UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549








**FORM
      10-K**





**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              For
                the fiscal year ended**December 31, 2007****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              For
                the transition period from ____________ to
                __________________





Commission
      file number 000-28767





**CHINA
      3C GROUP**


(Exact
      name of registrant as specified in its charter)





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





**368
      HuShu Nan Road**


**HangZhou
      City, Zhejiang Province, China 310014**


(Address
      of Principal Executive Offices) (Zip Code)





**086-0571-88381700**


(Registrant’s
      Telephone Number, Including Area Code)





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





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





**Common
      Stock, $.001 par value**


**Title
      of class**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes  ̈ No x




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




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.   Yes x No  ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
      be contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K.  ̈




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




Large accelerated filer
       ̈ Accelerated
      filer x Non-accelerated
      filer  ̈Smaller
      reporting company  ̈




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




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




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




Documents
      incorporated by reference: None









**CHINA
      3C GROUP**




**Table
      of Contents**





**PAGE**PART IItem 1
            
            
            Business
            
            
            1Item 1A
            
            
            Risk
                Factors
            
            
            8Item 1B
            
            
            Unresolved
                Staff Comments
            
            
            12Item 2
            
            
            Properties
            
            
            12Item 3
            
            
            Legal
                Proceedings
            
            
            13Item 4
            
            
            Submission
                of Matters to a Vote of Security Holders
            
            
            13PART IIItem 5
            
            
            Market
                for the Registrant’s Common Stock, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            
            14Item 6
            
            
            Selected
                Financial Data
            
            
            15Item 7
            
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            
            16Item 7A
            
            
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            
            23Item 8
            
            
            Financial
                Statements and Supplementary Data
            
            
            24Item 9
            
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            
            24Item
                9A(T)
            
            
            Controls
                and Procedures
            
            
            24Item 9B
            
            
            Other
                Information
            
            
            25PART IIIItem 10
            
            
            Directors,
                Executive Officers and Corporate Governance
            
            
            26Item 11
            
            
            Executive
                Compensation
            
            
            30Item 12
            
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            
            33Item 13
            
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            
            34Item 14
            
            
            Principal
                Accountant Fees and Services
            
            
            35PART IVItem 15
            
            
            Exhibits
                and Financial Statement Schedules
            
            
            37Index
                  to Consolidated Financial Statements









**Forward
      Looking Statements**





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





**PART
      I**





**ITEM
      1. BUSINESS**





**Overview**




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




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




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





**Organizational
      Structure**




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




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




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




1




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




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




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





**Our
      Business**


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




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




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




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




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




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




2




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




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




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





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




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




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




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




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




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




There
      are
      no material effects from compliance with environmental laws.




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




3




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




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




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




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




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




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




There
      are
      no material effects from compliance with environmental laws.




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




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




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




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




4




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




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





***Hangzhou
      Sanhe Electronic Technology Ltd. (“HSE”)***




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




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




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




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




There
      are
      no material effects from compliance with environmental laws.




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





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




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




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




There
      are
      no material effects from compliance with environmental laws.




5




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





**Customers**





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





**Seasonality
      and Quarterly Fluctuations**





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




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





**Employees**




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




The
      Company has no collective bargaining agreements with any unions.




**Recent
      Developments**





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





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





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





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




6




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





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





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





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




**Availability
      of SEC Filings**




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




7




**ITEM
      1A.** **RISK
      FACTORS**





**Risks
      Associated With Our Common Stock**





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




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




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





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





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




8




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





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





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





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





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





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




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





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




9




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





**Risks
      Related to Doing Business in China**





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





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





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





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




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




10




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





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





***Economic
      Reform Issues***





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


·
            We
                will be able to capitalize on economic
                reforms;


·
            The
                Chinese government will continue its pursuit of economic reform
                policies;


·
            The
                economic policies, even if pursued, will be
                successful;


·
            Economic
                policies will not be significantly altered from time to time;
                and


·
            Business
                operations in China will not become subject to the risk of
                nationalization.





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




11




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





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





**Risk
      Factors Associated with Our Business**




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





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




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





**ITEM 1B.
      UNRESOLVED STAFF COMMENTS**





None.





**ITEM
      2. PROPERTIES**





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




12




**YYXC**





1.
      Shanghai office: lease term: one year (June 2007 - June 2008)


2.
      Yiwu
      headquarter office: lease term: one year (Aug. 2007 - Aug. 2008)


3.
      Apartments:1) A3 Yiwu building, Yiwu village, Lease term: 6 months (Sep. 2007
      -
      Mar. 2008); 2) Qiancheng District, Yiwu, Lease term one year (Nov. 2007 - Nov.
      2008).





**HWDA**





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


2.
      Suite
      417 and Suite 608, 347 Shaoxin Road: Lease term: 3 months (Oct. 2007 - Jan.
      2008).


3.
      Apartments: Taizhou tower, Lease term one year (Oct. 2007- Oct. 2008).





**HSET**





1.
      Yuanhua office: Lease term one year (Aug. 2007 - July 2008).


2.
      Hangzhou Qunying office: Lease Term six months (Nov. 2007 - Apr. 2008).


3.
      Apartments: Hangzhou: Lease Term three months (Jan. 2008 - Mar.
      2008).





**Shanghai**





1.
      Wuxi
      Tower office: Lease term three months (Jan. 2008 - Mar. 2008).


2.
      Warehouse: Shanghai, Lease term: two months (Jan. 2008 - Feb. 2008).





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





**ITEM
      3. LEGAL PROCEEDINGS**





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





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





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




13




**PART
      II**





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





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




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





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





**Stockholders**





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





**Dividends**





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







**Securities
      authorized for issuance under equity compensation plans**





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




**Plan
                Category**
            
            **Number
                of securities to be****issued
                upon exercise****of
                outstanding options,**
              **warrants
                and rights**
            
            **Weighted
                average exercise****price
                of outstanding****options,
                warrants and****rights**
            
            **Number
                of securities**
              **remaining
                available for****future****issuance
                under****equity****compensation****plan****(excluding**
              **securities****reflected**
              **in****column
                (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                Compensation Plans Approved by SecurityholdersEquity
                Compensation Plans Not Approved by Securityholders
            
            
            435,000
            (1)
            $
            3.94
            
            
            765,000





(1)
      1,000,000 shares of our Common Stock were authorized for grant (both incentive
      stock options and non-qualified stock options), and/or issuance pursuant to
      a
      board resolution approved in June 2007.




14




**Repurchase
      of Securities**




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





**Recent
      Sales of Unregistered Securities**




None.




**Equity
      Compensation Plan Information**





In
      June
      2007, the Board of the Company approved options to purchase up to an additional
      one million shares of common stock.





**Forward
      Looking Statements**





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





**ITEM
      6.**  **SELECTED
      FINANCIAL DATA**





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





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





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




15




**Year
                Ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****Statements
                of Operations Data:**Sales,
                net
            
            
            276,026,673
            
            
            148,218,848
            
            
            32,588,634
            
            
            24,701,995
            
            
            9,260,300Cost
                of sales
            
            
            226,656,242
            
            
            125,411,758
            
            
            28,325,332
            
            
            21,577,365
            
            
            7,864,411Gross
                profit
            
            
            49,370,431
            
            
            22,807,090
            
            
            4,263,302
            
            
            3,124,630
            
            
            1,395,889General
                and administrative expenses
            
            
            13,614,500
            
            
            5,544,924
            
            
            1,706,869
            
            
            782,241
            
            
            546,184Income
                from operations
            
            
            35,755,931
            
            
            17,262,166
            
            
            2,556,433
            
            
            2,342,389
            
            
            849,705Other
                (Income) ExpenseInterest
                income
            
            
            (88,413
            )
            
            (31,293
            )
            
            (10,156
            )
            
            (5,348
            )
            
            (4,569
            )Other
                expense
            
            
            74,215
            
            
            100,646
            
            
            17,364
            
            
            9,440
            
            
            4,871Interest
                expense
            
            
            -
            
            
            7,565
            
            
            2,954
            
            
            1,104
            
            
            348Total
                Other (Income) Expense
            
            
            -14,198
            
            
            76,918
            
            
            10,162
            
            
            5,196
            
            
            650Income
                before income taxes
            
            
            35,770,129
            
            
            17,185,248
            
            
            2,546,271
            
            
            2,337,193
            
            
            849,055Provision
                for income taxes
            
            
            12,850,429
            
            
            5,908,122
            
            
            1,088,021
            
            
            231,096
            
            
            -Net
                income
            
            
            22,919,700
            
            
            11,277,126
            
            
            1,458,250
            
            
            2,106,097
            
            
            849,055Net
                income per share:Basic
                & diluted
            
            
            0.44
            
            
            0.24
            
            
            0.04
            
            
            0.06
            
            
            0.02Weighted
                average number of shares outstanding:Basic
                & diluted
            
            
            52,671,438
            
            
            46,179,507
            
            
            35,133,427
            
            
            35,000,000
            
            
            35,000,000




**Year
                Ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****Balance
                Sheets Data:**Cash
                and cash equivalents
            
            
            24,952,614
            
            
            6,498,450
            
            
            1,949,222
            
            
            469.658
            
            
            417,673Working
                capital
            
            
            36,917,850
            
            
            10,505,747
            
            
            3,634,989
            
            
            704,888
            
            
            (1,407,920
            )Total
                assets
            
            
            63,196,805
            
            
            39,987,575
            
            
            4,020,266
            
            
            1,492,006
            
            
            1,404,597Total
                liabilities
            
            
            5,792,722
            
            
            9,061,180
            
            
            341,615
            
            
            735,830
            
            
            2,754,517Total
                shareholders’ equity
            
            
            57,404,083
            
            
            30,926,395
            
            
            3,678,651
            
            
            756,176
            
            
            (1,349,920
            )






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





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




16




**Overview**





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





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





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





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




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





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




17




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





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





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





**Results
      of Operations**





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





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





**Net
      sales**





Net
      sales
      for 2007 totaled $276,026,673 compared to $148,218,848 for 2006. The large
      increase amount was due to a combination of both organic growth and contribution
      from subsidiaries acquired in the second half of 2006. Higher sales volume
      and
      the addition of new product lines were also factors. 2007 was a year in which
      inflation sharply increased in China and we believe inflation had an effect
      on
      our sales in 2007.





**Percentage
      of sales**





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





**Cost
      of Sales**





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





**Top
      Ten Suppliers of Each of Our Subsidiaries**





YYXC
            HWDA
            HSET
            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 Electronics Co., Ltd.3
            Shanghai
                Rongduo Business Co., Ltd.
            Shenzhen
                Jinfeng Datong Technology Co., Ltd.
            Hangzhou
                Ruiqi Electronics Co., Ltd.
            Dongguan
                Desheng General Electronics Co., Ltd.4
            Ninbo
                Zhongxun Electronics Co., Ltd.
            Liansheng
                Technology Co., Ltd.
            Shenzhen
                Deyuan Electronics Co., Ltd.
            Shanghai
                Network Equipment Co., Ltd5
            Hangzhou
                Shenruida Trade Co., Ltd.
            Shenzhen
                Sunshine Xinke Digital Technology Co., Ltd.
            Hangzhou
                Wanlian Electronics Co., Ltd.
            Shanghai
                Hanshun Trade Co., Ltd.6
            Shanghai
                Guangdian Equipment Co., Ltd.
            Hangzhou
                Tianchen Digital Telecommunication Co., Ltd.
            Guangzhou
                Fenda Audio Co., Ltd.
            Dongwan
                Gemei Electronics Co., Ltd.7
            Yiwu
                Wantong Telecom Equipment Co., Ltd.
            Shenzhen
                Sangdahuitong Electronics Co., Ltd.
            Shenzhen
                Chuangwei-RGB Electronics Co., Ltd.
            SONY-Shanghai
                Co., Ltd.8
            Aomeng
                Technology Co., Ltd.
            Hangzhou
                Qiuxin Internet Equipment Co., Ltd.
            Guangzhou
                Shengshida Electronics Company
            Shenyou
                Technology Co., Ltd.9
            Shanghai
                Meiyun Industry Co., Ltd.
            Huayu
                Telecom Equipment Co., Ltd.
            TCL
                Electronics Co., Ltd.
            Zhaohua
                Digital Technology Co., Ltd.10
            Shanghai
                Huoke Electronics Co., Ltd.
            Hangzhou
                Yingjie Trade Co., Ltd.
            Hangzhou
                Hengrong Trade Co., Ltd.
            Zhongshan
                Wanxin Electronics Co., Ltd.




18




**Gross
      Profit Margin**





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





**Operating
      Expense**





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





**Income
      from Operations**





Income
      from operations for 2007 was $35,755,931 or 12.95% of net sales as compared
      to
      income from operations of $17,262,166 for 2006 or 11.65% of net sales.
      Increasing economies of scale were a critical factor for the larger margins,
      as
      were a higher margin product mix. 2007 was a year in which inflation sharply
      increased in China and we believe inflation had an effect on our sales in
      2007.





**Net
      Income**





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




19




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




**Net
      sales**





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





**Percentage
      of sales**





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





**Cost
      of Sales**





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





**Top
      Ten Suppliers of Each of Our Subsidiaries:**





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




20




**Gross
      Profit Margin**





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





**Operating
      Expense**





General
      and administrative expense for 2006 totaled $5,544,924 or approximately 3.74%
      of
      net sales, compared to $1,706,869 or approximately 5.2% for 2005. The decrease
      of 1.46% was due to the inclusion of the newly acquired
      subsidiaries.





**Income
      from Operations**





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





**Interest
      Expense**





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





**Net
      Income**





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





**Liquidity
      and Capital Resources**





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





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





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


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


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




21




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





**Capital
      Expenditures**





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





**Working
      Capital Requirements**





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





**Off-Balance
      Sheet Arrangements**





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





**Critical
      Accounting Policies**





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





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





**Revenue
      Recognition**





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




22




**Accounting
      for Derivative Instruments**





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





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




**ITEM
      7A.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**





**Foreign
      Currency Exchange Rate Risk**





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





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





**Interest
      Rate Risk**





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





**Inflation**





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





**Currency
      Exchange Fluctuations**





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




23




**Concentration
      of Credit Risk**





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





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





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





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





**ITEM
      8.** **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





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





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





None.




**ITEM
      9A(T). CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      in
      Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based
      on this evaluation, our principal executive officer and principal financial
      officer have concluded that during the period covered by this report, such
      disclosure controls and procedures were effective to detect the inappropriate
      application of US GAAP. The Public Company Accounting Oversight Board has
      defined a material weakness as a “significant deficiency or combination of
      significant deficiencies that results in more than a remote likelihood that
      a
      material misstatement of the annual or interim financial statements will not
      be
      prevented or detected.”




24




**Management’s
      Report on Internal Control over Financial Reporting**





This
      annual report includes an attestation report of our registered public accounting
      firm regarding internal control over financial reporting. Management’s report
      was subject to attestation by our registered public accounting firm pursuant
      to
      temporary rules of the Securities and Exchange Commission that permit us to
      provide only management’s report in this annual report. Our management is
      responsible for establishing and maintaining adequate internal control over
      financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
      and
      15d-15(f). Under the supervision and with the participation of our management,
      including our principal executive officer and principal financial officer,
      we
      conducted an evaluation of the effectiveness of our internal control over
      financial reporting based on the framework in Internal Control - Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission. In addition, in 2007, we engaged a consulting firm to assist our
      management in evaluating and strengthening our internal control over financial
      reporting with the objective of full compliance with the Sarbanes-Oxley Act
      of
      2002. Based on our evaluation, our principal executive officer and principal
      financial officer have concluded that during the period covered by this report,
      our internal controls over financial reporting were effective.




**Changes
      in Internal Control over Financial Reporting**




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





**ITEM
      9B. OTHER INFORMATION**





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




25




**PART
      III**




**ITEM
      10.** **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





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






Name
            Age
            PositionZhenggang
                Wang
            39
            Chief
                Executive Officer,Chairman
                of the BoardWeidong
                Huang
            37
            Chief
                Financial OfficerXiang
                Ma
            33
            PresidentChenghua
                Zhu
            32
            DirectorMingjun
                Zhu
            39
            DirectorRongjin
                Weng
            44
            DirectorWei
                Kang Gu
            69
            DirectorKenneth
                T. Berents
            60
            Director,
                Chairman Audit
              CommitteeJoseph
                J. Levinson
            31
            Director







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




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





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





***Weidong
      Huang, Chief Financial Officer*** ****





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




26




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





***Xiang
      Ma, President***





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




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





***Chenghua
      Zhu, Director***





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





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





***Mingjun
      Zhu, Director***





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





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





***Rongjin
      Weng, Director***





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




27




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




***Wei
      Kang Gu, Director***





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





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





***Kenneth
      T. Berents, Director, Chairman Audit Committee***





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





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





***Joseph
      J. Levinson***





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




28




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





*Todd
      Mavis*





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





**Family
      Relationships**





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





**Involvement
      in Certain Legal Proceedings**





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





**Compliance
      with Section 16 (a) of the Exchange Act**





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





**Code
      of Ethics**





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





**Board
      Committees and Designated Directors**





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




29




**Audit
      Committee**





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





**Compensation
      Committee**





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





**Nominating
      and Corporate Governance Committee**





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





**Changes
      in Director Nomination Process for Stockholders**




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





**ITEM
      11. EXECUTIVE COMPENSATION**





**Compensation
      Discussion And Analysis**





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





**Compensation
      Objectives**





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





**Elements
      of Compensation**





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





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




30




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





**Determination
      of Compensation**





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





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







**SUMMARY
                COMPENSATION TABLE**Name
                and principal position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards ($)
            
            Option
                Awards ($)
            
            Non-Equity
                Incentive Plan Compensation ($)
            
            Nonqualified
                Deferred Compensation Earnings ($)
            
            All
                Other Compensation ($)
            
            Total
                ($)ZhenggangWang,
                CEO
            
            2007
              2006
              2005
            
            $
              $
              $
            59,600
              15,000
              15,000
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            $
              $
            15,000
              15,000Jian
                Liu, Former CFO
            
            2007
              2006
              2005
            
            $
              $
              $
            53,000
              15,000
              15,000
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            
            -
              -
              -
            
            $
              $
            15,000
              15,000Weidong
                Huang, CFO
            
            2007
            
            $
            5,000
              (partial
                year) (1)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            15,000





(1)
      Through October 8, 2007.





**Grants
      of Plan-Based Awards**





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




31




**Outstanding
      Equity Awards At Fiscal Year-end**





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





**Option
      Exercises And Stock Vested**





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





**Pension
      Benefits**





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





**Nonqualified
      Deferred Compensation**





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





**Employment
      Agreements**




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





**Potential
      Payments Upon Termination or Change in Control**





None.





**Compensation
      of Directors**





In
      general, members of the Board receive $2,500 per Board meeting that they attend
      and $2,000 per meeting of a committee of the Board that they attend. In
      addition, Board members receive $5,000 for serving as a chairman of a Board
      committee. The Company entered into Board of Directors Agreement with Kenneth
      Berents and Todd Mavis whereby the Company agreed to pay Messrs. Berents and
      Mavis a $75,000 annual salary for service as a member of the Board.





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





**DIRECTOR
                COMPENSATION**Name
            
            FeesEarned
                or
              Paid
                inCash
            
            Stock
              Awards
              ($)
                (1)
            
            OptionAwards
              ($)
                (2)
            
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            
            Change
                inPension
              Value
                andNonqualified
              DeferredCompensation
              Earnings($)
            
            All
              Other
              Compensation
              ($)
            
            Total
              ($)Kenneth
                T. Berents
            
            $
            75,000
            
            
            
            
            
            97,230(3
            )
            
            -
            
            
            -
            
            
            -
            
            
            172,230Wei
                Kang Gu
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Joseph
                J. Levinson
            
            $
            16,000
            
            
            13,930(6
            )
            
            967,500(4
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Todd
                Mavis
            
            $
            75,000
            
            
            -
            
            
            64,188(5
            )
            
            -
            
            
            -
            
            
            -
            
            
            139,188Chenghua
                Zhu
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Mingjun
                Zhu
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Rongjin
                Weng
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





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





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




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





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





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






32




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




There
      are
      no relationships among any of the directors.





**Compensation
      Committee Interlocks and Insider Participation**





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





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





**Compensation
      Committee Report (1)**





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





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





The
      members of the Compensation Committee are:





Mingjun
      Zhu, Chair





Wei
      Kang
      Gu





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





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





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




**Amount
                and Nature****of
                Beneficial**
            
            **Percentage
                of****Name
                and Address of Beneficial Owner (1)******
            
            
            **Ownership**
            
            **Common
                Stock****(3)**Zhenggang
                Wang
            
            
            9,625,000
            
            
            18.34
            %Weidong
                Huang
            
            
            0
            
            
            0Xiang
                Ma
            
            
            0
            
            
            0Chenghua
                Zhu
            
            
            0
            
            
            0Mingjun
                Zhu
            
            
            0
            
            
            0Rongjin
                Weng
            
            
            0
            
            
            0Wei
                Kang Gu
            
            
            0
            
            
            0Kenneth
                T. Berents
            
            
            80,000
            (4)
            
            *Joseph
                J. Levinson
            
            
            305,000
            (4)
            
            0.59%*Weiyi
                Lv
            
            
            5,495,000
            
            
            10.47
            %Yimin
                Zhang
            
            
            5,495,000
            
            
            10.47
            %Xiaochun
                Wang
            
            
            4,130,000
            
            
            7.87
            %Wen-An
                Chen (2)
            
            
            4,000,000
            
            
            7.62
            %Huoqing
                Yang (2)
            
            
            4,000,000
            
            
            7.62
            %Zhongsheng
                Bao
            
            
            2,730,000
            
            
            5.20
            %All
                directors and executive officers as a group (9 persons)
            
            
            9,725,000
            
            
            18.53
            %


*
      Less
      than One Percent.




33




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







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





**Related
      Transactions**





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





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





**Independent
      Directors**




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




34




**ITEM 14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES**





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





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





**Audit
      Fees**





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





**Audit
      Related Fees**





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





**Tax
      Fees**





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





**All
      Other Fees**





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




**Audit
      Committee Pre-Approval Process, Policies and Procedures**




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





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





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





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




35




The
      Audit
      Committee will not grant approval for:





·
            any
                services prohibited by applicable law or by any rule or regulation
                of the
                SEC or other regulatory body applicable to the
                Company;


·
            provision
                by the independent auditor to the Company of strategic consulting
                services
                of the type typically provided by management consulting firms;
                or


·
            the
                retention of the independent auditor in connection with a transaction
                initially recommended by the independent auditor, the tax treatment
                of
                which may not be clear under the Internal Revenue Code and related
                regulations and which it is reasonable to conclude will be subject
                to
                audit procedures during an audit of the Company’s financial
                statements.





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





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





·
            whether
                the service creates a mutual or conflicting interest between the
                auditor
                and the Company;


·
            whether
                the service places the auditor in the position of auditing his or
                her own
                work;


·
            whether
                the service results in the auditor acting as management or an employee
                of
                the Company; and


·
            whether
                the service places the auditor in a position of being an advocate
                for the
                Company.




36





**PART
      IV**





**ITEM
      15.** **EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**





(a)
      Financial Statements and Schedules





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





(b)
      Exhibit Listing





**Exhibit
                No.**
            
            **Document
                Description**3.1
            
            
            Amended
                and Restated Articles of Incorporation of the Registrant, filed
                herewith.3.2
            
            
            By-laws
                of the Registrant (1)4.1
            
            
            China
                3C Group Amended 2005 Equity Incentive Plan. (2)10.1
            
            
            Stock
                Purchase Agreement, dated as of October 17, 2005, by and among Sun
                Oil
                & Gas, Inc., EH&P Investments, John D. Swain, Fred Holcapek, PH
                Holding Group, Ma Cheng Ji, Zhou Wei, Zeng Xiu Lan, Gu Xiao Dong,
                Jacksonville Management
                Ltd.,
                  Colin Wilson, Alliance Capital Management, Inc., Hanzhong Fang
                  and China
                  U.S. Bridge Capital, Ltd.(3)10.2
            
            
            Consulting
                Services Agreement dated as of November 1, 2005 between Capital
                Development Limited and Zhejiang Yong Xing Digital Technology Co.,
                Ltd.
                (4)10.3
            
            
            Operating
                Agreement dated as of November 1, 2005 between Capital Development
                Limited
                and Zhejiang Yong Xing Digital Technology Co., Ltd. (4)10.4
            
            
            Proxy
                and Voting Agreement dated as of November 1, 2005 between Capital
                Development Limited and Zhejiang Yong Xing Digital Technology Co.,
                Ltd.
                (4)10.5
            
            
            Option
                Agreement dated as of November 1, 2005 between Capital Development
                Limited
                and Zhejiang Yong Xing Digital Technology Co., Ltd. (4)10.6
            
            
            Equity
                Pledge Agreement dated as of November 1, 2005 between Capital Development
                Limited and Zhejiang Yong Xing Digital Technology Co., Ltd. (4)10.7
            
            
            Subscription
                Agreement, dated as of December 20, 2005, between the Registrant
                and Huiqi
                Xu. (5)10.8
            
            
            Consulting
                Agreement, dated as of December 20, 2005, among the Registrant, Wen-An
                Chen and Huoqing Yang. (5)10.9
            
            
            Guarantee
                Contract between the Registrant and Shenzhen Shiji Ruicheng Guaranty
                and
                Investment Co. Ltd., dated as of December 21, 2005. (6)10.10
            
            
            Agreement
                and Plan of Merger, dated as of December 21, 2005, among the Registrant,
                YX Acquisition Corporation, Capital Future Development Limited, Zhenggang
                Wang, Yimin Zhang, Weiyi Lv, Xiaochun Wang, Zhongsheng Bao, Simple
                (Hongkong) Investment & Management Company Limited, First Capital
                Limited, Shenzhen Dingyi Investment & Consulting Limited and China US
                Bridge Capital Limited. (6)10.11
            
            
            Form
                of Promissory Note dated December 21, 2005. (6)10.12
            
            
            Share
                Exchange Agreement, dated as of November 28, 2006, among China 3C
                Group,
                Capital Future Development Limited (“CFDL”), Shanghai Joy & Harmony
                Electronics Company Limited, and the shareholders of CFDL. (7)10.13
            
            
            Form
                of Securities Purchase Agreement, dated July 13, 2007, by and among
                the
                Registrant and certain subscribers (8)10.14
            
            
            Letter
                of Intent for Strategic Partnership, dated November 22, 2007, between
                the
                Registrant’s subsidiary Zhejiang Yongxin Technology Limited and Hangzhou
                Xituo Network Technology Company (9)10.15
            
            
            Consignment
                Agreement, dated January 2, 2008, between the Registrant’s subsidiary
                Hangzhou Shan He Electric Company Limited and Hangzhou Lotour Digital
                Products Business Company Limited (10)




37




10.16
            
            
            Consignment
                Agreement, dated January 3, 2008, between the Registrant’s subsidiary
                Hangzhou Wang Da Electric Company Limited and Hangzhou Lotour Digital
                Products Business Company Limited (10)14.1
            
            
            Code
                of Business Conduct and Ethics, filed herewith.21.1
            
            
            List
                of Subsidiaries, filed herewith.31.1
            
            
            Certification
                of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002, filed herewith.31.2
            
            
            Certification
                of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002, filed herewith.32.1
            
            
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906
                of the
                Sarbanes-Oxley Act of 2002), filed herewith.32.2
            
            
            Certification
                of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section
                906 of
                the Sarbanes-Oxley Act of 2002), filed herewith.99.1
            
            
            Press
                Release dated March 27, 2008, filed herewith.


_________________


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


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


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


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


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


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


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


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


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


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




38




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
      of
      1934, the Company has duly caused this report to be signed on its behalf by
      the
      undersigned, thereunto duly authorized, on this 27 th day of
      March 2008.




**CHINA
                3C GROUP**/s/
                Zhenggang WangZhenggang
                WangChief
                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
            
            March
                27, 2008Zhenggang
                Wang
            Chief
                Executive Officer and Chairman/s/
                Xiang MaXiang
                Ma
            President
            March
                27, 2008/s/
                Weidong HuangWeidong
                Huang
            Chief
                Financial Officer
            March
                27, 2008/s/
                Chenghua ZhuChenghua
                Zhu
            Director
            March
                27, 2008/s/
                Mingjun ZhuMingjun
                Zhu
            Director
            March
                27, 2008/s/
                Rongjin WengRongjin
                Weng
            Director
            March
                27, 2008/s/
                Wei Kang GuWei
                Kang Gu
            Director
            March
                27, 2008/s/
                Kenneth T. BerentsKenneth
                T. Berents
            Director
            March
                27, 2008/s/
                Joseph J. LevinsonJoseph
                J. Levinson
            Director
            March
                27, 2008




39





**CHINA
      3C GROUP AND SUBSIDIARIES**








**CONSOLIDATED
      FINANCIAL STATEMENTS**





**DECEMBER
      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-19









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




*CERTIFIED
      PUBLIC ACCOUNTANTS*


40
      Exchange Place, Suite 1820


New
      York,
      NY 10005


TEL:
      (212)
      925-9490


FAX:
      (212)
      226-9134


E-MAIL:
      MORGENCPA@CS.COM





Report
      of Independent Registered Public Accounting Firm





Board
      of
      Directors and Stockholders of


China
      3C
      Group Inc. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of China 3C Group as of
      December 31, 2007 and 2006, and the related consolidated statements of income,
      stockholders’ equity and comprehensive income, and cash flows for the year ended
      December 21, 2007. We also have audited China 3C Group’s internal control over
      financial reporting as of December 31, 2007, based on criteria established
      in *Internal
      Control-Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      China 3c Group ‘s management is responsible for these financial statements, for
      maintaining effective internal control over financial reporting, and for its
      assessment of the effectiveness of internal control over financial reporting,
      included in the accompanying Management’s Report on Internal Control. Our
      responsibility is to express an opinion on these financial statements and an
      opinion on the company’s internal control over financial reporting based on our
      audits.





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





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





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





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








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


**Certified
      Public Accountants**





New
      York,
      New York


March
      4,
      2008




F-1




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




**ASSETS**
            
            **12/31/2007**
            
            **12/31/2006****Current
                Assets**Cash
                and cash equivalents
            
            $
            24,952,614
            
            $
            6,498,450Accounts
                receivable, net
            
            
            8,077,533
            
            
            8,013,071Inventory
            
            
            6,725,371
            
            
            2,779,506Advance
                to supplier
            
            
            2,572,285
            
            
            2,215,841Prepaid
                expenses
            
            
            382,769
            
            
            60,059Total
                Current Assets
            
            
            42,710,572
            
            
            19,566,927Property
                & equipment, net
            
            
            89,414
            
            
            65,803Goodwill
            
            
            20,348,278
            
            
            20,348,278Refundable
                deposits
            
            
            48,541
            
            
            6,567**Total
                Assets**
            
            $
            63,196,805
            
            $
            39,987,575**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                LiabilitiesAccounts
                payable and accrued expenses
            
            $
            3,108,235
            
            $
            1,964,663Income
                tax payable
            
            
            2,684,487
            
            
            2,596,517Notes
                payable
            
            
            -
            
            
            4,500,000Total
                Current Liabilities
            
            
            5,792,722
            
            
            9,061,180**Stockholders’
                Equity**Common
                stock, $.001 par value, 100,000,000shares
                authorized, 52,673,938 and 52,488,938 issued and
                outstanding
            
            
            52,674
            
            
            52,489Additional
                paid in capital
            
            
            19,465,776
            
            
            17,352,691Subscription
                receivable
            
            
            (50,000
            )
            
            (50,000
            )Statutory
                reserve
            
            
            7,234,295
            
            
            3,320,755Other
                comprehensive income
            
            
            1,872,334
            
            
            427,616Retained
                earnings
            
            
            28,829,004
            
            
            9,822,844Total
                Stockholders’ Equity
            
            
            57,404,083
            
            
            30,926,395Total
                Liabilities and Stockholders’ Equity
            
            $
            63,196,805
            
            $
            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
                YEARS ENDING DECEMBER 31, 2007, 2006 AND
                2005**




**2007**
            
            **2006**
            
            **2005**Sales,
                net
            
            $
            276,026,673
            
            $
            148,218,848
            
            $
            32,588,634Cost
                of sales
            
            
            226,656,242
            
            
            125,411,758
            
            
            28,325,332**Gross
                profit**
            
            
            49,370,431
            
            
            22,807,090
            
            
            4,263,302General
                and administrative expenses
            
            
            13,614,500
            
            
            5,544,924
            
            
            1,706,869**Income
                from operations**
            
            
            35,755,931
            
            
            17,262,166
            
            
            2,556,433Other
                (Income) ExpenseInterest
                income
            
            
            (88,413
            )
            
            (31,293
            )
            
            (10,156
            )Other
                expense
            
            
            74,215
            
            
            100,646
            
            
            17,364Interest
                expense
            
            
            -
            
            
            7,565
            
            
            2,954Total
                Other (Income) Expense
            
            
            (14,198
            )
            
            76,918
            
            
            10,162**Income
                before income taxes**
            
            
            35,770,129
            
            
            17,185,248
            
            
            2,546,271Provision
                for income taxes
            
            
            12,850,429
            
            
            5,908,122
            
            
            1,088,021**Net
                income**
            
            $
            22,919,700
            
            $
            11,277,126
            
            $
            1,458,250**Net
                income per share:**Basic
                & diluted
            
            $
            0.44
            
            $
            0.24
            
            $
            0.04**Weighted
                average number of shares outstanding:**Basic
                & diluted
            
            
            52,671,438
            
            
            46,179,507
            
            
            35,133,427





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


F-3




**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                YEARS ENDED DECEMBER 31, 2007, 2006 AND
                2005**




2007
            
            2006
            
            2005**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                Income
            
            $
            22,919,700
            
            $
            11,277,126
            
            $
            1,458,250Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
            
            
            40,714
            
            
            20,191
            
            
            17,420Gain
                on asset disposition
            
            
            -
            
            
            (936
            )Provision
                for bad debts
            
            
            9,021
            
            
            82,686
            
            
            -Stock
                based compensation
            
            
            2,113,270
            
            
            -
            
            
            225,680Amortization
                of deferred consulting expense
            
            
            -
            
            
            387,945
            
            
            12,055Shares
                to be issued to consultants
            
            
            
            
            
            
            
            
            498,000(Increase)
                / decrease in assets:Accounts
                receivables
            
            
            (73,483
            )
            
            (2,375,209
            )
            
            (286,498
            )Inventory
            
            
            (3,945,865
            )
            
            (487,593
            )
            
            (421,658
            )Prepaid
                expense
            
            
            (322,710
            )
            
            85,216
            
            
            (42,522
            )Advance
                to supplier
            
            
            (356,444
            )
            
            (848,848
            )
            
            (372,000
            )Deposits
            
            
            (41,974
            )
            
            (5,929
            )
            
            1,288Increase
                / (decrease) in current liabilities:Accounts
                payable and accrued expenses
            
            
            1,143,572
            
            
            1,356,272
            
            
            (267,816
            )Income
                tax payable
            
            
            87,970
            
            
            1,477,695
            
            
            122,067Total
                Adjustments
            
            
            (1,345,929
            )
            
            (308,510
            )
            
            (513,984
            )**Net
                cash provided by operating activities**
            
            
            21,573,771
            
            
            10,968,616
            
            
            944,266**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property & equipment
            
            
            (64,325
            )
            
            (30,591
            )
            
            (2,308
            )Proceeds
                from asset sales
            
            
            -
            
            
            1,508
            
            
            -**Net
                cash used by Investing activities**
            
            
            (64,325
            )
            
            (29
            )
            
            (2,308
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Capital
                contribution to subsidiary before acquisition
            
            
            -
            
            
            -
            
            
            1,210,000Dividends
                paid
            
            
            -
            
            
            -
            
            
            (529,140
            )Proceed
                on loan from related parties
            
            
            -
            
            
            -
            
            
            97,760Payments
                on loan to related parties
            
            
            -
            
            
            -
            
            
            (250,877
            )Payments
                of acquisition notes - net of cash acquired
            
            
            (4,500,000
            )
            
            (6,550,157
            )
            
            -Payments
                of notes - other
            
            
            -
            
            
            (7,769
            )
            
            (9,807
            )**Net
                cash provided by financing activities**
            
            
            (4,500,000
            )
            
            (6,557,926
            )
            
            517,936Effect
                of exchange rate changes on cash and cash equivalents
            
            
            1,444,718
            
            
            167,621
            
            
            19,670Net
                change in cash and cash equivalents
            
            
            18,454,164
            
            
            4,549,228
            
            
            1,479,564**Cash
                and cash equivalents, beginning balance**
            
            
            6,498,450
            
            
            1,949,222
            
            
            469,658**Cash
                and cash equivalents, ending balance**
            
            $
            24,952,614
            
            $
            6,498,450
            
            $
            1,949,222**SUPPLEMENTAL
                DISCLOSURES:**Cash
                paid during the year for:Income
                tax payments
            
            $
            12,762,459
            
            $
            3,534,155
            
            
            965,354Interest
                payments
            
            $
            -
            
            $
            7,565
            
            
            2,954**Non
                cash transactions relating to acquisitions**Purchased
                Goodwill
            
            
            
            
            $
            (20,348,278
            )Fair
                value of assets purchased less cash acquired
            
            
            
            
            
            (5,451,879
            )Acquisition
                financed with stock issuance
            
            
            
            
            
            14,750,000Acquisition
                financed with notes
            
            
            
            
            
            12,500,000Net
                cash acquired in acquisitions
            
            
            
            
            $
            1,449,843





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





F-4




**CHINA
                3C GROUP AND SUBSIDIARIES****CONSOLIDATED
                STATEMENT OF STOCKHOLDERS’ EQUITY****FOR
                THE YEARS ENDED DECEMBER 31, 2007, 2006 AND
                2005**




**Shares**
            
            **Additional**
            
            **Other**
            
            **Deferred**
            
            
            
            
            
            
            
            **Total****Common
                Stock**
            
            **to
                be**
            
            **Paid-In**
            
            **Comprehensive**
            
            **Consulting**
            
            **Subscription**
            
            **Statutory**
            
            **Retained
                Earnings**
            
            **Stockholders’****Shares**
            
            **Amount**
            
            **issued**
            
            **Capital**
            
            **Income**
            
            **Expense**
            
            **Receivable**
            
            **Reserve**
            
            
            
            **Equity****Balance
                December 31, 2004**
            
            
            35,000,000
            
            $
            35,000
            
            $
            -
            
            $
            267,500
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            70,379
            
            $
            383,297
            
            $
            756,176Changes
                due to recapitalization
            
            
            2,613,282
            
            
            2,613
            
            
            
            
            
            1,226,387
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,229,000Shares
                issued for consulting fees
            
            
            
            
            
            
            
            
            498,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            498,000Warrants
                issued for deferred consulting fees
            
            
            
            
            
            
            
            
            
            
            
            400,000
            
            
            
            
            
            (387,945
            )
            
            
            
            
            
            
            
            
            
            
            12,055Stock
                issued for guarantee fee
            
            
            2,256,795
            
            
            2,257
            
            
            
            
            
            223,423
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            225,680Warrants
                exercised
            
            
            
            
            
            
            
            
            4,000
            
            
            (4,000
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Stock
                subscription receivable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (50,000
            )
            
            
            
            
            
            
            
            (50,000
            )Dividend
                paid
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (525,460
            )
            
            (525,460
            )Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            74,950
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            74,950Transfer
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            331,651
            
            
            (331,651
            )
            
            -Net
                income for the year ended December 31, 2005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,458,250
            
            
            1,458,250**Balance
                December 31, 2005**
            
            
            39,870,077
            
            $
            39,870
            
            $
            502,000
            
            $
            2,113,310
            
            $
            74,950
            
            $
            (387,945
            )
            $
            (50,000
            )
            $
            402,030
            
            $
            984,436
            
            $
            3,678,651Stock
                Issued
            
            
            8,980,000
            
            
            8,980
            
            
            (502,000
            )
            
            493,020Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            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
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,444,718
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,444,718Stock
                based compensation
            
            
            185,000
            
            
            185
            
            
            
            
            
            2,113,085
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,113,270Transfer
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,913,540
            
            
            (3,913,540
            )
            
            -Income
                for YearEnded
                December 31, 2007
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            22,919,700
            
            
            22,919,700**Balance
                December 31, 2007**
            
            
            52,673,938
            
            $
            52,674
            
            
            
            
            $
            19,465,776
            
            $
            1,872,334
            
            
            
            
            
            (50,000
            )
            $
            7,234,295
            
            $
            28,829,004
            
            $
            57,404,083





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




F-5




**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      1 -** **ORGANIZATION**





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





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





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





F-6


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





Use
      of
      Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





Principles
      of Consolidation


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





Risks
      and Uncertainties


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





Contingencies


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





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





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





F-7





**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**





Cash
      and Cash Equivalents





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





Accounts
      Receivable





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




Inventories





Inventories
      are valued at the lower of cost (determined on a weighted average basis) or
      market. The Management compares the cost of inventories with the market value
      and allowance is made for writing down their inventories to market value, if
      lower. As of December 31, 2007 and December 31, 2006 inventory consisted of
      finished goods valued at $ 6,725,371 and $ 2,779,506 respectively.




Property,
      Plant & Equipment




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





Furniture
                and Fixtures & Office Equipment
            5
                yearsAutomobile
            5
                years




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





2007
            
            2006Automobile
            
            $
            138,330
            
            $
            103,749Office
                equipment
            
            
            105,612
            
            
            75,869243,942
            
            
            179,618Accumulated
                depreciation
            
            
            (154,528
            )
            
            (113,815
            )$
            89,414
            
            $
            65,803





F-8


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**




**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**




Long-Lived
      Assets




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




Fair
      Value of Financial Instruments




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




Revenue
      Recognition





The
      Company’s revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. 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.




F-9


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**




**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**





Advertising


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




Income
      Taxes




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




Basic
      and Diluted Earnings per Share




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




Statement
      of Cash Flows




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




F-10


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




Concentration
      of Credit Risk




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




Segment
      Reporting





Statement
      of Financial Accounting Standards No. 131 (SFAS 131), Disclosure about Segments
      of an Enterprise and Related Information requires use of the management
      approach ̈ model for segment reporting. The management approach model is based on
      the way a company’s management organizes segments within the company for making
      operating decisions and assessing performance. Reportable segments are based
      on
      products and services, geography, legal structure, management structure, or
      any
      other manner in which management disaggregates a company.





Recent
      accounting pronouncements





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





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





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





F-11





**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





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





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








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





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





F-12


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**








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





a.
            A
                brief description of the provisions of this
                Statement


b.
            The
                date that adoption is required


c.
            The
                date the employer plans to adopt the recognition provisions of this
                Statement, if earlier.





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





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





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





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




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




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





F-13


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**







**Note
      4-** **NOTES
      PAYABLE**




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





December
      31, 2006 $ 4,500,000





**Note
      5 -** **COMMON
      STOCK**




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





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





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





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





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





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





F-14


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      5 -** **COMMON
      STOCK (continued)**





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





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





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





**Note
      6 -** **STOCK
      WARRANTS, OPTIONS, AND COMPENSATION**





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




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





On
      December 8, 2006 the company issued, to 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.





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





On
      May 7,
      2007 the Board of Directors appointed Joseph Levinson to serve as a member
      of
      the Board of Directors of the Company. Mr. Levinson has been named chairman
      of
      the Nominating Committee of the Company. In addition, Mr. Levinson will be
      in
      charge of Investor Relations for the Company.


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





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




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





F-15


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





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





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


Year
                    endedDecember
                    31, 2007Expected
                    Volatility
                
                
                130%Expected
                    term (in years)Todd
                    L. Mavis
                
                
                2Kenneth
                    T. Berents
                
                
                9Joseph
                    Levinson
                
                
                9Expected
                    dividends
                
                
                -Risk-free
                    rate of return (weighted average)
                
                
                2%Weighted
                    average grant-date fair value
                
                
                3.8-6.15




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





The
      Company did not grant any option during the year ended December 31,
      2007


AggregateExercise
              
              Remaining
              
              IntrinsicTotal
              
              Price
              
              Life
              
              ValueOUTSTANDING,
                  DECEMBER 2006
              
              
              50,000
              
              
              4.16
              
              
              9
              
              $
              -Granted
                  in 2007
              
              
              50,000
              
              
              3.8
              
              
              2
              
              
              -300,000
              
              
              6.15
              
              
              9
              
              
              -Exercised
                  in 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              -OUTSTANDING,
                  DECEMBER 2007
              
              
              400,000
              
              
              
              
              
              
              
              
              -





**Note
      7 -** **STOCK** ****** **EXCHANGE
      AGREEMENT**





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





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





F-16


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**








**Note
      8 -** **COMPENSATED
      ABSENCES**




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





**Note
      9 -** **INCOME
      TAXES**





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




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





The
                following is a reconciliation of income tax expense:12/31/2007
            
            
            U.S.
            
            
            State
            
            
            International
            
            
            TotalCurrent
            
            $
            -
            
            $
            800
            
            $
            2,683,687
            
            $
            2,684,487Deferred
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            -
            
            $
            800
            
            $
            2,683,687
            
            $
            2,684,48712/31/2006
            
            
            U.S.
            
            
            State
            
            
            International
            
            
            TotalCurrent
            
            $
            -
            
            $
            800
            
            $
            5,907,322
            
            $
            5,908,122Deferred
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            -
            
            $
            800
            
            $
            5,907,322
            
            
            S5,908,122Reconciliation
                of the differences between the statutory U.S. Federal income tax
                rate and
                the effective rate is as follows:12/31/2007
            
            
            12/31/2006US
                statutory tax rate
            
            
            34
            %
            
            34
            %Foreign
                income not recognized in US
            
            
            34
            %
            
            34
            %PRC
                income tax
            
            
            33
            %
            
            33
            %Effective
                rate
            
            
            33
            %
            
            33
            %





F-17





**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**








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




The
      Company leases various office facilities under operating leases that terminate
      thru 2011. The Company also has management agreements that terminate in 2007.
      The future minimum obligations under these agreements are as
      follows:




2008
              
              $
              140,7752009
              
              $
              62,3802010
              
              $
              34,8122011
              
              $
              16,450


**Note
      11 -** **STATUTORY
      RESERVE**





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





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





**Note
      12 -** **OTHER
      COMPREHENSIVE INCOME**


Balances
      of related after-tax components comprising accumulated other comprehensive
      income, included in stockholders equity, at December 31, 2007 and 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
            
            
            1,444,718
            
            
            1,444,718Balance
                at December31,
                2007
            
            $
            1,872,334
            
            $
            1,872,334








F-18


**CHINA
      3C GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007**





**Note
      13**  **-** **CURRENT
      VULNERABILITY DUE TO CERTAIN RISK FACTORS**





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





**Note
      14 -** **MAJOR
      CUSTOMERS AND CREDIT RISK**





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




**Note
      15 -** **SUBSEQUENT
      EVENTS**





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





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





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





F-19