**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB / Amendment No. 1**




(Mark
        One)
 
 [X]
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF
        1934
  For
        the
        quarterly period ended  June
        30, 2006 .
 
 
 [_]
        TRANSITION REPORT UNDER 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)
 
 **086-0571-88381700**
 _______________________________________________________________________
 (Issuer’s
        telephone number)
 
 ______________________________________________________________________
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days:   Yes [X] No [_]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act):  Yes [_] No [X]
 
 As
        of
        August 7, 2006, the registrant had 48,850,194 shares of common stock
        outstanding.


Transitional
      Small Business Disclosure Format (Check one):  Yes [_] No [X]

















**PART
                I. FINANCIAL INFORMATION**
            **Page(s)**Item
                1.Financial Statements:Balance
                Sheets as of June 30, 2006 (unaudited) and December 31,
                2005
            2Statements
                of Operations for the Six Months Ended June 30, 2006 and 2005
                (unaudited)
            3Statements
                of Cash Flows for the Six Months ended June 30, 2006 and 2005
                (unaudited)
            4Statement
                of Stockholders’ Equity for thesix
                months ended June 30, 2006 and the
              year
                ended December 31, 2005 (unaudited)
            5Notes
                to Financial Statements
            6Item
                2. Management’s Discussion and Analysis Or Plan of
                Operations
            17Item
                3. Controls and Procedures
            21**PART
                II. OTHER INFORMATION**Item
                1. Legal Proceedings
            22Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            22Item
                3. Defaults Upon Senior Securities
            22Item
                4. Submission of Matters to a Vote of Security Holders
            22Item
                5. Other Information
            22Item
                6. Exhibits
            22Signatures
            23Exhibit
                Index




Exhibit 31.1
            Certification by Zhenggang Wang, Chief
              Executive Officer, pursuant
              to
                Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of
              1934
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
                2002 for the quarterly period ended June 30, 2006.Exhibit 31.2
            Certification
                by Jian Liu, Chief Financial Officer, pursuant
              to
                Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of
              1934
                as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of
                2002 for the quarterly period ended June 30, 2006.Exhibit 32.1
            Certification
                by Zhenggang Wang, Chief Executive Officer pursuant to
              18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of
                the
              Sarbanes-Oxley
                Act of 2002 for the quarterly period ended June 30,
                2006.Exhibit 32.2
            Certification
                by Jian Liu, Chief Financial Officer pursuant to
              18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley
                Act of 2002 for the quarterly period ended June 30,
                2006.








**PART
      I. FINANCIAL INFORMATION** **** **** **** ****





**Item
      1.**  **Financial
      Statements**





E-MAIL:
      MORGENCPA@CS.COM





Board
      of
      Directors and Stockholders of


China
      3C
      Group Inc. and Subsidiaries




We
      have
      reviewed the accompanying consolidated balance sheets of China 3C Group, Inc.
      and Subsidiaries as of June 30, 2006 and the consolidated condensed statements
      of income for the six and three ended June 30, 2006 and consolidated statements
      of cash flows for the six month then ended. These financial statements are
      the
      responsibility of the Company’s management.





We
      conducted our review in accordance with standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting matters. It is
      substantially less in scope than an audit conducted in accordance with standards
      of the Public Company Accounting Oversight Board (United States), the objective
      of which is the expression of an opinion regarding the financial statements
      taken as a whole. Accordingly, we do not express such an opinion.





Based
      on
      our reviews, we are not aware of any material modifications that should be
      made
      to the accompanying interim financial statements referred to above for them
      to
      be in conformity with accounting principles generally accepted in the United
      States of America.








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


**Certified
      Public Accountants**





New
      York,
      New York


July
      28,
      2006










Report
      of
      Independent Registered Public Accounting Firm





1










**CHINA
                3C GROUP INC. AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEET (UNAUDITED)****JUNE
                30, 2006 AND DECEMBER 31,
                2005**




**ASSETS**
            
            **2006**
            
            **2005****Current
                Assets**Cash
                and cash equivalents
            
            $
            3,274,231
            
            $
            1,949,222Accounts
                receivable, net
            
            
            2,264,329
            
            
            913,215Inventory
            
            
            935,775
            
            
            602,974Advance
                to supplier
            
            
            2,087,408
            
            
            372,000Refundable
                Deposits
            
            
            931Prepaid
                expenses
            
            
            194,419
            
            
            139,193Total
                Current Assets
            
            
            8,757,093
            
            
            3,976,604**Property
                & equipment, net**
            
            
            38,392
            
            
            43,662**Total
                Assets**
            
            $
            8,795,485
            
            $
            4,020,266**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                LiabilitiesAccounts
                payable and accrued expenses
            
            $
            391,311
            
            $
            111,296Income
                tax payable
            
            
            1,110,748
            
            
            222,550Notes
                payable
            
            
            2,629
            
            
            7,769Total
                Current Liabilities
            
            
            1,504,688
            
            
            341,615Stockholders'
                EquityCommon
                stock, $.001 par value, 100,000,000 shares authorized, 48,850,077
                and
                39,870,077 issued and outstanding
            
            
            48,850
            
            
            39,870Shares
                to be issued, 8,980,000
            
            
            
            
            
            502,000Additional
                paid in capital
            
            
            2,606,330
            
            
            2,113,310Deferred
                consulting expense
            
            
            
            
            
            (387,945
            )Subscription
                receivable
            
            
            (50,000
            )
            
            (50,000
            )Statutory
                reserve
            
            
            402,030
            
            
            402,030Other
                comprehensive income
            
            
            122,907
            
            
            74,950Retained
                earnings
            
            
            4,160,680
            
            
            984,436Total
                Stockholders' Equity
            
            
            7,290,797
            
            
            3,678,651Total
                Liabilities and Stockholders' Equity
            
            $
            8,795,485
            
            $
            4,020,266




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





2





**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF INCOME (UNAUDITED)****FOR
                THE SIX AND THREE MONTHS ENDED JUNE 30,
                2006**




Six
                Months Ended 6/30/2006
            
            Three
                Months Ended 3/31/2006Sales,
                net
            
            $
            42,068,945
            
            $
            28,618,196Cost
                of sales
            
            
            35,867,624
            
            
            24,347,343**Gross
                profit**
            
            
            6,201,321
            
            
            4,270,853General
                and administrative expenses
            
            
            1,408,990
            
            
            903,938**Income
                from operations**
            
            
            4,792,331
            
            
            3,366,915Other
                (Income) ExpenseInterest
                income
            
            
            (8,347
            )
            
            (4,249
            )Other
                expense
            
            
            5,772
            
            
            281Interest
                expense
            
            
            140
            
            
            54Total
                Other (Income) Expense
            
            
            (2,435
            )
            
            (3,914
            )**Income
                before income taxes**
            
            
            4,794,766
            
            
            3,370,828Provision
                for income taxes
            
            
            1,618,522
            
            
            1,108,133**Net
                income**
            
            $
            3,176,244
            
            $
            2,262,695**Net
                income per share:**Basic
                & diluted
            
            $
            0.07
            
            $
            0.05**Weighted
                average number of shares outstanding:**Basic
                & diluted
            
            
            44,360,077
            
            
            44,360,077




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







3





**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS (UNAUDITED)****FOR
                THE SIX MONTHS ENDED JUNE 30, 2006 AND YEAR ENDED DECEMBER 31,
                2005**




2006
            
            2005**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                Income
            
            $
            3,176,244
            
            $
            1,458,250Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
            
            
            8,457
            
            
            17,420Loss
                on asset disposition
            
            
            201Provision
                for bad debts
            
            
            4,639Issuance
                of shares for consultants
            
            
            
            
            
            225,680Amortization
                of deferred consulting expense
            
            
            200,000
            
            
            12,055Shares
                to be issued to consultants
            
            
            
            
            
            498,000(Increase)
                / decrease in assets:Accounts
                receivables
            
            
            (1,355,651
            )
            
            (286,498
            )Inventory
            
            
            (332,801
            )
            
            (421,658
            )Prepaid
                expense
            
            
            132,719
            
            
            (42,522
            )Advance
                to supplier
            
            
            (1,715,408
            )
            
            (372,000
            )Deposits
            
            
            (931
            )
            
            1,288Increase
                / (decrease) in current liabilities:Accounts
                payable and accrued expenses
            
            
            280,015
            
            
            (267,816
            )Income
                tax payable
            
            
            888,196
            
            
            122,067Total
                Adjustments
            
            
            (1,890,564
            )
            
            (513,984
            )**Net
                cash provided by operating activities**
            
            
            1,285,680
            
            
            944,266**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property & equipment
            
            
            (3,860
            )
            
            (2,308
            )Proceeds
                from asset sales
            
            
            372**Net
                cash provided by Investing activities**
            
            
            (3,488
            )
            
            ---**CASH
                FLOWS FROM FINANCING ACTIVITIES**Capital
                contribution to subsidiary before acquisition
            
            
            
            
            
            1,210,000Dividends
                paid
            
            
            
            
            
            (529,140
            )Proceed
                on loan from related parties
            
            
            
            
            
            97,760Payments
                on loan to related parties
            
            
            
            
            
            (250,877
            )Payments
                on note payable
            
            
            (5,140
            )
            
            (9,807
            )**Net
                cash (used in) provided by financing activities**
            
            
            (5,140
            )
            
            517,936Effect
                of exchange rate changes on cash and cash equivalents
            
            
            47,957
            
            
            19,670Net
                change in cash and cash equivalents
            
            
            1,325,009
            
            
            1,479,564**Cash
                and cash equivalents, beginning balance**
            
            
            1,949,222
            
            
            469,658**Cash
                and cash equivalents, ending balance**
            
            $
            3,274,231
            
            $
            1,949,222**SUPPLEMENTAL
                DISCLOSURES:**Cash
                paid during the year for:Income
                tax payments
            
            $
            222,819
            
            $
            965,354Interest
                payments
            
            $
            86
            
            $
            2,954




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






4





**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY
                (UNAUDITED)****FOR
                THE SIX MONTHS ENDED JUNE 30, 2006 AND THE YEAR ENDED DECEMBER 31,
                2005**




**Shares**
            
            **Additional**
            
            **Other**
            
            **Deferred**
            
            
            
            
            
            **Retained
                Earnings**
            
            **Total****Common
                Stock**
            
            **to
                be**
            
            **Paid-In**
            
            **Comprehensive**
            
            **Consulting**
            
            **Subscription**
            
            **Statutory**
            
            **(Accumulated**
            
            **Stockholders'****Shares**
            
            **Amount**
            
            **issued**
            
            **Capital**
            
            **Income**
            
            **Expense**
            
            **Receivable**
            
            **Reserve**
            
            **Deficit)**
            
            **Equity/Deficit****Balance
                December 31, 2004**
            
            
            35,000,000
            
            
            35,000
            
            
            
            
            
            267,500
            
            
            
            
            
            
            
            
            
            
            
            70,379
            
            
            383,297
            
            
            756,176Changes
                due to recapitalization
            
            
            2,613,282
            
            
            2,613
            
            
            
            
            
            1,226,387
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,229,000Shares
                issued for consulting fees
            
            
            
            
            
            
            
            
            498,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            498,000Warrants
                issued for deferred consulting fees
            
            
            
            
            
            
            
            
            
            
            
            400,000
            
            
            
            
            
            (387,945
            )
            
            
            
            
            
            
            
            
            
            
            12,055Stock
                issued for guarantee fee
            
            
            2,256,795
            
            
            2,257
            
            
            
            
            
            223,423
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            225,680Warrants
                exercised
            
            
            
            
            
            
            
            
            4,000
            
            
            (4,000
            )Stock
                subscription receivable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (50,000
            )
            
            
            
            
            
            
            
            (50,000
            )Dividend
                paid
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (525,460
            )
            
            (525,460
            )Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            74,950
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            74,950Transfer
                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
            
            $
            3,678,651Stock
                Issued
            
            
            8,980,000
            
            
            8,980
            
            
            (502,000
            )
            
            493,020Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            47,957
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            47,957income
                for the six Months ended June 30, 2006
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,176,244
            
            
            3,176,244Transferred
                To prepaid
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            387,945
            
            
            
            
            
            
            
            
            
            
            
            387,945**Balance
                March 31, 2006**
            
            
            48,930,680
            
            
            48,850
            
            
            
            
            
            2,606,330
            
            
            122,907
            
            
            
            
            
            (50,000
            )
            
            402,030
            
            
            4,160,680
            
            
            7,290,797





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





5


**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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”) and Hangzhou Wandga Electronics Co., Ltd. (“Wang Da”) were incorporated
      under the laws of Peoples Republic of China on July 11, 2005, July 18, 1997
      and
      March, 30, 1998 respectively. China 3C Group owns 100% of Capital and Capital
      owns 100% of the capital stock of Zhejiang. Zhejiang owns 90% and Yiwu owns
      10%
      of Wang Da. Zhejiang owns 90% and Wang Da owns 10% of Yiwu. Collectively the
      five corporations are referred to herein as the “Company.”





On
      December 21, 2005 Capital 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 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.





The
      Company is now engaged in the business of mobile phone, facsimile machines
      distribution.





**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, 2005 and 2004, the accounts of Zhejiang, Wang Da and Yiwu 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, stockholder’s 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.


6




**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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 and Yiwu, 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.





7





**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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 $3,521 as at December 31, 2005.




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 June 30, 2006 and December 31, 2005 inventory consisted of finished
      goods valued at $935,775 and $602,974 respectively.




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
            
            
            5
                yearsAutomobile
            
            
            10
                yearsComputer
                Hardware and Software
            
            
            5
                years




As
      of
      June 30, 2006 Property, Plant & Equipment consist of the
      following:





Automobile
            
            $
            95,360Office
                equipment
            
            
            42,799138,059Accumulated
                depreciation
            
            
            (99,667
            )$
            38,392








8


**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**




**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, 2005 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. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue.




Stock-Based
      Compensation




In
      October 1995, the FASB issued SFAS No. 123, “Accounting for Stock-Based
      Compensation.” SFAS No. 123 prescribes accounting and reporting standards for
      all stock-based compensation plans, including employee stock options, restricted
      stock, employee stock purchase plans and stock appreciation rights. SFAS No.
      123
      requires compensation expense to be recorded (i) using the new fair value method
      or (ii) using the existing accounting rules prescribed by Accounting Principles
      Board Opinion No. 25, “Accounting for stock issued to employees” (“APB 25”) and
      related interpretations with proforma disclosure of what net income and earnings
      per share would have been had the Company adopted the new fair value method.
      The
      Company uses the intrinsic value method prescribed by APB 25 and has opted
      for
      the disclosure provisions of SFAS No.123.





9


**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**




**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 is 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.




10


**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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.





Recent
      accounting pronouncements





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
      February 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 remeasurement 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.






11





**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**Note
      2 -** **Summary
      of Significant Accounting Policies (Continued** **)**





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
      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.





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.





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




**Note
      3 -** **Advance
      to Supplier**




Advance
      to suppliers represents payments to suppliers for payments of materials. As
      of
      June 30, 2006 and December 31, 2005 the company had paid $2,087,408 and
      $372,000, respectively as advances to suppliers.




**Note
      4 -** **Notes
      Payable**





At
      June
      30, 2006, the Company had borrowings outstanding in the aggregate amount of
      $2,629. Notes Payable were as follows on June 30, 2006:





**Description**Secured
                note payable to a bank in China, interest at 4.941% per annum, due
                on July
                30, 2006
            
            $
            1,720Secured
                note payable to a bank in China, interest at 4.941% per annum, due
                on
                August 12, 2006
            
            
            909Total
            
            $
            2,629






12


**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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 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
      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.





**Note
      6 -** **Stock
      Warrant**





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 six months ended June 30, 2006 and for the year ended
      December 31, 2005, $200,000 and $12,055 of consulting fee was expensed relating
      to the warrants, respectively.





13




**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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 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.





**Note
      8 -** **Compensated
      Absences**




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





14





**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**Note
      9 -** **Income
      Taxes**





The
      Company through its subsidiaries, Zhejiang, Wang Da 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 $738,819 as of December 31, 2005
      for income tax purposes. However, a hundred percent allowance has been created
      on the deferred tax asset of $295,000 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:6/30/2006
            
            U.S.
            
            State
            
            International
            
            TotalCurrent
            
            $
            0
            
            $
            0
            
            $
            1,618,522
            
            $
            1,618,522DeferredTotal
            
            $
            0
            
            $
            0
            
            $
            1,618,522
            
            $
            1,618,52212/31/2005
            
            
            U.S.
            
            
            State
            
            
            International
            
            
            TotalCurrent
            
            $
            0
            
            $
            800
            
            $
            1,087,221
            
            $
            1,088,021DeferredTotal
            
            $
            0
            
            $
            800
            
            $
            1,087,221
            
            $
            1,088,021Reconciliation
                of the differences between the statutory U.S. Federal income tax
                rate and
                the effective rate is as follows:




6/30/2006
            
            12/31/2005US
                statutory tax rate
            
            
            34
            %
            
            34
            %Foreign
                income not recognized in US
            
            
            -34
            %
            
            -34
            %PRC
                income tax
            
            
            33
            %
            
            33
            %Effective
                rate
            
            
            15
            %
            
            15
            %





**Note
      10 -** **Committments**




The
      Company leases various office facilities under operating leases that have
      terminated during 2006. Rental expense for these leases consisted of $23,601
      for
      the six months ended June 30, 2006. The Company has no future minimum lease
      obligations.





15




**CHINA
      3C GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**JUNE
      30, 2006**





**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 affair
      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 affair fund reserve was limited to 50
      percent of the registered capital. Effect 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
      June 30, 2006, the Company had allocated $402,030 to these
      non-distributable reserve funds.





**Note
      12 -** **Other
      Comprehensive Income**





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholders’ equity, at June 30, 2006 and December
      31, 2005 are as follows:





Foreign
                Currency Translation Adjustment
            
            Accumulated
                Other Comprehensive IncomeBalance
                at December 31, 2004
            
            
            
            
            $
            $Change
                for 2005
            
            
            74,950
            
            
            74,950Balance
                at December 31, 2005
            
            $
            74,950
            
            $
            74,950Change
                6 months ended June 30, 2006
            
            
            47,957
            
            
            47,957Balance
                at June 30, 2006
            
            $
            122,907
            
            $
            122,907





**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**





The
      Company derived approximately 16.72% of its sales from five customers during
      the
      period ended June 30, 2006. No customer accounted for more than 10%. No one
      customer accounted for more than 10.00% of the company’s accounts receivable at
      June 30, 2006.





16


**Note
      15 - Reclassifications**





Certain
      prior period amounts have been reclassified to conform to the six months ended
      June 30, 2006 presentation.








**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.





**Item
      2.****Management’s
      Discussion and Analysis or Plan of Operation****.**





The
      following discussion should be read in conjunction with the Consolidated
      Financial Statements and Notes thereto appearing elsewhere in this Form 10-QSB.
      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-QSB.




**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. (“ZYXD”), Yiwu Yong Xin Communication Ltd. (“YYXC”) and
      Hangzhou Wandga Electronics Co., Ltd. (“HWDA”) were incorporated under the laws
      of Peoples Republic of China on July 11, 2005, July 18, 1997 and March, 30,
      1998
      respectively. China 3C Group owns 100% of CFDL and CFDL owns 100% of the capital
      stock of ZYXD. ZYXD owns 90% and YYXC owns 10% of HWDA. ZYXD owns 90% and HWDA
      owns 10% of YYXC. Collectively the five corporations are referred to herein
      as
      the Company.





On
      December 21, 2005 CFDL 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 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.





17


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
      distribution.





**Results
      of Operations**




The
      following table presents certain consolidated statement of operations
      information stated as a percentage of total revenues. All financial information
      is presented for the 6 months ended June 30, 2006 and, the 3 months, ended
      June
      30, 2006. As the reverse merger took place on December 31, 2005, no comparative
      figures are available for June 30, 2005.





**Q2**
            
            **Q1****2006**
            
            **2006**Sales,
                net
            
            $
            28,618,196
            
            $
            13,450,749Cost
                of sales
            
            
            24,347,343
            
            
            11,520,281General
                and Administrative Expense
            
            
            903,938
            
            
            505,052Income
                from Operations
            
            $
            3,366,915
            
            $
            1,425,416





**Net
      sales**





Net
      sales
      for the three months ended June 30, 2006 totaled $28,618,196 compared to
      $13,450,749 for the 3 months ended March 31, 2006. The increase was due to
      increased sales volume from new products and existing products during the three
      months ended June 30, 2006.




**Cost
      of Sales**




Cost
      of
      sales for the three months ended June 30, 2006 totaled $24,347,343 or
      approximately 85.08% of net sales compared to $11,520,281 or approximately
      85.65% for the three months ended March 31, 2006. The cost of sales as a
      percentage remains stable during the 3 months ended June 30, 2006.





**Gross
      Profit Margin**





Gross
      profit margin for the three months ended June 30, 2006 was 14.92% compared
      to
      14.35% for the 3 months ended March 31, 2006. The gross profit margin remains
      stable during the three months ended June 30, June.





18


**Operating
      Expense**





General
      and administrative expense for the three months ended June 30, 2006 totaled
      $903,938 or approximately 3.16% of net sales, compared to $505,052 or
      approximately 3.75% for the three months ended March 31, 2006. The decrease
      of
      0.59% was due to the benefit from scale of operations in that the increment
      in
      net sales is higher than the increment in overall general and administrative
      expenses.





**Income
      from Operations**





Income
      from operations for the three months ended June 30, 2006 was $3,366,915 or
      12.12% of net Sales as compared to income from operations of $1,425,916 for
      the
      three months ended March 31, 2006 or 10.6% of net Sales. The increase was due
      to
      both Costs of Sales and Selling & Administrative costs.





**Interest
      Expense**





Interest
      expense for the three months ended June 30, 2006 totaled $54 compared to $86
      for
      the three months ended March 31, 2006. By August of 2006 the company will have
      completely paid off existing notes payable.





**Net
      Income**





Net
      income was $2,262,695 or 7.91% of net Sales for the three months ended June
      30,
      2006 compared to $913,548 or 6.79% of net Sales for the 3 months ended March
      31,
      2006. The increase in percentage was due to slight increase in gross profit
      margin and decrease in cost.





19





**Segment
      Performance**





**HWDA**
            
            **YYXC**Q2
                2006
            
            Q1
                2006
            
            Q2
                2006
            
            
            
            
            
            Q1
                2006********
            
            
            
            ********
            
            ********
            
            
            
            ************
            
            **Fixed
                line**
            
            
            
            ****
            
            **Fixed
                line****Mobile
                phone**
            
            **Mobile
                phone**
            
            **Fax
                machine**
            
            **Telephone**
              **sets**
            
            **Total**
            
            **Fax
                machine**
            
            **Telephone**
              **Sets**
            
            **Total**Operating
                revenue
            
            
            15,132,322
            
            
            6,012,716
            
            
            13,194,912
            
            
            290,961
            
            
            13,485,873
            
            
            7,438,033
            
            
            0
            
            
            7,438,033Cost
                of operating revenue
            
            
            (13,156,757
            )
            
            (5,329,682
            )
            
            (10,939,506
            )
            
            (251,080
            )
            
            (11,190,586
            )
            
            (6,190,599
            )
            
            0
            
            
            (6,190,599
            )1,975,566
            
            
            683,034
            
            
            2,255,406
            
            
            39,881
            
            
            2,295,287
            
            
            1,247,434
            
            
            0
            
            
            1,247,434General
                and administrative expenses
            
            
            (307,660
            )
            
            (141,751
            )
            
            
            
            
            
            
            
            (300,861
            )
            
            
            
            
            
            
            
            (210,396
            )Income
                from operations
            
            
            1,667,905
            
            
            541,283
            
            
            
            
            
            
            
            
            1,994,427
            
            
            
            
            
            
            
            
            1,037,038Other
                Income / (Expense)Interest
                income
            
            
            973
            
            
            663
            
            
            
            
            
            
            
            
            1,469
            
            
            
            
            
            
            
            
            1,259Other
                expense
            
            
            (252
            )
            
            (159
            )
            
            
            
            
            
            
            
            (28
            )
            
            
            
            
            
            
            
            (5,332
            )Interest
                expense
            
            
            (32
            )
            
            (47
            )
            
            
            
            
            
            
            
            (22
            )
            
            
            
            
            
            
            
            (39
            )Total
                Other Income / (Expense)
            
            
            689
            
            
            457
            
            
            
            
            
            
            
            
            1,419
            
            
            
            
            
            
            
            
            (4,112
            )Income
                before income taxes
            
            
            1,668594
            
            
            541,740
            
            
            
            
            
            
            
            
            1,995,846
            
            
            
            
            
            
            
            
            1,032,926Provision
                for income taxes
            
            
            514,685
            
            
            178,790
            
            
            
            
            
            
            
            
            593,448
            
            
            
            
            
            
            
            
            331,599Net
                income
            
            
            1,153,909
            
            
            362,950
            
            
            
            
            
            
            
            
            1,402,397
            
            
            
            
            
            
            
            
            701,327





YYXC
      commenced a new line of activity distributing fixed line telephone sets from
      May
      2006 during the three months ended June 30, 2006. In addition, other
      subsidiaries incurred general and administrative expenses totaling $295,417
      for
      the three months ended June 30, 2006, and interest income of
      $1,808.





20




**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 $3,274,231 at June 30, 2006 and current assets
      totaled $8,747,093 at June 30, 2006. The Company’s total current liabilities
      were $1,504,688 at June 30, 2006. Working capital at June 30, 2006 was
      $7,252,405. We believe that the funds available to us are adequate to meet
      our
      operating needs for the remainder of 2006. For the three months ended June
      30,
      2006, net cash provided by operating activities was $1,429,978.




**Capital
      expenditures**





Total
      capital expenditures during the three months ended June 30, 2006 was $3,860
      for
      purchase of fixed assets. We have no plans for material capital expenditures
      during the remainder of 2006.




**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.




**Item
      3.**  **Controls
      and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




As
      of
      June 30, 2006, the end of the period covered by this report, our Chief Executive
      Officer and our Chief Financial Officer reviewed and evaluated the effectiveness
      of the our disclosure controls and procedures (as defined in Exchange Act Rule
      13a-15(e) and 15d-15(e)), which are designed to ensure that material information
      we must disclose in our report filed or submitted under the Securities Exchange
      Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized,
      and reported on a timely basis, and have concluded, based on that evaluation,
      that as of such date, our disclosure controls and procedures were effective
      to
      ensure that information required to be disclosed by us in reports that we file
      or submit under the Exchange Act is accumulated and communicated to our Chief
      Executive Officer and Chief Financial Officer as appropriate to allow timely
      decisions regarding required disclosure.




**Changes
      in Internal Control over Financial Reporting**




There
      was
      no change in our internal control over financial reporting that occurred during
      the fiscal quarter covered by this report on Form 10-QSB that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.





21





**PART
      II.**  **OTHER
      INFORMATION**





**Item
      1.****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
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





Not
      Applicable.





**Item
      3.**  **Defaults
      Upon Senior Securities**





Not
      Applicable.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**





There
      were no matters submitted to the stockholders in the quarter that are required
      to be disclosed.





I**tem
      5.****Other
      Information.**





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





**Item
      6.****Exhibits.**




**Exhibit
                No.**
            
            **Document
                Description**31.1
            
            Certification
                of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002







22




**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 amended report to be signed on its behalf
      by the undersigned, thereunto duly authorized, on this 11 th day of
      September, 2006.




**CHINA
                3C GROUP**By:
            /s/ Zhenggang
              WangName:  
Zhenggang
              WangTitle:
              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
            
            
            
            September
                11, 2006Zhenggang
                Wang
            
            Chief
                Executive Officer and Chairman/s/
                Jian Liu
            
            
            
            September
                11, 2006Jian
                Liu
            
            Chief
                Financial Officer/s/
                Xiang Ma
            
            
            
            September
                11, 2006Xiang
                Ma
            
            President/s/
                Jimei Liu
            
            
            
            September
                11, 2006Jimei
                Liu
            
            Director/s/
                Weikang GuWeikang
                Gu
            
            Director
            
            September
                11, 2006/s/
                Rongjin WengRongjin
                Weng
            
            Director
            
            September
                11, 2006/s/
                Chenghua ZhuChenghua
                Zhu
            
            Director
            
            September
                11, 2006/s/
                Mingjun ZhuMingjun
                Zhu
            
            Director
            
            September
                11, 2006




23