8-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
March 29, 2007

3COM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation) 0-12867
(Commission
File Number) 94-2605794
(IRS Employer
Identification No.)

350 Campus Drive
Marlborough, Massachusetts
01752
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s telephone number, including area code: (508) 323-1000

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

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

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

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

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

Amendment No. 1

Explanatory Note

As previously reported, on March 29, 2007, 3Com Corporation (“3Com”), through its indirect wholly-owned subsidiary, 3Com Technologies, completed its purchase of the remaining 49 percent of H3C Technologies Co., Limited, formerly known as Huawei-3Com Co., Limited (“H3C”), that it did not already own from an affiliate of Huawei Technologies Co., Ltd. for an aggregate purchase price of US$882.0 million (the “Acquisition”). The Acquisition was consummated pursuant to the terms of a Stock Purchase Agreement by and between 3Com Technologies and Shenzhen Huawei Investment & Holding Co., Ltd., dated as of December 22, 2006. This Form 8-K/A is filed as an amendment (“Amendment No. 1”) to the Current Report on Form 8-K filed by 3Com on March 29, 2007 to, among other things, report the completion of the acquisition under Items 2.01 and 9.01. This Amendment No. 1 is being filed to include the financial information required under parts (a) and (b) of Item 9.01.

Safe Harbor

This Current Report on Form 8-K and the information in the exhibits attached hereto contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including forward-looking statements regarding EARP payments and purchase price accounting adjustments. These statements are neither promises nor guarantees, but involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including, without limitation, risks detailed in the Company’s filings with the SEC. 3Com Corporation does not intend, and disclaims any obligation, to update any forward-looking information contained in this release or with respect to the announcements described herein.

Section 9 — Financial Statements and Exhibits

TABLE OF CONTENTS

Ex- 23.1 Consent of Deloitte Touche Tohmatsu CPA Ltd.

Ex-23.2 Consent of KPMG hauZhen

Ex-99.1 Audited consolidated financial statements (December 31, 2006)

Ex-99.2 Audited consolidated financial statements (December 31, 2005 and 2004)

Ex-99.3 Unaudited pro forma condensed combined consolidated financial statements

Item 9.01. Financial Statements and Exhibits.

(a)	Financial Statements of Business Acquired.
	The audited consolidated financial statements of H3C, formerly known as Huawei-3Com Co., Limited, as of and for the years ended December 31, 2006, 2005 and 2004 are filed as Exhibit 99.1 and 99.2 to this Amendment No. 1 and incorporated herein by reference.
(b)	Pro Forma Financial Information.
	The pro forma financial information required by this item with respect to the transaction described in Item 2.01 is filed as Exhibit 99.3 to this Amendment No. 1 and incorporated herein by reference.
(c)	Exhibits.

Exhibit No.	Description
23.1	Consent of Deloitte Touche Tohmatsu CPA Ltd., Independent Auditors.
23.2	Consent of KPMG HuaZhen, Independent Auditors.
99.1	Audited consolidated financial statements of Huawei-3Com Co., Limited (now known as H3C Technologies Co., Limited) as of and for the year ended December 31, 2006.
99.2	Audited consolidated financial statements of Huawei-3Com Co., Limited (now known as H3C Technologies Co., Limited) as of and for the years ended December 31, 2005 and 2004.
99.3	Unaudited pro forma condensed consolidated financial statements.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	3COM CORPORATION
Date: June 7, 2007	By:	/s/ Donald M. Halsted, III
		Donald M. Halsted, III
		Executive Vice President and Chief Financial Officer

Exhibit Index

Exhibit No.	Description
23.1	Consent of Deloitte Touche Tohmatsu CPA Ltd., Independent Auditors.
23.2	Consent of KPMG HuaZhen, Independent Auditors.
99.1	Audited consolidated financial statements of Huawei-3Com Co., Limited (now known as H3C Technologies Co., Limited) as of and for the year ended December 31, 2006.
99.2	Audited consolidated financial statements of Huawei-3Com Co., Limited (now known as H3C Technologies Co., Limited) as of and for the years ended December 31, 2005 and 2004.
99.3	Unaudited pro forma condensed combined consolidated financial statements.

EX-23.1

Exhibit 23.1

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 33-92053, 33-2171, 33-17848 (Post-Effective Amendment No. 1), 33-33803, 33-33807, 33-39323, 33-36911, 33-45176, 33-45231, 33-45233, 33-56952, 33-58708, 33-72158, 033-55265 (Post-Effective Amendment No. 1), 033-60379, 033-63547, 333-11639, 333-15923, 333-29099, 333-70459, 333-74371, 333-34726, 333-44508, 333-50992, 333-59504, 333-64988, 333-76764, 333-109983, 333-122441, 333-129785 and 333-134610 of 3Com Corporation on Form S-8 of our report dated March 19, 2007, relating to the consolidated financial statements of Huawei-3Com Co., Ltd. as of December 31, 2006 and for the year then ended, appearing in this Current Report on this Form 8-K/A of 3Com Corporation.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, People’s Republic of China
June 7, 2007

EX-23.2

Exhibit 23.2

Consent of Independent Auditor

The Board of Directors
H3C Technologies Co., Limited:

We consent to the incorporation by reference in Registration Statement Nos. 33-92053, 33-2171, 33-17848 (Post-Effective Amendment No. 1), 33-33803, 33-33807, 33-39323, 33-36911, 33-45176, 33-45231, 33-45233, 33-56952, 33-58708, 33-72158, 033-55265 (Post-Effective Amendment No. 1), 033-60379, 033-63547, 333-11639, 333-15923, 333-29099, 333-70459, 333-74371, 333-34726, 333-44508, 333-50992, 333-59504, 333-64988, 333-76764, 333-109983, 333-122441, 333-129785 and 333-134610 of 3Com Corporation on Form S-8 of our report dated March 15, 2006, with respect to the consolidated balance sheets of H3C Technologies Co., Limited (formerly known as Huawei-3Com Co. Limited) and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity and comprehensive income and cash flows for the years then ended, which report appears in the Form 8-K/A of 3Com Corporation dated June 7, 2007.

/s/ KPMG Huazhen

Shanghai, the People’s Republic of China
June 7, 2007

EX-99.1

EXHIBIT 99.1

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF HUAWEI-3COM CO., LIMITED AS OF AND
FOR THE YEAR ENDED DECEMBER 31, 2006

CONTENTS	PAGE(S)
INDEPENDENT AUDITORS’ REPORT		1
CONSOLIDATED BALANCE SHEET		2 & 3
CONSOLIDATED STATEMENT OF INCOME		4
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME		5
CONSOLIDATED STATEMENT OF CASH FLOWS		6 & 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		8 - 25

INDEPENDENT AUDITORS’ REPORT

TO THE BOARD OF DIRECTORS OF
HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES:

We have audited the accompanying consolidated balance sheet of Huawei-3Com Co., Limited and Subsidiaries as of December 31, 2006, and the related consolidated statement of income, shareholders’ equity and comprehensive income, and of cash flows for the year 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 auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of Huawei-3Com Co., Limited and Subsidiaries, at December 31, 2006 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/S/ Deloitte Touche Tohmatsu CPA Ltd.
Shanghai, People’s Republic of China

March 19, 2007 except for Note 11
which is as of May 31, 2007

1

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 2006
(Expressed in United States dollars)

	2006
ASSETS
Current assets:
Cash and cash equivalents (note 1e)	$	294,318,899
Trade accounts receivable, less allowance for doubtful accounts of $3,842 (note 1f)		13,535,929
Due from related parties (note 8)		62,906,848
Notes receivable (note 1g)		35,670,982
Inventories
Finished goods		47,147,693
Work in process		7,267,995
Raw materials		40,679,940
Total inventories		95,095,628
Other current assets		18,578,247
Total current assets		520,106,533
Fixed assets (note 1i):
Machinery and equipment		61,765,224
Leasehold improvements		10,554,300
Motor vehicles		2,238,514
		74,558,038
Less accumulated depreciation		(39,083,560	)
Net fixed assets		35,474,478
Deferred income tax assets (note 3)		15,435,442
Goodwill (note lj)		40,000
Intangible assets, net (notes lj and 4)		36,279,839
Total assets	$	607,336,292

2

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Balance Sheet (continued)
December 31, 2006
(Expressed in United States dollars)

Liabilities and Shareholders’ Equity

	2006
Current liabilities:
Trade accounts payable	$	40,922,011
Due to related parties (note 8)		52,843,692
Income taxes payable		7,631,876
Accrued expenses and other current liabilities (note 2)		137,028,814
Obligation under equity appreciation rights plan within one year (note 6)		12,321,184
Total current liabilities		250,747,577
Obligation under equity appreciation rights plan (note 6)		24,568,704
Total liabilities		275,316,281
Commitments and contingencies (note 10)
Shareholders’ equity:
Common stock, ($1.00 par value, 9,705,000 shares authorized; 9,705,000 shares issued and outstanding)		9,705,000
Additional paid-in capital		113,000,095
Retained earnings		198,990,425
Accumulated other comprehensive gain/(loss)		10,324,491
Total shareholders’ equity		332,020,011
Total liabilities and shareholders’ equity	$	607,336,292

See accompanying notes to consolidated financial statements.

3

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statement of Income
Year ended December 31, 2006
(Expressed in United States dollars)

	2006
Net sales	$	711,836,902
Cost of goods sold		(375,161,190	)
Gross profit		336,675,712
Operating Expenses:
Selling, general, and administrative expenses		(129,568,351	)
Research and development expenses		(101,453,367	)
Operating profit		105,653,994
Other income:
Other income		32,571,352
Interest income		11,024,347
Other expense		(453,848	)
Exchange gains/(losses)		(146,683	)
Interest expense		(2,474,925	)
Income before income taxes		146,174,237
Income tax (provision)/benefit (note 3)		(7,764,029	)
Net income	$	138,410,208

See accompanying notes to consolidated financial statements.

4

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statement of Shareholders’ Equity and Comprehensive Income
Year ended December 31, 2006
(Expressed in United States dollars)

								Accumulated
	Total		Additional			Retained		other		Total
	Common		paid-in			earnings		comprehensive		shareholders’
	stock		capital			/(deficits)		gain/(loss)		equity
Balance at January 1, 2006	$	9,705,000		192,969,295			60,580,217		2,852,470		266,106,982
Net income		—		—			138,410,208		—		138,410,208
Recapitalization (note 5)		—		(79,969,200	)		—		—		(79,969,200	)
Other comprehensive income:
Foreign currency translation		—		—			—		7,472,021		7,472,021
Balance at December 31, 2006	$	9,705,000		113,000,095			198,990,425		10,324,491		332,020,011

Note    Total comprehensive income for the year ended December 31, 2006 was $145,882,229

See accompanying notes to consolidated financial statements.

5

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended December 31, 2006
(Expressed in United States dollars)

	2006
Cash flows from operating activities:
Net income	$	138,410,208
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of fixed assets		18,354,150
Amortization of intangible assets		202,581
Allowance for doubtful accounts		(68,086	)
Loss on sale of equipment		40,882
Changes in operating assets and liabilities:
Increase in trade accounts receivable and notes receivable		(1,105,982	)
Increase / (decrease) in amount due from related parties		1,221,693
Decrease / (increase) in inventories		4,568,001
Decrease / (increase) in other current assets		4,475,511
(Decrease) / increase in trade accounts payable		(18,106,506	)
Decrease in amount due to related parties		(323,791	)
Increase / (decrease) in income tax payable		7,577,953
Increase in deferred income tax		(7,642,537	)
Increase in accrued expenses and other liabilities		28,406,973
Increase in obligation under equity appreciation rights plan		27,405,879
Net cash from operating activities	$	203,416,929

6

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statement of Cash Flows (continued)
(Expressed in United States dollars)

	2006
Cash flows from investing activities:
Proceeds from sale of equipment	$	5,833
Capital expenditures		(17,894,725	)
Net cash used in investing activities		(17,888,892	)
Cash flows from financing activities:
Cash paid to shareholders		(39,184,908	)
Net cash provided by / (used in) financing activities		(39,184,908	)
Net increase in cash and cash equivalents		146,343,129
Effect of foreign exchange rate changes		7,472,021
Cash and cash equivalents at the beginning of the year		140,503,749
Cash and cash equivalents at the end of the year	$	294,318,899
Supplemental information:
Income taxes paid, net	$	7,449,020
Interest paid	$	2,474,925
Non-cash related to investing activities Capital Expenditure	$	1,880,666
Non-cash related to financing activities
Amount due to shareholders
related to recapitalization	$	40,784,292

See accompanying notes to consolidated financial statements.

7

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) Description of Business

Huawei-3Com Co., Limited (the “Company”) was incorporated in Hong Kong on October 29, 2003. As of December 31, 2005, the Company was 51% owned by Shenzhen Huawei Investment Holding Co., Ltd., (“Shenzhen Huawei”) a limited company incorporated in Shenzhen, the People’s Republic of China (the “PRC”) and an affiliate of Huawei Technologies Co., Ltd. (“Huawei”); and 49% owned by 3Com Technologies, a subsidiary of 3Com Corporation (“3Com”), a public company incorporated in the state of Delaware in the United States of America.

On January 27, 2006, 3Com Technologies completed its purchase of 2% of the equity securities of the Company from Shenzhen Huawei Investment Holding Co., Ltd. for an aggregate purchase price of $28 million. The purchase of such shares was subject to and received regulatory approval by the Chinese government on January 27, 2006. 3Com Technologies now owns a 51% interest in the Company.

On November 15, 2006, 3Com initiated a bid process under the shareholders’ agreement by submitting a bid to buy Huawei’s entire ownership interest in the Company. On November 27, 2006, the shareholders agreed that 3Com buy Shenzhen Huawei’s 49% shares of the Company for $882 million. The transaction was approved by the PRC government. Please refer to Subsequent Event Footnote (Note 11) for further detail.

The Company is engaged in research, development, manufacturing and marketing of datacom equipment products. The three main products are low-end routers, mid-tier routers and LAN switches. The Company currently purchases a significant amount of inventories from and sells a significant amount of products to its two shareholders. See note 8 for related party transaction disclosures.

(b) Basis of Presentation

     The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

(c) Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries which include primary PRC operating subsidiaries as Hangzhou Huawei-3Com Technologies Co., Ltd. (“Hangzhou Huawei-3Com”) and Hangzhou Queenhive Software Co., Ltd. (“Hangzhou Queenhive”) and other overseas subsidiaries. All inter-company transactions and balances are eliminated upon consolidation.

8

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES — continued

(d) Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the impairment of long-lived assets; goodwill; valuation allowances for receivables and deferred income tax assets; allowances for inventory; and allowances for price protection, product returns, rebates and other related sales incentives. Actual results could differ from those estimates.

(e) Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and in banks, and time deposits with financial institutions with an initial term of three months or less. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company deposits most of its cash in PRC state-owned banks.

(f) Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on customer credit worthiness and current economic trends. The Company reviews its allowance for doubtful accounts monthly. Specific amounts are reviewed individually for collectibility. Account balances are charged-off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have off-balance-sheet credit exposure related to its customers.

(g) Notes Receivable

Notes receivable represent bills receivable from banks with maturities less than six months.

(h) Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Allowances are recorded to write down the cost of obsolete and excess inventory to the estimated market value based on historical and forecast demand.

9

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES — continued

(i) Fixed assets

Fixed assets are stated at cost. Depreciation on machinery, equipment, and vehicles is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are set out below:

Machinery and equipment	3-10 years
Vehicles	5 years
Leasehold improvements	Shorter of estimated useful
	lives or lease term

	2006
Depreciation		18,354,150
Percentage of allocation
Inventories and cost of goods sold		12	%
Research and development expenses		74	%
Selling, general, and administrative expenses		14	%

(j) Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price over fair value of assets of business acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. Intangible assets represent trademarks and Original Equipment Manufacturer (“OEM”) agreements with both shareholders and customer related assets.

SFAS No. 142 requires the Company to complete a two-step goodwill impairment test. The first step compares the fair value of singular reporting unit to its carrying amount, including goodwill. If the fair value of singular reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of the reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

No event had occurred as of December 31, 2006 that reduced the fair value of the Company’s reporting unit below the carrying amount of goodwill and intangible assets.

10

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES — continued

(k) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income 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 and operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(l) Equity Appreciation Rights Plan

The Company has an Equity Appreciation Rights Plan (“EARP”) for its regular employees (except assemblers) and consultants (see note 6). Vested units entitle the holder to a portion of a cash payout pool, which is defined as a percentage of income before interest and taxes. The Company’s obligation under the payout pool is fixed and does not change when participants leave or the number of vested units changes. The Company accrues the payout pool based on 20% of cumulative Earnings Before Interest and Taxes (“EBIT”) at each reporting period. The pool can be decreased in subsequent years if the Company incurs losses.

(m) Employee Post-employment Benefits

As stipulated by the regulations of the PRC, the Company’s wholly-owned subsidiaries Hangzhou Huawei-3Com and Hangzhou Queenhive participate in a defined contribution retirement plan organized by the municipal government. Employees are entitled to retirement benefits calculated with reference to their salaries basis upon retirement and their length of service in accordance with a PRC government-managed retirement plan. The PRC government is directly responsible for the payments of the benefits to these retired employees. Hangzhou Huawei-3Com is required to make contributions to the retirement plan at the rate of 20% of the average salary in Hangzhou. The Company has no other obligations for the payment of pension benefits associated with this plan beyond the annual contributions described above.

(n) Impairment of Long-Lived Assets

In accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-lived Assets, long-lived assets, such as fixed assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Intangible assets that have indefinite useful lifes are tested annually for impairment, and are tested more frequently if events and circumstances indicate that the assets might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

11

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES — continued

(o) Revenue Recognition

Revenue is recognised upon the sale of products when there is a signed sales contract, delivery has occurred, the risks and rewards of ownership have been transferred to the customer, the price is fixed or determinable, and collection of the related receivables is reasonably assured.

Certain of the Company’s sales are made to distributors and resellers through a two-tier distribution channel. Revenue related to such sales is net of allowances for price protection, product returns, rebates and other incentives established in the Company’s sales agreements.

Services revenue is recognized upon delivery or completion of performance. When a sale involves multiple elements, such as sales of products that include services, Company allocates revenue to each element based on its relative fair value, or for software, based on vendor specific objective evidence (“VSOE”) of fair value. In the absence of fair value for a delivered element, the Company first allocates revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements. Where the fair value for an undelivered element cannot be determined, the Company defers revenue for the delivered elements until the undelivered elements are delivered.

(p) Government Subsidies

Government subsidies are recognized in the financial statements as other income on a cash basis and after all the conditions for their receipt have been met. In 2006, in accordance with provincial regulations, the Company was entitled to an operation subsidy from the local government funded by certain software value-added taxes.

(q) Product Warranty Costs

An allowance for warranty costs is provided when based on available information, it is probable that customers will make claims under warranties relating to the goods that have been sold and the amount of the warranty provision can be reasonably estimated based upon historical warranty claims and analysis of the reliability of products sold. The following table summarizes the activity related to the product warranty liability during the 12 months ended December 31, 2006:

	12 months ended
	December 31, 2006
Balance at beginning of period	$	4,526,690
Provision for warranties issued	$	14,552,224
Payments	($	13,132,392	)
Balance at end of period	$	5,946,522

(r) Reporting Currency and Translation of Foreign Currency

The reporting currency of the Company is the United States dollar. The functional currency of the Company’s subsidiaries is the local currency for the applicable foreign subsidiary. Assets and liabilities of foreign subsidiaries are translated at the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York (“FRB rates”) in effect at the applicable reporting date, and balances in the consolidated statement of income are translated at the average FRB rates in effect during the applicable period. The resulting exchange

12

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES — continued

gains or losses are accounted for as foreign currency translation adjustments in accumulated other comprehensive gain/loss, a separate component of stockholder’s equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are recognized as incomes or expenses in the consolidated statement of income.

(s) Comprehensive income (loss)

Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners and is comprised of net income and foreign currency translation adjustments. Comprehensive income is reported in the consolidated statements of shareholders’ equity and comprehensive income.

(t) Political, Economic and Social Risks

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for the past two decades, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or unforeseen circumstances affecting the PRC’s political, economic, and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.

(u) Foreign Currency Risk

A majority of the revenue-generating operations are transacted in Renminbi, the PRC’s national currency, which is not fully convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchanges as quoted by the People’s Bank of China. However, the unification of the exchange rate does not imply convertibility of Renminbi into United States dollars or other foreign currencies. The value of Renminbi is subject to significant changes in the PRC political and economic conditions. Since July 2005, the official exchange rate for the conversion of Renminbi to United States dollars has appreciated 5-6%, and further revaluation of Renminbi may adversely affect the Company’s operations. All foreign exchange transactions continue to take place either through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

(v) Fair value of financial instruments

Financial assets of the Company include cash and cash equivalents, trade accounts receivable and notes receivable. Financial liabilities of the Company include trade accounts payable, other current liabilities and obligations under equity appreciation rights plan. The Company has no derivative instruments as of December 31, 2006. Management considers that the fair values of the Company’s financial instruments approximate their carrying amounts due to the nature or short-term maturity of these instruments.

13

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES — continued

(w) Recently Issued Accounting Standards

In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No.109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. FIN 48 is effective for the first fiscal year beginning after December 15, 2006. The Company has not yet determined the impact, if any, that the implementation of FIN 48 will have on the results of operations or financial condition.

In September 2006, the FASB issued Statement of Financial Accounting Standards No.157, “Fair Value Measurements” (“SFAS No.157”). SFAS No.157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No.157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim period within those fiscal years, with early adoption permitted. The Company has not yet determined the impact, if any, that the implementation of SFAS No.157 will have on the results of operations or financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require certain assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective as of the beginning of the fiscal year that begins after November 15, 2007. The Company is currently assessing the impact that SFAS 159 will have on its results of operations and financial position.

2. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities is comprised of:

	December 31,
	2006
Accruals for Sales Incentives, rebates and product return	$	46,749,479
Payroll and benefits payable		41,124,923
Accrued liabilities		19,961,946
Advance from customers		12,043,544
Deferred revenue		4,052,135
Accrued warranty		5,946,522
VAT and other taxes payable		5,356,473
Other payable		1,793,792
	$	137,028,814

14

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

3. INCOME TAX

Income tax benefit attributable to income from operations consists of:

	December 31,
	2006
Current
PRC	$	14,617,691
Other jurisdictions		395,412
Deferred
PRC		(7,222,572	)
Other jurisdictions		(26,502	)
Income provision	$	7,764,029

The Company and its subsidiaries are subject to income taxes on a per entity basis on income arising in or derived from the tax jurisdictions in which they operate. The Company is subject to Hong Kong profits tax at a rate of 17.5% for the year ended December 31, 2006. The Company did not have any profits during the year ended December 31, 2006 that were subject to Hong Kong profits tax.

For the year ended December 31, 2006, revenue and profit generating operations and activities of the Company are primarily carried out by its wholly owned subsidiary, Hangzhou Huawei-3Com in the PRC. The statutory income tax rate in the PRC is 33%. Hangzhou Huawei-3Com is located in the Hangzhou High-tech Zone and obtained a preferential tax rate from the Municipal Tax Bureau of 26.4%. The preferential tax rate was further changed to 15% in 2006 because the Company qualified as a high-and-new technology company, and received confirmation from the PRC State Tax Bureau that it qualified for “Double-intensive Enterprise” tax status. Hangzhou Huawei-3Com is entitled to tax concessions whereby it is exempted from PRC income tax for two consecutive years from the first year in which Hangzhou Huawei-3Com records assessable profits and will be entitled to a 50% reduction in income tax in the following three years. Consequently the Hangzhou Huawei-3Com’s effective tax rate was 7.5% in 2006, and will be 7.5% in 2007 and 2008.

Management of Hangzhou Huawei-3Com elected to pay income tax for the period ended December 31, 2003 (the Company’s initial period) in order to take the advantage of a full-year tax holiday starting January 1, 2004. The years ended December 31, 2005 and 2004 are Hangzhou Huawei-3Com tax holiday years and no provision for income tax has been made in respect of 2005 and 2004 due to the tax holiday period.

Historically, substantially all of the Company’s temporary differences which generate deferred income tax assets and liabilities occur within Hangzhou Huawei-3Com. As of December 31, 2004 and 2003, Hangzhou Huawei-3Com’s temporary differences were not valued because of the impact of the tax holiday (nil rate) described above. As of December 31, 2006 and 2005, Hangzhou Huawei-3Com valued its deferred income tax assets and liabilities at a rate of 7.5%, which is the effective “enacted” rate during the subsequent periods of expected reversal.

15

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

3. INCOME TAX — continued

The income tax benefit attributable to income from operations differed from the amounts computed by applying the Hong Kong income tax rate of 17.5% to pretax income from operations as a result of the following:

	2006
Computed “expected” tax expense	$	25,580,492
Increase/(reduction) in income taxes resulting from:
Deferred income tax increase due to temporary differences		(7,249,074	)
Foreign tax differential		(3,323,270	)
Foreign tax holiday		(10,077,942	)
Permanent differences		2,833,823
Total	$	7,764,029

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 2006 are presented below:

	December 31,
	2006
Deferred income tax assets:
Accrued expenses	$	7,950,635
Sales reserve		5,326,910
Fixed assets due to differences in depreciation		1,801,567
Others		356,330
Total deferred income tax assets	$	15,435,442

4. INTANGIBLE ASSETS

Intangibles assets contributed by a shareholder consist of:

	As of December 31, 2006
	Gross
	carrying		Amortization	Accumulated
	amount		period	amortization		Net
Amortizing intangible assets:
Customer-related assets	$	1,100,000	5 years		720,161		379,839
Non-amortized intangible assets:
Trademark		11,000,000			—		11,000,000
OEM-out agreement to a shareholder		24,900,000			—		24,900,000
Total	$	37,000,000			720,161		36,279,839

16

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

Amortization expense for amortizing intangible assets for the year ended December 31, 2006 was $202,581. Estimated amortization expense for the next two years is $202,582 in 2007 and $177,257 in 2008.

5. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

Authorized and Issued Capital

In accordance with an ordinary resolution passed by the Board of Directors on November 15, 2003, the Company’s authorized common stock was increased to 9,705,000 shares at $1 par value each. 4,949,550 and 4,755,450 shares were allocated to Shenzhen Huawei and 3Com Technologies Co., Ltd., respectively.

Recapitalization

In August, 2006, the Company’s Board of Directors issued written resolutions related to the capital reduction, amounting to USD 79,969,200. In October 2006, the Company paid USD 39,185,320 to 3Com Technologies, and the remaining USD 40,783,880 is recorded as a payable to Shenzhen Huawei.

Call Options

In accordance with Shareholders’ Agreement dated November 15, 2003, 3Com Technologies had the one-time option upon the second anniversary of the establishment of the Company to purchase from Shenzhen Huawei the number of shares that is equal to 2% of the shares outstanding.

On January 27, 2006, 3Com Technologies completed its purchase of 2% of the equity securities of the Company from Shenzhen Huawei. As a result, 3Com Technologies owns a 51% interest in the company.

Also under the Shareholders’ Agreement, each shareholder shall have the right, commencing on and after November 15, 2006, to initiate a bid process to purchase the equity interest in H-3C held by the other. The bidding process would alternate until one party either accepts the other’s bid or fails to make a higher bid. On November 15, 2006, 3Com initiated a bid process under the shareholders’ agreement by submitting a bid to buy Shenzhen Huawei’s entire ownership interest in the Company. On November 27, 2006, the shareholders agreed that 3Com buy Shenzhen Huawei’ 49% shares of the Company for $882 million. The transaction was approved by the PRC government.

17

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

5. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL — continued

Shareholders’ contributions

In accordance with the Contribution Agreement dated March 19, 2003 and the Shareholders’ Agreement, the shareholders contributed the following assets to the Company:

	Shenzhen Huawei			3Com
	Investment			Corporation
	Holding Co., Ltd.			& 3Com
	and its subsidiaries			Technologies			Total
Cash contributed	$	4,949,550		$	160,078,354		$	165,027,904
Intangible assets and workforce (classified as goodwill contributed)		—			37,040,000			37,040,000
		4,949,550			197,118,354			202,067,904
Fixed assets donated by an affiliated subsidiary subsequent to the Shareholders’ agreements and contribution		606,341			—			606,341
Cash received		50			—			50
Recapitalization		(40,784,292	)		(39,184,908	)		(79,969,200	)
Contributed capital	$	(35,228,351	)	$	157,933,446		$	122,705,095

In accordance with the Contribution Agreement, 3Com Technologies contributed $160,078,354 in cash, certain intangible assets, plus personnel and marketing resources related to its business in the PRC and Japan to the Company. Shenzhen Huawei contributed development personnel, certain intangible assets, technology related to its enterprise networking businesses, and its sales and marketing team. As Shenzhen Huawei had more than a 50% voting interest in the Company at the time of the Company’s formation, the transaction was accounted for as a purchase transaction whereby the basis of the 3Com Technologies contributed net assets was fair value and the net assets contributed by Shenzhen Huawei were recorded at historical cost.

18

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

6. EQUITY APPRECIATION RIGHTS PLAN

In October 2004, the Company’s Board of Directors approved the establishment of an Equity Appreciation Rights Plan (“EARP”). The Company’s employees (other than assemblers) and consultants (“Participants”) may participate in the EARP. EARP “units” shall be awarded to grantees for no consideration, but the units are non-transferable and subject to certain restrictions in the event of grantees’ termination or a liquidation event as defined in the Shareholders’ Agreement. Vested units shall entitle the holder to a portion of a cash payout pool as defined by the plan.

As discussed in note 1(a), on November 27, 2006, it was agreed that 3Com buy Shenzhen Huawei’s 49% in the Company for $882 million. The closing of 3Com acquisition will activate the EARP program that funds a bonus pool based upon a percentage of the appreciation in the Company’s value from the initiation of the program to the time of an acquisition of 100% ownership. There are two portions of the EARP, one is about $36 million, being the percentage of earnings accrued as liabilities, and the other is now estimated to be $156 million, being the pool created as a result of the liquidation event, against the value creation of the Company over the past three years. Based upon the vesting schedules, the Company will record an incremental charge of between $55 million and $65 million upon formal completion of 3Com Technologies acquisition from Shenzhen Huawei. The first cash pay-out under the program, of about $90 to $100 million, is currently expected to occur after the closing of the transaction. The unvested portion, approximately $90 to $100 million, is expected to vest in future periods after the completion of the acquisition, and will be accrued over the next three years serving as a continued retention and incentive program.

Under the EARP, employees are eligible to receive an annual grant of the plan units beginning from November 2004 through November 2006. The first vesting date is the earlier occurrence of a liquidation event or March 31, 2007. The Participants shall not possess any rights as a stockholder of the Company with respect to a plan unit, including, without limitation, rights concerning voting and dividends. That is, the participants only have the right to redeem the vested plan units to the Company for cash payment equal to a fixed amount calculated by a formula based on the Company’s earnings. If the Participants terminate or leave the Company, their unvested plan units shall automatically be forfeited and their vested units will be cashed-in in a lump sum after March 31, 2007. However, the payout pool does not proportionally go down when the Participants terminate or leave. The EARP was announced to the participants in 2004.

The portion based on percentage of earning regardless of the unit vesting or the number of participants, is recognized compensation expense as below:

	2006
Compensation expense for EARP	$	26,577,141

The accrued EARP expense as of December 31, 2006 is $36,889,888, which is recognized as other liabilities on the consolidated balance sheet.

19

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

7. MAJOR CUSTOMERS AND CONCENTRATION OF RISKS

Related party product sales accounted for 48% (see note 10) of the Company’s net revenue in the year ended December 31, 2006. The following table shows the product sales volume to customers that individually accounted for more than 5% of the net sales during the year.

	2006
Customer	Sales amount		Sales %
Huawei Technologies Co., Ltd.	$	240,098,866		34	%
Shenzhen Qipusheng Technology Co., Ltd.	$	80,550,431		11	%
Wangxin Info Holding Co., Ltd.	$	73,102,365		10	%
ESC Technology (China) Ltd.	$	62,528,932		9	%
3Com Technologies Ireland	$	58,072,253		8	%
Beijing Fangzheng Info System Co., Ltd.	$	48,550,005		7	%
Hangzhou Xiechuang Tech Co., Ltd.	$	27,567,953		4	%

Besides the Huawei and 3Com group companies, which are the Company’s shareholders or related parties, the other major customers are the Company’s distributors. Management of the Company considers that the loss of one or more of its distributors would not have a material adverse effect on the revenues or operations of the Company.

The Company is a key supplier to Huawei, which provides information technology, product testing and other services to the Company. The Company also leases its headquarters and primary operating facility from Huawei. Management of the Company considers that it has autonomy in engaging any third parties to provide such services.

20

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

8. RELATED PARTY TRANSACTIONS AND BALANCES

Related party transactions of the Company for the year ended December 31, 2006 are set out as the following:

Product sales to related parties:

	2006
	Amount		%
Huawei Technologies Co., Ltd.	$	240,098,866		34	%
3Com Technologies Ireland	$	58,072,253		8	%
3Com Corporation	$	30,461,230		4	%
Huawei Tech-Investment Co., Ltd.	$	8,461,698		1	%
3Com Europe	$	270,087		—	%

Service sales to related parties:

	2006
	Amount
3Com Europe	$	1,268,221
Huawei Technologies Co., Ltd.	$	1,110,677
3Com Corporation	$	1,037,814
Huawei Tech-Investment Co., Ltd.	$	185,081
Huawei Technologies Deutschland GmbH	$	100,607

Purchase of inventories from related parties

	2006
	Amount		%
Huawei Technologies Co., Ltd.	$	39,968,071		10	%
3Com Asia Pacific Rim Pte. Ltd.	$	12,073,025		3	%
Huawei Technologies Investment Co., Ltd.	$	1,749,834		0.4	%

21

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

8. RELATED PARTY TRANSACTIONS AND BALANCES — continued

Rent paid to related party:

	2006
Huawei Technologies Co., Ltd.	$	3,833,203

Rental expense for the year ended December 31, 2006 was classified as follows:

	2006
Cost of goods sold	$	2,332,277
Selling, general and administrative expenses		1,352,648
Research and development expenses		148,278
	$	3,833,203

IT support service provided by related party (recorded in selling, general, and administrative expenses):

	2006
Huawei Technologies Co., Ltd.	$	1,679,242

IT cooperation service provided by related party (recorded in selling, general, and administrative expenses):

Huawei Technologies Co., Ltd. $ 189,183

Research and development cooperation service provided by related party (recorded in research and development expenses):

Huawei Technologies Co., Ltd.	$	306,872
Huawei Tech Investment Co., Ltd	$	—

Sales branch expense paid by related party (recorded in selling, general, and administrative expenses):

Huawei Technologies Co., Ltd.	$	211,735
Huawei Tech Investment Co.,Ltd	$	3,176,497
3Com Corporation	$	190,522

Management fee paid to related party (recorded in selling, general, and administrative expenses):

3Com Asia Pacific Rim Pte. Ltd. $ 90,315

Management believes that the above transactions were in the normal course of business and on normal commercial terms, and all costs borne by shareholders on behalf of the Company and its subsidiaries are recognized and reflected in the accounts.

22

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

8. RELATED PARTY TRANSACTIONS AND BALANCES — continued

Related party balances of the Company as of December 31, 2006 are set out as follows:

Due from related parties:

	2006
Huawei Technologies Co., Ltd.	$	48,228,205
3Com Technologies Ireland		9,312,762
3Com Corporation		3,862,164
Huawei Tech Investment Co., Ltd.		1,493,379
3Com Europe		10,338
	$	62,906,848
Due to related parties:
Shenzhen Huawei	$	40,798,591
Huawei Technologies Co., Ltd.		7,334,328
Huawei Tech Investment Co., Ltd.		2,414,989
3Com Asia Pacific Rim Pte Ltd.		1,307,746
Huawei Information System Co., Ltd.		507,310
Hisilicon Technologies Co., Limited		296,572
3Com Corporation		109,499
Shenzhen Huawei Mobile Communication Technology Co.,Ltd.		38,533
Huawei Technologies Service		35,606
Shenzhen Huawei Training Institute Co., Ltd.		518
	$	52,843,692

9. EMPLOYEE POST-EMPLOYMENT BENEFITS

The contributions to the employees’ retirement plan made by the Company were $5,982,747for the year ended December 31, 2006.

In addition, the Company is required by law to contribute medical, unemployment, housing and other statutory benefits based on certain percentages of the employees’ monthly salaries. The PRC government is directly responsible for the payments for the benefits to these employees. The amounts contributed by the Company were $5,633,880 for the year ended December 31, 2006.

23

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

10. COMMITMENTS AND CONTINGENCIES

Lease commitments

The Company has several non-cancelable operating leases, primarily for office buildings, that expire over the next four years. Rental expenses for operating leases during 2006 were $13,652,167.

Future minimum lease payments under non-cancelable operating lease as of December 31, 2006 are:

Years ending December 31:
2007	$	13,270,452
2008		7,203,206
2009		560,687
2010		116,310
Total minimum lease payments	$	21,150,655

11. SUBSEQUENT EVENT

As described above in footnote 1, three years after the formation of H3C, 3Com and Huawei each had the right to initiate a bid process to purchase the equity interest in H3C held by the other. 3Com initiated the bidding process on November 15, 2006 to buy Huawei’s entire ownership interest in H3C. On November 27, 2006, the stockholders agreed that 3Com buy Shenzhen Huawei’s 49% shares of H3C for $882 million. On March 29, 2007, 3Com Technologies completed its purchase at which time the purchase price was paid in full. Huawei-3Com Co., Limited will now be known as H3C Technologies Co., Limited, or H3C.

On March 22, 2007, H3C Holdings Limited (the “Borrower”), an indirect wholly-owned subsidiary of 3Com Corporation, entered into a Credit and Guaranty Agreement dated as of March 22, 2007 among the Borrower, 3Com Corporation, 3Com Holdings Limited and 3Com Technologies, as Holdco Guarantors, various Lenders, Goldman Sachs Credit Partners L.P., as Mandated Lead Arranger, Bookrunner, Administrative Agent and Syndication Agent (“GSCP”), and Industrial and Commercial Bank of China (Asia) Limited, as Collateral Agent (the “Existing Credit Agreement”). Under the Existing Credit Agreement, on March 28, 2007 the Borrower borrowed $430 million (the “Existing Loan”) to finance a portion of the purchase price for the March 29, 2007 acquisition (the “Acquisition”) of Huawei’s 49 percent stake in H3C.

On May 25, 2007, the parties amended and restated the Existing Credit Agreement in order to, among other things, convert the Existing Loan into two tranches with different principal amortization schedules and different interest rates (the “A&R Loans”). The other provisions of the Existing Credit Agreement, including covenants, collateral, temporary guarantees and other provisions, remain largely unchanged. The closing of the A&R Loans occurred on May 31, 2007.

The closing of the acquisition triggered a bonus program for substantially all of H3C’s approximately 4,800 employees. This program, which was implemented by Huawei and 3Com in a prior period, is called the Equity Appreciation Rights Plan, or EARP, and funds a bonus pool based upon a percentage of the appreciation in H3C’s value from the initiation of the program to the time of the closing of the acquisition. A portion of the program is based on cumulative earnings of H3C. The total value of the EARP is expected to be approximately $180 million. Approximately $37 million was accrued by December 31, 2006. The Company recorded an incremental charge of approximately $57 million, just

24

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2006
Notes to Consolidated Financial Statements

prior to the closing of the acquisition from Huawei. The Company expects the unvested portion amounting to $86 million to be accrued in the Company’s operating results over the next three years serving as a continued retention and incentive program for employees.

25

EX-99.2

Exhibit 99.2

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF HUAWEI-3COM
CO., LIMITED AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

Independent Auditors’ Report

The Board of Directors
Huawei-3Com Co., Limited:

We have audited the accompanying consolidated balance sheets of Huawei-3Com Co., Limited and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the years ended December 31, 2005 and 2004. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 Huawei-3Com Co., Limited and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the years ended December 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG Huazhen
Shanghai, the People’s Republic of China

March 15, 2006

1

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2005 and 2004
(Expressed in United States dollars)

	2005			2004
Assets
Current assets:
Cash and cash equivalents (note 1c)	$	140,503,749		$	117,860,892
Trade accounts receivable, less allowance for doubtful accounts of $71,928 and $29,613 at December 31, 2005 and 2004, respectively (note 1d)		9,449,403			13,395,698
Due from related parties (note 10)		64,128,541			28,274,265
Notes receivable (note 1e)		38,583,440			33,723,030
Inventories (note 2)
Finished goods		49,178,170			25,823,597
Work in process		11,316,574			15,496,617
Raw materials		39,168,885			22,972,053
Total inventories		99,663,629			64,292,267
Deferred tax assets		6,456,270			—
Other current assets		23,053,758			7,971,571
Total current assets		381,838,790			265,517,723
Fixed assets (note 1g):
Machinery and equipment		42,816,153			26,324,393
Leasehold improvements		6,733,764			6,734,203
Motor vehicles		1,639,801			972,468
		51,189,718			34,031,064
Less accumulated depreciation and amortisation		(19,121,401	)		(6,912,555	)
Net fixed assets		32,068,317			27,118,509
Deferred tax assets		1,336,635			727,006
Goodwill (note lh)		40,000			40,000
Intangible assets (notes lh and 6)		36,482,419			36,685,000
Total assets	$	451,766,161		$	330,088,238

2

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
December 31, 2005 and 2004
(Expressed in United States dollars)

	2005		2004
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	55,599,105	$	29,759,518
Due to related parties (note 10)		12,383,191		22,792,845
Income taxes payable		53,923		66,872
Accrued expenses and other current liabilities (note 3)		108,138,951		61,617,582
Total current liabilities		176,175,170		114,236,817
Obligation under equity appreciation rights plan (note 8)		9,484,009		2,446,686
Total liabilities		185,659,179		116,683,503
Commitments and Contingencies (note 11)
Stockholders’ equity:
Common stock		9,705,000		9,705,000
Additional paid-in capital		192,969,295		192,969,245
Retained earnings		60,580,217		10,758,600
Accumulated other comprehensive income/(loss)		2,852,470		(28,110	)
Total stockholders’ equity		266,106,982		213,404,735
Total liabilities and stockholders’ equity	$	451,766,161	$	330,088,238

See accompanying notes to consolidated financial statements.

3

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2005 and 2004
(Expressed in United States dollars)

	2005			2004
Net sales	$	444,198,956		$	262,387,189
Cost of goods sold		(247,045,158	)		(159,607,350	)
Gross profit		197,153,798			102,779,839
Selling, general, and administrative expenses		(90,879,297	)		(48,357,356	)
Research and development expenses		(69,271,239	)		(42,013,535	)
Operating profit		37,003,262			12,408,948
Other income:
Other income		609,583			337,549
Other expense		(284,510	)		(127,670	)
Exchange gains/(losses)		453,787			(1,303	)
Interest income		5,289,903			2,409,677
Interest expense		(215,233	)		—
Income before income taxes		42,849,792			15,027,201
Income tax benefit (note 5)		6,971,825			41,628
Net income	$	49,821,617		$	15,068,829

See accompanying notes to consolidated financial statements.

4

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years ended December 31, 2005 and 2004
(Expressed in United States dollars)

					Retained			Accumulated
			Additional		earnings			other			Total
	Common		paid-in		/(accumulated			comprehensive			stockholders’
	stock		capital		deficits)			gain/(loss)			equity
Balance at January 1, 2004	$	9,705,000		192,362,904		(4,310,229	)		(17,691	)		197,739,984
Net income		—		—		15,068,829			—			15,068,829
Assets contributed by a stockholder		—		606,341		—			—			606,341
Other comprehensive loss:
Foreign currency translation (net of any income taxes)		—		—		—			(10,419	)		(10,419	)
Balance at December 31, 2004	$	9,705,000		192,969,245		10,758,600			(28,110	)		213,404,735
Balance at January 1, 2005	$	9,705,000		192,969,245		10,758,600			(28,110	)		213,404,735
Net income		—		—		49,821,617			—			49,821,617
Cash contributed by a stockholder		—		50		—			—			50
Other comprehensive income:
Foreign currency translation (net of any income taxes)		—		—		—			2,880,580			2,880,580
Balance at December 31, 2005	$	9,705,000		192,969,295		60,580,217			2,852,470			266,106,982

Note Total comprehensive income for the years ended December 31, 2005 and 2004 is comprised of:

	2005		2004
Net income	$	49,821,617	$	15,068,829
Other comprehensive income:
Foreign currency translation (net of any income taxes)		2,880,580		(10,419	)
Total comprehensive income	$	52,702,197	$	15,058,410

See accompanying notes to consolidated financial statements.

5

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2005 and 2004
(Expressed in United States dollars)

	2005			2004
Cash flows from operating activities:
Net income	$	49,821,617		$	15,068,829
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortisation of fixed assets		12,079,800			5,581,246
Amortization of intangible assets		202,581			280,000
Allowance for doubtful accounts		42,315			(25,589	)
Loss on sale of equipment		5,057			70,111
Increase in trade accounts receivable and notes receivable		(956,430	)		(36,913,699	)
Increase in amount due from related parties		(35,854,276	)		(16,029,690	)
Increase in inventories		(35,371,362	)		(34,961,650	)
Increase in other current assets		(15,082,187	)		(7,781,155	)
Increase in trade accounts payable		35,899,991			18,890,816
Decrease in amount due to related parties		(10,409,686	)		(14,101,968	)
Decrease in income tax payable		(12,949	)		(919,548	)
Increase in deferred income tax		(7,065,899	)		(727,006	)
Increase in accrued expenses and other liabilities		51,765,361			50,246,357
Others		2,225,562			—
Net cash from/(used in)operating activities	$	47,289,495		$	(21,322,946	)

6

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(Expressed in United States dollars)

	2005			2004
Cash flows from investing activities:
Proceeds from sale of equipment	$	33,550		$	—
Capital expenditures		(25,335,255	)		(17,899,290	)
Net cash used in investing activities		(25,301,705	)		(17,899,290	)
Cash flows from financing activities:
Cash contributed by the stockholders		50			—
Net cash provided by financing activities		50			—
Net increase/(decrease) in cash and cash equivalents		21,987,840			(39,222,236	)
Effect of foreign exchange rate changes		655,017			1,587
Cash and cash equivalents at the beginning of the year		117,860,892			157,081,541
Cash and cash equivalents at the end of the year	$	140,503,749		$	117,860,892
Supplemental information:
Fixed assets donated by a fellow subsidiary	$	—		$	606,341
Income taxes paid, net	$	69,294		$	—
Interest paid	$	215,233		$	—

See accompanying notes to consolidated financial statements.

7

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies and Practices

(a)	Description of Business
	Huawei-3Com Co., Limited (the “Company”) was incorporated in Hong Kong on October 29, 2003 and as of December 31, 2005 and 2004 was 51% owned by Shenzhen Huawei Investment Holding Co., Ltd., a limited company incorporated in Shenzhen, the People’s Republic of China (“the PRC”) and an affiliate of Huawei Technologies Co., Ltd., and 49% owned by 3Com Technology Co., Ltd., a subsidiary of 3Com Corporation, a public company incorporated in the state of Delaware in the United States of America.
	On January 27, 2006, 3Com Corporation completed its purchase of 2% of the equity securities of the Company from Shenzhen Huawei Investment Holding Co., Ltd. for an aggregate purchase price of $28 million. The purchase of such shares was subject to and received regulatory approval by the Chinese government on January 27, 2006. As a result of the purchase, 3Com owns a 51% interest in the Company.
	The Company is engaged in research, development, manufacturing and marketing of datacom equipment products. The three main products are low-end routers, mid-tier routers and LAN switches. The Company currently purchases a significant amount of inventories from and sells a significant amount of products to its two stockholders. See note 10 for related party transaction disclosures.
(b)	Principles of Consolidation
	The consolidated financial statements include the financial statements of Huawei-3Com Co., Limited and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(c)	Cash and Cash Equivalents
	Cash and cash equivalents of $140,503,749 at December 31, 2005, consist of cash on hand and in banks, and time deposits with financial institutions with an initial term of three months or less. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

8

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(d)	Trade Accounts Receivable
	Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on customer credit worthiness and current economic trends. The Company reviews its allowance for doubtful accounts monthly. Specific amounts are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.
(e)	Notes Receivable
	Notes receivable represent bills receivable from banks with maturities less than six months.
(f)	Inventories
	Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method (FIFO).
(g)	Fixed assets
	Fixed assets are stated at cost. Depreciation on machinery, equipment, motor vehicles and leasehold improvements is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives are set out below:

Machinery and equipment	3-10 years
Motor vehicles	5 years
Leasehold improvements	the shorter of estimated useful lives or lease term

	2005			2004
Depreciation		12,079,800			5,581,246
Percentage of allocation
Inventories and cost of goods sold		10	%		19	%
Research and development expenses		78	%		59	%
Selling, general, and administrative expenses		12	%		22	%

9

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(h)	Goodwill and Other Intangible Assets
	Goodwill represents the excess of purchase price over fair value of assets of business acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortised, but instead tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets. Intangible assets with estimable useful lives are amortised over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Intangible assets represent trademarks and OEM agreements with both stockholders and customer related assets.
(i)	Research and Development and Advertising
	Research and development and advertising costs are expensed as incurred.
	Advertising costs are expensed as incurred. Advertising costs amounted to $7,473,109 and $3,810,838 for the years ended December 31, 2005 and 2004, respectively.
(j)	Income Taxes
	Income taxes are accounted for under the asset and liability method. 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 and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
	The Company establishes a valuation allowance to the extent that it is more likely than not that some portion or all of the deferred tax assets will not be realized.

10

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(k)	Equity Appreciation Rights Plan
	The Company has an Equity Appreciation Rights Plan (“EARP”) for its regular employees (except assemblers) and consultants. Vested units entitle the holder to a portion of a cash payout pool, which is equal to 20% of the Company’s US GAAP income before interest and taxes. The Company’s obligation under the payout pool is fixed and does not change when participants leave or the number of vested units changes. In accordance with the guidance set out in APB Opinion No. 25 Accounting for Stocks Issued to Employees and FASB Interpretation No. 28 Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans – an interpretation of APB Opinions No. 15 and 25, the Company accrues the payout pool based on 20% of cumulative earnings before interest and taxes (“EBIT”) at each reporting period end. The pool can be decreased in subsequent years if the Company incurs losses.
(l)	Employee Post-employment Benefits
	As stipulated by the regulations of the PRC, the Company’s subsidiary – Hangzhou Huawei-3Com Technology Co., Ltd. (“Hangzhou Huawei-3Com”), a wholly owned subsidiary of the Company, participates in defined contribution retirement plan organized by the municipal government for its employees. Hangzhou Huawei-3Com is required to make contributions to the retirement plan at the rate of 20% of the average salary in Hangzhou. The Company has no other obligations for the payment of pension benefits associated with these plans beyond the annual contributions described above. The contributions payable under the Company’s retirement plans are accrued when employee compensation occurs, and are charged to the consolidated income statement.
(m)	Use of Estimates
	The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of fixed assets; recoverability of goodwill and intangible assets; valuation allowances for receivables and deferred income tax assets; provisions for inventory and allowances for price protection, product returns, rebates and other related sales incentives. Actual results could differ from those estimates.

11

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(n)	Impairment of Long-Lived Assets
	In accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-lived Assets, long-lived assets, such as fixed assets and purchased intangibles subject to amortisation, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
	Goodwill and intangible assets that have indefinite useful lifes are tested at each balance sheet date for impairment, and are tested more frequently if events and circumstances indicate that the assets might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. For goodwill, this determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognised for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with FASB Statement No. 141 Business Combination. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.
(o)	Revenue Recognition
	Revenue is recognised upon the sale of products when there is a signed sales contract, delivery has occurred, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable, and collection of the related receivables is probable.
	Certain of the Company’s sales are made to distributors and resellers through a two-tier distribution channel. The Company records reductions to gross revenue for customer incentive programs, such as discounts and allowances to distributors and resellers and volume-based cash incentives. These customer incentives are determined based on the sale agreement with each individual distributor and reseller and are provided for when the related revenue is recorded. The Company also records provisions against the gross revenue for estimated product returns in the period when the related revenue is recorded. In circumstances where the Company accepts return as a matter of contract or as a matter of practice, the Company recognizes revenue only if the following criteria are met at time of sale:

12

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(o)	Revenue Recognition (continued)
	(a) the Company’s price to the buyer is substantially fixed or determinable at the date of sale; (b) the buyer has paid the Company, or the buyer is obligated to pay the Company and the obligation is not contingent on resale of the product; (c) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product; (d) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer and; (e) the amount of future returns can be reasonably estimated. These estimates are based on factors that include, but are not limited to, historical sales returns, analyses of credit memo activities and current know trends. Should these actual product returns and allowances exceed those estimates, additional reductions to the Company’s revenue would result.
(p)	Product Warranty Costs
	A provision for warranty costs is provided for when based on available information, it is probable that customers will make claims under warranties relating to the goods that have been sold and the amount of the warranty provision can be reasonably estimated based upon the historical experience of industry and data of the reliability of products sold.
(q)	Reporting Currency and Translation of Foreign Currency
	The reporting currency of the Company is U.S. dollar. The functional currency of the Company’s subsidiaries is the local currency for the applicable foreign subsidiary. Assets and liabilities of foreign subsidiaries are translated at the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York (“FRB rates”) in effect at the applicable reporting date, and balances in the consolidated statement of income are translated at the average FRB rates in effect during the applicable period. The resulting exchange gains or losses are accounted for as foreign currency translation adjustments in accumulated other comprehensive income/loss, a separate component of stockholders’ equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are recognized as income or expense in the consolidated statements of income.
(r)	Comprehensive income (loss)
	Other comprehensive income (loss) relates to foreign currency translation adjustment. The accumulated balances of other comprehensive gain (loss) at December 31, 2005 and 2004 were $2,852,470 and ($28,110), respectively.

13

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(s)	Recently Issued Accounting Standards
	In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. This Statement is a revision to Statement 123 and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. For non-public companies, this Statement will require measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company currently does not have any employee stock option plan that is within the scope of this statement.
	In December 2004, the FASB issued SFAS No.151, Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Under this Statement, such items will be recognized as current-period charges. In addition, the Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement will be effective for the Company for inventory costs incurred on or after January 1, 2006. Management is currently evaluating what impact this change may have on its consolidated financial statements.
	In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which eliminates an exception in APB 29 for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This Statement will be effective for the Company for nonmonetary asset exchanges occurring on or after January 1, 2006. Management does not expect implementation of this statement to have a significant impact on its consolidated financial statements.
	In May 2005, the FASB issued FASB Statement No.154, Accounting Changes and Error Corrections. Statement 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. This statement will be effective for the Company for all accounting changes and any error corrections occurring after January 1, 2006.

14

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES

December 31, 2005 and 2004

Notes to Consolidated Financial Statements

(s)

Recently Issued Accounting Standards (continued)

In September 2005, the EITF issued EITF Issue No.04-13 Accounting for Purchases and Sales of Inventory with the Same Counterparty. EITF 04-13 provides guidance as to when purchases and sales of inventory with the same counterparty should be accounted for as a single exchange transaction. EITF 04-13 also provides guidance as to when a nonmonetary exchange of inventory should be accounted for at fair value. EITF 04-13 will be applied to new arrangements entered into, and modifications or renewals of existing arrangements occurring after January 1, 2007. Management is currently evaluating what impact this change may have on its consolidated financial statements.

(2)	Inventories
	The Company purchased approximately 22% and 53% of inventories from related parties for the years ended December 31, 2005 and 2004 respectively. The balance of inventory purchases was from various domestic suppliers in the PRC.
(3)	Accrued Expenses and Other Current Liabilities
	Accrued expenses and other current liabilities is comprised of:

	December 31,		December 31,
	2005		2004
Accruals for price protection, product returns, rebates and other related sales incentives	$	37,987,979	$	28,916,802
Payroll and benefits payable		29,089,771		14,539,891
Other payables and accrued liabilities		18,456,434		12,387,476
Deferred revenue	(i)	14,569,553		—
Accrued warranty	(ii)	4,526,690		1,645,692
VAT and other taxes payable		3,508,524		4,127,721
	$	108,138,951	$	61,617,582

15

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(3) Accrued Expenses and Other Current Liabilities (continued)

(i) Deferred revenue

Deferred revenue represents specific transactions at 2005 year end related to trial sales of new products to specific customers. Management deferred such revenue due to inability to estimate the extent of return of such new products and customers’ unlimited right of return stipulated in the sales contracts.

(ii) The following table summarizes the activity in the allowance for accrued warranty:

	Year ended			Year ended
	December 31,			December 31,
	2005			2004
Accrued warranty, beginning of year	$	1,645,692		$	497,034
Exchange differences		38,679			—
Warranty claims		(3,896,142	)		(1,028,230	)
Provision for warranties		6,738,461			2,176,888
Accrued warranty, end of year	$	4,526,690		$	1,645,692

(4)	Fair Value of Financial Instruments
	Financial assets of the Company include cash and cash equivalents, trade accounts receivable and notes receivable. Financial liabilities of the Company include trade accounts payable, other current liabilities and obligations under equity appreciation rights plan. The Company has no derivative instruments at December 31, 2005 and 2004. Management considers that the fair values of the Company’s financial instruments approximate their carrying amounts due to the short-term nature of these instruments.
(5)	Income Tax
	Income tax benefit attributable to income from operations consists of:

	December 31,			December 31,
	2005			2004
Current
Mainland, the PRC	$	—		$	618,506
Other jurisdictions		74,325			66,872
Deferred
Mainland, the PRC		(7,025,723	)		(708,419	)
Other jurisdictions		(20,427	)		(18,587	)
Income tax benefit	$	(6,971,825	)	$	(41,628	)

16

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(5)	Income Tax (continued)
	The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdictions in which they operate. The Company is subject to Hong Kong profits tax at a rate of 17.5% for the years ended December 31, 2005 and 2004. The Company did not have any profits during the years ended December 31, 2005 and 2004 that were subject to Hong Kong profits tax.
	For the years ended December 31, 2005 and 2004, revenue and profit generating operations and activities of the Company are primarily carried out by its wholly owned subsidiary, Hangzhou Huawei-3Com in the PRC. The general statutory income tax rate in the PRC is 33%. Hangzhou Huawei-3Com is located in the Hangzhou High-tech Zone and obtained a preferential tax rate from the Municipal Tax Bureau of 26.4% in 2003. The preferential tax rate was further changed to 24% in 2005 because the Company qualified as a high-and-new technology company. During 2005, Hangzhou Huawei-3Com received approval to change its tax status to a double intensive high tech enterprise. The applicable rate for such tax status is 15%. Hangzhou Huawei-3Com is entitled to tax concessions whereby it is exempted from the PRC income tax for two consecutive years from the first year in which Hangzhou Huawei-3Com records assessable profits and will be entitled to a 50% reduction in income tax in the following three years. Consequently the Hangzhou Huawei-3Com’s effective tax rate was nil in 2004 and 2005, and will be 7.5% in 2006, 2007 and 2008.
	Management of Hangzhou Huawei-3Com elected to pay income tax for the period ended December 31, 2003 (the company’s initial period) in order to take the advantage of a full-year tax holiday starting January 1, 2004. The years ended 2005 and 2004 are Hangzhou Huawei-3Com’s 100% tax holiday years and no provision for income tax has been made in respect of 2005 and 2004 due to the tax holiday period. Income tax in the amount of $618,506 in the income statement for the year ended December 31, 2004 represents an additional tax charge to true up the tax liability relating to the Company’s initial period.
	Historically, substantially all of the Company’s temporary differences which generate deferred tax assets and liabilities occur within the Hangzhou Huawei-3Com. As at December 31, 2004, to the extent that temporary differences were expected to reverse in 2005, Hangzhou Huawei-3Com’s temporary differences were not valued because of the impact of the tax holiday (nil rate) described above. As at December 31, 2005, Hangzhou Huawei-3Com valued its deferred tax assets and liabilities at a rate of 7.5%, which is the effective “enacted” rate during the subsequent periods of expected reversal.

17

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(5)	Income Tax (continued)
	Income tax benefit attributable to income from operations differed from the amounts computed by applying the Hong Kong income tax rate of 17.5% to pretax income from operations as a result of the following:

	2005			2004
Computed “expected” tax expense	$	7,498,714		$	2,629,760
Increase/(reduction) in income taxes resulting from:
Foreign tax holiday on deferred tax for temporary differences		(7,427,740	)		(708,419	)
Adjustment to deferred tax assets and liabilities for change in tax status		402,017			—
Foreign tax differential		2,331,690			(351,738	)
Foreign tax holiday		(8,564,874	)		(1,481,609	)
Permanent differences		(1,228,034	)		(57,285	)
Other, net		16,402			(72,337	)
Total	$	(6,971,825	)	$	(41,628	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2005 and 2004 are presented below:

	December 31,		December 31,
	2005		2004
Current portion of deferred tax assets:
Accrued expenses	$	1,905,157	$	—
Sales reserve		3,229,326		—
Others		1,321,787		—
	$	6,456,270	$	—
Non-current portion of deferred tax assets:
Accrued expenses	$	842,078	$	509,532
Fixed assets due to differences in depreciation		435,134		148,449
Others		59,423		69,025
	$	1,336,635	$	727,006
Total deferred tax assets	$	7,792,905	$	727,006

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at December 31, 2005. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

Income taxes have not been provided on undistributed earnings of $52,623,420 from foreign subsidiaries since it is the Company’s intention to permanently reinvest such earnings. It is impracticable to estimate the total tax liability, if any, which would be caused by the future distribution of these earnings.

18

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(6)	Intangible Assets
	Intangibles assets contributed by a stockholder consist of:

	As of December 31, 2005
			Weighted
	Gross		average
	carrying		amortisation	Accumulated
	amount		period	amortisation		Net
Amortising intangible assets:
Customer-related assets	$	1,100,000	5 years		517,581		582,419
Non-amortised intangible assets:
Trademark		11,000,000			—		11,000,000
OEM-out agreement to a stockholder		24,900,000			—		24,900,000
Total	$	37,000,000			517,581		36,482,419

	As of December 31, 2004
			Weighted
	Gross		average
	carrying		amortisation	Accumulated
	amount		period	amortisation		Net
Amortising intangible assets:
Customer-related assets	$	1,100,000	5 years		315,000		785,000
Non-amortised intangible assets:
Trademark		11,000,000			—		11,000,000
OEM-out agreement to a stockholder		24,900,000			—		24,900,000
Total	$	37,000,000			315,000		36,685,000

Amortisation expense for amortising intangible assets for the years ended December 31, 2005 and 2004 was $202,581 and $280,000, respectively. Estimated amortisation expense for the next three years is $202,581 in 2006, $202,581 in 2007 and $177,257 in 2008.

19

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(7)	Common Stock and Additional Paid-in Capital
	Authorized and issued Capital
	In accordance with an ordinary resolution passed on November 14, 2003, the Company’s authorized common stock was increased to 9,705,000 shares at $1 each. 4,949,550 and 4,755,450 shares were issued to Shenzhen Huawei Investment Holding Co., Ltd. and 3Com Technologies Co., Ltd. respectively.
	Call Options
	In accordance with the Stockholders’ Agreement between Shenzhen Huawei Investment Holding Co., Ltd. and 3Com Technologies dated November 15, 2003, 3Com Technologies shall have the one-time option upon the second anniversary of the establishment of the Company to purchase from Shenzhen Huawei Investment Holding Co., Ltd. the number of shares that is equal to 2% of the shares outstanding at a price to be agreed between two parties, subject to a cap of USD 28 million.
	Furthermore, under the Stockholders’ Agreement, each stockholder shall have the right to purchase all of the shares held by the other stockholder and its affiliates, at any time upon or after the third anniversary of the establishment of the Company. Such purchase price is to be determined by a bidding process between two parties.
	Stockholders’ contributions
	In accordance with the Contribution Agreement dated March 19, 2003 and the Stockholders’ Agreement, the stockholders contributed the following assets with an aggregate NAV of 202,067,904 to the Company:

			3Com
	Shenzhen Huawei		Corporation
	Investment		& 3Com
	Holding Co., Ltd.		Technologies
	and its subsidiaries		Co., Ltd.		Total
Cash contributed	$	4,949,550	$	160,078,354	$	165,027,904
Intangible assets contributed		—		37,040,000		37,040,000
		4,949,550		197,118,354		202,067,904
Fixed assets donated by an affiliated subsidiary subsequent to contribution and the Stockholders’ Agreements		606,341		—		606,341
Cash		50		—		50
Contributed capital	$	5,555,941	$	197,118,354	$	202,674,295

20

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(7)	Common Stock and Additional Paid-in Capital (continued)
	In accordance with the Contribution Agreement, 3Com Corporation contributed $160,078,354 in cash, certain intangible assets plus personnel and marketing resources related to its business in the PRC and Japan to the Company. Shenzhen Huawei Investment Holding Co., Ltd. contributed certain personnel, certain intangible assets, technology related to its enterprise networking businesses and its sales and marketing team. As Shenzhen Huawei Investment Holding Co., Ltd. had more than a 50% voting interest in the Company at the time of the Company’s formation, net assets contributed by 3Com Corporation were recorded at fair value. Whereas, the net assets contributed by Shenzhen Huawei Investment Holding Co., Ltd. were recorded at historical cost.
(8)	Equity Appreciation Rights Plan
	In October 2004, the Company’s Board of Directors approved the establishment of an Equity Appreciation Rights Plan (“EARP”). The Company’s employees (other than assemblers) and consultants (“Participants”) may participate in the EARP. EARP “units” shall be awarded to grantees for no consideration, but the units are non-transferable and subject to certain restrictions in the event of grantees’ termination or a liquidation event as defined in the Stockholders’ Agreement. Vested units shall entitle the holder to a portion of a cash payout pool as defined by the plan.
	Under the EARP, employees are eligible to receive an annual grant of the plan units beginning from November 2004 through November 2006. The first vesting date is the earlier occurrence of a liquidation event or March 31, 2007. The Participants shall not possess any rights as a stockholder of the Company with respect to a plan unit, including, without limitation, rights concerning voting and dividends. That is, the Participants only have the right to redeem the vested plan units for cash payment equal to a fixed amount calculated as a fixed percentage of the Company’s earnings as defined (EBIT). If the Participants terminate or leave the Company, their unvested plan units shall automatically be forfeited and their vested units will be paid out in a lump sum after March 31, 2007. However, the payout pool does not proportionally go down when the Participants terminate or leave. The EARP was announced to the participants in 2004.

21

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(8)	Equity Appreciation Rights Plan (continued)
	The Company recognized compensation expense under the Equity Appreication Rights Plan as follows:

	2005		2004
Compensation expense for EARP	$	7,086,776	$	2,446,598

	The accrued EARP expense as of December 31, 2005 and 2004 is $9,484,009 and $2,446,686, respectively which is recognized as other liabilities on the consolidated balance sheets.
(9)	Business and Credit Concentrations
	Political, Economic and Social Risks
	The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for the past two decades, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social, or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.
	Foreign Currency Risk
	A majority of the revenue-generating operations are transacted in Renminbi, which is not fully convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchanges as quoted by the People’s Bank of China. However, the unification of the exchange rate does not imply convertibility of Renminbi into United States dollars or other foreign currencies. While the official exchange rate for the conversion of Renminbi to United States dollars has generally been stable in recent years, any revaluation of Renminbi may adversely affect the Company’s operations. All foreign exchange transactions continue to take place either through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.
	With the authorisation from the PRC government, the People’s Bank of China announced that the PRC government reformed the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies on 21 July 2005. The exchange rate of US dollars against RMB was adjusted to 8.11 yuan per US dollar with effect from the time of 19:00 hours on 21 July 2005.

22

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(9)	Business and Credit Concentrations (continued)
	Business and Credit Concentration
	Related party sales accounted for 51.3% and 44.2% (see note 10) of the Company’s net revenue in the years ended December 31, 2005 and 2004, respectively. The following reflects the sales volume to the customers that individually accounted for more than 5% of the net sales during either of the years presented.

	2005					2004
Customer	Sales amount		Sales %			Sales amount		Sales %
Huawei Technologies Co., Ltd.	$	160,715,354		36	%	$	95,802,112		36	%
Shenzhen Qipusheng Technology Co., Ltd.	$	46,959,406		11	%	$	33,051,287		13	%
3Com Technologies Ireland	$	30,885,416		7	%	$	2,930,456		1	%
Beijing Fangzheng Info System Co., Ltd.	$	31,101,800		7	%	$	20,434,367		8	%
Wangxin Info Holding Co., Ltd.	$	28,723,684		6	%	$	16,326,925		6	%
Hangzhou Xiechuang Tech Co., Ltd.	$	21,720,762		5	%	$	17,136,794		7	%
3Com Corporation	$	18,921,994		4	%	$	15,237,477		6	%
Weida Hightech Holding Co., Ltd.	$	10,528,898		2	%	$	20,647,797		8	%

Besides the Huawei and 3Com group companies, which are the Company’s stockholders or related parties, the other major customers are the Company’s distributors. Management of the Company considers that the loss of one or more of its distributors would not have a material adverse effect on the revenues or operations of the Company.

As noted above, the Company is a key supplier to Huawei Technologies Co., Ltd. Such businesses represent part of the core products in Huawei’s equipment and solution sales that are not substitutable by other Huawei suppliers. Huawei Technologies Co., Ltd. provides information technology, product testing and other services to the Company. The Company also leases its headquarters and primary operating facility from Huawei Technologies Co., Ltd. Although the Company is a Huawei significant subsidiary, it has autonomy in engaging any third parties to provide such services.

23

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(10)	Related Party Transactions and Balances
	Related party transactions of the Company for the years ended December 31, 2005 and 2004 respectively are set out as the following:

	2005					2004
	Amount		%			Amount		%
Sales to related parties:
Huawei Technologies Co., Ltd.	$	160,715,354		36	%	$	95,802,112		36	%
3Com Technologies Ireland	$	30,885,416		7	%	$	2,930,456		1	%
3Com Corporation	$	18,921,994		4	%	$	15,237,477		6	%
Huawei Technologies Investment Co., Ltd.	$	17,012,958		4	%	$	2,786,452		1	%
Beijing Xintonghuaan Technologies Co., Ltd	$	14,341,596		3	%	$	7,720,643		3	%
3Com Europe	$	1,344,929		0.3	%	$	524,903		0.2	%
Service sales to related parties:
3Com Europe	$	662,800				$	—
Huawei Technologies Co., Ltd	$	671,093				$	34,635
3Com Corporation	$	353,000				$	—
Purchase of inventories from related parties
Huawei Technologies Co., Ltd.	$	55,693,335		18	%	$	102,582,801		46	%
3Com Asia Pacific Rim Pte Ltd.	$	13,241,697		4	%	$	11,232,024		5	%
3Com Corporation	$	—		—		$	1,561,701		1	%
Huawei Technologies Investment Co., Ltd.	$	4,444,044		1	%	$	1,724,854		1	%
Rent paid to related party:
Huawei Technologies Co., Ltd.	$	2,977,635				$	2,794,898

Rental expense for the years ended December 31, 2005 and 2004 was classified as follows:

	2005		2004
Cost of goods sold	$	1,071,949	$	810,520
Selling, general and administrative expenses		1,042,172		922,316
Research and development expenses		863,514		1,062,062
	$	2,977,635	$	2,794,898

24

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(10)	Related Party Transactions and Balances (continued)
IT support service provided by related party (recorded in selling, general, and administrative expenses):

	2005			2004
Huawei Technologies Co., Ltd.	$	1,824,548		$	1,306,004
IT cooperation service provided by related party (recorded in selling, general, and administrative expenses):
Huawei Technologies Co., Ltd.	$	3,225,915		$	943,867
Research and development cooperation service provided by related party (recorded in research and development expenses):
Huawei Technologies Co., Ltd.	$	1,579,161		$	557,382
Huawei Technologies Investment Co., Ltd.	$	440,629		$	—
Sales branch expense paid by related party (recorded in selling, general, and administrative expenses):
Huawei Technologies Co., Ltd.	$	435,162		$	992,470
Huawei Technologies Investment Co., Ltd.	$	993,658		$	266,393
Management fee paid to related party (recorded in selling, general, and administrative expenses):
3Com Asia Pacific Rim Pte. Ltd.	$	87,818		$	86,993
Reimbursement of leasehold improvements (recorded under fixed assets):
During 2005 the Company and Huawei Technologies Co., Ltd. reached an agreement for the Company to pay Huawei Technologies Co., Ltd. less than the amount originally accrued. This resulted in the $1,384,178 balance below:
Huawei Technologies Co., Ltd.	$	(1,384,178	)	$	5,250,000
The management of the Company is of the opinion that the above transactions were in the normal course of business and on normal commercial terms and all costs borne by stockholders on behalf of the Company and its subsidiaries are recognized and reflected in the accounts.

25

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(10)	Related Party Transactions and Balances (continued)
	Related party balances of the Company as of December 31, 2005 and 2004 are set out as follows:
	Due from related parties:

	2005		2004
Huawei Technologies Co., Ltd.	$	50,273,804	$	20,681,325
Huawei Technologies Investment Co., Ltd.		1,215,877		2,061,458
3Com Corporation		2,924,090		1,719,890
3Com Technologies Ireland		9,131,412		1,544,574
3Com Asia Pacific Rim Pte Ltd.		37,587		—
3Com Europe		132,430		459,469
	$	63,715,200	$	26,466,716
Due to related parties:
Huawei Technologies Co., Ltd.	$	9,538,761	$	21,019,510
3Com Asia Pacific Rim Pte Ltd.		1,650,633		1,413,290
Huawei Technologies Investment Co., Ltd.		1,130,658		353,322
Huawei Information Technology Co., Ltd.		61,956		—
3Com Corporation		1,183		4,928
3Com Technologies Ireland		—		1,795
	$	12,383,191	$	22,792,845

Balances with related parties are unsecured, interest free and have no fixed settlement term. These balances are expected to be settled within one year.

26

HUAWEI-3COM CO., LIMITED AND SUBSIDIARIES
December 31, 2005 and 2004
Notes to Consolidated Financial Statements

(11)	Leases
	The Company has several noncancelable opeating leases, primarily for office buildings, that expire over the next four years. Rental expenses for operating lease during 2005 and 2004 was $7,231,680 and $6,361,286, respectively.
	Future minimum lease payments under noncancelable operating lease as of December 31, 2005 are as follows:

	Operating leases
Years ending December 31:
2006	$	10,285,980
2007		10,106,168
2008		5,090,841
2009		—
Total minimum lease payments	$	25,482,989

(12)	Subsequent Events
	As discussed in note 1(a), in January 2006 the majority ownership of the Company was changed from Shenzhen Huawei Investment Holding Co., Ltd. to 3 Com Technology Co., Ltd.
	The Company is currently in the process of petitioning the Court of First Instance of High Court, Hong Kong for a capital reduction which will enable it to distribute $80,000,000 to its stockholders. The Company anticipates that the court will grant approval for the petition by December 31, 2006.

27

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED CONSOLDIATED FINANCIAL STATEMENTS OF
HUAWEI-3COM CO., LIMITED

As previously reported, on November 28, 2006, we announced that Huawei Technologies had accepted our bid to purchase Huawei’s 49 percent interest in our joint venture, Huawei-3Com Co., Limited (“H3C”), for $882 million (the “Acquisition”). The Acquisition closed on March 29, 2007. The total acquisition and financing costs for this transaction were approximately 3 percent of the transaction value for a total value of $891 million. We used approximately $473.0 million of our SCN segment cash balances to fund a portion of the purchase price for the Acquisition and related fees and expenses. Huawei-3Com Co., Limited will now be known as H3C Technologies Co., Limited, or H3C.

The following unaudited pro forma condensed consolidated balance sheet as of March 2, 2007 and the unaudited pro forma condensed consolidated statements of operations for the nine months ended March 2, 2007 and the year ended June 2, 2006 are based on the historical financial statements of 3Com and H3C after giving effect to the Acquisition, using the purchase method of accounting, borrowings made in connection therewith under the Senior Facility (as described in Note 3) and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma condensed consolidated balance sheet as of March 2, 2007 is presented to give effect to the Acquisition as if it and the borrowings under the Senior Facility had occurred on March 2, 2007 and consolidates the historical 3Com March 2, 2007 balance sheet and the historical H3C December 31, 2006 balance sheet. The unaudited pro forma condensed consolidated statements of operations of 3Com and H3C for the nine months ended March 2, 2007 and the year ended June 2, 2006 are presented as if the Acquisition and the borrowings under the Senior Facility had occurred on June 4, 2005, the beginning of the fiscal periods presented. As H3C reports on a calendar year basis, we consolidated H3C based on H3C’s most recent financial statements, two months in arrears. The unaudited pro forma condensed consolidated statements of operations for the nine months ended March 2, 2007 contain the results of H3C’s operations for the nine months ended December 31, 2006. The unaudited pro forma condensed consolidated statements of operations for the year ended June 2, 2006 contain the results of H3C’s operations for twelve months ended March 31, 2006.

Under the purchase method of accounting, the total preliminary purchase price as described in Note 2 to these unaudited pro forma condensed consolidated financial statements was allocated to the net tangible and intangible assets of H3C acquired in connection with the Acquisition based on their fair values as of the completion of the acquisition. The estimated fair values of certain assets and liabilities have been determined with the assistance of third party valuation specialists. The preliminary work performed by the third party valuation specialists has been considered in management’s estimates of the fair values reflected in these unaudited pro forma condensed consolidated financial statements. Management’s estimates and assumptions are subject to change upon the finalization of the valuation and may be adjusted in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. The purchase price allocation is preliminary.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and the accompanying notes of 3Com included in 3Com Corporation’s Annual Report on Form 10-K for the year ended June 2, 2006 and quarterly reports filed on Form 10-Q for the three months ended September 1, 2006, the three and six months ended December 1, 2006 and the three and nine months ended March 2, 2007, which were filed with the Securities and Exchange Commission. The unaudited pro forma condensed consolidated financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of 3Com that would have been reported had the Acquisition and the borrowings under the Senior Facility been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition of 3Com. The unaudited pro forma condensed consolidated financial statements do not reflect any operating efficiencies and cost savings that 3Com may achieve with respect to the consolidated companies nor do they include the effects of 3Com’s future repayment of the borrowings under the Senior Facility.

1

Unaudited Pro Forma Condensed Consolidated Balance Sheet

of 3Com Corporation and Huawei-3Com Co., Limited

March 2, 2007

						Elimination of
						H3C results
						already in
						3Com’s						Pro Forma
						Consolidated			Pro Forma			Condensed
(In thousands)	3Com			H3C		Results (a)			Adjustments			Consolidated
ASSETS
Current assets:
Cash and equivalents	$	842,761		$	294,319	$	(294,319	)	$	(473,041	)(b)	$	369,720
Short-term investments		113,386			—		—			—			113,386
Notes receivable		35,671			35,671		(35,671	)		—			35,671
Accounts receivable, net		144,345			76,443		(76,443	)		—			144,345
Inventories, net		124,459			95,096		(95,096	)		13,117	(c)		137,576
Other current assets		51,214			18,578		(18,578	)		—			51,214
Total current assets		1,311,836			520,107		(520,107	)		(459,924	)		851,912
Property and equipment, net		80,564			35,474		(35,474	)		—			80,564
Goodwill		357,430			40		(40	)		217,701	(d)		575,131
Intangible assets, net		80,166			36,280		(36,280	)		460,439	(e)		540,605
Deposits and other assets		27,662			15,435		(15,435	)		12,406	(f)		40,068
Total assets	$	1,857,658		$	607,336	$	(607,336	)	$	230,622		$	2,088,280
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	128,916		$	93,766	$	(93,766	)	$	—		$	128,916
Accrued liabilities and other		342,239			156,982		(156,982	)		64,884	(g)(h)(i)		407,123
Current portion of long-term debt		—			—		—			94,000	(j)		94,000
Total current liabilities		471,155			250,748		(250,748	)		158,884			630,039
Deferred revenue and long-term obligations		2,354			24,569		(24,569	)		31,868	(g)		34,222
Long term debt		—			—		—			336,000	(j)		336,000
Minority interest		171,853			—		—			(171,853	)(k)		—
Stockholders’ equity:													—
Common stock		2,316,571			122,705		(122,705	)		—			2,316,571
Retained (deficit) earnings		(1,110,183	)		198,990		(198,990	)		(120,684	)(l)		(1,230,867	)
Accumulated other comprehensive income (loss)		5,908			10,324		(10,324	)		(3,593	)(l)		2,315
Total stockholders’ equity		1,212,296			332,019		(332,019	)		(124,277	)		1,088,019
Total liabilities and stockholders’ equity	$	1,857,658		$	607,336	$	(607,336	)	$	230,622		$	2,088,280

The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.

2

Unaudited Pro Forma Condensed Consolidated Statement of Operations

of 3Com Corporation and Huawei-3Com Co., Limited

Year Ended June 2, 2006

						Elimination of
						H3C results
						already in
						3Com’s						Pro Forma
						Consolidated			Pro Forma			Condensed
(In thousands)	3Com			H3C		Results (a)			Adjustments			Consolidated
Sales	$	794,807		$	517,246	$	(103,623	)	$	(61,649	)(m)	$	1,146,781
Cost of sales		466,743			280,553		(54,480	)		(50,984	)(m)(i)		641,832
Gross profit		328,064			236,693		(49,143	)		(10,665	)		504,949
Operating expenses:
Sales and marketing		274,745			84,474		(15,620	)		13,576	(i)		357,175
Research and development		101,870			73,957		(11,732	)		20,864	(i)		184,959
General and administrative		72,596			18,525		(2,851	)		5,081	(i)		93,351
Amortization and write-down of intangible assets		20,903			—		—			101,232	(e)		122,135
In-process research and development		650			—		—			—			650
Restructuring charges		14,403			—		—			—			14,403
Total operating expenses		485,167			176,956		(30,203	)		140,753			772,673
Operating (loss) income		(157,103	)		59,737		(18,940	)		(151,418	)		(267,724	)
Gain on investments, net		4,333			—		20			—			4,353
Interest income, net		29,085			6,890		(1,909	)		(54,096	)(f)(n)		(20,030	)
Other income, net		8,235			8,031		(7,363	)		—			8,903
(Loss) income before income taxes, equity interest in loss of unconsolidated joint venture and minority interest		(115,450	)		74,658		(28,192	)		(205,514	)		(274,498	)
Income tax benefit		14,833			4,136		2,541			7,592 (g	) (o)		29,102
Equity interest in unconsolidated joint venture		11,016			—		—			(11,016)	(p)		—
Minority interest in income of consolidated joint venture		(11,074	)		—		—			11,074	(k)		—
Net (loss) income	$	(100,675	)	$	78,794	$	(25,651	)	$	(197,864	)	$	(245,396	)

The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.

3

Unaudited Pro Forma Condensed Consolidated Statement of Operations

of 3Com Corporation and Huawei-3Com Co., Limited

Nine Months Ended March 2, 2007

							Elimination of
							H3C results
							already in
							3Com’s						Pro Forma
							Consolidated			Pro Forma			Condensed
(In thousands)	3Com			H3C			Results (a)			Adjustments			Consolidated
Sales	$	956,561		$	556,985		$	(556,985	)	$	—		$	956,561
Cost of sales		516,544			295,699			(295,699	)		2,264	(i)		518,808
Gross profit		440,017			261,286			(261,286	)		(2,264	)		437,753
Operating expenses:
Sales and marketing		230,648			86,505			(86,505	)		6,585	(i)		237,233
Research and development		144,363			82,523			(82,523	)		10,120	(i)		154,483
General and administrative		65,083			15,879			(15,879	)		2,464	(i)		67,547
Amortization and write-down of intangible assets		34,630			—			—			68,242	(e)		102,872
In-process research and development		1,700			—			—			—			1,700
Restructuring charges		2,776			—			—			—			2,776
Total operating expenses		479,200			184,907			(184,907	)		87,411			566,611
Operating (loss) income		(39,183	)		76,379			(76,379	)		(89,675	)		(128,858	)
Gain on investments, net		799			—			—			—			799
Interest income, net		32,802			5,975			(5,975	)		(44,681)	(f)(n)		(11,879	)
Other income, net		26,971			24,655			(24,655	)		—			26,971
Income before income taxes and minority interest		21,389			107,009			(107,009	)		(134,356	)		(112,967	)
Income tax (provision) benefit		(5,047	)		(5,223	)		5,223			5,118	(g)(o)		71
Minority interest in income of consolidated joint venture		(38,705	)		—			—			38,705	(k)		—
Net (loss) income	$	(22,363	)	$	101,786		$	(101,786	)	$	(90,533	)	$	(112,896	)

The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.

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1. Basis of Pro Forma Presentation

The unaudited pro forma condensed consolidated balance sheet as of March 2, 2007 is presented to give effect to the acquisition, by 3Com Corporation (“3Com”) of the remaining 49% of Huawei-3Com Co., Limited (“H3C”), as if it and the borrowings under the Senior Facility (See note 4) had occurred on March 2, 2007 and combines the historical 3Com March 2, 2007 balance sheet and the historical H3C December 31, 2006 balance sheet. The unaudited pro forma condensed consolidated statements of operations for the nine months ended March 2, 2007 and the year ended June 2, 2006 are presented as if the acquisition and the borrowings under the Senior Facility had occurred on June 4, 2005 the beginning of the fiscal periods presented. No pro forma adjustments were required to conform H3C’s accounting policies to 3Com’s accounting policies.

Under the purchase method of accounting the total preliminary purchase price as described in Note 2 to these unaudited pro forma condensed consolidated financial statements was allocated to the net tangible and intangible assets of H3C acquired in connection with the purchase of Huawei’s 49 percent stake of the joint venture based on their fair values as of the completion of the acquisition. The estimated fair values of certain assets and liabilities have been determined with the assistance of third party valuation specialists. The preliminary work performed by the third party valuation specialists has been considered in management’s estimates of the fair values reflected in these unaudited pro forma condensed consolidated financial statements. Management’s estimates and assumptions are subject to change upon the finalization of the valuation and may be adjusted in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations. The purchase price allocation is preliminary.

2. Acquisition of Huawei-3Com Co., Limited

On November 17, 2003, 3Com formed the Huawei-3Com joint venture, or H3C, with a subsidiary of Huawei Technologies, Ltd., or Huawei. H3C is domiciled in Hong Kong, and has its principal operating center in Hangzhou, China.

At the time of formation, we contributed cash of $160.0 million, assets related to our operations in China and Japan, and licenses related to certain intellectual property in exchange for a 49 percent ownership interest in H3C. We recorded our initial investment in H3C at $160.1 million, reflecting our carrying value for the cash and assets contributed. Huawei contributed its enterprise networking business assets — including Local Area Network, or LAN, switches and routers; engineering, sales and marketing resources and personnel; and licenses to its related intellectual property — in exchange for a 51 percent ownership interest. Huawei’s contributed assets were valued at $178.2 million at the time of formation.

Two years after the formation of H3C, we had the one-time option to purchase an additional two percent ownership interest from Huawei. On October 28, 2005, we exercised this right and entered into an agreement to purchase an additional two percent ownership interest in H3C from Huawei for an aggregate purchase price of $28.0 million. We were granted regulatory approval by the People’s Republic of China (“PRC”) and subsequently completed this transaction on January 27, 2006. Consequently, we owned a majority interest in the joint venture and, therefore, consolidated H3C’s financial statements beginning February 1, 2006, a date used under the principle of a convenience close. As H3C reports on a calendar year basis, we consolidate H3C based on H3C’s most recent financial statements, two months in arrears.

Three years after formation of H3C, we and Huawei each had the right to initiate a bid process to purchase the equity interest in H3C held by the other. 3Com initiated the bidding process on November 15, 2006 to buy Huawei’s 49 percent stake in H3C and our bid of $882 million was accepted by Huawei on November 27, 2006. The transaction closed on March 29, 2007, at which time the purchase price was paid in full.

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Under the purchase method of accounting, the total estimated purchase price was allocated to H3C’s tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the completion of the acquisition. The preliminary purchase price as of the date of closing is shown below (in millions):

	Preliminary Purchase Price
Cash	$	882.0
Direct acquisition costs		8.6
Total purchase price	$	890.6

The preliminary estimated purchase price was allocated as follows (in millions):

	Preliminary Purchase Price
	Allocation
Net assets acquired	$	149.5
Identifiable intangible assets:
Trademark		112.6
Core technology		90.1
Completed technology		167.9
Distributor relationship		1.7
OEM-out agreement with Huawei		42.0
Huawei non-compete agreement		46.1
Total identifiable intangible assets		460.4
In-process research and development		63.0
Goodwill		217.7
Total preliminary purchase price allocation	$	890.6

The preliminary allocation of the purchase price was based upon a preliminary valuation and our estimates and assumptions which are subject to change upon the finalization of the valuation. The purchase price allocation is preliminary.

Of the total estimated purchase price, a preliminary estimate of approximately $149.5 million was allocated to net assets acquired. Net assets were valued at their respective carrying amounts, which management believes approximate fair value, except for adjustments to inventory and deferred revenue. Inventory was adjusted by an increase of $13.1 million in the pro forma condensed consolidated balance sheet, to adjust inventory to the actual fair value less direct selling expense plus reasonable profit. Deferred revenues were reduced by $0.4 million in the pro forma condensed consolidated balance sheet, to adjust deferred revenue to the estimated cost plus an appropriate profit margin to perform the support and maintenance services.

Approximately $460.4 million was allocated to acquired identifiable intangible assets. Existing core technology is comprised of products that have reached technological feasibility, which includes most of H3C’s technology. The remainder of intangible assets is associated with maintenance agreements, trademarks, and non-competition agreements. The amortization related to the amortizable intangible assets is reflected as a pro forma adjustment to the unaudited pro forma condensed consolidated statements of operations.

Of the total estimated purchase price, approximately $63.0 million was allocated to in-process research and development (IPR&D) and was charged to expense upon completion of the acquisition. IPR&D represents incomplete H3C research and development projects that had not reached technological feasibility and had no alternative future use as of the acquisition date. Technological feasibility is established when an enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that a product can be produced to meet its design specifications including functions, features, and technical performance requirements. At the time of acquisition, H3C had multiple IPR&D efforts under way for certain current and future product lines. Purchased IPR&D relates primarily to projects associated

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with certain H3C routers and switch products which had not yet reached technological feasibility as of the acquisition date and have no alternative future use.

Of the total estimated purchase price, approximately $217.7 million was allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill amounts are not amortized, but rather are tested for impairment at least annually. In the event that we determine that the value of the goodwill has become impaired, an accounting charge for the amount of the impairment will be incurred in the quarter in which such determination is made.

3. Equity Appreciation Rights Plan

The closing of the acquisition triggered a bonus program for substantially all of H3C’s approximately 4,800 employees. This program, which was implemented by Huawei and 3Com in a prior period, is called the Equity Appreciation Rights Plan, or EARP, and funds a bonus pool based upon a percentage of the appreciation in H3C’s value from the initiation of the program to the time of the closing of the Acquisition. A portion of the program is also based on cumulative earnings of H3C. The total value of the EARP is expected to be approximately $190 million. Approximately $37 million related to cumulative earnings was accrued by December 31, 2006 (the fiscal year end for H3C), and about $90 million is expected to vest in future periods. Finally, based upon the vesting schedules, within our H3C results, we recorded an incremental net charge of approximately $60 million related to the change in control, just prior to the closing of our incremental ownership acquisition. The first cash pay-out under the program is currently expected to occur within 3Com’s fourth fiscal quarter of 2007, and we expect this payment to be approximately $95 to $100 million. We expect the unvested portion will be accrued in our H3C operating segment over the next 3 years serving as a continued retention and incentive program for H3C employees.

4. Senior Facility

On March 22, 2007, H3C Holdings Limited (the “Borrower”), an indirect wholly-owned subsidiary of 3Com Corporation, entered into a Credit and Guaranty Agreement dated as of March 22, 2007 among H3C Holdings Limited, as Borrower, 3Com Corporation, 3Com Holdings Limited and 3Com Technologies, as Holdco Guarantors, various Lenders, Goldman Sachs Credit Partners L.P., as Mandated Lead Arranger, Bookrunner, Administrative Agent and Syndication Agent (“GSCP”), and Industrial and Commercial Bank of China (Asia) Limited, as Collateral Agent (the “Senior Facility”). Under the Senior Facility, on March 28, 2007 the Borrower borrowed $430 million (the “Existing Loan”) to finance a portion of the purchase price for our March 29, 2007 acquisition (the “Acquisition”) of 49 percent of our China-based joint venture, H3C Technologies Co., Limited (“H3C”), from an affiliate of Huawei Technologies.

As previously disclosed, on May 25, 2007, the parties amended and restated the Senior Facility in order to, among other things, convert the Existing Loan into two tranches with different principal amortization schedules and different interest rates (the “A&R Loans”). The other provisions of the Senior Facility, including covenants, collateral, temporary guarantees and other provisions, remain largely unchanged. It was expected that the closing of the A&R Loans would take place on May 31, 2007.

3Com and H3C are not borrowing additional funds under the A&R Loans. Other than with respect to transaction fees and expenses, the consummation of the closing of the A&R Loans resulted in fund transfers solely among existing and new lenders.

The A&R Loans are subject to the terms and conditions of an Amended and Restated Credit and Guaranty Agreement dated as of May 25, 2007 and effective as of May 31, 2007 among H3C Holdings Limited, as Borrower, 3Com Corporation, 3Com Holdings Limited and 3Com Technologies, as Holdco Guarantors, H3C, as a Guarantor, various Lenders, GSCP, as Mandated Lead Arranger, Bookrunner, Administrative Agent and Syndication Agent, and Industrial and Commercial Bank of China (Asia) Limited, as Collateral Agent.

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5. Pro Forma Adjustments

The unaudited pro forma condensed consolidated financial statements include the pro forma adjustments necessary to give effect to the purchase accounting adjustments and borrowings as if the Acquisition and the borrowings occurred on March 2, 2007 for the balance sheet and June 4, 2005 for the unaudited pro forma condensed consolidated statements of operations for the nine months ended March 2, 2007 and the year ended June 2, 2006, respectively.

The pro forma adjustments included in the unaudited pro forma condensed consolidated financial statements are as follows:

(a)	Adjustments to eliminate the results of H3C audited financial statements, to the extent they are already consolidated into the 3Com consolidated financial statements. For the year ended June 2, 2006 3Com only consolidated 2 months of H3C results as prior to that period 3Com was the minority shareholder. For the nine months ended March 2, 2007, 3Com consolidated 9 months of H3C results.
(b)	Adjustment to record the following adjustments to cash and cash equivalents:

(in millions):

To record proceeds from the Senior Facility	$	430.0
To record cash paid for the Senior Facility fees		(12.4	)
To record cash paid for Huawei’s 49 percent share of H3C		(882.0	)
To record estimated acquisition transaction costs		(8.6	)
Total adjustment to cash	$	(473.0	)

(c)	Adjustment reflects our acquired 49 percent portion of the difference between our preliminary estimate of the fair value of inventory, net and the historical carrying value of inventory, net.
(d)	Adjustment to reflect the preliminary estimate of the fair value of goodwill of approximately $217.7 million. transaction costs of approximately $8.6 million.

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(e) Adjustments to reflect the preliminary estimate of the fair value of identifiable intangible assets of approximately $452.7 million and the resulting increase in the straight line amortization expense for the periods presented, as follows (in millions):

	Estimated		Amount of Annual		Amount of 9 -
	Fair Value		Amortization		Month Amortization		Useful Life in Years
Trademark	$	112.6	$	—	$	—	Indefinite
Core technology		90.1		15.0		11.3		6
Distributor relationship		1.7		0.8		0.6		2
Completed technology		167.9		54.7		40.9		2 - 4
OEM-out agreement with Huawei		42.0		—		—	Indefinite
Huawei non-compete agreement		46.1		30.7		15.4		1.5
Total	$	460.4	$	101.2	$	68.2

(f)	Adjustment to record the payment of the Senior Facility fees. The amortized expense was $2.3 million and 1.7 million for the twelve months ended June 2, 2006 and nine months ended March 2, 2007, respectively. These fees will be amortized to interest expense over the life of the Senior Facility which is 5 years and 5 months.
(g)	Adjustment to record deferred tax liabilities related to basis differences resulting from the Acquisition and the related amortization of the deferred tax liability as basis differences reverse. The adjustment to the pro forma balance sheet aggregated $39.5 million at March 2, 2007.
(h)	Adjustment to record the acquired 49 percent difference between the preliminary estimate of the fair value and the historical amount of deferred revenue. The adjustment to the pro forma balance sheet aggregated $0.4 million at March 2, 2007.

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(i) Adjustment to accrue contingent payments to employees under an EARP plan associated with the prospective vesting of the EARP awards post acquisition. The EARP expense related to the following statements of income captions:

	12 Months Ended		9 Months Ended
(in millions):	June 2, 2006		March 2, 2007
Cost of sales	$	4.7	$	2.3
Sales and marketing		13.6		6.6
Research and development		20.8		10.1
General and administrative		5.1		2.4
Total	$	44.2	$	21.4

(j)	Adjustment to record the current and long-term portions of the Senior Facility used to fund part of the purchase price for the acquisition.
(k)	Adjustment to eliminate the minority interest of Huawei held in H3C pre-acquisition.
(l)	Adjustments to stockholder’s equity (in millions):

To record the preliminary estimate of the fair value of in-process research and development	$	(63.0	)
To record the charge for contingent payments to employees triggered by the change of control		(57.7	)
To eliminate remaining accumulated other comprehensive income		(3.6	)
Total adjustment to stockholder’s equity excluding inventory and deferred revenue adjustments	$	(124.3	)

(m) Adjustment to eliminate additional months of intercompany sales for the periods prior to 3Com acquiring control in February 2006.

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(n)	Adjustments to record the interest expense associated with the Senior Facility for the period. The interest rate for the Tranche A is LIBOR plus 2.00 points, the interest rate for Tranche B is LIBOR plus 3.00 points. The LIBOR interest used to calculate the interest expense is 5.37%. The LIBOR The interest expense is $33.7 million and $25.3 million for the twelve months ended June 2, 2006 and nine months ended March 2, 2007, respectively. The adjustment also reverses the interest income earned for the period for the cash consideration paid in connection with the acquisition. The interest income reversed is $18.1 million and $17.7 million for the twelve months ended June 2, 2006 and nine months ended March 2, 2007, respectively.
(o)	Adjustment to record the income tax effect on H3C’s results of operations of the pro forma adjustments utilizing 7.5 percent statutory rate for H3C.
(p)	Adjustment to eliminate 3Com’s equity interest in the as reported unconsolidated H3C joint venture.

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