Dbub 10K/A 2007 Annual report (amended)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007
	OR

o	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 000-28767

CHINA 3C GROUP

(Exact name of registrant as specified in its charter)

NEVADA	88-0403070
(State or Other jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

368 HuShu Nan Road

HangZhou City, Zhejiang Province, China 310014

(Address of Principal Executive Offices) (Zip Code)

086-0571-88381700

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

Title of class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

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

The aggregate market value of the 52,671,438 shares of voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $325 million as of June 29, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on such date of $6.19 per share, as reported on the OTC Bulletin Board Market.

As of March 14, 2008, there were 52,671,438 shares of the registrant’s common stock outstanding.

Documents incorporated by reference: None

EXPLANATORY NOTE

We are filing this Amendment No. 2 to Annual Report on Form 10-K/A to (a) amend the business description in Item 1 of Part I, (b) amend the disclosure of our June 2007 equity compensation plan in Item 5 of Part II, (c) amend Item 7 of Part II to amend our Management’s Discussion and Analysis of Financial Condition and Results of Operations, (d) amend Item 9A(T) of Part II to amend our disclosure of internal controls and procedures relating to our financial reporting, (e) amend Item 10 of Part III to amend or disclosure relating to our directors, executive officers and corporate governance, (f) amend Item 11 of Part III to amend our disclosure relating to our executive compensation, and (g) amend the consolidated financial statements and the notes to the financial statements contained in the Report of Independent Registered Public Accounting Firm.

Except as specifically referenced herein, this Amendment No. 2 to Annual Report on Form 10-K/A does not reflect any event occurring subsequent to April 2, 2008, the filing date of the original report.

CHINA 3C GROUP

Table of Contents

		Page
PART I

Item 1	Business		1

Item 1A	Risk Factors		8

Item 1B	Unresolved Staff Comments		12

Item 2	Properties		12

Item 3	Legal Proceedings		13

Item 4	Submission of Matters to a Vote of Security Holders		13

PART II

Item 5	Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities		14

Item 6	Selected Financial Data		15

Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 7A	Quantitative and Qualitative Disclosure About Market Risk		23

Item 8	Financial Statements and Supplementary Data		24

Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		24

Item 9A(T)	Controls and Procedures		24

Item 9B	Other Information		25

PART III

Item 10	Directors, Executive Officers and Corporate Governance		26

Item 11	Executive Compensation		30

Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		33

Item 13	Certain Relationships and Related Transactions, and Director Independence		34

Item 14	Principal Accountant Fees and Services		35

PART IV

Item 15	Exhibits and Financial Statement Schedules		37

	Index to Consolidated Financial Statements

Forward Looking Statements

We have included and from time to time may make in our public filings, press releases or other public statements, certain statements, including, without limitation, those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions. You are cautioned not to place undue reliance on these forward-looking statements. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.

PART I

ITEM 1. BUSINESS

Overview

China 3C Group (formerly Sun Oil & Gas Corp.) (referred to herein as the “Company”, “we” or “us”) was incorporated on August 20, 1998 under the laws of the State of Nevada as Editworks, Ltd. In 2001, the Company changed its name to Trilucent Technologies Corp. The Company changed its name to Anza Innovations, Inc. in 2003. In 2004, the Company changed its name to Gaofeng Gold Corp. and then later in 2004 to Sun Oil & Gas Corporation. In December 2005, we changed our name to China 3C Group. We are engaged in the business of the sale and distribution of mobile phones, facsimile machines, DVD players, stereos, speakers, MP3 and MP4 players, iPods, electronic dictionaries, CD players, radio Walkmans and audio systems.

Due to our change to a new “stores in stores” business operation model, our number of sales increased substantially during 2007. We continued to establish more “stores in stores” in Eastern China. More than 800 “stores in stores” were established or acquired by the end of 2006. This new business operation model results in expanded marketing channels, thus positively stimulating the growth of sales.

During 2006 we acquired two companies whose main products are digital products and small home electronics. These acquisitions further brought in considerable sales and profit to the Company.

Organizational Structure

On December 21, 2005, we entered into a merger agreement with Capital Future Development Limited, or “CFD,” and its shareholders pursuant to which we acquired all of the issued and outstanding capital stock of CFD, thus making it a wholly owned subsidiary of the Company. CFD shareholders received and aggregate of 35,000,000 newly issued shares of our common stock and cash consideration of $500,000, divided proportionally among the CFD shareholders in accordance with their respective ownership interests in CFD immediately before the completion of the transaction. The cash portion of the consideration was paid on the first anniversary of the closing of this transaction pursuant to nine interest-free promissory notes.

CFD was incorporated on July 22, 2004 under the laws of the British Virgin Island and is a holding company that owns all of the issued and outstanding stock of Hangzhou Sanhe Electronic Technology Limited, or “HSE,” and Shanghai Joy & Harmony Electronics Company Limited, or “SJ&H.”

CFD acquired all of the issued and outstanding capital shares of HSE pursuant to a share exchange agreement with HSE and its shareholders in exchange for an aggregate of 915,751 shares of the Company’s common stock and $5,000,000, divided proportionally among the HSE shareholders in accordance with their respective ownership interests in immediately before the completion of the transaction.

CFD acquired all of the issued and outstanding capital shares of SJ&H pursuant to a share exchange agreement with SJ&H and its shareholders in exchange for an aggregate of 2,723,110 shares of the Company’s common stock and $7,500,000, divided proportionally among the SJ&H shareholders in accordance with their respective ownership interests in immediately before the completion of the transaction.

On August 15, 2007, in order to comply with the requirements of PRC law, we recapitalized our ownership structure. As a result, instead of CFDL owning 100% of ZYXD, as previously was the case, CFDL entered into contractual arrangements with ZYXD whereby CFDL owns a 100% interest in the revenues of ZYXD. CFDL does not have an equity interest in ZYXD but is deemed to have all the economic benefits and liabilities by contract. Under this structure, ZYXD is now a wholly foreign owned enterprise (WOFE) of CFDL. The contractual agreements give CFDL and its equity owners an obligation to absorb any losses and rights to receive revenue. CFDL will be unable to make significant decisions about the activities of ZYXD and cannot carry out its principal activities without financial support. These characteristics as defined in Financial Accounting Standards Board (FASB) Interpretation 46, Consolidation of Variable Interests Entities, qualifies the business operations of ZYXD to be consolidated with CFDL.

ZYX is a company organized under the laws of China, and it owns 90% of the issued and outstanding capital stock of each of Hangzhou Wang Da Electronics Company, Limited, or “HWD,” and Yiwu Yong Xin Telecommunication Company, Limited, or “YYX,” both of which are organized under the laws of China. HWD and YYX each own the remaining 10% of other’s issued and outstanding capital stock, and each are operating companies.

Our Business

Zhejiang Yong Xin Digital Technology Company Limited (“ZYX”)

In 2001, ZYX started its fax machine distribution business and is currently an authorized agent for many well known brand fax machines. ZYXD entered into the cell phone market in 2003, and is currently authorized agent for Chinese brands like Sang Da, Da Xian, and Jin Zhen cell phones. The internal structure of ZYXD includes CEO office, financial department, audit department, human resource department and marketing department.

ZYX is a large-scale distribution channel manager integrating the selling, circulation and modern logistics of 3C products (communication products, information technology (“IT”) products and digital products) in China. Distribution channel management is the integration of key business processes from end user through to original suppliers that provide products, services and information that add value for customers and other stakeholders. In the fax machine industry, ZYX distributes products to both first and second tier retailers in China. First tier retailers are defined as large retailing business centers and second tier retailers are defined as small individual retail stores. ZYX allocates its distribution channels according to the size and population of the cities in which the retailers are located. Accordingly, ZYX distributes products mainly to second tier retailers in bigger Chinese cities that have larger populations and to first tier retailers in smaller Chinese cities that have relatively smaller populations, which results in cutting the cost of shipping and enables the products to reach all areas.

As a retailer with hundreds of locations, the company is not reliant on any one customer or on a few customers. The loss of any one customer would not likely have an adverse effect on the company’s sales.

As a retailer of electronics products with thousands of customers who pay at point of sale, the Company does not have any material backlog of orders.

ZYX does not have a research and development department and does not initiate any advertising or promotion activities on the products because it is not the manufacturer. However, ZYX coordinates with the promotional activities initiated or planned by the product manufacturers. ZYX focuses on circulation and distribution activity and thereby eliminate unnecessary expenses. In addition, ZYX manages credit risk by having its own credit system with the retailer customers, and provides different policies or benefits on the payment and credit period according to different credit level of the customers. ZYX strictly follows all China state regulations regarding after sales services, including policies allowing products to be returned and exchanged within seven days, providing a one-year repair guarantee, and having specialists focus on after sales services.

The Company relies on rapid, just-in-time delivery of inventory and therefore does not rely on a significant amount of inventory in its retail locations.

ZYX’s strategy is to establish distribution channels with chain stores selling telecommunication products, digital products, and IT products, primarily focusing in East China. ZYX plans to transition from the cord telephone market and focus on fax machines, cell phones and other digital and IT products throughout China.

The main competitors of ZYX include Hangzhou Guang Tong Company, Hangzhou Yin Dun Company, Hangzhou Qing Teng Company, Hangzhou Si Tong Company, and Zhejiang Shen You Electrical Appliance Company. Nevertheless, none of these competitors reach the size of ZYX.

Hangzhou Wang Da Electronics Company, Limited (“HWD”)

HWD was incorporated on March 30, 1998 under the laws of the Peoples Republic of China. HWD is an authorized sales agent focusing on the selling, circulation and modern logistics of cell phones, cell phone products, IT products (including notebook or laptop computers), and digital products (including digital cameras, digital camcorders, MP3 players, PDAs, flash disks, and removable hard disks) in China.

The five largest suppliers for HWD are Shenzhen Sang Da Hui Tong Electronics Company Limited, Shenzhen Yang Guang Xin Ke Digital Technology Company Limited, Shenzhen Jie Pu Lin Holding Company Limited, Shenzhen Lian Sheng (Shi Dai) Technology Company Limited, and Hangzhou Wei Hua Communication Equipment Company Limited. The five largest customers for HWDA are Tai Zhou Yi Tong Communication Equipment Company Limited, Wen Zhou Heng Da Electronics Company Limited, Shao Xing Yin Hai Cell Phones Market, Shao Xing Peng Fei Communication Equipment Company Limited, and Ci Xi Guang Da Communication Equipment Company Limited.

Given the wide diversity of HWD’s customer base, the loss of any single customer is not expected to have a material adverse affect on the Company’s business and operations.

HWD mainly distributes its products through retail “stores within stores” located in major department stores throughout the “Huadong” region of China (consisting of the Chinese provinces of Zhejiang, Jiangsu and Anhui). The Company did not spend a material amount of money on research and development, and did not have a significant backlog for 2007.

As a retailer with hundreds of locations, the Company is not reliant on any one customer or on a few customers. The loss of any one customer would not likely have an adverse effect on the Company’s sales. As a retailer of electronics products with thousands of customers who pay at point of sale, HWD does not have any material backlog of orders. The Company did not spend a material amount of money on research and development in 2007. HWD contributed approximately 30% of revenue to the Company in 2007.

There are no material effects from compliance with environmental laws.

The main competitors of HWD include Telephone World, Hangzhou Yindun, Shanghai Guangda, Changjiang Tianyin and Hangzhou Zhenghua. Additionally, there are Ningbo Haishu, and Zhongyu. These competitors typically have only a fraction of our sales.

Yiwu Yong Xin Telecommunication Company, Limited (“YYX”)

YYX was incorporated on July 18, 1997 under the laws of the Peoples Republic of China. YYX is an authorized sales agent, focusing on the selling, circulation and modern logistics of fax machines and cord phone products in China. YYXC mainly focuses in Philips fax machines and China’s top local brands Feng Da and CJT fax machines.

The five largest suppliers for YYX are Guangdong Feng Da High Technology Company Limited, Hangzhou Sen Rui Da Trading Company Limited, Shanghai Rong Duo Trading Company Limited, Shanghai Zhong Fang Electronics Company Limited, and Ningbo Zhong Xun Electronics Company Limited. The five largest customers for YYX are Shanghai Guo Mei Electrical Appliance Company Limited, Shanghai Jin Jiang Mai De Long Shopping Mall Company Limited, Tai Zhou Shi Road Qiao Bo Xiong Electrical Appliance Company Limited, Ningbo Hao You Duo Department Store Company Limited (Ningbo Branch), and An Qing Mei Sheng Communication (An Qing Heng Da Technology Company Limited).

Given the wide diversity of YYX’s customer base, the loss of any single customer is not expected to have a material adverse affect on the Company’s business and operations.

YYX mainly distributes its products through retail “stores within stores” located in major department stores throughout the “Huadong” region of China (consisting of the Chinese provinces of Zhejiang, Jiangsu and Anhui). The Company did not spend a material amount of money on research and development, and did not have a significant backlog for 2007.

As a retailer with hundreds of locations, the Company is not reliant on any one customer or on a few customers. The loss of any one customer would not likely have an adverse effect on the Company’s sales. As a retailer of electronics products with thousands of customers who pay at point of sale, the Company does not have any material backlog of orders. The Company did not spend a material amount of money on research and development in 2007. YYX contributed approximately 22% of revenue to the Company in 2007.

There are no material effects from compliance with environmental laws.

On the retail side we distribute mainly via so-called concessionaire agreements with larger department stores, supermarkets, large electronics retail stores, and other retailers. The retail distribution of many products in China, including those that we sell, is conducted via the concessionaire model. Under this model, companies such as China 3C own their own outlets within the larger stores and in so doing assume responsibility for most financial and operational aspects of those outlets including capital cost, inventory, wages, selection, pricing, and general management. Our retail partners are then compensated via margin they earn on the products we sell. This model is similar to that employed by many department stores in the US. On the other hand, this model is also different from that found at large electronic retailers like Best Buy and general retailers like Wal-Mart. We have found that many investors are curious as to why the model in China differs from that found in the US. From our point of view, the main reasons are as follows:

·	We decrease the financial risk for our retail partners by assuming responsibility for the inventory and capital expense associated with distributing our products.

·	We decrease operational risk for our retail partners by hiring and managing employees and handling logistics issues such as wholesale purchase and delivery and returns and after-sales service.

·	We decrease merchandising risk for our retail partners by bringing product expertise and specific market knowledge that is difficult for large retailers to develop on their own across a broad range of product categories.

·	China’s size, regional differences, logistical difficulties, managerial challenges, underdeveloped credit markets, and rapid growth rate increases risk for all retailers and drive the need to mitigate risk which is why our retail partners rely on us.

It is interesting to note that even foreign retailers such as Carrefour and Wal-Mart have to a certain degree adopted the concessionaire model in China which is an indication as to how conditions in China make the concessionaire model a virtual necessity for retailers.

Hangzhou Sanhe Electronic Technology Ltd. (“HSE”)

HSE is a home electronics retail chain in Eastern China. It has approximately 200 retail outlets in Shanghai City, Zhejiang Province and Jiangsu Province. HSE specializes in the sale of home electronics, including air conditioners, audio systems, speakers (92 different types of models) and DVD players (272 different types of models). In 2006, HSE expanded its business to the televisions industry, and has received sales agent licenses from TCL, Chuangwei and Haier. HSE is headquartered in HangZhou city, China. Its major markets are Zhejiang, Jiangsu and Shanghai.

Given the wide diversity of HSE’s customer base, the loss of any single customer is not expected to have a material adverse affect on the Company’s business and operations.

HSE mainly distributes its products through retail “stores within stores” located in major department stores throughout the “Huadong” region of China (consisting of the Chinese provinces of Zhejiang, Jiangsu and Anhui). The Company did not spend a material amount of money on research and development., and did not have a significant backlog for 2007.

As a retailer with hundreds of locations, the Company is not reliant on any one customer or on a few customers. The loss of any one customer would not likely have an adverse effect on the Company’s sales. As a retailer of electronics products with thousands of customers who pay at point of sale, the HSE does not have any material backlog of orders. HSE did not spend a material amount of money on research and development. HSE contributed approximately 25% of revenue to the Company in 2007.

There are no material effects from compliance with environmental laws.

The main competitors of HSE include Hangzhou Meidi, Hangzhou Danong, Nanjing Mingci, Shanghai Feitong and Jiangshu Huayi. Additionally, there is Baicheng Group with sales of approximately $30 million per year and Shanghai Feiteng with sales of approximately $30-40 million per year.

Shanghai Joy & Harmony Electronics Company Limited (“SJ&H”)

SJ&H is a consumer electronics retail chain in Eastern China. It has approximately 180 retail outlets in Shanghai City and Jiangsu Province. The company specializes in the sale of consumer electronics, including MP3 players, MP4 players, iPods, electronic dictionaries, CD players, radios, Walkmans, audio systems and speakers. The company is the authorized sales agent for well-known manufacturers in China, including Tecsun Radio and Changhong ZARVA.

As a retailer with hundreds of locations, the Company is not reliant on any one customer or on a few customers. The loss of any one customer would not likely have an adverse effect on the Company’s sales. As a retailer of electronics products with thousands of customers who pay at point of sale, SJ&H did not have any material backlog of orders. The Company did not spend a material amount of money on research and development in 2007. SJ&H contributed approximately 25% of revenue to the Company in 2007.

There are no material effects from compliance with environmental laws.

The main competitors of SJ&H include Shanghai Huaning, Shanghai Juexiang, Shanghai Wansi and Shanghai Feitong. SJ&H’s competitors are a combination of a large number of very small stores who lack the Company’s economies and scale, as well as a small number of large players such as large department stores. Additional competitors include Shanghai Yonguan Digital with sales of approximately $45 million per year, Shanghai Dongqi with sales of approximately of $7-8 million per year, and Shanghai Yidunj of sales of $4-5 million per year.

Customers

No customer contributed more than 10% of the Company’s revenue.

Seasonality and Quarterly Fluctuations

Our businesses experience fluctuations in quarterly performance. Traditionally, the first quarter from January to March has a higher number of sales reflected by our electronics business due to the New Year holidays in China occurring during that period. Nevertheless, at times, China can experience particularly inclement weather in January and February which can serious disrupt the Company’s supply chain management systems. As our business model is to operate only on several days of inventory, the effects of such weather disruptions can be severe in certain years.

Additionally, during summer month we can experience a slowdown in sales. We therefore generally use the summer months to concentrate on opening additional stores to offset the decline in sales per store.

Employees

The Company currently has 1051 employees, all of which are full time employees located in China. ZYX has 250 employees, YYX has 45 employees, HWD has 280 employees, HSE has 257 employees, and SJ&H has 189 employees.

The Company has no collective bargaining agreements with any unions.

Recent Developments

In January and February of 2008, snowstorms swept across much of China, including much of the area around Jiangsu and Zhejiang provinces, the Company’s major points of operations. First, while the snow storms had less impact in major cities like Shanghai, in other areas of the operating region (Jiangsu, Anhui and Zhejiang provinces) snow storms had a much larger impact on transport systems that take people and products to stores. In addition to impacting traffic at stores where we have outlets, transportation impediments had a substantive impact on our ability to replenish products on the shelves. Because we operate on only several days of inventory, it is management’s belief that the supply chain interruptions resulted in a significant number of lost sales.

Additionally, the Company believes gross margin is expected to stabilize in the 13-14% range in 2008 because of the following reasons:

The Company pays concession fees, or leasing fees, to its retail partners. These fees are typically passed on to the customers by being included in the price of goods sold. Approximately 50% of these concession agreements have fixed payments which are not tied to sales. As such, when sales per store decreases, as happened in the first quarter due to the snow storms, the leasing fees do not change which leads to decreased gross margin.

The Company believes the majority of anticipated gross margin decreases in 2008, will be caused by increased competition. The “Huadong” region where the Company operates has experienced the growth of competitors who are increasingly utilizing a “store-in-store” model. As a result, management anticipates a potential need to lower its pricing to maintain its competitive advantage.

These factors along with increased transportation costs as well as efforts by the government to control inflation which is expected to have a slight impact on consumer spending, are expected to result in a gross margin in the range of 13-14% for fiscal 2008.

While sales are expected to decrease in the first quarter by approximately 15%-20%, the Company believes it will be in a position for overall sales to increase in the mid-single digits for the remaining three quarters of the year. The lower year-over-year sales growth trends expected for 2Q08-4Q08 are primarily due to anticipated effects related to increased competition and a leveling of growth. These projections do not take into account any impact related to future acquisitions.

The Company believes that sales and margin trends can improve over time as it focuses its efforts on internal cost controls, improved logistics coordination, greater economies of scale, closure of underperforming store counters, expansion of well performing stores, adding new store counters in more productive locations, additional product introductions, new customer and supplier agreements, customer marketing and after sales support initiatives, acquisition opportunities and an increase in the overall managerial efficiency of the Company.

The Company currently has approximately $25 million of cash on its balance sheet, which it currently plans to use for consideration in connection with potential acquisitions.

Availability of SEC Filings

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The public may read and copy these materials at the Securities and Exchange Commission’s (“SEC”) Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding the Company and other companies that file materials with the SEC electronically. You may also obtain copies of the Company’s reports filed with the SEC, free of charge, on our website at http://www.china3cgroup.com.

ITEM 1A. RISK FACTORS

Risks Associated With Our Common Stock

There is a limited public market for our common stock. There is currently a limited public market for the common stock. Holders of our common stock may, therefore, have difficulty selling their common stock, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares of common stock, which may be purchased may be sold without incurring a loss. Any such market price of the common stock may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the common stock in the future. Further, the market price for the common stock may be volatile depending on a number of factors, including business performance, industry dynamics, news announcements or changes in general economic conditions.

Our common stock may be deemed penny stock with a limited trading market . Our common stock is currently listed for trading in the Over-The-Counter Market on the NASD Electronic Bulletin Board, which is generally considered to be a less efficient markets than markets such as NASDAQ or other national exchanges, and which may cause difficulty in conducting trades and difficulty in obtaining future financing. Further, our securities are subject to the “penny stock rules” adopted pursuant to Section 15 (g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny stock rules apply to non-NASDAQ companies whose common stock trades at less than $5.00 per share or which have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). Such rules require, among other things, that brokers who trade “penny stock” to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade “penny stock” because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the “penny stock rules” for any significant period, there may develop an adverse impact on the market, if any, for our securities. Because our securities are subject to the “penny stock rules,” investors will find it more difficult to dispose of our securities. Further, for companies whose securities are traded in the Over-The-Counter Market, it is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services, such as the Dow Jones News Service, generally do not publish press releases about such companies, and (iii) to obtain needed capital.

We do not intend to pay dividends on our common stock. The Company’s two operating subsidiaries in China paid $525,460 in dividends during 2005, but there are no plans for paying dividends in the foreseeable future. We intend to retain earnings, if any, to provide funds for the implementation of our new business plan. We do not intend to declare or pay any dividends in the foreseeable future. Therefore, there can be no assurance that holders of common stock will receive any additional cash, stock or other dividends on their shares of common stock until we have funds, which the Board of Directors determines, can be allocated to dividends.

If we are unable to successfully integrate the businesses we acquire, our ability to expand our product offerings and geographic reach may be significantly limited. In order to expand our product offerings and grow our customer base by reaching new customers through expanded geographic coverage, we may continue to acquire businesses that we believe are complimentary to our growth strategy. Acquisitions involve numerous risks, including difficulties in the assimilation of acquired operations, loss of key personnel, distraction of management’s attention from other operational concerns, failure to maintain supplier relationships, inability to maintain goodwill of customers from acquired businesses, and the inability to meet projected financial results that supported how much was paid for the acquired businesses.

Our business will be harmed if we are unable to maintain our supplier alliance agreements with favorable terms and conditions. We have licensing/distribution agreements with key suppliers in a number of major product categories. Our business will be harmed if we are unable to maintain these favorable agreements or are limited in our ability to gain access to additional like agreements with our key suppliers.

It is very difficult to predict the sales cycle for our products . If we are unable to successfully select and introduce new products or fail to keep pace with the rapid advances in technology, our business condition will be negatively impacted. The duration and product selection involved in our sales cycle is dependent on a number of factors, including immediate product availability, pricing, features, product complexity, economic environment, and customer financial condition. If potential customers take longer than we expect to decide to purchase our products, or if our customers decide on a different product/feature set than available from our existing supplier agreements, the financial condition and results of our operations will be adversely affected.

Because our operating/business model continues to evolve it is difficult to predict our future performance, and our business is difficult to evaluate. Our business model continues to evolve over time. We do not have an extensive operating history upon which you can easily and accurately evaluate our business, or our ongoing financial condition. As our model evolves over time and due to our numerous acquisitions, we face risks and challenges due to a lack of meaningful historical data upon which we can develop budgets and make forecasts.

Future acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of further indebtedness, and increased amortization expense. Our growth model has in the past and most probably in the future will involve acquisitions that may result in potentially dilutive issuances of equity securities or the incurrence of debt and unknown liabilities. Such acquisitions may result in significant write-offs and increased amortization expenses that could adversely affect our business and the results of our operations.

If our products fail to perform properly our business could suffer significantly. Although we do not currently develop or manufacturer our existing products, should they fail to perform we may suffer lost sales and customer goodwill, ongoing liability claims, license terminations, severe harm to our brand and overall reputation, unexpected costs, and reallocation of resources to resolve product issues.

Rapid and substantial growth is the key to our overall strategy, if we are unable to manage our growth profitably and effectively, we may incur unexpected expenses and be unable to meet our financial and customer obligations. In order for us to meet our financial objectives we will need to substantially expand our operations to achieve necessary market share. We cannot be certain that our IT infrastructure, financial controls, systems, and processes will be adequate to support our expansion. Our future results will depend on the ability of our officers and key employees to manage changing business conditions in administration, reporting, controls, and operations.

If we are unable to obtain additional financing for our future needs we may be unable to respond to competitive pressures and our business may be impaired. We cannot be certain that financing with favorable terms, or at all, will be available for us to pursue our expansion initiatives. We may be unable to take advantage of favorable acquisitions or to respond to competitive pressures. This inability may harm our operations or financial results.

If we are forced to lower our prices to compete, our financial performance may be negatively impacted. We derive our sales from the resale of products from a number of our suppliers. If we are forced to lower our prices due to added competition, inferior feature offerings, excess inventory, pressure for cash, declining economic climate, or any other reason, our business may become less profitable.

If we are unable to maintain existing supplier relationships or form new ones, our business and financial condition may suffer. We rely on our current suppliers along with new suppliers to provide us access to competitive products for resale. If we are unable to gain access to suppliers with needed product with favorable terms our business may be negatively impacted.

If we incur costs that exceed our existing insurance coverage in lawsuits brought to us in the future, it could adversely affect our business and financial condition. We maintain third party insurance coverage against liability risks associated with lawsuits. While we believe these arrangements are an effective way to insure against liability, the potential liabilities associated with such risks or other events could exceed the coverage provided by such insurance.

Risks Related to Doing Business in China

Our business operations take place primarily in China. Because Chinese laws, regulations and policies are continually changing, our Chinese operations will face several risks summarized below.

Limitations on Chinese economic market reforms may discourage foreign investment in Chinese businesses. The value of investments in Chinese businesses could be adversely affected by political, economic and social uncertainties in China. The economic reforms in China in recent years are regarded by China’s central government as a way to introduce economic market forces into China. Given the overriding desire of the central government leadership to maintain stability in China amid rapid social and economic changes in the country, the economic market reforms of recent years could be slowed, or even reversed.

Any change in policy by the Chinese government could adversely affect investments in Chinese businesses. Changes in policy could result in imposition of restrictions on currency conversion, imports or the source of suppliers, as well as new laws affecting joint ventures and foreign-owned enterprises doing business in China. Although China has been pursuing economic reforms for the past two decades, events such as a change in leadership or social disruptions that may occur upon the proposed privatization of certain state-owned industries could significantly affect the government’s ability to continue with its reform.

We face economic risks in doing business in China. As a developing nation, China’s economy is more volatile than that of developed Western industrial economies. It differs significantly from that of the U.S. or a Western European Country in such respects as structure, level of development, capital reinvestment, resource allocation and self-sufficiency. Only in recent years has the Chinese economy moved from what had been a command economy through the 1970s to one that during the 1990s encouraged substantial private economic activity. In 1993, the Constitution of China was amended to reinforce such economic reforms. The trends of the 1990s indicate that future policies of the Chinese government will emphasize greater utilization of market forces. For example, in 1999 the Government announced plans to amend the Chinese Constitution to recognize private property, although private business will officially remain subordinated to the state-owned companies, which are the mainstay of the Chinese economy. However, there can be no assurance that, under some circumstances, the government’s pursuit of economic reforms will not be restrained or curtailed. Actions by the central government of China could have a significant adverse effect on economic conditions in the country as a whole and on the economic prospects for our Chinese operations.

The Chinese legal and judicial system may negatively impact foreign investors. In 1982, the National People’s Congress amended the Constitution of China to authorize foreign investment and guarantee the “lawful rights and interests” of foreign investors in China. However, China’s system of laws is not yet comprehensive. The legal and judicial systems in China are still rudimentary, and enforcement of existing laws is inconsistent. Many judges in China lack the depth of legal training and experience that would be expected of a judge in a more developed country. Because the Chinese judiciary is relatively inexperienced in enforcing the laws that do exist, anticipation of judicial decision-making is more uncertain than would be expected in a more developed country. It may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction. China’s legal system is based on written statutes; a decision by one judge does not set a legal precedent that is required to be followed by judges in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes.

The promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. However, the trend of legislation over the last 20 years has significantly enhanced the protection of foreign investment and allowed for more control by foreign parties of their investments in Chinese enterprises. There can be no assurance that a change in leadership, social or political disruption, or unforeseen circumstances affecting China’s political, economic or social life, will not affect the Chinese government’s ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect on our business and prospects.

The practical effect of the People’s Republic of China legal system on our business operations in China can be viewed from two separate but intertwined considerations. First, as a matter of substantive law, the Foreign Invested Enterprise laws provide significant protection from government interference. In addition, these laws guarantee the full enjoyment of the benefits of corporate Articles and contracts to Foreign Invested Enterprise participants. These laws, however, do impose standards concerning corporate formation and governance, which are not qualitatively different from the general corporation laws of the several states. Similarly, the People’s Republic of China accounting laws mandate accounting practices, which are not consistent with U.S. Generally Accepted Accounting Principles. China’s accounting laws require that an annual “statutory audit” be performed in accordance with People’s Republic of China accounting standards and that the books of account of Foreign Invested Enterprises are maintained in accordance with Chinese accounting laws. Article 14 of the People’s Republic of China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal reports and statements to designated financial and tax authorities, at the risk of business license revocation. Second, while the enforcement of substantive rights may appear less clear than United States procedures, the Foreign Invested Enterprises and Wholly Foreign- Owned Enterprises are Chinese registered companies, which enjoy the same status as other Chinese registered companies in business-to-business dispute resolution. Generally, the Articles of Association provide that all business disputes pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying Chinese substantive law. Any award rendered by this arbitration tribunal is, by the express terms of the respective Articles of Association, enforceable in accordance with the “United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).” Therefore, as a practical matter, although no assurances can be given, the Chinese legal infrastructure, while different in operation from its United States counterpart, should not present any significant impediment to the operation of Foreign Invested Enterprises.

Economic Reform Issues

China is a country that has been undergoing a process of privatization for much of the past three decades. Although the Chinese government owns the majority of productive assets in China, in the past several years the government has implemented economic reform measures that emphasize decentralization and encourage private economic activity. Because these economic reform measures may be inconsistent or ineffectual, there are no assurances that:

·	We will be able to capitalize on economic reforms;
·	The Chinese government will continue its pursuit of economic reform policies;
·	The economic policies, even if pursued, will be successful;
·	Economic policies will not be significantly altered from time to time; and
·	Business operations in China will not become subject to the risk of nationalization.

Since 1979, the Chinese government has reformed its economic systems. Because many reforms are unprecedented or experimental, they are expected to be refined and improved. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, unemployment or inflation, or in the disparities in per capita wealth between regions within China, could lead to further readjustment of the reform measures. This refining and readjustment process may negatively affect our operations.

Over the last few years, China’s economy has registered a high growth rate. Recently, there have been indications that rates of inflation have increased. In response, the Chinese government recently has taken measures to curb this excessively expansive economy. These measures have included devaluations of the Chinese currency, the Renminbi (RMB), restrictions on the availability of domestic credit, reducing the purchasing capability of certain of its customers, and limited re-centralization of the approval process for purchases of some foreign products. These austerity measures alone may not succeed in slowing down the economy’s excessive expansion or control inflation, and may result in severe dislocations in the Chinese economy. The Chinese government may adopt additional measures to further combat inflation, including the establishment of freezes or restraints on certain projects or markets.

To date reforms to China’s economic system have not adversely impacted our operations and are not expected to adversely impact operations in the foreseeable future; however, there can be no assurance that the reforms to China’s economic system will continue or that we will not be adversely affected by changes in China’s political, economic, and social conditions and by changes in policies of the Chinese government, such as changes in laws and regulations, measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and remittance abroad, and reduction in tariff protection and other import restrictions.

Risk Factors Associated with Our Business

Non-performance by our suppliers may adversely affect our operations by delaying delivery or causing delivery failures, which may negatively affect demand, sales and profitability. We purchase various types of products from our suppliers. We would be materially and adversely affected by the failure of our suppliers to perform as expected. We could experience delivery delays or failures caused by production issues or delivery of non-conforming products if its suppliers failed to perform, and we also face these risks in the event any of its suppliers becomes insolvent or bankrupt.

We depend on the continued services of our executive officers and the loss of key personnel could affect our ability to successfully grow our business. We are highly dependent upon the services of our senior management team, particularly Zhenggang Wang, our Chairman and Chief Executive Officer and Weidong Huang, our Chief Financial Officer. The permanent loss for any of our key executives, could have a material adverse effect upon our operating results. We may not be able to locate suitable replacements for our executives if their services were lost. We do not maintain key man life insurance on any of these individuals.

With the markets being highly competitive, we may not be able to compete successfully. Many of our competitors have substantially greater revenues and financial resources than we do. We may not be able to compete favorably and increased competition may substantially harm our business, business prospects and results of operations. If we are not successful in our target markets, our sales could decline, our margins could be negatively impacted and we could lose market share, any of which could materially harm our business, results of operations and profitability.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company does not own any real estate properties; all of the properties are leased. The lease terms are as follows:

YYXC

Shanghai office: lease term: one year (June 2007 - June 2008)

Yiwu headquarter office: lease term: one year (Aug. 2007 - Aug. 2008)

Apartments:1) A3 Yiwu building, Yiwu village, Lease term: 6 months (Sep. 2007 - Mar. 2008); 2) Qiancheng District, Yiwu, Lease term one year (Nov. 2007 - Nov. 2008).

HWDA

West-town computer center offices: Lease term: one year for office 1 (July 2007 - July 2008); one year for office 2 (Aug. 2007 - Aug. 2008).

Suite 417 and Suite 608, 347 Shaoxin Road: Lease term: 3 months (Oct. 2007 - Jan. 2008).

Apartments: Taizhou tower, Lease term one year (Oct. 2007- Oct. 2008).

HSET

Yuanhua office: Lease term one year (Aug. 2007 - July 2008).

Hangzhou Qunying office: Lease Term six months (Nov. 2007 - Apr. 2008).

Apartments: Hangzhou: Lease Term three months (Jan. 2008 - Mar. 2008).

Shanghai

Wuxi Tower office: Lease term three months (Jan. 2008 - Mar. 2008).

Warehouse: Shanghai, Lease term: two months (Jan. 2008 - Feb. 2008).

The Company believes that its leased spaces are adequate and suitable to maintain and develop its business operations.

ITEM 3. LEGAL PROCEEDINGS

Neither the Company nor its property is a party to any pending legal proceeding. The Company’s management does not believe that there are any proceedings to which any director, officer, or affiliate of the Company, any owner of record of beneficially held or owner of more than five percent (5%) of the Company’s common stock, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company, or has a material interest adverse to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the stockholders in the fourth quarter of 2007 required to be disclosed.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is quoted on the OTC Bulletin Board under the symbol “CHCG.OB.” The following table sets forth the range of quarterly high and low closing bids of the common stock as reported during the years ending December 31, 2006 and December 31, 2007:

	low bid*		high bid*
2006
Quarter ended March 31	$	1.00	$	9.24
Quarter ended June 30	$	1.75	$	7.50
Quarter ended September 30	$	1.55	$	4.75
Quarter ended December 31	$	1.08	$	4.95
	low bid*		high bid*
2007
Quarter ended March 31	$	3.14	$	6.95
Quarter ended June 30	$	5.10	$	8.00
Quarter ended September 30	$	3.45	$	8.50
Quarter ended December 31	$	3.08	$	5.66

* The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Stockholders

As of the close of business on March 14, 2008, there were approximately 91 holders of record of the Company’s common stock. However, we believe that there are additional beneficial owners of our common stock who own their shares in “street name.”

Dividends

The Company’s four operating entities in China paid no dividends during 2007. The Company has no plans to declare cash dividends on its common stock in the future. There are no restrictions that limit the ability of the Company to declare cash dividends on our common stock and the Company does not believe that there are any that are likely to do so in the future.

Securities authorized for issuance under equity compensation plans

The following is a summary of all of our equity compensation plans as of December 31, 2007.

Plan Category

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights

Weighted average

exercise price of

outstanding options,

warrants and rights

Number of securities

remaining available

for future issuance

under

equity compensation

plan (excluding

securities reflected

in column (a))

(a)

(b)

(c)

Equity Compensation Plans Approved by Securityholders

Equity Compensation Plans Not Approved by Securityholders

435,000

(1)

3.94

(1) The Company’s 2005 Equity Compensation Plan (the “Plan”) expired on December 31, 2006. No further grants may be made under the Plan..

Repurchase of Securities

We did not repurchase any of shares of our common stock during the fourth quarter of 2007.

Recent Sales of Unregistered Securities

None.

Equity Compensation Plan Information

Pursuant to the terms of the China 3C Group 2005 Equity Incentive Plan (the “Plan”), which was adopted on December 21, 2005 by the Company’s Board of Directors, 5,000,000 shares of the Company’s common stock were available for awards under the Plan. The Plan expired on December 31, 2006.

Forward Looking Statements

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated statement of income and comprehensive income data for the years ended December 31, 2007, 2006 and 2005 and the selected consolidated balance sheet data as of December 31, 2007 and 2006 are derived from our audited consolidated financial statements included elsewhere in this Report.

The selected consolidated balance sheet data as of December 31, 2005, 2004 and 2003, and the selected consolidated financial data for the years ended December 31, 2004 and 2003, are derived from our audited consolidated financial statements not included in this annual report.

The following selected consolidated historical financial information should be read in conjunction with our consolidated financial statements and related notes and the information contained in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Year Ended December 31,
	2007			2006			2005			2004			2003
Statements of Operations Data:
Sales, net		276,026,673			148,218,848			32,588,634			24,701,995			9,260,300

Cost of sales		226,656,242			125,411,758			28,325,332			21,577,365		7,864,411
Gross profit		49,370,431			22,807,090			4,263,302			3,124,630			1,395,889

General and administrative expenses		13,614,500			5,544,924			1,706,869			782,241		546,184
Income from operations		35,755,931			17,262,166			2,556,433			2,342,389			849,705

Other (Income) Expense
Interest income		(88,413	)		(31,293	)		(10,156	)		(5,348	)		(4,569	)
Other expense		74,215			100,646			17,364			9,440			4,871
Interest expense		-			7,565			2,954			1,104		348
Total Other (Income) Expense		(14,198	)		76,918			10,162			5,196			650
Income before income taxes		35,770,129			17,185,248			2,546,271			2,337,193			849,055

Provision for income taxes		12,850,429			5,908,122			1,088,021			231,096		-
Net income		22,919,700			11,277,126			1,458,250			2,106,097			849,055

Net income per share:
Basic & diluted		0.44			0.24			0.04			0.06		0.02

Weighted average number of shares outstanding:
Basic & diluted		52,671,438			46,179,507			35,133,427			35,000,000		35,000,000

	Year Ended December 31,
	2007	2006		2005	2004	2003
Balance Sheets Data:
Cash and cash equivalents	24,952,614		6,498,450	1,949,222	469,658	417,673
Working capital	36,917,850		10,505,747	3,634,989	704,888	(1,407,920	)
Total assets	63,196,805		39,987,575	4,020,266	1,492,006	1,404,597
Total liabilities	5,792,722		9,061,180	341,615	735,830	2,754,517
Total shareholders’ equity	57,404,083		30,926,395	3,678,651	756,176	(1,349,920	)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K/A. The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that may cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in “Risk Factors” and elsewhere in this Form 10-K/A.

Overview

China 3C Group was incorporated on August, 20, 1998 under the laws of the State of Nevada. Capital Future Developments Limited (“CFDL”) was incorporated on July 22, 2004 under the laws of the British Virgin Islands. Zhejiang Yong Xin Digital Technology Co., Ltd. (“Zhejiang”), Yiwu Yong Xin Communication Ltd. (“Yiwu”), Hangzhou Wandga Electronics Co., Ltd. (“Wang Da”), Hangzhou Sanhe Electronic Technology, Limited (“Sanhe”), and Shanghai Joy & Harmony Electronic Development Co., Ltd. (“SJHE”) were incorporated under the laws of Peoples Republic of China on July 11, 2005, July 18, 1997, March 30, 1998, April 12, 2004, and August 25, 2003 respectively. China 3C Group owns 100% of CFDL and CFDL own 100% of the capital stock of SJHE and HSET. Until August 14, 2007, when it made the change to its ownership structure described in the next paragraph in order to comply with certain requirements of PRC law, CFDL owned 100% of the capital stock of Zhenjiang.. Zhejiang owns 90% and Yiwu owns 10% of HWDA. Zhejiang owns 90% and Wang Da owns 10% of Yiwu. Collectively the six corporations are referred to herein as the Company.

On December 21, 2005, CFDL became a wholly owned subsidiary of China 3C Group through a merger with a wholly owned subsidiary of the Company (the “Merger Transaction”). China 3C Group acquired all of the issued and outstanding capital stock of CFDL pursuant to a Merger Agreement dated at December 21, 2005 by and among China 3C Group, XY Acquisition Corporation, CFDL and the shareholders of CFDL (the “Merger Agreement”). Pursuant to the Merger Agreement, CFDL became a wholly owned subsidiary of China 3C Group and, in exchange for the CFDL shares, China 3C Group issued 35,000,000 shares of its common stock to the shareholders of CFDL, representing 93% of the issued and outstanding capital stock of China 3C Group at that time and a cash consideration of $500,000. On August 15, 2007, in order to comply with the requirements of PRC law, the Company recapitalized its ownership structure. As a result, instead of CFDL owning 100% of Zhejiang as previously was the case, CFDL entered into contractual agreements with Zhejiang whereby CFDL owns a 100% interest in the revenues of Zhejiang. CFDL does not have an equity interest in Zhejiang, but is deemed to have all the economic benefits and liabilities by contract. Under this structure, Zhejiang is now a wholly foreign owned enterprise (WOFE) of CFDL. The contractual agreements give CFDL and its’ equity owners an obligation to absorb, any losses, and rights to receive revenue. CFDL will be unable to make significant decisions about the activities of Zhejiang and can not carry out its principal activities without financial support. These characteristics as defined in Financial Accounting Standards Board (FASB) interpretation 46, Consolidation of Variable Interest Entities (VIEs), qualifies the business operations of (Zhejiang) to be consolidated with (CFDL) and ultimately with China 3C Group.

As a result of the Merger Agreement, the reorganization was treated as an acquisition by the accounting acquiree that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data have been retroactively restated. Accordingly, the financial statements include the following:

(1) The balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the legal acquirer at historical cost.

(2) The statements of operations include the operations of the accounting acquirer for the period presented and the operations of the legal acquirer from the date of the merger.

The Company is now engaged in the business of mobile phone, facsimile machines, DVD players, stereo’s, speakers, MP3 and MP4 players, iPod, electronic dictionaries, CD players, radios, Walkman, and audio systems distribution. We sell and distribute products through retail stores and secondary distributors.

Pursuant to a share exchange agreement, dated August 3, 2006, we issued 915,751 shares of restricted common stock, to the former shareholders of Hangzhou Sanhe Electronic Technology Ltd. The shares were valued at $3,750,000, which was the fair value of the shares at the date of exchange agreement. This amount is included in the cost of net assets and goodwill purchased.

Pursuant to a share exchange agreement, dated November 28, 2006, we issued 2,723,110 shares of newly issued shares of Common Stock to the former shareholders of Shanghai Joy & Harmony Electronics Company Limited. The shares were valued at $11,000,000, which was the fair value of the shares at the date of exchange agreement. This amount is included in the cost of net assets and goodwill purchased.

We operate substantially all of our retail operations through our “store-in-store” model. Under this model, the Company leases space in major department stores and retailers. Leasing costs can vary based on a percentage of sales, or can be fixed. For the year ended 2007, approximately one-half of the Company’s leases were variable based on sales, and the other half were fixed rents.

Results of Operations

Year Ended December 31, 2007 compared to Year Ended December 31, 2006

The following table presents certain consolidated statement of operations information stated as a percentage of total revenues. All financial information is presented for the 12 months ended December 31, 2007 and 2006.

Net sales

Net sales for 2007 totaled $276,026,673, representing a significant year-over-year increase of 86% as compared to $148,218,848 for 2006. The large increase amount was due to a combination of both organic growth and contribution from subsidiaries acquired in the second half of 2006. The sales from these subsidiaries (Yiwu, Wangda, HSET and Shanghai) in 2007 increased by $127 million as compared to the sales that consolidated into the Company from the acquisition dates in 2006, in which, HSET and SJ&H increased 210% ($45.50 million) and 375% ($50.51 million), respectively, as compared to 2006. Higher sales volume and the addition of new product lines were also factors. In addition, the economic boom in China led to the growth of each subsidiary, in which, Yiwu Yongxin and Hangzhou Wangda increased 20% ($10.29 million) and 35% ($21.50 million), respectively, as compared with 2006.

Percentage of sales

The Company earned approximately 65% of its sales from its retail operations, and the remaining 35% from wholesale operations.

Cost of Sales

Cost of sales for 2007 totaled $226,656,242 or approximately 82.11% of net sales compared to $125,411,758 or approximately 84.61% for 2006. The increase in the cost of sales was directly associated with the corresponding increase in sales. The cost of sales as a percentage decreased during 2007 due to the introduction of new product models with higher gross profit margin. The increased cost of sales was a direct result of the large increase in purchases required to meet our sales levels.

Top Ten Suppliers of Each of Our Subsidiaries

	YYXC	HWDA	HSET	Shanghai

1	Fengda Technology Co., Ltd.	Shenzhen Jiepulin Co., Ltd.	Zhejiang Shaixinke Co., Ltd.	Guangzhou Jinhuang Electronics Co., Ltd.
2	Shanghai Zhongfang Electronics Co., Ltd.	Hangzhou Telecommunication Equipments Co., Ltd.	Shenzhen Aosike Electronics Co., Ltd.	Shenzhen Dengjing Electronics Co., Ltd.
3	Shanghai Rongduo Business Co., Ltd.	Shenzhen Jinfeng Datong Technology Co., Ltd.	Hangzhou Ruiqi Electronics Co., Ltd.	Dongguan Desheng General Electronics Co., Ltd.
4	Ninbo Zhongxun Electronics Co., Ltd.	Liansheng Technology Co., Ltd.	Shenzhen Deyuan Electronics Co., Ltd.	Shanghai Network Equipment Co., Ltd
5	Hangzhou Shenruida Trade Co., Ltd.	Shenzhen Sunshine Xinke Digital Technology Co., Ltd.	Hangzhou Wanlian Electronics Co., Ltd.	Shanghai Hanshun Trade Co., Ltd.
6	Shanghai Guangdian Equipment Co., Ltd.	Hangzhou Tianchen Digital Telecommunication Co., Ltd.	Guangzhou Fenda Audio Co., Ltd.	Dongwan Gemei Electronics Co., Ltd.
7	Yiwu Wantong Telecom Equipment Co., Ltd.	Shenzhen Sangdahuitong Electronics Co., Ltd.	Shenzhen Chuangwei-RGB Electronics Co., Ltd.	SONY-Shanghai Co., Ltd.
8	Aomeng Technology Co., Ltd.	Hangzhou Qiuxin Internet Equipment Co., Ltd.	Guangzhou Shengshida Electronics Company	Shenyou Technology Co., Ltd.
9	Shanghai Meiyun Industry Co., Ltd.	Huayu Telecom Equipment Co., Ltd.	TCL Electronics Co., Ltd.	Zhaohua Digital Technology Co., Ltd.
10	Shanghai Huoke Electronics Co., Ltd.	Hangzhou Yingjie Trade Co., Ltd.	Hangzhou Hengrong Trade Co., Ltd.	Zhongshan Wanxin Electronics Co., Ltd.

Gross Profit Margin

Gross profit margin for 2007 increased to 17.9% compared to 15.4% for 2006. The gross profit margin increased was mainly due to the increase of 5.5% of gross profit margin of HSET in 2007. The increase was partially due to the inclusion of the newly acquired subsidiaries. The gross profit margin increased as we benefited from increasing economies of scale as the Company grew in size and scale. Higher sales of higher margin products such as MP3 and DVD players were also critical factors.

Because the Company does not include the costs related to its distribution network in cost of sales, its gross profit and gross profit as a percentage of net sales (“gross profit margin”) may not be comparable to those of other retailers that may include all costs related to their distribution network in cost of sales and in the calculation of gross profit and gross margin.

General and Administrative Expense

General and administrative expense for 2007 totaled $13,614,500 or approximately 4.93% of net sales, compared to $5,544,924 or approximately 3.74% for 2006. The increase was primarily due to the costs of managing a larger operation as the Company integrated its newly acquired subsidiaries.an the growth rate of sales.

Income from Operations

Income from operations for 2007 was $35,755,931 or 12.95% of net sales as compared to income from operations of $17,262,166 for 2006 or 11.65% of net sales. Increasing economies of scale were a critical factor for the larger margins, as were a higher margin product mix. Because of our marketing power, we were able to increase sales prices at a greater rate than the increase in the cost of sales, thus giving un an advantage in an inflationary environment in 2007.

Provision for income taxes

Provision for income taxes for 2007 was $12,850,429, representing year-over-year increase of 117% as compared to $5,908,122 for 2006. The effective rate of income tax was 33% for both 2007 and 2006. The increase was due to a significant increase in taxable income.

Net Income

Net income was $22,919,700 or 8.30% of net sales for 2007 compared to $11,277,126 or 7.61% of net sales for 2006. Increasing economies of scale, a higher margin product mix and significant larger store were all key factors for the large increase in net income.

Year Ended December 31, 2006 compared to Year Ended December 31, 2005

Net sales

Net sales for 2006 totaled $148,218,848, representing a significant year-over-year increase of 355% as compared to $32,588,634 for 2005. The increase was partially due to the inclusion of $35,133,964 of sales from two newly acquired subsidiaries (HSET and Shanghai) during 2006. The increase was also due to the organic growth of YYXC and HWDA. In 2006, the sales of YYXC and HWDA were approximately $51 million and $62 million respectively, an increase of 122% and 480% respectively compared with 2005.

Percentage of sales

	YYXC			HWDA		HSET		Shanghai
Retail store		59.43	%	57.45	%	74.39	%	76.61	%
Secondary Distributors		40.57	%	42.55	%	25.61	%	23.39	%

Cost of Sales

Cost of sales for 2006 totaled $125,411,758 or approximately 84.61% of net sales compared to $28,325,532 or approximately 86.90% for 2005. The increase in the cost of sales was directly associated with the corresponding increase in sales. The cost of sales as a percentage decreased during 2006 due to the introduction of new product models with higher gross profit margin. Also, we were able to obtain the maximum discount privilege from our suppliers because of the substantial increase of sales.

Top Ten Suppliers of Each of Our Subsidiaries:

	YYXC	HWDA	HSET	Shanghai

1	Fengda Technology Co., Ltd.	Shenzhen Jiepulin Co., Ltd.	Zhejiang Shaixinke Co., Ltd.	Guangzhou Jinhuang Electronics Co., Ltd.
2	Shanghai Zhongfang Electronics Co., Ltd.	Hangzhou Telecommunication Equipments Co., Ltd.	Shenzhen Aosike Electronics Co., Ltd.	Shenzhen Dengjing Electronics Co., Ltd.
3	Shanghai Rongduo Business Co., Ltd.	Shenzhen Jinfeng Datong Technology Co., Ltd.	Hangzhou Ruiqi Electronics Co., Ltd.	Dongguan Desheng General Electronics Co., Ltd.
4	Ninbo Zhongxun Electronics Co.,Ltd.	Liansheng Technology Co., Ltd.	Shenzhen Deyuan Electronics Co., Ltd.	Shanghai Network Equipment Co., Ltd.
5	Hangzhou Shenruida Trade Co., Ltd.	Shenzhen Sunshine Xinke Digital Technology Co., Ltd.	Hangzhou Wanlian Electronics Co., Ltd.	Shanghai Hanshun Trade Co., Ltd.
6	Shanghai Guangdian Equipment Co., Ltd.	Hangzhou Tianchen Digital Telecommunication Co., Ltd.	Guangzhou Fenda Audio Co., Ltd.	Dongwan Gemei Electronics Co., Ltd.
7	Yiwu Wantong Telecom Equipment Co., Ltd.	Shenzhen Sangdahuitong Electronics Co., Ltd.	Shenzhen Chuangwei-RGB Electronics Co., Ltd.	SONY-Shanghai Co., Ltd.
8	Aomeng Technology Co., Ltd.	Hangzhou Qiuxin Internet equipment Co., Ltd.	Guangzhou Shengshida Electronics Company	Shenyou Technology Co., Ltd.
9	Shanghai Meiyun Industry Co., Ltd.	Huayu Telecom Equipment Co., Ltd.	TCL Electronics Co., Ltd.	Zhaohua Digital Technology Co., Ltd.
10	Shanghai Huoke Electronics Co., Ltd	Hangzhou Yingjie Trade Co., Ltd.	Hangzhou Hengrong Trade Co., Ltd.	Zhongshan Wanxin Electronics Co., Ltd.

Gross Profit Margin

Gross profit margin for 2006 was 15.39% compared to 13.08% for 2005. The increase was partially due to the inclusion of the newly acquired subsidiaries. The average profit margin for the newly acquired companies is approximately 18%. The increase was also due to the increase in consumer demand and improvement in product mix.

Operating Expense

General and administrative expense for 2006 totaled $5,544,924 or approximately 3.74% of net sales, compared to $1,706,869 or approximately 5.2% for 2005. The decrease of 1.46% was due to the inclusion of the newly acquired subsidiaries. The increase in the general and administrative expense was also caused by the corresponding increase in sales. However, the increase rate of general and administrative expense is lower than the growth rate of sales.

Income from Operations

Income from operations for 2006 was $17,262,166 or 11.65% of net sales as compared to income from operations of $2,556,433 for 2005 or 7.84% of net sales. The increase was due to our acquisitions during 2006, an increase in consumer demand and improvement in product mix.

Interest Expense

Interest expense for 2006 totaled $7,565 compared to $2,954 for 2005. The increase was due to the inclusion in our financial statements of our newly acquired subsidiary Shanghai Joy & Harmony Electronics Company Limited.

Provision for income taxes

Provision for income taxes for 2006 was $5,908,122, representing year-over-year increase of 443% as compared to $1,088,021 for 2005. The effective rate of income tax was 33% for both 2006 and 2005. The increase was due to a significant increase in taxable income.

Net Income

Net income was $11,277,126 or 7.61% of net Sales for 2006 compared to $1,458,250 or 4.47% of net Sales for 2005. The increase in percentage was due to the factors stated above, including lower cost of goods, lower operating expenses and high profit margin from the newly acquired companies.

Retail locations

The following table reflects a roll forward during the fiscal year ended December 31, 2006 and during the fiscal year ended December 31, 2007 of our retail locations during each period (i.e. number of stores opened, number of stores closed and number of stores open at the end of the period). Store within store refers to the sales counter where the Company’s products are displayed for sale within large-scale supermarket stores, department stores and other operation sites for the Company. At present, we have “store within stores” in four main areas, Shanghai, Zhejiang, Jiangsu and Anhui. The Company’s retail locations are all “store within store” locations in 2006 and 2007.

	Wangda			Yongxin			Sanhe			Joy & Harmony			Total
Locations at Jan 1, 2006		175			264			-			-			439
Opened during year 2006		45			39						-			84
Closed during year 2006		(6	)		(15	)		-			-			(21	)
Acquired during year 2006	-			-				165			159			324
Locations at Dec 31, 2006		214			288			165			159			826

Opened during year 2007		30			37			55			34			156
Closed during year 2007		(7	)		(51	)		(9	)		(7	)		(74	)
Locations at Dec 31, 2007		237			274			211			186			908

The following table reflects the square footage of each store space during the fiscal year ended December 31, 2006 and during the fiscal year ended December 31, 2007.

( In square feet)	Wangda			Yongxin			Sanhe			Joy & Harmony			Total
Areas at Jan 1, 2006		19,965			39,222			-			-			59,187
Opened during year 2006		5,208			5,768			-			-			10,976
Closed during year 2006		(802	)		(2,210	)		-			-			3,012
Acquired during year 2006	-			-				23,099			18,056			41,155
Areas at Dec 31, 2006		24,371			42,780			23,099			18,056			108,306

Opened during year 2007		3,335			5,475			7,408			3,709			19,927
Closed during year 2007		(778	)		(7,547	)		(1,212	)		(764	)		(10,301	)
Areas at Dec 31, 2007		26,928			40,708			29,295			21,001			117,932

The following table reflects net sales per square foot for the fiscal year ended December 31, 2006 and the fiscal year ended December 31, 2007.

(In US dollars)	Wangda		Yongxin		Sanhe		Joy & Harmony		Average
2006		1,440		690		1,497		1,871		995
2007		1,666		703		1,617		2,244		1,420

The following table reflects the amount of comparable or same store sales for each period (i.e. the change in sales from stores that were open for each of the fiscal years presented). A “comparable store” is defined as the same “store within store,” for which sales of that “store within store” is compared in the same month or same quarter of different years, such as the comparison of the sales occurring during March 2006 and March 2007 in the same “store within store.”

Opened and closed “stores within stores” are primarily recognized based on the duration of the agreements with the shopping centers, as well as the sale and profits of a “store within store.” Prior to opening a new “store within store” we are usually approached by a large-scale department store or supermarket that offer us the opportunity to open a “store within store.” Our decision is based on our study of the population traffic flow, the department store and supermarkets themselves, and the level of expected profitability of a potential “store within store.” Following our inspection, we sign contracts with the department store and supermarkets, which specifically address the terms and conditions of opening, closing and relocating the “stores within stores.”.

(In US dollars)	Wangda		Yongxin		Sanhe		Joy & Harmony		Average
2006		13,800		8,700		17,400		17,700		12,700
2007		15,300		8,500		18,000		20,200		17,900

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth, for the periods presented, our unaudited quarterly results of operations for the eight quarters ended December 31, 2007. The data has been derived from our consolidated financial statements and, in our management’s opinion, they have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial results for the periods presented. This information should be read in conjunction with the annual consolidated financial statements included elsewhere in this Form 10-K/A. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.

	Three Months Ended
	12/31/2007			9/30/2007			6/30/2007			3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006

Sales, net	$	69,108,145		$	57,896,861		$	64,498,473		$	84,523,194		$	63,575,983		$	42,573,920		$	28,618,196		$	13,450,749

Cost of sales		57,891,581			45,113,474			53,060,275			70,590,912			53,569,362			35,974,772			24,347,343			11,520,281
Gross profit		11,216,564			12,783,387			11,438,198			13,932,282			10,006,621			6,599,148			4,270,853			1,930,468

General and administrative expenses		4,017,300			2,856,805			3,014,233			3,726,162			2,483,656			1,652,278			903,938			505,052
Income from operations		7,199,264			9,926,582			8,423,965			10,206,120			7,522,965			4,946,870			3,366,915			1,425,416

Other (Income) Expense
Interest income		(30,990	)		(25,977	)		(17,655	)		(13,791	)		(13,685	)		(9,261	)		(4,249	)		(4,098	)
Other expense		61,421			7,101			(1,171	)		6,864			71,282			23,592			281			5,491
Interest expense														7,403			22			54			86
Total Other (Income) Expense		30,431			(18,876	)		(18,826	)		(6,927	)		65,000			14,353			(3,914	)		1,479

Income before income taxes		7,168,833			9,945,458			8,442,791			10,213,047			7,457,965			4,932,517			3,370,829			1,423,937

Provision for income taxes		2,787,417			3,372,489			2,941,264			3,749,259			2,580,937			1,708,663			1,108,133			510,389

Net income	$	4,381,416		$	6,572,969		$	5,501,527		$	6,463,788		$	4,877,028		$	3,223,854		$	2,262,696		$	913,548

Net income per share:
Basic & diluted	$	0.08		$	0.12		$	0.10		$	0.12		$	0.11		$	0.07		$	0.05		$	0.02

Weighted average number of shares outstanding:
Basic & diluted		52,671,438			52,608,938			52,608,938			52,578,938			46,179,507			44,817,953			44,360,077			44,360,077

Liquidity and Capital Resources

Cash has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $24,952,614 at December 31, 2007 and current assets totaled $42,710,572 at December 31, 2007. The Company’s total current liabilities were $5,792,722 at December 31, 2007. Working capital at December 31, 2007 was $36,917,850. During 2007, net cash provided by operating activities was $21,573,771.

Under the Shanghai Share Exchange Agreement, dated November 28, 2006, in exchange of surrendering all their ownership in Shanghai, the Shanghai Shareholders received both stock consideration and cash consideration. The cash consideration consisted of $7,500,000 in cash is payable as follows: $3,000,000 within 10 business days after the closing of the transaction, and $4,500,000 payable six months after the closing of the transaction as evidenced by promissory notes issued by us to the Shanghai Shareholders. The $4,500,000 loan was repaid in the second quarter of 2007. The loan was repaid as follows:

April 20, 2007- HWD repaid approximately $1.3 million of the outstanding balance;

April 26, 2007- ZYXD repaid approximately $2.5 million of the outstanding balance; and

April 30, 2007 -HSE repaid the remaining approximately $700,000 of the balance.

The Company believes it will be able to pay any debts that come due for the foreseeable future.

In summary, our cash flows were (in thousands):

	Year Ended December 31,
	2007			2006			2005

Net cash provided by operating activities	$	21,574		$	10,969		$	944
Net cash used in investing activities		(64	)		(29	)		(2	)
Net cash (used in) provided by financing activities		(4,500	)		(6,558	)		518
Effect of exchange rate change on cash and cash equivalents		1,444			167			20
Net increase in cash and cash equivalents		18,454			4,549			1,480
Cash and cash equivalents at beginning of year		6,498			1,949			470
Cash and cash equivalents at end of year	$	24,953		$	6,498		$	1,949

Operating Activities

Net cash generated from operating activities increased to $21.6 million in 2007 from $10.9 million in 2006. This increase was mainly attributable to several factors, including (i) the substantial increase in net income of $22.9 million in 2007 compared to net income of $11.3 million in 2006; (ii) the increase in add-back of non-cash expenses, mainly consisting of share-based compensation of $2.1 million in 2007; (iii) the decrease in accounts receivable resulting from control of settlement, partially offset by an increase of $3.4 million in inventory primarily due to stock reserve for expansion of stores and an decrease of $1.4 million in income tax payable.

Net cash generated from operating activities increased to $10.9 million in 2006 from $0.9 million in 2005. This increase was mainly attributable to several factors, including (i) the substantial increase in net income of $11.3 million in 2006 compared to net income of $1.4 million earned in 2005; (ii) the increase of 1.6 in accounts payable and accrued expenses; (iii) the increase of $1.3 million in income tax payable, partially offset by an increase of $2 million in accounts receivable primarily due to promotion for business.

Investing Activities

Net cash used in investing activities increased to $64 thousand in 2007 from $29 thousand in 2006, primarily due to our purchase of additional office equipments. Net cash used in investing activities increased to $29 thousand in 2006 from $2 thousand in 2005 primarily due to our purchase of additional office equipments

Financing Activities

Net cash used in financing activities decreased to $4.5 million in 2007 from $6.5 million in 2006, due to payment of notes of $4.5 million for acquisition of Shanghai Joy & Harmony in 2007 and $6.5 million for acquisition of Hangzhou Sanhe and Shanghai Joy & Harmony in 2006. Net cash from financing activities was ($6.5) million in 2006 compared to $0.5 million in 2005, mainly due to payment of acquisition notes of $6.5 million for acquisition of Hangzhou Sanhe and Shanghai Joy & Harmony in 2006 and capital contribution of $1.2 million offset by dividend payment of $0.5 million and payment to related parties of $0.2 million in 2005.

Capital Expenditures

Total capital expenditures during 2007 were $64,325 for purchase of fixed assets as compared to $30,591 for 2006. Given the low level of capital requirements needed to open additional “stores within stores” the Company believes its funds are sufficient to support its organic growth. The Company’s cash resources grew from approximately $6.5 million as of December 31, 2006 to approximately $25 million as of December 31, 2007.

Working Capital Requirements

Historically operations and short term financing have been sufficient to meet our cash needs. We believe that we will be able to generate revenues from sales and raise capital through private placement offerings of our equity securities to provide the necessary cash flow to meet anticipated working capital requirements. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of financing products and raising capital.

Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

Revenue Recognition

Our revenues are generated from sales of electronics products. All of our revenue transactions contain standard business terms and conditions. We determine the appropriate accounting for these transactions after considering (1) whether a contract exists; (2) when to recognize revenue on the deliverables; and (3) whether all elements of the contract have been fulfilled and delivered. In addition, our revenue recognition policy requires an assessment as to whether collection is reasonably assured, which inherently requires us to evaluate the creditworthiness of our customers. Changes in judgments on these assumptions and estimates could materially impact the timing or amount of revenue recognition.

Customers only have a right of return if products are damaged. In practice, returns are very rare, both in our store and at other similar stores in China. However, if the customer does return a product to us that is defective, we return the product to our suppliers and we adjust our inventory accounts.

After Sales Service

The after-sales services that we provide to our customers are primarily repair and maintenance. If a customer buys a product from us and needs repairs, we can usually arrange to have the manufacturer repair the product. In certain cases, clerks in our stores are able to make the repairs directly.

Accounting for Derivative Instruments

Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires all derivatives to be recorded on the Company’s balance sheet at fair value.

In September 2000, the Emerging Issues Task Force (“EITF”) issued EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock,” (“EITF 00-19”) which requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the company’s results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required.

Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2007:

	Payment Due by Period
				Less than 1									More than
	Total			year			1-3 years			3-5 years			5 years
Contractual Obligations
Operating lease obligations		$	254,417		$	140,775		$	97,192		$	16,450		$	—
Purchase obligations			1,167,763			1,167,763									—

Total contractual obligations		$	1,422,180		$	1,308,538		$	97,192		$	16,450		$	—

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the Chinese Renminbi, could adversely affect our financial results. During the fiscal year ended December 31, 2007, approximately all of our sales are denominated in foreign currencies. We expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future. Selling, marketing and administrative costs related to these sales are largely denominated in the same respective currency, thereby mitigating our transaction risk exposure. We therefore believe that the risk of a significant impact on our operating income from foreign currency fluctuations is not substantial. However, for sales not denominated in U.S. dollars, if there is an increase in the rate at which a foreign currency is exchanged for U.S. dollars, it will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases and if we price our products in the foreign currency, we will receive less in US. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our price not being competitive in a market where business is transacted in the local currency.

All of our sales denominated in foreign currencies are denominated in the Chinese Renminbi. Our principal exchange rate risk therefore exists between the U.S. dollar and this currency. Fluctuations from the beginning to the end of any given reporting period result in the re-measurement of our foreign currency-denominated receivables and payables, generating currency transaction gains or losses that impact our non-operating income/expense levels in the respective period and are reported in other (income) expense, net in our combined consolidated financial statements. We do not currently hedge our exposure to foreign currency exchange rate fluctuations. We may, however, hedge such exposure to foreign currency exchange rate fluctuations in the future.

Interest Rate Risk

Changes in interest rates may affect the interest paid (or earned) and therefore affect our cash flows and results of operations. However, we do not believe that this interest rate change risk is significant.

Inflation

Inflation has not had a material impact on the Company’s business in recent years.

Currency Exchange Fluctuations

All of the Company’s revenues are denominated in Chinese Renminbi, while its expenses are denominated primarily in Chinese Renminbi (“RMB”). The value of the RMB-to-U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of Renminbi to U.S. dollars had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of Chinese Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently there has been increased political pressure on the Chinese government to decouple the Renminbi from the United States dollar. At the recent quarterly regular meeting of People’s Bank of China, its Currency Policy Committee affirmed the effects of the reform on Chinese Renminbi exchange rate. Since February 2006, the new currency rate system has been operated; the currency rate of Renminbi has become more flexible while basically maintaining stable and the expectation for a larger appreciation range is shrinking. The Company has never engaged in currency hedging operations and has no present intention to do so.

Concentration of Credit Risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions as described below:

The Company’s business is characterized by rapid technological change, new product and service development, and evolving industry standards and regulations. Inherent in the Company’s business are various risks and uncertainties, including the impact from the volatility of the stock market, limited operating history, uncertain profitability and the ability to raise additional capital.

All of the Company’s revenue is derived from Asia and Greater China. Changes in laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition.

·	If the Company is unable to derive any revenues from Greater China, it would have a significant, financially disruptive effect on the normal operations of the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company are included following the signature page to this Form 10-K/A.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of December 31, 2007, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that during the period covered by this report, the Company’s disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

Our independent registered public accounting firm, Morgenstern, Svoboda & Baer CPA’s P.C., who also audited our consolidated financial statements, independently assessed the effectiveness of our internal control over financial reporting, as stated in their report which is included in this Annual Report on Form 10-K/A. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive and principal financial officers, and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In addition, in 2007, we engaged a consulting firm to assist our management in evaluating and strengthening our internal control over financial reporting with the objective of full compliance with the Sarbanes-Oxley Act of 2002. Based on our evaluation, our principal executive officer and principal financial officer have concluded that during the period covered by this report, our internal controls over financial reporting were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fourth fiscal quarter of the fiscal year covered by this Annual Report on Form 10-K/A that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

There is no information required to be disclosed in a report on Form 8-K during the fourth quarter of the fiscal year covered by this Form 10-K/A but not reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the name, age and position of each of our officers and directors as of March 14, 2008.

Name	Age	Position

Zhenggang Wang	39	Chief Executive Officer, Chairman of the Board
Weidong Huang	37	Chief Financial Officer
Xiang Ma	33	President
Chenghua Zhu	32	Director
Mingjun Zhu	39	Director
Rongjin Weng	44	Director
Wei Kang Gu	69	Director
Kenneth T. Berents	60	Director, Chairman Audit Committee
Joseph J. Levinson	31	Director

Zhenggang Wang, Chairman of the Board, Chief Executive Officer, Chairman of the Board

Mr. Wang, has been the Company’s chairman and chief executive officer and a member of its Board of Directors since December 2005. He is also the founder, chairman and chief executive officer of Zhejiang Yong Xin Digital Technology Company Limited, a holding company for the purpose of holding interests in Hangzhou Wang Da Electronics Company, Limited and Yiwu Yong Xin Telecommunication Company, Limited, both of which are based in China. Mr. Wang established Yiwu Yong Xin Telecommunication Company, Limited in 1997, and he serves as its chairman and chief executive officer. In 1998, Mr. Wang established Hangzhou Wang Da Electronics Company, Limited, which is in the business of distributing cellular telephone phones. Mr. Wang is the chairman and chief executive officer of Hangzhou Wang Da Electronics Company, Limited.

Mr. Wang does not hold any other directorships with reporting companies in the United States. There are no family relationships between Mr. Wang and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Mr. Wang (or any member of his immediate family) had a direct or indirect material interest.

Weidong Huang, Chief Financial Officer

Mr. Huang has been the chief financial officer of the Company since October 2007. Prior to joining the Company, Mr. Huang was the Manager of Audit Department, Zhejiang Yongxin Digital Technology Co., Ltd., a subsidiary of the Company, where he has been employed since July 2007. Prior to that he was General Manager of Hangzhou Jinda Investment Consulting Company from August 2006 to June 2007 and Assistant General Manager of Zhongcai Guoqi Investment Group Company from December 2003 to July 2006. He was the General Manager of Zhongsheng Trade Company from April 1998 to November 2003. Mr. Huang received a degree in business administration from the Government Institute of Jinhua Municipal Government.

Mr. Huang does not hold any directorships with reporting companies in the United States. There are no family relationships between Mr. Liu and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. There have been no transactions to which the Company was a party in which Mr. Huang (or any member of his immediate family) had a direct or indirect material interest.

Xiang Ma, President

Mr. Ma has been president of the Company since December 2005. Mr. Ma was President of Yiwu Yong Xin Telecommunication Company Limited, China 3C’s largest subsidiary, from 1999 to the present. During the past six years, Mr. Ma’s expertise in marketing and management have contributed significantly to the company’s rapid growth, where it has gone from a small business in the distribution of 3C products, particularly fax machines, in Eastern China to being a major presence in that market. Prior to that, from 1996 to 1999, Mr. Ma was the manager of Zhejiang Transfer Company Limited, a high-tech publicly traded company in China. During his time at Zhejiang Transfer, Mr. Ma was also responsible for the company’s corporate communications. Mr. Ma received his Bachelor degree from Zhejiang University with a concentration in business management.

Mr. Ma does not hold any other directorships with reporting companies in the United States. There are no family relationships between Mr. Ma and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Mr. Ma (or any member of his immediate family) had a direct or indirect material interest.

Chenghua Zhu, Director

Ms. Zhu has been a director since June 2006. Ms. Zhu is a senior project manager of Shanghai Shengzhang, a certified public accounting firm. She was project manager at two CPA firms prior to joining Shanghai Shengzhang, Shanghai Jiarui and Hubei Dahua.

Ms. Zhu does not hold any other directorships with reporting companies in the United States. There are no family relationships between Ms. Zhu and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Ms. Zhu (or any member of his immediate family) had a direct or indirect material interest.

Mingjun Zhu, Director

Mr. Zhu has been a director of the Company since June 2006. Mr. Zhu is General Manager of Zhejiang Mingda, a certified public accounting firm. He was General Manager of Zhejiang Mingda Management Consulting Company. From 1993 to 2004, he was Deputy Director of Yiwu Zhicheng, a CPA firm.

Mr. Zhu does not hold any other directorships with reporting companies in the United States. There are no family relationships between Mr. Zhu and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Mr. Zhu (or any member of his immediate family) had a direct or indirect material interest.

Rongjin Weng, Director

Mr. Weng has been a director since December 2005. Mr. Weng is Chairman of Langsha Group. He established Langsha Knitting Company Limited in 1995, and has served as its chairman and chief executive officer since that time. The company has experienced a 500,000% growth in assets during the past 11 years. Currently, Langsha is the largest sock manufacturer in China with annual revenue of $100 million. Mr. Weng holds a Master degree in Business Administration.

Mr. Weng does not hold any other directorships with reporting companies in the United States. There are no family relationships between Mr. Weng and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. Other than the Merger Transaction, during the last two years, there have been no transactions to which the Company was a party in which Mr. Weng (or any member of his immediate family) had a direct or indirect material interest.

Wei Kang Gu, Director

Mr. Gu has been a director of the Company since December 2005. Mr. Gu is a Professor of Electronic Engineering at Zhejiang University. Founded in 1897, the University has always been ranked among the few top universities in China and is today the third most recognized university in China. It is a major research university comprised of 22 colleges. Mr. Gu also serves on the Board of Bird Ningbo Company. Founded in 1992, Bird Ningbo has grown to be China’s leading domestic manufacturer of mobile phones. He is also Vice Chairman of Zhejiang Electronic Association. Mr. Gu received a bachelors’ degree from Zhejiang University.

Mr. Gu does not hold any other directorships with reporting companies in the United States. There are no family relationships between Mr. Gu and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Mr. Gu (or any member of his immediate family) had a direct or indirect material interest.

Kenneth T. Berents, Director, Chairman Audit Committee

Mr. Berents has a been a director of the Company since December 2006. Mr. Berents is a former managing director and senior portfolio manager for Goldman Sachs Asset Management in Tampa, Fla., which manages $30 billion in growth stocks. Before joining Goldman Sachs, he was the managing director and director of equity research for First Union Securities, now Wachovia Securities, from 1993 to 2000. He holds a bachelor’s in history from Villanova University and a master’s degree in journalism from the University of Missouri-Columbia. He also was an Alfred P. Sloan Fellow in economics at Princeton University. He has appeared on ABC’s Nightline, CNN, CNBC and is widely quoted in national and trade publications.

Mr. Berents does not hold any other directorships with reporting companies in the United States. There are no family relationships between Mr. Berents and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Mr. Berents (or any member of his immediate family) had a direct or indirect material interest.

Joseph J. Levinson

Mr. Levinson has been a director of the Company since May 2007. Mr. Levinson was employed from January 2006 to May 2007 as Chief Financial Officer and a member of the Board of Directors of Global Pharmatech (OTCBB: GBLP), a Chinese pharmaceutical manufacturer. Since 2006 Mr. Levinson has also served as an Advisor to Broadline Capital, which is a private equity investment firm. From 2006 until February 2007 Mr. Levinson was employed as Chief Financial Officer of PacificNet, which is involved in call center outsourcing. From 2004 to 2006 Mr. Levinson was employed as Chief Financial Officer for BDL Media, a company based in China that marketed print and online media. Previously Mr. Levinson had been employed as a Manager by KPMG and Deloitte and Touche, international accounting firms. In 1994 Mr. Levinson was awarded a B.S. by SUNY - Buffalo with a concentration in accounting and finance.

Mr. Levinson is also a director of China Aoxing Pharmaceutical Company, Inc., a maker of analgesic drugs that is listed on the OTCBB. There are no family relationships between Mr. Levinson and the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. During the last two years, there have been no transactions to which the Company was a party in which Mr. Levinson (or any member of his immediate family) had a direct or indirect material interest.

Todd Mavis

Todd Mavis served as a member of the Board of Directors from January 2007 until his resignation in December 2007.

Term

Each director serves for a one year term after which they may stand for re-election at the Company’s annual meeting of stockholders.

Family Relationships

There are no family relationships among the officers and directors of the Company.

Involvement in Certain Legal Proceedings

To our knowledge, during the past five years, our officers and directors: have not filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or present of such a person, or any partnership in which (s)he was a general partner at or within two years before the time of such filing, or any corporation or business association of which (s)he was an executive officer within two years before the time of such filing; were not convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); were not the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting their respective activities.

Compliance with Section 16 (a) of the Exchange Act

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934 during our most recent fiscal year and Forms 5 and amendments thereto furnished to us with respect to our most recent fiscal year, certain officers, directors and owners of 10% or more of our outstanding shares have not filed Forms 3, 4 and 5 required by Section 16(a) of the Securities Exchange Act of 1934, as amended. The following individuals have not filed Form 3s: Weidong Huang, Xiang Ma, Weikang Gu and Joseph Levinson.

Code of Ethics

In 2007 we adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code of ethics. The code of ethics is filed as Exhibit 14 to this annual report. A written copy of the code of ethics will be provided upon request at no charge by writing to our Chief Financial Officer, China 3C Group, 368 HuShu Nan Road, HangZhou City, Zhejiang Province, China 310014.

Board Committees and Designated Directors

The Board of Directors has a Compensation Committee, a Nominating and Corporate Governance Committee and an Audit Committee.

Audit Committee

Our Audit Committee consists of Chairman Kenneth T. Berents and members Rongjin Weng and Chenghua Zhu. The Board of Directors of the Company has determined that Mr. Berents is the audit committee financial expert.

Compensation Committee

Our Compensation Committee consists of Chairman Wei Kang Gu and member Rongjin Weng. The Compensation Committee makes recommendations to the Board of Directors concerning salaries and incentive compensation for our officers, including our Chief Executive Officer, and employees and administers our stock option plans. Each of the members of the Committee is independent and none have served as an officer or employee of the Company.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee consists of Chairman Mingjun Zhu and member Wei Kang Gu. The Nominating and Corporate Governance Committee assists the Board of Directors in identifying qualified individuals to become board members, in determining the composition of the Board and in monitoring a process established to assess Board effectiveness. Each of the members of the Committee is independent and none have served as an officer or employee of the Company.

Changes in Director Nomination Process for Stockholders

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion And Analysis

The Compensation Committee of our board of directors and our CEO, CFO and head of Human Resources are collectively responsible for implementing and administering all aspects of our benefit and compensation plans and programs, as well as developing specific policies regarding compensation of our executive officers. All of the members of our Compensation Committee, Mingjun Zhu and Wei Kang Gu, are independent directors.

Compensation Objectives

Our primary goal with respect to executive compensation has been to set compensation at levels that attract and retain the most talented and dedicated executives possible. Individual executive compensation is set at levels believed to be comparable with executives in other companies of similar size and stage of development operating in China. We also link long-term stock-based incentives to the achievement of specified performance objectives and to align executives’ incentives with stockholder value creation.

Elements of Compensation

Base Salary . All full time executives are paid a base salary. For executives who are Chinese nationals, including our CEO and Chairman, we do not have employment agreements. Base salaries for our executives are established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies in our industry for similar positions, professional qualifications, academic background, and the other elements of the executive’s compensation, including stock-based compensation. Our intent is to set executives’ base salaries near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable companies, in line with our compensation philosophy. Base salaries are reviewed annually, and may be increased to align salaries with market levels after taking into account the subjective evaluation described previously.

The Company currently has no foreign employees and the amount of salary is primarily determined by job requirements and each employee’s level in the corporate hierarchy. The Company’s personnel department then makes salary decisions based on these factors along with and job performance and market conditions.

Equity Incentive Compensation . We believe that long-term performance is achieved through an ownership culture participated in by our executive officers through the use of stock-based awards. Currently, we do not maintain any incentive compensation plans based on pre-defined performance criteria. The Compensation Committee has the general authority, however, to award equity incentive compensation, i.e. stock options, to our executive officers in such amounts and on such terms as the committee determines in its sole discretion. The Committee does not have a determined formula for determining the number of options available to be granted. Incentive compensation is intended to compensate officers for accomplishing strategic goals such as mergers and acquisitions and fund raising. The Compensation Committee will review each executive’s individual performance and his or her contribution to our strategic goals periodically and determine the amount of incentive compensation towards the end of the fiscal year. Our Compensation Committee grants equity incentive compensation at times when we do not have material non-public information to avoid timing issues and the appearance that such awards are made based on any such information.

Determination of Compensation

Our CEO, CFO and head of Human Resources meet frequently during the last several weeks of our fiscal year to evaluate each non-executive employee’s performance and determine his or her compensation for the following year.

The following table sets forth the cash and other compensation paid by us in 2007 to all individuals who served as our chief executive officer and chief financial officer, who we collectively refer to as the named executive officers (“NEOs”). No executive received total compensation greater than $100,000 in 2007.

	SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary ($)			Bonus ($)	Stock Awards ($)		Option Awards ($)	Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)

Zhenggang Wang, CEO	2007	$	59,600		-		-	-		-	-	-	$	59,600
	2006	$	15,000		-		-	-		-	-	-	$	15,000
	2005	$	15,000		-		-	-		-	-	-	$	15,000

Jian Liu, Former CFO	2007	$	53,000		-		-	-		-	-	-	$	53,000
	2006	$	15,000		-		-	-		-	-	-	$	15,000
	2005	$	15,000		-		-	-		-	-	-	$	15,000

Weidong Huang, CFO	2007	$	5,000		-		-	-		-	-	-	$	5,000
			(partial year)	(1)
	2006	$	0
	2005	$	0

Joseph Levinson, Director(2)	2007		16,000				13,930	967,500		-	-	-		997,430

(1) Through October 8, 2007.

(2) Became Director in May 2007.

Grants of Plan-Based Awards

No plan based award was granted to any of the executive officers named in the Company’s Summary Compensation Table as of December 31, 2007.

Outstanding Equity Awards At Fiscal Year-end

There were no outstanding unexercised options, unvested stock or other equity incentive plan awards held by any of the executive officers named in the Company’s Summary Compensation Table as of December 31, 2007.

Option Exercises And Stock Vested

There were no exercises of stock options, stock appreciation rights and/or similar investment nor was there any vesting of stock, restricted stock, restricted stock units or similar instruments during the year ended December 31, 2007 for any of the executive officers named in the Company’s Summary Compensation Table.

Pension Benefits

We do not sponsor any qualified or non-qualified defined benefit plans.

Nonqualified Deferred Compensation

We do not maintain any non-qualified defined contribution or deferred compensation plans. Our Compensation Committee, which is comprised solely of “outside directors” as defined for purposes of Section 162(m) of the Code, may elect to provide our officers and other employees with non-qualified defined contribution or deferred compensation benefits if the Compensation Committee determines that doing so is in our best interests.

Employment Agreements

On May 7, 2007 the Board of Directors appointed Joseph J. Levinson to serve as a member of the Board of Directors of the Company and to be in charge of the Company’s investor relations. As compensation for his services, Mr. Levinson is entitled to receive: (1) USD $60,000 per year, payable in equal quarterly installments; (2) a monthly grant during his term of his services of 1,000 shares of the Company’s common stock; and (3) an annual grant of Stock Options to purchase up to 300,000 shares of common stock of the Company. In addition, the Company agreed that Mr. Levinson would receive (1) $2,500 for each Board meeting that he attends, (2) $2,000 for each meeting of a committee of the Board that he attends, (3) $5,000 upon being named the chairman of any Board committee, and (4) $4,500 as a one time bonus upon joining the Board.

Potential Payments Upon Termination or Change in Control

None.

Compensation of Directors

Messrs. Berents and Levinson, and Mr,.Mavis prior to his resignation in December 2007, receive $2,500 per Board meeting that they attend, $2,000 per meeting of a committee of the Board that they attend, and $5,000 for serving as a chairman of a Board committee.

Upon joining the Board of Directors on December 8, 2006, Ken Berents entered into a Board of Directors Agreement with the Company, pursuant to which he receives an annual salary of $75,000 payable in monthly installments at the beginning of each month that Mr. Berents is a member of the Board of Directors. In addition, Mr. Berents was given a one-time payment of $5,000 for being named Chairman of the Audit Committee. Mr. Berents received an option grant to purchase 50,000 shares of common stock of the Company upon execution of his Board of Directors Agreement and is entitled to receive 30,000 shares on each anniversary of such date thereafter, provided Mr. Berents is a member of the Board of Directors at such time. The exercise price of the initial grant of 50,000 shares shall be based on the closing price of the common stock of the Company on December 7, 2006 and for each future option grant the closing price of the Company common stock on the anniversary of such date. All option grants will vest upon issuance and will have an exercise period of ten years from date of issuance so long as Mr. Berents is a member of the Board of Directors at such time. In the event that Mr. Berents is no longer a member of the Board of Directors, his exercise period for all vested options will be twenty-four months from the anniversary date of his departure from the Board of Directors.

The Company entered into Board of Directors Agreement with Todd Mavis on January 2, 2007 , pursuant to which he received $4,500 upon joining the Board of Directors of the Company and an annual salary of seventy five thousand dollars payable in monthly installments at the beginning of each month that Mr. Mavis was a member of the Board of Directors. Mr. Mavis received an option grant to purchase 50,000 shares of common stock of the Company upon execution of his Board of Directors Agreement and 30,000 shares on each anniversary of such

date thereafter, provided Mr. Mavis is a member of the Board of Directors at such time. The exercise price of the initial grant of 50,000 shares shall be based on the closing price of the common stock of the Company on January 2, 2007 and for each future option grant the closing price of the Company common stock on the anniversary of such date. All option grants vested upon issuance and have an exercise period of ten years from date of issuance so long as Mr. Mavis is a member of the Board of Directors at such time. According to the terms of his Board of Director Agreement, Mr. Mavis has an exercise period for all vested options that is twenty-four months from the anniversary date of his departure from the Board of Directors.

The following table summarizes compensation that our directors earned during 2007 for services as members of our Board.

DIRECTOR COMPENSATION
Name	Fees Earned or Paid in Cash		Stock Awards ($) (1)		Option Awards ($) (2)		Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)	Total ($)
Kenneth T. Berents	$	75,000			97,230	(3)	-		-	-		172,230
Wei Kang Gu		-	-		-		-		-	-		-
Joseph J. Levinson	$	16,000	13,930(6	)	967,500	(4)	-		-	-		997,430
Todd Mavis	$	75,000	-		64,188	(5)	-		-	-		139,188
Chenghua Zhu			-		-		-		-	-		-
Mingjun Zhu			-		-		-		-	-		-
Rongjin Weng			-		-		-		-	-		-

(1) Valuation based on dollar amount recognized for financial statement reporting purposes pursuant to FAS 123(R) with respect to 2007.

(2) Valuation based on the dollar amount of option grants recognized for financial statement reporting purposes pursuant to FAS 123(R) with respect to 2007.

(3) Mr. Kenneth Berents received a stock option grant of 30,000 shares in December, 2007 at an exercise price equivalent to the prevailing market price of the stock, all of which vested are were exercisable as of December 31, 2007.

(4) Mr. Joseph Levinson received a stock option grant of 300,000 shares in May, 2007 at an exercise price of $6.15 per share, all of which vested are were exercisable as of December 31, 2007.

(5) Mr. Todd Mavis received a stock option grant of 50,000 shares in January, 2007 at an exercise price equivalent to the prevailing market price of the Company’s stock, all of which vested are were exercisable as of December 31, 2007.

(6) Joseph Levinson was granted 5,000 shares of common stock in 2007. All 5,000 shares were granted in September 2007.

There are no relationships among any of the directors.

Compensation Committee Interlocks and Insider Participation

Members of our Compensation Committee of the Board of Directors were Mingjun Zhu and Wei Kang Gu. No member of our Compensation Committee was, or has been, an officer or employee of the Company or any of our subsidiaries.

No member of the Compensation Committee has a relationship that would constitute an interlocking relationship with executive officers or directors of the Company or another entity.

Compensation Committee Report (1)

The goal of the Company’s executive compensation policy is to ensure that an appropriate relationship exists between executive compensation and the creation of stockholder value, while at the same time attracting, motivating and retaining experienced executive officers.

The Compensation Committee has reviewed and discussed the discussion and analysis of the Company’s compensation which appears above with management, and, based on such review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the above disclosure be included in this Annual Report on Form 10-K/A.

The members of the Compensation Committee are:

Mingjun Zhu, Chair

Wei Kang Gu

(1) The material in the above Compensation Committee reports is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, or the Securities Exchange Act of 1934, whether made before or after the date of this Form 10-K/A and irrespective of any general incorporation language in such filing.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information, as of March 14, 2008, concerning shares of common stock of the Company, the only class of its securities that are issued and outstanding, held by (1) each shareholder known by the Company to own beneficially more than five percent of the common stock, (2) each director of the Company, (3) each executive officer of the Company, and (4) all directors and executive officers of the Company as a group:

	Amount and Nature
	of Beneficial			Percentage of
Name and Address of Beneficial Owner (1)	Ownership			Common Stock (3)

Zhenggang Wang		9,625,000		18.34	%
Weidong Huang		0		0
Xiang Ma		0		0
Chenghua Zhu		0		0
Mingjun Zhu		0		0
Rongjin Weng		0		0
Wei Kang Gu		0		0
Kenneth T. Berents		80,000	(4)	*
Joseph J. Levinson		305,000	(4)	0.59*	%
Weiyi Lv		5,495,000		10.47	%
Yimin Zhang		5,495,000		10.47	%
Xiaochun Wang		4,130,000		7.87	%
Wen-An Chen (2)		4,000,000		7.62	%
Huoqing Yang (2)		4,000,000		7.62	%
Zhongsheng Bao		2,730,000		5.20	%
All directors and executive officers as a group (9 persons)		9,725,000		18.53	%

* Less than One Percent.

(1)		Unless otherwise indicated in the footnotes to the table, each shareholder shown on the table has sole voting and investment power with respect to the shares beneficially owned by him, her or it. Unless otherwise indicated in the footnotes to the table, the address for each shareholder is c/o: 368 HuShu Nan Road, HangZhou City, Zhejiang Province, China 310014. Percentages of less than one percent have been omitted from the table.
(2)		Represents shares of common stock held jointly by Wen-An Chen and Huoqing Yang.
(3)		Calculated on the basis of 52,671,438 shares of common stock issued and outstanding as of March 14, 2008 except that shares of common stock underlying options and warrants exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of the holder of such options or warrants.
(4)		Represents shares of common stock issuable upon exercise of outstanding stock options (as described above).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Transactions

Since October 2005, Zhenggang Wang, our CEO and Chairman of the Board of Directors, a former shareholder of CFDL and its sole director, has served as the chairman of the board and the chief executive officer of the Company and has been a member of the board of directors of the Company. China US Bridge Capital Limited, a former shareholder of CFDL, has been a holder of the Company’s common stock since October 2005. Immediately prior to the Merger Transaction, it held approximately 4.6% of the Company’s issued and outstanding common stock.

Except as otherwise disclosed herein or incorporated herein by reference, there have not been any transactions, or proposed transactions, during the last two years, to which the Company was or is to be a party, in which any director or executive officer of the Company, any nominee for election as a director, any security holder owning beneficially more than five percent of the common stock of the Company, or any member of the immediate family of the aforementioned persons had or is to have a direct or indirect material interest.

Independent Directors

The following members of the Company’s Board of Directors are independent under the listing standards of the Nasdaq Stock Market: Rongjin Weng, Weikang Gu, Mingjun Zhu, Chenghua Zhu, and Kenneth Berents.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

On April 20, 2006 the Company retained Morgenstern & Company, CPA’s, P.C. (“Morgenstern”) to serve as the Company’s principal independent accountant.

The following represents fees for professional audit services rendered by Morgenstern for the fiscal year ended December 31, 2006 and December 31, 2007.

Audit Fees

The aggregate fees billed by our current auditors, Morgenstern, for professional services rendered for the audit of our annual financial statements for the year ended December 31, 2007 and 2006 were $228,000 and $99,184.

Audit Related Fees

We incurred no audit related fees to Morgenstern and Kabani during the year ended December 31, 2006.

Tax Fees

Our principal accountants did not render any services for tax compliance, tax advice and tax planning during transition period ended December 31, 2007 and 2006 fiscal year, respectively.

All Other Fees

Our principal accountants did not bill us any additional fees that are not disclosed under audit fees, audit related fees or tax fees in each of the last two calendar years.

Audit Committee Pre-Approval Process, Policies and Procedures

We have an Audit Committee which is composed of Kenneth T. Berents (Chairman), Chenghua Zhu and Rongjin Weng. Our principal accountants have performed their audit procedures in accordance with pre-approved policies and procedures established by our Audit Committee. Our principal auditors have informed our Audit Committee of the scope and nature of each service provided.

In accordance with the SEC’s auditor independence rules, the Audit Committee has established the following policies and procedures by which it approves in advance any audit or permissible non-audit services to be provided to the Company by its independent auditor.

Prior to the engagement of the independent auditor for any fiscal year’s audit, management submits to the Audit Committee for approval lists of recurring audit, audit-related, tax and other services expected to be provided by the auditor during that fiscal year. The Audit Committee adopts pre-approval schedules describing the recurring services that it has pre-approved, and is informed on a timely basis, and in any event by the next scheduled meeting, of any such services rendered by the independent auditor and the related fees.

The fees for any services listed in a pre-approval schedule are budgeted, and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year. The Audit Committee will require additional pre-approval if circumstances arise where it becomes necessary to engage the independent auditor for additional services above the amount of fees originally pre-approved. Any audit or non-audit service not listed in a pre-approval schedule must be separately pre-approved by the Audit Committee on a case-by-case basis. Every request to adopt or amend a pre-approval schedule or to provide services that are not listed in a pre-approval schedule must include a statement by the independent auditors as to whether, in their view, the request is consistent with the SEC’s rules on auditor independence.

The Audit Committee will not grant approval for:

·	any services prohibited by applicable law or by any rule or regulation of the SEC or other regulatory body applicable to the Company;
·	provision by the independent auditor to the Company of strategic consulting services of the type typically provided by management consulting firms; or
·	the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the tax treatment of which may not be clear under the Internal Revenue Code and related regulations and which it is reasonable to conclude will be subject to audit procedures during an audit of the Company’s financial statements.

Tax services proposed to be provided by the auditor to any director, officer or employee of the Company who is in an accounting role or financial reporting oversight role must be approved by the Audit Committee on a case-by-case basis where such services are to be paid for by the Company, and the Audit Committee will be informed of any services to be provided to such individuals that are not to be paid for by the Company.

In determining whether to grant pre-approval of any non-audit services in the “all other” category, the Audit Committee will consider all relevant facts and circumstances, including the following four basic guidelines:

·	whether the service creates a mutual or conflicting interest between the auditor and the Company;
·	whether the service places the auditor in the position of auditing his or her own work;
·	whether the service results in the auditor acting as management or an employee of the Company; and
·	whether the service places the auditor in a position of being an advocate for the Company.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Schedules

The financial statements are set forth under Item 8 of this Annual Report on Form 10-K/A. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

(b) Exhibit Listing

Exhibit No.	Document Description

3.1		Amended and Restated Articles of Incorporation of the Registrant (11)
3.2		By-laws of the Registrant (1 )
4.1		China 3C Group Amended 2005 Equity Incentive Plan. (2 )
10.1		Stock Purchase Agreement, dated as of October 17, 2005, by and among Sun Oil & Gas, Inc., EH&P Investments, John D. Swain, Fred Holcapek, PH Holding Group, Ma Cheng Ji, Zhou Wei, Zeng Xiu Lan, Gu Xiao Dong, Jacksonville Management Ltd., Colin Wilson, Alliance Capital Management, Inc., Hanzhong Fang and China U.S. Bridge Capital, Ltd.(3)
10.2		Consulting Services Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang Yong Xing Digital Technology Co., Ltd. (4 )
10.3		Operating Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang Yong Xing Digital Technology Co., Ltd. (4 )
10.4		Proxy and Voting Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang Yong Xing Digital Technology Co., Ltd. (4 )
10.5		Option Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang Yong Xing Digital Technology Co., Ltd. (4 )
10.6		Equity Pledge Agreement dated as of November 1, 2005 between Capital Development Limited and Zhejiang Yong Xing Digital Technology Co., Ltd. (4 )
10.7		Subscription Agreement, dated as of December 20, 2005, between the Registrant and Huiqi Xu. (5 )
10.8		Consulting Agreement, dated as of December 20, 2005, among the Registrant, Wen-An Chen and Huoqing Yang. (5 )
10.9		Guarantee Contract between the Registrant and Shenzhen Shiji Ruicheng Guaranty and Investment Co. Ltd., dated as of December 21, 2005. (6 )
10.10		Agreement and Plan of Merger, dated as of December 21, 2005, among the Registrant, YX Acquisition Corporation, Capital Future Development Limited, Zhenggang Wang, Yimin Zhang, Weiyi Lv, Xiaochun Wang, Zhongsheng Bao, Simple (Hongkong) Investment & Management Company Limited, First Capital Limited, Shenzhen Dingyi Investment & Consulting Limited and China US Bridge Capital Limited. (6 )
10.11		Form of Promissory Note dated December 21, 2005. (6 )
10.12		Share Exchange Agreement, dated as of November 28, 2006, among China 3C Group, Capital Future Development Limited (“CFDL”), Shanghai Joy & Harmony Electronics Company Limited, and the shareholders of CFDL. (7 )
10.13		Form of Securities Purchase Agreement, dated July 13, 2007, by and among the Registrant and certain subscribers (8 )
10.14		Letter of Intent for Strategic Partnership, dated November 22, 2007, between the Registrant’s subsidiary Zhejiang Yongxin Technology Limited and Hangzhou Xituo Network Technology Company (9 )
10.15		Consignment Agreement, dated January 2, 2008, between the Registrant’s subsidiary Hangzhou Shan He Electric Company Limited and Hangzhou Lotour Digital Products Business Company Limited (10 )

10.16			Consignment Agreement, dated January 3, 2008, between the Registrant’s subsidiary Hangzhou Wang Da Electric Company Limited and Hangzhou Lotour Digital Products Business Company Limited (10 )
14.1			Code of Business Conduct and Ethics (11)
21.1			List of Subsidiaries (11)
23.1			Consent of Kabani & Company, Inc.
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, filed herewith.
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, filed herewith.
32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed herewith.
32.2			Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002), filed herewith.
99.1			Press Release dated March 27, 2008 (11)

_________________

(1) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on January 3, 2007.

(2) Incorporated by reference from the Registrant’s Registration Statement on Form S-8 (File No. 333-141173) dated March 9, 2007.

(3) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on October 21, 2005

(4) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on September 11, 2007.

(5) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 20, 2005.

(6) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 22, 2005.

(7) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on December 11, 2006.

(8) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on July 17, 2007.

(9) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on November 28, 2007.

(10) Incorporated by reference from the Registrant’s Current Report filed with the SEC on Form 8-K on January 17, 2008.

(11) Incorporated by reference from the Registrant’s Annual Report filed with the SEC on Form 10-K on March 27, 2008.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 31 st day of October 2008.

	CHINA 3C GROUP


		/s/ Zhenggang Wang
		Zhenggang Wang
		Chief Executive Officer and Chairman

Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of the Company and in the capacities indicated below and on the dates indicated.

Signatures	Title	Date

/s/ Zhenggang Wang
Zhenggang Wang	Chief Executive Officer and Chairman	October 31, 2008

/s/ Xiang Ma
Xiang Ma	President	October 31, 2008

/s/ Weidong Huang
Weidong Huang	Chief Financial Officer	October 31, 2008

/s/ Chenghua Zhu
Chenghua Zhu	Director	October 31, 2008

/s/ Mingjun Zhu
Mingjun Zhu	Director	October 31, 2008

/s/ Rongjin Weng
Rongjin Weng	Director	October 31, 2008

/s/ Wei Kang Gu
Wei Kang Gu	Director	October 31, 2008


Kenneth T. Berents	Director	October 31, 2008


Joseph J. Levinson	Director	October 31, 2008

CHINA 3C GROUP AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

TABLE OF CONTENTS


Report of Independent Registered Public Accounting Firm	F-1

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets	F-3

Consolidated Statements of Income	F-4

Consolidated Statements of Cash Flow	F-5

Consolidated Statements of Stockholders Equity	F-6

Notes to Consolidated Financial Statements	F-7 - F-22

MORGENSTERN, SVOBODA & BAER, CPA’s, P.C.

CERTIFIED PUBLIC ACCOUNTANTS

40 Exchange Place, Suite 1820

New York, NY 10005

TEL: (212) 925-9490

FAX: (212) 226-9134

E-MAIL: MORGENCPA@CS.COM

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

China 3C Group

We have audited the accompanying consolidated balance sheets of China 3C Group as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for the year ended December 31, 2007 and 2006. We also have audited China 3C Group’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). China 3c Group ‘s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control. Our responsibility is to express an opinion on these financial statements and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding on internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our audits.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China 3C Group as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the year ended December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, China 3C Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Morgenstern, Svoboda & Baer CPA’s P.C.

Morgenstern, Svoboda & Baer CPA’s P.C.

Certified Public Accountants

New York, New York

March 4, 2008

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

China 3C Group and Subsidiaries, Inc.

We have audited the accompanying consolidated statements of income, stockholders' equity, and cash flows of China 3C Group and Subsidiaries, Inc. (a Nevada corporation) for the year ended December 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of the operations of China 3C Group and Subsidiaries, Inc. and their consolidated cash flows for the year ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ Kabani & Company, Inc.

Certified Public Accountants

Los Angeles, California

March 10, 2006

F-2

CHINA 3C GROUP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2007 AND DECEMBER 31,2006

	12/31/2007			12/31/2006
ASSETS
Current Assets
Cash and cash equivalents	$	24,952,614		$	6,498,450
Accounts receivable, net		8,077,533			8,013,071
Inventory		6,725,371			2,779,506
Advance to supplier		2,572,285			2,215,841
Prepaid expenses		382,769			60,059
Total Current Assets		42,710,572			19,566,927

Property & equipment, net		89,414			65,803
Goodwill		20,348,278			20,348,278
Refundable deposits		48,541			6,567
Total Assets	$	63,196,805		$	39,987,575

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable and accrued expenses	$	3,108,235		$	1,964,663
Income tax payable		2,684,487			2,596,517
Notes payable		-			4,500,000
Total Current Liabilities		5,792,722			9,061,180

Stockholders’ Equity
Common stock, $.001 par value, 100,000,000 shares authorized, 52,673,938 and 52,488,938 issued and outstanding		52,674			52,489
Additional paid in capital		19,465,776			17,352,691
Subscription receivable		(50,000	)		(50,000	)
Statutory reserve		7,234,295			3,320,755
Other comprehensive income		1,872,334			427,616
Retained earnings		28,829,004			9,822,844
Total Stockholders’ Equity		57,404,083			30,926,395

Total Liabilities and Stockholders’ Equity	$	63,196,805		$	39,987,575

The accompanying notes are an integral part of these consolidated financial statements.

F-3

CHINA 3C GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

	2007		2006		2005

Sales, net	$	276,026,673	$	148,218,848	$	32,588,634

Cost of sales	226,656,242		125,411,758		28,325,332
Gross profit		49,370,431	22,807,090		4,263,302

General and administrative expenses	13,614,500		5,544,924		1,706,869
Income from operations	35,755,931		17,262,166		2,556,433

Other (Income) Expense
Interest income	(88,413 )		(31,293 )		(10,156 )
Other expense	74,215		100,646		17,364
Interest expense	-		7,565		2,954
Total Other (Income) Expense	(14,198 )			76,918		10,162
Income before income taxes	35,770,129		17,185,248		2,546,271

Provision for income taxes	12,850,429		5,908,122		1,088,021

Net income	$	22,919,700	$	11,277,126	$	1,458,250

Net income per share:
Basic & diluted	$	0.44	$	0.24	$	0.04

Weighted average number of shares outstanding:
Basic & diluted	52,671,438		46,179,507		35,133,427

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CHINA 3C GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	22,919,700		$	11,277,126		$	1,458,250
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	40,714			20,191			17,420
Gain on asset disposition		-			(936	)
Provision for bad debts	9,021			82,686				-
Stock based compensation		2,113,270			-			225,680
Amortization of deferred consulting expense	-			387,945				12,055
Shares to be issued to consultants								498,000
(Increase) / decrease in assets:
Accounts receivables		(73,483	)		(2,375,209	)		(286,498	)
Inventory	(3,945,865 )			(487,593 )				(421,658	)
Prepaid expense		(322,710	)		85,216			(42,522	)
Advance to supplier	(356,444 )			(848,848 )				(372,000	)
Deposits		(41,974	)		(5,929	)		1,288
Increase / (decrease) in current liabilities:
Accounts payable and accrued expenses		1,143,572			1,356,272			(267,816	)
Income tax payable	87,970			1,477,695				122,067
Total Adjustments		(1,345,929	)		(308,510	)		(513,984	)

Net cash provided by operating activities		21,573,771			10,968,616			944,266

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment	(64,325 )			(30,591 )				(2,308	)
Proceeds from asset sales		-			1,508			-
Net cash used by Investing activities	(64,325 )			(29,083 )				(2,308	)

CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution to subsidiary before acquisition		-			-			1,210,000
Dividends paid	-			-			(529,140 )
Proceed on loan from related parties		-			-			97,760
Payments on loan to related parties	-			-			(250,877 )
Payments of acquisition notes - net of cash acquired		(4,500,000	)		(6,550,157	)		-
Payments of notes - other	-			(7,769 )				(9,807	)
Net cash provided by financing activities		(4,500,000	)		(6,557,926	)		517,936

Effect of exchange rate changes on cash and cash equivalents		1,444,718			167,621			19,670

Net change in cash and cash equivalents		18,454,164			4,549,228			1,479,564
Cash and cash equivalents, beginning balance	6,498,450			1,949,222				469,658
Cash and cash equivalents, ending balance	$	24,952,614		$	6,498,450		$	1,949,222

SUPPLEMENTAL DISCLOSURES:

Cash paid during the year for:
Income tax payments	$	12,762,459		$	3,534,155			965,354
Interest payments	$	-		$	7,565			2,954

Non cash transactions relating to acquisitions
Purchased Goodwill				$	(20,348,278	)
Fair value of assets purchased less cash acquired					(5,451,879	)
Acquisition financed with stock issuance				14,750,000
Acquisition financed with notes					12,500,000
Net cash acquired in acquisitions				$	1,449,843

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CHINA 3C GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

					Shares		Additional		Other		Deferred											Total
	Common Stock				to be		Paid-In		Comprehensive		Consulting			Subscription			Statutory		Retained			Stockholders’
	Shares		Amount		issued		Capital		Income		Expense			Receivable			Reserve		Earnings			Equity

Balance December 31, 2004		35,000,000	$	35,000	$	-	$	267,500	$	-	$	-		$	-		$	70,379	$	383,297		$	756,176

Changes due to recapitalization		2,613,282	2,613					1,226,387															1,229,000
Shares issued for consulting fees						498,000																	498,000
Warrants issued for deferred consulting fees							400,000				(387,945 )											12,055
Stock issued for guarantee fee		2,256,795		2,257				223,423															225,680
Warrants exercised					4,000		(4,000 )															-
Stock subscription receivable															(50,000	)							(50,000	)
Dividend paid																			(525,460 )			(525,460 )
Foreign currency translation adjustments										74,950													74,950
Transfer to statutory reserve																	331,651		(331,651 )			-
Net income for the year ended December 31, 2005																				1,458,250			1,458,250
Balance December 31, 2005		39,870,077	$	39,870	$	502,000	$	2,113,310	$	74,950	$	(387,945	)	$	(50,000	)	$	402,030	$	984,436		$	3,678,651

Stock Issued		8,980,000	8,980		(502,000 )		493,020
Foreign currency translation adjustments										167,621													167,621
Income for the year ended December 31, 2006																				11,277,126			11,277,126
Transfer to statutory reserve																		2,438,717		(2,438,717	)
Purchase Acquisition		3,638,861	3,639					14,746,361	185,045								480,008						15,415,053
Transferred To prepaid												387,945											387,945
Balance December 31, 2006		52,488,938	$	52,489	-		$	17,352,691	$	427,616	-			$	(50,000	)	$	3,320,755	$	9,822,844		$	30,926,395

Foreign currency translation adjustments									1,444,718														1,444,718
Stock based compensation		185,000		185				2,113,085															2,113,270
Transfer to statutory reserve																		3,913,540		(3,913,540	)	-
Income for Year
Ended December 31, 2007																				22,919,700			22,919,700
Balance December 31, 2007		52,673,938	$	52,674			$	19,465,776	$	1,872,334					(50,000	)	$	7,234,295	$	28,829,004		$	57,404,083

The accompanying notes are an integral part of these consolidated financial statements

F-6

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 1 - ORGANIZATION

China 3C Group was incorporated on August, 20, 1998 under the laws of the State of Nevada. Capital Future Developments Limited - BVI (Capital) was incorporated on July 22, 2004 under the laws of the British Virgin Islands. Zhejiang Yong Xin Digital Technology Co., Ltd. (Zhejiang), Yiwu Yong Xin Communication Ltd. (Yiwu), Hangzhou Wandga Electronics Co., Ltd. (Wang Da), Hangzhou Sanhe Electronic Technology, Limited (“Sanhe”), and Shanghai Joy & Harmony Electronics Company Limited (Joy & Harmony) were incorporated under the laws of Peoples Republic of China on July 11, 2005, July 18, 1997, March, 30, 1998, April 12, 2004, and August 20, 2003, respectively.

On December 21, 2005 Capital became a wholly owned subsidiary of China 3C Group through a reverse merger (the “Merger Transaction”). China 3C Group acquired all of the issued and outstanding capital stock of Capital pursuant to a Merger Agreement dated at December 21, 2005 by and among China 3C Group, XY Acquisition Corporation, Capital and the shareholders of Capital (the “Merger Agreement”). Pursuant to the Merger Agreement, Capital became a wholly owned subsidiary of China 3C Group and, in exchange for the Capital shares, China 3C Group issued 35,000,000 shares of its common stock to the shareholders of Capital, representing 93% of the issued and outstanding capital stock of China 3C Group at that time and a cash consideration of $500,000. On August 15, 2007, the Company changed the ownership structure. As a result, instead of (Capital) owning 100% of (Zhejiang) as previously disclosed, (Capital) has entered into contractual agreements with (Zhejiang) whereby (Capital) owns a 100% interest in the revenues of (Zhejiang). (Capital) does not have an equity interest in (Zhejiang), but enjoys all the economic benefits. Under this structure, (Zhejiang) is now a wholly foreign owned enterprise (WOFE) of Capital. The contractual agreements give (Capital) and its’ equity owners an obligation, and having ability to absorb, any losses, and rights to receive returns. (Capital) will be unable to make significant decisions about the activities of the company and can not carry out its principal activities without financial support. These characteristics as defined in Financial Accounting Standards Board (FASB) interpretation 46, Consolidation of Variable Interest Entities (VIEs), qualifies the business operations of (Zhejiang) to be consolidated with (Capital) and ultimately with China 3C Group.

Acquisitions

(a) Hangzhou Sanhe Electronic Technology Ltd.

On August 3, 2006, the Company completed the acquisition of a 100% interest in Hangzhou Sanhe Electronic Technology Ltd. ("HSET") for a cash and stock transaction valued at approximately US$8.75 million. This amount is included in the cost of net assets and goodwill purchased.

The stock consideration consisted of 915,751 newly issued shares of the Registrant’s common stock, which were divided proportionally among the HSET Shareholders in accordance with their respective ownership interests in HSET immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,000,000 in cash, again divided proportionally among the HSET Shareholders in accordance with their respective ownership interests in HSET immediately before the completion of the Share Exchange Transaction and payable no later than the first anniversary of the Merger Transaction. The obligation to pay the cash consideration is evidenced by two interest-free promissory notes between the Registrant and each of the HSET Shareholders. The form of the promissory note is attached as an exhibit to the Share Exchange Agreement.

HSET is a home electronics retail chain in Eastern China. It has 200 retail stores in Shanghai City, Zhejiang Province and Jiangsu Province. The company specializes in the sell of home electronics, including DVD players, audio systems, speakers, televisions and air conditioners.

The main purpose of the acquisition of the 100% interest in HSET is to increase the Company’s presence, distribution markets, and increase product lines. The purchase price was determined based on arms' length negotiations between China 3C and Hangzhou Sanhe Electronic Technology, Ltd.

The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with SFAS 94. The allocation of the purchase price is as follows:

Cash acquired	$	1,235,283
Accounts Receivable		1,207,653
Inventory		667,504
Trade Deposits		694,695
Prepaid Expenses		2,333
Property Plant & Equipment		966
Goodwill		5,854,096

Total assets acquired		9,662,530
Liabilities assumed
Accounts & Income Taxes payable		626,091
Other payable		286,439

Total	$	8,750,000

F-7

The excess of purchase price over tangible assets acquired and liabilities assumed of $5,854,096 was recorded as goodwill. At the time of the acquisition no identifiable intangibles assets existed under the contractual-legal or the separability criterion as required under SFAS 141.

Prior to the acquisition, Hangzhou Sanhe Electronic Technology, Ltd. prepared its financial statements under accounting principles generally accepted in the United States of America.

(b) Shanghai Joy & Harmony Electronics Company Limited

On November 28, 2006, the Company completed the acquisition of a 100% interest in Shanghai Joy & Harmony Electronics Company Limited for a cash and stock transaction valued at approximately US$18.5 million. This amount is included in the cost of net assets and goodwill purchased.

The stock consideration consisted of 2,723,110 shares of the Registrant’s common stock, which were divided proportionally among the Shanghai Joy & Harmony Electronics Company Limited Shareholders in accordance with their respective ownership interests in Shanghai Joy & Harmony Electronics Company Limited immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $7,500,000 in cash, again divided proportionally among the Shanghai Joy & Harmony Electronics Company Limited Shareholders in accordance with their respective ownership interests in Shanghai Joy & Harmony Electronics Company Limited immediately before the completion of the Share Exchange Transaction. The Cash Component is payable by CHCG as follows: $3,000,000 within 10 business days after the Closing and $4,500,000 is payable six months after the Closing as evidenced by a promissory note.

Shanghai Joy & Harmony Electronics Company Limited is engaged in the business of distributing MP3 and MP4 players, iPod, electronic dictionaries, CD players, radios, Walkman, and audio systems and speakers at company maintained shops at various retail establishments.

The main purpose of the acquisition of the 100% interest in Shanghai Joy & Harmony Electronics Company Limited is to increase the Company’s presence, distribution markets, and increase product lines. The purchase price was determined based on arms' length negotiations between China 3C and Shanghai Joy & Harmony Electronics Company Limited

Cash acquired	$	214,561
Accounts Receivable		3,599,680
Inventory		1,021,435
Trade Deposits		300,304
Prepaid Expenses		4,387
Property Plant & Equipment		11,342
Goodwill		14,494,182

Total assets acquired		19,645,891
Liabilities assumed
Accounts & Income Taxes payable		767,277
Other payable		378,614

Total	$	18,500,000

F-8

The excess of purchase price over tangible assets acquired and liabilities assumed of $14,494,182 was recorded as goodwill. At the time of the acquisition no identifiable intangibles assets existed under the contractual-legal or the separability criterion as required under SFAS 141.

Prior to the acquisition, Shanghai Joy & Harmony Electronics Company Limited prepared its financial statements under accounting principles generally accepted in the United States of America.

The results of operations for Hangzhou Sanhe Electronic Technology Ltd. and Shanghai Joy & Harmony Electronics Company Limited have been included in the Company’s consolidated statements of operations since the completion of the acquisitions during the year ended December 31, 2006. The following unaudited pro forma financial information presents the combined results of the Company and the 2006 acquisitions as if the acquisitions had occurred at the beginning of 2005:

	Year Ended		Year Ended
	December 31,		December 31,
	2006		2005

Net revenues	$	193,590,989	$	58,767,606
Net income	$	15,456,530	$	3,538,086
Net income per share — basic	$	0.33	$	0.09
Net income per share — diluted	$	0.33	$	0.09

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company’s functional currency is the Chinese Renminbi, however the accompanying consolidated financial statements have been translated and presented in United States Dollars.

Translation Adjustment

As of December 31, 2007 and December 31, 2006, the accounts of Zhejiang, Wang Da, Yiwu, Sanhe, and Joy & Harmony were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards (SFAS) No. 52, Foreign Currency Translation, with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income as a component of shareholders equity. Transaction gains and losses are reflected in the income statement.

F-9

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of China 3C Group and its wholly owned subsidiaries Capital, Zhejiang, Wang Da, Yiwu, Joy and Harmony, and Sanhe, collectively referred to within as the Company. All material intercompany accounts, transactions and profits have been eliminated in consolidation.

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

F-10

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis. Allowance for doubtful debts amounted to $ 103,803 and $90,780 as at December 31, 2007 and December 31, 2006 respectively.

			Additions
Description	Balance at beginning of period		(1) Charged to expenses		(2) Charged to other comprehensive loss		Deductions		Balance at end of period

Allowance for doubtful receivables 12/31/2007	$	90,780	$	9,021	$	4,002	$	-	$	103,803
Allowance for doubtful receivables 12/31/2006	$	3,521	$	82,686	$	4,573	$	-	$	90,780

Inventories

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. The Management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if lower. As of December 31, 2007 and December 31, 2006 inventory consisted of finished goods valued at $ 6,725,371 and $ 2,779,506 respectively. There were no reserves for obsolete inventory as of December 31, 2007 and 2006.

Property, Plant & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

Furniture and Fixtures & Office Equipment	5 years
Automobile	5 years

As of December 31, 2007 and 2006 Property, Plant & Equipment consist of the following:

	2007			2006
Automobile	$	138,330		$	103,749
Office equipment		105,612			75,869
		243,942			179,618
Accumulated depreciation		(154,528	)		(113,815	)
	$	89,414		$	65,803

F-11

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Long-Lived Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, ¡§Reporting the Results of Operations for a Disposal of a Segment of a Business. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2007 there were no significant impairments of its long-lived assets.

Fair Value of Financial Instruments

Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Revenue is generated from sales of 3C products through two main revenue streams:-

i)	Approximately 65% of the Company's revenue comes from sales to individual customers at outlets installed inside department stores etc. (i.e. shops in shop model) and is mainly achieved through two broad categories:-

By way of sales of purchase contracts, agreeing payment be made 30 days from receipt of goods i.e. the Company will deliver goods to places designated by the customers and at the time of receipt of goods by the customers is confirmed, ownership and all risks associated to the goods are transferred to the customers, settlement will be made within 30 days; and

By way of joint control over inventory, revenue is recognized at the point of sales to end buyers at when ownership and all risks associated to the good are transferred to the end buyers through the company's sales people working at the outlets belonging to the customers.

Under this method, goods are delivered to the outlets designated by the customers as inventory in the outlets and the Company's sales people look after the inventory and goods from the inventory are sold to end buyers who visit the outlets, on a point of sales basis.

Over 80% of the Company's retail business is achieved through this method; and

ii)

Approximately 35% of the Company's revenue comes from wholesales. Recognition of income in wholesales is based on the terms of the contracts. In the year 2007, the main contracts terms on wholesales agreed that payments be paid 10 days after receipt of goods and that ownership and all risks associated with the goods are transferred to the customers on the date of goods received and payments will be made 10 days therefrom.

Sales revenue is therefore recognized on the following basis :-

A)	Shop in shop model:-

For goods sold under sales and purchase contracts, revenue is recognized when goods are received by customers;

For good at customers outlets to which the Company's sales people operate, and inventory of goods is under joint control by the customers and the Company, revenue is recognized at point of sales to end buyer.

F-12

B) Wholesales

Revenue is recognized at the date of goods received by customers.

Cost of sales

Cost of sales consists of actual product cost, which is the purchase price of the product less any discounts. Cost of sales excludes freight charges, purchase and delivery costs, internal transfer, freight charges and the other costs of the Company’s distribution network, which are identified in general and administrative expenses.

General and administrative expenses

General and administrative expenses are comprised principally of payroll and benefits costs for retail and corporate employees, occupancy costs of corporate facilities, lease expenses, management fees, traveling expenses and other operating and administrative expenses, including freight charges, purchase and delivery costs, internal transfer freight charges and other distribution costs.

Because the Company does not include the costs related to its distribution network in cost of sales, its gross profit and gross profit as a percentage of net sales (“gross margin”) may not be comparable to those of other retailers that may include all costs related to their distribution network in cost of sales and in the calculation of gross profit and gross margin.

Shipping and handling fees

The Company follows Emerging Issues Task Force ("EITF") No. 00-10, Accounting for Shipping and Handling Fees and Costs. The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling fees as part of General and administrative expenses which were $219,191 and $116,557 for the years ended December 31, 2007 and 2006, respectively.

Vender discounts

The Company has extended its’ purchasing power to include preferred pricing arrangements with certain vendors on certain products. These arrangements are not contingent on any levels of volume and should be construed as vendor discounts as opposed to rebates. The Company accrues these discounts as these items are purchased in accordance with the matching principal under GAAP. The discounts are recognized as a reduction in cost of sales and inventory as the discounts are a reduction of the price of the vendor’s products.

Management fees paid to the department stores under “stores in stores” model

Under the “store in store” business operation model, the Company may pay management fees to the department stores, which are in the form of service charges or “selling at an allowance (discount)”. The management fees are accounted for (1) in the form of service charges which are reflected in general and administrative expenses, or (2) in the form of “selling at an allowance (discount)”, as a deduction of sales, which means, the expenses are directly deducted at a certain percentage on sales. Such management fees were $3,645,400 and $1,375,100 in general and administrative expenses, and deductions of $7,748,800 and $3,674,600 in sales for the years ended December 31, 2007 and 2006, respectively.

Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS 123.” This statement amended SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary charge to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amended the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Effective for the year beginning January 1, 2006 the Company has adopted SFAS 123 (R), “Share-Based Payment” which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and eliminates the intrinsic value method that was provided in SFAS 123 for accounting of stock-based compensation to employees. The Company made no employee stock-based compensation grants before December 31, 2005 and therefore has no unrecognized stock compensation related liabilities or expense unvested or vested prior to 2006.

F-13

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred.

Income Taxes

The Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Earnings per Share

Earnings per share are calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), Earnings per share. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Statement of Cash Flows

In accordance with SFAS No. 95, Statement of Cash Flows, cash flows from the Company’s operations is based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Recent Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48 (FIN 48). “ Accounting for uncertainty in Income Taxe s - an interpretation of FASB Statement 109” (“FIN No. 48”) . FIN 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and clearly scopes income taxes out of SFAS No. 5, “ Accounting for Contingencies”. FIN 48 is effective for fiscal years beginning after December 15, 2006. We did not have a material impact on our consolidated financial position, results of operations or cash flows.

F-14

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Segment Reporting

Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosure about Segments of an Enterprise and Related Information requires use of the management approach¨ model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. We have identified four reportable segments required by SFAS 131: (1) mobile phone, (2) home electronics, (3) office communication product, (4) consumer electronics.

Recent accounting pronouncements

In December 2004, the FASB issued FASB Statement No. 123R, “Share-Based Payment”, an Amendment of FASB Statement No. 123” (“FAS No. 123R”). FAS No. 123R requires companies to recognize in the statement of operations the grant- date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company’s first quarter of fiscal 2006.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This statement applies to all voluntary changes in accounting principle and requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless this would be impracticable. This statement also makes a distinction between “retrospective application” of an accounting principle and the “restatement” of financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements (“EITF 05-6.”) EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. EITF 05-6 is not expected to have a material effect on its consolidated financial position or results of operations.

F-15

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In June 2005, the FASB Staff issued FASB Staff Position 150-5 (FSP 150-5), Issuers Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable. FSP 150-5 addresses whether freestanding warrants and other similar instruments on shares that are redeemable, either puttable or mandatorily redeemable, would be subject to the requirements of FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, regardless of the timing or the redemption feature or the redemption price. The FSP is effective after June 30, 2005.

On February 16, 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 amends SFAS No 133, Accounting for Derivative Instruments and Hedging Activities¨, and SFAF No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155, permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006.

In March 2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of Financial Assets - an amendment to FASB Statement No. 140. Statement 156 requires that an entity recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a service contract under certain situations. The new standard is effective for fiscal years beginning after September 15, 2006. The Company does not expect its adoption of this new standard to have a material impact on its financial position, results of operations or cash flows.

In September, 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statements applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The management is currently evaluating the effect of this pronouncement on financial statements.

F-16

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)’ This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded statues in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements.

a.	A brief description of the provisions of this Statement
b.	The date that adoption is required
c.	The date the employer plans to adopt the recognition provisions of this Statement, if earlier.

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008.

The Company believes that the adoption of these standards will have no material impact on its financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 was issued to provide interpretive guidance on how the effects of the carryover reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 are effective for the Company for its December 31, 2006 year-end. The adoption of SAB 108 had no impact on the Company’s consolidated financial statements.

In February, 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets and Financial Liabilities’ - Including an Amendment of FABS Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The management is currently evaluating the effect of this pronouncement on financial statements.

Note 3 - ADVANCE TO SUPPLIER

Advance to suppliers represents payments to suppliers for payments of finished goods. As of December 31, 2007 and December 31, 2006 the company had paid $2,572,285 and $2,215,841, respectively as advances to supplies.

F-17

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 4- NOTES PAYABLE

Notes Payable - Former Shareholders Shanghai Joy & Harmony Electronics Company Limited as consideration for acquisition shares. Due six months after closing as evidenced by a promissory note.

December 31, 2006 $ 4,500,000

Note 5 - COMMON STOCK

On December 20, 2005, the Company completed a private offering of 1,000,000 shares of its common stock at a per share price of $0.10 to an unaffiliated individual, resulting in gross proceeds to the Company of $100,000. The proceeds were to be used for the Company’s proposed plan to identify and complete a merger or acquisition with private entities.

On December 20, 2005, the Company issued a warrant to purchase 4,000,000 shares of its common stock to two individuals at $0.10 per share, which was the fair value of the shares at the date of issuance. The warrant was issued as consideration for financial consulting services to be provided from December 20, 2005 to December 19, 2006. The warrants were exercised on December 30, 2005. The shares were issued subsequently in 2006.

On December 21, 2005, the Company agreed to purchase all of the issued and outstanding shares of Capital from its shareholders for approximately $500,000 in cash and 35,000,000 shares of the Company’s common stock, or approximately 93% of the total issued and outstanding shares.

On December 21, 2005, the Company announced a plan named the China 3C Group 2005 Equity Incentive Plan¨ (Plan¨) for providing incentives to attract, retain and motivate eligible persons whose presence and potential contributions are important to the success of the Company. 5,000,000 shares of common stock were allocated to the plan.

On December 21, 2005, the Company agreed to issue 4,980,000 shares under the plan to a number of consultants who were engaged to provide various services to the Company during the period from January 1, 2005 to December 20, 2005. These shares were valued at $0.10 per share, or $498,000, and were expensed as consulting fees in the statements of operations. The shares were issued subsequently in 2006.

On March 6, 2007, the Company issues 180,000 shares of common stock, $.001 par value, issuable pursuant to the China 3C Group amended 2005 Equity Incentive Plan. These shares under rule 405 and rule 144, respectively, under the Securities Act of 1933, as amended, are deemed “restricted securities”.

F-18

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 5 - COMMON STOCK (continued)

On December 21, 2005, the Company issued 2,256,795 shares of the Company’s common stock to a company for guarantee fees related to the acquisition of Capital. The guarantee was valued at $225,680, which was the fair value of the shares issued at the date of the transaction and was expensed as consulting fees in the statement of operations.

Pursuant to share exchange agreement, dated August 3, 2006, the company issued 915,751 shares of restricted common stock, to the former shareholders of Hangzhou Sanhe Electronic Technology Ltd. The shares were valued at $3,750,000, which was the fair value of the shares at the date of exchange agreement. This amount is included in the cost of net assets and goodwill purchased.

Pursuant to share exchange agreement, dated November 28, 2006, the company issued 2,723,110 shares of newly issued shares of Common Stock to the former shareholders of Shanghai Joy & Harmony Electronics Company Limited. The shares were valued at $11,000,000, which was the fair value of the shares at the date of exchange agreement. This amount is included in the cost of net assets and goodwill purchased.

Note 6 - STOCK WARRANTS, OPTIONS, AND COMPENSATION

On December 20, 2005, the Company issued a warrant for 4,000,000 shares to two individuals with an exercise price of $0.10. The warrants were issued for consulting services to be provided from December 20, 2005 to December 19, 2006. The warrant was exercisable immediately and was exercised on December 30, 2005.

The Company is amortizing the fair value of the warrants, $400,000, over the period of the agreement. The fair value of the warrants was calculated assuming 293% volatility, term of the warrant of 3 years , risk free rate of 4% and dividend yield of 0%. For the year ended December 31, 2006 and December 31, 2005, $387,945 and $12,055 of consulting fee was expensed relating to the warrants, respectively.

On December 8, 2006 the company issued to Ken Berents, a newly appointed Board member, an option grant to purchase 50,000 shares of common stock at the closing price as of December 7, 2006. Options expire 10 years from issuance.

On January 2, 2007 the company issued to Todd Mavis, a newly appointed Board member, an option grant to purchase 50,000 shares of common stock at the closing price as of January 2 2007. Options expire 10 years from issuance. As of December 17, 2007, the Board member resigned.

On December 8, 2007 the company issued, to Ken Berents, an option grant (incentive Stock Options) to purchase 30,000 shares of common stock at the closing price as of December 7, 2007. Options expire 10 years from issuance.

On May 7, 2007 the Board of Directors appointed Joseph Levinson to serve as a member of the Board of Directors of the Company.

As compensation for the services set forth herein, Mr. Levinson will receive:

·	A monthly grant during his Term of 1,000 shares of the Company’s Common Stock,

An annual grant of Stock Options to purchase 300,000 shares of common stock of the Company. The annual grant of Stock Options shall vest immediately upon issuance. The exercise price of the initial grant of Stock Options shares shall be based on the closing price of the common stock of the Company on May 7, 2007.

F-19

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 6 - STOCK WARRANTS, OPTIONS, AND COMPENSATION (continued)

Stock options—The Stock option grants have a ten-year life and were fully vested upon issuance. The option holder has no voting or dividend rights. The grant price was equal the market price at the date of grant. The company records the expense of the stock options over the related vesting period. The options were valued using the Black-Scholes option-pricing model at the date of grant stock option pricing

	Year ended
	December 31, 2007

Expected Volatility		130	%
Expected term (in years)
Todd L. Mavis		2
Kenneth T. Berents		9
Joseph Levinson		9
Expected dividends		-
Risk-free rate of return (weighted average)		2	%
Weighted average grant-date fair value		3.8-6.15

Expected volatility is based on the historical volatility of the Company’s stock price. The expected term represents the estimated average period of time that the options remain outstanding. No dividend payouts were assumed, as the Company has no plans to declare dividends during the expected term of the stock options. The risk-free rate of return reflects the weighted average interest rate offered for zero coupon treasury bonds over the expected term of the options.

Based upon this calculation and pursuant to ETIF 96-18 the company recorded a $899,952 service period expense for these options for the year ending December 31, 2007.

					Aggregate
			Exercise	Remaining	Intrinsic
	Total		Price	Life	Value

OUTSTANDING, DECEMBER 2006		50,000	4.16	9	$	-
Granted in 2007		50,000	3.8	2		-
		300,000	6.15	9		-
Exercised in 2007		-	-	-		-
OUTSTANDING, DECEMBER 2007		400,000				-

Note 7 - STOCK EXCHANGE AGREEMENT

On December 21, 2005 Capital Future Developments Ltd - BVI became a wholly owned subsidiary of China 3C Group through a reverse merger. China 3C Group acquired all of the issued and outstanding capital stock of Capital Future Developments Ltd. - BVI pursuant to a Merger Agreement dated at December 21, 2005 by and among China 3C Group, XY Acquisition Corporation, Capital Future Developments Ltd. - BVI and the shareholders of Capital Future Developments Ltd - BVI (the “Merger Agreement”). Pursuant to the Merger Agreement, Capital Future Developments Ltd. - BVI became a wholly owned subsidiary of China 3C Group and, in exchange for the Capital Future Developments Ltd. - BVI shares, China 3C Group issued 35,000,000 shares of its common stock to the shareholders of Capital Future Developments Ltd. - BVI, representing 93% of the issued and outstanding capital stock of China 3C Group at that time and a cash consideration of $500,000.

As a result of the exchange agreement, the reorganization was treated as an acquisition by the accounting acquirer that is being accounted for as a recapitalization and as a reverse merger by the legal acquirer for accounting purposes. Pursuant to the recapitalization, all capital stock shares and amounts and per share data were retroactively restated.

F-20

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 8 - COMPENSATED ABSENCES

Regulation 45 of local PRC labor law entitles employees to annual vacation leave after 1 year of service. In general all leave must be utilized annually, with proper notification, any unutilized leave is cancelled.

Note 9 - INCOME TAXES

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. Effective January 1, 2007, the Company adopted the provisions of FIN 48, as required. As a result of implementing FIN 48, there has been no adjustment to the Company’s financial statements and the adoption of FIN 48 did not have a material effect on the Company’s consolidated financial statements for the year ended December 31, 2007.

The Company through its subsidiaries, Zhejiang, Wang Da, Sanhe, and Yiwu, is governed by the Income Tax Laws of the PRC. Operations in the United States of America have incurred net accumulated operating losses of approximately $1,700,000 as of December 31, 2006 for income tax purposes. However, a hundred percent allowance has been created on the deferred tax asset of approximately $680,000 due to uncertainty of its realization.

Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT) is at a statutory rate of 33%, which is comprises of 30% national income tax and 3% local income tax.

The following is a reconciliation of income tax expense:

12/31/2007	U.S.		State		International		Total

Current	$	-	$	800	$	2,683,687	$	2,684,487
Deferred		-		-		-		-
Total	$	-	$	800	$	2,683,687	$	2,684,487

12/31/2006	U.S.		State		International		Total
Current	$	-	$	800	$	5,907,322	$	5,908,122
Deferred		-		-		-		-
Total	$	-	$	800	$	5,907,322	$	5,908,122

Reconciliation of the differences between the statutory U.S. Federal income tax rate and the effective rate is as follows:

	12/31/2007		12/31/2006

US statutory tax rate	34	%	34	%
Foreign income not recognized in US	34	%	34	%
PRC income tax	33	%	33	%

Effective rate	33	%	33	%

F-21

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 10 - COMMITTMENTS

The Company leases various office facilities under operating leases that terminate thru 2011. The Company also has management agreements that terminate in 2007. Rent expense for the years ended December 31, 2007 and 2006 were $144,726, and $99,169 respectively. The future minimum obligations under these agreements are as follows:

2008	$	140,775
2009	$	62,380
2010	$	34,812
2011	$	16,450

Note 11 - STATUTORY RESERVE

In accordance with the laws and regulations of the PRC, a wholly-owned Foreign Invested Enterprises income, after the payment of the PRC income taxes, shall be allocated to the statutory surplus reserves and statutory public welfare fund. Prior to January 1, 2006 the proportion of allocation for reserve was 10 percent of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair fund. The public welfare fund reserve was limited to 50 percent of the registered capital. Effective January 1, 2006, there is now only one fund requirement. The reserve is 10 percent of income after tax, not to exceed 50 percent of registered capital.

Statutory Reserve funds are restricted for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except in liquidation. As of December 31, 2007 and December 31, 2006, the Company had allocated $7,234,295 and $3,320,755, respectively, to these non-distributable reserve funds.

Note 12 - OTHER COMPREHENSIVE INCOME

	Foreign Currency Translation Adjustment		Accumulated Other Comprehensive Income

Balance at December 31, 2005	$	74,950	$	74,950
Change for 2006		352,666		352,666
Balance at December 31, 2006		427,616		427,616
Change for 2007		1,444,718		1,444,718
Balance at December 31 , 2007	$	1,872,334	$	1,872,334

F-22

CHINA 3C GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

Note 13 - CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 14 - MAJOR CUSTOMERS AND CREDIT RISK

During the years ended December 31, 2007, no customer accounted for more than 10% of the company’s sales or accounts receivable. At December 31, 2007 four (4) vendors comprised more than 31% of the company’s accounts payable. No vendors accounted for more than 10% of the company’s purchases during 2007.

Note 15 - SEGMENT INFORMATION

We separately operate and prepare accounting and other financial reports to management for four major business organizations (Hangzhou Wanda, Hangzhou Sanhe, Yiwu Yongxin and Shanghai Joy & Harmony). Each of the individual operating companies corresponds to different product groups. Hangzhou Wanda is mainly operating mobile phones, Hangzhou Sanhe is mainly operating home appliances, Yiwu Yongxin is mainly operating office communication products, and Shanghai Joy & Harmony is mainly operating consumer electronics.

We have identified four reportable segments required by SFAS 131: (1) mobile phone, (2) home electronics, (3) office communication product, (4) consumer electronics.

The following tables present summarized information by segment (in thousands):

	Year Ended December 31, 2007
					Office				Others			Total
	Mobile		Home		communication		Consumer
	phone		electronics		product		electronics

Sales, net	$	83,496	$	67,157	$	61,385	$	63,988	$	-		$	276,026
Cost of sales		69,863		50,923		52,180		53,690		-			226,656
Gross profit		13,633		16,234		9,205		10,298		-			49,370
Income from operations		11,259		11,504		7,378		8,755		(3,140	)		35,756
Total assets	$	14,922	$	14,839	$	12,869	$	13,087	$	7,479		$	63,196

	Year Ended December 31, 2006
					Office				Others			Total
	Mobile		Home		communication		Consumer
	phone		electronics		product		electronics

Sales, net	$	61,992	$	21,660	$	51,092	$	13,474	$	-		$	148,218
Cost of sales		53,403		17,624		43,104		11,280		-			125,411
Gross profit		8,589		4,036		7,988		2,194		-			22,807
Income from operations		7,051		2,579		6,821		1,878		(1,067	)		17,262
Total assets	$	7,362	$	5,759	$	7,499	$	6,521	$	12,846		$	39,987

	Year Ended December 31, 2005
							Office						Others				Total
	Mobile			Home			communication			Consumer
	phone			electronics			product			electronics

Sales, net		$	10,300		$	-		$	22,288		$	-		$	-			$	32,588
Cost of sales			9,000			-			19,325			-			-				28,325
Gross profit			1,300			-			2,963			-			-				4,263
Income from operations			994			-			2,300			-			(738	)			2,556
Total assets		$	689		$	-		$	2,131		$	-		$	1,200			$	4,020

Note 15 - SUBSEQUENT EVENTS

On July 13, 2007, China 3C Group (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the sale of an aggregate of 2,095,714 shares of the Company’s common stock, $.001 par value per share (the “Shares”) and at a purchase price of $5.60 per Share for an aggregate purchase price equal to approximately $11.74 million in a transaction exempt from registration under the Securities Act of 1933, as amended. In connection with the Transaction, the Company has agreed to provide the Investors rights to register the Shares pursuant to the terms of a registration rights agreement (the “Registration Rights Agreement”) to be entered into upon the closing of the Transaction. The issuance of the Shares was exempt from registration. As of September 30, 2007, the Company has received notices from all investors that they have exercised their rights to terminate their obligation under the agreement and not participate in the transaction.

On October 8, 2007 the Company issued press release, upon the resignation of former CFO, the Company appointed Mr. Mr. Weidong Huang, CFO, to fill vacancy effective as of this date.

On January 2, 2008, the Company entered into a Consignment Agreement with Hangzhou Lotour Digital Products Business Company Limited (“Lotour”), whereby Lotour would act as an exclusive, value added reseller of the Company’s audio-visual products, small household appliance, mobile phones and mobile phone accessories, until December 31, 2008.

F-23

Dbub (DBUB) 10-K/A2007 FY Annual report (amended)