The factoring facility bears a discounting charge at the
banks standard bills rate less 1% for advance in HKD or the banks standard
bills rate less 0.50% for advance in other currency, and a service charge at
0.45% of invoice amount as of December 31, 2010. The weighted average interest
rate approximated 4.75% for 2010 and 2009.

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, 2010 and the letter of
guarantee will expire on October 31, 2011. 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 $3,846,154 factoring facility with Standard Chartered Bank
(Hong Kong) Ltd. (SCB) without any outstanding balance at December 31, 2010.
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
plus 0.75% for advances in other currency, and a service charge at 0.35% of
invoice amount when the invoice amount is over $50,000 or 0.175% of invoice
amount when the amount is below $50,000 as of December 31, 2010. The weighted
average interest rate approximated 4.5% for 2010 and 2009.

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 $2,307,000 at December 31,
2010 and $2,303,868 at December 31, 2009. The line of credit bears interest at
the higher of Hong Kong prime rate or HIBOR plus 2% for HKD facilities and
LIBOR plus 1.75% for other currency facilities as of December 31, 2010. The
weighted average interest rate approximated 5.25% for 2010 and 2009.

The Company has
available to it a $769,231 revolving line of credit with The Bank of East Asia,
Limited (BEA) with an outstanding balance of $767,916 at December 31, 2010
and $764,813 at December 31, 2009. The line of credit bears interest at the
higher of Hong Kong prime rate plus 0.25% or HIBOR plus 2% for HKD facilities
and LIBOR plus 2% for other currency facilities as of December 31, 2009. The
weighted average interest rate approximated 5.5% for 2010 and 2009.

The Company has
available to it a $576,923 revolving line of credit with Fubon Bank (Hong Kong)
Limited (Fubon) with an outstanding balance of $507,383 at December 31, 2010
and $308,947 at December 31, 2009. The line of credit bears interest at the
Hong Kong prime rate plus 0.5% as of December 31, 2010. The weighted average
interest rate approximated 5.75% for 2010 and 2009.

F-23

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|         |                                                          
|-------- | ---------------------------------------------------------
|NOTE
 7. | REVOLVING
 LINES OF CREDIT AND LOAN FACILITIES(Continued)

The summary of banking facilities at December
31, 2010 is as follows:

|                                     |  |                    |            |                     |   |                        |  |   |           | 
|------------------------------------ |  | ------------------ | ---------- | ------------------- | - | ---------------------- |  | - | --------- | 
|                                     |  | Granted facilities |            | Utilized facilities |   | Not UtilizedFacilities | 
|                                     |  |                    |            |                     |   |                        | 
|Lines
 of credit and loan facilities |  |                    |            |                     |   |                        |  |   |           | 
|Factoring
 Loan                      |  | $                  | 8,076,923  |                     | $ | 2,951,106              |  | $ | 5,125,817 | 
|Import/Export
 Loan                  |  |                    | 8,205,128  |                     |   | 8,201,916              |  |   | 3,212     | 
|                                     |  |                    |            |                     |   |                        |  |   |           | 
|                                     |  | $                  | 16,282,051 |                     | $ | 11,153,022             |  | $ | 5,129,029 | 
|                                     |  |                    |            |                     |   |                        |  |   |           | 
|Bank Loans                           |  |                    | 3,572,572  | (a)                 |   | 3,572,572              |  |   | 0         | 
|Overdraft                            |  |                    | 602,564    | (b)                 |   | 507,383                |  |   | 95,181    | 
|Letter of
 Guarantee                 |  |                    | 384,615    | (c)                 |   | 384,615                |  |   | 0         | 
|                                     |  |                    |            |                     |   |                        |  |   |           | 
|                                     |  |                    |            |                     |   |                        |  |   |           | 
|                                     |  | $                  | 20,841,802 |                     | $ | 15,617,592             |  | $ | 5,224,210 | 
|                                     |  |                    |            |                     |   |                        |  |   |           | 

(a) The bank loans are combined from
the summary of Note (8), total bank
loans amount to USD 2,750,024 with a tax loan of USD 822,548. The tax loan is
placed under Other Current Liabilities on the balance sheet. It has a facility
limit of USD 822,548, bearing an interest rate of 2% per annum below the Hong
Kong Prime Rate.(b) Including on cash and cash
equivalents(c) Guarantee granted to a supplier,
no accounting entry make on the book

With the
exception of the $384,615 letter of guarantee issued by DBS Bank, which will
expire on 31 October, 2011, 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-24

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

|        |          
|------- | ---------
|NOTE 8. | BANK LOAN

Bank loans were comprised of the following as of December 31:

|                                                                                                                                                                                                                                                                                                            |  |      |           |      |   |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                                                                                                                                                                                                                                                                                            |  | 2010 |           | 2009 |  
|                                                                                                                                                                                                                                                                                                            |  |      |           |      |  
|                                                                                                                                                                                                                                                                                                           
|Installment loan having a
 maturity date in July 2026 and carrying an interest rate of 2.4% below the
 Hong Kong dollar Prime Rate (5.25% at December 31, 2010) to DBS Bank payable
 in monthly installments of $9,925 including interest through December 2010
 without any balloon payment requirements   |  | $    | 1,497,047 |      | $ | 1,572,720 | 
|                                                                                                                                                                                                                                                                                                            |  |      |           |      |   |           | 
|Installment
 loan having a maturity date in July 2011 and carrying an interest rate of 2%
 below the Hong Kong dollar Prime Rate (5.25% at December 31, 2010) to DBS Bank payable in
 monthly installments of $3,782
 including interest through December 2010 without any balloon payment requirements     |  |      | 26,189    |      |   | 69,949    | 
|                                                                                                                                                                                                                                                                                                            |  |      |           |      |   |           | 
|Installment
 loan having a maturity date in July 2023 and carrying an interest rate of 2.5%
 below the Hong Kong dollar Prime Rate (5.25% at December 31, 2010) to DBS Bank payable in
 monthly installments of $5,240
 including interest through December 2010 without any balloon payment requirements   |  |      | 675,506   |      |   | 719,156   | 
|                                                                                                                                                                                                                                                                                                            |  |      |           |      |   |           | 
|Installment loan having a maturity date in
 July 2014 and carrying an interest rate of 0.25% plus the Hong
 Kong dollar Prime Rate (5.25% at December 31, 2010) to BEA Bank payable in monthly installments of $15,406 including interest through
 December 2010 without any
 balloon payment
 requirements |  |      | 551,282   |      |   | 705,128   | 
|                                                                                                                                                                                                                                                                                                            |  |      |           |      |   |           | 
|                                                                                                                                                                                                                                                                                                            |  | $    | 2,750,024 |      | $ | 3,066,953 | 
|                                                                                                                                                                                                                                                                                                            |  |      |           |      |   |           | 

An analysis on the repayment of bank loan as of December 31 is as
follows:

|                                                                                                                                                               |  |      |           |      |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                                                                                                                                               |  | 2010 |           | 2009 |  
|                                                                                                                                                               |  |      |           |      |   |           | 
|Carrying amount that are
 repayable on demand or within twelve months from December 31, 2010 containing
 a repayable on demand clause:                         |  |      |           |      |   |           | 
|Within
 twelve months                                                                                                                                          |  | $    | 302,346   |      | $ | 318,972   | 
|                                                                                                                                                               |  |      |           |      |   |           | 
|Carrying
 amount that are not repayable within twelve months from December 31, 2010
 containing a repayable on demand clause but shown in current liabilities: |  |      |           |      |   |           | 
|After 1
 year, but within 2 years                                                                                                                              |  | $    | 561,671   |      | $ | 586,013   | 
|After 2
 years, but within 5 years                                                                                                                             |  |      | 358,564   |      |   | 508,050   | 
|After 5 years                                                                                                                                                  |  |      | 1,527,443 |      |   | 1,653,918 | 
|                                                                                                                                                               |  |      |           |      |   |           | 
|                                                                                                                                                               |  | $    | 2,447,678 |      | $ | 2,747,981 | 
|                                                                                                                                                               |  |      |           |      |   |           | 
|                                                                                                                                                               |  | $    | 2,750,024 |      | $ | 3,066,953 | 
|                                                                                                                                                               |  |      |           |      |   |           | 

F-25

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |                      
|------- | ---------------------
|NOTE 8. | BANK LOAN (Continued)

With respect
to all of the above referenced debt and credit arrangements in Note 7 and Note
8, the Company pledged its assets to a bank group in Hong Kong comprised of DBS
Bank (formerly Overseas Trust Bank Limited), BEA Bank, SCB and Fubon, as
collateral 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 $705,641 (HK$5,504,000), a security interest
 on two residential properties and a workshop located in Hong Kong owned by
 Atlantic, a wholly owned subsidiary of ACL, a security interest on a
 residential property located in Hong Kong owned by City, a related party, a
 workshop located in Hong Kong owned by Solution, a related party, plus a
 personal guarantee by Mr. Yang as collateral for loans from DBS Bank;
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 2. | a fixed cash deposit of $1,382,733 (HK$10,785,318), a workshop
 located in Hong Kong owned by Systematic Information, a related party, 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 BEA
 Bank;                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 3. | an unlimited personal guarantee by Mr. Yang as collateral for loans
 from Standard Chartered Bank;                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 4. | a security interest on residential properties located in Hong Kong
 owned by Aristo, a wholly owned company by Mr. Yang plus a personal guarantee
 by Mr. Yang as collateral for loans from Fubon Bank (Hong Kong) Limited
 (Fubon Bank).                                                                                                                                                                                                         

F-26

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|        |             
|------- | ------------
|NOTE 9. | INCOME TAXES

Income tax
expense amounted to $389,415 for 2010 and $651,390 for 2009 (an effective rate
of 17% for 2010 and 18% for 2009). 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:

|                                                                                             |  |      |          |      |   |           |  
|-------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | --------- | -
|                                                                                             |  | 2010 |          | 2009 |  
|                                                                                             |  |      |          |      |  
|                                                                                            
|Computed tax at federal statutory rate                                                       |  | $    | 789,710  |      | $ | 1,215,117 |  
|Tax rate differential on foreign earnings
 of Atlantic and Aristo, Hong Kong based companies |  |      | (564,400 | )    |   | (826,464  | )
|Unrecognized timing difference                                                               |  |      | (26,036  | )    |   |          |  
|Tax under provision for Atlantic                                                             |  |      | 85,339   |      |   | 125,749   |  
|Net operating loss carry forward                                                             |  |      | 104,802  |      |   | 136,988   |  
|                                                                                             |  |      |          |      |   |           |  
|                                                                                             |  | $    | 389,415  |      | $ | 651,390   |  
|                                                                                             |  |      |          |      |   |           |  

The income tax
provision consists of the following components:

|        |  |      |         |      |   |         | 
|------- |  | ---- | ------- | ---- | - | ------- | 
|        |  | 2010 |         | 2009 |  
|        |  |      |         |      |  
|       
|Federal |  | $    |        |      | $ |        | 
|Foreign |  |      | 389,415 |      |   | 651,390 | 
|        |  |      |         |      |   |         | 
|        |  | $    | 389,415 |      | $ | 651,390 | 
|        |  |      |         |      |   |         | 

The Components
of the deferred tax assets and liabilities are as follows:

|                          |  |      |            |      |   |            |  
|------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                          |  | 2010 |            | 2009 |  
|                          |  |      |            |      |  
|Net operating losses      |  | $    | 1,364,516  |      | $ | 1,259,714  |  
|                          |  |      |            |      |   |            |  
|Total deferred tax assets |  | $    | 1,364,516  |      | $ | 1,259,714  |  
|Less: valuation allowance |  |      | (1,364,516 | )    |   | (1,259,714 | )
|                          |  |      |            |      |   |            |  
|                          |  | $    |           |      | $ |           |  
|                          |  |      |            |      |   |            |  

The Company did not have any interest and penalty recognized in the
income statements for the year ended December 31, 2010 and 2009 or balance
sheet as of December 31, 2010 and 2009. The Company did not have uncertainty
tax positions or events leading to uncertainty tax position within the next 12
months. The Companys 2007, 2008, 2009, and 2010 U.S. Corporation Income Tax
Return are subject to U.S. Internal Revenue Service examination and the
Companys 2004/5, 2005/6, 2006/7, 2007/8, 2008/9, 2009/2010, and 2010/11 Hong
Kong Corporations Profits Tax Return filing are subject to Hong Kong Inland Revenue
Department examination.

F-27

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|         |                                  
|-------- | ---------------------------------
|NOTE 10. | 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, 2010 and 2009 since there were no outstanding
options at December 31, 2010 and 2009.

|         |                                                  
|-------- | -------------------------------------------------
|NOTE 11. | 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, 2011. As of March 1, 2011, Samsung has confirmed the
annual renewal of such agreement for one year. Official signed agreement should
be received by the Company in June 2011.

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 49% and 51%, of materials from
Samsung for the years ended December 31, 2010 and 2009, 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 8 for details for Mr. Yangs support of the
Companys banking facilities. At December 31, 2010 and 2009, included in
accounts payable were $18,390,890 and $17,406,347, respectively, to Samsung.
Termination of such distributorship by Samsung will significantly impair and
adversely affect the continuation of the Companys business.

|         |                
|-------- | ---------------
|NOTE 12. | 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
$33,564 for 2010 and $34,099 for 2009.

F-28

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|         |            
|-------- | -----------
|NOTE 13. | 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,
 2010:

|                          |  |                 |        |        |   |         |  |   |         | 
|------------------------- |  | --------------- | ------ | ------ | - | ------- |  | - | ------- | 
|                          |  | Related parties |        | Others |   | Total   | 
|                          |  |                 |        |        |   |         |  |   |         | 
|Year ending
 December 31, |  |                 |        |        |   |         |  |   |         | 
|2011                      |  | $               | 20,769 |        | $ | 177,530 |  | $ | 198,299 | 
|2012                      |  |                 | 8,397  |        |   | 142,895 |  |   | 151,292 | 
|Thereafter                |  |                 |       |        |   | 265,385 |  |   | 265,385 | 
|                          |  |                 |        |        |   |         |  |   |         | 
|                          |  |                 |        |        |   |         |  |   |         | 
|Total                     |  | $               | 29,166 |        | $ | 585,810 |  | $ | 614,976 | 
|                          |  |                 |        |        |   |         |  |   |         | 

See Note 6 for related party leases. All leases expire prior to
December 31, 2014. 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 2010. Rent expense for the years
ended December 31, 2010 and 2009 totaled $267,139 and $136,017, respectively.

F-29

---



ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|         |                       
|-------- | ----------------------
|NOTE 14. | DERIVATIVE INSTRUMENTS

On February 1, 2009, the Company adopted ASC 815 (formerly SFAS No.
161) as referenced in Note 2. The adoption of ASC 815 requires additional
disclosures about Companys objectives and strategies for using derivative
instruments, the accounting for the derivative instruments and related hedged
items under ASC 815 (formerly SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities, 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.

As of December 31, 2010, the Company does not have any outstanding
foreign currency exchange agreements. All foreign currency exchange agreements
matured before April 1, 2010.

There are two foreign currency exchange agreements that matured as of
December 31, 2010. These agreements are:

|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                     | Participating forward currency option agreement between the Company
 and SCB entitles the Company to buy US$500,000 from SCB at forward rate of
 7.735 at specified dates up to January 11, 2010. According to the terms of
 the agreement, the Company will buy in triple amounts if the spot rate is
 less than the forward rate. The gain on this forward contract during the year
 ended December 31, 2010 was $1,231.                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                     | Cancellable target redemption forward agreement between the Company
 and SCB entitles the Company to buy US$1,000,000 from SCB at a strike rate of
 7.725 at specified dates up to March 3, 2011. According to the terms of the
 agreement, the Company will buy USD in triple amounts if the spot rate is
 less than the strike rate at specified dates. The gain on this forward
 contract during the year ended December 31, 2010 was $14,179. This forward
 contract has an auto cancel condition, if the spot rate is over the auto-call
 rate at 7.75 on March 1, 2010 then this forward contract will be terminated.
 Since the auto-call rate had been met, the agreement is matured on March 2,
 2010.
|                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The before-tax effect of derivative instruments in cash flow and net
 investment hedging relationships for the year ended December 31, 2010 and
 2009 was as follows:

|                                                   |  |                                         |                         |                         |   |        |  |   |        | 
|-------------------------------------------------- |  | --------------------------------------- | ----------------------- | ----------------------- | - | ------ |  | - | ------ | 
|                                                   |  | Gain recognized in income on derivative |                        
|                                                   |  |                                         |                        
|                                                   |  |                                         |                         | Year ended December 31, |  
|                                                   |  | Location                                |                         | 2010                    |   | 2009   | 
|                                                   |  |                                         |                         |                         |   |        | 
|Cash flow
 hedges:                                 |  |                                         |                         |                         |   |        |  |   |        | 
|Foreign
 exchange contracts US$500,000 (HKD/USD)   |  |                                         | Interest and other, net |                         |   | 1,231  |  |   | 12,564 | 
|Foreign
 exchange contracts US$750,000 (HKD/USD)   |  |                                         | Interest and other, net |                         |   |       |  |   | 1,260  | 
|Foreign
 exchange contracts US$1,000,000 (HKD/USD) |  |                                         | Interest and other, net |                         |   |       |  |   | 35,897 | 
|Foreign
 exchange contracts US$1,000,000 (HKD/USD) |  |                                         | Interest and other, net |                         |   | 14,179 |  |   | 29,257 | 
|                                                   |  |                                         |                         |                         |   |        |  |   |        | 
|                                                   |  |                                         |                         |                         |   |        |  |   |        | 
|Total cash
 flow hedges                            |  |                                         |                         |                         | $ | 15,410 |  | $ | 78,978 | 
|                                                   |  |                                         |                         |                         |   |        |  |   |        | 

F-30

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ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|         |            
|-------- | -----------
|NOTE 15. | RESTRUCTURE

On December 14, 2010, the Company set-up a new intermediate holding
company ACL International Holdings Limited (ACL Holdings) which is 100% owned
by the Company. The Company has transferred all the stocks of Atlantic
Components Limited (Atlantic) to ACL Holdings on December 17, 2010. After
this restructure, Atlantic will become an indirect subsidiary of the Company
under the direct control of ACL Holdings. The interest attributed to the
Company remains 100% and has no change.

|         |                  
|-------- | -----------------
|NOTE 16. | SUBSEQUENT EVENTS

In preparing these financial statements, the Company evaluated the
events and transactions that occurred from January 1, 2011 through March 30,
2011, the date these financial statements are issued. The Company has made the
required additional disclosures in reporting periods in which subsequent events
occur.

As discussed in Note 11 of the consolidated financial statements, the
Company is dependent on a single vendor to supply the majority of its
inventories. This vendor accounted for the majority of the Companys purchases
for 2010. The Companys non-exclusive distributorship agreement with this
vendor has a one-year term. This agreement has been renewed more than ten
times, most recently on March 1, 2010 and expired on February 28, 2011. As of
March 1, 2011, this vendor has confirmed the annual renewal of such agreement
for one year. The Company has already signed the renewal agreement and waiting
to receive the fully executed agreement from Samsung. Termination of such
distributorship agreement by this vendor would have a material adverse effect
on the operations of the Company.

The Company has entered a repayment agreement with Mr. Yang to repay
the outstanding account receivables due from Aristo to Atlantic of
US$11,233,839 (as of December 31, 2009) whereby Mr. Yang will repay $384,615
(HK$3,000,000) in quarterly basis.

F-31

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ACL SEMICONDUCTORS INC. AND SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

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.

SCHEDULE III

QUARTERLY INFORMATION (UNAUDITED)

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.

S-1

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