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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 September 30, 2010.

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 ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every, Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    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

On November 5, 2010 the Registrant had 40,552,178 shares of Common Stock issued and 35,326,447 shares of Common Stock issued and outstanding.









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Cogo Group, Inc.

Index to Form 10-Q



|                               |  |                                                                                       |    |  |    | 
|------------------------------ |  | ------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I  FINANCIAL INFORMATION |  |                                                                                       | 1  | 
|                               |  |                                                                                      
|Item 1.                        |  | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                 |    |  | 1  | 
|                               |  |                                                                                      
|Item 2.                        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |    |  | 15 | 
|                               |  |                                                                                      
|Item 3.                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |    |  | 27 | 
|                               |  |                                                                                      
|Item 4.                        |  | CONTROLS AND PROCEDURES                                                               |    |  | 28 | 
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                       | 29 | 
|                               |  |                                                                                      
|Item 1.                        |  | LEGAL PROCEEDINGS                                                                     |    |  | 29 | 
|                               |  |                                                                                      
|Item 1A.                       |  | RISK FACTORS                                                                          |    |  | 29 | 
|                               |  |                                                                                      
|Item 2.                        |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |    |  | 29 | 
|                               |  |                                                                                      
|Item 3.                        |  | DEFAULTS UPON SENIOR SECURITIES                                                       |    |  | 29 | 
|                               |  |                                                                                      
|Item 4.                        |  | (REMOVED AND RESERVED)                                                                |    |  | 29 | 
|                               |  |                                                                                      
|Item 5.                        |  | OTHER INFORMATION                                                                     |    |  | 29 | 
|                               |  |                                                                                      
|Item 6.                        |  | EXHIBITS                                                                              |    |  | 29 | 
|                               | 
|SIGNATURES                     |  |                                                                                       | 30 | 



i



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PART I- FINANCIAL INFORMATION



|Item 1. | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|------- | -----------------------------------------------------

COGO GROUP, INC. and SUBSIDIARIES

Unaudited Condensed Consolidated
Balance Sheets as of September 30, 2010 and December 31, 2009



|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- |  | --------- | ------- |  |  | --------- | -
|                                                                                                                                                |  | September 30, 2010 |         |   | December 31, 2009 | 
|                                                                                                                                                |  | USD000            |         |   | RMB000           |  |           | RMB000 | 
|Assets                                                                                                                                          |  |                    |         |   |                   |  |           |         |  |  |           |  
|Current assets:                                                                                                                                 |  |                    |         |   |                   |  |           |         |  |  |           |  
|Cash                                                                                                                                            |  |                    | 137,100 |   |                   |  | 917,265   |         |  |  | 667,320   |  
|Pledged bank deposits                                                                                                                           |  |                    | 20,000  |   |                   |  | 133,810   |         |  |  | 116,040   |  
|Accounts receivable, net                                                                                                                        |  |                    | 89,442  |   |                   |  | 598,411   |         |  |  | 617,613   |  
|Bills receivable                                                                                                                                |  |                    | 3,800   |   |                   |  | 25,425    |         |  |  | 17,592    |  
|Inventories                                                                                                                                     |  |                    | 44,250  |   |                   |  | 296,052   |         |  |  | 146,132   |  
|Income taxes receivable                                                                                                                         |  |                    | 180     |   |                   |  | 1,207     |         |  |  | 1,263     |  
|Prepaid expenses and other receivables                                                                                                          |  |                    | 5,846   |   |                   |  | 39,118    |         |  |  | 28,083    |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total current assets                                                                                                                            |  |                    | 300,618 |   |                   |  | 2,011,288 |         |  |  | 1,594,043 |  
|Property and equipment, net                                                                                                                     |  |                    | 2,235   |   |                   |  | 14,955    |         |  |  | 14,406    |  
|Goodwill and intangible assets, less accumulated amortization, RMB117,187 thousand (USD17,515 thousand) in 2010 and RMB100,834
thousand in 2009 |  |                    | 44,288  |   |                   |  | 296,309   |         |  |  | 312,662   |  
|Other assets                                                                                                                                    |  |                    | 234     |   |                   |  | 1,563     |         |  |  | 416       |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total Assets                                                                                                                                    |  |                    | 347,375 |   |                   |  | 2,324,115 |         |  |  | 1,921,527 |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Liabilities and equity                                                                                                                          |  |                    |         |   |                   |  |           |         |  |  |           |  
|Current liabilities:                                                                                                                            |  |                    |         |   |                   |  |           |         |  |  |           |  
|Accounts payable                                                                                                                                |  |                    | 11,767  |   |                   |  | 78,725    |         |  |  | 81,140    |  
|Bank borrowings                                                                                                                                 |  |                    | 76,434  |   |                   |  | 511,379   |         |  |  | 119,402   |  
|Income taxes payable                                                                                                                            |  |                    | 2,339   |   |                   |  | 15,652    |         |  |  | 11,847    |  
|Accrued expenses and other liabilities                                                                                                          |  |                    | 9,661   |   |                   |  | 64,635    |         |  |  | 138,008   |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total current liabilities                                                                                                                       |  |                    | 100,201 |   |                   |  | 670,391   |         |  |  | 350,397   |  
|Deferred tax liabilities                                                                                                                        |  |                    | 2,452   |   |                   |  | 16,409    |         |  |  | 19,108    |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total liabilities                                                                                                                               |  |                    | 102,653 |   |                   |  | 686,800   |         |  |  | 369,505   |  
|Equity                                                                                                                                          |  |                    |         |   |                   |  |           |         |  |  |           |  
|Common stock:                                                                                                                                   |  |                    |         |   |                   |  |           |         |  |  |           |  
|Par value: USD0.01                                                                                                                              |  |                    |         |   |                   |  |           |         |  |  |           |  
|Authorized: 200,000,000 shares                                                                                                                  |  |                    |         |   |                   |  |           |         |  |  |           |  
|Issued: 40,552,178 shares in 2010 and 40,079,336 shares in 2009                                                                                 |  |                    |         |   |                   |  |           |         |  |  |           |  
|Outstanding: 35,326,447 shares in 2010                                                                                                          |  |                    |         |   |                   |  |           |         |  |  |           |  
|35,770,025 shares in 2009                                                                                                                       |  |                    | 492     |   |                   |  | 3,290     |         |  |  | 3,258     |  
|Additional paid in capital                                                                                                                      |  |                    | 190,242 |   |                   |  | 1,272,816 |         |  |  | 1,221,538 |  
|Retained earnings                                                                                                                               |  |                    | 102,605 |   |                   |  | 686,479   |         |  |  | 604,464   |  
|Accumulated other comprehensive loss                                                                                                            |  |                    | (16,907 | ) |                   |  | (113,115  | )       |  |  | (107,384  | )
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|                                                                                                                                                |  |                    | 276,432 |   |                   |  | 1,849,470 |         |  |  | 1,721,876 |  
|Less cost of common stock in treasury, 5,225,731 shares in 2010 and 4,309,311 shares in 2009.                                                   |  |                    | (33,044 | ) |                   |  | (221,080  | )       |  |  | (178,309  | )
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total Cogo Group, Inc. equity                                                                                                                   |  |                    | 243,388 |   |                   |  | 1,628,390 |         |  |  | 1,543,567 |  
|Noncontrolling interest                                                                                                                         |  |                    | 1,334   |   |                   |  | 8,925     |         |  |  | 8,455     |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total equity                                                                                                                                    |  |                    | 244,722 |   |                   |  | 1,637,315 |         |  |  | 1,552,022 |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  
|Total liabilities and equity                                                                                                                    |  |                    | 347,375 |   |                   |  | 2,324,115 |         |  |  | 1,921,527 |  
|                                                                                                                                                |  |                    |         |   |                   |  |           |         |  |  |           |  

See accompanying notes to unaudited condensed consolidated financial statements.



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COGO GROUP, INC. and
SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months

ended September 30, 2010 and 2009



|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|------------------------------------------------------- |  | -------------------------------- | ------- | - | ------- |  | -------- | ------- |  |  | -------- | -
|                                                        |  | Three Months ended September 30, |        
|                                                        |  | 2010                             |         |   | 2010    |  |          | 2009    | 
|                                                        |  | USD000                          |         |   | RMB000 |  |          | RMB000 | 
|                                                        |  |                                  |        
|Net revenue                                             |  |                                  |         |   |         |  |          |         |  |  |          |  
|Product sales                                           |  |                                  | 98,855  |   |         |  | 661,392  |         |  |  | 551,063  |  
|Services revenue                                        |  |                                  | 1,345   |   |         |  | 8,997    |         |  |  | 8,970    |  
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|                                                        |  |                                  | 100,200 |   |         |  | 670,389  |         |  |  | 560,033  |  
|                                                        |  |                                  |        
|Cost of sales                                           |  |                                  |         |   |         |  |          |         |  |  |          |  
|Cost of goods sold                                      |  |                                  | (84,915 | ) |         |  | (568,120 | )       |  |  | (472,010 | )
|Cost of services                                        |  |                                  | (1,089  | ) |         |  | (7,287   | )       |  |  | (7,194   | )
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|                                                        |  |                                  | (86,004 | ) |         |  | (575,407 | )       |  |  | (479,204 | )
|Gross profit                                            |  |                                  | 14,196  |   |         |  | 94,982   |         |  |  | 80,829   |  
|Selling, general and administrative expenses            |  |                                  | (6,017  | ) |         |  | (40,255  | )       |  |  | (47,437  | )
|Research and development expenses                       |  |                                  | (2,973  | ) |         |  | (19,893  | )       |  |  | (15,756  | )
|Other operating income                                  |  |                                  | 28      |   |         |  | 188      |         |  |  | 349      |  
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|Income from operations                                  |  |                                  | 5,234   |   |         |  | 35,022   |         |  |  | 17,985   |  
|Interest expense                                        |  |                                  | (513    | ) |         |  | (3,435   | )       |  |  | (572     | )
|Interest income                                         |  |                                  | 594     |   |         |  | 3,971    |         |  |  | 3,716    |  
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|Earnings before income taxes                            |  |                                  | 5,315   |   |         |  | 35,558   |         |  |  | 21,129   |  
|Income tax expense                                      |  |                                  | (621    | ) |         |  | (4,156   | )       |  |  | (2,731   | )
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|Income before extraordinary item                        |  |                                  | 4,694   |   |         |  | 31,402   |         |  |  | 18,398   |  
|Extraordinary item, net of nil tax                      |  |                                  |        |   |         |  |         |         |  |  | 6,737    |  
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|Net income                                              |  |                                  | 4,694   |   |         |  | 31,402   |         |  |  | 25,135   |  
|Less net income attributable to noncontrolling interest |  |                                  | (46     | ) |         |  | (306     | )       |  |  | (2,175   | )
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  
|                                                        |  |                                  |        
|Net income attributable to Cogo Group, Inc.             |  |                                  | 4,648   |   |         |  | 31,096   |         |  |  | 22,960   |  
|                                                        |  |                                  |         |   |         |  |          |         |  |  |          |  



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|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  
|------------------------------------------------------------------ |  | -------------------------------- | ----- | - | ------- |  | ---------- | ------- |  |  | ---------- | -
|                                                                   |  | Three Months ended September 30, |      
|                                                                   |  | 2010                             |       |   | 2010    |  |            | 2009    | 
|                                                                   |  | USD000                          |       |   | RMB000 |  |            | RMB000 | 
|                                                                   |  | USD                              |       |   | RMB     |  |            | RMB     | 
|Earnings per share attributable to Cogo Group, Inc.                |  |                                  |       |   |         |  |            |         |  |  |            |  
|Income before extraordinary item                                   |  |                                  | 0.12  |   |         |  | 0.83       |         |  |  | 0.44       |  
|Extraordinary item                                                 |  |                                  |      |   |         |  |           |         |  |  | 0.18       |  
|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                  |      
|- Basic                                                            |  |                                  | 0.12  |   |         |  | 0.83       |         |  |  | 0.62       |  
|                                                                   |  |                                  |      
|Income before extraordinary item                                   |  |                                  | 0.12  |   |         |  | 0.82       |         |  |  | 0.43       |  
|Extraordinary item                                                 |  |                                  |      |   |         |  |           |         |  |  | 0.18       |  
|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                  |      
|- Diluted                                                          |  |                                  | 0.12  |   |         |  | 0.82       |         |  |  | 0.61       |  
|Weighted average number of common shares outstanding               |  |                                  |       |   |         |  |            |         |  |  |            |  
|- Basic                                                            |  |                                  |       |   |         |  | 37,244,589 |         |  |  | 36,809,304 |  
|- Diluted                                                          |  |                                  |       |   |         |  | 37,853,878 |         |  |  | 37,745,926 |  
|Amounts attributable to Cogo Group, Inc.                           |  |                                  |       |   |         |  |            |         |  |  |            |  
|Income before extraordinary item                                   |  |                                  | 4,648 |   |         |  | 31,096     |         |  |  | 16,223     |  
|Extraordinary item                                                 |  |                                  |      |   |         |  |           |         |  |  | 6,737      |  
|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  
|Net income attributable to Cogo Group, Inc.                        |  |                                  | 4,648 |   |         |  | 31,096     |         |  |  | 22,960     |  
|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  
|                                                                   | 
|                                                                   |  | Three Months ended September 30, |      
|                                                                   |  | 2010                             |       |   | 2010    |  |            | 2009    | 
|                                                                   |  | USD000                          |       |   | RMB000 |  |            | RMB000 | 
|Comprehensive income:                                              |  |                                  |       |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                  |      
|Net income                                                         |  |                                  | 4,694 |   |         |  | 31,402     |         |  |  | 25,135     |  
|Other comprehensive income                                         |  |                                  |       |   |         |  |            |         |  |  |            |  
|Foreign currency translation adjustments                           |  |                                  | (579  | ) |         |  | (3,876     | )       |  |  | (165       | )
|Comprehensive income                                               |  |                                  |       |   |         |  |            |         |  |  |            |  
|Less: comprehensive income attributable to noncontrolling interest |  |                                  | (31   | ) |         |  | (206       | )       |  |  | (2,171     | )
|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  
|Comprehensive income attributable to Cogo Group, Inc.              |  |                                  | 4,084 |   |         |  | 27,320     |         |  |  | 22,799     |  
|                                                                   |  |                                  |       |   |         |  |            |         |  |  |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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COGO GROUP, INC. and
SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended

September 30, 2010 and 2009



|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|------------------------------------------------------- |  | ------------------------------- | -------- | - | ------- |  | ---------- | ------- |  |  | ---------- | -
|                                                        |  | Nine Months ended September 30, |         
|                                                        |  | 2010                            |          |   | 2010    |  |            | 2009    | 
|                                                        |  | USD000                         |          |   | RMB000 |  |            | RMB000 | 
|Net revenue                                             |  |                                 |          |   |         |  |            |         |  |  |            |  
|Product sales                                           |  |                                 | 271,538  |   |         |  | 1,816,723  |         |  |  | 1,473,934  |  
|Services revenue                                        |  |                                 | 3,504    |   |         |  | 23,446     |         |  |  | 21,030     |  
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|                                                        |  |                                 | 275,042  |   |         |  | 1,840,169  |         |  |  | 1,494,964  |  
|Cost of sales                                           |  |                                 |          |   |         |  |            |         |  |  |            |  
|Cost of goods sold                                      |  |                                 | (233,299 | ) |         |  | (1,560,886 | )       |  |  | (1,264,065 | )
|Cost of services                                        |  |                                 | (2,831   | ) |         |  | (18,942    | )       |  |  | (17,004    | )
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|                                                        |  |                                 | (236,130 | ) |         |  | (1,579,828 | )       |  |  | (1,281,069 | )
|Gross profit                                            |  |                                 | 38,912   |   |         |  | 260,341    |         |  |  | 213,895    |  
|Selling, general and administrative expenses            |  |                                 | (17,579  | ) |         |  | (117,611   | )       |  |  | (123,252   | )
|Research and development expenses                       |  |                                 | (8,208   | ) |         |  | (54,915    | )       |  |  | (47,876    | )
|Other operating income                                  |  |                                 | 34       |   |         |  | 224        |         |  |  | 668        |  
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|Income from operations                                  |  |                                 | 13,159   |   |         |  | 88,039     |         |  |  | 43,435     |  
|Interest expense                                        |  |                                 | (929     | ) |         |  | (6,216     | )       |  |  | (1,081     | )
|Interest income                                         |  |                                 | 1,608    |   |         |  | 10,758     |         |  |  | 10,688     |  
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|Earnings before income taxes                            |  |                                 | 13,838   |   |         |  | 92,581     |         |  |  | 53,042     |  
|Income tax expense                                      |  |                                 | (1,473   | ) |         |  | (9,855     | )       |  |  | (6,153     | )
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|Income before extraordinary item                        |  |                                 | 12,365   |   |         |  | 82,726     |         |  |  | 46,889     |  
|Extraordinary item, net of nil tax                      |  |                                 |         |   |         |  |           |         |  |  | 6,737      |  
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|Net income                                              |  |                                 | 12,365   |   |         |  | 82,726     |         |  |  | 53,626     |  
|Less net income attributable to noncontrolling interest |  |                                 | (106     | ) |         |  | (711       | )       |  |  | (2,745     | )
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  
|                                                        |  |                                 |         
|Net income attributable to Cogo Group, Inc.             |  |                                 | 12,259   |   |         |  | 82,015     |         |  |  | 50,881     |  
|                                                        |  |                                 |          |   |         |  |            |         |  |  |            |  



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|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  
|------------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------- |  | ---------- | ------- |  |  | ---------- | -
|                                                                   |  | Nine Months ended September 30, |       
|                                                                   |  | 2010                            |        |   | 2010    |  |            | 2009    | 
|                                                                   |  | USD000                         |        |   | RMB000 |  |            | RMB000 | 
|                                                                   |  | USD                             |        |   | RMB     |  |            | RMB     | 
|                                                                   |  |                                 |       
|Earnings per share attributable to Cogo Group, Inc.                |  |                                 |        |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                 |       
|Income before extraordinary item                                   |  |                                 | 0.33   |   |         |  | 2.21       |         |  |  | 1.22       |  
|Extraordinary item                                                 |  |                                 |       |   |         |  |           |         |  |  | 0.18       |  
|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                 |       
|- Basic                                                            |  |                                 | 0.33   |   |         |  | 2.21       |         |  |  | 1.40       |  
|                                                                   |  |                                 |       
|Income before extraordinary item                                   |  |                                 | 0.32   |   |         |  | 2.16       |         |  |  | 1.17       |  
|Extraordinary item                                                 |  |                                 |       |   |         |  |           |         |  |  | 0.18       |  
|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                 |       
|- Diluted                                                          |  |                                 | 0.32   |   |         |  | 2.16       |         |  |  | 1.35       |  
|Weighted average number of common shares outstanding               |  |                                 |        |   |         |  |            |         |  |  |            |  
|- Basic                                                            |  |                                 |        |   |         |  | 37,149,639 |         |  |  | 36,357,237 |  
|- Diluted                                                          |  |                                 |        |   |         |  | 38,006,683 |         |  |  | 37,566,258 |  
|Amounts attributable to Cogo Group, Inc.                           |  |                                 |        |   |         |  |            |         |  |  |            |  
|Income before extraordinary item                                   |  |                                 | 12,259 |   |         |  | 82,015     |         |  |  | 44,144     |  
|Extraordinary item                                                 |  |                                 |       |   |         |  |           |         |  |  | 6,737      |  
|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                 |       
|Net income attributable to Cogo Group, Inc.                        |  |                                 | 12,259 |   |         |  | 82,015     |         |  |  | 50,881     |  
|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  
|                                                                   | 
|                                                                   |  | Nine Months ended September 30, |       
|                                                                   |  | 2010                            |        |   | 2010    |  |            | 2009    | 
|                                                                   |  | USD000                         |        |   | RMB000 |  |            | RMB000 | 
|Comprehensive income:                                              |  |                                 |        |   |         |  |            |         |  |  |            |  
|                                                                   |  |                                 |       
|Net income                                                         |  |                                 | 12,365 |   |         |  | 82,726     |         |  |  | 53,626     |  
|Other comprehensive income                                         |  |                                 |        |   |         |  |            |         |  |  |            |  
|Foreign currency translation adjustments                           |  |                                 | (893   | ) |         |  | (5,972     | )       |  |  | 329        |  
|Comprehensive income                                               |  |                                 |        |   |         |  |            |         |  |  |            |  
|Less: comprehensive income attributable to noncontrolling interest |  |                                 | (70    | ) |         |  | (470       | )       |  |  | (2,747     | )
|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  
|Comprehensive income attributable to Cogo Group, Inc.              |  |                                 | 11,402 |   |         |  | 76,284     |         |  |  | 51,208     |  
|                                                                   |  |                                 |        |   |         |  |            |         |  |  |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



5



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##### Table of Contents



COGO GROUP, INC. and
SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010
and 2009



|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------- |  | -------- | ------- |  |  | ------- | -
|                                                                                                           |  | Nine Months ended September 30, |        
|                                                                                                           |  | 2010                            |         |   | 2010    |  |          | 2009    | 
|                                                                                                           |  | USD000                         |         |   | RMB000 |  |          | RMB000 | 
|Cash flows from operating activities:                                                                      |  |                                 |         |   |         |  |          |         |  |  |         |  
|Net income                                                                                                 |  |                                 | 12,365  |   |         |  | 82,726   |         |  |  | 53,626  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                          |  |                                 |         |   |         |  |          |         |  |  |         |  
|Depreciation expense                                                                                       |  |                                 | 692     |   |         |  | 4,627    |         |  |  | 4,339   |  
|Amortization of intangible assets                                                                          |  |                                 | 2,444   |   |         |  | 16,353   |         |  |  | 22,574  |  
|Deferred income taxes                                                                                      |  |                                 | (403    | ) |         |  | (2,699   | )       |  |  | (3,564  | )
|Loss on disposal of property and equipment                                                                 |  |                                 | 66      |   |         |  | 441      |         |  |  | 168     |  
|Share-based compensation                                                                                   |  |                                 | 7,669   |   |         |  | 51,310   |         |  |  | 44,092  |  
|Extraordinary item                                                                                         |  |                                 |        |   |         |  |         |         |  |  | (6,737  | )
|Change in current assets and liabilities, net of effects from acquisition of Mega Smart in 2009:           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Accounts receivable, net                                                                                   |  |                                 | 1,694   |   |         |  | 11,335   |         |  |  | (82,485 | )
|Bills receivable                                                                                           |  |                                 | (1,171  | ) |         |  | (7,833   | )       |  |  | 2,897   |  
|Inventories                                                                                                |  |                                 | (22,961 | ) |         |  | (153,622 | )       |  |  | (43,693 | )
|Prepaid expenses and other receivables                                                                     |  |                                 | (1,855  | ) |         |  | (12,413  | )       |  |  | 877     |  
|Accounts payable                                                                                           |  |                                 | (166    | ) |         |  | (1,110   | )       |  |  | (18,443 | )
|Income taxes payable                                                                                       |  |                                 | 583     |   |         |  | 3,899    |         |  |  | 3,647   |  
|Accrued expenses and other liabilities                                                                     |  |                                 | (1,019  | ) |         |  | (6,817   | )       |  |  | (1,580  | )
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Net cash used in operating activities                                                                      |  |                                 | (2,062  | ) |         |  | (13,803  | )       |  |  | (24,282 | )
|Cash flows used in investing activities:                                                                   |  |                                 |         |   |         |  |          |         |  |  |         |  
|Increase in pledged bank deposits                                                                          |  |                                 | (3,052  | ) |         |  | (20,417  | )       |  |  |        |  
|Payment for acquisitions of subsidiaries                                                                   |  |                                 | (9,734  | ) |         |  | (65,127  | )       |  |  | (65,327 | )
|Purchases of property and equipment                                                                        |  |                                 | (848    | ) |         |  | (5,675   | )       |  |  | (1,802  | )
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Net cash used in investing activities                                                                      |  |                                 | (13,634 | ) |         |  | (91,219  | )       |  |  | (67,129 | )
|Cash flows provided by financing activities:                                                               |  |                                 |         |   |         |  |          |         |  |  |         |  
|Proceeds from bank borrowings                                                                              |  |                                 | 59,958  |   |         |  | 401,150  |         |  |  | 95,644  |  
|Proceeds from exercise of stock options                                                                    |  |                                 |        |   |         |  |         |         |  |  | 2,049   |  
|Purchase of treasury stock                                                                                 |  |                                 | (6,393  | ) |         |  | (42,771  | )       |  |  |        |  
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Net cash provided by financing activities                                                                  |  |                                 | 53,565  |   |         |  | 358,379  |         |  |  | 97,693  |  
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Effect of exchange rate changes on cash                                                                    |  |                                 | (510    | ) |         |  | (3,412   | )       |  |  | 92      |  
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Net increase in cash                                                                                       |  |                                 | 37,359  |   |         |  | 249,945  |         |  |  | 6,374   |  
|Cash at beginning of the period                                                                            |  |                                 | 99,741  |   |         |  | 667,320  |         |  |  | 686,379 |  
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Cash at end of the period                                                                                  |  |                                 | 137,100 |   |         |  | 917,265  |         |  |  | 692,753 |  
|                                                                                                           |  |                                 |         |   |         |  |          |         |  |  |         |  
|Supplementary cash flow information:                                                                       |  |                                 |         |   |         |  |          |         |  |  |         |  
|Interest paid                                                                                              |  |                                 | (929    | ) |         |  | (6,216   | )       |  |  | (1,081  | )
|Income tax paid                                                                                            |  |                                 | (1,293  | ) |         |  | (8,649   | )       |  |  | (6,069  | )
|Non-cash investing activities:                                                                             |  |                                 |         |   |         |  |          |         |  |  |         |  
|Stock issued for acquisition consideration payable, included in other liabilities                          |  |                                 |        |   |         |  |         |         |  |  | 13,666  |  
|Acquisition of Mega Smart include in accrued expenses and other liabilities                                |  |                                 |        |   |         |  |         |         |  |  | 122,415 |  
|Reduction of intangible assets upon reversal of contingent consideration payable in respect of Keen Awards |  |                                 |        |   |         |  |         |         |  |  | 26,803  |  

See accompanying notes
to unaudited condensed consolidated financial statements.



6



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##### Table of Contents



COGO GROUP, INC. and
SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Equity for the nine months ended
September 30, 2010



|                                                              |  |                               |            |   |                                 |  |       |                         |  |  |                                          |   |  |                      |         |  |                               |  |          |                      |  |  |          |   |  |  |       |   |  |  |           |  
|------------------------------------------------------------- |  | ----------------------------- | ---------- | - | ------------------------------- |  | ----- | ----------------------- |  |  | ---------------------------------------- | - |  | -------------------- | ------- |  | ----------------------------- |  | -------- | -------------------- |  |  | -------- | - |  |  | ----- | - |  |  | --------- | -
|                                                              |  | Cogo Group, Inc. Stockholders |            |   |                                 | 
|                                                              |  | Common stock                  |            |   | Additionalpaid
incapitalRMB000 |  |       | RetainedearningsRMB000 |  |  | AccumulatedothercomprehensivelossRMB000 |   |  | TreasurystockRMB000 |         |  | NoncontrollinginterestRMB000 |  |          | Total 
equityRMB000 | 
|                                                              |  | No. of sharesoutstanding      |            |   | RMB000                         |  |       |                         |  |  |                                          |  
|Balance as of January 1, 2010                                 |  |                               | 35,770,025 |   |                                 |  | 3,258 |                         |  |  | 1,221,538                                |   |  |                      | 604,464 |  |                               |  | (107,384 | )                    |  |  | (178,309 | ) |  |  | 8,455 |   |  |  | 1,552,022 |  
|Net income                                                    |  |                               |           |   |                                 |  |      |                         |  |  |                                         |   |  |                      | 82,015  |  |                               |  |         |                      |  |  |         |   |  |  | 711   |   |  |  | 82,726    |  
|                                                              |  |                               |            |   |                                 |  |       |                        
|Foreign currency translation adjustments                      |  |                               |           |   |                                 |  |      |                         |  |  |                                         |   |  |                      |        |  |                               |  | (5,731   | )                    |  |  |         |   |  |  | (241  | ) |  |  | (5,972    | )
|                                                              |  |                               |            |   |                                 |  |       |                        
|Issuance of common stock pursuant to share-based compensation |  |                               | 472,842    |   |                                 |  | 32    |                         |  |  | (32                                      | ) |  |                      |        |  |                               |  |         |                      |  |  |         |   |  |  |      |   |  |  |          |  
|Share-based compensation                                      |  |                               |           |   |                                 |  |      |                         |  |  | 51,310                                   |   |  |                      |        |  |                               |  |         |                      |  |  |         |   |  |  |      |   |  |  | 51,310    |  
|Purchase of treasury stock                                    |  |                               | (916,420   | ) |                                 |  |      |                         |  |  |                                         |   |  |                      |        |  |                               |  |         |                      |  |  | (42,771  | ) |  |  |      |   |  |  | (42,771   | )
|                                                              |  |                               |            |   |                                 |  |       |                         |  |  |                                          |   |  |                      |         |  |                               |  |          |                      |  |  |          |   |  |  |       |   |  |  |           |  
|Balance as of September 30, 2010                              |  |                               | 35,326,447 |   |                                 |  | 3,290 |                         |  |  | 1,272,816                                |   |  |                      | 686,479 |  |                               |  | (113,115 | )                    |  |  | (221,080 | ) |  |  | 8,925 |   |  |  | 1,637,315 |  
|                                                              |  |                               |            |   |                                 |  |       |                         |  |  |                                          |   |  |                      |         |  |                               |  |          |                      |  |  |          |   |  |  |       |   |  |  |           |  
|Balance as of September 30, 2010 (in USD)                     |  |                               |            |   |                                 |  | 492   |                         |  |  | 190,242                                  |   |  |                      | 102,605 |  |                               |  | (16,907  | )                    |  |  | (33,044  | ) |  |  | 1,334 |   |  |  | 244,722   |  
|                                                              |  |                               |            |   |                                 |  |       |                         |  |  |                                          |   |  |                      |         |  |                               |  |          |                      |  |  |          |   |  |  |       |   |  |  |           |  

See accompanying notes to unaudited condensed consolidated financial statements.



7



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##### Table of Contents



COGO GROUP, INC. and
SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1  Basis of Presentation

The
unaudited condensed consolidated financial statements of Cogo Group, Inc. (the Company) and its subsidiaries (the Group), include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and
reclassifications) necessary to present fairly the Groups consolidated financial position, results of operations and cash flows for all periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed
or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Form 10-K for the year ended December 31, 2009.

The Group has experienced, and expects to continue to experience, seasonal fluctuations in net revenue, which have historically been lowest
in the first quarter of the year due to the Chinese New Year holiday season period and are typically highest in the fourth quarter of the year due to the desire by original equipment manufacturers (OEMs) to spend remaining allocated
annual budgets. Consequently, the Groups financial position, operating results, cash flows and trends in these unaudited condensed consolidated financial statements are not necessarily indicative of future results that may be expected for any
other interim period or for the full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

The accompanying unaudited condensed consolidated financial statements
are expressed in Renminbi (RMB), the national currency of the Peoples Republic of China (the PRC). For the convenience of the reader, the September 30, 2010 RMB amounts, included in the accompanying unaudited
condensed consolidated financial statements have been translated into United States dollars (USD) at the rate of USD1.00 = RMB6.6905. No representation is made that the RMB could have been, or could be, converted into USD at that rate or
at any particular rate or at all.

Note 2  Summary of Significant Accounting Policies

ASU 2009-13, Revenue Recognition (ASC 605)  Multiple-Deliverable Revenue Arrangements and ASU 2009-14, Software (ASC 985)
 Certain Revenue Arrangements That Include Software Elements

In September 2009, the FASB reached a consensus on ASU 2009-13,
Revenue Recognition (ASC 605)  Multiple-Deliverable Revenue Arrangements and ASU 2009-14, Software (ASC 985)  Certain Revenue Arrangements That Include Software Elements. ASU 2009-13 modifies the requirements that must be met for an
entity to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered. ASU 2009-13 eliminates the requirement that all undelivered elements must have either: i)
vendor-specific objective evidence (VSOE) or ii) third-party evidence (TPE), before an entity can recognize the portion of an overall arrangement consideration that is attributable to items that already have been delivered.
In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. Overall arrangement
consideration will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entitys estimated
selling price. The residual method of allocating arrangement consideration has been eliminated. ASU 2009-14 modifies the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software
components that function together to deliver a products essential functionality. These new updates are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The adoption of the two ASUs should not have a significant impact on the consolidated financial statements of the Company.



8



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





EITF Issue
No. 08-9- Milestone Method of Revenue Recognition

EITF 08-9 provides guidance on applying the milestone method to milestone
payments for achieving specified performance measures when those payments are related to uncertain future events. Under the Consensus, entities can make an accounting policy election to recognize arrangement consideration received for achieving
specified performance measures during the period in which the milestones are achieved, provided certain criteria are met. The scope of this issue is limited to transactions involving research or development. The milestone method should not be
applied to transactions within the scope of other authoritative literature on revenue recognition (i.e., construction contract accounting under ASC Subtopic 605-35). EITF 08-9 is effective for interim and annual periods beginning on or after
June 15, 2010 with early adoption permitted. The Company has evaluated this ASU and determined that there is no significant impact from the adoption of this ASU on the consolidated financial statements of the Company.

Note 3  Accounts Receivable, Net



|                                      |  |               |         |   |              |  |         |         |  |  |         |  
|------------------------------------- |  | ------------- | ------- | - | ------------ |  | ------- | ------- |  |  | ------- | -
|                                      |  | September 30, |         |   | December 31, | 
|                                      |  | 2010          |         |   | 2010         |  |         | 2009    | 
|                                      |  | USD000       |         |   | RMB000      |  |         | RMB000 | 
|Accounts receivable                   |  |               | 100,397 |   |              |  | 671,703 |         |  |  | 690,919 |  
|Less: allowance for doubtful accounts |  |               | (10,955 | ) |              |  | (73,292 | )       |  |  | (73,306 | )
|                                      |  |               |         |   |              |  |         |         |  |  |         |  
|Accounts receivable, net              |  |               | 89,442  |   |              |  | 598,411 |         |  |  | 617,613 |  
|                                      |  |               |         |   |              |  |         |         |  |  |         |  

An analysis of the allowance for doubtful accounts is as follows:



|                                                    |  |                                 |        |   |                                |  |        |         |  |  |         |   |  |  |        | 
|--------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ |  | ------ | ------- |  |  | ------- | - |  |  | ------ | 
|                                                    |  | Three Months endedSeptember 30, |        |   | Nine Months endedSeptember 30, | 
|                                                    |  | 2010                            |        |   | 2009                           |  |        | 2010    |  |  | 2009    |  
|                                                    |  | RMB000                         |        |   | RMB000                        |  |        | RMB000 |  |  | RMB000 |  
|Beginning balance                                   |  |                                 | 73,308 |   |                                |  | 54,650 |         |  |  | 73,306  |   |  |  | 37,314 | 
|Addition charged to allowance for doubtful accounts |  |                                 |       |   |                                |  | 16,506 |         |  |  | 324     |   |  |  | 33,842 | 
|Write back on allowance for doubtful accounts       |  |                                 | (16    | ) |                                |  |       |         |  |  | (338    | ) |  |  |       | 
|                                                    |  |                                 |        |   |                                |  |        |         |  |  |         |   |  |  |        | 
|Ending balance                                      |  |                                 | 73,292 |   |                                |  | 71,156 |         |  |  | 73,292  |   |  |  | 71,156 | 
|                                                    |  |                                 |        |   |                                |  |        |         |  |  |         |   |  |  |        | 

Note 4  Bills Receivable

To reduce the Groups credit risk, the Group requires certain customers to pay for the sale of the Groups products by bills receivable. Bills receivable are short-term notes receivable that are
issued by a financial institution that entitles the Group 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 Group has experienced no
losses on bills receivable.

In certain circumstances, the Group 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 costs 4.9% of the balance transferred, which is recorded as interest expense.

For the three months ended September 30, 2010 and 2009, the Group received proceeds from the sale of bills receivable amounting to
RMB3,455 thousand (USD516 thousand), and RMB20,641 thousand, respectively. In addition, the Group recorded discounts amounting to RMB45 thousand (USD7 thousand), and RMB159 thousand in respect of the bills receivable sold for the three months ended
September 30, 2010 and 2009, respectively, which have been included in interest expense.

For the nine months ended September 30,
2010 and 2009, the Group received proceeds from the sale of bills receivable amounting to RMB22,043 thousand (USD3,295 thousand) and RMB49,708 thousand, respectively. In addition, the Group recorded discounts amounting to RMB190 thousand (USD28
thousand) and RMB260 thousand in respect of the bills receivable sold for the nine months ended September 30, 2010 and 2009, respectively, which have been included in interest expense.



9



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





For bills receivable sold to banks
that the Group has surrendered control, the Group derecognized the discounted bills receivable pursuant to the provisions of ASC 860, Transfers and Servicing. As of September 30, 2010 and December 31, 2009, the Group has
derecognized discounted bills receivable amounting to RMB18,387 thousand (USD2,748 thousand) and RMB33,871 thousand, respectively in accordance with ASC 860.

Note 5  Inventories

Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method. Cost of inventories comprises direct materials. Inventories by major categories are as follows:



|                  |  |               |        |  |              |  |         |         |  |  |         | 
|----------------- |  | ------------- | ------ |  | ------------ |  | ------- | ------- |  |  | ------- | 
|                  |  | September 30, |        |  | December 31, | 
|                  |  | 2010          |        |  | 2010         |  |         | 2009    | 
|                  |  | USD000       |        |  | RMB000      |  |         | RMB000 | 
|Raw materials     |  |               | 73     |  |              |  | 488     |         |  |  | 1,792   | 
|Finished goods    |  |               | 44,177 |  |              |  | 295,564 |         |  |  | 144,340 | 
|                  |  |               |        |  |              |  |         |         |  |  |         | 
|Total inventories |  |               | 44,250 |  |              |  | 296,052 |         |  |  | 146,132 | 
|                  |  |               |        |  |              |  |         |         |  |  |         | 

Inventories amounting to RMB7,000 thousand (USD1,046 thousand) and RMB9,600 thousand (USD1,435 thousand) were written off
during the three months and nine months ended September 30, 2010, respectively. Inventories amounting to RMB365 thousand and RMB3,065 thousand were written off during the three months and nine months ended September 30, 2009, respectively.

Note 6  Property and Equipment, Net

Property and equipment is stated at cost less depreciation and if applicable, impairment. Property and equipment consists of the following:



|                                |  |               |        |   |              |  |         |         |  |  |         |  
|------------------------------- |  | ------------- | ------ | - | ------------ |  | ------- | ------- |  |  | ------- | -
|                                |  | September 30, |        |   | December 31, | 
|                                |  | 2010          |        |   | 2010         |  |         | 2009    | 
|                                |  | USD000       |        |   | RMB000      |  |         | RMB000 | 
|Property and equipment, at cost |  |               | 6,209  |   |              |  | 41,539  |         |  |  | 37,984  |  
|Less: accumulated depreciation  |  |               | (3,974 | ) |              |  | (26,584 | )       |  |  | (23,578 | )
|                                |  |               |        |   |              |  |         |         |  |  |         |  
|Property and equipment, net     |  |               | 2,235  |   |              |  | 14,955  |         |  |  | 14,406  |  
|                                |  |               |        |   |              |  |         |         |  |  |         |  

Note 7  Goodwill and Intangible Assets

The changes in the carrying amount of goodwill and intangible assets for the period ended September 30, 2010 is as follows:



|                                          |  |          |         |  |                   |  |         |         |  |  |         |  
|----------------------------------------- |  | -------- | ------- |  | ----------------- |  | ------- | ------- |  |  | ------- | -
|                                          |  | Goodwill |         |  | Intangible Assets |  |         | Total   | 
|                                          |  | RMB000  |         |  | RMB000           |  |         | RMB000 | 
|Balance as of January 1, 2010             |  |          | 196,858 |  |                   |  | 115,804 |         |  |  | 312,662 |  
|Amortization of intangible assets         |  |          |        |  |                   |  | (16,353 | )       |  |  | (16,353 | )
|                                          |  |          |         |  |                   |  |         |         |  |  |         |  
|Balance as of September 30, 2010          |  |          | 196,858 |  |                   |  | 99,451  |         |  |  | 296,309 |  
|                                          |  |          |         |  |                   |  |         |         |  |  |         |  
|Balance as of September 30, 2010 (in USD) |  |          | 29,424  |  |                   |  | 14,864  |         |  |  | 44,288  |  
|                                          |  |          |         |  |                   |  |         |         |  |  |         |  

Note 8  Bank Borrowings and Banking Facilities

On October 7, 2005, the Group entered into a credit facility with Standard Chartered Bank (Hong Kong) Limited (SCB). On July 6, 2010, the facility is revised into a general banking
facility. The facility is secured by funds on deposit of not less than USD5,000 thousand. The facility of the current account overdraft bears interests rate of 0.5% per annum above the HKD Prime for HKD overdraft or 0.5% per annum above
the USD Prime for USD overdraft, payable monthly in arrears. The facility of trade finance bears interest at 2% per annum above HIBOR for the import/export facilities denominated in foreign countries. The outstanding loan balance under the SCB
facility was RMB110,166 thousand (USD16,466 thousand) and RMB31,040 thousand respectively, as of September 30, 2010 and December 31, 2009.



10



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COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





On October 7, 2005, the Group
entered into a USD9,000 thousand credit facility with the Bank of China (Hong Kong) Limited (BOC). On April 23, 2010 the facility with the BOC was USD31,000 thousand. The facility is secured by funds on deposit in an amount not less
than USD15,000 thousand and bears interest from LIBOR/HIBOR +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
the BOC may increase, reduce and/or cancel the facility by providing written notice to the Group. Interest on this facility accrues until payment is demanded by the BOC and no commitment fee is required for this facility. As of September 30,
2010 and December 31, 2009, the outstanding loan balances under the BOC facility were RMB165,391 thousand (USD24,721 thousand) and RMB33,957 thousand, respectively.

On April 28, 2010, the Group entered into a factoring agreement (the Factoring Agreement) with the BOC. Pursuant to the Factoring Agreement, BOC granted the Group a line of credit of up
to USD30,000 thousand or its equivalent amount in HKD, secured by funds on deposit in an amount not less than USD15,000 thousand, being the aggregate amount with other facilities with BOC, if any. The facility bears an interest rate of 2% per
annum above HIBOR or LIBOR, depending on the currency in which the borrowings are denominated. As of September 30, 2010, the outstanding loan balance under the Factoring Agreement was RMB8,512 thousand (USD1,272 thousand).

On November 18, 2009, the Group entered into a credit facility with Guangdong Development Bank Shenzhen Branch (GDB Shenzhen). The
facility is valid for 12 months commencing November 18, 2009 and terminates on November 17, 2010, and loans under the facility bear interest at 1.5% per annum above the 3-month LIBOR and no commitment fee is required for this
facility. GDB Shenzhen may terminate the facility if the Group does not regain its ability to perform its repayment obligations and cannot provide guarantees acceptable to GDB Shenzhen within 30 days after it ceases performing its repayment
obligations. No minimum guarantee deposits are required. On January 22, 2010, the Group entered into a Credit Extension Agreement with Guangdong Development Bank Macau Branch (GDB Macau) which established a revolving secured trade
finance term. The credit extension is valid for 12 months commencing January 22, 2010, and loans under the Credit Extension Agreement bear an interest rate of 3-month LIBOR or HIBOR rate plus 1.5% per annum, depending on the drawdown
currency. As of September 30, 2010 and December 31, 2009, the total outstanding loan balance under both GDB Shenzhen facility and GDB Macau facility was RMB227,310 thousand (USD33,975 thousand) and RMB54,405 thousand, respectively.

On October 8, 2010, the Group entered into general banking facilities (Facility I and Facility II)
with the Hong Kong Branch of China Merchants Bank (CMB). Facility I consists of a revolving loan facility of up to the lesser of (i) USD20,000 thousand or (ii) the amount of the bank guarantee (Bank Guarantee)
issued by Shenzhen Branch of China Merchants Bank. The maturity date of Facility I is the earlier of (i) December 30, 2010 or (ii) five banking days prior to the expiration date of the Bank Guarantee. Facility I bears
interest at a rate equal to the greater of LIBOR at the rate of one or two month periods or the cost of funds of CMB, plus 1.3% per annum. Facility II consists of an irrevocable letters of credit (LC), loans against a trust
receipt (up to 180 days) (TR) and an invoice financing loan (up to 180 days) (IFL) up to a total amount of the lesser of USD20,000 thousand or the aggregate amount of the Bank Guarantee (Facility II).
Facility II commences on January 1, 2011 and matures on the earlier of (i) October 8, 2011 or (ii) five banking days prior to the expiration date of the Bank Guarantee. Commissions and interest on the facilities and loans
under the Facility II are as follows:



|(1) | LC opening commission: first USD50 thousand at 0.25% and at 0.3125% thereafter.
|--- | -------------------------------------------------------------------------------



|(2) | Acceptance commission: first USD50 thousand at 0.25% and at 0.3125% thereafter.
|--- | -------------------------------------------------------------------------------



|(3) | TR loan interest rate: at 1.3% per annum. above the greater of (i) LIBOR or (ii) the cost of funds of CMB.
|--- | ----------------------------------------------------------------------------------------------------------



|(4) | Commission in lieu of exchange: first USD50 thousand at 0.25% and at 0.3125% thereafter.
|--- | ----------------------------------------------------------------------------------------



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COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





|(5) | Invoice Financing loan interest rate: at 1.3% per annum above the greater of (i) LIBOR or (ii) the cost of funds of CMB.
|--- | ------------------------------------------------------------------------------------------------------------------------

The Facilities are secured by a bank guarantee up to the amount of RMB140 million issued by Shenzhen Branch of China Merchants Bank. In the event of
default, the Facilities provide for interest of 5% above interest otherwise payable.

As of September 30, 2010, the weighted average
interest rate on the outstanding bank borrowings was 2.3% (2009: 2.0%).

Note 9  Accrued Expenses and Other Liabilities, and Other
Non-Current Liabilities

Accrued expenses and other liabilities, and other non-current liabilities consist of the following:



|                                       |  |               |       |  |              |  |        |         |  |  |         | 
|-------------------------------------- |  | ------------- | ----- |  | ------------ |  | ------ | ------- |  |  | ------- | 
|                                       |  | September 30, |       |  | December 31, | 
|                                       |  | 2010          |       |  | 2010         |  |        | 2009    | 
|                                       |  | USD000       |       |  | RMB000      |  |        | RMB000 | 
|Legal and professional fees            |  |               | 710   |  |              |  | 4,747  |         |  |  | 4,305   | 
|Accrued staff related costs            |  |               | 112   |  |              |  | 749    |         |  |  | 7,967   | 
|Payables for acquisitions (Note a)     |  |               | 8,209 |  |              |  | 54,921 |         |  |  | 121,453 | 
|Other accruals                         |  |               | 630   |  |              |  | 4,218  |         |  |  | 4,283   | 
|                                       |  |               |       |  |              |  |        |         |  |  |         | 
|Accrued expenses and other liabilities |  |               | 9,661 |  |              |  | 64,635 |         |  |  | 138,008 | 
|                                       |  |               |       |  |              |  |        |         |  |  |         | 

Note a: The balance at September 30, 2010 represents amounts payable in relation to the Groups acquisitions of
Long Rise Holdings Limited (Long Rise) amounting to RMB54,921 thousand (USD8,209 thousand) and is non-interest bearing.

Note
10  Share-Based Compensation

During the three months ended September 30, 2010 and 2009, the Company recognized share-based
compensation expense for awards issued under the 2006 Incentive Plan and the 2009 Omnibus Securities and Incentive Plan (the 2009 Incentive Plan) of RMB17,619 thousand (USD2,633 thousand) and RMB14,954 thousand, respectively. During the
nine months ended September 30, 2010 and 2009, the Company recognized share-based compensation expense for awards issued under the 2006 Incentive Plan and the 2009 Incentive Plan of RMB51,310 thousand (USD7,856 thousand) and RMB44,092 thousand,
respectively. No options and stock warrants were issued during the three months and nine months ended September 30, 2010 and 2009.

(a) Options under the 2004 Incentive Plan

Under the Companys 2004 Incentive
Plan, the Company issued options to purchase shares of the Companys common stock. The options granted under the 2004 Incentive Plan had a weighted average exercise price per option of USD4.08 and weighted average remaining contractual term of
approximately 4 years. During the three and nine months ended September 30, 2010, nil and 7,500 options under the 2004 Incentive Plan were exercised. During the three and nine months ended September 30, 2009, 85,000 and 100,000 options
were exercised, respectively. As of September 30, 2010, 1,184,769 options were outstanding under the 2004 Incentive Plan.



12



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COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





(b)
Non-vested share units

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



|                                 |  |                     |            |   |                                       |  |      |        |  |  |                                       |   |  |  |      | 
|-------------------------------- |  | ------------------- | ---------- | - | ------------------------------------- |  | ---- | ------ |  |  | ------------------------------------- | - |  |  | ---- | 
|                                 |  | 2006 Incentive Plan |            |   | 2009 Incentive Plan                   | 
|                                 |  | Shares              |            |   | Weighted averagegrant-date fair value |  |      | Shares |  |  | Weighted averagegrant-date fair value |  
|                                 |  |                     |            |   | USD                                   |  |      |        |  |  | USD                                   |  
|Balance as of January 1, 2010    |  |                     | 1,309,164  |   |                                       |  | 5.70 |        |  |  |                                      |   |  |  |     | 
|Granted on January 29, 2010      |  |                     | 932,763    |   |                                       |  | 6.36 |        |  |  | 1,167,237                             |   |  |  | 6.36 | 
|Granted on September 23, 2010    |  |                     |           |   |                                       |  |     |        |  |  | 750,000                               |   |  |  | 6.04 | 
|Vested                           |  |                     | (1,103,413 | ) |                                       |  | 5.55 |        |  |  | (194,540                              | ) |  |  | 6.36 | 
|                                 |  |                     |            |   |                                       |  |      |        |  |  |                                       |   |  |  |      | 
|Balance as of September 30, 2010 |  |                     | 1,138,514  |   |                                       |  | 6.39 |        |  |  | 1,722,697                             |   |  |  | 6.22 | 
|                                 |  |                     |            |   |                                       |  |      |        |  |  |                                       |   |  |  |      | 

Note 11  Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:



|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|------------------------------------------------------------------------------------------ |  | ------------------------------- | ---------- |  | ------------------------------- |  | ---------- | ------- |  |  | ---------- |  |  |  | ---------- | 
|                                                                                           |  | Three Months endedSeptember 30, |            |  | Nine Months ended September 30, | 
|                                                                                           |  | 2010                            |            |  | 2009                            |  |            | 2010    |  |  | 2009       | 
|                                                                                           |  | RMB000                         |            |  | RMB000                         |  |            | RMB000 |  |  | RMB000    | 
|Numerator for basic and diluted earnings per share:                                        |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Income before extraordinary item                                                           |  |                                 | 31,096     |  |                                 |  | 16,223     |         |  |  | 82,015     |  |  |  | 44,144     | 
|Extraordinary item                                                                         |  |                                 |           |  |                                 |  | 6,737      |         |  |  |           |  |  |  | 6,737      | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Net income attributable to Cogo Group, Inc.                                                |  |                                 | 31,096     |  |                                 |  | 22,960     |         |  |  | 82,015     |  |  |  | 50,881     | 
|                                                                                           |  |                                 |            | 
|Denominator:                                                                               |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Basic weighted average shares                                                              |  |                                 | 37,244,589 |  |                                 |  | 36,809,304 |         |  |  | 37,149,639 |  |  |  | 36,357,237 | 
|Effect of dilutive non-vested equity share units, performance shares, options and warrants |  |                                 | 609,289    |  |                                 |  | 936,622    |         |  |  | 857,044    |  |  |  | 1,209,021  | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Diluted weighted average shares                                                            |  |                                 | 37,853,878 |  |                                 |  | 37,745,926 |         |  |  | 38,006,683 |  |  |  | 37,566,258 | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|                                                                                           |  |                                 |            | 
|                                                                                           |  | RMB                             |            |  | RMB                             |  |            | RMB     |  |  | RMB        | 
|Income before extraordinary item                                                           |  |                                 | 0.83       |  |                                 |  | 0.44       |         |  |  | 2.21       |  |  |  | 1.22       | 
|Extraordinary item                                                                         |  |                                 |           |  |                                 |  | 0.18       |         |  |  |           |  |  |  | 0.18       | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Basic earnings per share:                                                                  |  |                                 | 0.83       |  |                                 |  | 0.62       |         |  |  | 2.21       |  |  |  | 1.40       | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Income before extraordinary item                                                           |  |                                 | 0.82       |  |                                 |  | 0.43       |         |  |  | 2.16       |  |  |  | 1.17       | 
|Extraordinary item                                                                         |  |                                 |           |  |                                 |  | 0.18       |         |  |  |           |  |  |  | 0.18       | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 
|Diluted earnings per share:                                                                |  |                                 | 0.82       |  |                                 |  | 0.61       |         |  |  | 2.16       |  |  |  | 1.35       | 
|                                                                                           |  |                                 |            |  |                                 |  |            |         |  |  |            |  |  |  |            | 

Non-vested equity share units, performance shares, and options and warrants amounting to approximately 474 thousand
shares and 614 thousand shares are excluded from the Companys dilutive computation as their effect would be anti-dilutive for the three months ended September 30, 2010 and 2009. For the nine months ended September 30, 2010 and
2009, approximately 474 thousand shares and 709 thousand shares are excluded from the Companys dilutive computation as their effect would be anti-dilutive.



13



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





Note 12  Operating
Segment Information

Segment information is as follows:



|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|--------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------- |  | ------- | ------- |  |  | --------- | - |  |  | --------- | -
|                                        |  | Three Months endedSeptember 30, |         |   | Nine Months ended September 30, | 
|                                        |  | 2010                            |         |   | 2009                            |  |         | 2010    |  |  | 2009      |  
|                                        |  | RMB000                         |         |   | RMB000                         |  |         | RMB000 |  |  | RMB000   |  
|Net revenue                             |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Product sales                           |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Segment revenue from external customers |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Digital media                           |  |                                 | 377,961 |   |                                 |  | 337,110 |         |  |  | 1,053,188 |   |  |  | 917,098   |  
|Telecommunications equipment            |  |                                 | 165,975 |   |                                 |  | 138,335 |         |  |  | 446,773   |   |  |  | 375,675   |  
|Industrial business                     |  |                                 | 117,456 |   |                                 |  | 75,618  |         |  |  | 316,762   |   |  |  | 181,161   |  
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|                                        |  |                                 | 661,392 |   |                                 |  | 551,063 |         |  |  | 1,816,723 |   |  |  | 1,473,934 |  
|                                        |  |                                 |         |  
|Service revenue                         |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Segment revenue from external customers |  |                                 | 8,997   |   |                                 |  | 8,970   |         |  |  | 23,446    |   |  |  | 21,030    |  
|Inter-segment revenue                   |  |                                 |        |   |                                 |  |        |         |  |  |          |   |  |  | 5,125     |  
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|                                        |  |                                 | 8,997   |   |                                 |  | 8,970   |         |  |  | 23,446    |   |  |  | 26,155    |  
|Inter-company elimination               |  |                                 |        |   |                                 |  |        |         |  |  |          |   |  |  | (5,125    | )
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Total net revenue                       |  |                                 | 670,389 |   |                                 |  | 560,033 |         |  |  | 1,840,169 |   |  |  | 1,494,964 |  
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Income from operations                  |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Product sales                           |  |                                 | 45,960  |   |                                 |  | 27,779  |         |  |  | 117,866   |   |  |  | 70,760    |  
|Services revenue                        |  |                                 | 1,260   |   |                                 |  | 855     |         |  |  | 3,363     |   |  |  | 1,651     |  
|Unallocated (note i)                    |  |                                 | (12,198 | ) |                                 |  | (10,649 | )       |  |  | (33,190   | ) |  |  | (28,976   | )
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Total income from operations            |  |                                 | 35,022  |   |                                 |  | 17,985  |         |  |  | 88,039    |   |  |  | 43,435    |  
|Interest expense                        |  |                                 | (3,435  | ) |                                 |  | (572    | )       |  |  | (6,216    | ) |  |  | (1,081    | )
|Interest income                         |  |                                 | 3,971   |   |                                 |  | 3,716   |         |  |  | 10,758    |   |  |  | 10,688    |  
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  
|Earnings before income taxes            |  |                                 | 35,558  |   |                                 |  | 21,129  |         |  |  | 92,581    |   |  |  | 53,042    |  
|                                        |  |                                 |         |   |                                 |  |         |         |  |  |           |   |  |  |           |  



|                      |  |                   |           |  |                  |  |           | 
|--------------------- |  | ----------------- | --------- |  | ---------------- |  | --------- | 
|                      |  | September 30,2010 |           |  | December 31,2009 | 
|                      |  | RMB000           |           |  | RMB000          | 
|Total assets          |  |                   |           |  |                  |  |           | 
|Product sales         |  |                   | 2,248,988 |  |                  |  | 1,851,356 | 
|Service revenue       |  |                   | 72,579    |  |                  |  | 66,444    | 
|Unallocated (note ii) |  |                   | 2,548     |  |                  |  | 3,727     | 
|                      |  |                   |           |  |                  |  |           | 
|                      |  |                   | 2,324,115 |  |                  |  | 1,921,527 | 
|                      |  |                   |           |  |                  |  |           | 



|Note i: | Unallocated income from operations includes items such as corporate staff and overheads.
|------- | ----------------------------------------------------------------------------------------

|Note ii: | Unallocated assets mainly includes cash for corporate use.
|-------- | ----------------------------------------------------------

Note 13  Comprehensive Income

The following table reconciles equity attributable to
noncontrolling interest:



|                                                   |  |                                 |       |   |                                 |  |       |         |  |  |         |   |  |  |       | 
|-------------------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------- |  | ----- | ------- |  |  | ------- | - |  |  | ----- | 
|                                                   |  | Three Months endedSeptember 30, |       |   | Nine Months ended September 30, | 
|                                                   |  | 2010                            |       |   | 2009                            |  |       | 2010    |  |  | 2009    |  
|                                                   |  | RMB000                         |       |   | RMB000                         |  |       | RMB000 |  |  | RMB000 |  
|Beginning balance                                  |  |                                 | 8,719 |   |                                 |  | 6,087 |         |  |  | 8,455   |   |  |  | 5,511 | 
|Net income attributable to noncontrolling interest |  |                                 | 306   |   |                                 |  | 2,175 |         |  |  | 711     |   |  |  | 2,745 | 
|Foreign currency translation adjustments           |  |                                 | (100  | ) |                                 |  | (4    | )       |  |  | (241    | ) |  |  | 2     | 
|                                                   |  |                                 |       |   |                                 |  |       |         |  |  |         |   |  |  |       | 
|Ending balance                                     |  |                                 | 8,925 |   |                                 |  | 8,258 |         |  |  | 8,925   |   |  |  | 8,258 | 
|                                                   |  |                                 |       |   |                                 |  |       |         |  |  |         |   |  |  |       | 



14



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)





Note 14  Fair Value
Measurement

The fair values of pledged bank deposits, accounts receivable, accounts payable, bank borrowings and accrued expenses and
other liabilities approximated the respective carrying amounts because of the short maturity of these instruments. The Group adopted ASC 820-10, for the nonfinancial assets and liabilities that are remeasured at fair value on a nonrecurring basis,
prospectively effective January 1, 2009. The nonfinancial assets and liabilities that are remeasured at fair value on a nonrecurring basis did not impact our financial position or results of operations; however, it could have an impact in
future periods. In addition, the Group may have additional disclosure requirements in the event we incur impairment of our assets in future periods.



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

This commentary should be read in conjunction with Cogo Group, Inc. (the Company) and its subsidiaries (together, we, us, our or the
Group) unaudited condensed consolidated financial statements for the period ended September 30, 2010 and 2009 as well as the Groups consolidated financial statements and related notes thereto and managements discussion
and analysis of financial condition and results of operations in the Groups Form 10-K for the year ended December 31, 2009.

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 Peoples
Republic of China (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.

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
the PRC. Our customized module design solutions allow our customers to take advantage of technology components from reputable suppliers in an efficient and cost-effective manner, effectively 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 requirements. In addition, in 2006, we began offering technology and engineering services in the PRC, and in 2007, we began offering software design services in the PRC.



15



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We focus on the digital media,
telecommunications equipment and industrial business end-markets in the PRC. In the digital media end-market, we provide mobile handset and module solutions for functionalities such as CMMB mobile TV, motion sensor, camera, power supply and
Bluetooth as well as solutions for high definition digital set-top box, GPS applications and solutions for Smartbook. In the telecommunications equipment end-market, we provide solutions for PSTN switching, optical transmitters, electrical signal
processing and optical signal amplification; in the industrial business end-market, which commenced in the beginning of 2008, we provide industrial solutions for the green energy, smart meter, smart grid, railways and auto-electronics sectors.
Currently, we have over 1,500 customers, including many of the most established manufacturers in the digital media, telecommunications equipment and industrial business end-markets in the PRC, such as ZTE, TCL and BYD. We work with original
equipment manufacturers, or OEMs, as well as subsystem designers and contract manufacturers to provide solutions to support industry leaders like Huawei. In developing customized module design solutions for use in our customers products, we
collaborate closely with over 30 suppliers of technology components, including many large multinational companies such as Broadcom, Sandisk, Freescale and Atmel. In addition, in October 2006, we became one of the first PRC-based companies to license
software technology and have access to selected source codes directly from Microsoft.

We have two reportable operating segments: product
sales consisting of revenues generated by providing customized module design solutions focusing primarily in the digital media, telecommunications equipment 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 third quarter of 2010, industrial business related sales,
which have generally higher profit margins than our digital module related sales and our telecommunications equipment module related sales, constituted a greater portion of our total net revenue as compared to the previous quarters.

Growth in end-market industries. The rapid growth of the domestic telecommunications equipment, industrial business and digital media end-markets
have been important growth drivers for Chinas electronics manufacturing industries. Specific markets that we expect to experience growth are the new lines of business in the automotive, HDTV, smart meters, smart grid and 3G handset areas.
Steady demand on the historical markets such as 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 telecommunications network market, as well as the digital media market particularly relating to digital TV and GPS applications is also expected. 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 telecommunications equipment, industrial business and digital media 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 telecommunications equipment and digital consumer
electronics manufacturers to be competitive in the global marketplace. As an example, ZTE, a major manufacturer of mobile handset and telecommunications equipment in China, as well as other telecommunications 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 digital media clients.

Growth by entering new end-markets, strengthening in-house capabilities and leveraging our customer
base. In 2008, we began targeting the industrial business end-market by providing industrial solutions for the green energy and auto-electronics sectors. Since then the revenues generated from this market have grown from 13.5% of our revenue in
the third quarter of 2009 to 17.5% of our revenue in the third quarter of 2010. We anticipate that sales related to the industrial business end-markets will generally have higher profit margins than our digital media and telecom equipment modules
related sales, though such higher margins may decline over time as this industry matures. We will also look for opportunities to expand into new end markets that we believe represent significant growth opportunities.



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Our success in the industrial business
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 industrial business end-market.

General economic and market conditions. Due to market conditions, the level of consumer and information technology spending has declined and
reduced the demand for our mobile handsets since the third quarter of 2008. Furthermore, our profit margins have been reduced since we strategically lowered our pricing in order to grow the business in a slowing economic environment. Over the third
quarter of 2010 our profit margin have been stabalized and our other businesses, such as industrial business and digital media products, continue to show solid growth, driven by stable infrastructure investments in the PRC.

Net Revenue

Product sales

For our product 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 is net of a 17% value-added tax, or VAT. Costs incurred for the design of modules are expensed as incurred
and recorded as research and development expense in the Companys consolidated statements of income and comprehensive income.

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

Our net revenue is 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 desire by OEMs to spend remaining budgets allocated for a given period, usually on an annual basis. Net revenue has 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 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. Our service revenue is net of business tax.

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
suppliers includes Broadcom (integrated circuit and Bluetooth), Matsushita (switches), Freescale Semiconductor (automotive solutions) and Xilinx (industrial solutions). We typically issue purchase orders to our suppliers only after we receive
customer orders, enabling us to maintain sustainable 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.



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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. Also included in selling expenses is allowance for doubtful accounts.

General and administrative expenses include compensation
and benefits for our general and administrative staff, professional fees, amortization of intangible assets, foreign exchange losses 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 September 30, 2010, we had approximately
280 engineers and other technical employees engaged in research and development related activities to develop new customized module design solutions targeted at the telecommunications equipment, industrial business and digital media industries.

Noncontrolling Interest

Noncontrolling interest consisted of 30% and 40% of the outstanding equity interest in Long Rise and Comtech Digital Technology (Hong Kong) Limited (Comtech Digital), respectively. For the
quarter ended September 30, 2010, approximately 1.7% of our total net revenue was generated through Long Rise. Comtech Digital was established in March 2010 and 1.1% of our total net revenue was generated for the third quarter of 2010.

Taxation

The Company and its subsidiaries file separate income tax returns.

USA

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,
| | - |  | -------------------------------------------------------------



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| |  |  | 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 inclusions under the income imputation rules applicable to a United States
company that owns controlled foreign corporations for United States federal income tax purposes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cayman Islands and British Virgin Islands

Under the current laws of the Cayman Islands and British Virgin Islands, the Companys subsidiaries that are incorporated in the Cayman Islands and the British Virgin Islands are not subject to tax
on income or capital gains. In addition, upon payments of dividends by these companies, no Cayman Islands or British Virgin Islands withholding tax will be imposed.

Hong Kong

The Companys subsidiaries that are incorporated in Hong Kong are
subject to a Hong Kong Profits Tax. The applicable profits tax rate is 16.5% for 2009 and 2010. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

PRC

Prior to
January 1, 2008, the PRCs statutory income tax rate was 33%. In addition, Shenzhen Comtech, Comtech Communication, Comtech Software, Comloca Technology (Shenzhen) Company Limited (Comloca), Epcot Multimedia Technology (SZ) Co.
Ltd. (Epcot), Shenzhen Huameng Software Company Limited (Huameng PRC) and Viewtran Technology (Shenzhen) Co., Limited (Viewtran PRC) (collectively the Shenzhen Subsidiaries), being located in the Shenzhen
Special Economic Zone in the PRC, were subject to a reduced tax rate of 15%. Since the Shenzhen Subsidiaries agreed to operate for a minimum of 10 years in the PRC, the Shenzhen Subsidiaries were each entitled to a tax holiday of 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.

Also prior to January 1, 2008, Shanghai E&T which is located in Shanghai Qingpu Zone, was taxed on a deemed basis at 2.31% of its turnover in accordance with the tax guidelines issued by the
local tax authority in Qingpu Zone in 2007.

On March 16, 2007, the National Peoples Congress passed the Corporate Income Tax law
(the CIT law) which unified the income tax rate to 25% for all companies. The CIT law was effective as of January 1, 2008. Accordingly, the Companys PRC subsidiaries are subject to income tax at 25% effective from
January 1, 2008 unless otherwise specified.

The CIT law and its relevant regulations provide a five-year transition period from
January 1, 2008 for those companies which were established before March 16, 2007 and which were entitled to preferential lower tax rates under the then effective tax laws or regulations, as well as grandfathering certain tax holidays. The
transitional tax rates are 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively. For the Shenzhen Subsidiaries that were entitled to the tax holidays of two-year tax exemption followed by a three-year 50% tax
reduction from the first profit making year after offsetting accumulated tax losses, and they are entitled to continue the tax holidays until they expire. For Comloca and Huameng PRC which had not commenced their respective tax holiday as of
December 31, 2007, the CIT law and its relevant regulations require the tax exemption period to begin on January 1, 2008.

Based on
the above, the Shenzhen Subsidiaries are subject to the following tax rates:



| |  |  | Shenzhen Comtech is subject to income tax at rates of 15%, 18%, 20%, 22%, 24% and 25% for 2007, 2008, 2009, 2010, 2011 and 2012 onwards respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Comtech Communications is subject to income tax at rates of 7.5%, 18%, 20%, 22%, 24% and 25% for 2007, 2008, 2009, 2010, 2011 and 2012 onwards,
respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comtech Software is subject to income tax at rates of 7.5%, 9%, 10%, 22%, 24% and 25% for 2007, 2008, 2009, 2010, 2011 and 2012 onwards, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comloca and Huameng PRC had no assessable profits up to 2007 and were tax exempt for 2008 and 2009. They are subject to income tax at rates of 11%,
12%, 12.5% and 25% for 2010, 2011, 2012 and 2013 onwards, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Viewtran PRC and Epcot were tax exempt for 2007 and 2008 and are subject to income tax at rates of 10%, 11%, 12% and 25% for 2009, 2010, 2011 and 2012
onwards, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2010, Mega Smart (Shenzhen), Mega Sky (Shenzhen) and Industrial (Shenzen) were each entitled to a
two-year tax exemption followed by a three-year 50% tax reduction from the first profit making year. In addition, Shanghai E&T, Shanghai Comtech, Keen Awards Beijing (Keen Awards), R&E Microelectronics, Comtech Digital (Shenzhen)
and Chengdu Comtech are subject to the corporate income tax rate of 25% under the CIT law.

As a result of the above incentives, our
operations have historically been subject to relatively low tax liabilities, which will increase in the near future. Our effective tax rate was 10.6% and 11.6% in the nine months ended September 30, 2010 and 2009, respectively. Included in the
income tax expense for the nine months ended September 30, 2010 was a deferred income tax benefit of RMB2,699 thousand (USD403 thousand) as a result of the amortization of intangible assets of RMB16,353 thousand (USD2,444 thousand).

Three months ended September 30, 2010 compared to three months ended September 30, 2009

Overview

The
following table sets forth information regarding the breakdown of revenues and income from operations between our product sales segment and service revenue segment:



|                             |         |                                 |         |         |      |  |         | 
|---------------------------- | ------- | ------------------------------- | ------- | ------- | ---- |  | ------- | 
|                             |         | Three Months
endedSeptember 30, |        
|                             |         | 2010                            |         |         | 2009 | 
|                             | RMB000 |                                 |         | RMB000 |     
|Net revenue                  |         |                                 |         |         |      |  |         | 
|Product sales                |         |                                 |         |         |      |  |         | 
|Digital media                |         |                                 | 377,961 |         |      |  | 337,110 | 
|Telecommunications equipment |         |                                 | 165,975 |         |      |  | 138,335 | 
|Industrial business          |         |                                 | 117,456 |         |      |  | 75,618  | 
|Services revenue             |         |                                 | 8,997   |         |      |  | 8,970   | 
|                             |         |                                 |         |         |      |  |         | 
|Total net revenue            |         |                                 | 670,389 |         |      |  | 560,033 | 
|                             |         |                                 |         |         |      |  |         | 

Net Revenue.Total net revenue increased by RMB110,356 thousand (USD16,494 thousand), or 19.7% in the three months
ended September 30, 2010 when compared to the corresponding period in 2009. The increase was mainly due to the continued expansion in all end-markets.

Product Sales

Details of product sales by market type are as follows:



|                             |  |                                  |        |  |                 |  |         |        |  |  |                 |   |  |          |         |  |  |  |      |   |  |  |      |  
|---------------------------- |  | -------------------------------- | ------ |  | --------------- |  | ------- | ------ |  |  | --------------- | - |  | -------- | ------- |  |  |  | ---- | - |  |  | ---- | -
|                             |  | Three Months ended September 30, |       
|                             |  | 2010                             |        |  | 2009            |  |         |        | 
|                             |  | Amount                           |        |  | % of NetRevenue |  |         | Amount |  |  | % of NetRevenue |   |  | % Change |        
|                             |  | USD000                          |        |  | RMB000         |  |         |        |  |  | RMB000         |   |  |          |         |  |  | 
|Digital media                |  |                                  | 56,491 |  |                 |  | 377,961 |        |  |  | 56.4            | % |  |          | 337,110 |  |  |  | 60.2 | % |  |  | 12.1 | %
|Telecommunications equipment |  |                                  | 24,808 |  |                 |  | 165,975 |        |  |  | 24.8            | % |  |          | 138,335 |  |  |  | 24.7 | % |  |  | 20.0 | %
|Industrial business          |  |                                  | 17,556 |  |                 |  | 117,456 |        |  |  | 17.5            | % |  |          | 75,618  |  |  |  | 13.5 | % |  |  | 55.3 | %
|                             |  |                                  |        |  |                 |  |         |        |  |  |                 |   |  |          |         |  |  |  |      |   |  |  |      |  
|Total product sales          |  |                                  | 98,855 |  |                 |  | 661,392 |        |  |  | 98.7            | % |  |          | 551,063 |  |  |  | 98.4 | % |  |  | 20.0 | %
|                             |  |                                  |        |  |                 |  |         |        |  |  |                 |   |  |          |         |  |  |  |      |   |  |  |      |  



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Product sales for the three months
ended September 30, 2010 was RMB661,392 thousand (USD98,855 thousand), or RMB10,329 thousand, or 20.0% higher than the corresponding period in 2009. Digital media sales increased by RMB40,851 thousand (USD6,106 thousand), or 12.1%;
telecommunications equipment related sales increased by RMB27,640 thousand (USD4,131 thousand), or 20.0%; and industrial business related sales increased by RMB41,838 thousand (USD6,253 thousand), or 55.3%. The increase in product sales was mainly
attributable to the Groups continued effort and strategic focus in the expansion of the industrial business end-market, the increased sales volume as a result of growing demand and the promising new lines of business such as automotive, HDTV,
smart meters, smart grid and 3G handset access.

Services Revenue.

Services revenue is as follows:



|                 |  |                                  |       |  |                 |  |       |        |  |  |                 |   |  |          |       |  |  |  |     |   |  |  |     |  
|---------------- |  | -------------------------------- | ----- |  | --------------- |  | ----- | ------ |  |  | --------------- | - |  | -------- | ----- |  |  |  | --- | - |  |  | --- | -
|                 |  | Three Months ended September 30, |      
|                 |  | 2010                             |       |  | 2009            |  |       |        | 
|                 |  | Amount                           |       |  | % of NetRevenue |  |       | Amount |  |  | % of NetRevenue |   |  | % Change |      
|                 |  | USD000                          |       |  | RMB000         |  |       |        |  |  | RMB000         |   |  |          |       |  |  | 
|Services revenue |  |                                  | 1,345 |  |                 |  | 8,997 |        |  |  | 1.3             | % |  |          | 8,970 |  |  |  | 1.6 | % |  |  | 0.3 | %
|                 |  |                                  |       |  |                 |  |       |        |  |  |                 |   |  |          |       |  |  |  |     |   |  |  |     |  

Services revenue was derived from the provision of technology and engineering services, network system integration
and related training and maintenance services. The increase of RMB27 thousand (USD4 thousand), or 0.3%, was mainly attributable to more sales generated from software design services for the quarter end September 30, 2010, as compared to same period
of 2009.

Gross Profit. Gross profit was RMB94,982 thousand (USD14,196 thousand) in the three months ended September 30, 2010, an
increase of RMB14,153 thousand (USD2,115 thousand), or 17.5% when compared to RMB80,829 thousand in the corresponding period in 2009. The increase in gross profit was primarily attributable to increased sales volume in all end-markets. Gross margin
was 14.2% in the three months ended September 30, 2010, compared to 14.4% in the corresponding period in 2009.

Selling, General and
Administrative and R&D Expenses. Selling, general and administrative and R&D expenses were RMB60,148 thousand (USD8,990 thousand) in the three months ended September 30, 2010, or 4.8% lower than the corresponding period in 2009. The
expenses for the three months ended September 30, 2010 and 2009 are as follows:



|                                    |  |                                  |       |  |                 |  |        |        |  |  |                 |   |  |          |        |  |  |  |      |   |  |  |       |   
|----------------------------------- |  | -------------------------------- | ----- |  | --------------- |  | ------ | ------ |  |  | --------------- | - |  | -------- | ------ |  |  |  | ---- | - |  |  | ----- | --
|                                    |  | Three Months ended September 30, |      
|                                    |  | 2010                             |       |  | 2009            |  |        |        | 
|                                    |  | Amount                           |       |  | % of NetRevenue |  |        | Amount |  |  | % of NetRevenue |   |  | % change |       
|                                    |  | USD000                          |       |  | RMB000         |  |        |        |  |  | RMB000         |   |  |          |        |  |  | 
|Selling expenses                    |  |                                  | 1,754 |  |                 |  | 11,737 |        |  |  | 1.7             | % |  |          | 26,028 |  |  |  | 4.6  | % |  |  | (54.9 | %)
|General and administrative expenses |  |                                  | 4,263 |  |                 |  | 28,518 |        |  |  | 4.3             | % |  |          | 21,409 |  |  |  | 3.8  | % |  |  | 33.2  | % 
|R&D expenses                        |  |                                  | 2,973 |  |                 |  | 19,893 |        |  |  | 3.0             | % |  |          | 15,756 |  |  |  | 2.8  | % |  |  | 26.3  | % 
|                                    |  |                                  |       |  |                 |  |        |        |  |  |                 |   |  |          |        |  |  |  |      |   |  |  |       |   
|Total                               |  |                                  | 8,990 |  |                 |  | 60,148 |        |  |  | 9.0             | % |  |          | 63,193 |  |  |  | 11.2 | % |  |  | (4.8  | %)
|                                    |  |                                  |       |  |                 |  |        |        |  |  |                 |   |  |          |        |  |  |  |      |   |  |  |       |   



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Selling, General and Administrative
Expenses.The decrease in selling expenses in the three months ended September 30, 2010 of RMB14,291 thousand (USD2,136 thousand), or 54.9%, was mainly attributable to a charge in allowance for doubtful account of RMB16,506 thousand for the
three months ended September 30, 2009 as compared to RMB nil thousand for the same period of 2010. The additional charge for doubtful accounts was assessed in accordance with the Groups accounting policy. The decrease in selling expenses
was offset in part by an increase in product logistics costs, such as transportation and warehousing charges. The increase in general and administrative expenses of RMB7,109 thousand (USD1,063 thousand), or 33.2%, was primarily attributable to
RMB5,621 thousand of an unrealized exchange gain mainly resulting from the appreciation of Australian Dollars against RMB during the three months ended September 30, 2009 as compared to an exchange gain of RMB330 thousand (USD49 thousand) for
the same period of 2010. The increase in general and administrative expenses was offset in part by an increase in staff cost, including increase in stock-based compensation cost of RMB1,244 thousand (USD186 thousand) of which was mostly granted in
the beginning of 2010, and other general administrative expenses, such as office rental due to an increase in headcount as a result of our acquisition of Mega Smart in May 2009.

R&D Expenses. R&D expenses increased in the three months ended September 30, 2010 by RMB4,137 thousand (USD618 thousand), or 26.3%, as compared to the corresponding period in 2009.
R&D expenses mainly consist of staff cost and R&D facility charges, and the increase was primarily attributable to an increase in R&D staff cost, including increase in stock-based compensation cost of RMB1,111 thousand (USD166 thousand).

Interest Expense.Interest expense increased in the three months ended September 30, 2010 by RMB2,863 thousand (USD428 thousand)
or 500.5%, as compared to the corresponding period in 2009. The increase in interest expense was attributable to an increase in average bank borrowings.

Interest Income. Interest income in the three months ended September 30, 2010 amounted to RMB3,971 thousand (USD594 thousand), compared to RMB3,716 thousand in the corresponding period in
2009. The increase was mainly attributable to an increase in average bank deposits as compared to the corresponding period in 2009.

Income
Tax Expense. The effective income tax rate for the three months ended September 30, 2010 and 2009 was 11.7% and 12.9%, respectively. The decrease in effective income tax rate was due to the increase in revenue generated by certain entities
in the PRC with tax holidays compared to the same period in 2009.

Extraordinary Gain. Extraordinary gain of RMB6,737 thousand in
corresponding period of 2009 represented the reversal of consideration payable for the Keen Awards acquisition of RMB29,118 thousand, offset in part by the reduction of Keen Awards related intangible assets of RMB26,803 thousand and the respective
deferred taxation in relation to the intangible assets of Keen Awards of RMB4,422 thousand.

Net Income; Earnings per share. As
a result of the above items, net income attributable to Cogo Group, Inc. for the three months ended September 30, 2010 was RMB31,096 thousand (USD4,648 thousand), as compared to RMB22,960 thousand in the corresponding period in 2009. We
reported basic earnings per share of RMB0.83 (USD0.12) and diluted earnings per share of RMB0.82 (USD0.12) for the three months ended September 30, 2010, as compared to basic earnings per share of RMB0.62 and diluted earnings per share of
RMB0.61 for the corresponding period in 2009.

Nine months ended September 30, 2010 compared to nine months ended September 30,
2009

Overview

The following table sets forth information regarding the breakdown of revenues and income from operations between our product sales segment and service revenue segment:



|                             |         |                                 |           |         |      |  |           | 
|---------------------------- | ------- | ------------------------------- | --------- | ------- | ---- |  | --------- | 
|                             |         | Nine Months ended September 30, |          
|                             |         | 2010                            |           |         | 2009 | 
|                             | RMB000 |                                 |           | RMB000 |     
|Net revenue                  |         |                                 |           |         |      |  |           | 
|Product sales                |         |                                 |           |         |      |  |           | 
|Digital media                |         |                                 | 1,053,188 |         |      |  | 917,098   | 
|Telecommunications equipment |         |                                 | 446,773   |         |      |  | 375,675   | 
|Industrial business          |         |                                 | 316,762   |         |      |  | 181,161   | 
|Services revenue             |         |                                 | 23,446    |         |      |  | 21,030    | 
|                             |         |                                 |           |         |      |  |           | 
|Total net revenue            |         |                                 | 1,840,169 |         |      |  | 1,494,964 | 
|                             |         |                                 |           |         |      |  |           | 



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Net Revenue.Total net revenue
increased by RMB345,205 thousand (USD51,596 thousand), or 23.1% in the nine months ended September 30, 2010 when compared to the corresponding period in 2009. The increase was mainly due to the continued expansion in all end-markets.

Product Sales

Details of product sales by market type are as follows:



|                             |  |                                 |         |  |                 |  |           |        |  |  |                 |   |  |          |           |  |  |  |      |   |  |  |      |  
|---------------------------- |  | ------------------------------- | ------- |  | --------------- |  | --------- | ------ |  |  | --------------- | - |  | -------- | --------- |  |  |  | ---- | - |  |  | ---- | -
|                             |  | Nine Months ended September 30, |        
|                             |  | 2010                            |         |  | 2009            |  |           |        | 
|                             |  | Amount                          |         |  | % of NetRevenue |  |           | Amount |  |  | % of NetRevenue |   |  | % Change |          
|                             |  | USD000                         |         |  | RMB000         |  |           |        |  |  | RMB000         |   |  |          |           |  |  | 
|Digital media                |  |                                 | 157,416 |  |                 |  | 1,053,188 |        |  |  | 57.2            | % |  |          | 917,098   |  |  |  | 61.4 | % |  |  | 14.8 | %
|Telecommunications equipment |  |                                 | 66,777  |  |                 |  | 446,773   |        |  |  | 24.3            | % |  |          | 375,675   |  |  |  | 25.1 | % |  |  | 18.9 | %
|Industrial business          |  |                                 | 47,345  |  |                 |  | 316,762   |        |  |  | 17.2            | % |  |          | 181,161   |  |  |  | 12.1 | % |  |  | 74.9 | %
|                             |  |                                 |         |  |                 |  |           |        |  |  |                 |   |  |          |           |  |  |  |      |   |  |  |      |  
|Total product sales          |  |                                 | 271,538 |  |                 |  | 1,816,723 |        |  |  | 98.7            | % |  |          | 1,473,934 |  |  |  | 98.6 | % |  |  | 23.3 | %
|                             |  |                                 |         |  |                 |  |           |        |  |  |                 |   |  |          |           |  |  |  |      |   |  |  |      |  

Product sales for the nine months ended September 30, 2010 was RMB1,816,723 thousand (USD271,538 thousand),
or RMB342,789 thousand, or 23.3% higher than the corresponding period in 2009. Digital media sales increased by RMB136,090 thousand (USD20,341 thousand), or 14.8%; telecommunications equipment related sales increased by RMB71,098 thousand (USD10,627
thousand), or 18.9%; and industrial business related sales increased by RMB135,601 thousand (USD20,268 thousand), or 74.9%. The increase in product sales was mainly attributable to the Groups continued effort and strategic focus in the
expansion of the industrial business end-market, the increased sales volume as a result of growing demand and the and the promising new lines of business such as automotive, HDTV, smart meters, smart grid and 3G handset access.

Services Revenue.

Services revenue is as follows:



|                 |  |                                 |       |  |                 |  |        |        |  |  |                 |   |  |          |        |  |  |  |     |   |  |  |      |  
|---------------- |  | ------------------------------- | ----- |  | --------------- |  | ------ | ------ |  |  | --------------- | - |  | -------- | ------ |  |  |  | --- | - |  |  | ---- | -
|                 |  | Nine Months ended September 30, |      
|                 |  | 2010                            |       |  | 2009            |  |        |        | 
|                 |  | Amount                          |       |  | % of NetRevenue |  |        | Amount |  |  | % of NetRevenue |   |  | % Change |       
|                 |  | USD000                         |       |  | RMB000         |  |        |        |  |  | RMB000         |   |  |          |        |  |  | 
|Services revenue |  |                                 | 3,504 |  |                 |  | 23,446 |        |  |  | 1.3             | % |  |          | 21,030 |  |  |  | 1.4 | % |  |  | 11.5 | %
|                 |  |                                 |       |  |                 |  |        |        |  |  |                 |   |  |          |        |  |  |  |     |   |  |  |      |  

Services revenue was derived from the provision of technology and engineering services, network system integration
and related training and maintenance services. The increase of RMB2,416 thousand (USD361 thousand), or 11.5% more sales generated from software design services for the quarter, as compared to same period of 2009.



23



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Gross Profit. Gross profit was
RMB260,341 thousand (USD38,912 thousand) in the nine months ended September 30, 2010, an increase of RMB46,446 thousand (USD6,942 thousand), or 21.7% when compared to RMB213,895 thousand in the corresponding period in 2009. The increase in
gross profit was primarily attributable to increased sales volume in all end-markets. Gross margin was 14.1% in the nine months ended September 30, 2010, compared to 14.3% in the corresponding period in 2009.

Selling, General and Administrative and R&D Expenses. Selling, general and administrative and R&D expenses were RMB172,526 thousand
(USD25,787 thousand) in the nine months ended September 30, 2010, or 0.8% higher than the corresponding period in 2009. The expenses for the nine months ended September 30, 2010 and 2009 are as follows:



|                                    |  |                                 |        |  |                 |  |         |        |  |  |                 |   |  |          |         |  |  |  |      |   |  |  |       |   
|----------------------------------- |  | ------------------------------- | ------ |  | --------------- |  | ------- | ------ |  |  | --------------- | - |  | -------- | ------- |  |  |  | ---- | - |  |  | ----- | --
|                                    |  | Nine Months ended September 30, |       
|                                    |  | 2010                            |        |  | 2009            |  |         |        | 
|                                    |  | Amount                          |        |  | % of NetRevenue |  |         | Amount |  |  | % of NetRevenue |   |  | % change |        
|                                    |  | USD000                         |        |  | RMB000         |  |         |        |  |  | RMB000         |   |  |          |         |  |  | 
|Selling expenses                    |  |                                 | 4,704  |  |                 |  | 31,472  |        |  |  | 1.7             | % |  |          | 59,362  |  |  |  | 4.0  | % |  |  | (47.0 | %)
|General and administrative expenses |  |                                 | 12,875 |  |                 |  | 86,139  |        |  |  | 4.7             | % |  |          | 63,890  |  |  |  | 4.3  | % |  |  | 34.8  | % 
|R&D expenses                        |  |                                 | 8,208  |  |                 |  | 54,915  |        |  |  | 3.0             | % |  |          | 47,876  |  |  |  | 3.2  | % |  |  | 14.7  | % 
|                                    |  |                                 |        |  |                 |  |         |        |  |  |                 |   |  |          |         |  |  |  |      |   |  |  |       |   
|Total                               |  |                                 | 25,787 |  |                 |  | 172,526 |        |  |  | 9.4             | % |  |          | 171,128 |  |  |  | 11.5 | % |  |  | 0.8   | % 
|                                    |  |                                 |        |  |                 |  |         |        |  |  |                 |   |  |          |         |  |  |  |      |   |  |  |       |   

Selling, General and Administrative Expenses.The decrease in selling expenses in the nine months ended
September 30, 2010 of RMB27,890 thousand (USD4,169 thousand), or 47.0%, was mainly attributable to a charge in allowance for doubtful accounts of RMB26,118 thousand in the nine months ended September 30, 2009, as compared to RMB2 thousand
for the same period of 2010. The additional charge for doubtful accounts assessed in accordance with the Groups accounting policy. The decrease in selling expenses was offset by an increase in product logistics costs, such as transportation
and warehousing charges. The increase in general and administrative expenses of RMB22,249 thousand (USD3,325 thousand), or 34.8%, was primarily attributable to RMB13,218 thousand of an unrealized exchange gain mainly resulting by the appreciation of
Australian Dollars against RMB during the nine months ended September 30, 2009, as compared to an exchange loss of RMB3,178 thousand (USD475 thousand) for the same period of 2010. In addition, there was an increase in staff cost, including
stock-based compensation cost of RMB3,405 thousand (USD509 thousand) of which was mostly granted in the beginning of 2010, and other general administrative expenses, such as office rental due to an increase in headcount as a result of our
acquisition of Mega Smart in May 2009.

R&D Expenses. R&D expenses increased in the nine months ended September 30,
2010 by RMB7,039 thousand (USD1,052 thousand), or 14.7%, as compared to the corresponding period in 2009. The R&D expenses mainly consist of staff cost and R&D facility charges and the increase was primarily attributable to an increase in
R&D staff cost, including stock-based compensation cost of RMB2,967 thousand (USD444 thousand) as a result of expansion in industrial market.

Interest Expense.Interest expense increased in the nine months ended September 30, 2010 by RMB5,135 thousand (USD768 thousand) or 475.0%, as compared to the corresponding period in 2009. The
increase in interest expense was attributable to an increase in average bank borrowings.

Interest Income. Interest income in the nine
months ended September 30, 2010 amounted to RMB10,758 thousand (USD1,608 thousand), compared to RMB10,688 thousand in the corresponding period in 2009. The increase was mainly attributable to an increase in average bank deposits as compared to
the corresponding period in 2009.

Income Tax Expense.The effective income tax rate for the nine months ended September 30, 2010
and 2009 was 10.6% and 11.6%, respectively. The decrease in effective income tax rate was due to the increase in revenue generated by certain entities in the PRC with tax holidays compared to the same period in 2009.

Extraordinary Gain. Extraordinary gain of RMB6,737 thousand in corresponding period of 2009 represented the reversal of consideration payable for
the Keen Awards acquisition of RMB29,118 thousand, offset in part by the reduction of Keen Awards related intangible assets of RMB26,803 thousand and the respective deferred taxation in relation to the intangible assets of Keen Awards of RMB4,422
thousand.



24



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Net Income; Earnings per share.
As a result of the above items, net income attributable to Cogo Group, Inc. for the nine months ended September 30, 2010 was RMB82,015 thousand (USD12,259 thousand), as compared to RMB50,881 thousand in the corresponding period in 2009. We
reported basic earnings per share of RMB2.21 (USD0.33) and diluted earnings per share of RMB2.16 (USD0.32) for the nine months ended September 30, 2010, as compared to basic earnings per share of RMB1.40 and diluted earnings per share of
RMB1.35 for the corresponding period in 2009.

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 three to four months. Accordingly, working capital, being current
assets less current liabilities, is needed to fund this timing difference.

As at September 30, 2010, apart from the cash payable in
relation to our acquisition of the subsidiaries, we had no material commitments for capital expenditure.

As of September 30, 2010, we
had approximately RMB917,265 thousand (USD137,100 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, available borrowings
under bank lines of credit and factoring facilities and possible future public or private equity offerings. 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 cash, operating cash flows, credit arrangements, and access to equity and debt capital markets, 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 September 30, 2010, we had working capital of RMB1,340,897 thousand (USD200,417 thousand), including RMB917,265 thousand
(USD137,100 thousand) in cash, as compared with working capital of RMB1,243,646 thousand, including RMB667,320 thousand in cash, as of December 31, 2009.

Operating activities used cash of RMB13,803 thousand (USD2,062 thousand) for the nine months ended September 30, 2010, compared to cash used of RMB24,282 thousand in the corresponding period in 2009.
The cash used in operating activities for the nine months ended September 30, 2010 was primarily due to an increase in cash paid to inventory purchases of RMB153,622 thousand (USD22,961 thousand) near the end of September 2010 to meet
expected demand in the coming months. For the nine months ended September 30, 2009, the increase in cash paid to inventory purchases was RMB43,693 thousand.

Investing activities used RMB91,219 thousand (USD13,634 thousand) for the nine months ended September 30, 2010, mainly for payments for acquisitions of subsidiaries of RMB65,127 thousand (USD9,734
thousand) and purchases of property and equipment of RMB5,675 thousand (USD848 thousand). Investing activities used RMB91,219 thousand (USD13,634 thousand) during the nine months ended September 30, 2009, mainly for payments for the
acquisitions of subsidiaries of RMB65,127 thousand (USD9,734 thousand).

Financing activities provided cash of RMB358,379 thousand (USD53,565
thousand) for the nine months ended September 30, 2010, primarily arising from proceeds from bank borrowings of RMB401,150 thousand (USD59,958 thousand), partly offset by purchase of treasury stock of RMB42,771 thousand (USD6,393 thousand).



25



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Indebtedness

On October 7, 2005, the Group entered into a credit facility with Standard Chartered Bank (Hong Kong) Limited (SCB).
On July 6, 2010, the facility is revised into a general banking facility. The facility is secured by funds on deposit of not less than USD5,000 thousand. The facility of the current account overdraft bears interests rate of 0.5% per annum
above the HKD Prime for HKD overdraft or 0.5% per annum above the USD Prime for USD overdraft, payable monthly in arrears. The facility of trade finance bears interest at 2% per annum above HIBOR for the import/export facilities
denominated in foreign countries. The outstanding loan balance under the SCB facility was RMB110,166 thousand (USD16,466 thousand) and RMB31,040 thousand respectively, as of September 30, 2010 and December 31, 2009.

On October 7, 2005, the Group entered into a USD9,000 thousand credit facility with the Bank of China (Hong Kong) Limited (BOC). On
April 23, 2010 the facility with the BOC was USD31,000 thousand. The facility is secured by funds on deposit in an amount not less than USD15,000 thousand and bears interest from LIBOR/HIBOR +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 the BOC may increase, reduce and/or cancel the facility by providing written notice to the Group. Interest on
this facility accrues until payment is demanded by the BOC and no commitment fee is required for this facility. As of September 30, 2010 and December 31, 2009, the outstanding loan balances under the BOC facility were RMB165,391 thousand
(USD24,721 thousand) and RMB33,957 thousand, respectively.

On April 28, 2010, the Group entered into a factoring agreement (the
Factoring Agreement) with the BOC. Pursuant to the Factoring Agreement, BOC granted the Group a line of credit of up to USD30,000 thousand or its equivalent amount in HKD, secured by funds on deposit in an amount not less than USD15,000
thousand, being the aggregate amount with other facilities with BOC, if any. The facility bears an interest rate of 2% per annum above HIBOR or LIBOR, depending on the currency in which the borrowings are denominated. As of September 30,
2010, the outstanding loan balance under the Factoring Agreement was RMB8,512 thousand (USD1,272 thousand).

On November 18, 2009, the
Group entered into a credit facility with Guangdong Development Bank Shenzhen Branch (GDB Shenzhen). The facility is valid for 12 months commencing November 18, 2009 and terminates on November 17, 2010, and loans under the
facility bear interest at 1.5% per annum above the 3-month LIBOR and no commitment fee is required for this facility. GDB Shenzhen may terminate the facility if the Group does not regain its ability to perform its repayment obligations and
cannot provide guarantees acceptable to GDB Shenzhen within 30 days after it ceases performing its repayment obligations. No minimum guarantee deposits are required. On January 22, 2010, the Group entered into a Credit Extension Agreement with
Guangdong Development Bank Macau Branch (GDB Macau) which established a revolving secured trade finance term. The credit extension is valid for 12 months commencing January 22, 2010, and loans under the Credit Extension Agreement
bear an interest rate of 3-month LIBOR or HIBOR rate plus 1.5% per annum, depending on the drawdown currency. As of September 30, 2010 and December 31, 2009, the total outstanding loan balance under both GDB Shenzhen facility and GDB
Macau facility was RMB227,310 thousand (USD33,975 thousand) and RMB54,405 thousand, respectively.

On October 8, 2010, the Group entered
into general banking facilities (Facility I and Facility II) with the Hong Kong Branch of China Merchants Bank (CMB). Facility I consists of a revolving loan facility of up to the lesser of
(i) USD20,000 thousand or (ii) the amount of the bank guarantee (Bank Guarantee) issued by Shenzhen Branch of China Merchants Bank. The maturity date of Facility I is the earlier of (i) December 30, 2010 or
(ii) five banking days prior to the expiration date of the Bank Guarantee. Facility I bears interest at a rate equal to the greater of LIBOR at the rate of one or two month periods or the cost of funds of CMB, plus 1.3% per annum.
Facility II consists of an irrevocable letters of credit (LC), loans against a trust receipt (up to 180 days) (TR) and an invoice financing loan (up to 180 days) (IFL) up to a total amount of the lesser of
USD20,000 thousand or the aggregate amount of the Bank Guarantee (Facility II). Facility II commences on January 1, 2011 and matures on the earlier of (i) October 8, 2011 or (ii) five banking days prior to
the expiration date of the Bank Guarantee. Commissions and interest on the facilities and loans under the Facility II are as follows:



|(1) | LC opening commission: first USD50 thousand at 0.25% and at 0.3125% thereafter.
|--- | -------------------------------------------------------------------------------



|(2) | Acceptance commission: first USD50 thousand at 0.25% and at 0.3125% thereafter.
|--- | -------------------------------------------------------------------------------



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|(3) | TR loan interest rate: at 1.3% per annum. above the greater of (i) LIBOR or (ii) the cost of funds of CMB.
|--- | ----------------------------------------------------------------------------------------------------------



|(4) | Commission in lieu of exchange: first USD50 thousand at 0.25% and at 0.3125% thereafter.
|--- | ----------------------------------------------------------------------------------------



|(5) | Invoice Financing loan interest rate: at 1.3% per annum above the greater of (i) LIBOR or (ii) the cost of funds of CMB.
|--- | ------------------------------------------------------------------------------------------------------------------------

The Facilities are secured by a bank guarantee up to the amount of RMB140 million issued by Shenzhen Branch of China Merchants Bank. In the event of
default, the Facilities provide for interest of 5% above interest otherwise payable.

As of September 30, 2010, the weighted average
interest rate on the outstanding bank borrowings was 2.3% (2009: 2.0%).

Some of our customers enter into arrangements with their respective
banks for purposes of settling their bills. Under such arrangements, we were 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 costs 4.9% of the balance transferred, which
is recorded as interest expense. For the nine months ended September 30, 2010, we had received proceeds from the sales of the bills receivable amounting to RMB18,387 thousand (USD2,748 thousand), compared with RMB49,708 thousand for the same
period last year.



|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 State
Administration on Foreign Exchange, or SAFE, of the PRC, 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 SAFE of the PRC, or its local counterparts.

Since July 2005, the Renminbi is no longer 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 September 30, 2010, the exchange rate of RMB to USD1.00 was RMB6.6905. On June 19, 2010, the Peoples Bank of China announced the removal of the de facto peg. Following this announcement, the
Renminbi appreciated from 6.7968 Renminbi per U.S. dollar on June 21, 2010 to 6.7709 Renminbi per U.S. dollar on July 2, 2010.

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 is denominated in Renminbi.



27



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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, as of
September 30, 2010 and December 31, 2009, we have cash denominated in U.S. dollars amounting to RMB290,804 thousand (USD43,465 thousand) and RMB149,399 thousand. Also, from time to time we may have U.S. dollar denominated borrowings.
Accordingly, a decoupling of the Renminbi may affect our financial performance in the future.

We recognized a foreign currency translation
adjustment of approximately RMB5,131 thousand (USD857 thousand) for the nine months ended September 30, 2010. We do not currently engage in hedging activities and 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. Our bank borrowings amounted to RMB511,379 thousand
(USD76,434 thousand) as of September 30, 2010. Based on the variable nature of the underlying interest rate, the bank borrowings approximated fair value at that date.

If there was a hypothetical 1% change in interest rates, the net impact to earnings and cash flows would be approximately RMB5,114 thousand (USD764 thousand) over a one year period. The potential change
in cash flows and earning is calculated based on the change in the net interest expense over a one year period due to an immediate 1% change in price.

Inflation

In recent years, China has not experienced significant inflation, and
thus inflation has not had a material impact on our results of operations.



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

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision of and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective as of September 30,
2010.

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and
communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Companys internal control over financial reporting during the second quarter of fiscal 2010, which were identified in connection with managements evaluation
required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



28



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##### Table of Contents



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, 2009.



|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, 2009.



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

None.



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

None.



|Item 4. | (REMOVED AND RESERVED)
|------- | ----------------------



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

None.



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

(b) Exhibits



|            |  |                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Document Description                                                                                                                                                                                        
|            | 
|10.1*       |  | Confirmation Letter of Standard Chartered Bank (Hong Kong) Limited, dated July 6, 2010.                                                                                                                     
|            | 
|10.2*       |  | Facility Letter by and among Standard Chartered Bank (Hong Kong) Limited, Comtech International (Hong Kong) Limited, Keen Awards Limited and Comtech Broadband Corporation Limited,
dated February 22, 2010.
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                 
|            | 
|31.2        |  | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.         
|            | 
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                                                                        
|            | 
|32.2        |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                                                                    



|* | Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on July 9, 2010.
|- | ---------------------------------------------------------------------------------------------------------



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SIGNATURES

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



|                 |  |                  |  |                                     
|---------------- |  | ---------------- |  | ------------------------------------
|                 |  | COGO GROUP, INC.
|                 |  |                 
|November 5, 2010 |  | By:              |  | /S/    JEFFREY
KANG                 
|                 |  |                  |  | Jeffrey Kang                        
|                 |  |                  |  | Chairman and Chief Executive Officer
|                 |  |                  |  | (Principal Executive Officer)       
|                 |  |                 
|November 5, 2010 |  | By:              |  | /S/    FRANK
ZHENG                  
|                 |  |                  |  | Frank Zheng                         
|                 |  |                  |  | Chief Financial Officer             
|                 |  |                  |  | (Principal Financial Officer)       



30