**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





x
      QUARTERLY REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the
      quarterly period ended  March
      31, 2007 .








o
      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)





Indicate
      by check whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition Of
      “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act. (Check one):





o
      Large accelerated filer  o Accelerated filer  x
      Non-accelerated filer





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


o
      Yes x No





As
      of May
      4,
      2007 ,
      the
      registrant had 52,668,938 shares
      of
      common stock outstanding.












**Page(s)****PART
                I. FINANCIAL INFORMATION**Item
                1. Financial Statements:
            1Balance
                Sheets as of March 31, 2007 (unaudited) and December 31,
                2006
            F-2Statements
                of Income for the Three Months Ended March 31, 2007 and March 31,
                2006
                (unaudited)
            F-3Statements
                of Cash Flows for the Three Months ended March 31, 2007 and 2006
                (unaudited)
            F-4Statement
                of Stockholders’ Equity for the Threemonths endedMarch
                31, 2007and
                the
              year
                ended December 31, 2006 (unaudited)
            F-5Notes
                to Financial Statements
            F-6
                - F-16Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            2Item
                3. Controls and Procedures
            5**PART
                II. OTHER INFORMATION**Item
                1. Legal Proceedings
            6Item
                1A. Risk Factors.
            6Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            11Item
                3. Defaults Upon Senior Securities
            11Item
                4. Submission of Matters to a Vote of Security Holders
            11Item
                5. Other Information
            11Item
                6. Exhibits
            11Signatures
            12




Exhibit
              31.1
            Certification
              by Zhenggang Wang, Chief Executive Officer, pursuantto
                Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of1934
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of
                    2002 for the quarterly period ended March 31,
                    2007.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 March 31, 2007.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 March
                31, 2007.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 March
                31, 2007.











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





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





**CHINA
      3C GROUP AND SUBSIDIARIES**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**MARCH
      31, 2007**




**TABLE
      OF CONTENTS**


Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets
            F-2Consolidated
                Statements of Income
            F-3Consolidated
                Statements of Cash Flow
            F-4Consolidated
                Statements of Stockholders Equity
            F-5Notes
                to Consolidated Financial Statements
            F-6
                - F-16








***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





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.
      as
      of March 31, 2007 and the consolidated statements of operations for the
      three-months ended March 31, 2007 and 2006 and consolidated statements of cash
      flows and shareholders equity for the three-months 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.





We
      have
      previously audited, in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      of as
      of China 3C Group Inc. at December 31, 2006 and the related consolidated
      statements of income retained earnings and comprehensive income, and
      consolidated statements of cash flows for the year then ended; and in our report
      dated February 19, 2007 we expressed an unqualified opinion on those financial
      statements. In our opinion, the information set forth in the accompanying
      consolidated balance sheet as of December 31, 2006, is fairly stated, in all
      material respects, in relation to the consolidated balance sheet from which
      it
      has been derived.







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


**Certified
      Public Accountants**





New
      York,
      New York


April
      27,
      2007




F-1







**CHINA
                3C GROUP INC. AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEET****S****MARCH
                31, 2007 AND DECEMBER
                31,2006**




**ASSETS**
              
              **3/31/2007**
              
              **12/31/2006****Current
                  Assets**
              
              
              
              `Cash
                  and cash equivalents
              
              $
              9,085,186
              
              
              6,498,450Accounts
                  receivable, net
              
              
              10,678,242
              
              
              8,013,071Inventory
              
              
              4,624,603
              
              
              2,779,506Advance
                  to supplier
              
              
              3,440,234
              
              
              2,215,841Refundable
                  Deposits
              
              
              -
              
              
              6,567Prepaid
                  expenses
              
              
              36,930
              
              
              60,059Total
                  Current Assets
              
              
              27,865,195
              
              
              19,573,494**Property
                  & equipment, net**
              
              
              90,626
              
              
              65,803Goodwill
              
              
              20,348,278
              
              
              20,348,278Deposits
              
              
              48,517**Total
                  Assets**
              
              $
              48,352,616
              
              
              39,987,575**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  LiabilitiesAccounts
                  payable and accrued expenses
              
              $
              1,869,585
              
              
              1,964,663Income
                  tax payable
              
              
              3,748,299
              
              
              2,596,517Notes
                  payable
              
              
              4,500,000
              
              
              4,500,000Total
                  Current Liabilities
              
              
              10,117,884
              
              
              9,061,180**Stockholders'
                  Equity**Common
                  stock, $.001 par value, 100,000,000shares
                  authorized, 52,668,938 and 52,488,938 issued and
                  outstanding
              
              
              52,669
              
              
              52,489Additional
                  paid in capital
              
              
              18,203,911
              
              
              17,352,691Subscription
                  receivable
              
              
              (50,000
              )
              
              (50,000
              )Statutory
                  reserve
              
              
              3,320,755
              
              
              3,320,755Other
                  comprehensive income
              
              
              420,765
              
              
              427,616Retained
                  earnings
              
              
              16,286,632
              
              
              9,822,844Total
                  Stockholders' Equity
              
              
              38,234,732
              
              
              30,926,395Total
                  Liabilities and Stockholders' Equity
              
              $
              48,352,616
              
              $
              39,987,575







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




F-2




**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THREE MONTHS ENDING MARCH 31, 2007 AND
                2006**




**2007**
              
              **2006**Sales,
                  net
              
              $
              84,523,194
              
              $
              13,450,749Cost
                  of sales
              
              
              70,590,912
              
              
              11,520,281**Gross
                  profit**
              
              
              13,932,282
              
              
              1,930,468General
                  and administrative expenses
              
              
              3,726,162
              
              
              505,052**Income
                  from operations**
              
              
              10,206,120
              
              
              1,425,416Other
                  (Income) ExpenseInterest
                  income
              
              
              (13,791
              )
              
              (4,098
              )Other
                  expense
              
              
              6,864
              
              
              5,491Interest
                  expense
              
              
              -
              
              
              86Total
                  Other (Income) Expense
              
              
              (6,927
              )
              
              1,479**Income
                  before income taxes**
              
              
              10,213,047
              
              
              1,423,937Provision
                  for income taxes
              
              
              3,749,259
              
              
              510,389**Net
                  income**
              
              $
              6,463,788
              
              $
              913,548**Net
                  income per share:**Basic
                  & diluted
              
              $
              0.12
              
              $
              0.02**Weighted
                  average number of shares outstanding:**Basic
                  & diluted
              
              
              52,578,938
              
              
              44,360,077





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




F-3







**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE THREE MONTHS ENDED MARCH 31, 2007 AND
                2006**




2007
              
              2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income
              
              $
              6,463,788
              
              $
              913,548Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
              
              
              10,056
              
              
              4,272Loss
                  on asset disposition
              
              
              -
              
              
              201Provision
                  for bad debts
              
              
              357
              
              
              4,537Stock
                  based compensation
              
              
              851,400
              
              
              -Amortization
                  of deferred consulting expense
              
              
              -
              
              
              100,000(Increase)
                  / decrease in assets:Accounts
                  receivables
              
              
              (2,665,528
              )
              
              (760,652
              )Inventory
              
              
              (1,845,097
              )
              
              (167,143
              )Due
                  from officer
              
              
              -
              
              
              (123,800
              )Prepaid
                  expense
              
              
              23,129
              
              
              129,246Advance
                  to supplier
              
              
              (1,224,393
              )
              
              (799,170
              )Deposits
              
              
              (41,950
              )
              
              (921
              )Increase
                  / (decrease) in current liabilities:Accounts
                  payable and accrued expenses
              
              
              (95,078
              )
              
              269,184Income
                  tax payable
              
              
              1,151,782
              
              
              286,400Total
                  Adjustments
              
              
              (3,835,322
              )
              
              (1,057,846
              )**Net
                  cash provided by operating activities**
              
              
              2,628,466
              
              
              (144,298
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property & equipment
              
              
              (34,879
              )
              
              (534
              )Proceeds
                  from asset sales
              
              
              -
              
              
              372**Net
                  cash used by Investing activities**
              
              
              (34,879
              )
              
              (162
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Payments
                  of notes - other
              
              
              -
              
              
              (2,574
              )**Net
                  cash provided by financing activities**
              
              
              -
              
              
              (2,574
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              (6,851
              )
              
              (5,653
              )Net
                  change in cash and cash equivalents
              
              
              2,586,736
              
              
              (152,687
              )**Cash
                  and cash equivalents, beginning balance**
              
              
              6,498,450
              
              
              1,949,222**Cash
                  and cash equivalents, ending balance**
              
              $
              9,085,186
              
              $
              1,796,535**SUPPLEMENTAL
                  DISCLOSURES:**Cash
                  paid during the year for:Income
                  tax payments
              
              $
              2,597,477
              
              $
              222,819Interest
                  payments
              
              $
              -
              
              $
              86







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




F-4











**CONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITY****(UNAUDITED)****FOR
                THE THREE MONTHS ENDED MARCH 31, 2007 AND THE YEAR ENDED DECEMBER
                31,
                2006**




**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, 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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              167,621
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              167,621Income
                  for the year ended December 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,277,126
              
              
              11,277,126Transfer
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,438,717
              
              
              (2,438,717
              )Purchase
                  Acquisition
              
              
              3,638,861
              
              
              3,639
              
              
              
              
              
              14,746,,361
              
              
              185,045
              
              
              
              
              
              
              
              
              480,008
              
              
              
              
              
              15,415,053Transferred
                  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
              
              $
              30,926,395Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,851
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,851
              )Stock
                  based compensation
              
              
              180,000
              
              
              180
              
              
              
              
              
              851,220
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              851,400Income
                  for three monthsEnded
                  March 31, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,463,788
              
              
              6,463,788**Balance
                  March 31, 2007**
              
              
              52,668,938
              
              $
              52,669
              
              
              -
              
              $
              18,203,911
              
              $
              420,765
              
              
              -
              
              
              (50,000
              )
              $
              3,320,755
              
              $
              16,286,632
              
              $
              38,234,732




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





F-5








**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. China 3C Group owns 100%
      of
      Capital and Capital owns 100% of the capital stock of Joy & Harmony, Sanhe,
      and Zhejiang. Zhejiang owns 90% and Yiwu owns 10% of Wang Da. 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 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,
      DVD
      players, stereo’s, speakers, MP3 and MP4 players, iPod, electronic dictionaries,
      CD players, radios, Walkman, and audio systems 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
      March 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-6





**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, 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.





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.




F-7




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 $90,740 and $90,780 as at March 31, 2007 and December 31, 2006
      respectively.




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 March 31, 2007 and December 31, 2006 inventory consisted of
      finished goods valued at $ 4,624,603 and $2,779,506 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
      March 31, 2007 and December 31, 2006 Property, Plant & Equipment consist of
      the following:





2007
            
            2006Automobile
            
            $
            138,330
            
            $
            103,749Office
                equipment
            
            
            76,166
            
            
            75,869214,496
            
            
            179,618Accumulated
                depreciation
            
            
            (123,870
            )
            
            (113,815
            )$
            90,626
            
            $
            65,803




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, 2006 there
      were no significant impairments of its long-lived assets.




F-8




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.




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.




F-9




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.




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
      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.




F-10




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.





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.





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




F-11




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.




**Note
      3 -** **ADVANCE
      TO SUPPLIER**




Advance
      to suppliers represents payments to suppliers for payments of finished goods.
      As
      of March 31, 2007 and December 31, 2006 the company had paid $3,440,234 and
      $2,215,841, respectively as advances to suppliers.




**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.





March
      31,
      2007    $
      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 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.




F-12




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 issued 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”.





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.




F-13




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




**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 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 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**





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.




F-14







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:3/31/2007
              
              U.S.
              
              State
              
              International
              
              TotalCurrent
              
              $
              
              
              $
              
              
              $
              3,749,259
              
              $
              3,749,259DeferredTotal
              
              $
              -
              
              $
              -
              
              $
              3,749,259
              
              $
              3,749,259
  3/31/2006
              
              
              U.S.
              
              
              State
              
              
              International
              
              
              TotalCurrent
              
              $
              
              
              $
              
              
              $
              510,389
              
              $
              510.389DeferredTotal
              
              $
              -
              
              $
              -
              
              $
              510,389
              
              $
              510,389Reconciliation
                  of the differences between the statutory U.S. Federal income tax
                  rate and
                  the effective rate is as follows:
  3/31/2007
              
              3/31/2006US
                  statutory tax rate
              
              
              34
              %
              
              34
              %Foreign
                  income not recognized in US
              
              
              -34
              %
              
              -34
              %PRC
                  income tax
              
              
              33
              %
              
              33
              %Effective
                  rate
              
              
              33
              %
              
              33
              %








**Note
      10 -** **COMMITTMENTS**




The
      Company leases various office facilities under operating leases that terminate
      thru 2009. The Company also has management agreements that terminate in 2007.
      The future minimum obligations under these agreements are as
      follows:





2008
            
            $
            148,0122009
            
            $
            16,387





**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.




F-15





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 March
      31,
      2007 and December 31, 2006, the Company had allocated $3,320,755 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 March 31, 2007 and December
      31, 2006 are as follows:




*Foreign
                  Currency Translation Adjustment*
              
              *Accumulated
                  Other Comprehensive Income*Balance
                  at December 31, 2005
              
              $
              74,950
              
              $
              74,950Change
                  for 2006
              
              
              352,666
              
              
              352,666Balance
                  at December 31, 2006
              
              $
              427,616
              
              $
              427,616Change
                  for 2007
              
              
              (6,851
              )
              
              (6,851
              )Balance
                  atMarch
                  31,
                  2007
              
              $
              420,765
              
              $
              420,765








**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 three months ended March 31, 2007, no customer accounted for more than
      10%
      of the company’s sales or accounts receivable. At March 31, 2007 three vendors
      comprised 84% of the company’s accounts payable. No vendors accounted for more
      than 10% of the company’s purchases during 2006.




F-16




**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
      Plan of Operations” in Item 2. 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.





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





**Item
      2.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations** **.**




**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”),
      Hangzhou Wandga Electronics Co., Ltd. (“HWDA”), Hangzhou Sanhe Electronic
      Technology, Limited (HSET), 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 ZYXD. ZYXD owns 90% and YYXC owns 10% of HWDA.
      ZYXD owns 90% and HWDA owns 10% of YYXC. 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. 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.




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.




2




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.





**Results
      of Operations**





The
      following table presents certain consolidated statement of operations
      information. All financial information is presented for the three months ending
      on March 31, 2007 and, the three months ending on March 31, 2006.





3/31/2007
            
            03/31/2006Sales,
                net
            
            $
            84,523,194
            
            $
            13,450,749Cost
                of sales
            
            $
            70,590,912
            
            $
            11,520,281General
                and Administrative Expense
            
            $
            3,726,162
            
            $
            505,052Income
                from Operations
            
            $
            10,206,120
            
            $
            1,425,416





**Net
      sales**





Net
      sales
      for the three months ended on March 31, 2007 totally was $84,523,194 compared
      to
      $13,450,749 for the three months ended March 31, 2006. The large increase amount
      was due to the revenue from newly subsidiaries (HSET and Shanghai) and higher
      selling prices throughout the company and increased sales volume from new
      products.





**Cost
      of Sales**





Cost
      of
      sales for the three months ended on March 31, 2007 totaled $70,590,912 or
      approximately 83.51% compared to $11,520,281 or approximately 85.65% which
      is
      for the three months ended on March 31, 2006. The cost of sales as a percentage
      decreased during the first three months of 2007 due to the introduction of
      new
      product models with higher gross profit margin and the maximum discount
      privilege from our suppliers because of the substantial increase of sales.
      The
      absolute number increased sharply due to the inclusion of the cost of sales
      of
      two newly acquired subsidiaries (HSET and Shanghai ) and the increased sales
      volume from original and new types of products.




3





The
      following is the top ten suppliers of each of our subsidiaries:





YYXC
            
            HWDA
            
            HSET
            
            Shanghai1
            
            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 Eletronics Co., Ltd.3
            
            Shanghai
                Rongduo Business Co., Ltd.
            
            Shenzhen
                Jinfeng Datong Technology Co., Ltd.
            
            Hangzhou
                Ruiqi eletronics Co., Ltd.
            
            Dongguan
                Desheng General Eletronics Co., Ltd.4
            
            Ninbo
                Zhongxun Eletronics Co.,Ltd
            
            Liansheng
                Technology Co., Ltd.
            
            Shenzhen
                Deyuan Eletronics Co., Ltd.
            
            Shanghai
                Network Equipment Co., Ltd5
            
            Hangzhou
                Shenruida Trade Co., Ltd.
            
            Shenzhen
                Sunshine Xinke Digital Technology Co., Ltd.
            
            Hangzhou
                Wanlian Electronics Co., Ltd
            
            Shanghai
                Hanshun Trade Co., Ltd6
            
            Shanghai
                Guangdian Equipment Co., Ltd.
            
            Hangzhou
                Tianchen Digital Telecommunication Co., Ltd
            
            Guangzhou
                Fenda Audio Co., Ltd
            
            Dongwan
                Gemei Eletronics Co., Ltd.7
            
            Yiwu
                Wantong Telecom Equipment Co., Ltd
            
            Shenzhen
                Sangdahuitong Eletronics Co., Ltd
            
            Shenzhen
                Chuangwei-RGB Electronics Co., Ltd
            
            SONY-Shanghai
                Co., Ltd8
            
            Aomeng
                Technology Co., Ltd.
            
            Hangzhou
                Qiuxin Internet equipment Co., Ltd
            
            Guangzhou
                Shengshida Eletronics company
            
            Shenyou
                Technology Co., Ltd.9
            
            Shanghai
                Meiyun Industry Co., Ltd
            
            Huayu
                Telecom Equipment Co., Ltd
            
            TCL
                Electronics Co., Ltd
            
            Zhaohua
                Digital Technology Co., Ltd10
            
            Shanghai
                Huoke Electronics Co., Ltd
            
            Hangzhou
                Yingjie Trade Co., Ltd.
            
            Hangzhou
                Hengrong Trade Co., Ltd.
            
            Zhongshan
                Wanxin Eletronics Co., Ltd.




**Gross
      Profit Margin**





Gross
      profit margin for the three months ending March 31, 2007 was 16.48% compared
      to
      14.35% for the three months ending March 31, 2006. The gross profit margin
      increased even after the inclusion of newly acquired subsidiaries was due to
      the
      lower product sourcing costs and the improvement in product mix.





**Operating
      Expense**





The
      operating expense for the three months ending March 31, 2007 totaled $3,726,162
      or approximately 4.41% of net sales, compared to $505,052 or approximately
      3.74%
      for the three months ended on March 31, 2006. The 0.67% increase was due to
      the
      inclusion of the newly acquired subsidiaries (HSET and Shanghai).





**Income
      from Operations**





Income
      from operations for the three months ended March 31, 2007 was $10,206,120 or
      12.07% of net Sales as compared to income from operations of $1,425,416 or
      10.59% of net sales for the three months ending March 31, 2006. The increase
      percentage was due to costs of Sales decrease. The absolute number increased
      sharply due to the inclusion of newly subsidiaries and the increase in consumer
      demand, improvement in product mix and the higher price of
      products.





**Net
      Income**





Net
      income was $6,463,788 or 7.65% of net Sales for the three months ended on March
      31, 2007 compared to $913,548 or 6.79% of net Sales for the three months ended
      on March 31, 2006. The increase was due to higher price of products, Sale
      volumes increase, decreased costs and the inclusion of two newly subsidiaries
      (HSET and Shanghai ).






4


**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 $9,085,186 at March 31, 2007 and current assets
        totally were $ 27,865,195 at March 31, 2007. The Company's total current
        liabilities were $10,117,884 at March 31, 2007.


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 due date of the $4,500,000
      payment is May 27, 2007.





We
      believe that the funds available to us are adequate to meet our operating needs
      for the remainder of 2007.





**Capital
      expenditures**





Total
      capital expenditures for the first three months of 2007 were $34,879 for
      purchase of fixed assets. We have no plans for material capital expenditures
      during 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





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




As
      of
      March 31, 2007, 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.




5


**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-Q that has materially
        affected, or is reasonably likely to materially affect, our internal control
        over financial reporting.


**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
      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 or in the “pink sheets” maintained by the
      National Quotation Bureau, Inc., which are generally considered to be 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.




6




***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.




7





***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.





***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.




8





***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.


9




***Economic
      Reform Issues.*** 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.




10







***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 Jian Liu, 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
      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-Q 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




11





**SIGNATURES**





Pursuant
      to the requirements 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 15th day of May, 2007.




**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
            
            
            
            May
                15, 2007Zhenggang
                Wang
            
            Chief
                Executive Officer and Chairman/s/
Jian
              Liu
            
            
            
            May
                15, 2007Jian
                Liu
            
            Chief
                Financial Officer/s/
Xiang
              Ma
            
            
            
            May
                15, 2007Xiang
                Ma
            
            President







12