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

Overview

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

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

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

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

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

The Company is now engaged in the business of resale and distribution of third party products and generate approximately 100% of its revenue from resale of items such as mobile phone, facsimile machines, DVD players, stereo's, speakers, MP3 and MP4 players, iPod, electronic dictionaries, CD players, radios, Walkman, and audio systems. We sell and distribute products through retail stores and secondary distributors.

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

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

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

Results of Operations

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

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

Net sales

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

Percentage of sales

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

Cost of Sales

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

Top Ten Suppliers of Each of Our Subsidiaries

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

Gross Profit Margin

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

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

General and Administrative Expense

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

Income from Operations

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

Provision for income taxes

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

Net Income

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

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

Net sales

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

Percentage of sales

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

Cost of Sales

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

Top Ten Suppliers of Each of Our Subsidiaries:

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

Gross Profit Margin

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

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

Operating Expense

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

Income from Operations

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

Interest Expense

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

Provision for income taxes

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

Net Income

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

Retail locations

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

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

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

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

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

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

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

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

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

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

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

QUARTERLY RESULTS OF OPERATIONS

Our businesses experience fluctuations in quarterly performance. Traditionally, the first quarter from January to March has a higher number of sales reflected by our electronics business due to the New Year holidays in China occurring during that period. Nevertheless, at times, China can experience particularly inclement weather in January and February which can serious disrupt the Company's supply chain management systems. As our business model is to operate only on several days of inventory, the effects of such weather disruptions can be severe in certain years. Additionally, during summer month we can experience a slowdown in sales. We therefore generally use the summer months to concentrate on opening additional stores to offset the decline in sales per store.

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

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

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

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

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

Other (Income) Expense
Interest income                -30,990          -25,977          -17,655          -13,791          -13,685           -9,261           -4,249           -4,098
. . .