##### Table of Contents





SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2008.
|- | -------------------------------------------------------------------------------------------------------------------------------------

or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from
             to             .
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number 000-02642





COGO GROUP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 52-0466460                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

Room 1001, Tower C, Skyworth Building

High-Tech Industrial Park

Nanshan,
Shenzhen 518057, PRC

(Address of Principal Executive Offices including zip code)

011-86-755-267-43210

(Registrants Telephone Number, Including Area Code)





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

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities
Exchange Act).    Yes   ̈    No  x

There were 38,211,971 shares of the Registrants Common Stock issued and outstanding on August 5, 2008.









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##### Table of Contents

Cogo Group, Inc.

Index to Form 10-Q



|           |  |                                                                                                |  |     
|---------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                |  | Page
|           |  |                                                                                               
|Part I.    |  | Financial Information                                                                          |  | 3   
|           |  |                                                                                               
|           |  | Item 1. Condensed Financial Statements (unaudited)                                             |  | 3   
|           |  |                                                                                               
|           |  | Condensed Consolidated Balance Sheetsas of June 30, 2008 and December 31, 2007                 |  | 3   
|           |  |                                                                                               
|           |  | Condensed Consolidated Statements of Incomefor the three months ended June 30, 2008 and 2007   |  | 4   
|           |  |                                                                                               
|           |  | Condensed Consolidated Statements of Incomefor the six months ended June 30, 2008 and 2007     |  | 5   
|           |  |                                                                                               
|           |  | Condensed Consolidated Statements of Cash Flowsfor the six months ended June 30, 2008 and 2007 |  | 6   
|           |  |                                                                                               
|           |  | Notes to Condensed Consolidated Financial Statements                                           |  | 7   
|           |  |                                                                                               
|           |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations  |  | 14  
|           |  |                                                                                               
|           |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                             |  | 26  
|           |  |                                                                                               
|           |  | Item 4. Controls and Procedures                                                                |  | 27  
|           |  |                                                                                               
|Part II.   |  | Other Information                                                                              |  | 28  
|           |  |                                                                                               
|           |  | Item 1. Legal Proceedings                                                                      |  | 28  
|           |  |                                                                                               
|           |  | Item 1A. Risk Factors                                                                          |  | 28  
|           |  |                                                                                               
|           |  | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                            |  | 28  
|           |  |                                                                                               
|           |  | Item 3. Defaults Upon Senior Securities                                                        |  | 28  
|           |  |                                                                                               
|           |  | Item 4. Submission of Matters to a Vote of Security Holders                                    |  | 28  
|           |  |                                                                                               
|           |  | Item 5. Other Information                                                                      |  | 28  
|           |  |                                                                                               
|           |  | Item 6. Exhibits                                                                               |  | 29  
|           | 
|SIGNATURES |  | 30                                                                                            



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. | CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
|------- | ------------------------------------------

COGO GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheet

As of June 30, 2008 and December 31, 2007



|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | - |  | ------------- | - |  | ------------ | -
|                                                                                                                                                 |  | June 30, 2008 |   |  | June 30, 2008 |   |  | Dec 31, 2007 |  
|                                                                                                                                                 |  | $000         |   |  | RMB000       |   |  | RMB000      |  
|Assets                                                                                                                                           |  |               |   |  |               |   |  |              |  
|Current assets:                                                                                                                                  |  |               |   |  |               |   |  |              |  
|Cash                                                                                                                                             |  | 122,535       |   |  | 840,482       |   |  | 919,650      |  
|Pledged bank deposits                                                                                                                            |  | 7,419         |   |  | 50,885        |   |  | 51,603       |  
|Accounts receivable, net of allowance for doubtful accounts                                                                                      |  | 73,229        |   |  | 502,288       |   |  | 418,329      |  
|Bills receivable                                                                                                                                 |  | 2,437         |   |  | 16,716        |   |  | 35,300       |  
|Inventories                                                                                                                                      |  | 15,214        |   |  | 104,351       |   |  | 129,892      |  
|Prepaid expenses and other receivables                                                                                                           |  | 2,965         |   |  | 20,339        |   |  | 18,306       |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Total current assets                                                                                                                             |  | 223,799       |   |  | 1,535,061     |   |  | 1,573,080    |  
|Property and equipment, net                                                                                                                      |  | 2,825         |   |  | 19,379        |   |  | 17,848       |  
|Intangible assets, net                                                                                                                           |  | 19,792        |   |  | 135,754       |   |  | 148,659      |  
|Investment in an affiliated company                                                                                                              |  | 61            |   |  | 416           |   |  | 416          |  
|Goodwill                                                                                                                                         |  | 14,502        |   |  | 99,474        |   |  | 99,474       |  
|Other assets                                                                                                                                     |  | 143           |   |  | 980           |   |  | 1,063        |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Total Assets                                                                                                                                     |  | 261,122       |   |  | 1,791,064     |   |  | 1,840,540    |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Liabilities and stockholders equity                                                                                                             |  |               |   |  |               |   |  |              |  
|Current liabilities:                                                                                                                             |  |               |   |  |               |   |  |              |  
|Trade accounts payable                                                                                                                           |  | 25,178        |   |  | 172,699       |   |  | 174,628      |  
|Bank borrowings                                                                                                                                  |  |              |   |  |              |   |  | 9,080        |  
|Amounts due to related parties                                                                                                                   |  |              |   |  |              |   |  | 1,403        |  
|Income taxes payable                                                                                                                             |  | 1,474         |   |  | 10,110        |   |  | 6,957        |  
|Accrued expenses and other liabilities                                                                                                           |  | 13,723        |   |  | 94,124        |   |  | 169,046      |  
|Deferred income taxes                                                                                                                            |  | 575           |   |  | 3,944         |   |  | 4,071        |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Total current liabilities                                                                                                                        |  | 40,950        |   |  | 280,877       |   |  | 365,185      |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Deferred income taxes                                                                                                                            |  | 2,667         |   |  | 18,293        |   |  | 21,487       |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Total liabilities                                                                                                                                |  | 43,617        |   |  | 299,170       |   |  | 386,672      |  
|Stockholders equity                                                                                                                             |  |               |   |  |               |   |  |              |  
|Common stock Par value: USD 0.01 Authorized: 200,000,000 Shares; Issued and outstanding: 38,616,971 shares in 2008 and 38,496,167 shares in
2007 |  | 460           |   |  | 3,158         |   |  | 3,150        |  
|Additional paid-in capital                                                                                                                       |  | 163,223       |   |  | 1,119,569     |   |  | 1,085,459    |  
|Retained earnings                                                                                                                                |  | 74,312        |   |  | 509,711       |   |  | 428,333      |  
|Accumulated other comprehensive loss                                                                                                             |  | (15,326       | ) |  | (105,122      | ) |  | (63,074      | )
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|                                                                                                                                                 |  | 222,669       |   |  | 1,527,316     |   |  | 1,453,868    |  
|Less cost of common stock in treasury, 405,000 shares in 2008.                                                                                   |  | 5,164         |   |  | 35,422        |   |  |             |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Total stockholders equity                                                                                                                       |  | 217,505       |   |  | 1,491,894     |   |  | 1,453,868    |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  
|Total liabilities and stockholders equity                                                                                                       |  | 261,122       |   |  | 1,791,064     |   |  | 1,840,540    |  
|                                                                                                                                                 |  |               |   |  |               |   |  |              |  

See accompanying notes to condensed consolidated financial statements.



3



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COGO GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

Three months ended June 30, 2008 and 2007



|                                                     |  |                                |   |  |                                |   |  |                                |  
|---------------------------------------------------- |  | ------------------------------ | - |  | ------------------------------ | - |  | ------------------------------ | -
|                                                     |  | Three MonthsEndedJune 30, 2008 |   |  | Three MonthsEndedJune 30, 2008 |   |  | Three MonthsEndedJune 30, 2007 |  
|                                                     |  | $000                          |   |  | RMB000                        |   |  | RMB000                        |  
|Net Revenue                                          |  |                                |   |  |                                |   |  |                                |  
|Product sales                                        |  | 67,632                         |   |  | 463,897                        |   |  | 371,794                        |  
|Services revenue                                     |  | 586                            |   |  | 4,020                          |   |  | 13,023                         |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|                                                     |  | 68,218                         |   |  | 467,917                        |   |  | 384,817                        |  
|Cost of sales                                        |  |                                |   |  |                                |   |  |                                |  
|Cost of goods sold                                   |  | (55,579                        | ) |  | (381,223                       | ) |  | (301,439                       | )
|Cost of services                                     |  | (367                           | ) |  | (2,517                         | ) |  | (9,014                         | )
|                                                     |  |                                |   |  |                                |   |  |                                |  
|                                                     |  | (55,946                        | ) |  | (383,740                       | ) |  | (310,453                       | )
|Gross profit                                         |  | 12,272                         |   |  | 84,177                         |   |  | 74,364                         |  
|Selling, general and administrative expenses         |  | (4,864                         | ) |  | (33,364                        | ) |  | (26,209                        | )
|Research and development expenses                    |  | (1,575                         | ) |  | (10,800                        | ) |  | (10,487                        | )
|Other operating income, net                          |  | 16                             |   |  | 108                            |   |  | 326                            |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|Income from operations                               |  | 5,849                          |   |  | 40,121                         |   |  | 37,994                         |  
|Interest expense                                     |  | (85                            | ) |  | (587                           | ) |  | (984                           | )
|Interest income                                      |  | 1,019                          |   |  | 6,990                          |   |  | 7,049                          |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|Income before income taxes and minority interests    |  | 6,783                          |   |  | 46,524                         |   |  | 44,059                         |  
|Income tax expense                                   |  | (317                           | ) |  | (2,173                         | ) |  | (3,580                         | )
|                                                     |  |                                |   |  |                                |   |  |                                |  
|Income before minority interests                     |  | 6,466                          |   |  | 44,351                         |   |  | 40,479                         |  
|Minority interests                                   |  |                               |   |  |                               |   |  | (1,794                         | )
|                                                     |  |                                |   |  |                                |   |  |                                |  
|Net income                                           |  | 6,466                          |   |  | 44,351                         |   |  | 38,685                         |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|                                                     |  |                                |  
|                                                     |  | $                              |   |  | RMB                            |   |  | RMB                            |  
|Earnings per share                                   |  |                                |   |  |                                |   |  |                                |  
|- Basic                                              |  | 0.17                           |   |  | 1.14                           |   |  | 1.05                           |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|- Diluted                                            |  | 0.16                           |   |  | 1.11                           |   |  | 1.02                           |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|Weighted average number of common shares outstanding |  |                                |   |  |                                |   |  |                                |  
|- Basic                                              |  |                                |   |  | 39,035,887                     |   |  | 36,772,864                     |  
|                                                     |  |                                |   |  |                                |   |  |                                |  
|- Diluted                                            |  |                                |   |  | 40,094,428                     |   |  | 38,041,918                     |  
|                                                     |  |                                |   |  |                                |   |  |                                |  

See accompanying notes to condensed consolidated financial statements.



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COGO GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

Six months ended June 30, 2008 and 2007



|                                                     |  |                              |   |  |                              |   |  |                              |  
|---------------------------------------------------- |  | ---------------------------- | - |  | ---------------------------- | - |  | ---------------------------- | -
|                                                     |  | Six MonthsEndedJune 30, 2008 |   |  | Six MonthsEndedJune 30, 2008 |   |  | Six MonthsEndedJune 30, 2007 |  
|                                                     |  | $000                        |   |  | RMB000                      |   |  | RMB000                      |  
|Net Revenue                                          |  |                              |   |  |                              |   |  |                              |  
|Product sales                                        |  | 127,237                      |   |  | 872,732                      |   |  | 704,871                      |  
|Services revenue                                     |  | 2,512                        |   |  | 17,230                       |   |  | 24,089                       |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|                                                     |  | 129,749                      |   |  | 889,962                      |   |  | 728,960                      |  
|Cost of sales                                        |  |                              |   |  |                              |   |  |                              |  
|Cost of goods sold                                   |  | (103,959                     | ) |  | (713,065                     | ) |  | (572,037                     | )
|Cost of services                                     |  | (1,506                       | ) |  | (10,331                      | ) |  | (16,744                      | )
|                                                     |  |                              |   |  |                              |   |  |                              |  
|                                                     |  | (105,465                     | ) |  | (723,396                     | ) |  | (588,781                     | )
|Gross profit                                         |  | 24,284                       |   |  | 166,566                      |   |  | 140,179                      |  
|Selling, general and administrative expenses         |  | (10,663                      | ) |  | (73,142                      | ) |  | (52,428                      | )
|Research and development expenses                    |  | (2,979                       | ) |  | (20,433                      | ) |  | (19,044                      | )
|Other operating income, net                          |  | 10                           |   |  | 70                           |   |  | 386                          |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|Income from operations                               |  | 10,652                       |   |  | 73,061                       |   |  | 69,093                       |  
|Interest expense                                     |  | (121                         | ) |  | (827                         | ) |  | (1,753                       | )
|Interest income                                      |  | 2,130                        |   |  | 14,608                       |   |  | 8,749                        |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|Income before income taxes and minority interests    |  | 12,661                       |   |  | 86,842                       |   |  | 76,089                       |  
|Income tax expense                                   |  | (797                         | ) |  | (5,464                       | ) |  | (6,544                       | )
|                                                     |  |                              |   |  |                              |   |  |                              |  
|Income before minority interests                     |  | 11,864                       |   |  | 81,378                       |   |  | 69,545                       |  
|Minority interests                                   |  |                             |   |  |                             |   |  | (2,338                       | )
|                                                     |  |                              |   |  |                              |   |  |                              |  
|Net income                                           |  | 11,864                       |   |  | 81,378                       |   |  | 67,207                       |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|                                                     |  |                              |  
|                                                     |  | $                            |   |  | RMB                          |   |  | RMB                          |  
|Earnings per share                                   |  |                              |   |  |                              |   |  |                              |  
|- Basic                                              |  | 0.30                         |   |  | 2.08                         |   |  | 1.92                         |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|- Diluted                                            |  | 0.30                         |   |  | 2.03                         |   |  | 1.86                         |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|Weighted average number of common shares outstanding |  |                              |   |  |                              |   |  |                              |  
|- Basic                                              |  |                              |   |  | 39,051,296                   |   |  | 34,925,417                   |  
|                                                     |  |                              |   |  |                              |   |  |                              |  
|- Diluted                                            |  |                              |   |  | 40,053,218                   |   |  | 36,185,980                   |  
|                                                     |  |                              |   |  |                              |   |  |                              |  

See accompanying notes to condensed consolidated financial statements.



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COGO GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

Six months ended June 30, 2008 and 2007



|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | - |  | ---------------------------- | - |  | ---------------------------- | -
|                                                                                  |  | Six MonthsEndedJune 30, 2008 |   |  | Six MonthsEndedJune 30, 2008 |   |  | Six MonthsEndedJune 30, 2007 |  
|                                                                                  |  | $000                        |   |  | RMB000                      |   |  | RMB000                      |  
|Cash flows from operating activities:                                             |  |                              |   |  |                              |   |  |                              |  
|Net income                                                                        |  | 11,864                       |   |  | 81,378                       |   |  | 67,207                       |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |   |  |                              |   |  |                              |  
|Depreciation expense                                                              |  | 618                          |   |  | 4,237                        |   |  | 1,935                        |  
|Amortization of intangible assets                                                 |  | 1,881                        |   |  | 12,905                       |   |  | 3,552                        |  
|Loss on disposal of property and equipment                                        |  | 4                            |   |  | 28                           |   |  |                             |  
|Minority interests                                                                |  |                             |   |  |                             |   |  | 2,338                        |  
|Deferred income taxes                                                             |  | (484                         | ) |  | (3,321                       | ) |  |                             |  
|Share-based compensation                                                          |  | 2,951                        |   |  | 20,238                       |   |  | 15,675                       |  
|Change in current assets and liabilities:                                         |  |                              |   |  |                              |   |  |                              |  
|Accounts receivable                                                               |  | (15,975                      | ) |  | (109,575                     | ) |  | (67,119                      | )
|Prepaid expenses and other receivables                                            |  | (539                         | ) |  | (3,697                       | ) |  | (7,354                       | )
|Bill receivables                                                                  |  | 2,709                        |   |  | 18,584                       |   |  | 12,988                       |  
|Inventories                                                                       |  | 3,501                        |   |  | 24,012                       |   |  | (23,307                      | )
|Trade accounts payable                                                            |  | 667                          |   |  | 4,577                        |   |  | 35,772                       |  
|Amounts due to related parties                                                    |  | (198                         | ) |  | (1,358                       | ) |  |                             |  
|Income taxes payable                                                              |  | 499                          |   |  | 3,422                        |   |  | (815                         | )
|Accrued expenses and other liabilities                                            |  | (1,357                       | ) |  | (9,307                       | ) |  | (2,392                       | )
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Net cash provided by operating activities                                         |  | 6,141                        |   |  | 42,123                       |   |  | 38,480                       |  
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Cash flows used in investing activities:                                          |  |                              |   |  |                              |   |  |                              |  
|Payment for acquisitions of subsidiaries                                          |  | (6,413                       | ) |  | (43,986                      | ) |  | (57,140                      | )
|(Increase)/decrease in pledged bank deposits                                      |  | (354                         | ) |  | (2,431                       | ) |  | 176                          |  
|Purchases of property and equipment                                               |  | (644                         | ) |  | (4,415                       | ) |  | (3,777                       | )
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Net cash used in investing activities                                             |  | (7,411                       | ) |  | (50,832                      | ) |  | (60,741                      | )
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Cash flows (used in)/provided by financing activities:                            |  |                              |   |  |                              |   |  |                              |  
|                                                                                  |  |                              |  
|Purchase of Treasury Stock                                                        |  | (5,164                       | ) |  | (35,422                      | ) |  |                             |  
|Proceeds from issuance of new shares, net of offering costs                       |  |                             |   |  |                             |   |  | 641,868                      |  
|Proceeds from exercise of stock warrants and options                              |  |                             |   |  |                             |   |  | 2,284                        |  
|Proceeds from bank borrowings                                                     |  |                             |   |  |                             |   |  | 58,580                       |  
|Repayment of bank borrowings                                                      |  | (1,281                       | ) |  | (8,784                       | ) |  | (67,601                      | )
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Net cash (used in)/provided by financing activities                               |  | (6,445                       | ) |  | (44,206                      | ) |  | 635,131                      |  
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Effect of exchange rate changes on cash                                           |  | (3,827                       | ) |  | (26,253                      | ) |  | (13,306                      | )
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Net (decrease)/ increase in cash                                                  |  | (11,542                      | ) |  | (79,168                      | ) |  | 599,564                      |  
|Cash at beginning of the period                                                   |  | 134,077                      |   |  | 919,650                      |   |  | 375,147                      |  
|                                                                                  |  |                              |   |  |                              |   |  |                              |  
|Cash at end of the period                                                         |  | 122,535                      |   |  | 840,482                      |   |  | 974,711                      |  
|                                                                                  |  |                              |   |  |                              |   |  |                              |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

COGO GROUP INC. and SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Six months ended June 30, 2008 and 2007

Note 1 - Basis Of Presentation

The accompanying unaudited condensed consolidated financial statements of Cogo Group, Inc., (formerly Comtech Group, Inc, (the Company)) and its subsidiaries (together, we, us or
our)) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States
generally accepted accounting principles have been condensed or omitted. For a summary of our accounting principles, and other footnote information, reference is made to the Companys 2007 audited consolidated financial statements included in
our Annual Report on Form 10-K (the 10-K) filed with the Securities and Exchange Commission on March 17, 2008. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction
with the audited consolidated financial statements and notes included in that 10-K. All adjustments necessary for the fair presentation of the results of operations for the interim periods covered by this report have been included. All such
adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the operating results for the full year.

The accompanying unaudited condensed consolidated financial statements are expressed in Renminbi (RMB), the national currency of the Peoples Republic
of China (the PRC). Solely for the convenience of the reader, the June 30, 2008 unaudited condensed consolidated financial statements have been translated into United States dollars (USD or $) at the closing
rate in New York City on June 30, 2008 for cable transfers in RMB as certified for customers purposes by the Federal Reserve Bank of New York of USD 1.00 = RMB6.8591. No representation is made that the RMB could have been, or could be,
converted into USD at that rate or at any other certain rate on June 30, 2008, or at any other certain date.

The value of the RMB is subject to
changes in the PRCs central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Since 1994, the conversion of RMB into foreign
currencies, including USD, has been based on rates set by the Peoples Bank of China, which are set daily based on the previous days interbank foreign exchange market rates and current exchange rates on the world financial markets. From
1994 until July 2005, the official exchange rate generally had been stable, but the Chinese government announced in July 2005 that it would no longer peg its currency exclusively to the USD. Although currently the RMB exchange rate versus the USD is
restricted to a rise or fall of no more than 0.3% per day and the Peoples Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the policy would increase the
volatility of RMB as compared to USD.

Note 2 - Organization And Nature Of Business

The Company and its subsidiaries are principally engaged in the sale of component parts for electronic devices and equipment, such as liquid crystal display, cameras, persistent storage and peripheral devices for
wireless handsets and fixed-line telecommunications to manufacturers in the PRC and other overseas countries. The Company and its subsidiaries also provide technology and engineering, business process outsourcing and other related services in the
PRC.

Note 3 - Summary Of Principal Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).

Revenue recognition

Sales of components

The Company recognizes revenue when the components are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is
probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable.



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Sales of components represent the invoiced value of goods, net of value added taxes (VAT), sales returns,
trade discounts and allowances.

In the PRC, VAT at a general rate of 17% on invoice amount is collected on behalf of tax authorities in respect of the
sales of products and is not recorded as revenue. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the consolidated balance sheets until it is paid to the authorities.

Engineering Services

Revenue for services is generally recognized when
services are performed.

Recently Issued Accounting Pronouncements

In February 2008, FASB issued FASB Staff Position (FSP) FAS 157-1 Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements. That Address Fair
Value Measurement for Purposes of Lease Classification or Measurement under Statement 13, and FSP FAS 157-2, Effective Date of FASB Statement No. 157. FSP FAS 157-1 amends the scope of SFAS No. 157 and other
accounting standards that address fair value measurements for purpose of lease classification or measurement under Statement 13. The FSP is effective on initial adoption of Statement 157, FSP FAS 157-2 defers the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. We do not expect the
adoption of FSP FAS 157-1 and FSP FAS 157-2 will have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS
No. 141(R), Business Combinations and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an amendment to ARB No. 51. SFAS No. 141(R) and SFAS No. 160
require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests (previously referred to as minority interests)
to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after December 15, 2008, and earlier adoption is prohibited.
SFAS No. 141(R) will be applied to business combinations occurring after the effective date. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. We are currently
evaluating the impact of adopting SFAS No. 160 on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities, which requires enhanced disclosures about an entitys derivative and hedging activities. This Statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. We do not expect the adoption of SFAS 161 will have a material impact on our results of operations and financial position.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). This statement
identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with United States generally accepted
accounting principles (USGAAP). With the issuance of this statement, the FASB concluded that the USGAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB
as opposed to the American Institute of Certified Public Accountants AICPA) Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. This
statement is effective 60 days following the Securities and Exchange commissions approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.We do not expect the adoption of SFAS 162 will have a material impact on our results of operations and financial position.

Note 4 - Bills Receivable

To reduce the Companys credit risk, the Company requires certain customers to pay
for the sale of the Companys products by bills receivable. Bills receivable represents short-term notes receivable issued by a financial institution that entitles the Company to receive the full face amount from the financial institution at
maturity, which generally ranges from 3 to 6 months from the date of issuance. Historically, the Company has experienced no losses on bills receivable.



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In certain circumstances, the Company has arranged to transfer with recourse certain of its bills receivable to banks.
Under this discounting arrangement, the bank pays a discounted amount to the Group and collects the amounts owed from the customers banks. The discount typically ranges from 5% to 6% of the balance transferred, which is recorded as interest
expense.

For certain bills receivable sold to banks that the Company has surrendered control, the Company derecognized the discounted bills receivable
pursuant to the provisions of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140). As at June 30, 2008 and December 31, 2007, the Company
has derecognized discounted bills receivable amounting to RMB42,108 thousand ($6,139 thousand) and RMB19,935 thousand , respectively in accordance with SFAS No. 140.

Note 5 - Inventories

Inventories by major categories are as follows:



|               |  |               |  |               |  |              
|-------------- |  | ------------- |  | ------------- |  | -------------
|               |  | June 30, 2008 |  | June 30, 2008 |  | Dec. 31, 2007
|               |  | USD           |  | RMB           |  | RMB          
|Raw materials  |  | 1,987         |  | 13,625        |  | 15,534       
|Finished goods |  | 13,227        |  | 90,726        |  | 114,358      
|               |  |               |  |               |  |              
|               |  | 15,214        |  | 104,351       |  | 129,892      
|               |  |               |  |               |  |              

Note 6 - Property and equipment, net



|                                |  |               |   |  |               |   |  |               |  
|------------------------------- |  | ------------- | - |  | ------------- | - |  | ------------- | -
|                                |  | June 30, 2008 |   |  | June 30, 2008 |   |  | Dec. 31, 2007 |  
|                                |  | USD           |   |  | RMB           |   |  | RMB           |  
|Property and equipment, at cost |  | 4,960         |   |  | 34,022        |   |  | 28,015        |  
|Less: accumulated depreciation  |  | (2,135        | ) |  | (14,643       | ) |  | (10,167       | )
|                                |  |               |   |  |               |   |  |               |  
|Property and equipment, net     |  | 2,825         |   |  | 19,379        |   |  | 17,848        |  
|                                |  |               |   |  |               |   |  |               |  

Note 7 - Intangible assets, net



|                               |  |               |   |  |               |   |  |               |  
|------------------------------ |  | ------------- | - |  | ------------- | - |  | ------------- | -
|                               |  | June 30, 2008 |   |  | June 30, 2008 |   |  | Dec. 31, 2007 |  
|                               |  | USD           |   |  | RMB           |   |  | RMB           |  
|Intangible assets, at cost     |  | 23,729        |   |  | 162,759       |   |  | 162,759       |  
|Less: Accumulated amortization |  | (3,937        | ) |  | (27,005       | ) |  | (14,100       | )
|                               |  |               |   |  |               |   |  |               |  
|                               |  | 19,792        |   |  | 135,754       |   |  | 148,659       |  
|                               |  |               |   |  |               |   |  |               |  

Note 8 - Share-Based Compensation

(a) Options and stock warrants assumed under the Share Exchange Agreement

Prior to the share
exchange transaction between Trident Rowan Group Inc. (Trident) and the Company (the Share Exchange Agreement), the Board of Directors of Trident adopted, and the then stockholders of Trident approved, the 1995 Stock Option
Plan for Outside Directors (the Directors Plan) under which 5,000 options would be granted annually to each non-employee director of Trident for each full year of service on the Board of Trident. As part of the Share Exchange
Agreement, the Company assumed fully vested options under the Directors Plan to purchase 115,000 shares of the Companys common stock. The options granted under the Directors Plan have a weighted average exercise price per option of
$3.00 each and expire on July 1, 2009. Since the Share Exchange Agreement, the Company has not granted additional options under the Directors Plan. None of the options exercisable under the Directors Plan was exercised in the three
months ended June 30, 2008 or 2007. As of June 30, 2008, 100,000 options under the Directors Plan were outstanding with a weighted average exercise price per share of $3.00 and aggregate intrinsic value of $611 thousand.

Prior to the Share Exchange Agreement, Trident granted fully exercisable stock warrants to purchase up to 925,417 shares of its common stock which were assumed by the
Company as a part of the Share Exchange Agreement. The stock warrants assumed by the



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Company have a weighted average exercisable price per stock warrant of $2.76 each and expire on July 1, 2009. During the six months ended June 30,
2008 and 2007, Nil and 145,105 stock warrants with weighted average exercisable price per stock warrant of Nil and $2.62 each were exercised respectively. As of June 30, 2008, 19,999 exercisable stock warrants remained outstanding with a
weighted average exercisable price per stock warrant and aggregate intrinsic value of $3 each and $122 thousand, respectively.

(b) 2004
Incentive Plan

On August 3, 2004, the Board of Directors adopted the Cogo Group, Inc. 2004 Stock Incentive Plan (the 2004
Incentive Plan) pursuant to which 2,500,000 shares of the Companys common stock are reserved for issuance upon exercise of stock options, and for the issuance of stock appreciation rights, non-vested shares and performance shares. The
purpose of the 2004 Incentive Plan is to provide additional incentive to employees, directors, advisors and consultants. Unless the 2004 Incentive Plan is early terminated by the Board, the 2004 Incentive Plan provides for a term of 10 years from
the date of its adoption by the Board of Directors, after which no awards may be made.

Stock options

A summary of stock option activity is as follows:



|                                |  |                  |  |                               |  |                                         |  |                        
|------------------------------- |  | ---------------- |  | ----------------------------- |  | --------------------------------------- |  | -----------------------
|                                |  | Numberof options |  | Weightedaverageexercise price |  | Weightedaverageremainingcontractualterm |  | Aggregateintrinsicvalue
|                                |  |                  |  | USD                           |  | Years                                   |  | USD                    
|Balance as of December 31, 2007 |  | 1,192,269        |  | 4.09                          |  |                                         |  |                        
|                                |  |                  |  |                               |  |                                         |  |                        
|Granted                         |  |                 |  |                              |  |                                         |  |                        
|Exercised                       |  |                 |  |                              |  |                                         |  |                        
|Forfeited                       |  |                 |  |                              |  |                                         |  |                        
|Balance as of June 30, 2008     |  | 1,192,269        |  | 4.09                          |  | 6.52                                    |  | 5,988                  
|                                |  |                  |  |                               |  |                                         |  |                        
|Exercisable as of June 30, 2008 |  | 1,192,269        |  | 4.09                          |  | 6.52                                    |  | 5,988                  

Non-vested equity share unit

A summary of non-vested equity share unit activity is as follows:



|                              |  |        |   |  |                                      
|----------------------------- |  | ------ | - |  | -------------------------------------
|                              |  | Shares |   |  | Weighted averageGrant-date fair value
|                              |  |        |   |  | USD                                  
|Balance as of January 1, 2008 |  | 2,964  |   |  | 9.14                                 
|Vested                        |  | (1,250 | ) |  | 9.14                                 
|                              |  |        |   |  |                                      
|Balance as of June 30, 2008   |  | 1,714  |   |  | 9.14                                 
|                              |  |        |   |  |                                      

The total fair value of non-vested equity share units vested during the six months ended June 30, 2008 was
$11 thousand. As of June 30, 2008, the aggregate unamortized fair value of all non-vested equity share units was $16 thousand, which is expected to be amortized on a straight-line basis over a weighted average period of approximately 8 months.

(c) 2006 Incentive Plan

On
December 20, 2006, the Board of Directors adopted the 2006 Equity Incentive Plan (the 2006 Incentive Plan) pursuant to which 4,800,000 shares of the Companys common stock are reserved for issuance upon exercise of stock
options, and for the issuance of stock appreciation rights, restricted stock awards and performance shares. The purpose of the 2006 Incentive Plan is to provide additional incentive to employees, directors, advisors and consultants. Unless the 2006
Incentive Plan is early terminated by the Board, the 2006 Incentive Plan provides for a term of 10 years from the date of its adoption by the Board of Directors, after which no awards may be made.



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##### Table of Contents

Non-vested equity share unit

A summary of non-vested equity share unit issued under the 2006 Incentive Plan is as follows:



|                                     |  |           |   |  |                                      
|------------------------------------ |  | --------- | - |  | -------------------------------------
|                                     |  | Shares    |   |  | Weighted averageGrant-date fair value
|                                     |  |           |   |  | USD                                  
|Balance as of January 1, 2008        |  | 127,484   |   |  | 15.94                                
|Granted on January 28, 2008 (note i) |  | 962,700   |   |  | 9.67                                 
|Granted on March 27, 2008 (note i)   |  | 80,000    |   |  | 10.85                                
|Vested                               |  | (122,510  | ) |  | 11.49                                
|                                     |  |           |   |  |                                      
|Balance as of June 30, 2008          |  | 1,047,674 |   |  | 10.31                                
|                                     |  |           |   |  |                                      

Note i: The stock awards vest in equal quarterly installments over a period of three years from the date of
grant.

The total fair value of non-vested equity share units vested during the six months ended June 30, 2008 was $1,408 thousand. As of
June 30, 2008, the aggregate unamortized fair value of all non-vested equity share units was $10,802 thousand, which is expected to be amortized on a straight-line basis over a weighted average period of approximately 30 months.

Performance shares

A summary of performance shares activity is as
follows:



|                                   |  |         |  |                                      
|---------------------------------- |  | ------- |  | -------------------------------------
|                                   |  | Shares  |  | Weighted averageGrant-date fair value
|                                   |  |         |  | USD                                  
|Balance as of January 1, 2008      |  | 270,000 |  | 16.03                                
|Granted on March 27, 2008 (note i) |  | 160,000 |  | 10.85                                
|Vested                             |  |        |  |                                     
|                                   |  |         |  |                                      
|Balance as of June 30, 2008        |  | 430,000 |  | 14.10                                
|                                   |  |         |  |                                      



|        |  |                                                                                                                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note i: |  | The performance awards vest in three equal installments on December 31, 2008, December 31, 2009 and December 31, 2010 and is subject to the Company meeting certain
earnings and other performance measures in 2008, 2009 and 2010.

The total fair value of non-vested performance shares granted through June 30, 2008 was $6,064 thousand.
Performance-based non-vested share awards are recognized as compensation expense for the fair value on the date of grant, the number of shares ultimately expected to vest and the vesting period.

Note 9 - Earnings Per Share

Basic earnings per share is computed by
dividing net income by the weighted average number of common stock outstanding, including contingently issuable shares when all necessary conditions have been satisfied, during the period. Diluted earnings per share is computed by dividing net
income by the weighted average number of common and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of common shares issuable upon the exercise of stock options, non-vested equity share unit,
including performance shares, and warrants using the treasury stock method.



|                                                               |  |                                |  |                                |  |                              |  |                             
|-------------------------------------------------------------- |  | ------------------------------ |  | ------------------------------ |  | ---------------------------- |  | ----------------------------
|                                                               |  | Three monthsended June 30,2008 |  | Three monthsended June 30,2007 |  | Six monthsended June 30,2008 |  | Six monthsended June 30,2008
|Weighted average number of common shares outstanding  basic   |  | 39,035,887                     |  | 36,772,864                     |  | 39,051,296                   |  | 34,925,417                  
|Effect of diluted securities                                   |  | 1,058,541                      |  | 1,269,054                      |  | 1,001,922                    |  | 1,260,563                   
|                                                               |  |                                |  |                                |  |                              |  |                             
|Weighted average number of common shares outstanding  diluted |  | 40,094,428                     |  | 38,041,918                     |  | 40,053,218                   |  | 36,185,980                  
|                                                               |  |                                |  |                                |  |                              |  |                             



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##### Table of Contents

Note 10 - Operating Segment Information

The Component Sales segment primarily consists of the sale of components for the mobile handset, telecommunication system equipment, industrial business and digital media and other (such as network protection devices
and data storage) markets. The Engineering Services segment primarily consists of the provision of technology and engineering services, business process outsourcing, network system integration and related training and maintenance services. There was
no inter-segment revenue during the periods reported. Unallocated includes items such as corporate staff and overhead.

The following is the segment
information for the three and six month period ended June 30, 2008.



|                                                  |  |                                |   |  |                                |   |  |                             |   |  |                              |  
|------------------------------------------------- |  | ------------------------------ | - |  | ------------------------------ | - |  | --------------------------- | - |  | ---------------------------- | -
|                                                  |  | Three monthsended June 30,2008 |   |  | Three monthsended June 30,2007 |   |  | Six monthsendedJune 30,2008 |   |  | Six monthsended June 30,2007 |  
|                                                  |  | RMB000                        |   |  | RMB000                        |   |  | RMB000                     |   |  | RMB000                      |  
|Net revenue                                       |  |                                |   |  |                                |   |  |                             |   |  |                              |  
|Component sales                                   |  |                                |   |  |                                |   |  |                             |   |  |                              |  
|Mobile handset                                    |  | 160,961                        |   |  | 155,763                        |   |  | 332,581                     |   |  | 293,697                      |  
|Telecommunications equipment                      |  | 136,795                        |   |  | 118,600                        |   |  | 249,280                     |   |  | 228,464                      |  
|Industrial business                               |  | 17,231                         |   |  |                               |   |  | 20,199                      |   |  |                             |  
|Digital Media and others                          |  | 148,910                        |   |  | 97,431                         |   |  | 270,672                     |   |  | 182,710                      |  
|                                                  |  |                                |   |  |                                |   |  |                             |   |  |                              |  
|                                                  |  | 463,897                        |   |  | 371,794                        |   |  | 872,732                     |   |  | 704,871                      |  
|Engineering services                              |  | 4,020                          |   |  | 13,023                         |   |  | 17,230                      |   |  | 24,089                       |  
|Total net revenue                                 |  | 467,917                        |   |  | 384,817                        |   |  | 889,962                     |   |  | 728,960                      |  
|Income from operations                            |  |                                |   |  |                                |   |  |                             |   |  |                              |  
|Component sales                                   |  | 47,087                         |   |  | 50,557                         |   |  | 89,278                      |   |  | 93,862                       |  
|Engineering services                              |  | 4,515                          |   |  | 958                            |   |  | 8,645                       |   |  | 1,188                        |  
|Unallocated                                       |  | (11,481                        | ) |  | (13,521                        | ) |  | (24,862                     | ) |  | (25,957                      | )
|                                                  |  |                                |   |  |                                |   |  |                             |   |  |                              |  
|Total income from operations                      |  | 40,121                         |   |  | 37,994                         |   |  | 73,061                      |   |  | 69,093                       |  
|Interest Income                                   |  | 6,990                          |   |  | 7,049                          |   |  | 14,608                      |   |  | 8,749                        |  
|Interest expense                                  |  | (587                           | ) |  | (984                           | ) |  | (827                        | ) |  | (1,753                       | )
|Income before income taxes and minority Interests |  | 46,524                         |   |  | 44,059                         |   |  | 86,842                      |   |  | 76,089                       |  
|                                                  |  |                                |   |  |                                |   |  |                             |   |  |                              |  



|                     |  |              |  |                 
|-------------------- |  | ------------ |  | ----------------
|                     |  | June 30,2008 |  | December 31,2007
|                     |  | RMB000      |  | RMB000         
|Total assets         |  |              |  |                 
|Component sales      |  | 1,536,221    |  | 1,716,207       
|Engineering services |  | 252,831      |  | 121,763         
|Unallocated          |  | 2,012        |  | 2,570           
|                     |  |              |  |                 
|                     |  | 1,791,064    |  | 1,840,540       
|                     |  |              |  |                 

Note 11: Comprehensive income

A reconciliation of net income to comprehensive income is presented in the table below.



|                                         |  |                                |   |  |                                |   |  |                              |   |  |                              |  
|---------------------------------------- |  | ------------------------------ | - |  | ------------------------------ | - |  | ---------------------------- | - |  | ---------------------------- | -
|                                         |  | Three monthsended June 30,2008 |   |  | Three monthsended June 30,2007 |   |  | Six monthsended June 30,2008 |   |  | Six monthsended June 30,2007 |  
|                                         |  | RMB000                        |   |  | RMB000                        |   |  | RMB000                      |   |  | RMB000                      |  
|Net income                               |  | 44,351                         |   |  | 38,685                         |   |  | 81,378                       |   |  | 67,207                       |  
|Other comprehensive loss                 |  |                                |   |  |                                |   |  |                              |   |  |                              |  
|Foreign currency translation adjustments |  | (15,000                        | ) |  | (10,963                        | ) |  | (42,048                      | ) |  | (13,324                      | )
|                                         |  |                                |   |  |                                |   |  |                              |   |  |                              |  
|Comprehensive income                     |  | 29,351                         |   |  | 27,722                         |   |  | 39,330                       |   |  | 53,883                       |  
|                                         |  |                                |   |  |                                |   |  |                              |   |  |                              |  



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Note 12: Subsequent Events

On July 31, 2008, the Group entered into a stock subscription agreement and a stock purchase agreement with Faith Grace Investments Limited (the Seller), Long Rise Holdings Limited (Long Rise), to acquire a 70%
equity interest in Long Rise for a consideration of $8.75 million in cash, subject to certain payment schedule and conditions to be further agreed between the Group and the Seller. Long Rise and its subsidiary are engaged in the business of design
and distribution of mobile phone modules.



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##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Portions of the discussion and analysis below contain certain statements that are not descriptions of historical facts, but are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our plans and objectives for future expansion,
including into our new digital consumer electronic and storage solution products; expectations for the domestic wireless handset, telecommunications equipment, consumer electronic and storage solution end-markets in the PRC; anticipated margins for
our solutions; general and cyclical economic and business conditions, and, in particular, those in the PRCs wireless handset, telecommunications equipment and consumer electronics industries; our ability to enter into and renew key corporate
and strategic relationships with our customers and suppliers; changes in the favorable tax incentives enjoyed by our PRC operating companies; and other statements containing forward looking terminology such as may, expects,
believes, anticipates, intends, projects, looking forward or similar terms, variations of such terms or the negative of such terms. Such information is based upon various assumptions made
by, and expectations of, our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future
business decisions which are subject to change. Accordingly, there can be no assurance that actual results will meet expectations and actual results may vary (perhaps materially) from certain of the results anticipated herein. For a further
description of these and other risks and uncertainties, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. The following discussion of our financial condition and
results of operations should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q.

Overview

We provide customized module design
solutions for a diverse set of applications and end markets, serving as a gateway for our technology component suppliers to access leading electronics manufacturers in China. Our customized module design solutions allow our customers to take
advantage of technology components from reputable suppliers in an efficient and cost-effective manner, thus reducing their time-to-market and lowering their overall costs. Our close collaboration with our customers product development teams
provides us with a unique understanding of their needs, enabling us to customize our suppliers technology components with module designs that meet our customers needs. In addition, since 2006, we began offering technology and
engineering, and software design services in China.

We are focused on the mobile handset, telecom equipment and digital media end-markets
in China. In the mobile handset end-market, we provide module solutions for functionalities such as LCD, camera, power supply and Bluetooth; in the telecom equipment end-market, we provide solutions for PSTN switching, optical transmitters,
electrical signal processing and optical signal amplification; and in the digital media end-market, we provide solutions for digital set-top boxes and GPS applications. Over the course of our operating history, we have worked with over 200
customers, including a majority of the most established manufacturers in the mobile handset, telecom equipment and digital media end-markets in China such as ZTE, Huawei and Lenovo. In addition to these original equipment manufacturers, or OEMs, our
other customers include industry participants that support these OEMs, such as subsystem designers and contract manufacturers. In developing customized module design solutions for use in our customers



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products, we collaborate closely with over 30 suppliers of technology components, including many large multinational companies such as Broadcom, JDS Uniphase
and Matsushita. In addition, in October 2006, we became one of the first China-based companies to license software technology and have access to selected source codes directly from Microsoft.

For the six months ended June 30, 2008, we have two reportable operating segments: component sales consisting of revenues generated by providing
customized module design solutions focusing primarily in the mobile handset, telecommunications equipment, digital media and industrial business end-markets, and services revenue, generated by providing technology and engineering services, network
system integration and related training and maintenance services.

Principal Factors Affecting Our Results of Operations

The major factors affecting our results of operations and financial condition include:

Revenue mix. Our net revenue and gross profit are affected by our product mix. Over the last year, digital media related sales, which have
generally higher profit margins than our mobile handset module related sales and our telecom equipment module related sales, have constituted a significantly greater portion of our total net revenue as compared to previous years.

Growth in end-market industries. The rapid growth of the domestic mobile handset, telecom equipment, digital media and industrial business
end-markets have been important growth drivers for Chinas electronics manufacturing industries. Specific markets that we expect to experience continued growth are the data communications market, consisting of asymmetric digital subscriber line
(ADSL) modems and Voice over Internet Protocol (VoIP) equipment; the routers and network security equipment markets; the optical transmission systems market; the fixed line telecom network market; the digital media market particularly relating to
digital TV and GPS applications, as well as industrial solutions. Increased domestic consumer spending power has contributed to rapid growth in these markets. This growth in domestic consumer spending power in turn has driven, and we believe will
continue to drive, growth in the electronics manufacturing businesses supporting hardware OEMs, including those engaged in the customized design of module solutions such as ourselves. However, these industries and the respective domestic
manufacturers that operate in these industries may not continue to grow their sales at historical levels, if at all. The stagnation or reduction in overall demand for mobile handset, telecom equipment, digital media and industrial business products
could materially affect our results of operations.

Increase in exports. We believe that the development of a highly-skilled,
low-cost manufacturing base has also enabled Chinas domestic mobile handset, telecom equipment and digital consumer electronics manufacturers to be competitive in the global marketplace. As an example, Huawei has become a major supplier of
telecom equipment to international customers, while ZTE, a major manufacturer of mobile handset and telecom equipment in China, as well as other telecom equipment and mobile handset manufacturers, have also begun to expand overseas. We believe that
growth in the export market will likely have a positive effect on our results of operations and financial condition, as it should increase the demand for our solutions, particularly among our mobile handset and digital media clients.

Growth by entering new end-markets, strengthening in-house capabilities and leveraging our customer base. In 2005, we began targeting the digital
media end-market and, over time, we intend to develop integrated circuit and application software design capabilities and provide solutions based on our own proprietary technology. In the first quarter of 2005, we began generating sales from
customized module design solutions for digital home entertainment products, primarily for digital set-top boxes, through sales to our existing end-customers, Haier, Konka, Lenovo and TCL. We have since then grown our revenues generated from this
market



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from constituting 10.8% of our 2005 revenue to 31.8% of our revenue for the first six months of 2008. We anticipate that sales related to the digital media
end-markets will generally have higher profit margins than our mobile handset and telecom equipment modules related sales, though such higher margins may decline over time as this industry mature. We will also look for opportunities to expand into
new end markets that we believe represent significant growth opportunities.

Our success in the digital media end-market will depend, in
significant part, on our ability to leverage our existing customer base. We expect to continue to incur additional research and development expenses, through hiring additional engineering personnel to develop new solutions and expanding our
intellectual property and technological capabilities, to meet the needs of our customers that have expanded into or are expected to expand into the digital media end-market.

Net Revenue

Product sales

For our component sales segment, we do not charge our customers an independent design fee. Instead, our business model is to generate revenue by reselling
a limited number of specific components required in our module reference design. The difference between the purchase price we pay our suppliers for these components and our sales price to the customer for these components compensates us for our
design, technical support and distribution services. Our net revenue includes a 17% value-added tax, or VAT.

Our broad and diversified
customer base includes many of the major domestic mobile handset, telecom equipment, digital consumer electronics and industrial manufacturers in China. In addition, our customers include industry participants supporting these OEMs, such as
subsystem designers and contract manufacturers in China, as well as international manufacturers who have begun to manufacture end-products in China for the domestic and international market.

Our net revenues are subject to seasonal fluctuation and periods of increased demand. All product module sales are typically highest in the fourth
quarter of the year due to the desire by OEMs to spend remaining budgets allocated for a given period, usually on an annual basis. Net revenues have historically been lowest in the first quarter of the year due to the Chinese New Year holiday and
the general reduction in sales following the holiday season. The digital media industry also experiences cyclical fluctuations, as well as fluctuations in how quickly certain new digital media products and technologies are adopted by the market.
These sales patterns may not be indicative of future sales performance.

Services Revenue

We provide software design technology and engineering services, and related training and maintenance services to our customers. We generate revenue when
our services are rendered and acknowledged by our customers.

Cost of Sales

Our cost of sales comprises cost of goods sold and cost of services.

Cost of Goods Sold

Cost of goods sold primarily consists of the purchase of components from
suppliers. We develop our customized module design solutions based on specific technology components purchased from suppliers in our target end-markets. Our list of over 30 key



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suppliers includes Broadcom (integrated circuit and Bluetooth), Foxconn (LCD display), JDS Uniphase (optoelectronic components), M-Systems (flash memory,
DiskOnChip), Matsushita (switches), Sambu (speakers) and Freescale Semiconductor (automotive solutions). We typically issue purchase orders to our suppliers only after we receive customer orders, enabling us to maintain low inventory levels and, in
turn, minimize risks typically associated with holding inventory. If we lose a key supplier, or a supplier reduces the quantity of products it sells to us, does not maintain a sufficient inventory level of products required by us or is otherwise
unable to meet our demands for its components, we may have to expend significant time, effort and other resources to locate a suitable alternative supplier and secure replacement components. Even if we are able to find a replacement supplier, we may
be required to redevelop the customized module design solution to effectively incorporate the replacement components.

Cost of
Services

Cost of services consists of direct staff costs and other direct related costs for providing engineering and technology
services including training and materials.

Operating Expenses

Selling, General and Administrative Expenses

Our selling expenses include expenditures to promote
our new module solutions and gain a larger customer base, personnel expenses and travel and entertainment costs related to sales and marketing activities, and freight charges. We expense all these expenditures as they are incurred. Selling expenses
are expected to continue to grow in the future as we diversify by developing and acquiring new design capabilities and expanding into new end-markets.

General and administrative expenses include compensation and benefits for our general and administrative staff, professional fees, and general travel and entertainment costs. We expense all general and administrative
expenses as they are incurred. We expect that general and administrative expenses will continue to increase for the foreseeable future as a result of our expected continued growth and the continuing costs of complying with U.S. rules and regulations
necessary to maintain our listing in the United States.

Research and Development Expenses

Research and development expenses consist primarily of salaries and related costs of the employees engaged in research, design and development activities;
the costs for design and testing; the cost of parts for prototypes; equipment depreciation; and third party development expenses. We expense research and development expenses as they are incurred. As of June 30, 2008, we had approximately 244
engineers and other technical employees engaged in research and development related activities to develop new customized module design solutions targeted at the mobile handset, telecom equipment, digital media and industrial business industries. As
a result of additional costs incurred in developing new customized module design solutions, and an increasing headcount in our R&D department, we expect that our research and development expenses, including those relating to the planned hiring
of additional research and development personnel, will increase in the future as we seek to expand our business by developing new customized module design solutions and penetrating new end-markets, and as we seek to grow our engineering services
business.



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Taxation

We are a holding company incorporated in the State of Maryland and conduct substantially all our operations through our PRC operating companies. Although we are subject to United States taxation, we do not anticipate incurring significant
United States income tax liability for the foreseeable future because:



| |  |  | we do not conduct any material business in the United States,
| | - |  | -------------------------------------------------------------



| |  |  | the earnings generated from our non-U.S. operating companies are generally eligible for a deferral from United States taxation until such earnings are repatriated
to the United States, and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we believe that we will not generate any significant amount of income under the income imputation rules applicable to a United States company that owns
controlled foreign corporations for United States federal income tax purposes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our subsidiaries that are
incorporated in Cayman Islands and the British Virgin Islands are not subject to income taxes in those jurisdictions.

Our subsidiaries
incorporated in Hong Kong, are subject to a 16.5% tax on their profits in Hong Kong for 2008 and a 17.5% tax on their profits for 2007.

Prior to January 1, 2008, the PRC statutory tax rate was 33%. Our subsidiaries located in the Shenzhen Special Economic Zone in the PRC (Shenzhen Subsidiaries), were subject to a reduced tax rate of 15%. Since the Shenzhen
Subsidiaries have agreed to operate for a minimum of 10 years in the PRC, the Shenzhen Subsidiaries were entitled to a tax holiday of a two-year tax exemption followed by three-year 50% tax reduction from the first profit making year after
offsetting accumulated tax losses of the respective Shenzhen Subsidiaries.

On March 16, 2007, the Fifth Plenary Session of the Tenth
National Peoples Congress passed the Corporate Income Tax Law of the PRC (new tax law), which took effect on January 1, 2008. According to the new tax law, the corporate income tax rate applicable to all of our subsidiaries in
the PRC is revised to 25%. However, the Shenzhen Subsidiaries are subject to the transitional tax rates during which the income tax rate will gradually increase to the unified rate of 25% from January 1, 2008. The transitional tax rate is 18%,
20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively (the transitional tax rates). For the Shenzhen Subsidiaries that were entitled to a tax holiday such as the two-year tax exemption followed by three-year 50%
tax reduction from the first profit making year after offsetting accumulated tax losses, the Shenzhen Subsidiaries continue to be entitled to the tax holiday and for Comloca and Huameng PRC which had not commenced their respective tax holiday as of
December 31, 2007, the new tax law requires the tax exemption period to begin on January 1, 2008. Under the new tax law, it allows entities that qualify as high-technology enterprises to be taxed at a reduced tax rate of 15%. None of the
PRC subsidiaries are eligible for the reduced tax rate of 15% as of June 30, 2008. Accordingly, none of the PRC subsidiaries have used the reduced tax rate of 15% in determining their deferred taxes as of June 30, 2008.

As a result of the incentives above, our operations have been subject to relatively low tax liabilities. Our effective tax rate was 4.7% and 8.1% in the
second quarter of 2008 and 2007, respectively. The decrease in our effective tax rate was mostly due to the reduction of income tax rate from 17.5% to 16.5% in Hong Kong, which resulted in decrease in recognition of deferred taxation of RMB1,340
thousand ($195 thousand) for the quarter ended June 30, 2008.



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Three months ended June 30, 2008 compared to three months ended June 30, 2007

Overview

The following table sets forth information
regarding the breakdown of revenues and income for the three months ended June 30:



|                             |  |         |  |        
|---------------------------- |  | ------- |  | -------
|                             |  | 2008    |  | 2007   
|                             |  | RMB000 |  | RMB000
|Net revenue                  |  |         |  |        
|Component Sales              |  |         |  |        
|Mobile handset               |  | 160,960 |  | 155,763
|Telecommunications equipment |  | 136,795 |  | 118,600
|Industrial business          |  | 17,231  |  |       
|Digital media and others     |  | 148,911 |  | 97,431 
|                             |  |        
|Services revenue             |  | 4,020   |  | 13,023 
|                             |  |         |  |        
|Total net revenue            |  | 467,917 |  | 384,817
|                             |  |         |  |        

Net Revenue.Total net revenue increased RMB83,100 thousand ($12,115 thousand), or 21.6%
for the three months ended June 30, 2008 when compared to the corresponding period in 2007. The increase was mainly due to an increase in product sales by approximately RMB92,103 thousand ($13,428 thousand), offset by a decrease in services
revenue by RMB9,003 thousand ($1,313 thousand).

Component Sales

Details of component sales by market type for the three months ended June 30, 2008 and 2007 were as follows:



|                             |  |                             |  |          |  |         |        |  |          |  |         |   |  |        |  
|---------------------------- |  | --------------------------- |  | -------- |  | ------- | ------ |  | -------- |  | ------- | - |  | ------ | -
|                             |  | Three months ended June 30, | 
|                             |  | 2008                        |  | 2008     |  |         | 2007   |  | 2007     |  |         |   | 
|                             |  | Amount                      |  | % of Net |  |         | Amount |  | % of Net |  |         | % | 
|                             |  | $ 000                      |  | RMB 000 |  | Revenue |        |  | RMB 000 |  | Revenue |   |  | change |  
|Mobile handset               |  | 23,467                      |  | 160,960  |  | 34.4    | %      |  | 155,763  |  | 40.5    | % |  | 3.3    | %
|Telecommunications equipment |  | 19,943                      |  | 136,795  |  | 29.2    | %      |  | 118,600  |  | 30.8    | % |  | 15.3   | %
|Industrial business          |  | 2,512                       |  | 17,231   |  | 3.7     | %      |  |         |  |        |   |  |        |  
|Digital media and other(1)   |  | 21,710                      |  | 148,911  |  | 31.8    | %      |  | 97,431   |  | 25.3    | % |  | 52.8   | %
|                             |  |                             |  |          |  |         |        |  |          |  |         |   |  |        |  
|Total component sales        |  | 67,632                      |  | 463,897  |  | 99.1    | %      |  | 371,794  |  | 96.6    | % |  | 24.8   | %
|                             |  |                             |  |          |  |         |        |  |          |  |         |   |  |        |  



|(1) | Other includes sales of lightning protection devices for wireless base stations.
|--- | --------------------------------------------------------------------------------

Component sales for the three months ended June 30, 2008 was RMB463,897 thousand ($67,632 thousand), or RMB92,103 thousand or 24.8% higher than the corresponding period in 2007. Mobile handset related sales
increased by RMB5,197 thousand ($758 thousand), or 3.3%; telecommunications equipment related sales increased by RMB18,195 thousand ($2,653 thousand), or 15.3%; and digital media and other sales increased by RMB 51,480 thousand ($7,505
thousand), or 52.8%. In 2008, we have a new market, industrial business, which has contributed RMB17,231 thousand ($2,512 thousand) of sales for the three months ended June 30, 2008. This increase in component sales was mainly attributable to
the continuous growth in sales volume particularly for



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digital media market. The wider variety of telecommunications equipment and digital media related sales also drove the increase in the sales orders from some
large existing customers, such as ZTE and T&W. Although there was weaker demand in the mobile handset market, lower selling prices increased quantities sold, resulting in a 3.3% income in the related sales for the quarter ended June 30,
2008 when compared to the same period for 2007. The contribution to total net revenue by digital media and other sales for the three months ended June 30, 2008 increased to RMB148,911 thousand ($21,710 thousand), or 31.8% of total net revenue,
from RMB97,431 thousand ($14,205 thousand), or 25.3% of total net revenue, in the corresponding period in 2007. Although revenue from telecommunications equipment related sales increased in 2008, its contribution to total net revenue decreased from
30.8% for the three months ended June 30, 2007 to 29.2% for the three months ended June 30, 2008. The contribution to total net revenue by mobile handsets decreased from 40.5% for the three months ended June 30, 2007 to 34.4% for the
three months ended June 30, 2008. The decrease in contribution to total net revenue by mobile handsets and telecommunication equipment related sales was due to significant growth in our digital media business.

Services Revenue. Services revenue for the three months ended June 30, 2008 and 2007 was as follows:



|                 |  |                             |  |          |      |  |         |  |          |   |  |        |   
|---------------- |  | --------------------------- |  | -------- | ---- |  | ------- |  | -------- | - |  | ------ | --
|                 |  | Three months ended June 30, | 
|                 |  | 2008                        |  |          | 2007 |  |         |  |         
|                 |  | Amount                      |  | % of Net |      |  | Amount  |  | % of Net |   |  | %      |   
|                 |  | RMB000                     |  | Revenue  |      |  | RMB000 |  | Revenue  |   |  | Change |   
|Services revenue |  | 4,020                       |  | 0.9      | %    |  | 13,023  |  | 3.4      | % |  | (69.1  | )%
|                 |  |                             |  |          |      |  |         |  |          |   |  |        |   

Services revenue was derived from the provision of technology and engineering services, software
design, network system integration and related training and maintenance services commencing from January 2006. The decrease of RMB9,003 thousand ($1,313 thousand), or 69.1%, was mainly attributable to less sales generated from software design
services.

Gross Profit. Gross profit was RMB84,177 thousand ($12,272 thousand) for the three months ended June 30, 2008, an
increase of RMB9,813 thousand ($1,431 thousand), or 13.2% when compared to RMB74,364 thousand ($10,842 thousand) in the corresponding period in 2007. The increase in gross profit amount was primarily attributable to increase in revenue amount. Gross
profit percentage was 18.0% for the quarter ended June 30, 2008, compared to 19.3% for the same period in 2007. The decrease in gross profit percentage was due to a decrease in selling prices for mobile handset products and a decrease in
services revenue with higher margin. The decrease in gross profit percentage was offset in part by the increase in digital media module related sales, which generally have higher margins.

Selling, General, Administrative, and Research & Development Expenses. Selling, general and administrative and R&D expenses were
RMB44,164 thousand ($6,439 thousand) in the three months ended June 30, 2008, or 20.4% higher than those of the same period the prior year. The expenses for the three month periods ended June 30, 2008 and 2007 were as follows:



|                                    |  |                             |  |          |      |  |         |  |          |   |  |        |  
|----------------------------------- |  | --------------------------- |  | -------- | ---- |  | ------- |  | -------- | - |  | ------ | -
|                                    |  | Three months ended June 30, | 
|                                    |  | 2008                        |  |          | 2007 |  |         |  |         
|                                    |  | Amount                      |  | % of Net |      |  | Amount  |  | % of Net |   |  | %      |  
|                                    |  | RMB000                     |  | Revenue  |      |  | RMB000 |  | Revenue  |   |  | Change |  
|Selling expenses                    |  | 10,794                      |  | 2.3      | %    |  | 10,593  |  | 2.8      | % |  | 1.9    | %
|General and administrative expenses |  | 22,570                      |  | 4.8      | %    |  | 15,616  |  | 4.1      | % |  | 44.5   | %
|R&D expenses                        |  | 10,800                      |  | 2.3      | %    |  | 10,487  |  | 2.7      | % |  | 3.0    | %
|                                    |  |                             |  |          |      |  |         |  |          |   |  |        |  
|Total                               |  | 44,164                      |  | 9.4      | %    |  | 36,696  |  | 9.6      | % |  | 20.4   | %
|                                    |  |                             |  |          |      |  |         |  |          |   |  |        |  



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##### Table of Contents

Selling, General and Administrative Expenses.The increase in selling expenses for the three
months ended June 30, 2008 of RMB201 thousand ($29 thousand), or 1.9%, was mainly attributable to an increase in indirect selling expenses such as freight charges and salesperson expenses as a result of an increase in sales volume.

The increase in general and administrative expenses of RMB6,954 thousand ($1,014 thousand), or 44.5%, was primarily attributable to an increase in
share-based compensation cost and additional sales and other costs associated with new employees of RMB3.2 million. In addition, the increased amortization of intangible assets of RMB4.7 million also contributed to the increase. The increase was
partly offset by a RMB1 million decrease in other general administrative expenses as a result of our tighter expense control policy.

R&D Expenses. Research and development expenses increased in the three month period ended June 30, 2008 by RMB313 thousand ($46 thousand), or 3.0%, as compared to the corresponding time period in 2007. The increase was
primarily attributable to the increase in R&D personnel and engineers and additional research expenditures spent for potential new markets, such as industrial business and digital media solutions.

Interest Expense.Interest expense decreased for the three month period ended June 30, 2008 by RMB397 thousand ($58 thousand) or 40.3%, as
compared to the corresponding period in 2007. The decrease was attributable to the decrease in average bank borrowings.

Interest
Income. Interest income for the three month period ended June 30, 2008 amounted to RMB6,990 thousand ($1,019 thousand), compared to RMB7,049 thousand ($1,028 thousand) in the corresponding period in 2007.

Income Tax. The effective tax rate for the three months ended June 30, 2008 was 4.7% compared to 8.1% for the comparable period in 2007. The
decrease in the effective tax rate was primarily due to the reduction of income tax rate from 17.5% to 16.5% in Hong Kong, which resulted in decrease in recognition of deferred taxation of RMB1,340 thousand ($195 thousand) for the quarter ended
June 30, 2008.

Net Income; Earnings per share. As a result of the above items, net income for the three months ended
June 30, 2008 was RMB44,351 thousand ($6,466 thousand), compared to net income of RMB38,685 thousand in the corresponding period in 2007. We reported basic per share earnings of RMB1.14 ($0.17) for the three months ended June 30, 2008
diluted per share earnings of RMB1.11 ($0.16) compared to basic per share earnings of RMB1.05 for the same period of 2007, and diluted per share earnings of RMB1.02.

Six months ended June 30, 2008 compared to six months ended June 30, 2007

Overview

The following table sets forth information regarding the breakdown of revenues and income from the six months ended June 30:



|                             |  |         |  |        
|---------------------------- |  | ------- |  | -------
|                             |  | 2008    |  | 2007   
|                             |  | RMB000 |  | RMB000
|Net revenue                  |  |         |  |        
|Component Sales              |  |         |  |        
|Mobile handset               |  | 332,581 |  | 293,697
|Telecommunications equipment |  | 249,280 |  | 228,464
|Industrial business          |  | 20,199  |  |       
|Digital media and others     |  | 270,672 |  | 182,710
|                             |  |        
|Services revenue             |  | 17,230  |  | 24,089 
|                             |  |         |  |        
|Total net revenue            |  | 889,962 |  | 728,960
|                             |  |         |  |        



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##### Table of Contents

Net Revenue.Total net revenue increased RMB161,002 thousand ($23,473 thousand), or 22.1% for the
six months ended June 30, 2008 when compared to the corresponding period in 2007. The increase was mainly due to an increase in product sales by approximately RMB167,861 thousand ($24,473 thousand), but partly offset by a decrease in services
revenue of RMB6,859 thousand ($1,000 thousand).

Component Sales

Details of component sales by market type for the six months ended June 30, 2008 and 2007 were as follows:



|                             |  |                           |  |          |  |         |        |  |          |  |         |   |  |        |  
|---------------------------- |  | ------------------------- |  | -------- |  | ------- | ------ |  | -------- |  | ------- | - |  | ------ | -
|                             |  | Six months ended June 30, | 
|                             |  | 2008                      |  | 2008     |  |         | 2007   |  | 2007     |  |         |   | 
|                             |  | Amount                    |  | % of Net |  |         | Amount |  | % of Net |  |         | % | 
|                             |  | $ 000                    |  | RMB 000 |  | Revenue |        |  | RMB 000 |  | Revenue |   |  | change |  
|Mobile handset               |  | 48,487                    |  | 332,580  |  | 37.4    | %      |  | 293,697  |  | 40.3    | % |  | 13.2   | %
|Telecommunications equipment |  | 36,343                    |  | 249,280  |  | 28.0    | %      |  | 228,464  |  | 31.3    | % |  | 9.1    | %
|Industrial business          |  | 2,945                     |  | 20,199   |  | 2.3     | %      |  |         |  |        |   |  |        |  
|Digital media and other(1)   |  | 39,462                    |  | 270,673  |  | 30.4    | %      |  | 182.710  |  | 25.1    | % |  | 48.1   | %
|                             |  |                           |  |          |  |         |        |  |          |  |         |   |  |        |  
|Total component sales        |  | 127,237                   |  | 872,732  |  | 98.1    | %      |  | 704.871  |  | 96.7    | % |  | 23.8   | %
|                             |  |                           |  |          |  |         |        |  |          |  |         |   |  |        |  



|(1) | Other includes sales of lightning protection devices for wireless base stations.
|--- | --------------------------------------------------------------------------------

Component sales for the six months ended June 30, 2008 was RMB872,732 thousand ($127,237 thousand), or RMB167,861 thousand or 23.8% higher than the corresponding period in 2007. Mobile handset related sales
increased by RMB38,883 thousand ($5,669 thousand), or 13.2%; telecommunications equipment related sales increased by RMB20,816 thousand ($3,035 thousand) or 9.1%; and digital media and other sales increased by RMB87,963 thousand ($12,824 thousand),
or 48.1%. In 2008, we have a new market, industrial business, which has contributed RMB20,199 thousand ($2,945 thousand) of sales for the six months ended June 30, 2008. The increase in component sales was mainly attributable to increased sales
volume, which resulted from an increase in our customer base, an increase in our product types for all markets and lower selling prices for mobile handset products. The wider variety of component solutions drove the increase in sales orders from
some existing customers, such as T&W and ZTE. The newly introduced business lines in digital media markets, such as digital TV solutions also contributed to the increase. The contribution to total net revenue by digital media and other sales for
the six months ended June 30, 2008 increased to RMB270,672 thousand ($39,462 thousand), or 30.4% of total net revenue, from RMB182,710 thousand ($26,638 thousand), or 25.1% of total net revenue, in the corresponding period in 2007. Although
revenue from telecommunications equipment related sales increased in 2008, its contribution to total net revenue decreased from 31.3% for the six months ended June 30, 2007 to 28.0% for the six months ended June 30, 2008. The contribution
to total net revenue by mobile handsets decreased from 40.3% for the six months ended June 30, 2007 to 37.4% for the six months ended June 30, 2008. The decrease in contribution to total net revenue by mobile handset and telecommunications
equipment related sales was due to significant growth in our digital media business.



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##### Table of Contents

Services Revenue. Services revenue for the six months ended June 30, 2008 and 2007 was as
follows:



|                 |  |                           |  |          |      |  |         |  |          |   |  |        |   
|---------------- |  | ------------------------- |  | -------- | ---- |  | ------- |  | -------- | - |  | ------ | --
|                 |  | Six months ended June 30, | 
|                 |  | 2008                      |  |          | 2007 |  |         |  |         
|                 |  | Amount                    |  | % of Net |      |  | Amount  |  | % of Net |   |  | %      |   
|                 |  | RMB000                   |  | Revenue  |      |  | RMB000 |  | Revenue  |   |  | Change |   
|Services Revenue |  | 17,230                    |  | 1.9      | %    |  | 24,089  |  | 3.3      | % |  | (28.5  | )%
|                 |  |                           |  |          |      |  |         |  |          |   |  |        |   

Services revenue was derived from the provision of technology and engineering services, software
design, network system integration and related training and maintenance services commencing from January 2006. The decrease of RMB6,859 thousand ($1,000 thousand), or 28.5%, was mainly attributable to less sales generated from software design
services.

Gross Profit. Gross profit was RMB166,566 thousand ($24,284 thousand) for the six months ended June 30, 2008, an
increase of RMB26,387 thousand ($3,847 thousand), or 18.8% when compared to RMB140,179 thousand ($20,437 thousand) in the corresponding period in 2007. The increase in both gross profit amount is primarily attributable to the increase in revenue
amount. Gross profit percentage was 18.7% for the six months ended June 30, 2008, compared to 19.2% for the corresponding period in 2007. The decrease in gross profit percentage was due to a reduced selling prices for mobile handset products
and a decrease in services revenue, which has a higher margin. The decrease in gross profit percentage, however, was offset in part by the increase in digital media related sales, which generally have higher margin.

Selling, General, Administrative, and Research & Development Expenses. Selling, general and administrative and R&D expenses were
RMB93,575 thousand ($13,642 thousand) in the six months ended June 30, 2008, or 30.9% higher than those of the same period the prior year. The expenses for the six month periods ended June 30, 2008 and 2007 were as follows:



|                                    |  |                           |  |          |      |  |         |  |          |   |  |        |  
|----------------------------------- |  | ------------------------- |  | -------- | ---- |  | ------- |  | -------- | - |  | ------ | -
|                                    |  | Six months ended June 30, | 
|                                    |  | 2008                      |  |          | 2007 |  |         |  |         
|                                    |  | Amount                    |  | % of Net |      |  | Amount  |  | % of Net |   |  | %      |  
|                                    |  | RMB000                   |  | Revenue  |      |  | RMB000 |  | Revenue  |   |  | Change |  
|Selling expenses                    |  | 23,704                    |  | 2.7      | %    |  | 20,232  |  | 2.8      | % |  | 17.2   | %
|General and administrative expenses |  | 49,438                    |  | 5.6      | %    |  | 32,196  |  | 4.4      | % |  | 53.6   | %
|R&D expenses                        |  | 20,433                    |  | 2.3      | %    |  | 19,044  |  | 2.6      | % |  | 7.3    | %
|                                    |  |                           |  |          |      |  |         |  |          |   |  |        |  
|Total                               |  | 93,575                    |  | 10.6     | %    |  | 71.472  |  | 9.8      | % |  | 30.9   | %
|                                    |  |                           |  |          |      |  |         |  |          |   |  |        |  

Selling, General and Administrative Expenses.The increase in selling expenses for the six
months ended June 30, 2008 of RMB3,473 thousand ($506 thousand), or 17.2%, was mainly attributable to an additional bad debt provision of RMB7.4 million for the six month period ended June 30, 2008, compared to RMB6.1 million in the
corresponding period in 2007. An increase in sales staff costs and other indirect selling expenses such as freight charges and salesperson expenses of approximately RMB2.2 million also contributed to the increase.



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The increase in general and administrative expenses of RMB17,241 thousand ($2,514 thousand), or 53.6%,
was primarily attributable to an increase of RMB8.0 million in share-based compensation and an increase in the amortization of intangible assets of RMB9.4 million.

R&D Expenses. Research and development expenses increased in the six month period ended June 30, 2008 by RMB1,389 thousand ($203 thousand), or 7.3%, as compared to the corresponding time period in
2007. The increase was primarily attributable to the increase in R&D personnel and engineers, and additional research expenditures spent for potential new markets, such as industrial business and digital media solutions.

Interest Expense.Interest expense decreased for the six month period ended June 30, 2008 by RMB926 thousand ($135 thousand) or 52.8%, as
compared to the corresponding period in 2007. The decrease in interest expense was attributable to a decrease in the average interest rate and the average bank borrowing balance.

Interest Income. Interest income for the six month period ended June 30, 2008 amounted to RMB14,608 thousand ($2,130 thousand), compared to
RMB8,749 thousand ($1,276 thousand) in the corresponding period in 2007. The significant increase was mainly attributable to the net proceeds of approximately $83.3 million from the underwritten offering described below. Higher cash inflows
generated from revenue resulting from higher average deposit balances also contributed to the increase in interest income.

Income
Tax. The effective tax rate for the six months ended June 30, 2008 was 6.3% compared to 8.6% for the comparable period in 2007. The decrease in the effective tax rate was primarily due to the reduction of income tax rate from 17.5% to 16.5%
in Hong Kong, which resulted in decrease in recognition of deferred taxation of RMB1,340 thousand ($195 thousand) for the six months ended June 30, 2008.

Net Income; Earnings per share. As a result of the above items, net income for the six months ended June 30, 2008 was RMB81,378 thousand ($11,864 thousand), compared to net income of RMB67,207 thousand
($9,798 thousand) in the corresponding period in 2007. We reported basic per share earnings of RMB2.08 ($0.30) for the six months ended June 30, 2008 diluted per share earnings of RMB2.03 ($0.30) compared to basic per share earnings of RMB1.92
for the same period of 2007, and diluted per share earnings of RMB1.86.

Liquidity and Capital Resources

Cash flows and working capital

Our accounts payable
cycle typically averages approximately one month, whereas our receivables cycle typically averages approximately six months. Accordingly, working capital is needed to fund this time difference.

As at June 30, 2008, apart from the amounts payable in relation to our acquisition of the subsidiaries, we had no material commitments for capital
expenditures.

As of June 30, 2008, the Company had approximately RMB840,482 thousand ($122,535 thousand) in cash. We regularly review
our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and available borrowings under bank lines of credit. At times, we evaluate possible acquisitions of, or
investments in, businesses that are complementary to those of ours, which transactions may require the use of cash. We believe that our cash, other



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liquid assets, operating cash flows and credit facility arrangements, taken together, provide adequate resources to fund ongoing operating expenditures. In
the event that they do not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity as well as from
other sources.

We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on
hand, cash provided by operations, and available borrowings under bank lines of credit and factoring facilities. At times, we may evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which may require the
use of cash. We believe that our existing cash position, operating cash flows and credit facility arrangements, taken together, provide adequate resources to fund our ongoing operating expenditures for the next 12 months. In the event that they do
not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity, as well as from other sources.

As of June 30, 2008, we had working capital of RMB1,254,185 thousand ($182,850 thousand) as compared with working capital of RMB1,207,895
thousand ($176,101 thousand) at December 31, 2007.

Operating activities generated cash of RMB42,123 thousand ($6,141 thousand) for
the first six months of the period ended June 30, 2008, compared to cash generated of RMB38,480 ($5,610) in the corresponding period in 2007. The increase in cash generated from operating activities as compared to the prior year is primarily
due to a decrease in inventory of RMB24,012 thousand ($3,501 thousand) and a decrease in bill receivables of RMB18,584 thousand ($2,709 thousand). Cash provided by operating activities was offset in part due to an increase in trade accounts
receivables of RMB109,575 thousand ($15,975 thousand), which resulted from increase in revenue.

Investing activities used RMB50,832
thousand ($7,411 thousand) for the first six months of the period ended June 30, 2008, mainly for payment for acquisitions of subsidiaries of RMB43,986 thousand ($6,413 thousand). The remaining major investing activities were the purchase of
property and equipment of RMB4,415 thousand ($644 thousand).

Financing activities used RMB44,206 thousand ($6,445 thousand) for the first
six months of the period ended June 30, 2008, primarily for purchase of treasury stock of RMB35,422 thousand ($5,164 thousand) and repayment of bank borrowings of RMB8,784 thousand ($1,281 thousand).

Indebtedness

On October 7, 2005, Comtech
International (Hong Kong) Limited (Comtech Hong Kong) entered into a RMB39,972 thousand ($5,000 thousand) U.S. dollar denominated credit facility with Standard Chartered Bank (Hong Kong) Limited (SCB), and a RMB71,949
thousand ($9,000 thousand) U.S. dollar denominated facility with Bank of China (BOC). On January 17, 2008, the facility with the BOC was amended in which Comtech Hong Kong, Comtech Broadband Corporation Limited, Keen Awards Limited
and Hong Kong JJT Limited jointly entered into a RMB98,168 thousand($14,000 thousand) revised credit facility with the BOC. Both of the SCB and BOC facilities are guaranteed by Cogo Group, Inc. Apart from cash generated from operations, these
revolving credit facilities serve as our principal source of liquidity to fund our working capital needs.

As of the date of this filing,
there was no outstanding loan balance under the SCB facility. This facility is secured by funds on deposit in an amount not less than $2,000,000, and bears interest ranging from HIBOR +1.5% to USD Prime per annum, depending on the different kinds of
borrowings made. The SCB facility is repayable on demand and SCB may immediately terminate the facility without our consent or that of any third party. Interest on this facility accrues until payment is demanded by SCB.



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As of the date of this filing, there was no outstanding loan balance under the BOC facility. This
facility is secured by funds on deposit in an amount not less than $5,000,000, and bears interest from LIBOR plus 1.75% to 2% per annum, depending on the different kinds of borrowings made and is used to settle foreign exchange obligations to
the extent needed. The BOC facility is repayable on demand and BOC may increase, reduce and/or cancel the facility by notice to us. Interest on this facility accrues until payment is demanded by BOC. Based on a variable return on interest, the bank
borrowings amounted to fair value.

Some of our customers enter into arrangements with their respective banks for the purpose of settling
their bills. Under such arrangements, we are entitled to collect the amounts owed directly from the customers banks when the invoice becomes due. In certain circumstances, we have arranged to transfer with recourse certain of our bills
receivable to the bank. Under this discounting arrangement, the bank pays a discounted amount to us and collects the amounts owed from the customers banks. The discount typically ranges from 5% to 6% of the balance transferred, which is
recorded as interest expense. During the quarter ended June 30, 2008, we discounted bills receivable amounting to approximately RMB33,578 thousand ($4,895 thousand).



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Foreign Exchange Risk

Our reporting currency is the Renminbi. Transactions in other currencies are recorded in Renminbi at
the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are remeasured into Renminbi at rates of exchange in effect at the balance sheet dates. Exchange gains and losses are
recorded in our statements of operations as a component of current period earnings.

The PRC State Administration for Foreign Exchange,
under the authority of the Peoples Bank of China, controls the conversion of Renminbi into foreign currencies. The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as
amended, or the Rules. Under the Rules, once various procedural requirements are met, Renminbi is convertible for current account transactions, including trade and service-related foreign exchange transactions and dividend payments, but
not for capital account transactions, including direct investment, loans or investments in securities outside China, without prior approval of the State Administration of Foreign Exchange of the Peoples Republic of China, or its local
counterparts.

Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar. Although currently the Renminbi exchange rate
versus the U.S. dollar is restricted to a rise or fall of no more than 0.3% per day and the Peoples Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the
Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and
lessen intervention in the foreign exchange market. As of June 30, 2008, the exchange rate between RMB and U.S. dollar was $1 to RMB6.8591.

We conduct substantially all of our operations through our PRC operating companies, and their financial performance and position are measured in terms of Renminbi. Our solutions are primarily procured, sold and delivered in the PRC for
Renminbi. The majority of our net revenue are denominated in Renminbi.



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Any devaluation of the Renminbi against the U.S. dollar would consequently have an adverse effect on our
financial performance and asset values when measured in terms of U.S. dollars. On the other hand, the appreciation of the Renminbi could make our customers products more expensive to purchase because many of our customers are involved in the
export of goods, which may have an adverse impact on their sales. A decrease in sales by our customers could have an adverse effect on our operating results. In addition, from time to time we may have U.S. dollar denominated borrowings, and
therefore a decoupling of the Renminbi many affect our financial performance in the future.

We recognized a foreign currency translation
adjustment of approximately RMB15,000 thousand ($2,187 thousand) for the quarter ended June 30, 2008 and RMB42,048 thousand ($6,130 thousand) for the six months ended June 30, 2008. We do not currently engage in hedging activities, as
such, we may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.

Interest Rate Risk

We are exposed to interest rate risk arising from short-term variable rate borrowings from time to time. Our future interest expense will fluctuate in
line with any change in our borrowing rates. We do not have any derivative financial instruments and believe our exposure to interest rate risk and other relevant market risks is not material. We did not have any bank borrowings as of June 30,
2008.

The potential change in cash flows and earnings is calculated based on the change in the net interest expense over a one year period
due to an immediate 1% change in rates.

Inflation

In recent years, the Chinese economy has experienced periods of rapid expansion and significant change in inflation rates. These factors have led to the adoption by the Chinese government, from time to time, of
various corrective measures designed to restrict the availability of credit or to regulate growth and contain inflation. While inflation has been more moderate since 1995, significant change in inflation may in the future cause the Chinese
government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

We maintain controls and
procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC and to record, process, summarize, and disclose this information within the time periods specified in the rules
of the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, our chief executive and chief financial officers have concluded these controls and
procedures are effective to ensure we are able to record, collect, process, and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods.

There were no changes in our internal controls or in other factors during the most recent quarter that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.



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PART II - OTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS
|------- | -----------------

There have been no material
developments in the Companys legal proceedings from those previously disclosed in the Companys Form 10-K for the year ended December 31, 2007.



|Item 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes
in the Companys risk factors from those previously disclosed in the Companys Form 10-K for the year ended December 31, 2007.



|Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|Item 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



|Item 5. | OTHER INFORMATION
|------- | -----------------

None.



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|Item 6. | EXHIBITS
|------- | --------



|(b) | Exhibits
|--- | --------

31.1 Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|               |  |  |  |                  |  |                                                                   
|-------------- |  |  |  | ---------------- |  | ------------------------------------------------------------------
|               |  |  |  | COGO GROUP, INC.
|               |  |  | 
|August 8, 2008 |  |  |  | By:              |  | /s/ Jeffrey Kang                                                  
|               |  |  |  |                  |  | Jeffrey Kang                                                      
|               |  |  |  |                  |  | Chairman and Chief Executive Officer (Principal
Executive Officer)
|               |  |  | 
|August 8, 2008 |  |  |  | By:              |  | /s/ Frank Zheng                                                   
|               |  |  |  |                  |  | Frank Zheng                                                       
|               |  |  |  |                  |  | Chief Financial Officer (Principal Financial Officer)             



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