28367--3/16/2007--Comtech_Group

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{product, market, service}

{operation, international, foreign}

{stock, price, operating}

{competitive, industry, competition}

{interest, director, officer}

{acquisition, growth, future}

{stock, price, share}

{control, financial, internal}

{financial, litigation, operation}

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{personnel, key, retain}

Risks Related to Our Business Our operating results fluctuate from quarter to quarter. Our operating results are substantially dependent on development of new customized module design solutions. If our customers do not accept our proposed customized module design solutions or do not purchase from us the specified components contained in the proposed module reference design, our net sales will be adversely affected. Reliance on our suppliers, with whom we often do not have long-term supply agreements, makes us vulnerable to the loss of one or more key suppliers or the delivery capabilities of our suppliers. If we fail to attract and retain key personnel, particularly our chief executive officer, our business will be materially impaired and our financial condition and results of operations will suffer. Loss of key customers may adversely impact our net sales. The end-markets in which we operate are highly competitive and fragmented. Competition may intensify in the future, and if we fail to compete effectively, our business will be harmed. As we expand our business, we intend to develop new customized module design solutions and technological capabilities in end-markets where we do not currently have extensive experience or technological capability. Failure to develop or execute this growth strategy will have a material adverse effect on our net sales. We may be unable to manage rapid growth and a changing operating environment, which could adversely affect our ability to serve our customers and harm our business. We face risks associated with future investments or acquisitions. Our competitive position could decline if we are unable to obtain additional financing to acquire businesses or technologies that are strategic for our success, or otherwise execute our business strategy. The unauthorized use of our module design solutions could have a material adverse impact on our net sales. We became a public company through a share exchange with a non-operating public shell company, where we were the accounting acquirer and assumed all known and unknown potential liabilities of our predecessor entity. We depend upon contractual agreements with the two shareholders of Shenzhen Comtech in conducting our business through Shenzhen Comtech and Shanghai E T and receiving payments, which may not be as effective in providing operational control as direct ownership and may be difficult to enforce. Further, if the PRC government finds these contractual agreements violate or conflict with PRC governmental regulations, our business would be materially adversely affected. Risks Related to Our Industry Our inability to respond quickly and effectively to rapid technological advances and market demands would adversely impact our competitive position and our results of operations. A large portion of our net sales currently comes from sales to manufacturers in the cyclical mobile handset, telecom equipment and digital media end-markets and cyclical downturns could harm our operating results. The mobile handset end-market is characterized by a short product lifecycle, making time-to-market and sensitivity to customer needs critical to our success and our failure to respond will harm our business. Risks Related to Doing Business in China Our operations may be adversely affected by China s economic, political and social conditions. Our financial results benefit from tax concessions granted by the PRC government, the change to or expiration of which would materially change our results of operations. The telecom equipment market is extensively regulated in China. PRC government control of currency conversion may affect our ability to meet foreign currency obligations. Recent PRC regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and create regulatory uncertainties that could restrict our overseas and cross-border investment activity, and a failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our PRC resident shareholders to liability under PRC law. Our acquisition strategy may be subject to SDRC approval under legislation enacted in 2004. PRC laws and our corporate structure may restrict our ability to receive dividends and payments from, and transfer funds to, our PRC operating companies, which may negatively affect our results of operations and restrict our ability to act in response to changing market conditions. Fluctuations in exchange rates could adversely affect our business. The legal system in China has inherent uncertainties that may limit the legal protections available to you as an investor or to us in the event of any claims or disputes with third parties. You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management. We face risks related to health epidemics and outbreaks of contagious diseases, including avian influenza and Severe Acute Respiratory Syndrome, or SARS. Risks Related to Our Common Stock Our principal shareholder and chief executive officer beneficially owns a substantial majority of our common stock. As a result, the trading price for our shares may be depressed due to market perception that our principal shareholder and chief executive officer will be able to take actions that may be adverse to your interests. Failure to comply with recently enacted changes in securities laws and regulations could adversely affect our stock price. The trading prices of our shares have been and are likely to continue to be volatile, which could result in substantial losses to you. Future sales of shares could have an adverse effect on the market price of our common stock.

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28367--3/16/2007--Comtech_Group_Inc