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UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


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





**o**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              For
                the fiscal year ended**-****OR****x**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              For
                the transition period from February 1, 2005 to December 31,
                2005





Commission
      file number 000-28767




**CHINA
      3C GROUP**


(Name
      of
      Small Business Issuer 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, including zip code.)




**086-0571-88381700**


(Issuer’s
      Telephone Number, Including Area Code)




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


**Title
                of each class**
            **Name
                of each exchange on which registered****None**
            **None**


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


**Title
                of each class**
            **Common
                Stock, $.001 par value**


Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act ྑ





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the Company was required to file such reports) and (2) has been subject
      to
      such filing requirements for the past 90 days. Yes x No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of Company's knowledge, in definitive proxy or information statements
      incorporated by referenced in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB x




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




State
      issuer's revenues for the year ended **** December
      31, 2005: **** $32,588,634.




State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity. As of April
      3,
      2006, the value was $ 92,815,368 .




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of **** April
      3,
      2006 there were 48,850,194 shares of common stock outstanding.




Transitional
      Small Business Disclosure Format (Check One): Yes o No x







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        Statements**


**TABLE
      OF CONTENTS**





PART
                IITEM
                1.
            DESCRIPTION
                OF BUSINESSITEM
                2.
            DESCRIPTION
                OF PROPERTYITEM
                3.
            LEGAL
                PROCEEDINGSITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERSPART
                IIITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERSITEM
                6.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATIONITEM
                7.
            FINANCIAL
                STATEMENTSITEM
                8.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                AND FINANCIAL DISCLOSUREITEM
                8A.
            CONTROLS
                AND PROCEDURESITEM
                8B.
            OTHER
                INFORMATIONPART
                IIIITEM
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                ACTITEM
                10.
            EXECUTIVE
                COMPENSATIONITEM
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONSITEM
                13.
            EXHIBITSITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES






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**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. DESCRIPTION OF BUSINESS**





China
      3C
      Group (formerly Sun Oil & Gas Corp.) (the “Company”, “we”, “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, in connection with the Merger
      Transaction described below, we changed our name to China 3C Group, to more
      accurately reflect the business of the Company.





On
      October 17, 2005, we entered into a stock purchase agreement (the “Stock
      Purchase Agreement”) with EH&P Investments AG, 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. There were no material
      relationships between us or our affiliates and any of the parties to the Stock
      Purchase Agreement, other than in respect of the Stock Purchase Agreement.





Pursuant
      to the terms and conditions of the Stock Purchase Agreement, Hanzhong Fang
      and
      China U.S. Bridge Capital, Ltd. acquired an aggregate of 23,980,461 shares
      of
      our common stock from EH&P Investments AG, John D. Swain, Fred Holcapek, PH
      Holding Group, Ma Cheng Ji, Zhou Wei, Zeng Xiu Lan, Gu Xiao Dong, Jacksonville
      Management Ltd., Colin Wilson and Alliance Capital Management, Inc. representing
      approximately 74.3% of the issued and outstanding shares of our common stock
      at
      the time.





On
      December 21, 2005, we entered into a guarantee contract with Shenzhen Shiji
      Ruicheng Guaranty and Investment Co. Ltd. (the “ Guarantee
      Contract ”).
      Pursuant to the terms of the Guarantee Contract, Shenzhen Shiji Ruicheng
      Guaranty and Investment Co. Ltd. (the “ Guarantee
      Company ”)
      provided us with certain guarantee services relating to the Merger Transaction
      (as defined below). In exchange for these services, we issued 2,256,795 shares
      of our common stock the Guarantee Company. There are no material relationships
      between us or our affiliates and the Guarantee Company, other than in respect
      of
      the Guarantee Contract.




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            Statements**





**The
      Merger**





On
      December 21, 2005, we entered into an agreement and plan of merger with YX
      Acquisition Corporation (“ YXAC ”),
      Capital Future Development Limited (“ CFDL ”),
      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 (the “ Merger
      Agreement ”). 
      The transaction described in the Merger Agreement is referred to as the
“ Merger
      Transaction .





Pursuant
      to the Merger Agreement, CFDL merged with and into YXAC, with CFDL as the
      surviving entity and became a wholly owned subsidiary of China 3C Group. The
      CFDL shareholders received an aggregate of 35,000,000 newly issued shares of
      the
      Company’s common stock, which were divided proportionally among the CFDL
      Shareholders in accordance with their respective ownership interests in CFDL
      immediately before the completion Merger Transaction, and aggregate cash
      consideration of $500,000, divided proportionally among the CFDL Shareholders
      in
      accordance with their respective ownership interest in CFDL immediately before
      the completion Merger Transaction and payable no later than the first
      anniversary of the Merger Transaction pursuant to nine interest-free promissory
      notes.




China
      3C
      Group owns 100% of the capital stock of Capital Future Development
      Limited **** ( **“** CFDL)”.
      CFDL owns 100% of the capital stock of Zhejiang Yong Xin Digital Technology
      Company Limited (“ZYXD”). ZYXD owns 90% and Yiwu Yong Xin Telecommunication
      Company, Limited ( **“** YYXC”)
      owns 10% of the capital stock of Hangzhou Wang Da Electronics Company,
      Limited **** (“HWDA”).
      ZYXD owns 90% and HDWA owns 10% of YYXC. Collectively the five corporations
      are
      referred to as the Company.





**YX
      Acquisition Corporation (“YXAC”)**





YXAC
      was
      incorporated in December 2005 under the laws of the State of Nevada and a wholly
      owned subsidiary of the Company formed specifically for the purpose of
      completing the Merger Transaction.





**Capital
      Future Development Limited (“CFDL”)**





CFDL
      was
      incorporated on July 22, 2004 under the laws of the British Virgin Islands
      and a
      holding company that owns all of the issued and outstanding stock of Zhejiang
      Yong Xin Digital Technology Company Limited. As a result of the closing of
      the
      Merger Transaction CFDL became a wholly owned subsidiary of the Company.





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




ZYXD
      was
      incorporated on July 11, 2005 under the laws of the Peoples Republic of China,
      and owns 90% of the issued and outstanding capital stock of each of Hangzhou
      Wang Da Electronics Company, Limited (“ HWDA ”)
      and
      Yiwu Yong Xin Telecommunication Company, Limited (“ YYXC ”).  In
      2001,
      ZYXD 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.




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            to Consolidated Financial
            Statements**





ZYXD
      is a large-scale enterprise integrating the selling, circulation and modern
      logistics of 3C products (communication products, information technology (“IT”)
      products and digital products) in China. ZYXD 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. ZYXD allocates its distribution channels according
      to
      the size and population of the cities in which the retailers are located, which
      mean that it distributes products mainly to second tier retailers in bigger
      Chinese cities that have larger populations and it distributes products to
      first
      tier retailers in smaller Chinese cities that have relatively smaller
      populations.




ZYXD
      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, ZYXD coordinates with the promotional activities
      initiated or planned by the product manufacturers. ZYXD prefers to focus on
      circulation and distribution activity and thereby eliminate unnecessary
      expenses.




ZYXD
      manages credit risk by having its own credit system with the retailer customers.
      ZYXD provides different policies or benefits on the payment and credit period
      according to different credit level of the customers.




ZYXD’s
      strategy is to combine the distribution channel with the chain stores, selling
      telecommunication products, digital products, and IT products.  The
      sales
      of ZYXD are primarily focusing in East China. ZYXD’s plan is to move out from
      the cord telephones market, focus on fax machines, cell phones and other digital
      and IT products throughout China.




ZYXD
      strictly follows all the 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.





**Competition**




The
      main competitors of ZYXD include Hangzhou Guang Tong Company, Hangzhou Yin
      Dun
      Company, Hangzhou Qing Teng Company, Hangzhou Si Tong Company, and Zhejiang
      Shen
      You Electrical Appliance Company.




**Distribution
      Channel Management**




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, ZYXD distributes to both first and second tier retailer businesses.
      ZYXD allocates the channel according to the size of the cities, for example,
      in
      some areas like Jinhua, Zhaoxing, Hangzhou, etc, ZYXD will distribute to small
      retailers. In other areas, the distribution will go to big retailer business
      center, thus cutting the cost of shipping and enables the products to reach
      all
      areas.




-3-
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            Statements**





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





HWDA
      was
      incorporated on March 30, 1998 under the laws of the Peoples Republic of China. HWDA
      is an authorized sales agent focusing on the selling, circulation and modern
      logistics of cell phones, cell phones 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.





**Suppliers
      and Customers**




The
      five largest suppliers for HWDA 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.





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





YYXC
      was
      a incorporated on July 18, 1997 under the laws of the Peoples Republic of China. YYXC
      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 number one local brand Feng
      Da and CJT fax machines.





**Suppliers
      and Customers**




The
      five largest suppliers for YYXC 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 YYXC
      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).





**Employees**





The
      Company currently has 132 employees, all of which are full time employees
      located in China. ZYXD
      has
      35 employees, YYXC has 64 employees, and HWDA has 33 employees.




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            to Consolidated Financial
            Statements**





**ITEM
      2. DESCRIPTION OF PROPERTY.**




The
      Company does not own any real estate properties; all of the properties are
      leased.




HWDA
      has two physical locations in Hangzhou City; Room 402, Unit 2, Building 1,
      No. 356, HuShu Nan Road, HangZhou City, ZheJiang Province, China 310014 and
      Room 302 — 302, Unit 3, Building 28, Chuang Ji Xin Village, Hangzhou City,
      Zhejiang Province, China 310014. HWDA leases both locations. HWDA uses the
      first
      location as its office space and warehouse, and the other location for its
      staff.




YYXC
      has three physical locations in Yiwu City; 592 JiangDong Zhong Road, YiWu City,
      ZheJiang Province, China 322000, Room 501, No. 17, Lane 258, ZhuZHou
      Road, Yiwu City, ZheJiang Province, China 322000 and Room 402, No. 25,
      Lane 8, HeiLongJiang Road, Yiwu City, ZheJiang Province, China 322000. YYXC
      leases all three locations. YYXC uses the first location as its office space
      and
      warehouse, and the two other locations for its staff.





**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 2005
      required to be disclosed.




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            Statements**




**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS
      MATTERS.**




The
      Company’s common stock is traded on the OTCBB under the symbol “CHCG.OB.” Prior
      to December 19, 2005, the Company’s common stock was traded on the OTCBB
      under the symbol “SUNO.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, 2005 and  December
      31, 2004:




low
                bid*
            
            high
                bid*2004quarter
                ended March
            
            $
            1.92
            
            $
            20.51quarter
                ended June
            
            $
            10.51
            
            $
            15.38quarter
                ended September
            
            $
            13.46
            
            $
            20.00quarter
                ended December
            
            $
            11.15
            
            $
            23.852005quarter
                ended March
            
            $
            13.50
            
            $
            21.50quarter
                ended June
            
            $
            3.50
            
            $
            16.50quarter
                ended September
            
            $
            2.00
            
            $
            7.50quarter
                ended December
            
            $
            1.20
            
            $
            7.60





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





**The
      Reverse Stock Split**





On
      December 19, 2005 the Company amended its Articles of Incorporation to effect
      a
      one (1) for (20) reverse stock split. The Board of Directors and the
      stockholders holding a majority of the outstanding shares of common stock of
      the
      Company approved such action.




**Stockholders**




As
      of the
      close of business on December 31, 2005, there were approximately 203
      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 two operating subsidiaries in China paid $525,460 in dividends during
      2005.  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.




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            Statements**





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





The
      following is a summary of all of our equity compensation plans as of December
      31, 2005.




**Plan
                Category**
            
            
            
            **Number
                of securities to be**
              **issued
                upon exercise**
              **of
                outstanding options,**
              **warrants
                and rights**
            
            
            
            **Weighted
                average exercise**
              **price
                of outstanding**
              **options,
                warrants and**
              **rights**
            
            
            
            **Number
                of securities**
              **remaining
                available for**
              **future
                issuance under**
              **equity
                compensation plan**
              **(excluding
                securities**
              **reflected
                in column (a))****(a)**
            
            
            
            **(b)**
            
            
            
            **(c)**Equity
                Compensation Plans Approved by Securityholders
            
            
            
            
            
            5,000,000
            
            
            (1)(2
            )
            
            N/A
            
            
            (2
            )
            
            20,000
            
            
            (2
            )Equity
                Compensation Plans Not Approved by Securityholders
            
            
            (3
            )
            
            4,000,000
            
            
            
            
            $
            .10
            
            
            
            
            
            0





(1)
            Pursuant
                to the terms of the China 3C Group 2005 Equity Incentive Plan, 5,000,000
                shares of our Common Stock are available for grant (both incentive
                stock
                options and non-qualified stock options), and/or issuance.


(2)
            On
                December 21, 2005 the Board of Directors approved the grant to seven
                individuals, an aggregate of 4,980,000 shares of Common Stock under
                the
                China 3C Group 2005 Equity Incentive Plan. These grants were not
                deemed
                effective until March 10, 2006.


(3)
            Includes
                warrants to purchase 4,000,000 shares of common stock at an exercise
                price
                of $.10 per share issued on December 20, 2005 to two
                individuals.





**Repurchase
      of Securities**




We
      did not repurchase any of shares of our common stock during the fourth quarter
      of 2005.





**Recent
      Sales of Unregistered Securities**




On
      December 20, 2005, the Company entered into a subscription agreement with
      Huiqi Xu (the “ Subscription
      Agreement ”).
      Pursuant to the terms of the Subscription Agreement, the Company issued and
      sold
      1,000,000 shares of its common stock to Mr. Xu in a private placement
      exempt from the registration requirements of Section 5 of the Securities
      Act of 1933. The Company sold the shares at a price of $0.10 per share, for
      aggregate offering consideration of $100,000.





On
      December 20, 2005, the Company entered into a consulting agreement with
      Wen-An Chen and Huoqing Yang (the “ Consulting
      Agreement .”)
      Pursuant to the terms of the Consulting Agreement, Mr. Chen and
      Mr. Yang will provide the Company with certain financial consulting
      services. In exchange for these services, the Company issued Mr. Chen and
      Mr. Yang a warrant to purchase an aggregate of 4,000,000 shares of the
      Company’s common stock, exercisable immediately, at an exercise price of $0.10
      per share. The warrant was exercised on December 30, 2005 and as a result we
      issued an aggregate of 4,000,000 shares of the Company’s common
      stock.




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 **Index
            to Consolidated Financial
            Statements**





On
      December 21, 2005, the Company issued 2,256,795 shares of its common stock
      to Shenzhen Shiji Ruicheng Guaranty & Investment Co., Ltd. The shares were
      issued as consideration for guarantee services relating to the Merger
      Transaction pursuant to the Guarantee Contract.





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**





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




**OVERVIEW**




China
      3C
      Group, formerly Sun Oil & Gas Corp, was incorporated on August, 20, 1998
      under the laws of the State of Nevada. Capital Future Developments Limited
      (“CFDL”) was incorporated on July 22, 2004 under the laws of the British Virgin
      Islands. Zhejiang Yong Xin Digital Technology Co., Ltd. (“ZYXD”), Yiwu Yong Xin
      Communication Ltd. (“YYXC”) and Hangzhou Wandga Electronics Co., Ltd. (“HWDA”)
      were incorporated under the laws of Peoples Republic of China on July 11, 2005,
      July 18, 1997 and March, 30, 1998 respectively. China 3C Group owns 100% of
      CFDL
      and CFDL owns 100% of the capital stock of ZYXD. ZYXD owns 90% and YYXC owns
      10%
      of HWDA. ZYXD owns 90% and HWDA owns 10% of YYXC. Collectively the five
      corporations are referred to herein as the “Company”.





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





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.




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            Statements**





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





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


**CRITICAL
        ACCOUNTING POLICIES AND USE OF ESTIMATES**
  Our
        financial statements are prepared in accordance with accounting principles
        generally accepted in the United States of America. The following policies,
        we
        believe, are our most critical accounting policies, are important to our
        financial position and results of operations, and require significant judgment
        and estimates on the part of management. Those policies, that in the belief
        of
        management are critical and require the use of judgment in their application,
        are disclosed on Form 10KSB for the year ended December 31, 2005. Since December
        31, 2005, there have been no material changes to our critical accounting
        policies.
  We
        have
        identified the following policies as critical to our business and the
        understanding of its results of operations. The impact of these policies
        is
        discussed throughout Management’s Discussion and Analysis of Financial Condition
        and Results of Operations where these policies affect reported and anticipated
        financial results. Preparation of this report requires our use of estimates
        and
        assumptions that affect the reported amounts of assets, liabilities, disclosure
        of contingent assets and liabilities at the date of the consolidated financial
        statements, and the reported revenue and expense amounts for the periods
        being
        reported. On an ongoing basis, we evaluate these estimates, including those
        related to the valuation of accounts receivable, and the potential impairment
        of
        long lived assets. We base the estimates on historical experience and on
        various
        other assumptions that are believed to be reasonable, the results of which
        forms
        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.
  **USE
        OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS**
 
 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.
 
 **RESULTS
        OF OPERATIONS**
 
 **Revenue
        Percentage and Market Share**
 **Jan
        2006-Sep 2006**
 Jan-Sep
                    2006
                Product
                Revenue
                    Percentage of China 3C GroupYiWu
                    YongXin
                Fax
                    Machine
                32.33%Cord
                    Phone
                2.47%HangZhou
                    WandDa
                Cell
                    Phone
                38.48%San
                    He
                DVD/VCD
                15.87%Audio
                    Systems
                10.84%Accessories
                0.01%Total
                    China 3C Group
                100.00%China
                    3C's Market share in Eastern China
                Market
                    ShareFax
                    Machine
                8.01%Data
                    Source:
                Cord
                    Phone
                0.72%www.ccidnet.com
                Cell
                    Phone
                1.34%DVD/VCD
                1.31%Audio
                    Systems
                2.24%
  **Distribution
        and Retail Percentage**
 Jan
        2006-Sep 2006
 
 Jan-Sep
                  2006
              
              Revenue
              PercentageYongXin
              Distribution
              $21,470,782
              57.36%Retail
              $15,962,805
              42.64%Total
                  YongXin
              $37,433,587WangDa
              Distribution
              $27,152,957
              65.61%Retail
              $14,230,659
              34.39%Total
                  WandDa
              $41,383,616SanHe
              Distribution
              $7,417,028
              25.81%Retail
              $21,318,315
              74.19%Total
                  SanHe
              $28,735,343Total
                  China 3C Group
              $107,552,546Total
                  Distribution
              $56,040,767
              52.11%Total
                  Retail
              $51,511,779
              47.89%Total
                  China 3C Group
              $107,552,546
              100.00%
 
 
 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 month period ending December 31, 2005 and December
        31,
        2004. Certain columns may not add due to rounding.
 
 **2005**
              
              
              **2004**Sales,
                  net
              
              $
              32,588,634
              
              $
              24,701,995Cost
                  of sales
              
              
              28,325,332
              
              
              21,577,365General
                  and Administrative Expense
              
              
              1,706,869
              
              
              782,241Income
                  (Loss) from Operations
              
              $
              2,556,433
              
              $
              2,342,389


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            to Consolidated Financial
            Statements**


**Net
        sales**
 
 Net
        sales
        for 2005 totaled $32,588,634 compared to $24,701,995 as of 2004, an increase
        of
        $7,886,639 or approximately 32%. The increase was due to higher selling prices
        throughout the company and increased sales volume from new
        products.
 
 Sales
                  Revenue
              2005
              2004Cell
                  phones (HWDA)
              $10,296,307
              $7,787,740Fax
                  machines (YYXC)
              $22,292,326
              $16,914,255Total
              $32,588,633
              $24,701,995
 
 **Cost
        of Sales**
  Cost
        of sales for 2005 totaled $28,325,332 or approximately 86.9% of net sales
        compared to $21,577,365 or approximately 87.35% for 2004. The increase in
        cost
        of sales as a percentage was due to an increase in material cost from the
        introduction of new product lines during 2004.
 
 **Gross
        Profit Margin**
 
 Gross
        profit margin for 2005 was 13.08% compared to 12.65% for 2004. The increase
        in
        gross profit margin was due to the lower product sourcing costs.
 
 **Operating
        Expense**
 
 General
        and administrative expense for 2005 totaled $1,706,869 or approximately 5.2%
        of
        net sales, compared to $782,241 or approximately 3.2% for 2004. The increase
        in
        operating expense of $924,628 or approximately 118% was due to consulting
        fees
        and increase in research.
  **Income
        (Loss) from Operations**
  Income
        (loss) from operations for 2005 was $2,556,433 as compared to income from
        operations of $2,342,389 for 2004, an increase of $214,044 or approximately
        9%.
        The increase was due to the
        expansion of our product lines to meet the needs of our existing clients
        and to
        service new clients .


**Interest
      Expense**





Interest
      expense for 2005 totaled $2,954 compared to $1,104 for 2004, an increase of
      $1,850. The increase in interest expense was due to indebtedness related to
      the
      acquisition of fixed assets.





**Net
      Income**





Net
      income (loss) was $1,458,250 for 2005 compared to $2,106,097 for 2004, a
      decrease of $647,847. The decrease was due to an increase of $ 856,925
      in provision for income taxes .





**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 $1,949,222 at December 31, 2005
      and
      current assets totaled $3,976,604 at December 31, 2005. The Company's total
      current liabilities were $341,615 at December 31, 2005. Working capital at
      December 31, 2005 was $3,634,989. We believe that the funds available to us
      are
      adequate to meet our operating needs for 2006. During 2005, net cash provided
      by
      operating activities was $944,266. Cash provided by financing activities was
      $517,936 for 2005.




Net
      cash
      provided by operating activities for 2005 was $944,266 compared to $2,071,375
      for 2004, a decrease of $1,127,109. The decrease was due to: 1, Income tax
      payment for 2005 was $965,354 compared to $134,798 for 2004. This is because
      the
      accumulated losses in the previous years were completely offset in 2004. 2,
      Due
      to business expansion in 2005, accounts receivables increased to $286,498;
      inventory increased to $421,658; advance to supplier increased to
      $372,000.


There
        is
        a significant difference between cash flows from financing activities in
        2005
        and 2004. Net cash provided by financing activities for 2005 was $517,936.
        Net
        cash used in financing activities for 2004 was $2,017,357. The difference
        was
        due to: 1, Payments on loan to related parties for 2005 was $250,877, compared
        to $2,135,650 for 2004. 2, Cash outflows for dividends paid was $529,140
        in
        2005. There is no such item in 2004. 3, Cash inflows for capital contribution
        to
        subsidiary before acquisition was 1,210,000 in 2005. There is no such item
        in
        2004.




**Capital
      expenditures**




Total
      capital expenditures during the year ended December 31, 2005 was $2,308 for
      purchase of fixed assets. We have no plans for material capital expenditures
      during 2006.




**Working
      Capital Requirements**




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




**OFF-BALANCE
      SHEET ARRANGEMENTS**




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




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            Statements**





**RISK
      FACTORS**





**Risks
      associated with our Common Stock**





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




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




***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.




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            Statements**





**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.




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            Statements**





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.




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***Economic
      Reform Issues***





Although
      the Chinese government owns the majority of productive assets in China, in
      the
      past several years the government has implemented economic reform measures
      that
      emphasize decentralization and encourage private economic activity. Because
      these economic reform measures may be inconsistent or ineffectual, there are
      no
      assurances that:





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





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





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





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




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            Statements**





**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 Serivices of Our Executive Officers and the Loss of
      Key
      Personnel Could Affect Our Ability to Successfully Grow Our Business.***




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




***With
      the markets being highly competitive, We may not be able to compete
      successfully.***




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




**ITEM
      7. FINANCIAL STATEMENTS.**





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





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





**Dismissal
      of Chisholm, Bierwolf & Nilson, LLP**





On
      December 19, 2005, the Company dismissed Chisholm, Bierwolf & Nilson,
      LLP (“ CBN ”)
      as its principal independent accountant. CBN’s report on the Company’s financial
      statements for each of the past two years did not contain an adverse opinion
      or
      disclaimer of opinion. The Board of Directors approved the decision to dismiss
      CBN as the Company’s principal independent accountant. During the Company’s two
      most recent fiscal years and through the date of CBN’s dismissal, there were no
      disagreements with CBN on any matter of accounting principles or practices,
      financial statement disclosure, or auditing scope or procedure, which, if not
      resolved to the satisfaction of CBN, would have caused it to make reference
      to
      the subject matter of the disagreement(s) in connection with its
      report.




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            Statements**





**Engagement
      of Kabani & Company, Inc.**




On
      December 19, 2005, the Company retained Kabani & Company, Inc. to serve
      as the Company’s principal independent accountant.




**ITEM
      8A. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




As
      of December 31, 2005, the end of the period covered by this report, our Chief
      Executive Officer and our Chief Financial Officer reviewed and evaluated the
      effectiveness of the our disclosure controls and procedures (as defined in
      Exchange Act Rule 13a-15(e) and 15d-15(e)), which are designed to ensure that
      material information we must disclose in our report filed or submitted under
      the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded,
      processed, summarized, and reported on a timely basis, and have concluded,
      based
      on that evaluation, that as of such date, our disclosure controls and procedures
      were effective to ensure that information required to be disclosed by us in
      reports that we file or submit under the Exchange Act is accumulated and
      communicated to our Chief Executive Officer and Chief Financial Officer as
      appropriate to allow timely decisions regarding required disclosure.




**Changes
      in Internal Control over Financial Reporting**




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





**ITEM
      8B. 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-KSB but not reported.





**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.**





The
      following table sets forth the name, age and position of each of our officers
      and directors as of April 4, 2006.




Name
              
              Age
              
              PositionZhenggang
                  Wang
              
              37
              
              Chairman
                  of the Board, Chief Executive OfficerJimei
                  Liu
              
              34
              
              DirectorJian
                  Liu
              
              33
              
              Chief
                  Financial Officer


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            Statements**




***Directors/Executive
      Officers***





Upon
      the
      closing of the transactions contemplated in the Stock Purchase Agreement (as
      described herein), on October 17, 2005, Peter G. Wilson resigned as the
      President of the Company.





On
      or
      about November 22, 2005 the Board of Directors accepted the previously submitted
      undated resignation of Peter G. Wilson.





***Zhenggang
      Wang*** ****





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. 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. Wang (or any member of his immediate family) had a
      direct or indirect material interest.





***Jimei
      Liu*** ****





Ms. Liu
      has been a member of the Board of Directors of the Company since December 2005.
      Ms. Liu currently serves as the senior manager of the human resources and
      administration department of Zhejiang
      Yong Xin Digital Technology Company Limited ,
      a position she assumed in January 2005. Prior to that, from 2000 until
      December 2004, Ms. Liu served in a variety of supervisory positions
      with UTStarcom (China) Co., Ltd., including senior business human relations
      manager and national recruiting manager. From 1996 to 2000, Ms. Liu was a
      human resources supervisor for Tinghsin Food Group.





Ms. Liu
      does not hold any other directorships with reporting companies in the United
      States. There are no family relationships between Ms. Liu 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 Ms. Liu (or any member of her immediate family) had a
      direct or indirect material interest.




-17-
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            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**





***Jian
      Liu*** ****





Mr. Liu
      has been the chief financial officer of the Company since December 2005. He
      is
      also the chief financial officer of Zhejiang
      Yong Xin Digital Technology Company Limited ,
      a position he has held since 2002. Prior to that, from 1998 to 2002,
      Mr. Liu was the chief financial officer of Beijing Liao Hua Group, a
      Chinese company that produces steel products.





Mr. Liu
      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. 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. Liu (or any member of his immediate family) had a direct or
      indirect material interest.





**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, all officers, directors and owners
      of
      10% or more of our outstanding shares have filed all Forms 3, 4 and 5 required
      by Section 16(a) of the Securities Exchange Act of 1934, as amended.





**Code
      of Ethics**





In
      2002 we have 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.




-18-
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            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**





**Audit
      Committee**





We
      do not currently have a standing audit committee. The entire board of directors
      of the Company acts as the audit committee. Currently, due to the recent
      changes, we do not have an audit committee financial expert. We are actively
      conducting a search for a suitable individual to join the board of directors
      who
      qualifies as an audit committee financial expert.





**ITEM
      10. EXECUTIVE COMPENSATION.**





Shown
      on the table below is information on the annual and long-term compensation
      for
      services rendered to the Company in all capacities, for the years ended
      December 31, 2005, 2004 and 2003, paid by the Company to all individuals
      serving as the Company’s chief executive officer or acting in a similar capacity
      during the last three completed years, regardless of compensation level. During
      the 12 months ended December 31, 2005, the Company did not pay aggregate
      compensation to any executive officer in an amount greater than $100,000.


Annual
                    Compensation
                
                
                Long
                    Term CompensationSecuritiesRestricted
                
                
                underlying
                
                
                LTIP
                
                
                AllOther
                    Annual
                
                
                Stock
                
                
                options/
                
                
                payouts
                
                
                OtherName
                
                
                Title
                
                
                Year
                
                
                Salary
                
                
                Bonus
                
                
                Compensation
                
                
                Awarded
                
                
                SARs
                      (#)
                
                
                ($)
                
                
                CompensationZhenggang
                    Wang
                
                
                CEO
                
                
                2005
                  2004
                  2003
                  2002
                
                
                12,500
                  12,500
                  12,000
                  12,000
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0Jian
                    Liu
                
                
                CFO
                
                
                2005
                  2004
                  2003
                    2002
                
                
                10,000
                  10,000
                  9,000
                  9,000
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0
                
                
                0
                  0
                  0
                  0Peter
                    G.
                
                
                Former
                    President
                
                
                2004
                
                $
                40,000
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0Wilson
                
                
                CEO
                
                
                2003
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                02002
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0Gary
                
                
                Former
                
                
                2004
                
                $
                40,000
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0Cambell
                
                
                President
                
                
                2003
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                02002
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0Kevin
                    Polis
                
                
                Former
                
                
                2004
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0President
                
                
                2003
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                02002
                
                $
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0Mark
                    Zouvas
                
                
                Former
                
                
                2004
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —President
                
                
                2003
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —2002
                
                $
                165,000
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0
                
                
                0




-19-
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            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**




**Option/SAR
      Grants**





No
      individual grants of stock options, whether or not in tandem with stock
      appreciation rights ("SARs") and freestanding SARs have been made to any
      executive officer or any director during the year ended December 31,
      2005.





**Long-Term
      Incentive Plan Awards**





We
      do not have any long-term incentive plans that provide compensation intended
      to
      serve as incentive for performance to occur over a period longer than one fiscal
      year, whether such performance is measured by reference to our financial
      performance, our stock price, or any other measure.





**Compensation
      of Directors**





The
      directors of the Company have not received compensation for their services
      as
      directors nor have they been reimbursed for expenses incurred in attending
      board
      meetings.





**Employment
      contracts and termination of employment and change-in-control
      arrangements**





China
      3C
      Group does not have any employment contracts with any of its directors and
      officers.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDERS MATTERS.**





The
      following table sets forth certain information, as of April 3, 2006, 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
            
            
            19.7
            %Weiyi
                Lv
            
            
            5,495,000
            
            
            11.2
            %Yimin
                Zhang
            
            
            5,495,000
            
            
            11.2
            %Xiaochun
                Wang
            
            
            4,130,000
            
            
            8.5
            %Wen-An
                Chen (2)
            
            
            4,000,000
            
            
            8.2
            %Huoqing
                Yang (2)
            
            
            4,000,000
            
            
            8.2
            %Zhongsheng
                Bao
            
            
            2,730,000
            
            
            5.6
            %Shenzhen
                Shiji Ruicheng Guaranty and Investment Co. Ltd.
            
            
            2,256,795
            
            
            4.6
            %First
                Capital Limited
            
            
            2,065,000
            
            
            4.2
            %Simple
                (Hongkong) Investment & Management Company Ltd.
            
            
            1,995,000
            
            
            4.1
            %Jian
                Liu
            
            
            0
            
            
            —Jimei
                Liu
            
            
            0
            
            
            —All
                directors and executive officers as a group (3 persons)
            
            
            9,625,000
            
            
            19.7
            %





(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 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. The information
                in
                the table reflects the 1-for-20 reverse stock split effected by the
                Company on December 19, 2005.(2)
            
            Wen-An
                Chen and Huoqing Yang have joint ownership of a warrant to purchase
                4,000,000 shares of the Company’s common stock, which is exercisable
                immediately at an exercise price of $0.10 per share. The warrant
                was
                exercised on December 30, 2005. However, the stock transfer agent
                received
                the instruction letter after December 31, 2005 and the 4,000,000
                shares of
                common stock were issued on January 9, 2006.(3)
            
            Calculated
                on the basis of 48,850,194 shares of common stock issued and outstanding
                as of April 3, 2006 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.






-20-
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 **Index
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            Statements**


**ITEM
      12. CERTAIN RELATIONSHIPS AND 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 (the “ Board
      of Directors ”).
      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.





**ITEM
      13. EXHIBIT****S.**




**Exhibit
                  No.**
              
              **Document
                  Description**4.1
              
              China
                  3C Group 2005 Equity Incentive Plan. (1)4.2
              
              Warrant
                  Agreement dated December 20, 2005. (3)10.1
              
              Guarantee
                  Contract between the Registrant and Shenzhen Shiji Ruicheng Guaranty
                  and
                  Investment Co. Ltd., dated as of December 21, 2005.
                  (2)10.2
              
              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. (2)10.3
              
              Subscription
                  Agreement, dated as of December 20, 2005, between the Registrant and
                  Huiqi Xu. (3)10.4
              
              Consulting
                  Agreement, dated as of December 20, 2005, among the Registrant,
                  Wen-An Chen and Huoqing Yang. (3)10.5
              
              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.(4)10.6
              
              Form
                  of Promissory Note dated December 21, 2005. (2)21.1
              
              List
                  of Subsidiaries23.1
              
              Consent
                  ofKabani
                  & Company, Inc.23.2
              
              Consent
                  ofChisholm,
                  Bierwolf & Nilson, LLP23.3
              
              Consent
                of Lichter, Yu and Associates31.1
              
              Certification
                  of the Chief Executive Officer Pursuant to Rule 13a-14(a) under
                  the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of the Chief Financial Officer Pursuant to Rule 13a-14(a) under
                  the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Certification
                  of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  200232.2
              
              Certification
                  of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002





(1)
                Previously filed as an exhibit to the Company’s Registration Statement on
                Form S-8 filed with the Securities and Exchange Commission on March
                10,
                2006.(2)
                Previously filed as an exhibit to the Company’s Current Report on
                Form 8-K filed with the Securities and Exchange Commission on
                December 22, 2005.(3)
                Previously filed as an exhibit to the Company’s Current Report on
                Form 8-K filed with the Securities and Exchange Commission on
                December 20, 2005.(4)
                Previously filed as an exhibit to the Company’s Current Report on
                Form 8-K filed with the Securities and Exchange Commission on
                October 21, 2005.






-21-
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            Statements**




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





On
      December 19, 2005, we dismissed Chisholm, Bierwolf & Nilson, LLP
      (“CBN”) as our principal independent accountant. On December 19, 2005, we
      retained Kabani & Company, Inc. (“Kabani”) to serve as our principal
      independent accountant.




The
      following represents fees for professional audit services rendered by Kabani for
      the
      audit of our annual financial statements for the transition period from February
      1, 2005 to December 31, 2005 and CBN for
      the
      period ending January 31, 2005.





**Audit
      Fees**





The
      aggregate fees billed by our current auditors, Kabani & Company, Inc., for
      professional services rendered for the audit of our annual financial statements
      for the year ended December 31, 2005 were $46,000. We incurred no audit fees
      to
      Kabani & Company for the fiscal year 2004. The aggregate fees billed by our
      former auditors, Chisholm, Bierwolf & Nilson, LLC for professional services
      rendered for the audit of our annual financial statements for the fiscal year
      2004 were $6,000.





**Audit
      Related Fees**





We
      incurred no audit related fees to Kabani & Company during the year ended
      December 31, 2005. The aggregate fees billed by our former auditors, Chisholm,
      Bierwolf & Nilson, LLC, for professional services rendered for the reviews
      of the financial statements included in our Quarterly Reports on Form 10-QSB
      during fiscal year 2005 were $2,940. The aggregate fees billed by our former
      auditors, Chisholm, Bierwolf & Nilson, LLC, for professional services
      rendered for the reviews of the financial statements included in our Quarterly
      Reports on Form 10-QSB during fiscal year 2004 were $1,909.





**Tax
      Fees**





Our
      principal accountants did not render any services for tax compliance, tax advice
      and tax planning during transition period ended December 31, 2005 and 2004
      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
      do not have an Audit Committee, instead our entire Board of Directors serves
      as
      the Audit Committee. Our principal accountants have performed their audit
      procedures in accordance with pre-approved policies and procedures established
      by our Board of Directors.  Our principal auditors have informed our Board
      of Directors of the scope and nature of each service provided.




-22-
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            Statements**




**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 28th day of February,
      2007.




**CHINA
              3C
              GROUP**By:
            /s/ Zhenggang
              WangName:  
                Zhenggang Wang
              Title:    
                Chief Executive Officer and
                Chairman




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this 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
            
            
            
            February
                28, 2007Zhenggang
                Wang
            
            Chief
                Executive Officer and Chairman/s/
                Chenghua
                Zhu
            
            
            
            February
                28, 2007Chenghua
                  Zhu
            
            Director/s/
                Mingjun
                Zhu
            
            
            
            February
              28, 2007Mingjun
                    Zhu
            
            Director/s/Rongjin
              Wen
            
            Director
            
            February
              28, 2007Rongjin
                Weng/s/
              We Kang Gu
            
            Director
            
            February
              28, 2007We Kang
              Gu






-23-
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 **Index
            to Consolidated Financial
            Statements**


**YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 
 **COMBINED
        FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2004**
  
 
 
 
 **TABLE
        OF CONTENTS**
 Report
                  of Independent Registered Public Accounting Firm
              F-1Combined
                  Balance Sheet
              F-2Combined
                  Statement of Income
              F-3Combined
                  Statement of Cash Flow
              F-4Combined
                  Statement of Stockholders Equity
              F-5Notes
                  to Combined Financial Statements
              F-6
                  - F-16
 
 
 
 
 ***MORGENSTERN,
        SVOBODA & BAER, CPA’s, P.C.***
  *CERTIFIED
        PUBLIC ACCOUNTANTS*
 40
        Exchange Place, Suite 1820
 New
        York,
        NY 10005
 TEL:
        (212) 925-9490
 FAX:
        (212) 226-9134
 E-MAIL:
        MSBCPAs@gmail.com
 
 
 Board
        of
        Directors and Stockholders of
 Yiwu
        Yong
        Xin Telecommunication Company, Limited
 Hangzhou
        Wang Da Electronics Company, Limited
 
 
 We
        have
        audited the accompanying combined balance sheets of Yiwu Yong Xin
        Telecommunication Company, Limited and Hangzhou Wang Da Electronics Company,
        Limited as of December 31, 2004, and the related consolidated statements
        of
        income, stockholders' equity, and cash flows for the year ended December
        31,
        2004. These combined financial statements are the responsibility of the
        Company's management. Our responsibility is to express an opinion on these
        combined financial statements based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall combined financial statement presentation. We believe
        that our audit provide a reasonable basis for our opinion.
  In
        our
        opinion, the combined financial statements referred to above present fairly,
        in
        all material respects, the combined financial position of Yiwu
        Yong
        Xin Telecommunication Company, Limited and Hangzhou Wang Da Electronics
        Company as of
        December 31, 2004, and the consolidated results of their operations and their
        consolidated cash flows for the year ended December 31, 2004, in conformity
        with
        U.S. generally accepted accounting principles.
 
 
 Morgenstern,
        Svoboda & Baer CPA’s P.C.
 **Certified
        Public Accountants**
 
 New
        York,
        New York
 February
        16, 2007
 
 F-1
 **YIWU
                  YONG XIN TELECOMMUNICATION COMPANY, LIMITED****HANGZHOU
                  WANG DA ELECTRONICS COMPANY, LIMITED****COMBINED
                  BALANCE SHEET****DECEMBER
                  31, 2004**
  **ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              469,658Accounts
                  receivable, net
              
              
              607,436Inventory
              
              
              170,869Other
                  Receivables
              
              
              96,800Prepayments
              
              
              13,411Trade
                  Deposits Paid
              
              
              74,963Total
                  Current Assets
              
              
              1,433,137**Property
                  & equipment, net**
              
              
              57,594**Other
                  Assets**Refundable
                  Deposits
              
              
              1,275**Total
                  Other Assets**
              
              
              1,275**Total
                  Assets**
              
              $
              1,492,006**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              290,005Other
                  payables
              
              
              57,814Other
                  payables to related parties
              
              
              248,413Value-added
                  tax liability
              
              
              26,007Income
                  tax liability, current
              
              
              96,297Current
                  portion of obligation under finance lease
              
              
              9712**Total
                  Current Liabilities**
              
              
              728,248**Long-Term
                  Liabilities**Non-current
                  portion of obligation under finance lease
              
              
              7,581Total
                  long-term liabilities
              
              
              7,581**Total
                  Liabilities**
              
              
              735,829**Stockholders'
                  Equity**Capital
                  Stock
              
              
              302,500Retained
                  earnings
              
              
              383,298Legal
                  Reserve
              
              
              70,379Total
                  Stockholder’s Equity
              
              
              756,177**Total
                  Liabilities and Stockholders' Equity**
              
              $
              1,492,006
  The
        accompanying notes are an integral part of these combined financial
        statements.
  F-2
  **YIWU
                  YONG XIN TELECOMMUNICATION COMPANY, LIMITED****HANGZHOU
                  WANG DA ELECTRONICS COMPANY, LIMITED****COMBINED
                  STATEMENTS OF INCOME****FOR
                  YEAR ENDING DECEMBER 31,
                  2004**
  Operating
                  Revenue
              
              $
              24,701,996Cost
                  of sales
              
              
              21,577,365**Gross
                  profit**
              
              
              3,124,631**Operating
                  Expenses**General
                  and administrative expenses
              
              
              779,810Total
                  Operating Expense
              
              
              779,810**Income
                  from operations**
              
              
              2,344,821**Non-Operating
                  Income**Interest
                  income
              
              
              5,348Total
                  non-operating Income
              
              
              5,348Non-Operating
                  ExpensesBank
                  charges
              
              
              2,432Interest
                  expense
              
              
              557Interest
                  expense on obligation under finance
              
              
              547Others
              
              
              9,440Total
                  Non-Operating Expenses
              
              
              12,976**Income
                  before income taxes**
              
              
              2,337,193Provision
                  for income taxes
              
              
              231,096**Net
                  income**
              
              
              2,106,097
 
 
 The
        accompanying notes are an integral part of these combined financial
        statements.
 F-3
  
 **YIWU
                  YONG XIN TELECOMMUNICATION COMPANY, LIMITED****HANGZHOU
                  WANG DA ELECTRONICS COMPANY, LIMITED****COMBINED
                  STATEMENT OF CASH FLOWS****FOR
                  THE YEAR ENDED DECEMBER 31,
                  2004**
  **CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income
              
              $
              2,106,097Adjustments
                  to reconcile net income to net cashProvided
                  by operating activities:Depreciation
              
              
              17,555Bad
                  Debt Expense
              
              
              5,319Accounts
                  Receivables
              
              
              18,580Inventory
              
              
              82,901Decrease
                  in Prepaid Expense
              
              
              (68,382
              )Deposits
              
              
              903Accounts
                  Payable and Accrued Expenses
              
              
              (187,889
              )Income
                  Tax Payable
              
              
              96,297Total
                  Adjustments
              
              
              34,717**Net
                  Cash Provided by Operating Activities**
              
              
              2,071,380**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of furniture & equipment
              
              
              (2,038
              )**Net
                  cash used by Investing activities**
              
              
              (2,038
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Payments
                  on loan to related parties
              
              
              (2,008,111
              )Payment
                  on note payable
              
              
              (9,245
              )**Net
                  cash provided by financing activities**
              
              
              (2,017,356
              )Net
                  change in cash and cash equivalents
              
              
              51,986**Cash
                  and cash equivalents, beginning balance**
              
              
              417,673**Cash
                  and cash equivalents, ending balance**
              
              $
              469,659**SUPPLEMENTAL
                  DISCLOSURES:**Cash
                  paid during the year for:Income
                  tax payments
              
              $
              134,798Interest
                  payments
              
              $
              1,104
 
 The
        accompanying notes are an integral part of these combined financial
        statements.
  F-4
  
 **YIWU
                  YONG XIN TELECOMMUNICATION COMPANY, LIMITED****HANGZHOU
                  WANG DA ELECTRONICS COMPANY, LIMITED****COMBINED
                  STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                  THE YEAR ENDED DECEMBER 31,
                  2004**
  **Retained****Common**
                
                
                
                
                
                **Earnings**
                
                
                **Total****Stock**
                
                
                **Statutory**
                
                
                **Accumulated**
                
                
                **Stockholders'****Amount**
                
                
                **Reserve**
                
                
                **Equity/(Deficit)**
                
                
                **Equity/Deficit****Balance
                    January 1, 2004**
                
                $
                302,500
                
                $
                -
                
                $
                (1,652,420
                )
                $
                (1,349,920
                )Net
                    Income for year ended December 31, 2004
                
                
                
                
                
                
                
                
                2,106,097
                
                
                2,106,097Transfer
                    to statutory reserve
                
                
                
                
                
                70,379
                
                
                (70,379
                )
                
                -**Balance
                    December 31, 2004**
                
                $
                302,500
                
                $
                70,379
                
                $
                383,298
                
                $
                756,177
 The
        accompanying notes are an integral part of these consolidated financial
        statements
  F-5
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        1 -** **ORGANIZATION**
 
 Yiwu
        Yong
        Xin Communication Ltd. (“YYXC”) and Hangzhou Wandga Electronics Co., Ltd.
        (“HWDA”) were incorporated under the laws of Peoples Republic of China on July
        18, 1997and March, 30, 1998 respectively.
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Basis
        of Presentation
 
 The
        accompanying combined 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, 2006, the accounts of Wang Da and Yiwu were maintained, and
        its
        financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such
        financial statements were translated into U.S. Dollars (USD) in accordance
        with
        Statement of Financial Accounts Standards (SFAS ̈) No. 52, Foreign Currency
        Translation, with the CNY as the functional currency. According to the
        Statement, all assets and liabilities were translated at the current exchange
        rate, 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.
 
 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 Combination
 The
        combined financial statements include the accounts of Wang Da and Yiwu. All
        material inter-company accounts, transactions and profits have been eliminated
        in combination.
 
 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.
 
 
 F-6
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 Contingencies
 Certain
        conditions may exist as of the date the financial statements are issued,
        which
        may result in a loss to the Company but which will only be resolved when
        one or
        more future events occur or fail to occur. The Company’s management and legal
        counsel assess such contingent liabilities, and such assessment inherently
        involves an exercise of judgment. In assessing loss contingencies related
        to
        legal proceedings that are pending against the Company or unasserted claims
        that
        may result in such proceedings, the Company’s legal counsel evaluates the
        perceived merits of any legal proceedings or unasserted claims as well as
        the
        perceived merits of the amount of relief sought or expected to be
        sought.
 
 If
        the
        assessment of a contingency indicates that it is probable that a material
        loss
        has been incurred and the amount of the liability can be estimated, then
        the
        estimated liability would be accrued in the Company’s financial statements. If
        the assessment indicates that a potential material loss contingency is not
        probable but is reasonably possible, or is probable but cannot be estimated,
        then the nature of the contingent liability, together with an estimate of
        the
        range of possible loss if determinable and material would be disclosed.
 
 Loss
        contingencies considered to be remote by management are generally not disclosed
        unless they involve guarantees, in which case the guarantee would be
        disclosed.
 
 Cash
        and Cash Equivalents
 
 Cash
        and
        cash equivalents include cash in hand and cash in time deposits, certificates
        of
        deposit and all highly liquid debt instruments with original maturities of
        three
        months or less.
 
 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 $1,599 as at December 31, 2004.
  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, 2004 inventory consisted of finished goods valued
        at $
        170,869.
 
 F-7
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**
  Property,
        Plant & Equipment
  Property
        and equipment are stated at cost. Expenditures for maintenance and repairs
        are
        charged to earnings as incurred; additions, renewals and betterments are
        capitalized. When property and equipment are retired or otherwise disposed
        of,
        the related cost and accumulated depreciation are removed from the respective
        accounts, and any gain or loss is included in operations. Depreciation of
        property and equipment is provided using the straight-line method for
        substantially all assets with estimated lives of:
 
 Furniture
                  and Fixtures
              5
                  yearsAutomobile
              10
                  yearsComputer
                  Hardware and Software
              5
                  years
  As
        of
        December 31, 2004 Property, Plant & Equipment consist of the
        following:
 
 Automobile
              
              $
              95,397Office
                  equipment
              
              
              40,079135,476Accumulated
                  depreciation
              
              
              (77,882
              )$
              57,594
  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
        September 30, 2006 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.
 
  F-8
 **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**
  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.
 
 It
        is
        supplier’s obligation to repair or change the products after sale under normal
        warranties. If there is any need of changing products, our suppliers will
        increase the volume correspondingly in the next batch of supply. Therefore,
        the
        company does not bear any cost of changing products. Changing products will
        not
        affect revenue recognition. In order to provide free service to some basic
        product failures, the company set up a department of after-sale service.
        The
        company also helps customers to contact local suppliers directly for after-sale
        service.
  Our
        customers have return rights. Most of our customers are established retailers
        and distributors with excellent credit. Normally the returning of product
        will
        only happen when there is product failure or damage during the shipment.
        It is
        our supplier’s obligation to change the products if there is any
        failure.
 
 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.
  F-9
 **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED** **)**
  Statement
        of Cash Flows
  In
        accordance with SFAS No. 95, “Statement of Cash Flows”, cash flows from the
        Company’s operations is based upon the local currencies. As a result, amounts
        related to assets and liabilities reported on the statement of cash flows
        will
        not necessarily agree with changes in the corresponding balances on the balance
        sheet.
  Concentration
        of Credit Risk
  Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are cash, accounts receivable and other receivables arising from its
        normal
        business activities. The Company places its cash in what it believes to be
        credit-worthy financial institutions. The Company has a diversified customer
        base, most of which are in China. The Company controls credit risk related
        to
        accounts receivable through credit approvals, credit limits and monitoring
        procedures. The Company routinely assesses the financial strength of its
        customers and, based upon factors surrounding the credit risk, establishes
        an
        allowance, if required, for uncollectible accounts and, as a consequence,
        believes that its accounts receivable credit risk exposure beyond such allowance
        is limited.
 
  F-10
 **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
  Recent
        accounting pronouncements
 
 In
        May
        2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
        This statement applies to all voluntary changes in accounting principle and
        requires retrospective application to prior periods' financial statements
        of
        changes in accounting principle, unless this would be impracticable. This
        statement also makes a distinction between "retrospective application" of
        an
        accounting principle and the "restatement" of financial statements to reflect
        the correction of an error. This statement is effective for accounting changes
        and corrections of errors made in fiscal years beginning after December 15,
        2005.
 
 In
        February 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
        Instruments¡ ̈. SFAS No. 155 amends SFAS No 133, Accounting for Derivative
        Instruments and Hedging Activities ̈, and SFAF No. 140, Accounting for Transfers
        and Servicing of Financial Assets and Extinguishments of Liabilities¡ ̈. SFAS No.
        155, permits fair value remeasurement for any hybrid financial instrument
        that
        contains an embedded derivative that otherwise would require bifurcation,
        clarifies which interest-only strips and principal-only strips are not subject
        to the requirements of SFAS No. 133, establishes a requirement to evaluate
        interest in securitized financial assets to identify interests that are
        freestanding derivatives or that are hybrid financial instruments that contain
        an embedded derivative requiring bifurcation, clarifies that concentrations
        of
        credit risk in the form of subordination are not embedded derivatives, and
        amends SFAS No. 140 to eliminate the prohibition on the qualifying
        special-purpose entity from holding a derivative financial instrument that
        pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company’s first fiscal year that begins
        after September 15, 2006.
 
 In
        December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
        an
        Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
        companies to recognize in the statement of operations the grant- date fair
        value
        of stock options and other equity-based compensation issued to employees.
        FAS
        No. 123R is effective beginning in the Company's first quarter of fiscal
        2006.
 
 In
        June
        2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
        Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance
        on
        determining the amortization period for leasehold improvements acquired in
        a
        business combination or acquired subsequent to lease inception. The guidance
        in
        EITF 05-6 will be applied prospectively and is effective for periods beginning
        after June 29, 2005. EITF 05-6 is not expected to have a material effect
        on its
        consolidated financial position or results of operations.
 
 In
        June
        2005, the FASB Staff issued FASB Staff Position 150-5 (FSP 150-5), Issuers
        Accounting under FASB Statement No. 150 for Freestanding Warrants and Other
        Similar Instruments on Shares that are Redeemable. ̈ FSP 150-5 addresses
        whether freestanding warrants and other similar instruments on shares that
        are
        redeemable, either puttable or mandatorily redeemable, would be subject to
        the
        requirements of FASB Statement No. 150, Accounting for Certain Financial
        Instruments with Characteristics of Both Liabilities and Equity, ̈ regardless of
        the timing or the redemption feature or the redemption price. The FSP is
        effective after June 30, 2005.
  F-11
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 
 On
        February 16, 2006 the Financial Accounting Standards Board (FASB) issued
        SFAS 155, “Accounting for Certain Hybrid Instruments,” which amends SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities,” and SFAS 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
        of Liabilities.” SFAS 155 allows financial instruments that have embedded
        derivatives to be accounted for as a whole (eliminating the need to bifurcate
        the derivative from its host) if the holder elects to account for the whole
        instrument on a fair value basis. SFAS 155 also clarifies and amends certain
        other provisions of SFAS 133 and SFAS 140. This statement is effective for
        all
        financial instruments acquired or issued in 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
        March
        2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
        Financial Assets - an amendment to FASB Statement No. 140. Statement 156
        requires that an entity recognize a servicing asset or servicing liability
        each
        time it undertakes an obligation to service a financial asset by entering
        into a
        service contract under certain situations. The new standard is effective
        for
        fiscal years beginning after September 15, 2006. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
 
 In
        September, 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statements applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. This Statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
 
 In
        September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
        Pension and Other Postretirement Plans - an amendment of FASB Statements
        No. 87,
        88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
        employer to recognize the over funded or under funded status of a defined
        benefit postretirement plan (other than a multiemployer plan) as an asset
        or
        liability in its statement of financial position and to recognize changes
        in
        that funded statues in the year in which the changes occur through comprehensive
        income of a business entity or changes in unrestricted net assets of a
        not-for-profit organization. This Statement also improves financial reporting
        by
        requiring an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. An
        employer with publicly traded equity securities is required to initially
        recognize the funded status of a defined benefit postretirement plan and
        to
        provide the required disclosures as of the end of the fiscal year ending
        after
        December 15, 2006. An employer without publicly traded equity securities
        is
        required to recognize the funded status of a defined benefit postretirement
        plan
        and to provide the required disclosures as of the end of the fiscal year
        ending
        after June 15, 2007. However, an employer without publicly traded equity
        securities is required to disclose the following information in the notes
        to
        financial statements for a fiscal year ending after December 15, 2006, but
        before June 16, 2007, unless it has applied the recognition provisions of
        this
        Statement in preparing those financial statements.
 
 F-12
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 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.
  **Note
        3 -** **ADVANCE
        TO SUPPLIER**
  Advance
        to suppliers represents payments to suppliers for payments of finished goods.
        As
        of December 31, 2004 the company had paid $74,963 as advances to suppliers.
 
 **Note
        4-** **NOTES
        PAYABLE**
 
 At
        September 30, 2006, the Company had borrowings outstanding in the aggregate
        amount of $438. Notes Payable was as follows on September 30, 2006:
 
 **Description**Secured
                  note payable to a bank in China, interest at 4.941% per annum,
                  due on
                  October 20, 2006
              
              $
              8,823Secured
                  note payable to a bank in China, interest at 4.941% per annum,
                  due on
                  August 12, 2006
              
              
              8,47017,293Less
                  current portion
              
              
              9712Long
                  term portion
              
              $
              7581
  
 
 F-13
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 
 **Note
        5 -** **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
        6 -** **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 $1,400,000 as of
        September 30, 2006 for income tax purposes. However, a hundred percent allowance
        has been created on the deferred tax asset of $575,000 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:12/31/2004Current
              
              $
              231,096DeferredTotal
              
              $
              231,096
 
 
 F-14
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 
 
 
 **Note
        7 -** **COMMITTMENTS**
  The
        Companies leased various office facilities under operating leases that terminate
        thru 2006. Rent expense for the year ended December 31, 2004 was $32,663.
        The
        future minimum obligations under these agreements are as follows:
 
 2005  $
        5,851
 2006  $
        3,399
  **Note
        8 -** **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, 2004, the Company had allocated $70,379 to these non-distributable reserve
        funds.
 
 **Note
        9 -** **OTHER
        COMPREHENSIVE INCOME**
 Balances
        of related after-tax components comprising accumulated other comprehensive
        income (loss), included in stockholders equity, at December 31, 2004 are
        as
        follows:
 
 *Foreign
                  Currency Translation Adjustment*
              
              *Accumulated
                  Other Comprehensive Income*Balance
                  at January 1, 2004
              
              $
              74,950
              
              $
              74,950Change
                  2004
              
              
              134,547
              
              
              134,547Balance
                  atDecember
                  31,
                  2004
              
              $
              209,497
              
              $
              209,497
 
 F-15
 
  **YIWU
        YONG XIN TELECOMMUNICATION COMPANY, LIMITED**
 **HANGZHOU
        WANG DA ELECTRONICS COMPANY, LIMITED**
 **NOTES
        TO COMBINED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2004**
 
 **Note
        10**  **-** **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
        11 -** **MAJOR
        CUSTOMERS AND CREDIT RISK**
 
 During
        the year ended December 31, 2004, one customer accounted for 13.55% of the
        combined sales. No one customer accounted for more than 10.00% of the company’s
        accounts receivable at December 31, 2004.
 
 **Note
        12 -** **RELATED
        PARTY TRANSACTIONS**
 
 Throughout
        the history of the company, certain members of the Board of Directors,
        stockholders and general management have made loans to the company to cover
        operating expenses or operating deficiencies. The Company has also loaned
        money
        general management.
 
 At
        December 31, 2004, the company had a non interest bearing loan from a
        shareholder of the company in the amount of $248,413.
 
 At
        December 31, 2004, the company had a non interest bearing loan to the general
        manager of the company in the amount of $96,800.
 
 **Note
        13 -** **SUBSEQUENT
        EVENTS**
 
 Yiwu
        Yong
        Xin Communications Company, Limited (“YYXC”) and Hangzhou Wang Da Electronics
        Company, Limited (“HWDA”) are owned 90% by Zhejiang Yong Xin Digital Technology
        Company Limited (“ZYXD”), a holding Company organized under the laws of China.
“YYXC” and “HWDA” each own the remaining 10% of each others issued and
        outstanding Share Capital. “ZYXD” is a wholly owned subsidiary of Capital Future
        Development Limited (“CFDL”). On December 20, 2005, “CFDL” entered into a merger
        transaction with YX Acquisition Corporation (“YXAC”), a Nevada corporation and a
        wholly owned subsidiary of China 3C Group (“CHCG.ob”), A U.S. public Company.
        Pursuant to the Merger Agreement, “YXAC” merged with “CFDL”, with “CFDL” as the
        survivor of the merger. As a result of the merger Transaction, “CFDL” became a
        wholly owned subsidiary of “CHCG.ob”, which in turn made “CHCG.ob” the indirect
        owner of the Chinese holding company “ZYXD” and its Chinese operating
        subsidiaries, “HWDA” and “YYXC”.
 
 F-16


**CHINA
      3C GROUP AND SUBSIDIARIES**





**(FORMERLY
      SUN OIL & GAS CORP.)**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**DECEMBER
      31, 2005**






**Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**





**TABLE
      OF CONTENTS**


Report
                of Independent Registered Public Accounting
                Firm
            F-1Consolidated
                Balance Sheet
            F-4Consolidated
                Statements of Income
            F-5Consolidated
                Statements of Cash Flow
            F-6Consolidated
                Statements of Stockholders’
                Equity
            F-7Notes
                to Consolidated Financial
                Statements
            F-8
                - F-18






**Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**





Report
      of Independent Registered Public Accounting
      Firm





Board
      of
      Directors and Stockholders of


China
      3C
      Group and Subsidiaries, Inc.





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




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




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






/s/
      Kabani & Company, Inc.


**Certified
      Public Accountants**





Los
      Angeles, California


March
      10,
      2006




F-1
 **Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**




**LICHTER,
        YU & ASSOCIATES**
 **Certified
        Public Accountants**
 
 **LOS
                ANGELES:**
                **16133
                  VENTURA BOULEVARD**
                **ENCINO,
                  CA 91436**
                **(818)
                  789-0265 TELEPHONE**
                **(818)
                  784-3292 FACSIMILE**
              
              **SAN
                  DIEGO:**
                **9191
                  TOWNE CENTRE DRIVE**
                **SUITE
                  406**
                **SAN
                  DIEGO, CA 92122**
                **(858)
                  320-2805
                  TELEPHONE**
                **(858)
                  320-2828
                  FACSIMILE**
 
 
 To
        the
        Board of Directors and Stockholders
 **HANGZHOU
        WANG DA ELECTRONIC CO., LIMITED**
 Zhejiang,
        China
 
 
 We
        have
        audited the accompanying statements of income, changes in stockholders’ equity,
        and cash flows for the year ended December 31, 2004 of Hangzhou Wang Da
        Electronics Co., Limited (“the Company”). These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a text basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Hangzhou Wang Da Electronics
        Co.,
        Limited for the year ended December 31, 2004 in conformity with accounting
        principles generally accepted in the United States of America.
 
 /s/
        Lichter, Yu & Associates
 
 December
        1, 2005
 San
        Diego, California
 
 
 
 **MEMBER**
 **CALIFORNIA
        SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS**
 **AMERICAN
        INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS**






F-2


**LICHTER,
        YU & ASSOCIATES**
 **Certified
        Public Accountants**
 
 **LOS
                ANGELES:**
                **16133
                  VENTURA BOULEVARD**
                **ENCINO,
                  CA 91436**
                **(818)
                  789-0265 TELEPHONE**
                **(818)
                  784-3292 FACSIMILE**
              
              **SAN
                  DIEGO:**
                **9191
                  TOWNE CENTRE DRIVE**
                **SUITE
                  406**
                **SAN
                  DIEGO, CA 92122**
                **(858)
                  320-2805
                  TELEPHONE**
                **(858)
                  320-2828
                  FACSIMILE**
 
 
 To
        the
        Board of Directors and Stockholders
 **Yiwu
        Yong Xin Communications Co., Limited**
 Zhejiang,
        China
 
 
 We
        have
        audited the accompanying statements of income, changes in stockholders’ equity,
        and cash flows for the year ended December 31, 2004 of **Yiwu
        Yong Xin Communications Co., Limited** (“the
        Company”). These financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the final statements. An audit also includes assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of **Yiwu
        Yong Xin Communications Co., Limited** for
        the
        year ended December 31, 2004 in conformity with the accounting principles
        generally accepted in the United States of America.
 
 /s/
        Lichter, Yu & Associates
 
 December
        1, 2005
 San
        Diego, California
 
 
 
 **MEMBER**
 **CALIFORNIA
        SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS**
 **AMERICAN
        INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS**
 
 F-3


**CHINA
                3C GROUP AND SUBSIDIARIES****(FORMERLY
                SUN OIL & GAS CORP.)****CONSOLIDATED
                BALANCE SHEET****DECEMBER
                31, 2005**




**ASSETS****Current
              Assets**Cash
                and cash equivalents
            
            $
            1,949,222Accounts
                receivable, net
            
            
            913,215Inventory
            
            
            602,974Advance
                to supplier
            
            
            372,000Prepaid
                expenses
            
            
            139,193Total
                Current Assets
            
            
            3,976,604**Property
                & equipment, net**
            
            
            43,662**Total
                Assets**
            
            $
            4,020,266******LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable and accrued expenses
            
            $
            111,296Income
                tax payable
            
            
            222,550Notes
                payable
            
            
            7,769Total
                Current Liabilities
            
            
            341,615**Stockholders'
                Equity**Common
                stock, $.001 par value, 100,000,000shares
                authorized, 39,870,077 issued and outstanding
            
            
            39,870Shares
                to be issued, 8,980,000
            
            
            502,000Additional
                paid in capital
            
            
            2,113,310Deferred
                consulting expense
            
            
            (387,945
            )Subscription
                receivable
            
            
            (50,000
            )Statutory
                reserve
            
            
            402,030Other
                comprehensive income
            
            
            74,950Retained
                earnings
            
            
            984,436Total
                Stockholders' Equity
            
            
            3,678,651Total
                Liabilities and Stockholders' Equity
            
            $
            4,020,266


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





F-4
 **Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**




**CHINA
                3C GROUP AND SUBSIDIARIES****(FORMERLY
                SUN OIL & GAS CORP.)****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE YEARS ENDED DECEMBER 31, 2005 AND
                2004**




2005
            
            2004Sales,
                net
            
            $
            32,588,634
            
            $
            24,701,995Cost
                of sales
            
            
            28,325,332
            
            
            21,577,365**Gross
                profit**
            
            
            4,263,302
            
            
            3,124,630General
                and administrative expenses
            
            
            1,706,869
            
            
            782,241**Income
                from operations**
            
            
            2,556,433
            
            
            2,342,389Other
                (Income) ExpenseInterest
                income
            
            
            (10,156
            )
            
            (5,348
            )Other
                expense
            
            
            17,364
            
            
            9,440Interest
                expense
            
            
            2,954
            
            
            1,104Total
                Other (Income) Expense
            
            
            10,162
            
            
            5,196**Income
                before income taxes**
            
            
            2,546,271
            
            
            2,337,193Provision
                for income taxes
            
            
            1,088,021
            
            
            231,096**Net
                income**
            
            $
            1,458,250
            
            $
            2,106,097**Net
                income per share:**Basic
                & diluted
            
            $
            0.04
            
            $
            0.06**Weighted
                average number of shares outstanding:**Basic
                & diluted
            
            
            35,133,427
            
            
            35,000,000


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




F-5
 **Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**




**CHINA
                3C GROUP AND SUBSIDIARIES****(FORMERLY
                SUN OIL & GAS CORP.)****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE YEARS ENDED DECEMBER 31, 2005 AND
                2004**




2005
            
            2004**CASH
              FLOWS FROM OPERATING ACTIVITIES**Net
                Income
            
            $
            1,458,250
            
            $
            2,106,097Adjustments
                to reconcile net income to net cashprovided
                by operating activities:Depreciation
            
            
            17,420
            
            
            17,555Issuance
                of shares for consultants
            
            
            225,680
            
            
            —Amortization
                of deferred consulting expense
            
            
            12,055Shares
                to be issued to consultants
            
            
            498,000
            
            
            —(Increase)
                / decrease in assets:Accounts
                receivables
            
            
            (286,498
            )
            
            23,893Inventory
            
            
            (421,658
            )
            
            82,901Prepaid
                expense
            
            
            (42,522
            )
            
            (68,382
            )Advance
                to supplier
            
            
            (372,000
            )
            
            —Deposits
            
            
            1,288
            
            
            903Increase
                / (decrease) in current liabilities:Accounts
                payable and accrued expenses
            
            
            (267,816
            )
            
            (187,889
            )Income
                tax payable
            
            
            122,067
            
            
            96,297Total
                Adjustments
            
            
            (513,984
            )
            
            (34,722
            )**Net
                cash provided by operations**
            
            
            944,266
            
            
            2,071,375**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of property & equipment
            
            
            (2,308
            )
            
            (2,033
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Capital
                contribution to subsidiary before acquistion
            
            
            1,210,000
            
            
            —Dividends
                paid
            
            
            (529,140
            )
            
            —Proceed
                on loan from related parties
            
            
            97,760
            
            
            127,539Payments
                on loan to related parties
            
            
            (250,877
            )
            
            (2,135,650
            )Payments
                on note payable
            
            
            (9,807
            )
            
            (9,246
            )**Net
                cash (used in) provided by financing activities**
            
            
            517,936
            
            
            (2,017,357
            )Effect
                of exchange rate changes on cash and cash equivalents
            
            
            19,670
            
            
            —Net
                change in cash and cash equivalents
            
            
            1,479,564
            
            
            51,985**Cash
                and cash equivalents, beginning balance**
            
            
            469,658
            
            
            417,673**Cash
                and cash equivalents, ending balance**
            
            $
            1,949,222
            
            $
            469,658**SUPPLEMENTAL
                DISCLOSURES:**Cash
                paid during the year for:Income
                tax payments
            
            $
            965,354
            
            $
            134,798Interest
                payments
            
            $
            2,954
            
            $
            1,104


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




F-6
 **Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**




**CHINA
                  3C GROUP AND SUBSIDIARIES****(FORMERLY
                  SUN OIL & GAS CORP.)****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND
                  2004**
  **Shares**
              
              **Additional**
              
              **Other**
              
              **Deferred**
              
              
              
              
              
              **Retained
                  Earnings**
              
              **Total****Common
                  Stock**
              
              **to
                  be**
              
              **Paid-In**
              
              **Comprehensive**
              
              **Consulting**
              
              **Subscription**
              
              **Statutory**
              
              **(Accumulated**
              
              **Stockholders'****Shares**
              
              **Amount**
              
              **issued**
              
              **Capital**
              
              **Income**
              
              **Expense**
              
              **Receivable**
              
              **Reserve**
              
              **Deficit)**
              
              **Equity/Deficit****Balance
                  January 1, 2004**
              
              
              35,000,000
              
              $
              35,000
              
              $
              —
              
              $
              267,500
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              (1,652,420
              )
              $
              (1,349,920
              )Transfer
                  to statutory reserve
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              70,379
              
              
              (70,379
              )
              
              —Net
                  income for the year ended December 31, 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,106,096
              
              
              2,106,096**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
              
              $
              3,678,651


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




F-7
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            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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





China
      3C
      Group, formerly Sun Oil & Gas Corp, was incorporated on August, 20, 1998
      under the laws of the State of Nevada. Capital Future Developments Limited
      - BVI
      (“Capital”) was incorporated on July 22, 2004 under the laws of the British
      Virgin Islands. Zhejiang Yong Xin Digital Technology Co., Ltd. (Zhejiang”), Yiwu
      Yong Xin Communication Ltd. (“Yiwu”) and Hangzhou Wandga Electronics Co., Ltd.
      (“Wang Da”) were incorporated under the laws of Peoples Republic of China on
      July 11, 2005, July 18, 1997 and March, 30, 1998 respectively. China 3C Group
      owns 100% of Capital and Capital owns 100% of the capital stock of Zhejiang.
      Zhejiang owns 90% and Yiwu owns 10% of Wang Da. Zhejiang owns 90% and Wang
      Da
      owns 10% of Yiwu. Collectively the five corporations are referred to herein
      as
      the “Company”.





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





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





**Note
      2 -** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





Basis
      of Presentation





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





Translation
      Adjustment


As
      of
      December 31, 2005 and 2004, the accounts of Zhejiang, Wang Da and Yiwu were
      maintained, and its financial statements were expressed, in Chinese Yuan
      Renminbi (CNY). Such financial statements were translated into U.S. Dollars
      (USD) in accordance with Statement of Financial Accounts Standards (“SFAS”) No.
      52, “Foreign Currency Translation,” with the CNY as the functional currency.
      According to the Statement, all assets and liabilities were translated at the
      current exchange rate, stockholder’s equity are translated at the historical
      rates and income statement items are translated at the average exchange rate
      for
      the period. The resulting translation adjustments are reported under other
      comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive
      Income” as a component of shareholders’ equity. Transaction gains and losses are
      reflected in the income statement.




F-8
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            to Consolidated Financial
            Statements**





**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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





Use
      of
      Estimates





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





Principles
      of Consolidation


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





Risks
      and Uncertainties


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





Contingencies


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





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





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




F-9
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 **Index
            to Consolidated Financial
            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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





Cash
      and Cash Equivalents





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





Accounts
      Receivable





The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. Terms of the sales vary. Reserves are recorded
      primarily on a specific identification basis. Allowance for doubtful debts
      amounted to $3,521 as at December 31, 2005.




Inventories





Inventories
      are valued at the lower of cost (determined on a weighted average basis) or
      market. The Management compares the cost of inventories with the market value
      and allowance is made for writing down their inventories to market value, if
      lower. As of December 31, 2005 inventory consisted of finished goods valued
      at
      $602,974.




Property,
      Plant & Equipment




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


Furniture
                  and Fixtures
              5
                  yearsAutomobile
              10
                  yearsComputer
                  Hardware and Software
              5
                  years




As
      of
      December 31, 2005 Property, Plant & Equipment consist of the
      following:


Automobile
              
              $
              102,232Office
                  equipment
              
              
              38,948141,180Accumulated
                  depreciation
              
              
              (97,518
              )$
              43,662






F-10
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 **Index
            to Consolidated Financial
            Statements**


**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**




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




Long-Lived
      Assets




Effective
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”), which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
      the Results of Operations for a Disposal of a Segment of a Business.” The
      Company periodically evaluates the carrying value of long-lived assets to be
      held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
      to be recorded on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. In that event, a
      loss is recognized based on the amount by which the carrying amount exceeds
      the
      fair market value of the long-lived assets. Loss on long-lived assets to be
      disposed of is determined in a similar manner, except that fair market values
      are reduced for the cost of disposal. Based on its review, the Company believes
      that, as of December 31, 2005 there were no significant impairments of its
      long-lived assets.




Fair
      Value of Financial Instruments




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




Revenue
      Recognition





The
      Company’s revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue.




Stock-Based
      Compensation




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




F-11
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 **Index
            to Consolidated Financial
            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**




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





Advertising


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




Income
      Taxes




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




Basic
      and Diluted Earnings Per Share




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




Statement
      of Cash Flows




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




F-12
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            to Consolidated Financial
            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





**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.
      SFAS
      131 has no effect on the Company’s consolidated financial statements as the
      Company consists of one reportable business segment. All revenue is from
      customers in People’s Republic of China. All of the Company’s assets are located
      in People’s Republic of China.





Recent
      accounting pronouncements





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





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




F-13
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            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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





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





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





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





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




**Note
      3 -** ADVANCE
      TO SUPPLIER




Advance
      to suppliers represents payments to suppliers for payments of materials. As
      of
      December 31, 2005 the company had paid $372,000 as advance to suppliers.




**Note
      4-** NOTES
      PAYABLE





At
      December 31, 2005, the Company had borrowings outstanding in the aggregate
      amount of $7,769. Notes Payable were as follows on December 31,
      2005:


**Description**Secured
                  note payable to a bank in China, interest at 4.941% per annum,
                  due on July
                  30, 2006
              
              $
              4,211Secured
                  note payable to a bank in China, interest at 4.941% per annum,
                  due on
                  August 12, 2006
              
              
              3,558Total
              
              $
              7,769






F-14
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            Statements**





**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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




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





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





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





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





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





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





**Note
      6 -** **STOCK
      WARRANT**





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




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




F-15
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            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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





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





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





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





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





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




Employees
      earn annual vacation leave at the rate of seven (7) days per year for the first
      three years. Upon completion of the third year of employment, employees earn
      annual vacation leave at the rate of ten (10) days per year for years four
      through five. Upon completion of the fifth year of employment, employees earn
      annual vacation leave at the rate of fourteen (14) days per year for years
      six
      (6) through ten (10). Upon completion of the tenth year of employment, one
      (1)
      additional day for each additional year, until it reaches thirty (30) days
      per
      year. At termination, employees are paid for any accumulated annual vacation
      leave. As of December 31, 2005 no accumulated vacation liability
      exists.




F-16
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            Statements**




**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





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







The
      Company through its subsidiaries, Zhejiang, Wang Da and Yiwu, is governed by
      the
      Income Tax Laws of the PRC. Operations in the United States of America have
      incurred net accumulated operating losses of $738,819 as of December 31, 2005for
      income tax purposes.However, a hundred percent allowance has been created on
      the
      deferred tax asset of $295,000 due to uncertainty of its
      realization.




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


The
                  following is a reconciliation of income tax expense:12/31/2005
              
              U.S.
              
              State
              
              International
              
              TotalCurrent
              
              $
              0
              
              $
              800
              
              $
              1,087,221
              
              $
              1,088,021Deferred
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              $
              0
              
              $
              800
              
              $
              1,087,221
              
              $
              1,088,02112/31/2004
              
              
              U.S.
              
              
              State
              
              
              International
              
              
              TotalCurrent
              
              $
              44,500
              
              $
              0
              
              $
              231,096
              
              $
              275,596Deferred
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              $
              44,500
              
              $
              0
              
              $
              231,096
              
              $
              275,596Reconciliation
                  of the differences between the statutory U.S. Federal income tax
                  rate and
                  the effective rate is as follows:12/31/2005
              
              
              12/31/2004US
                  statutory tax rate
              
              
              34
              %
              
              34
              %Foreign
                  income not recognized in US
              
              
              -34
              %
              
              -34
              %PRC
                  income tax
              
              
              33
              %
              
              33
              %Effective
                  rate
              
              
              15
              %
              
              15
              %




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




The
      Company leases various office facilities under operating leases that terminate
      on various dates. Rental expense for these leases consisted of $36,252 for
      the
      year ended December 31, 2005. The Company has future minimum lease obligations
      as follows:


2006
              
              $
              3,388Total
              
              $
              3,388


F-17
 **Back
            to Table of Contents**
 **Index
            to Consolidated Financial
            Statements**





**CHINA
      3C GROUP AND SUBSIDIARIES**


**(FORMERLY
      SUN OIL & GAS CORP.)**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005**





**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
      for staff and workers. The proportion of allocation for reserve is 5 to 10
      percent of the profit after tax until the accumulated amount of allocation
      for
      statutory reserve reaches 50 percent of the registered capital. Statutory
      surplus reserves are to be utilized to offset prior years’ losses, or to
      increase its share capital.





General
      reserve fund and statutory surplus fund 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, 2005, the Company had allocated $402,030 to
      these non-distributable reserve funds.





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





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholders’ equity, at December 31, 2005 and
      December 31, 2004 are as follows:


*Foreign
                  Currency Translation Adjustment*
              
              *Accumulated
                  Other Comprehensive Income*Balance
                  at December 31, 2004
              
              $
              —
              
              $
              —Change
                  for 2005
              
              
              74,950
              
              
              74,950Balance
                  at December 31, 2005
              
              $
              74,950
              
              $
              74,950





**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 - RECLASSIFICATIONS**





Certain
      prior period amounts have been reclassified to conform to the year ended
      December 31, 2005 presentation.




F-18