KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR S REPORT DECEMBER 31, 2009 AND 2008

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1 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR S REPORT DECEMBER 31, 2009 AND

2 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONTENTS PAGE COVER 1 CONTENTS 2 INDEPENDENT AUDITOR S REPORT 3 CONSOLIDATED BALANCE SHEETS 4 CONSOLIDATED STATEMENTS OF INCOME 5 CONSOLIDATED STATEMENTS OF CHANGES IN 6 STOCKHOLDERS EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-28 APPENDIX THE SEPARATE FINANCIAL STATEMENTS OF KINPO INTERNATIONAL LTD

3 INDEPENDENT AUDITOR S REPORT TO: STOCKHOLDERS AND BOARD OF DIRECTORS KINPO INTERNATIONAL LTD. BRITISH VIRGIN ISLANDS We have audited the accompanying consolidated balance sheets of KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and CPA s financial statement attestation standards of R.O.C.. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positions of KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles of R.O.C.. As disclosed in Note 3 to the consolidated financial statements, effective January 1, 2009, KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES adopted the newly revised Statements of Financial Accounting Standards No.10 Accounting for Inventories. BDO Taiwan January 19,

4 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2009 and 2008 UNIT:RMB (In Dollars) Assets Footnote December 31,2009 % December 31,2008 % Liabilities & Stockholders' Equity Footnote December 31,2009 % December 31,2008 % Current Assets Current Liabilities Cash and Cash Equivalents 2,4 $56,754,953) 2.90) $207,459,047) 9.92) Short-Term Borrowings 13 $251,482,590) 12.85) $546,768,000) 26.14) Financial Assets at Fair Value 2,5 12,738,351) 0.65) 27,401,487) 1.31) Financial liabilities at Fair Value 2,5 291,200) 0.01) 13,856,900) 0.66) through Profit or Losses-Current through Profit and Losses-Current Accounts Receivable-Net 2,6 14,885,664) 0.76) 17,796,797) 0.85) Accounts Payable 528,624,961) 27.01) 584,697,456) 27.95) Accounts Receivable-Related Parties-Net 2,20 809,022,954) 41.34) 716,295,083) 34.25) Accounts Payable-Related Parties 20 7,129,191) 0.36) 48,586,647) 2.32) Other Receivables 13,707,105) 0.70) 15,098,482) 0.72) Income Tax Payable 3,044,107) 0.16) 258,292) 0.01) Other Receivables-Related Parties 20 5,786,922) 0.30) 5,074,366) 0.24) Accrued Expenses 51,295,740) 2.62) 67,681,483) 3.24) Other Financial Assets-Current ,705) 0.01) 170,473) 0.01) Other Payables-Related Parties 20 16,107,556) 0.82) 9,901,271) 0.47) Inventories 2,7 342,215,911) 17.49) 426,784,840) 20.40) Other Payables 17,561,262) 0.90) 33,541,788) 1.60) Prepaid Expenses 1,248,915) 0.06) 2,752,287) 0.13) Receipts in Advance 5,317,486) 0.27) 2,511,762) 0.12) Prepayments 83,844,570) 4.28) 60,726,255) 2.90) Temporary Credits 2,043,688) 0.11) 1,147,815) 0.06) Temporary Debits 2,288,285) 0.12) 4,984,955) 0.25) Receipt Under Custody 253,421) 0.02) 258,402) 0.02) Other Current Assets ,738) -0 Sub-Total 883,151,202) 45.13) 1,309,209,816) 62.59) Sub-Total 1,342,664,335) 68.61) 1,484,558,810) 70.98) Funds and Investments Other Financial 11,250) ,234) 0.02) Long-Term Liabilities Assets-Non-Current Sub-Total 11,250) ,234) 0.02) Long-Term Borrowings ,269,000) 15.70) -0-0 Fixed Assets 2,8 Other Financial 86,500) ,000) -0 Liabilities-Non-Current Cost: Sub-Total 307,355,500) 15.70) 157,000) -0 Buildings and Structures 351,136,121) 17.94) 351,357,710) 16.80) Total Liabilities 1,190,506,702) 60.83) 1,309,366,816) 62.59) Machinery 508,800,807) 26.00) 447,212,669) 21.38) Transportation Equipment 2,459,225) 0.13) 2,392,097) 0.11) Leasehold Improvements 166,896) 0.01) 331,900) 0.02) Miscellaneous Equipment 30,556,479) 1.56) 32,486,185) 1.55) Equity of Shareholders Total Cost 893,119,528) 45.64) 833,780,561) 39.86) Equity of Shareholders for Parent Company Less: Accumulated Depreciation (333,137,551) (17.02) (279,019,500) (13.34) Unfinished Construction 5,519,408) 0.28) 3,609,902) 0.17) Stock Capital ,580,753) 29.21) 571,580,753) 27.33) Prepayments for Equipment 4,049,270) 0.20) 3,577,489) 0.18) Retained Earnings Fixed Assets-Net 569,550,655) 29.10) 561,948,452) 26.87) Unappropriated Retained 191,665,704) 9.79) 207,418,897) 9.92) Earnings Intangible Assets Equity Adjustments Other Intangible Assets 2,9 9,075) Cumulative Translation 3,287,400) 0.17) 3,287,400) 0.16) Adjustments Sub-Total 9,075) Total Equity of Shareholders for 766,533,857) 39.17) 782,287,050) 37.41) Parent Company Other Assets Idle Assets 2, ,056,217) 0.39) Minority Interest Deferred Charges 2,11 38,996,245) 1.99) 36,668,153) 1.74) Total Equity of Shareholders 766,533,857) 39.17) 782,287,050) 37.41) Long-Term Notes and Accounts 2, Receivable Other Assets-Other 5,808,999) 0.30) -0-0 Sub-Total 44,805,244) 2.29) 44,724,370) 2.13) Total Assets $1,957,040,559) ) $2,091,653,866) ) Total Liabilities and Equity of Shareholders $1,957,040,559) ) $2,091,653,866) ) The accompanying notes are an integral part of financial statements - 4 -

5 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOMES For the Years Ended December 31, 2009 and 2008 UNIT:RMB (In Dollars) Items Footnote 2009 % 2008 % Operating Revenues 2 Sales Revenues $3,193,096,020) 98.87) $3,753,249,929) 98.77) Sales Returns -0-0 (1,342,500) (0.04) Sales Discounts and Allowance (11,803) Other Revenues 36,483,964) 1.13) 48,107,873) 1.27) Sub-Total 3,229,568,181) ) 3,800,015,302) ) Operating Costs 2 Cost of Goods Sold (3,125,629,583) (96.78) (3,762,613,878) (99.02) Other Operating Costs (35,852,062) (1.11) (11,148,412) (0.29) Sub-Total (3,161,481,645) (97.89) (3,773,762,290) (99.31) Gross Profits (Losses) from Operations 68,086,536) 2.11) 26,253,012) 0.69) Operating Expenses Selling Expenses (19,943,953) (0.62) (17,870,383) (0.47) General and Administrative Expenses (57,644,740) (1.78) (46,610,671) (1.23) Research and Development Expenses (35,048,296) (1.09) (42,268,183) (1.11) Net Operating Income (Losses) (44,550,453) (1.38) (80,496,225) (2.12) Non-Operating Income and Revenue Interest Income 2,449,231) 0.08) 11,597,200) 0.31) Valuation Gains on Financial Assets 6,080,819) 0.19) 31,340,237) 0.82) Valuation Gains on Financial Liabilities 2,631,915) 0.08) 241,974) 0.01) Gains on Disposal of Fixed Assets 997,509) 0.03) 165,561) -0 Gains on Exchange 6,092,088) 0.19) 28,255,430) 0.74) Rent Income 901,500) 0.03) 536,000) 0.01) Miscellaneous Income 45,290,189) 1.40) 105,302,693) 2.78) Sub-Total 64,443,251) 2.00) 177,439,095) 4.67) Non-Operating Expenses and Losses Interest Expenses (6,277,514) (0.19) (17,192,784) (0.45) Valuation Losses on Financial Assets (280,900) (0.01) -0-0 Valuation Losses on Financial Liabilities (291,200) (0.01) (19,106,585) (0.50) Losses on Disposal of Fixed Assets (1,631,237) (0.05) (2,331,683) (0.06) Losses on Idle Assets Depreciation and (937,022) (0.03) (1,732,900) (0.05) Valuation Losses Impairment Losses 2, (63,067) -0 Miscellaneous Disbursements (16,225,537) (0.51) (20,058,478) (0.53) Sub-Total (25,643,410) (0.80) (60,485,497) (1.59) Continuing Operatings Income (Losses) (5,750,612) (0.18) 36,457,373) 0.96) Before Tax Income Tax (Expenses) Benefits 2,19 (10,002,581) (0.31) (13,301,120) (0.35) Continuing Operatings Income (Losses) (15,753,193) (0.49) 23,156,253) 0.61) Combined Total Income (Losses) $(15,753,193) (0.49) $23,156,253) 0.61) Belongs to: Net Income (Loss) from Shareholdings of $(15,753,193) (0.49) $23,156,253) 0.61) Parent Company Net Income (Loss) from Minority Interest Total $(15,753,193) (0.49) $23,156,253) 0.61) The accompanying notes are an integral part of financial statements - 5 -

6 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2009 and 2008 UNIT:RMB (In Dollars) Stockholders' Equity of Parent Company Cumulative Unappropriated Translation Summary Common Stock Retained Earnings Adjustments SubTotal Minority interest Total Balance on January 1, 2008 $571,580,753) $184,262,644) $3,287,400) $759,130,797) $0) $759,130,797) Net Income (Losses) from -0 23,156,253) -0 23,156,253) -0 23,156,253) Shareholdings of Parent Company the Year 2008 Net Income (Losses) from Minority Interest the Year 2008 Balance on January 1, 2009 $571,580,753) $207,418,897) $3,287,400) $782,287,050) $0) $782,287,050) Net Income (Losses) from -0 (15,753,193) -0 (15,753,193) -0 (15,753,193) Shareholdings of Parent Company the Year 2009 Net Income (Losses) from Minority Interest the Year 2009 Balance on December 31, 2009 $571,580,753) $191,665,704) $3,287,400) $766,533,857) $0) $766,533,857) The accompanying notes are an integral part of financial statements - 6 -

7 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2009 and 2008 UNIT:RMB (In Dollars) Items Cash Flows from Operating Activities Net Income (Losses) from Shareholdings of Parent Company $(15,753,193) $23,156,253) Income (Losses) from Minority Interest -0-0 Adjustments: Depreciation Expenses 62,556,693) 53,042,336) Amortization Expenses 4,840,935) 3,420,080) Fixed Assets Transferred to Other Expense 4,103,385) 6,150,708) Deferred Assets Transferred to Other Expense 12,586,660) 9,145,953) Valuation Losses on Financial Assets (Liabilities) (13,565,700) 19,106,585) Valuation Gains on Financial Assets (Liabilities) 14,663,136) (23,219,193) Gains on Recovery of Decline in Prices of Inventories (31,652,891) -0 Losses on Disposal of Assets 1,631,237) 2,331,683) Gains on Disposal of Assets (997,509) (165,561) Losses on Assets Retirement 427,112) 803,345) Losses on Inventory Retirement 3,711,154) 3,387,031) Losses on Inventory Valuation Losses -0 17,021,638) Impairment Losses -0 63,067) Decrease (Increase) in Accounts Receivable 2,911,133) 9,020,981) Decrease (Increase) in Accounts Receivable- Related Parties (92,727,871) (144,555,692) Decrease (Increase) in Other Receivables 1,391,377) 17,435,261) Decrease (Increase) in Other Receivables- Related Parties (712,556) 46,922,192) Decrease (Increase) in Other Financial Assets-Current (232) 12,142) Decrease (Increase) in Inventories 112,510,666) 78,099,404) Decrease (Increase) in Prepaid Expenses 70,513) (1,377,615) Decrease (Increase) in Prepayments (23,118,315) (17,711,906) Decrease (Increase) in Other Current Assets 2,711,408) (2,160,970) Increase (Decrease) in Accounts Payable (56,072,495) (275,653,131) Increase (Decrease) in Accounts Payable-Related Parties (41,457,456) 27,021,074) Increase (Decrease) in Income Tax Payable 2,785,815) (3,817,637) Increase (Decrease) in Accrued Expenses (16,385,743) (35,843,118) Increase (Decrease) in Other Payables-Related Parties 6,206,285) 4,143,353) Increase (Decrease) in Other Payables (15,980,526) 33,124,787) Increase (Decrease) in Advance Receipts 2,805,724) (32,801,156) Increase (Decrease) in Other Current Liabilities 890,892) (8,115,736) Net Cash Flow Provided by (Used in) Operating Activities (71,620,362) (192,013,842) Cash Flows from Investing Activities Decrease (Increase) in Other Financial Assets-Non-Current 410,984) (21,392) Proceeds from Disposal of Fixed Assets 3,122,467) 2,194,818) Acquisitions of Fixed Assets (77,909,177) (29,338,399) Acqusitions of Intangible Assets (9,900) -0 Proceeds from Disposal of Idle Assets -0 4,320,000) Decrease (Increase) in Deferred Charges (16,611,196) (11,203,801) Net Cash Flows Provided by (Used in) Investing Activities (90,996,822) (34,048,774) Cash Flows from Financing Activities Increase (Decrease) in Short-Term Borrowings (295,285,410) 215,577,436) Increase (Decrease) in Long-Term Borrowings 307,269,000) -0 Increase (Decrease)in Other Financial Liabilities-Non-Current (70,500) 157,000) Net Cash Flows Provided by (Used in) Financial Activities 11,913,090) 215,734,436) Increase (Decrease) in Cash and Cash Equivalents (150,704,094) (10,328,180) Cash and Cash Equivalents at the Beginning of Period 207,459,047) 217,787,227) Cash and Cash Equivalents at the End of Period $56,754,953) $207,459,047) Supplemental Disclosures of Cash Flow Information Interest Expenses Paid $9,224,449) $13,963,476) Interest Expenses (Excluding The Amount Capitalized) $9,224,449) $13,963,476) Income Tax Paid $7,255,164) $18,394,279) The accompanying notes are an integral part of financial statements - 7 -

8 KINPO INTERNATIONAL LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008 (Expressed in RMB Dollars unless otherwise stated) 1. ORGANIZATION AND BUSINESSES The consolidated companies (the Company) include Kinpo International Ltd. (hereafter named Parent Company), Kinpo Electronics (China) Co., Ltd., Tung-Wan Kai-Bao Co., Ltd., Kinpo Electronics (Shanghai) Co., Ltd., Kinpo Electronics (Pei-Ching) Co., Ltd., and Superpower Mould & Plastic Ltd. (hereafter named Subsidiaries) and the companies histories are as follows: Kinpo International Ltd. was established on July 29, 1998 under the International Business Companies Ordinance of the British Virgin Islands. The Company mainly engages in trading and various investment activities. As of December 31, 2009, the number of employees was 3. Kinpo Electronics (China) Co., Ltd. was incorporated on November 12, 1998 in Mainland China. Parent Company owned 100% of its voting shares. The main business is engaged in manufacturing, assembling, purchasing, and selling all kinds of electronic calculators, communication materials, cash registers and other general electronic and general electronic equipment. As of December 31, 2009, the number of employees was 6,970. Tung-Wan Kai-Bao Co., Ltd. was established on June 24, Parent Company owned 100% of its voting shares. The main business is engaged in manufacturing, assembling, purchasing, and selling all kinds of electronic calculators, communication materials, cash registers and other general electronic and general electronic equipment. As of December 31, 2009, the number of employees was 139. Kinpo Electronics (Shanghai) Co., Ltd. was established on August 20, Parent Company owned 100% of its voting shares. The main business is engaged in developing & manufacturing electronic dictionary; designing and selling for calculator software. As of December 31, 2009, the number of employees was 26. Kinpo Electronics (Pei-Ching) Co., Ltd. was established on June 22, Parent Company owned 100% of its voting shares. The main business is engaged in developing & manufacturing electronic dictionary and hardware & software of calculator; provision of technical consulting service for self-production product, and sales of self-production. As of December 31, 2009, the number of employees was

9 Superpower Mould & Plastic Ltd. was established on November 25, Parent Company owned 100% of its voting shares. The main business is engaged in manufacturing and selling plastic goods, ironware and electronic products. As of December 31, 2009, there were no employees. 2. SIGNIFICANT ACCOUNTING POLICIES AND MEASUREMENT BASIS The financial statements of the Company are prepared in accordance with generally accepted accounting principles of R.O.C.. The summary of significant accounting policies and measurement basis are described as below: (1) Principles of Compilation of Financial Statements Main parties in consolidated financial statements are Parent Company, Kinpo Electronics (China) Co., Ltd., Tung-Wan Kai-Bao Co., Ltd., Kinpo Electronics (Shanghai) Co., Ltd., Kinpo Electronics (Pei-Ching) Co., Ltd., and Superpower Mould & Plastic Ltd. (hereafter named Subsidiaries). The transactions among these affiliated companies will be eliminated in consolidated financial statements. (2) Current and Non-current Assets and Liabilities Current assets are those expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations expected to be due within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively. (3) Cash Equivalents Cash equivalents consist of highly liquid investments that are both: (a) readily convertible to a known amount of cash and (b) near maturity with little risk of changes in value due to interest rate fluctuations. (4) Financial Assets/Liabilities at Fair Value through Profit or Losses Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. After initial recognition, the derivatives are remeasured at fair value with the changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is recognized and derecognized using settlement date accounting

10 Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is a positive amount, the derivative is recognized as a financial asset; when the fair value is a negative amount, the derivative is recognized as a financial liability. (5) Allowance for Doubtful Account Allowance for doubtful account on notes receivable, accounts receivable, overdue receivable and other receivable is determined by aging analysis of outstanding balances of such accounts as well as the past experience of the Company. (6) Inventories Inventories are recorded at costs when purchased, following the perpetual inventory system. The weight-average method is used for determining costs of inventories. Prior to January 1, 2009, inventories were stated at the lower of cost or market value. Any write-down was made on a total-inventory basis. Market value represented replacement cost for raw materials and net realizable value for finished goods. As stated in Note 3, effective January 1, 2009, inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs. Fixed costs are allocated on the basis of the normal capacity of the production equipment, and variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities. (7) Fixed Assets and Idle Assets Fixed assets and idle assets are stated at cost when acquired. Idle assets shall be reclassified as other assets at the lower of fair value or book value. Depreciation related to idle fixed assets shall be recorded as non-operating expenses or losses

11 Machinery improvements, additions, and renewals which can extend an asset's economic life or increase its value are capitalized when incurred while the expenditures in relation to regular maintenance and repair are debited to the profit and loss account. The cost of fixed assets and idle assets and accumulated depreciation is written off upon retirement or disposal. Any gain or loss from disposal of assets is recorded as a non-operating income or loss when incurred. The Company uses the straight-line method to depreciate fixed assets and idle assets. The estimated useful life of fixed assets is as follows: Buildings and Structures years Machinery years Transportation Equipment -- 5 years Leasehold Improvements -- 5 ~ 10 years Miscellaneous Equipment -- 5 ~ 10 years After the end of estimated useful life, if fixed assets are still in use, depreciation is determined according to their residual value and new estimated remaining useful life. In case there is material impairment of fixed assets when evaluative carrying amount by approximate recoverable amount, the amount of impairment shall be recognized as loss. Once the recoverable amount increases afterward, the reversal of impairment loss shall be recognized as benefit, nevertheless, the carrying amount of reversed impairment loss of fixed assets shall not exceed the carrying amount of such fixed assets whose appropriated depreciation expense has deducted from the unreversed impairment loss. (8) Interest Capitalization The accounting treatments of interest capitalization follow the Statements of Financial Accounting Standards No. 3, Capitalization of Interest Cost. Interest incurred during the construction of a fixed asset is capitalized and depreciated accordingly

12 (9) Intangible Asset The Company adopted the Statement of Financial Accounting Standards No. 37 Accounting for Intangible Assets. An intangible asset is measured initially at cost. However, an intangible asset acquired by way of a government grant is at fair value. After initial recognition, an intangible asset is carried at its cost plus revaluation appreciation according to laws and regulations, less any accumulated amortization and any accumulated impairment losses. Amortization is begun when the intangible asset is available for use. The depreciable amount of an intangible asset, initial cost less the residual value, with a finite useful life is amortization by the straight-line method. The residual value, amortization period and amortization method are reviewed at least at each financial year-end. The change in the asset s residual value amortization period and amortization method are accounted for as a change in an accounting estimate. The Company assesses at each reporting date whether there is any indication that an intangible asset may be impaired. (10) Deferred Charges Deferred charges representing the expenditures for computer software and land occupancy rights are amortized by straight-line method. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a future period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized. (11) Pension Plan For employees under defined contribution pension plans, the Company and subsidiaries carry out their pension policy complied with the local pension regulations to contribute employee pension on monthly basis and recognize as current period expense. According to the regulations set by the government of People s Republic of China (PRC), enterprises shall contribute a basic pension, which is based on a certain proportion of each employee salary and recognize this contribution as current period expenses

13 (12) Foreign Currency Transactions The Company records all transactions in RMB Dollars. Foreign currency transactions for non-derivatives are recorded in RMB Dollars at the rates of exchanges in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions are recognized in current income. At the end of period, monetary assets and liabilities denominated in foreign currencies are revalued at the spot rates on the balance sheet date, with the resulting gains or losses recognized in current income. However, exchange gains or losses derived from foreign currency reimbursements from foreign operating units with long-term investment relationship are recognized in shareholders equity adjustments. At the end of period, non-monetary assets and liabilities denominated in foreign currencies and measured at fair value through profit or loss are revalued at the spot rates on the balance sheet date, with the resulting gains or losses recognized in current income. Assets and liabilities measured at fair value through shareholders equity adjustments are revalued at the spot rates on the balance sheet date, with the resulting gains or losses recognized in shareholders equity adjustments. Assets and liabilities not measured at fair value are evaluated at the historical rates on the transaction date. (13) Income Tax Expenses Based on the income tax law of foreign enterprises in People s Republic of China, no income tax will be charged for the first and second years that the company starting to make profit. From third year to fifth year, the company is only subject to half of income tax. Nevertheless, the new government amendment of change in income tax law of PRC in 2007, commencing from January 1, 2008, the enterprises previous enjoyed the low income tax benefit will be subject to 25% of income tax once the transition period (five years) passed. In the consolidation group, for the one established in BVI, no income tax shall be charged on the profit generated from its foreign investments in compliance with the laws of BVI

14 (14) Recognition of Revenue and Expense Revenue is recognized at the time of all or most of the process completed, indicating that revenue has been realized or realizable, and the fair value is measured in accordance with what the reasonable assurance of collectibility received or receivable sale. Costs incurred in a particular period should be matched with the revenues earned during the same period. Expense is recognized when it incurs based on accrual basis. (15) Capital Expenditure and Revenue Expenditure An expenditure is capitalized and amortized over its useful life if it can benefit more than one period and is material; otherwise, it is expensed immediately when incurred. (16) Use of Accounting Estimates Preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates for certain accounting transactions, affecting amounts reported in the financial statements and notes related thereto. Subsequent actual results may differ from these estimates. 3. CHANGES IN ACCOUNTING PRINCIPLES AND ITS EFFECTS Effective from January 1, 2009, the Company adopted the newly revised Statements of Financial Accounting Standards No.10 Accounting for Inventories. The adoption of this interpretation resulted in a increase in net income of $464,171, for the year ended December 31, CASH AND CASH EQUIVALENTS December 31, 2009 December 31, 2008 Cash on Hand $300,648 $460,886 Petty Cash 30,000 35,000 Bank Deposit 17,724,305 17,629,269 Certificate of Deposit 38,700, ,333,892 Total $56,754,953 $207,459,

15 5. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSSES December 31, 2009 December 31, 2008 Current Derivatives-financial assets: Forward exchange contracts $12,738,351 $27,401,487 Derivatives-financial liabilities: Forward exchange contracts $291,200 $13,856,900 The Company entered into derivative transactions during the years ended December 31, 2009 and 2008 to manage exposures related to foreign exchange fluctuations. The derivative transactions did not meet the criteria for hedge accounting prescribed by SFAS No.34. Outstanding forward contracts as of December 31, 2009 and 2008: December 31, 2009 Financial Derivative Currency Maturity Date Par Value, Contract Amount, Nominal Value Forward Exchange Buy USD / Sell RMB Due within one year USD175,000,000 Contract Forward Exchange Sell USD / Buy RMB Due within one year USD175,000,000 Contract December 31, 2008 Financial Derivative Currency Maturity Date Par Value, Contract Amount, Nominal Value Forward Exchange Buy USD / Sell RMB Due within one year USD56,000,000 Contract Forward Exchange Sell USD / Buy RMB Due within one year USD68,000,000 Contract Net gains arising from derivative financial instruments for the years ended December 31, 2009 and 2008 were RMB8,140,634 and RMB12,475,

16 6. ACCOUNTS RECEIVABLE-NET December 31, 2009 December 31, 2008 Accounts Receivable $14,885,664 $17,796,797 Less: Allowance for Doubtful - - Accounts Net Amount $14,885,664 $17,796, INVENTORIES-NET December 31, 2009 December 31, 2008 Finished Goods $23,284,718 $58,662,676 Semi-finished products 43,057,188 59,172,574 Work in Process 2,050,776 11,887,082 Raw Materials 272,285, ,030,386 Inventories in Transit 1,537,345 2,032,122 Net Amount $342,215,911 $426,784,840 (1) As of December 31, 2009 and 2008, the allowance for loss on decline in prices of inventories were $29,472,848 and $60,546,471, respectively. (2) Expenses and losses of inventories recognized as operating costs are listed below: Cost of Inventories Sold $3,146,537,686 $3,742,078,790 Gains on Recovery of Decline (31,652,891) - in Prices of Inventories Losses on Inventory Valuation - 17,021,638 Losses Unallocated Production 6,373,266 - Overheads Losses on Inventory 3,711,154 3,387,031 Retirement Losses (Gains) on Physical 660, ,419 Inventories Counts Cost of Goods Sold $3,125,629,583 $3,762,613,

17 (3) As the selling price increased, the allowance for inventory obsolescence and decline was reversed. (4) As of December 31, 2009 and 2008, none of the inventory were pledged or provided as collateral. 8. FIXED ASSETS Accumulated Depreciation December 31, 2009 December 31, 2008 Buildings and Structures $109,168,728 $90,506,886 Machinery 203,140, ,390,198 Transportation Equipment 1,319,269 1,019,161 Leasehold Improvements 21,036 30,123 Miscellaneous Equipment 19,488,311 18,073,132 Total $333,137,551 $279,019,500 As of December 31, 2009 and 2008, none of the fixed assets were pledged or provided as collateral for bank loans. 9. INTANGIBLE ASSETS December 31, 2009 Cost Accumulated Amortization Accumulated Impairment Book Value Computer $9,900 ($825) $- $9,075 Software Cost December 31, 2008: None

18 10. IDLE ASSETS December 31, 2009 December 31, 2008 Cost $- $17,162,522 Less: Accumulated Depreciation - (4,042,562) Accumulated Impairment - (5,063,743) Net Amount $- $8,056, DEFERRED CHARGES December 31, 2009 December 31, 2008 Deferred Expenses $14,720,524 $11,768,648 The Rights for Land Use 24,275,721 24,899,505 Total $38,996,245 $36,668, LONG-TERM NOTES & ACCOUNTS RECEIVABLE December 31, 2009 December 31, 2008 Overdue Receivable $- $1,387,759 Less: Allowance for Doubtful - (1,387,759) Accounts Net Amount $- $- 13. SHORT-TERM BORROWINGS December 31, 2009 December 31, 2008 Credit Loans $251,482,590 $546,768,000 In 2009 and 2008, the interest rate ranges of short-term borrowings are %~0.65% and %~4.8075%, respectively

19 14. LONG-TERM BORROWINGS December 31, 2009 December 31, 2008 Credits Loans $307,269,000 $- The Company has entered into USD$ 90 million long-term loans agreement with 10 financial institutions, and the credit line and its requirements are as follows: (a) Period: 5 years, from August 2008 to August (b) Credit line: USD$90 million. (c) Payment of principal: The principal is payable in full at maturity. (d) Payment of interest: The interest is calculated and payable by due date based on the rate of borrowing date plus an agreed upon rate 0.6%. (e) Collateral: None. 15. CAPITAL As of December 31, 2009, the Company's authorized capital is US$69,223,270 divided into 69,223,270 shares at par value US$1 per share. 16. PERSONNEL, DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE The personnel, depreciation, depletion and amortization expense of the Company are summarized by function as follows: Nature Function Personnel Expense Operating cost Operating expense Total Operating cost Operating expense Salary Expense $113,914,690 $27,960,326 $141,875,016 $147,678,522 $20,768,373 $168,446,895 Labor/Health Insurance Expense Pension Expense Others Expense 9,160,245 4,771,760 13,932,005 11,540,754 4,140,527 15,681,281 Depreciation Expense (Note) Total 46,357,893 15,261,778 61,619,671 40,438,505 10,870,931 51,309,436 Depletion Expense Amortization Expense 2,171,179 2,669,756 4,840,935 2,732, ,157 3,420,

20 (Note) : The amount of losses on idle assets depreciation of the Company are $937,022 and $1,732,900 for the years ended December 31, 2009 and PENSION PLAN The Company and subsidiaries carry out their defined contribution pension plans in accordance with the local regulation and the pension is contributed monthly determined by a certain proportion of the average salary in prior month. The total contribution made by the Company and subsidiaries in 2009 and 2008 were $12,339,778 and$12,538,986, respectively. 18. IMPAIRMENT LOSSES For the Year Ended December 31, 2009: None. For the Year Ended December 31, 2008: Item Impairment Loss- Deferred Charges Recognized in Income Statement Recognized in Stockholders Equity $63,067 $- Impairment losses of deferred charges of the Company is due to the future economic effectiveness of the assets is reduced. 19. INCOME TAX EXPENSES The estimated income tax expenses (benefits) of 2009 and 2008 are as follows: Income Tax Payable $9,785,900 $12,971,436 Prior Period Adjustments due to 216, ,684 Estimated Difference Total $10,002,581 $13,301,

21 20. RELATED PARTY TRANSACTIONS (1) Related Party Accounts Name of the Related Parties Kinpo Electronics, Inc. Cal-Comp Electronics (Thailand) Public Company, Ltd. Logistar International Holding Co., Ltd. AcBel Polytech Inc. Cal-Comp Optical Electronics (Suzhou) Co., Ltd. Cal-Comp Electronics (Suzhou) Co., Ltd. Relationship with the Company Parent company Associate company Associate company Both president of board of directors are the same Associate company Associate company (2) Major Transactions Involving Related Parties (a) Sales to Related Parties Amount % of net sale Amount % of net sale Kinpo Electronics, Inc. $3,165,361, % $1,975,857, % Logistar International - - 1,736,546, % Holding Co., Ltd. Others 33,241-5,839, % Total $3,165,394,711 $3,718,243,511 All sales follow the negotiation terms. (b) Other Revenues Amount % Amount % Kinpo Electronics, Inc. $525, % $- - All other revenues follow the negotiation term

22 (c) Purchases from Related Parties Amount % of net purchase Amount % of net purchase AcBel Polytech Inc. $26,847, % $60,309, % Others 6,326, % 415, % Total 33,174,212 $60,725,556 All purchase prices are based on negotiation. (d) Other Operating Cost Logistar International Holding Co., Ltd Amount % Amount % $6,062, % $- - (e) Property Transactions (1) Equipment Purchase: Cal-Comp Electronics (Suzhou) Co., Ltd $41,228,636 $352,482 (2) Equipment Disposal: Cal-Comp Electronics (Thailand) Public Company, Ltd Selling Price Book Value Disposal gains/losses $2,964,326 $2,964,326 $- Cal-Comp Optical Electronics (Suzhou) Co., Ltd Selling Price Book Value Disposal gains/losses $2,014,287 $1,848,726 $165,

23 (f) Notes & Accounts Receivable (Payable) Details for receivable and payable (non-interest-bearing) involving the Company and related parties are summarized as follows: December 31, 2009 December 31, 2008 Amount % Amount % Accounts Receivable: Kinpo Electronics, Inc. $809,008, % $180,300, % Logistar International Holding Co., Ltd ,995, % Others 14, Total $809,022,954 $716,295,083 Other Receivable: Cal-Comp Electronics $2,964, % $- - (Thailand) Public Company, Ltd. Kinpo Electronics, Inc. 2,810, % 3,109, % Others 12, % 1,964, % Total $5,786,922 $5,074,366 Accounts Payable: AcBel Polytech Inc. $5,210, % $47,949, % Others 1,918, % 636, % Total $7,129,191 $48,586,647 Other Accounts Payable: Kinpo Electronics, Inc. $15,862, % $- - Cal-Comp Electronics - - 9,901, % (Suzhou) Co., Ltd. Others 245, % - - Total $16,107,556 $9,901,271 Accrued Expense: Cal-Comp Optical Electronics (Suzhou) Co., Ltd. $- - $1,300, %

24 (g) Prepayments December 31, 2009 December 31, 2008 Amount % Amount % Logistar International Holding Co., Ltd. $1,308, % $1,085, % (h) Other General and Administrative Expense Amount % Amount % Kinpo Electronics, Inc. $15,860, % $- - (i) As of December 31, 2009, Parent Company made guarantee loans at US$276,045,000, which was guarantied by Kinpo Electronics, Inc. (j) Eliminated Transactions for Consolidation The transactions between Parent Company & its Subsidiaries are summarized as follows: a. Purchases from Related Parties Kinpo Electronics (China) Co., Ltd $3,448,413,085 $2,157,973,014 b. Sales to Related Parties Tung-Wan Kai-Bao Co., Ltd. $5,376,225 $7,813,720 c. Accounts Receivable

25 December 31, 2009 December 31, 2008 Kinpo Electronics (China) $1,003,939,354 $13,914,422,591 Co., Ltd. Tung-Wan Kai-Bao Co., Ltd. 2,706,013 3,818,153 Total $1,006,645,367 $13,918,240,744 d. Other Receivable December 31, 2009 December 31, 2008 Kinpo Electronics (China) $56,552,682 $144,743,242 Co., Ltd. Tung-Wan Kai-Bao Co., Ltd. 15,716 - Total $56,568,398 $144,743,242 e. Accounts Payable Kinpo Electronics (China) Co., Ltd. December 31, 2009 December 31, 2008 $815,243,970 $3,445,275,922 f. Other Accounts Payable December 31, 2009 December 31, 2008 Superpower Mould & $3,500,000 $- Plastic Ltd. Kinpo Electronics (China) 2,964,326 - Co., Ltd. Total $6,464,326 $- g. Cooperative Development Expenses Kinpo Electronics (Shanghai) $9,083,119 $12,072,168 Co., Ltd. Kinpo Electronics (Pei-Ching) 8,333,418 11,470,878 Co., Ltd. Total $17,416,537 $23,543,

26 h. Rent Income Tung-Wan Kai-Bao Co., Ltd. $373,014 $- 21. PLEDGED ASSETS Item December 31, 2009 December 31, 2008 Other Financial Assets- $170,705 $170,473 Certificate of Deposit Restricted Pledged asset is expressed in book value. 22. COMMITMENTS AND CONTINGENT LIABILITIES Long-term letters of credit issued by the Company for purchasing of material had an outstanding balance of US$472 thousand as of December 31, SUBSEQUENT EVENTS: None. 24. DISCLOSURES FOR FINANCIAL INSTRUMENTS (1) Fair value of financial instruments were as follows: Derivative Financial Instruments Asset: Forward exchange contracts Liability: Forward exchange contracts December 31, 2009 December 31, 2008 Carrying Carrying Fair Value Amount Amount Fair Value $12,738,351 $12,738,351 $27,401,487 $27,401,487 $291,200 $291,200 $13,856,900 $13,856,

27 (2) Methods and assumptions used in the determination of fair values of financial instruments were as follows: a. The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, other current assets, short-term borrowings, payables, other current liabilities and other financial liabilities. The carrying amounts of these financial instruments approximate to their fair values. b. Fair values of derivatives were determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. c. The fair value of long-term borrowings is based on the discounted value of expected future cash flow amounts, which are discounted based on the interest rates of similar long-term borrowings. (3) Net gains recognized for the changes in fair value of derivatives estimated using valuation techniques were RMB8,140,634 and 12,475,626 for the years ended December 31, 2009 and (4) Control strategies of financial risks Financial risks that potentially subject the Company are risk of investing in financial instruments and foreign exchange. The Company generally places its investment under review with most strict control standards, completed evaluation of market risk, credit risk, liquidity risk, and cash flow risk will be performed before any operation on or investing in monetary commodities, in order to minimize the risk and select the commodity with minimum risk. Regarding the foreign exchange risk for handling the transactions in foreign currency, the Company also identifies its risk control principles, which will assist management in seeking for optimum hedge strategy. (5) Information about financial risks a. Market Risk

28 The derivative financial instruments categorized as financial assets at fair value through profit or loss are mainly used to hedge foreign exchange fluctuations of foreign-currency-denominated assets and liabilities. Therefore, the market risk of derivatives will be offset by the foreign exchange risk of these assets and liabilities. b. Credit Risk Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached the contracts. Contracts with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the foregoing derivative financial instruments are reputable financial institutions and business organizations. Management believes its exposure to default by those parties is low. c. Liquidity Risk The Company has sufficient operating capital to meet cash needs upon settlements of derivative financial instruments. Therefore, the cash flow risk is low. d. Cash Flow Risk of Interest-rate Fluctuations The investment that the Company engages doesn't belong to the interest-type financial instruments. Therefore, there is no concern to the cash flow risk of interest-rate fluctuations. As the interest rate of the short-term and long-term borrowings which the Company engaged is fixed, cash flow risk due to interest-rate fluctuations is minor. 25. PRESENTATION OF FINANCIAL STATEMENTS Certain items for the year ended December 31, 2008 financial statements have been reclassified to be comparable with those for the year ended December 31, 2009 financial statements

29 KINPO INTERNATIONAL LTD. BALANCE SHEET December 31, 2009 UNIT:RMB (In Dollars) Assets December 31,2009 % Liabilities & Stockholders' Equity December 31,2009 % Current Assets Current Liabilities Cash and Cash Equivalents $1,240,408) 0.05) Short-Term Borrowings $203,685,206) 7.79) Financial Assets at Fair Value through 8,970,151) 0.34) Accounts Payable 455,699,518) 17.44) Profit or Losses-Current Accounts Receivable-Net 91,104) -0 Accounts Payable-Related Parties 822,373,161) 31.47) Accounts Receivable-Related Parties-Net 1,815,655,436) 69.47) Accrued Expenses 9,667,570) 0.37) Other Receivables 1,908,132) 0.07) Other Payables-Related Parties 19,071,882) 0.73) Other Receivables-Related Parties 62,339,604) 2.39) Other Payables 16,860,891) 0.65) Other Financial Assets-Current 170,705) 0.01) Receipts in Advance 4,833,761) 0.18) Inventories 1,013,578) 0.04) Other Current Liabilities 695,979) 0.02) Prepaid Expenses 1,126,653) 0.04) Sub-Total 1,532,887,968) 58.65) Prepayments 4,350,715) 0.17) Long-Term Liabilities Other Current Assets 1,278,293) 0.05) Long-Term Borrowings 307,269,000) 11.76) Sub-Total 1,898,144,779) 72.63) Sub-Total 307,269,000) 11.76) Other Liabilities Funds and Investments Other Liabilities-Other 6,903,366) 0.26) Investments Accounted for Using Equity 707,855,898) 27.08) Sub-Total 6,903,366) 0.26) Methed Sub-Total 707,855,898) 27.08) Total Liabilities 1,847,060,334) 70.67) Fixed Assets Equity of Shareholders Cost: Stock Capital 571,580,753) 21.87) Prepayments for Equipment 683,934) 0.03) Retained Earnings Fixed Assets-Net 683,934) 0.03) Unappropriated Retained Earnings 191,665,704) 7.33) Other Assets Equity Adjustments Deferred Charges 6,896,700) 0.26) Cumulative Translation Adjustments 3,287,400) 0.13) Other Assets-Other 12,880) -0 Total Equity of Shareholders 766,533,857) 29.33) Sub-Total 6,909,580) 0.26) Total Assets $2,613,594,191) ) Total Liabilities and Equity of Shareholders $2,613,594,191) )

30 KINPO INTERNATIONAL LTD. STATEMENT OF INCOME For the Year Ended December 31, 2009 UNIT:RMB (In Dollars) Item 2009 % Operating Revenues Sales Revenues $3,171,416,334) 99.82) Sales Discounts and Allowance (11,803) -0 Other Revenues 5,633,290) 0.18) Sub-Total 3,177,037,821) ) Operating Costs Cost of Goods Sold (3,170,152,016) (99.78) Other Operating Costs (8,717,014) (0.28) Sub-Total (3,178,869,030) (100.06) Gross Profits (Losses) from Operations (1,831,209) (0.06) Operating Expenses Selling Expenses (14,896,498) (0.47) General and Administrative Expenses (26,755,167) (0.84) Research and Development Expenses (16,678,218) (0.52) Net Operating Income (Losses) (60,161,092) (1.89) Non-Operating Income and Revenue Interest Income 47,201) -0 Valuation Gains on Financial Assets 1,006,419) 0.03) Valuation Gains on Financial Liabilities 2,631,915) 0.08) Investment Income on Equity-Method Investees 68,467,600) 2.16) Gains on Disposal of Fixed Assets 1,964,007) 0.06) Miscellaneous Income 41,953,048) 1.32) Sub-Total 116,070,190) 3.65) Non-Operating Expenses and Losses Interest Expenses (6,213,357) (0.20) Investment Losses on Equity-Method Investees (4,609,988) (0.15) Losses on Disposal of Fixed Assets (24,457) -0 Losses on Exchange (49,610,695) (1.56) Miscellaneous Disbursements (11,203,794) (0.35) Sub-Total (71,662,291) (2.26) Continuing Operatings Income (Losses) Before Tax (15,753,193) (0.50) Continuing Operatings Income (Losses) (15,753,193) (0.50) Net Income (Losses) $(15,753,193) (0.50)

31 KINPO INTERNATIONAL LTD. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the Year Ended December 31, 2009 UNIT:RMB (In Dollars) Cumulative Unappropriated Translation Summary Common Stock Retained Earnings Adjustments Total Balance on January 1,2009 $571,580,753) $207,418,897) $3,287,400) $782,287,050) Net loss for the Year (15,753,193) -0 (15,753,193) Balance on December 31,2009 $571,580,753) $191,665,704) $3,287,400) $766,533,857)

32 KINPO INTERNATIONAL LTD. STATEMENT OF CASH FLOWS For the Year Ended December 31, 2009 UNIT:RMB (In Dollars) Items 2009 Cash Flows from Operating Activities Net Income (Losses) $(15,753,193) Adjustments: Amortization Expenses 1,139,426) Fixed Assets Transferred to Other Expense 120,372) Deferred Assets Transferred to Other Expense 1,593,360) Valuation Gains on Financial Assets (Liabilities) 18,431,336) Losses on Disposal of Assets 24,457) Gains on Disposal of Assets (1,964,007) Losses on Inventory Retirement 808,438) Total Difference From Credits (1,880,028) Equity in Earnings (Losses) of Equity Method Investees in Excess of Cash (63,857,612) Dividends Received Decrease (Increase) in Accounts Receivable 1,137,157) Decrease (Increase) in Accounts Receivable- Related Parties (420,845,358) Decrease (Increase) in Other Receivables 1,142,447) Decrease (Increase) in Other Receivables- Related Parties (47,693,362) Decrease (Increase) in Other Financial Assets-Current (232) Decrease (Increase) in Inventories (313,661) Decrease (Increase) in Prepaid Expenses 280,048) Decrease (Increase) in Prepayments 1,065,668) Decrease (Increase) in Other Current Assets 2,503,498) Increase (Decrease) in Accounts Payable (83,659,266) Increase (Decrease) in Accounts Payable-Related Parties 639,527,094) Increase (Decrease) in Accrued Expenses (1,225,850) Increase (Decrease) in Other Payables-Related Parties 9,170,611) Increase (Decrease) in Other Payables (16,392,578) Increase (Decrease) in Advance Receipts 2,591,411) Increase (Decrease) in Other Current Liabilities 6,829) Net Cash Flow Provided by (Used in) Operating Activities 25,957,005) Cash Flows from Investing Activities Decrease (Increase) in Other Financial Assets-Non-Current 21,693) Proceeds from Disposal of Fixed Assets 59,991,030) Acquisitions of Fixed Assets (59,364,516) Decrease (Increase) in Deferred Charges (3,043,265) Decrease (Increase) in Other Assets-Other 2,146) Net Cash Flows Provided by (Used in) Investing Activities (2,392,912) Cash Flows from Financing Activities Increase (Decrease) in Short-Term Borrowings (343,082,794) Increase (Decrease) in Long-Term Borrowings 307,269,000) Net Cash Flows Provided by (Used in) Financial Activities (35,813,794) Increase (Decrease) in Cash and Cash Equivalents (12,249,701) Cash and Cash Equivalents at the Beginning of Period 13,490,109) Cash and Cash Equivalents at the End of Period $1,240,408) Supplemental Disclosures of Cash Flow Information Interest Expenses Paid $9,160,292) Interest Expenses (Excluding The Amount Capitalized) $9,160,292)