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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007.

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 0-27436



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Comtech Group, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 94-3171940                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

Room 1001, Tower C, Skyworth Building

High-Tech Industrial Park

Nanshan,
Shenzhen 518057, PRC

(Address of Principal Executive Offices including zip code)

011-86-755-267-43210

(Registrants Telephone Number, Including Area Code)



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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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filler  x    Non-accelerated filer ̈

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

There were 37,572,479 shares of the Registrants Common Stock issued and outstanding on May 7, 2007.



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Comtech Group, Inc.

Index to Form 10-Q



|           |  |                                                                                                    |  |     
|---------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                    |  | Page
|Part I.    |  | Financial Information                                                                              |  |     
|           |  |                                                                                                   
|           |  | Item 1. Condensed Financial Statements (unaudited)                                                 |  |     
|           |  |                                                                                                   
|           |  | Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006                   |  |     
|           |  |                                                                                                   
|           |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 |  | 2   
|           |  |                                                                                                   
|           |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 |  | 3   
|           |  |                                                                                                   
|           |  | Notes to Condensed Consolidated Financial Statements                                               |  |     
|           |  |                                                                                                   
|           |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations      |  | 12  
|           |  |                                                                                                   
|           |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                 |  | 22  
|           |  |                                                                                                   
|           |  | Item 4. Controls and Procedures                                                                    |  | 23  
|           |  |                                                                                                   
|           |  | Item 4T. Controls and Procedures                                                                   |  | 23  
|           |  |                                                                                                   
|Part II.   |  | Other Information                                                                                  |  |     
|           |  |                                                                                                   
|           |  | Item 1. Legal Proceedings                                                                          |  | 23  
|           |  |                                                                                                   
|           |  | Item 1A. Risk Factors                                                                              |  | 24  
|           |  |                                                                                                   
|           |  | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                |  | 24  
|           |  |                                                                                                   
|           |  | Item 3. Defaults Upon Senior Securities                                                            |  | 24  
|           |  |                                                                                                   
|           |  | Item 4. Submission of Matters to a Vote of Security Holders                                        |  | 24  
|           |  |                                                                                                   
|           |  | Item 5. Other Information                                                                          |  | 24  
|           |  |                                                                                                   
|           |  | Item 6. Exhibits                                                                                   |  | 25  
|           | 
|SIGNATURES |  | 26                                                                                                



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PART IFINANCIAL INFORMATION



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

COMTECH
GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

As of March 31, 2007 and December 31, 2006



|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | - |  | -------------- | - |  | ------------ | -
|                                                                                                                                                  |  | March 31, 2007 |   |  | March 31, 2007 |   |  | Dec 31, 2006 |  
|                                                                                                                                                  |  | $000          |   |  | RMB000        |   |  | RMB000      |  
|Assets                                                                                                                                            |  |                |   |  |                |   |  |              |  
|Current assets:                                                                                                                                   |  |                |   |  |                |   |  |              |  
|Cash                                                                                                                                              |  | 43,199         |   |  | 333,635        |   |  | 375,147      |  
|Pledged bank deposits                                                                                                                             |  | 7,150          |   |  | 55,219         |   |  | 55,416       |  
|Trade accounts receivable, net of allowance for doubtful accounts                                                                                 |  | 40,859         |   |  | 315,563        |   |  | 278,589      |  
|Bills receivable                                                                                                                                  |  | 2,962          |   |  | 22,879         |   |  | 31,797       |  
|Prepaid expenses and other receivables                                                                                                            |  | 2,128          |   |  | 16,433         |   |  | 14,254       |  
|Inventories                                                                                                                                       |  | 12,414         |   |  | 95,877         |   |  | 71,959       |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Total current assets                                                                                                                              |  | 108,712        |   |  | 839,606        |   |  | 827,162      |  
|                                                                                                                                                  |  |                |  
|Property and equipment, net                                                                                                                       |  | 1,628          |   |  | 12,572         |   |  | 12,395       |  
|Intangible assets, net                                                                                                                            |  | 2,299          |   |  | 17,752         |   |  | 19,528       |  
|Investment in an affiliated company                                                                                                               |  | 54             |   |  | 416            |   |  | 416          |  
|Goodwill                                                                                                                                          |  | 6,046          |   |  | 46,692         |   |  | 46,692       |  
|Other assets                                                                                                                                      |  | 117            |   |  | 905            |   |  | 905          |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Total Assets                                                                                                                                      |  | 118,856        |   |  | 917,943        |   |  | 907,098      |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Liabilities and stockholders equity                                                                                                              |  |                |   |  |                |   |  |              |  
|Current liabilities:                                                                                                                              |  |                |   |  |                |   |  |              |  
|Trade accounts payable                                                                                                                            |  | 17,375         |   |  | 134,188        |   |  | 114,217      |  
|Bank borrowings                                                                                                                                   |  | 4,254          |   |  | 32,857         |   |  | 30,272       |  
|Amounts due to related parties                                                                                                                    |  | 192            |   |  | 1,483          |   |  | 1,522        |  
|Income taxes payable                                                                                                                              |  | 1,098          |   |  | 8,477          |   |  | 9,270        |  
|Accrued expenses and other liabilities                                                                                                            |  | 5,210          |   |  | 40,238         |   |  | 86,253       |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Total current liabilities                                                                                                                         |  | 28,129         |   |  | 217,243        |   |  | 241,534      |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Minority interests                                                                                                                                |  | 169            |   |  | 1,304          |   |  | 1,646        |  
|                                                                                                                                                  |  |                |  
|Stockholders equity                                                                                                                              |  |                |   |  |                |   |  |              |  
|Common stock (USD 0.01 par value  authorized 200,000,000 shares; issued and outstanding 33,172,479 shares in 2007 and 32,971,901 shares
in 2006) |  | 355            |   |  | 2,740          |   |  | 2,725        |  
|Additional paid-in capital                                                                                                                        |  | 53,349         |   |  | 412,024        |   |  | 402,721      |  
|Retained earnings                                                                                                                                 |  | 39,415         |   |  | 304,411        |   |  | 275,890      |  
|Accumulated other comprehensive loss                                                                                                              |  | (2,561         | ) |  | (19,779        | ) |  | (17,418      | )
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Total stockholders equity                                                                                                                        |  | 90,558         |   |  | 699,396        |   |  | 663,918      |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  
|Total liabilities and stockholders equity                                                                                                        |  | 118,856        |   |  | 917,943        |   |  | 907,098      |  
|                                                                                                                                                  |  |                |   |  |                |   |  |              |  

See accompanying notes to condensed consolidated financial statements.



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COMTECH GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

Three months ended March 31, 2007 and 2006



|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|--------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------- | ---------- | - | ------------------------------- | ---------- | -
|                                                          |  | Three MonthsEndedMarch 31, 2007 |            |   | Three MonthsEndedMarch 31, 2007 |            |   | Three MonthsEndedMarch 31, 2006 |           
|                                                          |  | $000                           |            |   | RMB000                         |            |   | RMB000                         |           
|Net Sales                                                 |  |                                 |            |   |                                 |            |   |                                 |            |  
|Product revenue                                           |  |                                 | 43,127     |   |                                 | 333,077    |   |                                 | 263,822    |  
|Services revenue                                          |  |                                 | 1,433      |   |                                 | 11,066     |   |                                 | 7,905      |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|                                                          |  |                                 | 44,560     |   |                                 | 344,143    |   |                                 | 271,727    |  
|Cost of sales                                             |  |                                 |            |   |                                 |            |   |                                 |            |  
|Cost of goods sold                                        |  |                                 | (35,037    | ) |                                 | (270,599   | ) |                                 | (215,988   | )
|Cost of services                                          |  |                                 | (1,001     | ) |                                 | (7,730     | ) |                                 | (3,706     | )
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|                                                          |  |                                 | (36,038    | ) |                                 | (278,329   | ) |                                 | (219,694   | )
|Gross profit                                              |  |                                 | 8,522      |   |                                 | 65,814     |   |                                 | 52,033     |  
|Selling, general and administrative expenses              |  |                                 | (3,395     | ) |                                 | (26,219    | ) |                                 | (11,357    | )
|Research and development expenses                         |  |                                 | (1,108     | ) |                                 | (8,557     | ) |                                 | (7,102     | )
|Other operating income                                    |  |                                 | 8          |   |                                 | 60         |   |                                 | 40         |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|Income from operations                                    |  |                                 | 4,027      |   |                                 | 31,098     |   |                                 | 33,614     |  
|Interest expense                                          |  |                                 | (100       | ) |                                 | (769       | ) |                                 | (412       | )
|Interest income                                           |  |                                 | 220        |   |                                 | 1,700      |   |                                 | 2,084      |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|Income before income taxes and minority interests         |  |                                 | 4,147      |   |                                 | 32,029     |   |                                 | 35,286     |  
|Income taxes                                              |  |                                 | (384       | ) |                                 | (2,964     | ) |                                 | (3,633     | )
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|Income before minority interests                          |  |                                 | 3,763      |   |                                 | 29,065     |   |                                 | 31,653     |  
|Minority interests in income of consolidated subsidiaries |  |                                 | (70        | ) |                                 | (544       | ) |                                 | (5,428     | )
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|Net income                                                |  |                                 | 3,693      |   |                                 | 28,521     |   |                                 | 26,225     |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|                                                          |  | $                               |            |   |                                 | RMB        |   |                                 | RMB        |  
|Earnings per share                                        |  |                                 |            |   |                                 |            |   |                                 |            |  
|- Basic                                                   |  |                                 | 0.11       |   |                                 | 0.86       |   |                                 | 0.83       |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|- Diluted                                                 |  |                                 | 0.11       |   |                                 | 0.83       |   |                                 | 0.79       |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|Weighted average number of shares outstanding             |  |                                 |            |   |                                 |            |   |                                 |            |  
|- Basic                                                   |  |                                 | 33,057,444 |   |                                 | 33,057,444 |   |                                 | 31,668,368 |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  
|- Diluted                                                 |  |                                 | 34,317,751 |   |                                 | 34,317,751 |   |                                 | 33,262,247 |  
|                                                          |  |                                 |            |   |                                 |            |   |                                 |            |  

See accompanying notes to condensed consolidated financial statements.



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COMTECH GROUP INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

Three months ended March 31, 2007 and 2006



|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|------------------------------------------------------------------------------------------- |  | ------------------------------- | - |  | ------------------------------- | - |  | ------------------------------- | -
|                                                                                            |  | Three MonthsEndedMarch 31, 2007 |   |  | Three MonthsEndedMarch 31, 2007 |   |  | Three MonthsEndedMarch 31, 2006 |  
|                                                                                            |  | $000                           |   |  | RMB000                         |   |  | RMB000                         |  
|Cash Flows from Operating Activities:                                                       |  |                                 |   |  |                                 |   |  |                                 |  
|Net income                                                                                  |  | 3,693                           |   |  | 28,521                          |   |  | 26,225                          |  
|Adjustments to reconcile net income to net cash provided by/(used in) operating activities: |  |                                 |   |  |                                 |   |  |                                 |  
|Depreciation expense                                                                        |  | 105                             |   |  | 814                             |   |  | 587                             |  
|Amortization of intangible assets                                                           |  | 230                             |   |  | 1,776                           |   |  |                                |  
|Minority interests                                                                          |  | 70                              |   |  | 544                             |   |  | 5,428                           |  
|Stock-based compensation                                                                    |  | 1,208                           |   |  | 9,332                           |   |  | 2,399                           |  
|Change in current assets and liabilities, net of effects of acquisitions and dispositions:  |  |                                 |   |  |                                 |   |  |                                 |  
|Accounts receivable                                                                         |  | (4,190                          | ) |  | (32,364                         | ) |  | (25,873                         | )
|Bill receivables                                                                            |  | 1,155                           |   |  | 8,918                           |   |  | 1,656                           |  
|Prepaid expenses and other receivables                                                      |  | (276                            | ) |  | (2,129                          | ) |  | (9,311                          | )
|Amount due from a minority shareholder                                                      |  |                                |   |  |                                |   |  | (39                             | )
|Inventories                                                                                 |  | (3,056                          | ) |  | (23,604                         | ) |  | 24,709                          |  
|Trade accounts payable                                                                      |  | 2,518                           |   |  | 19,444                          |   |  | (30,238                         | )
|Income taxes payable                                                                        |  | (115                            | ) |  | (890                            | ) |  | 1,744                           |  
|Accrued expenses and other liabilities                                                      |  | (1,255                          | ) |  | (9,691                          | ) |  | (1,703                          | )
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Net cash provided by/(used in) operating activities                                         |  | 87                              |   |  | 671                             |   |  | (4,416                          | )
|                                                                                            |  |                                 |  
|Cash flows from investing activities:                                                       |  |                                 |   |  |                                 |   |  |                                 |  
|Purchases of property and equipment                                                         |  | (129                            | ) |  | (996                            | ) |  | (2,378                          | )
|Decrease in pledged bank deposits                                                           |  | 25                              |   |  | 197                             |   |  | 47                              |  
|Acquisition of subsidiary, net of cash required                                             |  |                                |   |  |                                |   |  | (1,847                          | )
|Settlement for acquisitions of subsidiaries in 2006                                         |  | (4,752                          | ) |  | (36,701                         | ) |  |                                |  
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Net cash used in investing activities                                                       |  | (4,856                          | ) |  | (37,500                         | ) |  | (4,178                          | )
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Cash flows from financing activities:                                                       |  |                                 |   |  |                                 |   |  |                                 |  
|Proceeds from exercise of stock warrants and options                                        |  |                                |   |  |                                |   |  | 11,492                          |  
|Proceeds from new bank borrowings                                                           |  | 270                             |   |  | 2,085                           |   |  | 8,458                           |  
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Net cash provided by financing activities                                                   |  | 270                             |   |  | 2,085                           |   |  | 19,950                          |  
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Effect of exchange rate changes on cash                                                     |  | (876                            | ) |  | (6,768                          | ) |  | (1,381                          | )
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Net (decrease)/increase in cash                                                             |  | (5,375                          | ) |  | (41,512                         | ) |  | 9,975                           |  
|Cash at beginning of the period                                                             |  | 48,574                          |   |  | 375,147                         |   |  | 177,098                         |  
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  
|Cash at end of the period                                                                   |  | 43,199                          |   |  | 333,635                         |   |  | 187,073                         |  
|                                                                                            |  |                                 |   |  |                                 |   |  |                                 |  

See accompanying notes to condensed consolidated financial statements.



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Note 1  Basis Of Presentation

The accompanying unaudited condensed consolidated financial statements of Comtech Group, Inc., (formerly Trident Rowan Group Inc, (the Company)) and its subsidiaries (together, we,
us or our)) have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance
with United States generally accepted accounting principles have been condensed or omitted. For a summary of our accounting principles, and other footnote information, reference is made to the Companys 2006 audited consolidated financial
statements included in our Annual Report on Form 10-K (the 10-K) filed with the Securities and Exchange Commission on March 16, 2007. The accompanying unaudited condensed consolidated financial statements and notes thereto should be
read in conjunction with the audited consolidated financial statements and notes included in that 10-K. All adjustments necessary for the fair presentation of the results of operations for the interim periods covered by this report have been
included. All such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the operating results for the full year.

The accompanying unaudited condensed consolidated financial statements are expressed in Renminbi (RMB), the national currency of the Peoples Republic
of China (the PRC). Solely for the convenience of the reader, the March 31, 2007 unaudited condensed consolidated financial statements have been translated into United States dollars (USD or $) at the closing
rate in New York City on March 31, 2007 for cable transfers in RMB as certified for customers purposes by the Federal Reserve Bank of New York of USD 1.00 = RMB 7.7232. No representation is made that the RMB could have been, or could be,
converted into USD at that rate or at any other certain rate on March 31, 2007, or at any other certain date.

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

Note 2  Organization And Nature Of Business

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

Note 3  Summary Of Principal Accounting Policies

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



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Revenue recognition

Sales of components

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

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

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

Certain PRC subsidiaries of the Company are eligible to receive a refund of a portion
of the VAT paid to the local tax authority. The refund is reported as other revenue in the consolidated statements of income, as it is akin to a government operating subsidy, and is recognized upon receipt since the refund amount is discretionary
and the amount varies year to year based on the availability of government funds as determined by the local tax authority.

Services

Revenue for services is generally recognized when services are performed.

Revenue is recorded net of value added tax incurred. Value added taxes amounted to RMB15,666 thousand ($2,028 thousand) and RMB14,822 thousand, for the three months ended March 31, 2007 and 2006, respectively.

Recently Issued Accounting Pronouncements

In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair value, provides a framework for measuring fair value, and expands the disclosures required for fair value measurements. SFAS No. 157
applies to other accounting pronouncements that require fair value measurements and does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and is required to be
adopted by us in fiscal year 2008. Although we will continue to evaluate the application of SFAS No. 157, we do not currently believe the adoption of SFAS No. 157 will have a material impact on our consolidated financial statements.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an
amendment of FASB Statement No. 115 (SFAS No 159). SFAS No. 159 permits an entity to elect fair value as the initial and subsequent measurement attribute for many financial assets and liabilities. Entities electing the fair value
option would be required to recognize changes in fair value in earnings. Entities electing the fair value option are required to distinguish, on the face of the statement of financial position, the fair value of assets and liabilities for which the
fair value option has been elected and similar assets and liabilities measured using another measurement attribute. We are required to adopt SFAS No. 159 beginning on January 1, 2008. The adjustment to reflect the difference between the
fair value and the carrying amount would be accounted for as a cumulative-effect adjustment to retained earnings as of the date of initial adoption. Although we will continue to evaluate the provisions of SFAS No. 159, management currently does
not believe the adoption of SFAS No. 159 will have a material impact on our consolidated financial statements.



5



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Recently Adopted Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the
Companys financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. We adopted FIN48 on January 1, 2007. The adoption of FIN 48 did not have an effect on our results of operations or financial condition. We did not have any unrecognized tax benefits as of January 1, 2007 or March 31,
2007.



6



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Note 4  Financing Arrangements

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

The Companys subsidiaries, in certain
circumstances, have arranged to transfer with recourse certain of its bills receivable to banks. Under this discounting arrangement, the bank pays a discounted amount to the Companys subsidiaries and collects the amounts owed from the
customers banks. The discount typically ranges from 0.6% to 0.8% of the balance transferred, which is recorded as interest expenses.

For certain
bills receivable sold to banks that the Companys subsidiaries have surrendered control, the Companys subsidiaries derecognised the discounted bills receivable pursuant to the provisions of SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140). As at March 31, 2007 and December 31, 2006 we have derecognized discounted bills receivable amounting to RMB 37,326 thousand
($4,833 thousand) and RMB58,531 thousand (US$7,500 thousand), respectively in accordance with SFAS No. 140.

Note 5  Stock-Based Compensation

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

Prior to the share exchange transaction between Trident Rowan Group Inc. (Trident) and the Company (the Share Exchange Agreement), the Board of Directors of Trident adopted, and the then
stockholders of Trident approved, the 1995 Stock Option Plan for Outside Directors (the Directors Plan) under which 5,000 options would be granted annually to each non-employee director of Trident for each full year of service on
the Board of Trident. As part of the Share Exchange Agreement, the Company assumed fully vested options under the Directors Plan to purchase 115,000 shares of the Companys common stock. The options granted under the Directors Plan
have a weighted average exercise price per option of $3.00 each and expire on July 1, 2009. Since the Share Exchange Agreement, the Company has not granted additional options under the Directors Plan. None of the options exercisable under
the Directors Plan was exercised in the three months ended March 31, 2007 or 2006. As of March 31, 2007, the aggregate intrinsic value of the outstanding exercisable options was $1,665 thousand.

Prior to the Share Exchange Agreement, Trident granted fully exercisable stock warrants to purchase up to 925,417 shares of its common stock which were assumed by the
Company as a part of the Share Exchange Agreement. The stock warrants assumed by the Company have a weighted average exercisable price per stock warrant of $2.76 each and expire on July 1, 2009. During the three months ended March 31, 2007
and 2006, 145,105 and 137,450 stock warrants with weighted average exercisable price per stock warrant of $2.62 and $2.73 each were exercised respectively. As of March 31, 2007, 25,923 exercisable stock warrants remained outstanding with a
weighted average exercisable price per stock warrant and aggregate intrinsic value of $2.94 each and $377 thousand respectively.

(b) 2004 Incentive
Plan

On August 3, 2004, the Board of Directors adopted the Comtech Group, Inc. 2004 Stock Incentive Plan (the 2004 Incentive Plan)
pursuant to which 2,500,000 shares of the Companys common stock are reserved for issuance upon exercise of stock options, and for the issuance of stock appreciation rights, non-vested shares and performance shares. The purpose of the 2004
Incentive Plan is to



7



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provide additional incentive to employees, directors, advisors and consultants. The 2004 Incentive Plan provides for a term of 10 years from the date of its
adoption by the Board of Directors, after which no awards may be made, unless the 2004 Incentive Plan is early terminated by the Board.

Stock options

A summary of stock option activity is as follows:



|                                 |  |                  |  |                               |  |                                         |  |                        
|-------------------------------- |  | ---------------- |  | ----------------------------- |  | --------------------------------------- |  | -----------------------
|                                 |  | Number ofoptions |  | Weightedaverageexercise price |  | Weightedaverageremainingcontractualterm |  | Aggregateintrinsicvalue
|                                 |  |                  |  | USD                           |  | Years                                   |  | USD000                
|Balance as of December 31, 2006  |  | 1,313,519        |  | 4.01                          |  |                                         |  |                        
|                                 |  |                  |  |                               |  |                                         |  |                        
|Granted                          |  |                 |  |                              |  |                                        |  |                       
|Exercised                        |  |                 |  |                              |  |                                        |  |                       
|Forfeited                        |  |                 |  |                              |  |                                        |  |                       
|Balance as of March 31, 2007     |  | 1,313,519        |  | 4.01                          |  | 7.75                                    |  | 17,699                 
|                                 |  |                  |  |                               |  |                                         |  |                        
|Exercisable as of March 31, 2007 |  | 789,561          |  | 3.98                          |  | 7.75                                    |  | 10,662                 
|                                 |  |                  |  |                               |  |                                         |  |                        

Non-vested equity share unit

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



|                              |  |         |   |  |                                      
|----------------------------- |  | ------- | - |  | -------------------------------------
|                              |  | Shares  |   |  | Weighted averageGrant-date fair value
|                              |  |         |   |  | USD                                  
|Balance as of January 1, 2007 |  | 62,738  |   |  | 9.89                                 
|Vested                        |  | (33,899 | ) |  | 9.83                                 
|                              |  |         |   |  |                                      
|Balance as of March 31, 2007  |  | 28,839  |   |  | 9.96                                 
|                              |  |         |   |  |                                      

The total fair value of non-vested equity share units vested during the three months ended March 31, 2007 was
$333 thousand. As of March 31, 2007, the aggregate unamortized fair value of all non-vested equity share units was $287 thousand, which is expected to be amortized on a straight-line basis over a weighted average period of approximately 0.52
years.

Performance shares

A summary of performance
shares activity is as follows:



|                              |  |         |   |  |                                      
|----------------------------- |  | ------- | - |  | -------------------------------------
|                              |  | Shares  |   |  | Weighted averageGrant-date fair value
|                              |  |         |   |  | USD                                  
|Balance as of January 1, 2007 |  | 69,334  |   |  | 10.12                                
|Vested                        |  | (34,667 | ) |  | 10.12                                
|                              |  |         |   |  |                                      
|Balance as of March 31, 2007  |  | 34,667  |   |  | 10.12                                
|                              |  |         |   |  |                                      



8



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The total fair value of non-vested performance shares vested during the three months ended March 31, 2007 was $351
thousand. As of March 31, 2007, the aggregate unamortized fair value of all non-vested share units was $351 thousand, which is expected to be amortized on a straight-line basis over a weighted average period of approximately 0.30 years.

(c) 2006 Incentive Plan

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

Non-vested equity share unit

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



|                                      |  |         |   |  |                                      
|------------------------------------- |  | ------- | - |  | -------------------------------------
|                                      |  | Shares  |   |  | Weighted averageGrant-date fair value
|                                      |  |         |   |  | USD                                  
|Balance as of January 1, 2007         |  |        |   |  |                                     
|Granted on February 14, 2007 (note i) |  | 6,505   |   |  | 15.37                                
|Granted on March 14, 2007 (note ii)   |  | 55,000  |   |  | 15.20                                
|Granted on March 14, 2007 (note iii)  |  | 16,000  |   |  | 15.20                                
|Vested                                |  | (16,000 | ) |  | 15.20                                
|                                      |  |         |   |  |                                      
|Balance as of March 31, 2007          |  | 61,505  |   |  | 15.22                                
|                                      |  |         |   |  |                                      

---

|Note | i The stock awards vest 50% on June 30, 2007, 25% on September 30, 2007 and 25% on December 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------

|Note | ii The stock awards vest in equal quarterly installments over a period of one year from the date of grant.
|---- | ----------------------------------------------------------------------------------------------------------

|Note | iii The stock awards were fully vested on the date of grant.
|---- | ------------------------------------------------------------

The total
fair value of non-vested equity share units vested during the three months ended March 31, 2007 was $243 thousand. As of March 31, 2007, the aggregate unamortized fair value of all non-vested equity share units was $936 thousand, which is
expected to be amortized on a straight-line basis over a weighted average period of approximately 0.93 years.

Note 6  Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding for the period.
Diluted earnings per share are computed by dividing net income by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the dilutive effect of potential common stock equivalents during
the period. The weighted average number of shares used for the computation of diluted earnings per share is as follows:



9



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|                                                                  |  |                                       |  |                                      
|----------------------------------------------------------------- |  | ------------------------------------- |  | -------------------------------------
|                                                                  |  | Three monthperiod endedMarch 31, 2007 |  | Three monthperiod endedMarch 31, 2006
|Weighted average number of shares outstanding  basic             |  | 33,057,444                            |  | 31,668,368                           
|Effect of diluted securities attributable to share-based payments |  | 1,260,307                             |  | 1,593,879                            
|                                                                  |  |                                       |  |                                      
|Weighted average number of shares outstanding  diluted           |  | 34,317,751                            |  | 33,262,247                           
|                                                                  |  |                                       |  |                                      

Note 7  Operating Segment Information

Component Solutions operating segment products primarily consist of the sale of mobile handset components, telecommunication system equipment, consumer electronics and other components (such as network protection
devices and data storage components). Services operating segment primarily consist of the provision of technology and engineering services, business process outsourcing, network system integration and related training and maintenance services. There
is no inter-segment revenue during the periods reported.

Segment information is summarized as follows:



|                                                  |  |                                       |   |  |                                       |  
|------------------------------------------------- |  | ------------------------------------- | - |  | ------------------------------------- | -
|                                                  |  | Three monthperiod endedMarch 31, 2007 |   |  | Three monthperiod endedMarch 31, 2006 |  
|                                                  |  | RMB000                               |   |  | RMB000                               |  
|Net revenue                                       |  |                                       |   |  |                                       |  
|Component Solutions                               |  |                                       |   |  |                                       |  
|Mobile handset                                    |  | 137,934                               |   |  | 120,022                               |  
|Telecommunications equipment                      |  | 109,864                               |   |  | 95,184                                |  
|Digital Media and others                          |  | 85,279                                |   |  | 48,616                                |  
|                                                  |  |                                       |   |  |                                       |  
|                                                  |  | 333,077                               |   |  | 263,822                               |  
|Services                                          |  | 11,066                                |   |  | 7,905                                 |  
|                                                  |  |                                       |   |  |                                       |  
|Total net revenue                                 |  | 344,143                               |   |  | 271,727                               |  
|                                                  |  |                                      
|Income from operations                            |  |                                       |   |  |                                       |  
|Component Solutions                               |  | 43,304                                |   |  | 34,191                                |  
|Services                                          |  | 230                                   |   |  | 3,308                                 |  
|Unallocated                                       |  | (12,436                               | ) |  | (3,885                                | )
|                                                  |  |                                       |   |  |                                       |  
|Total income from operations                      |  | 31,098                                |   |  | 33,614                                |  
|Interest Income                                   |  | 1,700                                 |   |  | 2,084                                 |  
|Interest expense                                  |  | (769                                  | ) |  | (412                                  | )
|                                                  |  |                                       |   |  |                                       |  
|Income before income taxes and minority interests |  | 32,029                                |   |  | 35,286                                |  
|                                                  |  |                                       |   |  |                                       |  



10



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|                    |  |                |  |                  
|------------------- |  | -------------- |  | -----------------
|                    |  | March 31, 2007 |  | December 31, 2006
|                    |  | RMB000        |  | RMB000          
|Total assets        |  |                |  |                  
|Component Solutions |  | 746,424        |  | 747,577          
|Services            |  | 163,306        |  | 150,519          
|Unallocated         |  | 8,213          |  | 9,002            
|                    |  |                |  |                  
|                    |  | 917,943        |  | 907,098          
|                    |  |                |  |                  



11



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Note 8: Comprehensive income

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



|                             |  |                                       |   |  |                                       |  
|---------------------------- |  | ------------------------------------- | - |  | ------------------------------------- | -
|                             |  | Three monthperiod endedMarch 31, 2007 |   |  | Three monthperiod endedMarch 31, 2006 |  
|                             |  | RMB000                               |   |  | RMB000                               |  
|Net income                   |  | 28,521                                |   |  | 26,225                                |  
|Other comprehensive loss     |  |                                       |   |  |                                       |  
|Foreign currency translation |  | (2,361                                | ) |  | (1,988                                | )
|                             |  |                                       |   |  |                                       |  
|Comprehensive income         |  | 26,160                                |   |  | 24,237                                |  
|                             |  |                                       |   |  |                                       |  

Note 9: Subsequent Event

On April 23, 2007, the Company and certain of its stockholders (the Selling Stockholders) entered into an underwriting agreement (the Underwriting Agreement) with Lehman Brothers Inc., as
representative of the several underwriters named therein (the Underwriters) pursuant to which the Company agreed to issue and sell 4,400,000 shares of the Companys common stock, par value $0.01 per share, and the Selling
Stockholders agreed to sell 1,100,000 shares of the Companys common stock (together, the Firm Stock) to the Underwriters at a price per share of US $16.6688. In addition, the Company and the Selling Stockholders have granted the
Underwriters an option to purchase up to an additional 825,000 shares (Over-Allotment Shares) to cover over-allotments, if any, at the same price per share as the Firm Stock.

The Company completed the sale of the Firm Stock on April 27, 2007. On May 9, 2007, the Underwriters exercised their over-allotment option and the Company completed the sale of the Over-Allotment Shares upon
exercise of the over-allotment. Net proceeds to the Company from the offering, after deducting underwriting discounts and commissions and estimated offering expenses was approximately US $83.3 million upon sale of the Firm Stock and the
Over-Allotment Shares. The Company did not receive any proceeds from the sale of shares by the Selling Stockholders.



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

Portions of the discussion and analysis below contain certain statements that are not descriptions of historical facts, but are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our plans and objectives for future expansion,
including into our new digital consumer electronic and storage solution products; expectations for the domestic wireless handset, telecommunications equipment, consumer electronic and storage solution end-markets in the PRC; anticipated margins for
our solutions; general and cyclical economic and business conditions, and, in particular, those in the PRCs wireless handset, telecommunications equipment and consumer electronics industries; our ability to enter into and renew key corporate
and strategic relationships with our customers and suppliers; changes in the favorable tax incentives enjoyed by our PRC operating companies; and other statements containing forward looking terminology such as may, expects,
believes, anticipates, intends, projects, looking forward or similar terms, variations of such terms or the negative of such terms. Such information is based upon various assumptions made
by, and expectations of, our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future
business decisions which are subject to change. Accordingly, there can be no assurance that actual results will meet



12



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expectations and actual results may vary (perhaps materially) from certain of the results anticipated herein. For a further description of these and other
risks and uncertainties, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. The following discussion of our financial condition and results of operations should
also be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q.

Overview

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

We are focused on the mobile handset, telecom
equipment and digital media end-markets in China. In the mobile handset end-market, we provide module solutions for functionalities such as LCD, camera, power supply and Bluetooth; in the telecom equipment end-market, we provide solutions for PSTN
switching, optical transmitters, electrical signal processing and optical signal amplification; and in the digital media end-market, we provide solutions for digital set-top boxes and GPS applications. Over the course of our operating history, we
have worked with over 200 customers, including a majority of the most established manufacturers in the mobile handset, telecom equipment and digital media end-markets in China such as ZTE, Huawei and Lenovo. In addition to these original equipment
manufacturers, or OEMs, our other customers include industry participants that support these OEMs, such as subsystem designers and contract manufacturers. In developing customized module design solutions for use in our customers products, we
collaborate closely with over 30 suppliers of technology components, including many large multinational companies such as Broadcom, JDS Uniphase and Matsushita. In addition, in October 2006, we became one of the first China-based companies to
license software technology and have access to selected source codes directly from Microsoft.

For the quarter ended March 31, 2007,
we have two reportable operating segments: Component Solutions, consisting of revenues generated from the sales of components relating to our customized module design solutions focusing primarily in the mobile handset, telecommunications equipment
and digital media 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 sales and gross profit are affected by our product mix. Over the last year,
digital media components sales, which have generally higher profit margins than our mobile handset module components sales and our telecom equipment module components sales, have constituted a significantly greater portion of our total net sales as
compared to previous years.

Growth in end-market industries. The rapid growth of the domestic mobile handset, telecom equipment and
digital media end-markets have been important growth drivers for Chinas electronics manufacturing industries. Specific markets that we expect to



13



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experience continued growth are the data communications market, consisting of asymmetric digital subscriber line (ADSL) modems and Voice over Internet
Protocol (VoIP) equipment; the routers and network security equipment markets; the optical transmission systems market; the fixed line telecom network market, as well as the digital media market particularly relating to digital TV and GPS
applications. Increased domestic consumer spending power has contributed to rapid growth in these markets. This growth in domestic consumer spending power in turn has driven, and we believe will continue to drive, growth in the electronics
manufacturing businesses supporting hardware OEMs, including those engaged in the customized design of module solutions such as ourselves. However, these industries and the respective domestic manufacturers that operate in these industries may not
continue to grow their sales at historical levels, if at all. The stagnation or reduction in overall demand for mobile handset, telecom equipment 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
mobile handset, telecom equipment and digital consumer electronics manufacturers to be competitive in the global marketplace. As an example, Huawei has become a major supplier of telecom equipment to international customers, while ZTE, a major
manufacturer of mobile handset and telecom equipment in China, as well as other telecom equipment and mobile handset manufacturers, have also begun to expand overseas. We believe that growth in the export market will likely have a positive effect on
our results of operations and financial condition, as it should increase the demand for our solutions, particularly among our mobile handset and digital media clients.

Growth by entering new end-markets, strengthening in-house capabilities and leveraging our customer base. In 2005, we began targeting the digital media end-market and, over time, we intend to develop integrated
circuit and application software design capabilities and provide solutions based on our own proprietary technology. In the first quarter of 2005, we began generating sales from customized module design solutions for digital home entertainment
products, primarily for digital set-top boxes, through sales to our existing end-customers. We anticipate that sales related to the digital media end-markets will generally have higher profit margins than our mobile handset and telecom equipment
modules related sales, though such higher margins may decline over time as this industry mature. We will also look for opportunities to expand into new end markets that we believe represent significant growth opportunities.

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

Net Revenue

Product Revenue

We do not charge our
customers an independent design fee for our solutions. 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 customers for these components compensates us for our design, technical support and distribution services. Our net sales includes a 17% value-added tax, or VAT.

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



14



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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. Since beginning
this service in early 2006, Huawei has accounted for substantially all of our services revenue.

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

Cost of Services

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

Operating Expenses

Selling, General and Administrative Expenses

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

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



15



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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 March 31, 2007, we had approximately 350
engineers and 200 other technical employees engaged in research and development related activities to develop new customized module design solutions targeted at the mobile handset, telecom equipment and digital media industries. As a result of
additional costs incurred in developing new customized module design solutions, and an increasing headcount in our R&D department, we expect that our research and development expenses, including those relating to the planned hiring of additional
research and development personnel, will increase in the future as we seek to expand our business by developing new customized module design solutions and penetrating new end-markets, and as we seek to grow our engineering services business.

Minority Interests

Minority interests
consist of 45% of the outstanding equity interest in Comtech Broadband. For the three months ended March 31, 2007, approximately 13.8% of our total net sales was generated through this subsidiary.

Previously, 40% of the outstanding equity interest in Comtech Wireless, 48.9% of the outstanding equity interest in Huameng and 1.4% of the outstanding
equity interest in OAM, a non operating Italian subsidiary, was held by minority shareholders of these entities. On March 26, 2007, COGO Engineering Services Limited (previously, Huameng Engineering Services Limited) and Comloca Technology
(Shenzhen) Company Limited became wholly owned subsidiaries of the Company. In January 2007, we sold our interest in OAM, a non operating Italian subsidiary.

Taxation

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



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



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



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

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

Our subsidiaries
incorporated in Hong Kong, Comtech Hong Kong and Comtech Broadband, are subject to taxes on their profits in Hong Kong at 17.5% for 2007 and 2006.

The general statutory tax rate applicable to PRC companies is 33%, while the statutory tax rate applicable to PRC companies in



16



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the Shenzhen Special Economic Zone in China is 15%. Since three of our PRC operating companies, Shenzhen Comtech, Comtech Communication and Comtech Software,
which are established in the Shenzhen Special Economic Zone, have agreed to operate for a minimum of 10 years in China and more than 50% of their revenues will be derived from their manufacturing operations, Shenzhen Comtech was, and Comtech
Communication and Comtech Software have been and will continue to be, entitled to preferential income tax treatment under PRC law as follows:



| |  |  | Shenzhen Comtech was subject to a three-year preferential tax rate of 7.5% in 2002, 2003 and 2004 and a tax rate of 15% in 2005, 2006 and 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comtech Communication had been operated under a zero-tax exemption in 2003 and 2004, and subject to a three-year preferential tax rate of 7.5% in 2005, 2006 and
2007; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comtech Software had been operated under a zero-tax exemption in 2005 and 2006, and subject to a three-year preferential tax rate of 7.5% in 2007, 2008 and 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Our acquired PRC operating companies, Viewtran PRC, Huameng PRC and Comloca PRC, which are also located in the Shenzhen
Special Economic Zone, have no taxable profit for the first quarter of 2007. Following expiration of the preferential tax treatment described above, our PRC operating companies located in the Shenzhen Special Economic Zone will be subject to the
statutory tax rate of 15%. In addition, Shanghai E&T, our PRC operating company located in the Shanghai Qingpu Zone, has elected to be taxed on a deemed basis at 2.31% of its net sales in accordance with guidelines issued by the local tax
authority in the Shanghai Qingpu Zone since 2004. As a result of the incentives above, our operations have been subject to low tax rates. Our effective tax rate was 9.3% and 10.3% in the first quarter of 2007 and 2006, respectively. The decrease in
our effective tax rate was mostly due to the commencement of the preferential income tax period for Comtech Software.

On March 16,
2007, the National Peoples Congress of China passed the PRC Enterprise Income Tax Law, which will take effect as of January 1, 2008. In accordance with the new law, a unified enterprise income tax rate of 25% and unified tax deduction
standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises. Effective from January 1, 2008, this 25% unified tax rate will replace the 33% tax rate currently in effect through 2007. In addition,
enterprises established prior to March 16, 2007 eligible for certain preferential tax treatment in accordance with currently prevailing tax laws and administrative regulations shall, under the regulations of the State Council, gradually become
subject to the new 25% tax rate over a five-year transition period starting from January 1, 2008, the effective date of the new law. We expect details of the transitional arrangement for the five-year period from January 1, 2008 to
December 31, 2012 applicable to enterprises approved for establishment prior to March 16, 2007 to be set out in more detailed implementation rules to be issued in the near future.

Three month period ended March 31, 2007 compared to three month period ended March 31, 2006

Overview

We have two reportable operating segments:
Component Solutions, for which we provide customized module design solutions in the PRC focusing primarily in the mobile handset, telecommunications equipment and consumer electronics end-markets; and Services for which we provide technology and
engineering services, business process outsourcing, network system integration and related training and maintenance services.



17



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The following table sets forth information regarding the breakdown of revenues between our Component
Solutions segment and Services segment for the three months ended March 31:



|                    |  |         |  |        
|------------------- |  | ------- |  | -------
|                    |  | 2007    |  | 2006   
|                    |  | RMB000 |  | RMB000
|Component Solutions |  |         |  |        
|Net revenue         |  | 333,077 |  | 263,822
|                    |  |        
|Services            |  |         |  |        
|Net revenue         |  | 11,066  |  | 7,905  
|                    |  |        
|Total               |  |         |  |        
|Net revenue         |  | 344,143 |  | 271,727

Total net revenue increased RMB72,416 thousand, or 26.7% in the first quarter of 2007 when
compared to the first quarter of 2006. The increase was mainly attributable to an increase in component solutions sales by approximately RMB69 million.

Gross margin

Overall gross margin amount was RMB65,814 thousand in the first quarter 2007, an increase of RMB13,781
thousand, or 26.5% when compared to RMB52,033 thousand in the first quarter of 2006. Overall gross margin percentage was 19.1% in the first quarter of 2007, as compared to 19.1% in the first quarter of 2006.

Component Solutions

Net revenue for Component Solutions for the
three months ended March 31, 2007 and 2006 were as follows:



|                                |  |         |  |        
|------------------------------- |  | ------- |  | -------
|                                |  | 2007    |  | 2006   
|                                |  | RMB000 |  | RMB000
|Component Solutions:            |  |         |  |        
|Mobile handset                  |  | 137,934 |  | 120,022
|Telecommunications equipment    |  | 109,864 |  | 95,184 
|Consumer electronics and others |  | 85,279  |  | 48,616 
|                                |  |         |  |        
|Net revenue                     |  | 333,077 |  | 263,822

Component Solutions net revenue increased RMB69,225 thousand, or 26.2% in the first quarter of
2007 when compared to the first quarter of 2006. The increase was primarily due to the growth in the sales of mobile handset and telecommunications equipment components, which increased revenue by RMB17.9 million and 14.7 million respectively.

The increase in mobile handset and telecommunications equipment component sales were due to the stable growth in both the customer base
and product types in the first quarter of 2007 when compared to the first quarter of 2006. The increase in digital media and other components sales was due to more variety of products.



18



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Services

Net revenue
for Services for the three months ended March 31, 2007 and 2006 were as follows:



|            |  |         |  |        
|----------- |  | ------- |  | -------
|            |  | 2007    |  | 2006   
|            |  | RMB000 |  | RMB000
|Net revenue |  | 11,066  |  | 7,905  

Services net revenue increased RMB3,161 thousand, or 40.0% in the first quarter of 2007 when
compared to the first quarter of 2006. The increase was mainly contributed by the higher revenue from engineering software sales.

Selling, R&D,
general and administrative expenses

Selling, research and development, and general and administrative expenses of RMB
34,776 thousand were RMB 16,317 thousand or 88% higher than those of the same period last year. The details of the expenses for the three month period ended March 31 are as follows:



|                                    |  |                |  |               
|----------------------------------- |  | -------------- |  | --------------
|                                    |  | March 31, 2007 |  | March 31, 2006
|                                    |  | RMB000        |  | RMB000       
|Selling expenses                    |  | 9,639          |  | 6,339         
|R&D expenses                        |  | 8,557          |  | 7,102         
|General and administrative expenses |  | 16,580         |  | 5,018         
|                                    |  |                |  |               
|                                    |  | 34,776         |  | 18,459        

The increase in the selling expenses by RMB3,300 thousand or approximately 52.1% was mainly
attributed to additional bad debt provision of approximately RMB3.8 million for the three months ended March 31, 2007 compared to RMB1.2 million during the same period last year, and an increase in other direct selling expenses by approximately
RMB0.7 million as a result of an increase in product logistics and transportation, other sales-related expenses and cost of stock-based compensation.

Research and development expenses increased by RMB1,455 thousand or approximately 20.5%. The increase was primarily attributable to a significant increase in research and development personnel and engineering staff
costs (including stock-based compensation).

The increase in general and administrative expenses of RMB11,562 thousand or approximately
230.4% was mainly attributable to an increase of RMB3.0 million in stock-based compensation costs, an increase in group corporate expenses and compliance consulting fees of approximately RMB6.8 million and an exchange loss of approximately RMB1.8
million.

Interest expense

Interest
expense in the first quarter of 2007 amounted to RMB769 thousand as compared to RMB412 thousand in the same period of 2006. The increase in interest expense was attributable to the increase in average interest rate and average bank borrowing
balance.

Interest income

Interest
income in the first quarter of 2007 amounted to RMB1,700 thousand, compared to RMB2,084 thousand in the same period of 2006. The decrease was attributed to lower average deposit balances and partly offset by the cash inflow generated from
operations.



19



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Income tax

The effective tax rate for the three months ended March 31, 2007 was 9.3% compared to 10.3% for the comparable period in 2006. The decrease in the effective tax rate was mostly due to the commencement of the preferential tax period for
one of our subsidiaries, Comtech Software.

Net income

As a result of the above items, net income for the three months ended March 31, 2007 was RMB28,521 thousand compared to a net income of RMB26,225 thousand in the corresponding period of 2006.

Earnings per share

We reported basic per share
earnings of RMB0.86 for the first quarter of 2007, and diluted per share earnings of RMB0.83, compared to basic per share earnings of RMB0.83 for the same period of 2006, and diluted per share earnings of RMB0.79.

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 months. Accordingly, working capital is needed to fund this time difference.

As at March 31, 2007, we had no material
commitments for capital expenditures.

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

As of March 31, 2007, we had working capital of RMB622,363 thousand as compared with working capital of RMB585,628
thousand at December 31, 2006.

Cash provided by operating activities of RMB671 thousand for the three months ended March 31,
2007 compared to cash used in operating activities of RMB4,416 thousand in the corresponding period of 2006. Cash provided by operating activities as compared to prior period was primarily due to an increase in trade accounts payable of RMB19,444
thousand which was due to tight payment control and a decrease in bills receivable of RMB8,918 thousand. Cash provided by operating activities was partly off-set by an increase in trade accounts receivable of RMB32,364 thousand and an increase in
inventory of RMB23,604 thousand. Trade accounts receivable increased due to a higher revenue which was recorded in the first three months of 2007.



20



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Cash used in investing activities of RMB37,500 thousand during the first three months of 2007 was mainly
for settlement of payable for acquisitions of subsidiaries that were consummated in 2006, of RMB36,701 thousand, and purchases of fixed assets of RMB996 thousand.

Net cash provided by financing activities was RMB2,085 thousand during the first three months of 2007. The financing net cash inflows were mainly contributed by additional bank borrowings of RMB2,085 thousand.

Indebtedness

On October 7, 2005,
Comtech Hong Kong entered into a RMB39,972 thousand ($5,000 thousand) U.S. dollar denominated credit facility with Standard Chartered Bank (Hong Kong) Limited (SCB), and a RMB71,949 thousand ($9,000 thousand) U.S. dollar denominated
facility with Bank of China (BOC). In 2006, BOC increased the amount available under the facility to RMB115,848 thousand ($15,000 thousand). Both of the SCB and BOC facilities are guaranteed by Comtech Group, Inc. Apart from cash
generated from operations, these revolving credit facilities serve as our principal source of liquidity to fund our working capital needs.

As of the date of this filing, there was no outstanding loan balance under the SCB facility. This facility is secured by funds on deposit in an amount of $2,000,000, and bears interest ranging from HIBOR +1.5% to USD Prime per annum,
depending on the different kinds of borrowings made. The SCB facility is repayable on demand and SCB may immediately terminate the facility without our consent or that of any third party. Interest on this facility accrues until payment is demanded
by SCB.

As of the date of this filing, the outstanding loan balance under the BOC facility was RMB32,857 thousand ($4,254 thousand),
leaving RMB82,991 thousand ($10,746 thousand) in availability. This facility is secured by funds on deposit in an amount of $5,000,000, and bears interest from 1.75% per annum over HIBOR or U.S. prime, depending on the different kinds of
borrowings made. The BOC facility is repayable on demand and BOC may increase, reduce and/or cancel the facility by notice to us. Interest on this facility accrues until payment is demanded by BOC.

Some of our customers enter into arrangements with their respective banks for the purpose of settling their bills. Under such arrangements, we are
entitled to collect the amounts owed directly from the customers banks when the invoice becomes due. These amounts are recorded as bills receivable on our consolidated balance sheet. In certain circumstances, we have arranged to transfer with
recourse certain of our bills receivable to a discounting bank. Under this discounting arrangement, the bank pays a discounted amount to us and collects the amounts owed from the customers banks. The discount typically ranges from 0.69% to
0.8% of the balance transferred, which is recorded as interest expense. During the quarter ended March 31, 2007, we discounted bills receivable amounting to approximately RMB24,326 thousand ($3,150 thousand).

Future liquidity needs

As of March 31, 2007,
the Company had approximately RMB333,635 thousand ($43,199 thousand) in cash. We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and available
borrowings under bank lines of credit. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to those of ours, which transactions may require the use of cash. We believe that our cash, other liquid
assets, operating cash flows and credit facility arrangements, taken together, provide adequate resources to fund ongoing operating expenditures. In the event that they do not, we may require additional funds in the future to support our working
capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity as well as from other sources.



21



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On April 23, 2007, the Company and certain of its stockholders (the Selling Stockholders)
entered into an underwriting agreement (the Underwriting Agreement) with Lehman Brothers Inc., as representative of the several underwriters named therein (the Underwriters) pursuant to which the Company agreed to issue and
sell 4,400,000 shares of the Companys common stock, par value $0.01 per share, and the Selling Stockholders agreed to sell 1,100,000 shares of the Companys common stock (together, the Firm Stock) to the Underwriters at a
price per share of US $16.6688. In addition, the Company and the Selling Stockholders have granted the Underwriters an option to purchase up to an additional 825,000 shares (Over-Allotment Shares) to cover over-allotments, if any, at the
same price per share as the Firm Stock.

The Company completed the sale of the Firm Stock on April 27, 2007. On May 9, 2007, the
Underwriters exercised their over-allotment option and the Company completed the sale of the Over-Allotment Shares upon exercise of the over-allotment. Net proceeds to the Company from the offering, after deducting underwriting discounts and
commissions and estimated offering expenses was approximately US $83.3 million upon sale of the Firm Stock and the Over-Allotment Shares. The Company did not receive any proceeds from the sale of shares by the Selling Stockholders.



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

Foreign Exchange Risk

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

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

Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar. Although currently the Renminbi exchange rate versus the U.S.
dollar is restricted to a rise or fall of no more than 0.3% per day and the Peoples Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may
appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen
intervention in the foreign exchange market. As of March 31, 2007, the exchange rate between RMB and U.S. dollar was $1 to RMB7.7232.

We conduct substantially all of our operations through our PRC operating companies, and their financial performance and position are measured in terms of Renminbi. The majority of our net sales and purchases are denominated in Renminbi.

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 reduce our sales and revenues. In addition, from time to time we may have U.S. dollar denominated borrowings, and therefore a decoupling of the Renminbi many affect our
financial performance in the future.

We recognized a foreign currency translation adjustment of approximately RMB(2.4 million) ($(0.3
million)) for the quarter ended March 31, 2007. We do not currently engage in hedging activities, as such, we may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.



22



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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 RMB32.9 million ($4.3 million) as of March 31, 2007. 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 RMB0.3 million ($0.04 million). The potential change in cash flows and earnings is calculated based on the change in the net interest expense over a one year period due
to an immediate 1% change in rates.

Inflation

In recent years, China has not experienced significant inflation, and thus inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the change in Consumer Price Index in
China was 3.9%, 1.8% and 1.5% in 2004, 2005 and 2006, respectively.



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

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

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



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

Not Applicable

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, 2006.



23



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|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, 2006.



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

None.



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

None.



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

None.



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

On March 26, 2007, COGO
Engineering Services Limited (previously, Huameng Engineering Services Limited) and Comloca Technology (Shenzhen) Company Limited became wholly owned subsidiaries of the Company as a result of the Company increasing its shareholdings in these
entities to 100%. In January 2007, we sold our interest in OAM, a non operating Italian subsidiary.



24



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



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



|     |  |                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



25



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SIGNATURES

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



|             |  |                     |  |                                                                    
|------------ |  | ------------------- |  | -------------------------------------------------------------------
|             |  | COMTECH GROUP, INC.
|             |  |                    
|May 10, 2007 |  | By:                 |  | /s/ Jeffrey Kang                                                   
|             |  |                     |  | Jeffrey Kang                                                       
|             |  |                     |  | Chief Executive Officer and President (Principal
Executive Officer)
|             |  |                    
|May 10, 2007 |  | By:                 |  | /s/ Hope Ni                                                        
|             |  |                     |  | Hope Ni                                                            
|             |  |                     |  | Chief Financial Officer (Principal Financial
Officer)              



26