##### Table of Contents





SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended June 30, 2010.

or



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

For the transition period from              to
             .

Commission File Number 000-02642





COGO GROUP, INC.

(Exact name of registrant as specified in its charter)







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

Room 1001, Tower C, Skyworth Building

High-Tech Industrial Park

Nanshan, Shenzhen 518057, PRC

(Address of Principal Executive Offices including zip code)

011-86-755-267-43210

(Registrants Telephone Number, Including Area Code)





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every, Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes  x    No   ̈

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



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

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

On August 2, 2010 the Registrant had 40,552,178 shares of Common Stock issued and 35,355,018 shares of Common Stock issued and outstanding.









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##### Table of Contents

Cogo Group, Inc.

Index to Form 10-Q



|                               |  |                                                                                                                                   |  |   
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION |  | 1                                                                                                                                
|                               |  |                                                                                                                                  
|Item 1.                        |  | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                                             |  | 1 
|                               |  |                                                                                                                                  
|                               |  | Unaudited Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31,
2009                                         |  | 1 
|                               |  |                                                                                                                                  
|                               |  | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended June
 30, 2010 and 2009 |  | 2 
|                               |  |                                                                                                                                  
|                               |  | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended June 30,
 2010 and 2009   |  | 4 
|                               |  |                                                                                                                                  
|                               |  | Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and
2009                         |  | 6 
|                               |  |                                                                                                                                  
|                               |  | Unaudited Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2010                           |  | 7 
|                               |  |                                                                                                                                  
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                    |  | 8 
|                               |  |                                                                                                                                  
|Item 2.                        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                                             |  | 15
|                               |  |                                                                                                                                  
|Item 3.                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                        |  | 27
|                               |  |                                                                                                                                  
|Item 4.                        |  | CONTROLS AND PROCEDURES                                                                                                           |  | 28
|                               | 
|PART II  OTHER INFORMATION    |  | 28                                                                                                                               
|                               |  |                                                                                                                                  
|Item 1.                        |  | LEGAL PROCEEDINGS                                                                                                                 |  | 28
|                               |  |                                                                                                                                  
|Item 1A.                       |  | RISK FACTORS                                                                                                                      |  | 28
|                               |  |                                                                                                                                  
|Item 2.                        |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                       |  | 28
|                               |  |                                                                                                                                  
|Item 3.                        |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                   |  | 28
|                               |  |                                                                                                                                  
|Item 4.                        |  | (REMOVED AND RESERVED)                                                                                                            |  | 28
|                               |  |                                                                                                                                  
|Item 5.                        |  | OTHER INFORMATION                                                                                                                 |  | 29
|                               |  |                                                                                                                                  
|Item 6.                        |  | EXHIBITS                                                                                                                          |  | 29
|                               | 
|SIGNATURES                     |  | 30                                                                                                                               



i



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##### Table of Contents

PART I  FINANCIAL INFORMATION



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

COGO GROUP, INC. and SUBSIDIARIES

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



|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | - |  | ----------------- | - |  | --------- | -
|                                                                                                                                                |  | June 30, 2010 |   |  | December 31, 2009 |  
|                                                                                                                                                |  | USD000       |   |  | RMB000           |   |  | RMB000   |  
|Assets                                                                                                                                          |  |               |   |  |                   |   |  |           |  
|Current assets:                                                                                                                                 |  |               |   |  |                   |   |  |           |  
|Cash                                                                                                                                            |  | 129,433       |   |  | 877,751           |   |  | 667,320   |  
|Pledged bank deposits                                                                                                                           |  | 17,000        |   |  | 115,286           |   |  | 116,040   |  
|Accounts receivable, net                                                                                                                        |  | 91,688        |   |  | 621,779           |   |  | 617,613   |  
|Bills receivable                                                                                                                                |  | 6,524         |   |  | 44,241            |   |  | 17,592    |  
|Inventories                                                                                                                                     |  | 35,293        |   |  | 239,339           |   |  | 146,132   |  
|Income taxes receivable                                                                                                                         |  | 181           |   |  | 1,229             |   |  | 1,263     |  
|Prepaid expenses and other receivables                                                                                                          |  | 4,168         |   |  | 28,263            |   |  | 28,083    |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total current assets                                                                                                                            |  | 284,287       |   |  | 1,927,888         |   |  | 1,594,043 |  
|Property and equipment, net                                                                                                                     |  | 2,313         |   |  | 15,683            |   |  | 14,406    |  
|Goodwill and intangible assets, less accumulated amortization, RMB111,736 thousand (USD16,477 thousand) in 2010 and RMB100,834
thousand in 2009 |  | 44,497        |   |  | 301,760           |   |  | 312,662   |  
|Other assets                                                                                                                                    |  | 174           |   |  | 1,178             |   |  | 416       |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total Assets                                                                                                                                    |  | 331,271       |   |  | 2,246,509         |   |  | 1,921,527 |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Liabilities and equity                                                                                                                          |  |               |   |  |                   |   |  |           |  
|Current liabilities:                                                                                                                            |  |               |   |  |                   |   |  |           |  
|Accounts payable                                                                                                                                |  | 10,569        |   |  | 71,677            |   |  | 81,140    |  
|Bank borrowings                                                                                                                                 |  | 69,877        |   |  | 473,866           |   |  | 119,402   |  
|Income taxes payable                                                                                                                            |  | 1,622         |   |  | 11,001            |   |  | 11,847    |  
|Accrued expenses and other liabilities                                                                                                          |  | 11,537        |   |  | 78,240            |   |  | 138,008   |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total current liabilities                                                                                                                       |  | 93,605        |   |  | 634,784           |   |  | 350,397   |  
|Deferred tax liabilities                                                                                                                        |  | 2,552         |   |  | 17,309            |   |  | 19,108    |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total liabilities                                                                                                                               |  | 96,157        |   |  | 652,093           |   |  | 369,505   |  
|Equity                                                                                                                                          |  |               |   |  |                   |   |  |           |  
|Common stock:                                                                                                                                   |  |               |   |  |                   |   |  |           |  
|Par value: USD0.01                                                                                                                              |  |               |   |  |                   |   |  |           |  
|Authorized: 200,000,000 shares                                                                                                                  |  |               |   |  |                   |   |  |           |  
|Issued: 40,552,178 shares                                                                                                                       |  |               |   |  |                   |   |  |           |  
|Outstanding: 35,385,018 shares in 2010                                                                                                          |  |               |   |  |                   |   |  |           |  
|35,770,025
shares in 2009                                                                                                                       |  | 485           |   |  | 3,290             |   |  | 3,258     |  
|Additional paid in capital                                                                                                                      |  | 185,091       |   |  | 1,255,197         |   |  | 1,221,538 |  
|Retained earnings                                                                                                                               |  | 96,643        |   |  | 655,383           |   |  | 604,464   |  
|Accumulated other comprehensive loss                                                                                                            |  | (16,155       | ) |  | (109,555          | ) |  | (107,384  | )
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|                                                                                                                                                |  | 266,064       |   |  | 1,804,315         |   |  | 1,721,876 |  
|Less cost of common stock in treasury, 5,167,160 shares in 2010 and 4,309,311 shares in 2009                                                    |  | (32,236       | ) |  | (218,618          | ) |  | (178,309  | )
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total Cogo Group, Inc. equity                                                                                                                   |  | 233,828       |   |  | 1,585,697         |   |  | 1,543,567 |  
|Noncontrolling interest                                                                                                                         |  | 1,286         |   |  | 8,719             |   |  | 8,455     |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total equity                                                                                                                                    |  | 235,114       |   |  | 1,594,416         |   |  | 1,552,022 |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  
|Total liabilities and equity                                                                                                                    |  | 331,271       |   |  | 2,246,509         |   |  | 1,921,527 |  
|                                                                                                                                                |  |               |   |  |                   |   |  |           |  

See accompanying notes to unaudited condensed consolidated financial statements.



1



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COGO GROUP, INC. and SUBSIDIARIES

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

June 30, 2010 and 2009



|                                                        |  |                             |   |  |          |   |  |          |  
|------------------------------------------------------- |  | --------------------------- | - |  | -------- | - |  | -------- | -
|                                                        |  | Three Months ended June 30, |  
|                                                        |  | 2010                        |   |  | 2010     |   |  | 2009     |  
|                                                        |  | USD000                     |   |  | RMB000  |   |  | RMB000  |  
|Net Revenue                                             |  |                             |   |  |          |   |  |          |  
|Product sales                                           |  | 89,727                      |   |  | 608,485  |   |  | 495,366  |  
|Services revenue                                        |  | 1,253                       |   |  | 8,496    |   |  | 7,263    |  
|                                                        |  |                             |   |  |          |   |  |          |  
|                                                        |  | 90,980                      |   |  | 616,981  |   |  | 502,629  |  
|Cost of sales                                           |  |                             |   |  |          |   |  |          |  
|Cost of goods sold                                      |  | (77,095                     | ) |  | (522,818 | ) |  | (425,147 | )
|Cost of services                                        |  | (1,015                      | ) |  | (6,882   | ) |  | (5,856   | )
|                                                        |  |                             |   |  |          |   |  |          |  
|                                                        |  | (78,110                     | ) |  | (529,700 | ) |  | (431,003 | )
|                                                        |  |                             |   |  |          |   |  |          |  
|Gross profit                                            |  | 12,870                      |   |  | 87,281   |   |  | 71,626   |  
|Selling, general and administrative expenses            |  | (5,868                      | ) |  | (39,796  | ) |  | (40,058  | )
|Research and development expenses                       |  | (2,800                      | ) |  | (18,991  | ) |  | (16,076  | )
|Other operating income                                  |  | 1                           |   |  | 9        |   |  | 286      |  
|                                                        |  |                             |   |  |          |   |  |          |  
|Income from operations                                  |  | 4,203                       |   |  | 28,503   |   |  | 15,778   |  
|Interest expense                                        |  | (246                        | ) |  | (1,666   | ) |  | (478     | )
|Interest income                                         |  | 515                         |   |  | 3,493    |   |  | 4,369    |  
|                                                        |  |                             |   |  |          |   |  |          |  
|Earnings before income taxes                            |  | 4,472                       |   |  | 30,330   |   |  | 19,669   |  
|Income tax expense                                      |  | (448                        | ) |  | (3,040   | ) |  | (2,045   | )
|                                                        |  |                             |   |  |          |   |  |          |  
|Net income                                              |  | 4,024                       |   |  | 27,290   |   |  | 17,624   |  
|Less net income attributable to noncontrolling interest |  | (19                         | ) |  | (132     | ) |  | (327     | )
|                                                        |  |                             |   |  |          |   |  |          |  
|                                                        |  |                             |  
|Net income attributable to Cogo Group, Inc.             |  | 4,005                       |   |  | 27,158   |   |  | 17,297   |  
|                                                        |  |                             |   |  |          |   |  |          |  



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|                                                                   |  |                             |   |  |            |   |  |            |  
|------------------------------------------------------------------ |  | --------------------------- | - |  | ---------- | - |  | ---------- | -
|                                                                   |  | USD                         |   |  | RMB        |   |  | RMB        |  
|Earnings per share attributable to Cogo Group, Inc.                |  |                             |   |  |            |   |  |            |  
|Basic                                                              |  | 0.11                        |   |  | 0.73       |   |  | 0.48       |  
|Diluted                                                            |  | 0.11                        |   |  | 0.71       |   |  | 0.46       |  
|                                                                   |  |                             |  
|Weighted average number of common shares outstanding               |  |                             |   |  |            |   |  |            |  
|Basic                                                              |  |                             |   |  | 37,133,304 |   |  | 36,330,036 |  
|Diluted                                                            |  |                             |   |  | 38,045,705 |   |  | 37,698,805 |  
|                                                                   | 
|                                                                   |  | Three Months ended June 30, |  
|                                                                   |  | 2010                        |   |  | 2010       |   |  | 2009       |  
|                                                                   |  | USD000                     |   |  | RMB000    |   |  | RMB000    |  
|Comprehensive income:                                              |  |                             |   |  |            |   |  |            |  
|Net income                                                         |  | 4,024                       |   |  | 27,290     |   |  | 17,624     |  
|Other comprehensive income                                         |  |                             |   |  |            |   |  |            |  
|Foreign currency translation adjustments                           |  | (329                        | ) |  | (2,235     | ) |  | (230       | )
|Comprehensive income                                               |  |                             |   |  |            |   |  |            |  
|Less: comprehensive income attributable to noncontrolling interest |  | (7                          | ) |  | (46        | ) |  | (325       | )
|                                                                   |  |                             |   |  |            |   |  |            |  
|                                                                   |  |                             |  
|Comprehensive income attributable to Cogo Group, Inc.              |  | 3,688                       |   |  | 25,009     |   |  | 17,069     |  
|                                                                   |  |                             |   |  |            |   |  |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



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COGO GROUP, INC. and SUBSIDIARIES

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

June 30, 2010 and 2009



|                                                        |  |                           |   |  |            |   |  |          |  
|------------------------------------------------------- |  | ------------------------- | - |  | ---------- | - |  | -------- | -
|                                                        |  | Six Months ended June 30, |  
|                                                        |  | 2010                      |   |  | 2010       |   |  | 2009     |  
|                                                        |  | USD000                   |   |  | RMB000    |   |  | RMB000  |  
|Net Revenue                                             |  |                           |   |  |            |   |  |          |  
|Product sales                                           |  | 170,365                   |   |  | 1,155,331  |   |  | 922,871  |  
|Services revenue                                        |  | 2,131                     |   |  | 14,449     |   |  | 12,060   |  
|                                                        |  |                           |   |  |            |   |  |          |  
|                                                        |  | 172,496                   |   |  | 1,169,780  |   |  | 934,931  |  
|Cost of sales                                           |  |                           |   |  |            |   |  |          |  
|Cost of goods sold                                      |  | (146,393                  | ) |  | (992,766   | ) |  | (792,055 | )
|Cost of services                                        |  | (1,719                    | ) |  | (11,655    | ) |  | (9,810   | )
|                                                        |  |                           |   |  |            |   |  |          |  
|                                                        |  | (148,112                  | ) |  | (1,004,421 | ) |  | (801,865 | )
|                                                        |  |                           |   |  |            |   |  |          |  
|Gross profit                                            |  | 24,384                    |   |  | 165,359    |   |  | 133,066  |  
|Selling, general and administrative expenses            |  | (11,407                   | ) |  | (77,356    | ) |  | (75,815  | )
|Research and development expenses                       |  | (5,164                    | ) |  | (35,022    | ) |  | (32,120  | )
|Other operating income                                  |  | 5                         |   |  | 36         |   |  | 319      |  
|                                                        |  |                           |   |  |            |   |  |          |  
|Income from operations                                  |  | 7,818                     |   |  | 53,017     |   |  | 25,450   |  
|Interest expense                                        |  | (410                      | ) |  | (2,781     | ) |  | (509     | )
|Interest income                                         |  | 1,001                     |   |  | 6,787      |   |  | 6,972    |  
|                                                        |  |                           |   |  |            |   |  |          |  
|Earnings before income taxes                            |  | 8,409                     |   |  | 57,023     |   |  | 31,913   |  
|Income tax expense                                      |  | (840                      | ) |  | (5,699     | ) |  | (3,422   | )
|                                                        |  |                           |   |  |            |   |  |          |  
|Net income                                              |  | 7,569                     |   |  | 51,324     |   |  | 28,491   |  
|Less net income attributable to noncontrolling interest |  | (60                       | ) |  | (405       | ) |  | (570     | )
|                                                        |  |                           |   |  |            |   |  |          |  
|                                                        |  |                           |  
|Net income attributable to Cogo Group, Inc.             |  | 7,509                     |   |  | 50,919     |   |  | 27,921   |  
|                                                        |  |                           |   |  |            |   |  |          |  



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|                                                                   |  |                             |   |  |            |   |  |            |  
|------------------------------------------------------------------ |  | --------------------------- | - |  | ---------- | - |  | ---------- | -
|                                                                   |  | USD                         |   |  | RMB        |   |  | RMB        |  
|Earnings per share attributable to Cogo Group, Inc.                |  |                             |   |  |            |   |  |            |  
|Basic                                                              |  | 0.20                        |   |  | 1.37       |   |  | 0.77       |  
|Diluted                                                            |  | 0.20                        |   |  | 1.34       |   |  | 0.74       |  
|                                                                   |  |                             |  
|Weighted average number of common shares outstanding               |  |                             |   |  |            |   |  |            |  
|Basic                                                              |  |                             |   |  | 37,088,817 |   |  | 36,127,454 |  
|Diluted                                                            |  |                             |   |  | 38,070,100 |   |  | 37,481,300 |  
|                                                                   | 
|                                                                   |  | Three Months ended June 30, |  
|                                                                   |  | 2010                        |   |  | 2010       |   |  | 2009       |  
|                                                                   |  | USD000                     |   |  | RMB000    |   |  | RMB000    |  
|Comprehensive income:                                              |  |                             |   |  |            |   |  |            |  
|Net income                                                         |  | 7,569                       |   |  | 51,324     |   |  | 28,491     |  
|Other comprehensive income                                         |  |                             |   |  |            |   |  |            |  
|Foreign currency translation adjustments                           |  | (309                        | ) |  | (2,096     | ) |  | 494        |  
|Comprehensive income                                               |  |                             |   |  |            |   |  |            |  
|Less: comprehensive income attributable to noncontrolling interest |  | (39                         | ) |  | (264       | ) |  | (576       | )
|                                                                   |  |                             |   |  |            |   |  |            |  
|Comprehensive income attributable to Cogo Group, Inc.              |  | 7,221                       |   |  | 48,964     |   |  | 28,409     |  
|                                                                   |  |                             |   |  |            |   |  |            |  

See accompanying notes to unaudited condensed consolidated financial statements.



5



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COGO GROUP, INC. and SUBSIDIARIES

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



|                                                                                  |  |                           |   |  |         |   |  |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | - |  | ------- | - |  | ------- | -
|                                                                                  |  | Six Months ended June 30, |  
|                                                                                  |  | 2010                      |   |  | 2010    |   |  | 2009    |  
|                                                                                  |  | USD000                   |   |  | RMB000 |   |  | RMB000 |  
|Cash flows from operating activities:                                             |  |                           |   |  |         |   |  |         |  
|Net income                                                                        |  | 7,569                     |   |  | 51,324  |   |  | 28,491  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |   |  |         |   |  |         |  
|Depreciation expense                                                              |  | 447                       |   |  | 3,031   |   |  | 2,862   |  
|Amortization of intangible assets                                                 |  | 1,608                     |   |  | 10,902  |   |  | 15,121  |  
|Deferred income taxes                                                             |  | (265                      | ) |  | (1,799  | ) |  | (2,387  | )
|Loss on disposal of property and equipment                                        |  | 52                        |   |  | 353     |   |  | 48      |  
|Share-based compensation                                                          |  | 4,968                     |   |  | 33,691  |   |  | 29,138  |  
|Change in current assets and liabilities:                                         |  |                           |   |  |         |   |  |         |  
|Accounts receivable, net                                                          |  | (1,158                    | ) |  | (7,854  | ) |  | (31,558 | )
|Bills receivable                                                                  |  | (3,930                    | ) |  | (26,649 | ) |  | 3,653   |  
|Inventories                                                                       |  | (13,949                   | ) |  | (94,594 | ) |  | (49,974 | )
|Prepaid expenses and other receivables                                            |  | (147                      | ) |  | (999    | ) |  | 2,058   |  
|Accounts payable                                                                  |  | (1,288                    | ) |  | (8,734  | ) |  | (12,770 | )
|Income taxes payable                                                              |  | (115                      | ) |  | (778    | ) |  | (154    | )
|Accrued expenses and other liabilities                                            |  | (1,137                    | ) |  | (7,712  | ) |  | (857    | )
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Net cash used in operating activities                                             |  | (7,345                    | ) |  | (49,818 | ) |  | (16,329 | )
|Cash flows from investing activities:                                             |  |                           |   |  |         |   |  |         |  
|Payment for acquisitions of subsidiaries                                          |  | (7,606                    | ) |  | (51,578 | ) |  | (10,249 | )
|Purchases of property and equipment                                               |  | (691                      | ) |  | (4,688  | ) |  | (718    | )
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Net cash used in investing activities                                             |  | (8,297                    | ) |  | (56,266 | ) |  | (10,967 | )
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Cash flows from financing activities:                                             |  |                           |   |  |         |   |  |         |  
|Proceeds of bank borrowings, net                                                  |  | 52,736                    |   |  | 357,630 |   |  | 30,351  |  
|Proceeds from exercise of stock options                                           |  |                          |   |  |        |   |  | 307     |  
|Purchase of treasury stock                                                        |  | (5,944                    | ) |  | (40,309 | ) |  |        |  
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Net cash provided by financing activities                                         |  | 46,792                    |   |  | 317,321 |   |  | 30,658  |  
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Effect of exchange rate changes on cash                                           |  | (119                      | ) |  | (806    | ) |  | 208     |  
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Net increase in cash                                                              |  | 31,031                    |   |  | 210,431 |   |  | 3,570   |  
|Cash at beginning of the period                                                   |  | 98,403                    |   |  | 667,320 |   |  | 686,379 |  
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Cash at end of the period                                                         |  | 129,434                   |   |  | 877,751 |   |  | 689,949 |  
|                                                                                  |  |                           |   |  |         |   |  |         |  
|Supplementary cash flow information:                                              |  |                           |   |  |         |   |  |         |  
|Interest paid                                                                     |  | 410                       |   |  | 2,781   |   |  | 509     |  
|Income tax paid                                                                   |  | 959                       |   |  | 6,502   |   |  | 5,963   |  
|Non-cash investing activities:                                                    |  |                           |   |  |         |   |  |         |  
|Stock issued for acquisition consideration payable, included in other liabilities |  |                          |   |  |        |   |  | 6,833   |  
|Acquisition of Mega Smart included in accrued expenses and other liabilities      |  |                          |   |  |        |   |  | 122,415 |  

See
accompanying unaudited notes to condensed consolidated financial statements.



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2010



|                                                              |  |               |   |                          |         |  |                               |   |                                   |         |  |               |   |  |                        |   |  |              |   |  |           |  
|------------------------------------------------------------- |  | ------------- | - | ------------------------ | ------- |  | ----------------------------- | - | --------------------------------- | ------- |  | ------------- | - |  | ---------------------- | - |  | ------------ | - |  | --------- | -
|                                                              |  |               |   |                          |         |  | Cogo Group, Inc. Stockholders |   |                                   |         |  |               |   |  |                        |   | 
|                                                              |  | Common Stock  |   | Additionalpaid incapital |         |  | Retainedearnings              |   | Accumulatedothercomprehensiveloss |         |  | Treasurystock |   |  | Noncontrollinginterest |   |  | Total equity |  
|                                                              |  | No. of Shares |   |                          | RMB000 |  | RMB000                       |   |                                   | RMB000 |  | RMB000       |   |  | RMB000                |   |  | RMB000      |   |  | RMB000   |  
|Balance as of January 1, 2010                                 |  | 35,770,025    |   |                          | 3,258   |  | 1,221,538                     |   |                                   | 604,464 |  | (107,384      | ) |  | (178,309               | ) |  | 8,455        |   |  | 1,552,022 |  
|Net income                                                    |  |              |   |                          |        |  |                              |   |                                   | 50,919  |  |              |   |  |                       |   |  | 405          |   |  | 51,324    |  
|Foreign currency translation adjustments                      |  |              |   |                          |        |  |                              |   |                                   |        |  | (2,171        | ) |  |                       |   |  | (141         | ) |  | (2,312    | )
|Issuance of common stock pursuant to share-based compensation |  | 472,842       |   |                          | 32      |  | (32                           | ) |                                   |        |  |              |   |  |                       |   |  |             |   |  |          |  
|Share-based compensation                                      |  |              |   |                          |        |  | 33,691                        |   |                                   |        |  |              |   |  |                       |   |  |             |   |  | 33,691    |  
|Purchase of treasury stock                                    |  | (857,849      | ) |                          |        |  |                              |   |                                   |        |  |              |   |  | (40,309                | ) |  |             |   |  | (40,309   | )
|                                                              |  |               |   |                          |         |  |                               |   |                                   |         |  |               |   |  |                        |   |  |              |   |  |           |  
|Balance as of June 30, 2010                                   |  | 35,385,018    |   |                          | 3,290   |  | 1,255,197                     |   |                                   | 655,383 |  | (109,555      | ) |  | (218,618               | ) |  | 8,719        |   |  | 1,594,416 |  
|                                                              |  |               |   |                          |         |  |                               |   |                                   |         |  |               |   |  |                        |   |  |              |   |  |           |  
|Balance as of June 30, 2010 (in USD)                          |  |               |   |                          | 485     |  | 185,091                       |   |                                   | 96,643  |  | (16,155       | ) |  | (32,236                | ) |  | 1,286        |   |  | 235,114   |  
|                                                              |  |               |   |                          |         |  |                               |   |                                   |         |  |               |   |  |                        |   |  |              |   |  |           |  

See accompanying notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1  Basis Of Presentation

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

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

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

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

The accompanying
unaudited condensed consolidated financial statements are expressed in Renminbi (RMB), the national currency of the Peoples Republic of China (the PRC). For the convenience of the reader, the June 30, 2010 RMB
amounts, included in the accompanying unaudited condensed consolidated financial statements have been translated into United States dollars (USD) at the rate of USD1.00 = RMB6.7815. No representation is made that the RMB could have been,
or could be, converted into USD at that rate or at any particular rate or at all.

Note 2  Summary Of Significant Accounting Policies

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

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



8



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)



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

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

Note 3  Accounts Receivable, Net



|                                      |  |          |   |  |                  |   |  |         |  
|------------------------------------- |  | -------- | - |  | ---------------- | - |  | ------- | -
|                                      |  | June 30, |   |  | December 31,2009 |  
|                                      |  | 2010     |   |  | 2010             |   | 
|                                      |  | USD000  |   |  | RMB000          |   |  | RMB000 |  
|Accounts receivable                   |  | 102,498  |   |  | 695,087          |   |  | 690,919 |  
|Less: allowance for doubtful accounts |  | (10,810  | ) |  | (73,308          | ) |  | (73,306 | )
|                                      |  |          |   |  |                  |   |  |         |  
|Accounts receivable, net              |  | 91,688   |   |  | 621,779          |   |  | 617,613 |  
|                                      |  |          |   |  |                  |   |  |         |  

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



|                                                    |  |                             |   |                           |         |  |         |   |  |        
|--------------------------------------------------- |  | --------------------------- | - | ------------------------- | ------- |  | ------- | - |  | -------
|                                                    |  | Three Months ended June 30, |   | Six Months ended June 30,
|                                                    |  | 2010                        |   |                           | 2009    |  | 2010    |   |  | 2009   
|                                                    |  | RMB000                     |   |                           | RMB000 |  | RMB000 |   |  | RMB000
|Beginning Balance                                   |  | 73,306                      |   |                           | 40,990  |  | 73,306  |   |  | 37,314 
|Addition charged to allowance for doubtful accounts |  | 324                         |   |                           |        |  | 324     |   |  |       
|Write back on allowance for doubtful accounts       |  | (322                        | ) |                           | 13,660  |  | (322    | ) |  | 17,336 
|                                                    |  |                             |   |                           |         |  |         |   |  |        
|Ending Balance                                      |  | 73,308                      |   |                           | 54,650  |  | 73,308  |   |  | 54,650 
|                                                    |  |                             |   |                           |         |  |         |   |  |        

Note 4  Bills Receivable

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

In certain circumstances, the Group has arranged to transfer
with recourse certain of its bills receivable to banks. Under this discounting arrangement, the bank pays a discounted amount to the Group and collects the amounts owed from the customers banks. The discount typically ranges from 2.1% to 5.0%
of the balance transferred, which is recorded as interest expense.

The Group has not discounted any bills during the three months ended
June 30, 2010. The Group discounted bills receivable amounting to RMB14,313 thousand, recording RMB14,253 thousand proceeds received from the sale of bills and recorded a discount of RMB60 thousand in interest expense accordingly for the three
months ended June 30, 2009.

For the six months ended June 30, 2010 and 2009, the Group received proceeds from the sale of bills
receivable amounting to RMB18,733 thousand (USD2,744 thousand) and RMB29,067 thousand, respectively. In addition, the Group recorded discounts amounting to RMB145 thousand (USD21 thousand) and RMB101 thousand in respect of the bills receivable sold
for the six months ended June 30, 2010 and 2009, respectively, which have been included in interest expense.



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COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)



For bills receivable sold to banks that the Group has surrendered control, the Group derecognized the
discounted bills receivable pursuant to the provisions of ASC 860, Transfers and Servicing. As of June 30, 2010 and December 31, 2009, the Group has derecognized discounted bills receivable amounting to RMB773 thousand (USD114
thousand) and RMB33,871 thousand, respectively in accordance with ASC 860.

Note 5  Inventories

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



|                  |  |          |  |                   |  |        
|----------------- |  | -------- |  | ----------------- |  | -------
|                  |  | June 30, |  | December 
31,2009
|                  |  | 2010     |  | 2010              | 
|                  |  | USD000  |  | RMB000           |  | RMB000
|Raw materials     |  | 85       |  | 576               |  | 1,792  
|Finished goods    |  | 35,208   |  | 238,763           |  | 144,340
|                  |  |          |  |                   |  |        
|Total inventories |  | 35,293   |  | 239,339           |  | 146,132
|                  |  |          |  |                   |  |        

Inventories amounting to RMB2,600 thousand (USD383 thousand) were
written off during the three months and six months ended June 30, 2010. Inventories amounting to nil and RMB2,700 thousand were written off during the three months and six months ended June 30, 2009, respectively.

Note 6  Property And Equipment, Net

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



|                                |  |          |   |  |                  |   |  |         |  
|------------------------------- |  | -------- | - |  | ---------------- | - |  | ------- | -
|                                |  | June 30, |   |  | December 31,2009 |  
|                                |  | 2010     |   |  | 2010             |   | 
|                                |  | USD000  |   |  | RMB000          |   |  | RMB000 |  
|Property and equipment, at cost |  | 6,158    |   |  | 41,759           |   |  | 37,984  |  
|Less: accumulated depreciation  |  | (3,845   | ) |  | (26,076          | ) |  | (23,578 | )
|                                |  |          |   |  |                  |   |  |         |  
|Property and equipment, net     |  | 2,313    |   |  | 15,683           |   |  | 14,406  |  
|                                |  |          |   |  |                  |   |  |         |  

Note 7  Goodwill And Intangible Assets

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



|                                     |  |          |  |                   |   |  |         |  
|------------------------------------ |  | -------- |  | ----------------- | - |  | ------- | -
|                                     |  | Goodwill |  | Intangible Assets |   |  | Total   |  
|                                     |  | RMB000  |  | RMB000           |   |  | RMB000 |  
|Balance as of January 1, 2010        |  | 196,858  |  | 115,804           |   |  | 312,662 |  
|Amortization of intangible assets    |  |         |  | (10,902           | ) |  | (10,902 | )
|                                     |  |          |  |                   |   |  |         |  
|Balance as of June 30, 2010          |  | 196,858  |  | 104,902           |   |  | 301,760 |  
|                                     |  |          |  |                   |   |  |         |  
|Balance as of June 30, 2010 (in USD) |  | 29,028   |  | 15,469            |   |  | 44,497  |  
|                                     |  |          |  |                   |   |  |         |  

Note 8  Bank Borrowings And Banking Facilities

On October 7, 2005, the Group entered into a USD5,000 thousand credit facility with Standard Chartered Bank (Hong Kong) Limited (SCB).
This facility is secured by funds on deposit in an amount not less than USD2,000 thousand as of December 31, 2009 and June 30, 2010, and bears interest ranging from HIBOR +1.5% to USD Prime per annum, depending on the borrowings made. The
SCB facility is repayable on demand and SCB may immediately terminate the facility without the Groups consent. Interest on this facility accrues until payment is demanded by SCB and no commitment fee is required for this facility. The
outstanding loan balance under the SCB facility was RMB26,909 thousand (USD3,968 thousand) and RMB31,040 thousand as of June 30, 2010 and December 31, 2009 respectively.



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)



On July 6, 2010, the Group revised the credit facility with Standard Chartered Bank (Hong Kong)
Limited (SCB) into a general banking facility (the Facility). The Facility is secured by funds on deposit of not less than USD5,000 thousand. The Facility consists of a current account overdraft with a sub-limit of USD1,000
thousand, a trade finance facility with a sub-limit of USD14,000 thousand and guarantees or standby letters of credit with a sub-limit of USD7,000 thousand. The aggregate outstanding amount of trade finance and guarantees or standby letters of
credit shall not at any time exceed USD14,000 thousand, and the aggregate outstanding amount under the Facility shall not at any time exceed USD15,000 thousand. Of the USD15,000 thousand, USD5,000 thousand is available from April to September, and
December of each calendar year. The Facility of the current account overdraft bears interests rate of 0.5% per annum above the HKD Prime for HKD overdraft or 0.5% per annum above the USD Prime for USD overdraft, payable monthly in arrears.
The Facility of trade finance bears interest at 2% per annum above HIBOR for the import/export facilities denominated in foreign countries.

On October 7, 2005, the Group entered into a USD9,000 thousand credit facility with the Bank of China (Hong Kong) Limited (BOC). On
January 17, 2008, October 10, 2008, and April 23, 2010 the facility with the BOC was revised to USD14,000 thousand, USD41,000 thousand and USD31,000 thousand, respectively. The facility is secured by funds on deposit in an amount
not less than USD15,000 thousand and bears interest from LIBOR/HIBOR +2% per annum, depending on the different kinds of borrowings made and is used to settle foreign exchange obligations to the extent needed. The BOC facility is repayable on
demand and the BOC may increase, reduce and/or cancel the facility by providing written notice to the Group. Interest on this facility accrues until payment is demanded by the BOC and no commitment fee is required for this facility. As of
June 30, 2010 and December 31, 2009, the outstanding loan balances under the BOC facility were RMB141,836 thousand (USD20,915 thousand) and RMB33,957 thousand, respectively.

On April 28, 2010, the Group entered into a factoring agreement (the Factoring Agreement) with the BOC. Pursuant to the Factoring
Agreement, BOC granted the Group a line of credit of up to USD30,000 thousand of its equivalent amount in HKD, secured by funds on deposit in an amount not less than USD15,000 thousand, being aggregate amount with other facilities with BOC, if any.
The facility bears an interest rate of 2% per annum above the HIBOR or LIBOR, depending on the currency in which the borrowings are denominated. As of June 30, 2010, the outstanding loan balance under the Factoring Agreement was RMB148,943
thousand (USD21,964 thousand).

On November 18, 2009, the Group entered into a RMB65,000 thousand credit facility with Guangdong
Development Bank Shenzhen Branch (GDB Shenzhen). The facility is valid for 12 months commencing November 18, 2009 and terminates on November 17, 2010, and loans under the facility bear interest at the 3-month LIBOR +1.5% and no
commitment fee is required for this facility. GDB Shenzhen may terminate the facility if the Group does not regain its ability to perform its obligations and cannot provide guarantees acceptable to GDB Shenzhen within 30 days after it ceases
performing its obligations. No minimum guarantee deposits are required. As of June 30, 2010 and December 31, 2009, the outstanding loan balance under the GDB Shenzhen facility was RMB27,329 thousand (USD4,030 thousand) and RMB54,405
thousand, respectively.

On January 22, 2010, the Group entered into a Credit Extension Agreement with Guangdong Development Bank Macau
Branch (GDB Macau) which established a revolving secured trade finance term loan under which the Group may borrow up to Hong Kong Dollars (HKD) 150,000 thousand or its equivalent amount in USD for the purpose of
purchasing goods. The credit extension is valid for 12 months commencing January 22, 2010, and loans under the Credit Extension Agreement bear an interest rate of 3-month LIBOR or HIBOR rate plus 1.5% per annum, depending on the drawdown
currency. As of June 30, 2010, the outstanding loan balance under the GDB Macau facility was RMB128,849 thousand (USD19,000 thousand).

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



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)



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

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



|                                       |  |          |  |                   |  |        
|-------------------------------------- |  | -------- |  | ----------------- |  | -------
|                                       |  | June 30, |  | December 
31,2009
|                                       |  | 2010     |  | 2010              | 
|                                       |  | USD000  |  | RMB000           |  | RMB000
|Legal and professional fees            |  | 511      |  | 3,463             |  | 4,305  
|Accrued staff related costs            |  | 111      |  | 752               |  | 7,967  
|Payables for acquisitions (Note a)     |  | 10,221   |  | 69,315            |  | 121,453
|Other accruals                         |  | 694      |  | 4,710             |  | 4,283  
|                                       |  |          |  |                   |  |        
|Accrued expenses and other liabilities |  | 11,537   |  | 78,240            |  | 138,008
|                                       |  |          |  |                   |  |        



Note a: The balance at June 30, 2010 represents amounts payable in relation to the Groups acquisitions of Long Rise Holdings Limited
(Long Rise) and Mega Smart Group Limited (Mega Smart) amounting to RMB56,234 thousand (USD8,292 thousand) and RMB13,081 thousand (USD1,929 thousand) respectively.

The amounts payable in relation to the acquisition of Mega Smart are expected to be settled within one year. Consideration payable in relation to the
acquisition of Long Rise is expected to be settled in 2010 and 2011. Amounts payable in relation to the acquisitions are non-interest bearing.

Note 10  Share-Based Compensation

During the three months ended June 30, 2010 and 2009, the Company recognized share-based compensation expense for awards issued under the 2006
Incentive Plan and the 2009 Omnibus Securities and Incentive Plan (the 2009 Incentive Plan) of RMB17,636 thousand (USD2,600 thousand) and RMB14,911 thousand, respectively. During the six months ended June 30, 2010 and 2009, the
Company recognized share-based compensation expense for awards issued under the 2006 Incentive Plan and the 2009 Incentive Plan of RMB33,691 thousand (USD4,968 thousand) and RMB29,138 thousand, respectively. No options and stock warrants were issued
during the three months and six months ended June 30, 2010 and 2009.

(a) Options under the 2004 Incentive Plan

Under the Companys 2004 Incentive Plan, the Company issued options to purchase shares of the Companys common stock. The
options granted under the 2004 Incentive Plan had a weighted average exercise price per option of USD4.08 and weighted average remaining contractual term of approximately 5 years. During the three and six months ended June 30, 2010, nil and
7,500 options under the 2004 Incentive Plan were exercised. No option was exercised during the three and six months ended June 30, 2009. As of June 30, 2010, 1,184,769 options were outstanding under the 2004 Incentive Plan.



12



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)



(b) Non-vested share units

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



|                              |  |                     |   |                     |                                       |  |           |   |  |                                      
|----------------------------- |  | ------------------- | - | ------------------- | ------------------------------------- |  | --------- | - |  | -------------------------------------
|                              |  | 2006 Incentive Plan |   | 2009 Incentive Plan
|                              |  | Shares              |   |                     | Weighted averagegrant-date fair value |  | Shares    |   |  | Weighted averagegrant-date fair value
|                              |  |                     |   |                     | USD                                   |  |           |   |  | USD                                  
|Balance as of January 1, 2010 |  | 1,309,164           |   |                     | 5.70                                  |  |          |   |  |                                     
|Granted on January 29, 2010   |  | 932,763             |   |                     | 6.36                                  |  | 1,167,237 |   |  | 6.36                                 
|Vested                        |  | (751,366            | ) |                     | 5.51                                  |  | (97,270   | ) |  | 6.36                                 
|                              |  |                     |   |                     |                                       |  |           |   |  |                                      
|Balance as of June 30, 2010   |  | 1,490,561           |   |                     | 6.20                                  |  | 1,069,967 |   |  | 6.36                                 
|                              |  |                     |   |                     |                                       |  |           |   |  |                                      

Note 11  Earnings Per Share

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



|                                                                                           |  |                            |  |                          |  |            |  |           
|------------------------------------------------------------------------------------------ |  | -------------------------- |  | ------------------------ |  | ---------- |  | ----------
|                                                                                           |  | Three Months
endedJune 30, |  | Six Months
endedJune 30,
|                                                                                           |  | 2010                       |  | 2009                     |  | 2010       |  | 2009      
|                                                                                           |  | RMB000                    |  | RMB000                  |  | RMB000    |  | RMB000   
|Numerator for basic and diluted earnings per share:                                        |  |                            |  |                          |  |            |  |           
|Net income attributable to Cogo Group, Inc.                                                |  | 27,158                     |  | 17,297                   |  | 50,919     |  | 27,921    
|                                                                                           |  |                            |  |                          |  |            |  |           
|Denominator:                                                                               |  |                            |  |                          |  |            |  |           
|Basic weighted average shares                                                              |  | 37,133,304                 |  | 36,330,036               |  | 37,088,817 |  | 36,127,454
|Effect of dilutive non-vested equity share units, performance shares, options and warrants |  | 912,401                    |  | 1,368,769                |  | 981,283    |  | 1,353,846 
|                                                                                           |  |                            |  |                          |  |            |  |           
|Diluted weighted average shares                                                            |  | 38,045,705                 |  | 37,698,805               |  | 38,070,100 |  | 37,481,300
|                                                                                           |  |                            |  |                          |  |            |  |           
|                                                                                           |  |                            |  |                         
|                                                                                           |  | RMB                        |  | RMB                      |  | RMB        |  | RMB       
|Basic earnings per share:                                                                  |  | 0.73                       |  | 0.48                     |  | 1.37       |  | 0.77      
|Diluted earnings per share:                                                                |  | 0.71                       |  | 0.46                     |  | 1.34       |  | 0.74      

Non-vested equity share units,
performance shares, and options and warrants amounting to approximately 322 thousand shares and 762 thousand shares are excluded from the Companys dilutive computation as their effect would be anti-dilutive for the three months ended
June 30, 2010 and 2009. For the six months ended June 30, 2010 and 2009, approximately 370 thousand shares and 768 thousand shares are excluded from the Companys dilutive computation as their effect would be anti-dilutive.

Note 12  Operating Segment Information

Segment information is as follows:



|                                        |  |                            |  |                           |  |           |  |        
|--------------------------------------- |  | -------------------------- |  | ------------------------- |  | --------- |  | -------
|                                        |  | Three Months endedJune 30, |  | Six Months ended June 30,
|                                        |  | 2010                       |  | 2009                      |  | 2010      |  | 2009   
|                                        |  | RMB000                    |  | RMB000                   |  | RMB000   |  | RMB000
|Net revenue                             |  |                            |  |                           |  |           |  |        
|Product sales                           |  |                            |  |                           |  |           |  |        
|Segment revenue from external customers |  |                            |  |                           |  |           |  |        
|Digital media                           |  | 354,036                    |  | 309,899                   |  | 675,227   |  | 579,988
|Telecommunications equipment            |  | 147,234                    |  | 126,863                   |  | 280,798   |  | 237,340
|Industrial business                     |  | 107,215                    |  | 58,604                    |  | 199,306   |  | 105,543
|Inter-segment revenue                   |  |                           |  |                          |  |          |  |       
|                                        |  |                            |  |                           |  |           |  |        
|                                        |  | 608,485                    |  | 495,366                   |  | 1,155,331 |  | 922,871



13



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##### Table of Contents

COGO GROUP, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements(Continued)



|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  
|--------------------------------------- |  | -------------------------- | - |  | ------------------------- | - |  | --------- | - |  | ------- | -
|                                        |  | Three Months endedJune 30, |   |  | Six Months ended June 30, |  
|                                        |  | 2010                       |   |  | 2009                      |   |  | 2010      |   |  | 2009    |  
|                                        |  | RMB000                    |   |  | RMB000                   |   |  | RMB000   |   |  | RMB000 |  
|Service revenue                         |  |                            |   |  |                           |   |  |           |   |  |         |  
|Segment revenue from external customers |  | 8,496                      |   |  | 7,263                     |   |  | 14,449    |   |  | 12,060  |  
|Inter-segment revenue                   |  | 3,511                      |   |  |                          |   |  | 7,520     |   |  | 5,125   |  
|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  
|                                        |  | 12,007                     |   |  | 7,263                     |   |  | 21,969    |   |  | 17,185  |  
|Inter-company elimination               |  | (3,511                     | ) |  |                          |   |  | (7,520    | ) |  | (5,125  | )
|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  
|Total net revenue                       |  | 616,981                    |   |  | 502,629                   |   |  | 1,169,780 |   |  | 934,931 |  
|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  
|Income from operations                  |  |                            |   |  |                           |   |  |           |   |  |         |  
|Product sales                           |  | 33,571                     |   |  | 24,444                    |   |  | 67,133    |   |  | 42,981  |  
|Services revenue                        |  | 5,984                      |   |  | 660                       |   |  | 6,876     |   |  | 796     |  
|Unallocated (note i)                    |  | (11,052                    | ) |  | (9,326                    | ) |  | (20,992   | ) |  | (18,327 | )
|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  
|Total income from operations            |  | 28,503                     |   |  | 15,778                    |   |  | 53,017    |   |  | 25,450  |  
|Interest expense                        |  | (1,666                     | ) |  | (478                      | ) |  | (2,781    | ) |  | (509    | )
|Interest income                         |  | 3,493                      |   |  | 4,369                     |   |  | 6,787     |   |  | 6,972   |  
|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  
|Earnings before income taxes            |  | 30,330                     |   |  | 19,669                    |   |  | 57,023    |   |  | 31,913  |  
|                                        |  |                            |   |  |                           |   |  |           |   |  |         |  



|                      |  |              |  |                 
|--------------------- |  | ------------ |  | ----------------
|                      |  | June 30,2010 |  | December 31,2009
|                      |  | RMB000      |  | RMB000         
|Total assets          |  |              |  |                 
|Product sales         |  | 2,157,761    |  | 1,851,356       
|Service revenue       |  | 86,047       |  | 66,444          
|Unallocated (note ii) |  | 2,701        |  | 3,727           
|                      |  |              |  |                 
|                      |  | 2,246,509    |  | 1,921,527       
|                      |  |              |  |                 



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

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

Note 13  Comprehensive Income

The
following table reconciles equity attributable to noncontrolling interest:



|                                                   |  |                            |   |  |                           |   |  |         |   |  |        
|-------------------------------------------------- |  | -------------------------- | - |  | ------------------------- | - |  | ------- | - |  | -------
|                                                   |  | Three Months endedJune 30, |   |  | Six Months ended June 30,
|                                                   |  | 2010                       |   |  | 2009                      |   |  | 2010    |   |  | 2009   
|                                                   |  | RMB000                    |   |  | RMB000                   |   |  | RMB000 |   |  | RMB000
|Beginning balance                                  |  | 8,673                      |   |  | 5,762                     |   |  | 8,455   |   |  | 5,511  
|Net income attributable to noncontrolling interest |  | 132                        |   |  | 327                       |   |  | 405     |   |  | 570    
|Foreign currency translation adjustments           |  | (86                        | ) |  | (2                        | ) |  | (141    | ) |  | 6      
|                                                   |  |                            |   |  |                           |   |  |         |   |  |        
|Ending balance                                     |  | 8,719                      |   |  | 6,087                     |   |  | 8,719   |   |  | 6,087  
|                                                   |  |                            |   |  |                           |   |  |         |   |  |        

Note 14  Fair Value Measurement

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



14



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##### Table of Contents

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

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

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

Overview

We provide customized module design solutions for a diverse set of applications and end markets, serving as a gateway for our technology component
suppliers to access leading electronics manufacturers in 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, effectively
reducing their time-to-market and lowering their overall costs. Our close collaboration with our customers product development teams provides us with a unique understanding of their needs, enabling us to customize our suppliers
technology components with module designs that meet our customers requirements. In addition, in 2006, we began offering technology and engineering services in China and in 2007, we began offering software design services in China.

We focus on the digital media, telecommunications equipment and industrial business end-markets in China. In the digital media end-market, we provide
mobile handset and module solutions for functionalities such as CMMB mobile TV, motion sensor, camera, power supply and Bluetooth as well as solutions for high definition digital set-top box, GPS applications and solutions for Smartbook. In the
telecommunications equipment end-market, we provide solutions for PSTN switching, optical transmitters, electrical signal processing and optical signal amplification; in the industrial business end-market, which commenced in the beginning of 2008,
we provide industrial solutions for the green energy, smart meter, smart grid, railways and auto-electronics sectors. Currently, we have over 1,400 customers, including a many of the most established manufacturers in the digital media,
telecommunications equipment and industrial business end-markets in China such as ZTE, TCL and BYD. We work with original equipment manufacturers, or OEMs, as well as subsystem designers and contract manufacturers to provide solutions to support
industry leader like Huawei. In developing customized module design solutions for use in our customers products, we collaborate closely with over 30 suppliers of technology components, including many large multinational companies such as
Broadcom, Sandisk, Freescale and Atmel. Additionally, 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.



15



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##### Table of Contents

We have two reportable operating segments: product sales consisting of revenues generated by providing
customized module design solutions focusing primarily in the digital media, telecommunications equipment and industrial business end-markets, and services revenue, generated by providing technology and engineering services, network system
integration and related training and maintenance services.

Principal Factors Affecting Our Results of Operations

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

Revenue mix. Our net revenue and gross profit are affected by our product mix. Over the second quarter of 2010, industrial business related sales,
which have generally higher profit margins than our digital module related sales and our telecommunications equipment module related sales, constituted a significantly greater portion of our total net revenue as compared to the previous quarters.

Growth in end-market industries. The rapid growth of the domestic telecommunications equipment, industrial business and digital media
end-markets have been important growth drivers for Chinas electronics manufacturing industries. Specific markets that we expect to experience growth are the new lines of business in the automotive, HDTV, smart meters, smart grid and 3G handset
areas. Steady demand on the historical markets such as the data communications market, consisting of asymmetric digital subscriber line (ADSL) modems and Voice over Internet Protocol (VoIP) equipment; the routers and network security equipment
markets; the optical transmission systems market; the fixed line telecommunications network market, as well as the digital media market particularly relating to digital TV and GPS applications is also expected. Increased domestic consumer spending
power has contributed to rapid growth in these markets. This growth in domestic consumer spending power in turn has driven, and we believe will continue to drive, growth in the electronics manufacturing businesses supporting hardware OEMs, including
those engaged in the customized design of module solutions such as ourselves. However, these industries and the respective domestic manufacturers that operate in these industries may not continue to grow their sales at historical levels, if at all.
The stagnation or reduction in overall demand for telecommunications equipment, industrial business and digital media products could materially affect our results of operations.

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

Growth by entering new end-markets, strengthening
in-house capabilities and leveraging our customer base. In 2008, we began targeting the industrial business end-market by providing industrial solutions for the green energy and auto-electronics sectors. Since then the revenues generated from
this market have grown from 11.7% of our revenue in the second quarter of 2009 to 17.4% of our revenue in the second quarter of 2010. We anticipate that sales related to the industrial business end-markets will generally have higher profit margins
than our digital media and telecom equipment modules related sales, though such higher margins may decline over time as this industry matures. We will also look for opportunities to expand into new end markets that we believe represent significant
growth opportunities.

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



16



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##### Table of Contents

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

Net Revenue

Product sales

For our
product sales segment, we do not charge our customers an independent design fee. Instead, our business model is to generate revenue by reselling a limited number of specific components required in our module reference design. The difference between
the purchase price we pay our suppliers for these components and our sales price to the customer for these components compensates us for our design, technical support and distribution services. Our net revenue is net of a 17% value-added tax, or
VAT. Costs incurred for the design of modules are expensed as incurred and recorded as research and development expense in the Companys consolidated statements of income and comprehensive income.

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

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

Services Revenue

We
provide technology and engineering services, and related training and maintenance services to our customers. We generate revenue when our services are rendered and acknowledged by our customers. Our service revenue is net of business tax.

Cost of Sales

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

Cost of Goods Sold

Cost
of goods sold primarily consists of the purchase of components from suppliers. We develop our customized module design solutions based on specific technology components purchased from suppliers in our target end-markets. Our list of over 30 key
suppliers includes Broadcom (integrated circuit and Bluetooth), Matsushita (switches), Freescale Semiconductor (automotive solutions) and Atmel (industrial solutions). We typically issue purchase orders to our suppliers only after we receive
customer orders, enabling us to maintain low inventory levels and, in turn, minimize risks typically associated with holding inventory. If we lose a key supplier, or a supplier reduces the quantity of products it sells to us, does not maintain a
sufficient inventory level of products required by us or is otherwise unable to meet our demands for its components, we may have to expend significant time, effort and other resources to locate a suitable alternative supplier and secure replacement
components. Even if we are able to find a replacement supplier, we may be required to redevelop the customized module design solution to effectively incorporate the replacement components.



17



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##### Table of Contents

Cost of Services

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

Operating Expenses

Selling, General and Administrative Expenses

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

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

Research and Development Expenses

Research and development expenses consist primarily of salaries and related costs of the employees engaged in research, design and development activities;
the costs for design and testing; the cost of parts for prototypes; equipment depreciation; and third party development expenses. We expense research and development expenses as they are incurred. As of June 30, 2010, we had approximately 266
engineers and other technical employees engaged in research and development related activities to develop new customized module design solutions targeted at the telecommunications equipment, industrial business and digital media industries.

Noncontrolling Interest

Noncontrolling interest consisted of 30% and 40% of the outstanding equity interest in Long Rise and Comtech Digital Technology (Hong Kong) Limited
(Comtech Digital), respectively. For the quarter ended June 30, 2010, approximately 3.3% of our total net revenue was generated through Long Rise. Comtech Digital was established in March 2010 and 0.2% of our total net revenue was
generated for the second quarter of 2010.

Taxation

The Company and its subsidiaries file separate income tax returns.

USA

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



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



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



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



18



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##### Table of Contents

Cayman Islands and British Virgin Islands

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

Hong Kong

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

PRC

Prior to January 1, 2008, the PRCs statutory income tax rate was 33%. In addition, Shenzhen Comtech, Comtech Communication, Comtech Software,
Comloca Technology (Shenzhen) Company Limited (Comloca), Epcot Multimedia Technology (SZ) Co. Ltd. (Epcot), Shenzhen Huameng Software Company Limited (Huameng PRC) and Viewtran Technology (Shenzhen) Co., Limited
(Viewtran PRC) (collectively the Shenzhen Subsidiaries), being located in the Shenzhen Special Economic Zone in the PRC, were subject to a reduced tax rate of 15%. Since the Shenzhen Subsidiaries agreed to operate for a minimum of
10 years in the PRC, the Shenzhen Subsidiaries were each entitled to a tax holiday of two-year tax exemption followed by three-year 50% tax reduction from the first profit making year after offsetting accumulated tax losses of the respective
Shenzhen Subsidiaries.

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

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

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

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



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



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



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



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



19



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##### Table of Contents

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

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

As a result of the above incentives, our operations have historically been subject to relatively low tax
liabilities, which will increase in the near future. Our effective tax rate was 10.0% and 10.7% in the six months ended June 30, 2010 and 2009, respectively. Included in the income tax expense for the six months ended June 30, 2010 was a
deferred income tax benefit of RMB1,799 thousand (USD265 thousand) as a result of the amortization of intangible assets of RMB10,902 thousand (USD1,608 thousand).

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

Overview

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



|                             |         |                             |         |        
|---------------------------- | ------- | --------------------------- | ------- | -------
|                             |         | Three Months ended June 30,
|                             |         | 2010                        |         | 2009   
|                             | RMB000 |                             | RMB000
|                             |         |                            
|Net revenue                  |         |                             |         |        
|Product sales                |         |                             |         |        
|Digital media                |         | 354,036                     |         | 309,899
|Telecommunications equipment |         | 147,234                     |         | 126,863
|Industrial business          |         | 107,215                     |         | 58,604 
|Services revenue             |         | 8,496                       |         | 7,263  
|                             |         |                             |         |        
|Total net revenue            |         | 616,981                     |         | 502,629
|                             |         |                             |         |        

Net Revenue.Total net revenue increased by RMB114,352 thousand
(USD16,862 thousand), or 22.8% in the three months ended June 30, 2010 when compared to the corresponding period in 2009. The increase was mainly due to the continued expansion in all end-markets.

Product Sales

Details of product sales by market type are as follows:



|                             |  |                             |  |                 |      |      |        |          |                 |  |      |   |  |      |  
|---------------------------- |  | --------------------------- |  | --------------- | ---- | ---- | ------ | -------- | --------------- |  | ---- | - |  | ---- | -
|                             |  | Three Months ended June 30, | 
|                             |  | 2010                        |  |                 | 2009 |      |        | % Change |                
|                             |  | Amount                      |  | % of NetRevenue |      |      | Amount |          | % of NetRevenue |  |     
|                             |  | USD000                     |  | RMB000         |      |      |        |          | RMB000         |  |      |   |  |      |  
|Digital media                |  | 52,206                      |  | 354,036         |      | 57.4 | %      |          | 309,899         |  | 61.6 | % |  | 14.2 | %
|Telecommunications equipment |  | 21,711                      |  | 147,234         |      | 23.9 | %      |          | 126,863         |  | 25.2 | % |  | 16.1 | %
|Industrial business          |  | 15,810                      |  | 107,215         |      | 17.4 | %      |          | 58,604          |  | 11.7 | % |  | 82.9 | %
|                             |  |                             |  |                 |      |      |        |          |                 |  |      |   |  |      |  
|Total product sales          |  | 89,727                      |  | 608,485         |      | 98.7 | %      |          | 495,366         |  | 98.5 | % |  | 22.8 | %
|                             |  |                             |  |                 |      |      |        |          |                 |  |      |   |  |      |  

Product sales for the three months ended June 30, 2010 was RMB608,485 thousand (USD89,727 thousand), or RMB113,119
thousand, or 22.8% higher than the corresponding period in 2009. Digital media sales increased by RMB44,137 thousand (USD6,508 thousand), or 14.2%; telecommunications equipment related sales increased by RMB20,371 thousand (USD3,004 thousand), or
16.1%; and industrial business related sales increased by RMB48,611 thousand (USD7,168 thousand), or 82.9%. The increase in product sales was mainly attributable to the Groups continued effort and strategic focus in the expansion of the
industrial business end-market, the increased sales volume as a result of growing demand and the promising new lines of business such as automotive, HDTV, smart meters, smart grid and 3G handset assess.



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##### Table of Contents

Services Revenue.

Services revenue is as follows:



|                 |  |                             |  |                 |      |     |        |          |                 |  |     |   |  |      |  
|---------------- |  | --------------------------- |  | --------------- | ---- | --- | ------ | -------- | --------------- |  | --- | - |  | ---- | -
|                 |  | Three Months ended June 30, | 
|                 |  | 2010                        |  |                 | 2009 |     |        | % Change |                
|                 |  | Amount                      |  | % of NetRevenue |      |     | Amount |          | % of NetRevenue |  |    
|                 |  | USD000                     |  | RMB000         |      |     |        |          | RMB000         |  |     |   |  |      |  
|Services revenue |  | 1,253                       |  | 8,496           |      | 1.3 | %      |          | 7,263           |  | 1.5 | % |  | 17.0 | %
|                 |  |                             |  |                 |      |     |        |          |                 |  |     |   |  |      |  

Services revenue was derived from the provision of technology and engineering services, network system integration and
related training and maintenance services. The increase of RMB1,233 thousand (USD182 thousand), or 17.0%, was mainly attributable to more sales generated from software design services for the quarter end June 30, 2010, as compared to same
period of 2009 due to the continued increase in demand resulting from shortages of supply in the market since the first quarter of 2009.

Gross Profit. Gross profit was RMB87,281 thousand (USD12,870 thousand) in the three months ended June 30, 2010, an increase of RMB15,655
thousand (USD2,308 thousand), or 21.9% when compared to RMB71,626 thousand in the corresponding period in 2009. Gross margin was 14.1% in the three months ended June 30, 2010, compared to 14.3% in the corresponding period in 2009. The increase
in gross profit was primarily attributable to increased sales volume in all end-markets. The decreased gross margin was mainly due to the change in revenue mix, of which the digital media and telecommunications equipment related sales had a
relatively lower margin.

Selling, General and Administrative and R&D Expenses. Selling, general and administrative and R&D
expenses were RMB58,787 thousand (USD8,668 thousand) in the three months ended June 30, 2010, or 4.7% higher than the corresponding period in 2009. The expenses for the three months ended June 30, 2010 and 2009 are as follows:



|                                    |  |                             |  |                 |      |     |        |          |                 |  |      |   |  |       |   
|----------------------------------- |  | --------------------------- |  | --------------- | ---- | --- | ------ | -------- | --------------- |  | ---- | - |  | ----- | --
|                                    |  | Three Months ended June 30, | 
|                                    |  | 2010                        |  |                 | 2009 |     |        | % Change |                
|                                    |  | Amount                      |  | % of NetRevenue |      |     | Amount |          | % of NetRevenue |  |     
|                                    |  | USD000                     |  | RMB000         |      |     |        |          | RMB000         |  |      |   |  |       |   
|Selling expenses                    |  | 1,488                       |  | 10,091          |      | 1.6 | %      |          | 22,166          |  | 4.4  | % |  | (54.5 | %)
|General and administrative expenses |  | 4,380                       |  | 29,705          |      | 4.8 | %      |          | 17,892          |  | 3.6  | % |  | 66.0  | % 
|R&D expenses                        |  | 2,800                       |  | 18,991          |      | 3.1 | %      |          | 16,076          |  | 3.2  | % |  | 18.1  | % 
|                                    |  |                             |  |                 |      |     |        |          |                 |  |      |   |  |       |   
|Total                               |  | 8,668                       |  | 58,787          |      | 9.5 | %      |          | 56,134          |  | 11.2 | % |  | 4.7   | % 
|                                    |  |                             |  |                 |      |     |        |          |                 |  |      |   |  |       |   

Selling, General and Administrative Expenses.The decrease in selling expenses in the three months ended
June 30, 2010 of RMB 12,075 thousand (USD1,781 thousand), or 54.5%, was mainly attributable to a charge for doubtful account of RMB13,660 thousand for the three months ended June 30, 2009 as compared to RMB2 thousand increase in the
allowance for the same period of 2010. The additional charge for doubtful accounts was due to certain receivable balances being overdue in which the assessment of recoverability is remote. The decrease in selling expenses was offset in part by an
increase in product logistics costs, such as transportation and warehousing changes as a result of licensed sales volume.

The increase in
general and administrative expenses of RMB11,813 thousand (USD1,742 thousand), or 66.0%, was primarily attributable to RMB8,412 thousand unrealized gain resulting from the appreciation of Australian Dollars against RMB during the three months ended
June 30, 2009 as compared to no such exchange difference for the same period of 2010. The decrease in general and administrative expenses was offset in part by an increase in staff cost, including stock-based compensation cost of RMB1,292
thousand (USD197 thousand) of which was mostly granted in the beginning of 2010, and other general administrative expenses, such as office rental due to an increase in headcount as a result of our acquisition of Mega Smart in May 2009.



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##### Table of Contents

R&D Expenses. R&D expenses increased in the three months ended June 30, 2010 by RMB2,915
thousand (USD430 thousand), or 18.1%, as compared to the corresponding period in 2009. R&D expenses mainly consist of staff cost and R&D facility charges, and the increase was primarily attributable to an increase in R&D staff cost,
including stock-based compensation cost of RMB1,118 thousand (USD173 thousand).

Interest Expense.Interest expense increased in the
three months ended June 30, 2010 by RMB1,188 thousand (USD175 thousand) or 248.5%, as compared to the corresponding period in 2009. The increase in interest expense was attributable to an increase in average bank borrowings.

Interest Income. Interest income in the three months ended June 30, 2010 amounted to RMB3,493 thousand (USD515 thousand), compared to
RMB4,369 thousand in the corresponding period in 2009. The decrease was mainly attributable to a decrease in average bank deposits as compared to the corresponding period in 2009.

Income Tax Expense.The effective income tax rate for the three months ended June 30, 2010 and 2009 was 10.0% and 10.4%, respectively. The
decrease in effective income tax rate was due to the commencement of tax holidays in 2010 for certain entities in the PRC.

Net Income;
Earnings per share. As a result of the above items, net income attributable to Cogo Group, Inc. for the three months ended June 30, 2010 was RMB27,158 thousand (USD4,005 thousand), as compared to RMB17,297 thousand in the corresponding
period in 2009. We reported basic per share earnings of RMB0.73 (USD0.11) and diluted earnings per share of RMB0.71 (USD0.11) for the three months ended June 30, 2010, as compared to basic earnings per share of RMB0.48 and diluted earnings per
share of RMB0.46 for the corresponding period in 2009.

Six months ended June 30, 2010 compared to six months ended
June 30, 2009

Overview

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



|                             |         |                           |         |        
|---------------------------- | ------- | ------------------------- | ------- | -------
|                             |         | Six Months ended June 30,
|                             |         | 2010                      |         | 2009   
|                             | RMB000 |                           | RMB000
|                             |         |                          
|Net revenue                  |         |                           |         |        
|Product sales                |         |                           |         |        
|Digital media                |         | 675,227                   |         | 579,988
|Telecommunications equipment |         | 280,798                   |         | 237,340
|Industrial business          |         | 199,306                   |         | 105,543
|Services revenue             |         | 14,449                    |         | 12,060 
|                             |         |                           |         |        
|Total net revenue            |         | 1,169,780                 |         | 934,931
|                             |         |                           |         |        

Net Revenue.Total net revenue increased by RMB234,849 thousand
(USD34,631 thousand), or 25.1% in the six months ended June 30, 2010 when compared to the corresponding period in 2009. The increase was mainly due to the continued expansion in all end-markets.



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##### Table of Contents

Product Sales

Details of product sales by market type are as follows:



|                             |  |                           |  |                 |      |      |        |  |                 |  |      |          |  |      |  
|---------------------------- |  | ------------------------- |  | --------------- | ---- | ---- | ------ |  | --------------- |  | ---- | -------- |  | ---- | -
|                             |  | Six Months ended June 30, | 
|                             |  | 2010                      |  |                 | 2009 |      |        |  |                
|                             |  | Amount                    |  | % of NetRevenue |      |      | Amount |  | % of NetRevenue |  |      | % Change | 
|                             |  | USD000                   |  | RMB000         |      |      |        |  | RMB000         |  |      |          |  |      |  
|Digital media                |  | 99,569                    |  | 675,227         |      | 57.8 | %      |  | 579,988         |  | 62.0 | %        |  | 16.4 | %
|Telecommunications equipment |  | 41,406                    |  | 280,798         |      | 24.0 | %      |  | 237,340         |  | 25.4 | %        |  | 18.3 | %
|Industrial business          |  | 29,390                    |  | 199,306         |      | 17.0 | %      |  | 105,543         |  | 11.3 | %        |  | 88.8 | %
|                             |  |                           |  |                 |      |      |        |  |                 |  |      |          |  |      |  
|Total product sales          |  | 170,365                   |  | 1,155,331       |      | 98.8 | %      |  | 922,871         |  | 98.7 | %        |  | 25.2 | %
|                             |  |                           |  |                 |      |      |        |  |                 |  |      |          |  |      |  

Product sales for the six months ended June 30, 2010 was RMB1,155,331 thousand (USD170,365 thousand), or RMB232,460
thousand, or 25.2% higher than the corresponding period in 2009. Digital media sales increased by RMB95,239 thousand (USD14,044 thousand), or 16.4%; telecommunications equipment related sales increased by RMB43,458 thousand (USD6,408 thousand), or
18.3%; and industrial business related sales increased by RMB93,763 thousand (USD13,826 thousand), or 88.8%. The increase in product sales was mainly attributable to the Groups continued effort and strategic focus in the expansion of the
industrial business end-market, the increased sales volume as a result of growing demand and the and the promising new lines of business such as automotive, HDTV, smart meters, smart grid and 3G handset assess.

Services Revenue.

Services revenue is as follows:



|                 |  |                           |  |                 |      |     |        |  |                 |  |     |          |  |      |   |  | 
|---------------- |  | ------------------------- |  | --------------- | ---- | --- | ------ |  | --------------- |  | --- | -------- |  | ---- | - |  | 
|                 |  | Six Months ended June 30, | 
|                 |  | 2010                      |  |                 | 2009 |     |        |  |                
|                 |  | Amount                    |  | % of NetRevenue |      |     | Amount |  | % of NetRevenue |  |     | % Change | 
|                 |  | USD000                   |  | RMB000         |      |     |        |  | RMB000         |  |     |          |  |      |  
|                 |  |                           |  |                 |      |    
|Services revenue |  | 2,131                     |  | 14,449          |      | 1.2 | %      |  | 12,060          |  | 1.3 | %        |  | 19.8 | %
|                 |  |                           |  |                 |      |     |        |  |                 |  |     |          |  |      |  

Services revenue was derived from the provision of technology and engineering services, network system integration and
related training and maintenance services. The increase of RMB2,389 thousand (USD352 thousand), or 19.8% more sales generated from software design services for the quarter, as compared to same period of 2009, due to the continued increase in demand
resulting from a shortage of supply in the market since the first quarter of 2009.

Gross Profit. Gross profit was RMB165,359 thousand
(USD24,384 thousand) in the six months ended June 30, 2010, an increase of RMB32,293 thousand (USD4,762 thousand), or 24.3% when compared to RMB133,066 thousand in the corresponding period in 2009. Gross margin was 14.1% in the six months ended
June 30, 2010, compared to 14.2% in the corresponding period in 2009. The increase in gross profit was primarily attributable to increased sales volume in all end-markets. The decreased gross margin was mainly due to the change in revenue mix,
of which the digital media and telecommunications equipment related sales had a relatively lower margin.



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##### Table of Contents

Selling, General and Administrative and R&D Expenses. Selling, general and administrative and
R&D expenses were RMB112,378 thousand (USD16,571 thousand) in the six months ended June 30, 2010, or 4.1% higher than the corresponding period in 2009. The expenses for the three months ended June 30, 2010 and 2009 are as follows:



|                                    |  |                           |  |                 |      |     |        |  |                 |  |      |          |  |       |   
|----------------------------------- |  | ------------------------- |  | --------------- | ---- | --- | ------ |  | --------------- |  | ---- | -------- |  | ----- | --
|                                    |  | Six Months ended June 30, | 
|                                    |  | 2010                      |  |                 | 2009 |     |        |  |                
|                                    |  | Amount                    |  | % of NetRevenue |      |     | Amount |  | % of NetRevenue |  |      | % change | 
|                                    |  | USD000                   |  | RMB000         |      |     |        |  | RMB000         |  |      |          |  |       |   
|Selling expenses                    |  | 2,910                     |  | 19,737          |      | 1.7 | %      |  | 33,334          |  | 3.6  | %        |  | (40.8 | %)
|General and administrative expenses |  | 8,497                     |  | 57,619          |      | 4.9 | %      |  | 42,481          |  | 4.5  | %        |  | 35.6  | % 
|R&D expenses                        |  | 5,164                     |  | 35,022          |      | 3.0 | %      |  | 32,120          |  | 3.4  | %        |  | 9.0   | % 
|                                    |  |                           |  |                 |      |     |        |  |                 |  |      |          |  |       |   
|Total                               |  | 16,571                    |  | 112,378         |      | 9.6 | %      |  | 107,935         |  | 11.5 | %        |  | 4.1   | % 
|                                    |  |                           |  |                 |      |     |        |  |                 |  |      |          |  |       |   

Selling, General and Administrative Expenses.The decrease in selling expenses in the six months ended June 30,
2010 of RMB13,597 thousand (USD2,005 thousand), or 40.8%, was mainly attributable to a charge for doubtful accounts of RMB17,418 thousand in the six months ended June 30, 2009, as compared to RMB2 thousand increase in the allowance for the same
period of 2010. The additional charge for doubtful accounts was due to certain receivable balances being overdue in which the assessment of recoverability is remote. The decrease in selling expenses was offset in part by increase in product
logistics, such as transportation and warehousing changes as a result of licensed sales volume.

The increase in general and administrative
expenses of RMB15,138 thousand (USD2,232 thousand), or 35.6%, was primarily attributable to RMB7,598 thousand unrealized exchange gain mainly resulted by the appreciation of Australian Dollars against RMB during the six months ended June 30,
2009 as compared to exchange loss of RMB3,507 thousand (USD517 thousand) for the same period of 2010. In addition, there was an increase in staff cost, including stock-based compensation cost of RMB2,161 thousand (USD325 thousand) of which was
mostly granted in the beginning of 2010, and other general administrative expenses, such as office rental due to an increase in headcount as a result of our acquisition of Mega Smart in May 2009.

R&D Expenses. R&D expenses increased in the six months ended June 30, 2010 by RMB2,902 thousand (USD428 thousand), or 9.0%, as
compared to the corresponding period in 2009. The R&D expenses mainly consist of staff cost and R&D facility charges and the increase was primarily attributable to an increase in R&D staff cost, including stock-based compensation cost of
RMB1,856 thousand (USD282 thousand) as a result of expansion in industrial market.

Interest Expense.Interest expense increased in the
six months ended June 30, 2010 by RMB2,272 thousand (USD335 thousand) or 446.4%, as compared to the corresponding period in 2009. The increase in interest expense was attributable to an increase in average bank borrowings.

Interest Income. Interest income in the six months ended June 30, 2010 amounted to RMB6,787 thousand (USD1,001 thousand), compared to
RMB6,972 thousand in the corresponding period in 2009. The decrease was mainly attributable to a decrease in average bank deposits as compared to the corresponding period in 2009.

Income Tax Expense.The effective income tax rate for the six months ended June 30, 2010 and 2009 was 10.0% and 10.7%, respectively. The
decrease in effective income tax rate was due to the commencement of tax holidays in 2010 for certain entities in the PRC.

Net Income;
Earnings per share. As a result of the above items, net income attributable to Cogo Group, Inc. for the six months ended June 30, 2010 was RMB50,919 thousand (USD7,509 thousand), as compared to RMB27,921 thousand in the corresponding period
in 2009. We reported basic per share earnings of RMB1.37 (USD0.2) and diluted earnings per share of RMB1.34 (USD0.2) for the six months ended June 30, 2010, as compared to basic earnings per share of RMB0.77 and diluted earnings per share of
RMB0.74 for the corresponding period in 2009.



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##### Table of Contents

Liquidity and Capital Resources

Cash flows and working capital

Our accounts payable cycle typically averages approximately one month, whereas our receivables cycle typically averages approximately three to four
months. Accordingly, working capital, being current assets less current liabilities, is needed to fund this timing difference.

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

As of June 30, 2010, we had approximately RMB877,751 thousand (USD129,433 thousand) in cash. We regularly review our cash funding requirements and
attempt to meet those requirements through a combination of cash on hand, cash provided by operations, available borrowings under bank lines of credit and factoring facilities and possible future public or private equity offerings. At times, we may
evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which may require the use of cash. We believe that our cash, operating cash flows, credit arrangements, and access to equity and debt capital markets,
taken together, provide adequate resources to fund our ongoing operating expenditures for the next 12 months. In the event that they do not, we may require additional funds in the future to support our working capital requirements or for other
purposes and may seek to raise such additional funds through the sale of public or private equity, as well as from other sources.

As of
June 30, 2010, we had working capital of RMB1,293,104 thousand (USD190,682 thousand), including RMB877,751 thousand (USD129,433 thousand) in cash, as compared with working capital of RMB1,243,646 thousand, including RMB667,320 thousand in
cash, as of December 31, 2009.

Operating activities used cash of RMB49,818 thousand (USD7,345 thousand) for the six months ended
June 30, 2010, compared to cash used of RMB16,329 thousand in the corresponding period in 2009. The increase in cash used in operating activities as compared to the prior year was primarily due to an increase in cash paid to inventory purchases
of RMB94,594 thousand (USD13,949 thousand) near the end of June 2010 to meet expected demand in the coming months.

Investing activities
used RMB56,266 thousand (USD8,297 thousand) for the six months ended June 30, 2010, mainly for payments for acquisitions of subsidiaries of RMB51,578 thousand (USD7,606 thousand) and purchases of property and equipment of RMB4,688 thousand
(USD691 thousand). Investing activities used RMB10,967 thousand during the six months ended June 30, 2009, mainly for payments for the acquisitions of subsidiaries of RMB10,249 thousand.

Financing activities provided cash of RMB317,321 thousand (USD46,792 thousand) for the six months ended June 30, 2010, primarily arising from
proceeds from bank borrowings of RMB357,630 thousand (USD52,736 thousand), partly offset by purchase of treasury stock of RMB40,309 thousand (USD5,944 thousand).

Indebtedness

On
October 7, 2005, the Group entered into a USD5,000 thousand credit facility with Standard Chartered Bank (Hong Kong) Limited (SCB). This facility is secured by funds on deposit in an amount not less than USD2,000 thousand as of
December 31, 2009 and June 30, 2010, and bears interest ranging from HIBOR +1.5% to USD Prime per annum, depending on the borrowings made. The SCB facility is repayable on demand and SCB may immediately terminate the facility without the
Groups consent. Interest on this facility accrues until payment is demanded by SCB and no commitment fee is required for this facility. The outstanding loan balance under the SCB facility was RMB26,909 thousand (USD3,968 thousand) and
RMB31,040 thousand as of June 30, 2010 and December 31, 2009 respectively.

On July 6, 2010, the Group revised the credit
facility with SCB into a general banking facility (the Facility). The Facility is secured by funds on deposit of not less than USD5,000 thousand. The Facility consists of a current account overdraft with a sub-limit of USD1,000 thousand,
a trade finance facility with a sub-limit of USD14,000 thousand and guarantees or standby letters of credit with a sub-limit of USD7,000 thousand. The aggregate outstanding amount of trade finance and guarantees or standby letters of credit shall
not at any time exceed USD14,000 thousand, and the aggregate outstanding amount under the Facility shall not at any time exceed USD15,000 thousand. Of the USD15,000 thousand, USD5,000 thousand is available from April to September, and December of
each calendar year. The Facility of the current account overdraft bears interests rate of 0.5% per annum above the HKD Prime for HKD overdraft or 0.5% per annum above the USD Prime for USD overdraft, payable monthly in arrears. The
Facility of trade finance bears interest at 2% per annum above HIBOR for the import/export facilities denominated in foreign currencies.



25



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##### Table of Contents

On October 7, 2005, the Group entered into a USD9,000 thousand credit facility with the Bank of China
(Hong Kong) Limited (BOC). On January 17, 2008, October 10, 2008, and April 23, 2010 the facility with the BOC was revised to USD14,000 thousand, USD41,000 thousand and USD31,000 thousand, respectively. The facility
is secured by funds on deposit in an amount not less than USD15,000 thousand and bears interest from LIBOR/HIBOR +2% per annum, depending on the different kinds of borrowings made and is used to settle foreign exchange obligations to the extent
needed. The BOC facility is repayable on demand and the BOC may increase, reduce and/or cancel the facility by providing written notice to the Group. Interest on this facility accrues until payment is demanded by the BOC and no commitment fee is
required for this facility. As of June 30, 2010 and December 31, 2009, the outstanding loan balances under the BOC facility were RMB141,836 thousand (USD20,915 thousand) and RMB33,957 thousand, respectively.

On April 28, 2010, the Group entered into a factoring agreement (the Factoring Agreement) with the BOC. Pursuant to the Factoring
Agreement, BOC granted the Group a line of credit of up to USD30,000 thousand of its equivalent amount in HKD, secured by funds on deposit in an amount not less than USD15,000 thousand, being aggregate amount with other facilities with BOC, if any.
The facility bears an interest rate of 2% per annum above the HIBOR or LIBOR, depending on the currency in which the borrowings are denominated. As of June 30, 2010, the outstanding loan balance under the Factoring Agreement was RMB148,943
thousand (USD21,964 thousand).

On November 18, 2009, the Group entered into a RMB65,000 thousand credit facility with Guangdong
Development Bank Shenzhen Branch (GDB Shenzhen). The facility is valid for 12 months commencing November 18, 2009 and terminates on November 17, 2010, and loans under the facility bear interest at the 3-month LIBOR +1.5% and no
commitment fee is required for this facility. GDB Shenzhen may terminate the facility if the Group does not regain its ability to perform its obligations and cannot provide guarantees acceptable to GDB Shenzhen within 30 days after it ceases
performing its obligations. No minimum guarantee deposits are required. As of June 30, 2010 and December 31, 2009, the outstanding loan balance under the GDB Shenzhen facility was RMB27,329 thousand (USD4,030 thousand) and RMB54,405
thousand, respectively.

On January 22, 2010, the Group entered into a Credit Extension Agreement with Guangdong Development Bank Macau
Branch (GDB Macau) which established a revolving secured trade finance term loan under which the Group may borrow up to Hong Kong Dollars (KHD) 150,000 thousand or its equivalent amount in USD for the purpose of
purchasing goods. The credit extension is valid for 12 months commencing January 22, 2010, and loans under the Credit Extension Agreement bear an interest rate of 3-month LIBOR or HIBOR rate plus 1.5% per annum, depending on the drawdown
currency. As of June 30, 2010, the outstanding loan balance under the GDB Macau facility was RMB128,849 thousand (USD19,000 thousand).

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

Some of our customers enter into arrangements with their respective banks for purposes of settling their bills. Under such arrangements, we were entitled
to collect the amounts owed directly from the customers banks when the invoice becomes due. In certain circumstances, we have arranged to transfer with recourse certain of our bills receivable to the bank. Under this discounting arrangement,
the bank pays a discounted amount to us and collects the amounts owed from the customers banks. The discount typically ranges from 2.1% to 5.0% of the balance transferred, which is recorded as interest expense. For the six months ended
June 30, 2010, we had received proceeds from the sales of the bills receivable amounting to RMB18,733 thousand (USD2,744 thousand), compared with RMB29,067 thousand for the same period last year.



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##### Table of Contents

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

Foreign Exchange Risk

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

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

Since July 2005, the Renminbi is no longer pegged to the U.S. dollar. Although currently the Renminbi exchange rate versus the U.S. dollar is restricted
to a rise or fall of no more than 0.3% per day and the Peoples Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or
depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, the PRC authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the
foreign exchange market. As of June 30, 2010, the exchange rate of RMB to $1 was RMB6.7815. On June 19, 2010, the Peoples Bank of China announced the removal of the de facto peg. Following this announcement, the Renminbi appreciated
from 6.7968 Renminbi per U.S. dollar on June 21, 2010 to 6.7709 Renminbi per U.S. dollar on July 2, 2010.

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

Any devaluation of the Renminbi against the U.S. dollar would consequently have an adverse effect on our
financial performance and asset values when measured in terms of U.S. dollars. On the other hand, the appreciation of the Renminbi could make our customers products more expensive to purchase because many of our customers are involved in the
export of goods, which may have an adverse impact on their sales. A decrease in sales by our customers could have an adverse effect on our operating results. In addition, as of June 30, 2010 and December 31, 2009, we have cash denominated
in U.S. dollars amounting to RMB240,957 thousand (USD35,531 thousand) and RMB149,399 thousand. Also, from time to time we may have U.S. dollar denominated borrowings. Accordingly, a decoupling of the Renminbi many affect our financial performance in
the future.

We recognized a foreign currency translation adjustment of approximately RMB2,171 thousand (USD320 thousand) for the six months
ended June 30, 2010. We do not currently engage in hedging activities and as such, we may in the future experience economic loss as a result of any foreign currency exchange rate fluctuations.

Interest Rate Risk

We are exposed to interest rate risk arising from short-term variable rate borrowings from time to time. Our future interest expense will fluctuate in
line with any change in our borrowing rates. We do not have any derivative financial instruments and believe our exposure to interest rate risk and other relevant market risks is not material. Our bank borrowings amounted to RMB473,866 thousand
(USD69,877 thousand) as of June 30, 2010. Based on the variable nature of the underlying interest rate, the bank borrowings approximated fair value at that date.

If there was a hypothetical 1% change in interest rates, the net impact to earnings and cash flows would be approximately RMB4,739 thousand (USD699
thousand) over a one year period. The potential change in cash flows and earning is calculated based on the change in the net interest expense over a one year period due to an immediate 1% change in price.



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Inflation

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



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

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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

PART II  OTHER INFORMATION



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

There have been no
material developments in the Companys legal proceedings from those previously disclosed in the Companys Form 10-K for the year ended December 31, 2009.



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

There have been no material
changes in the Companys risk factors from those previously disclosed in the Companys Form 10- K for the year ended December 31, 2009.



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

None.



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

None.



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



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

None.



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

(b) Exhibits



|           |  |                                                                                                                                                                                                        
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Document Description                                                                                                                                                                                   
|           | 
|10.1*      |  | Confirmation Letter of Bank of China (Hong Kong) Limited, dated April 23, 2010.                                                                                                                        
|           | 
|10.2*      |  | Facility Letter by and between Bank of China and Comtech Broadband Corporation Limited, Comtech International (Hong Kong) Limited, Keen Awards Limited and Hong Kong JJT Limited,
dated March 19, 2010.
|           | 
|10.3*      |  | General Terms and Conditions for Banking Facilities.                                                                                                                                                   
|           | 
|10.4*      |  | Confirmation Letter of Bank of China (Hong Kong) Limited, dated April 28, 2010.                                                                                                                        
|           | 
|10.5*      |  | Factoring Agreement by and between Bank of China (Hong Kong) Limited and Comtech Broadband Corporation Limited, dated April 28, 2010.                                                                  
|           | 
|31.1       |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.            
|           | 
|31.2       |  | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.    
|           | 
|32.1       |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                                                                   
|           | 
|32.2       |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                                                               



|* | Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on April 29, 2010.
|- | -----------------------------------------------------------------------------------------------------------



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SIGNATURES

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



|               |  |  |  |                  |  |                                                                                
|-------------- |  |  |  | ---------------- |  | -------------------------------------------------------------------------------
|               |  |  |  | COGO GROUP, INC.
|               |  |  | 
|August 6, 2010 |  |  |  | By:              |  | /S/    JEFFREY
KANG                                                            
|               |  |  |  |                  |  | Jeffrey Kang
Chairman and Chief Executive Officer
(Principal Executive Officer)
|               |  |  | 
|August 6, 2010 |  |  |  | By:              |  | /S/    FRANK
ZHENG                                                             
|               |  |  |  |                  |  | Frank Zheng
Chief Financial Officer
(Principal Financial Officer)              



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