28367--3/28/2006--Comtech_Group

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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 revenue 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 revenue. The end-markets in which we operate are highly competitive and fragmented. We expect competition to 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 revenue. 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 may not have sufficient funds to pay our accounts payable when due, which could adversely affect our operations and net revenue. We face risks associated with future investments or acquisitions. The unauthorized use of our module design solutions could have a material adverse impact on our net revenue. 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. Substantially all of our net revenue currently comes from sales to manufacturers in the highly cyclical mobile handset and telecom equipment 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. Our acquisition strategy depends on government regulatory approvals in China. 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 the value of the Renminbi relative to foreign currencies could affect our financial condition, results of operations and the price of our common stock. 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. 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, and our principal shareholder and chief executive officer will be able to take actions that may be adverse to your interests. Efforts to comply with recently enacted changes in securities laws and regulations will increase our costs and require additional management resources. Our failure to comply could adversely affect our stock price. Significant dilution may result from the indemnification provisions of our share exchange agreement. There has not been significant trading in our common stock, and our stock price may fluctuate dramatically in the future. Future sales of shares could have an adverse effect on the market price of our common stock.

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28367--3/28/2006--Comtech_Group_Inc