HANGZHOU, China, March 17 /Xinhua-PRNewswire/ -- China 3C Group (OTC Bulletin Board: CHCG - News), a retailer and wholesale distributor of consumer and business products in China, today announced financial results for the fourth quarter and fiscal year ended December 31, 2007.

Mr. Zhenggang Wang, Chairman and Chief Executive Officer commented, "We are pleased to report that 2007 was a good year for China 3C both in terms of the financial results achieved and relative to the progress we made building a foundation for future growth. Our increase in sales benefitted from a combination of strong organic growth, increased retail store penetration, higher sales volume and the introduction of new product lines resulting in record profits for our company. We experienced an 83% year-over-year increase in diluted EPS even as our diluted share count increased 14% in 2007 to 52.67 million shares from 46.18 million shares in 2006.

We are encouraged by the ongoing improvement to our balance sheet. We generated strong cash returns in 2007 finishing the year with approximately $25 million in cash, which is an increase of 284% over 2006 and 51% sequential improvement from the third quarter of 2007. We managed our accounts receivables very well, maintained a clean level of inventory and do not have any debt on our balance sheet."

Full Year 2007

Net sales for 2007 totaled $276.0 million compared to $148.2 million for 2006. The large increase amount was due to a combination of both organic growth and contribution from subsidiaries acquired in the second half of 2006. Higher sales volume and the addition of new product lines were also factors.

Cost of sales for 2007 totaled $226.7 million, or approximately 82.11% of net sales, compared to $125.4 million, or approximately 84.61% for 2006. The cost of sales as a percentage decreased during 2007 due to the introduction of new product models with higher gross profit margin.

Gross profit margin for 2007 increased 250 basis points to 17.9% compared to 15.4% for 2006. The increase was partially due to the inclusion of the newly acquired subsidiaries. The gross profit margin increased as we benefited from increasing economies of scale as the Company grew in size and scale. Higher sales of higher margin products such as MP3 and DVD players were also critical factors.

General and administrative expense for 2007 totaled $13.6 million, or approximately 4.93% of net sales, compared to $5.5 million, or approximately 3.74% for 2006.

Income from operations for 2007 was $35.8 million, or 12.95% of net sales, as compared to income from operations of $17.3 million 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.

Net income was $22.9 million, or 8.3% of net sales for 2007 compared to $11.3 million, or 7.6% 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. Diluted earnings per share increased to $0.44 compared to $0.24 in the prior year period.

2008 Financial Outlook

The Company believes that certain events could make 2008 a transitional period for China 3C. Some of the events expected to impact the Company in 2008 are as follows:

     -- The first quarter of 2008, which is seasonally the Company's
        strongest quarter, is expected to be negatively impacted by the heavy
        snow storms that paralyzed much of China during January and February
        of this year. The Company believes that 2008 first quarter revenue
        results could fall by as much as 15-20% compared to prior year results
        of $84.5 million.

     -- The Company expects its business to experience gross margin
        pressure due to increased costs associated with changes in Chinese
        regulations relative to mandated employee benefits.

The Company expects total sales for 2008 to trend between flat to a decrease of approximately 5% compared to 2007 and that gross margin will decrease 4-5 percentage points when compared to 2007 levels. These projections do not take into account any impact related to future acquisitions.

Mr. Wang concluded, ''We expect 2008 to be a transitional period in which to expand. We will use this year to further strengthen our operational foundation by focusing our efforts on issues such as internal cost control, improved logistics coordination, closure of underperforming store counters, expansion of well performing stores, and an increase in the overall managerial efficiency of the Company.

Our wholesale and retail consumer electronic business brings significant advantages to a very large and fast growing market in China. We have a flexible operating model with multiple layers of growth that can allow 3C to become a much larger, more profitable business in the future. As we look ahead, we have a large opportunity to grow our business through maximizing sales at existing store counters, selective expansion of our counters into new consumer retail locations, additional product introductions, new supplier agreements with leading international and domestic consumer brands, the acquisition of new businesses, and geographic expansion. Additionally, with our sizeable cash position, we will evaluate the opportunity to pursue strategic opportunities, including an acquisition, to expand our presence in the Chinese marketplace. We are encouraged with the opportunities in our business and believe our initiatives will position China 3C for healthy growth in the years ahead,'' concluded Wang.

Conference Call

The Company will hold a conference call to discuss the financial results at 8:30 a.m. ET today. The Company invites you to join the call by dialing 913-312-1493. A live webcast of the conference call will be available at http://www.viavid.net . A replay of the call will be available from March 17, 2008 to March 24, 2008. Listeners may access the replay by dialing 719-457- 0820, passcode: 7831457.

About China 3C

China 3C is a leading wholesale distributor and retailer of 3C merchandise: computers, communication products and consumer electronics. The company specializes in wholesale distribution and retail sales of 3C products in Eastern China, focusing on products that make life more comfortable, convenient and connected. The company's goal is to become the number one retailer of 3C products in China. For more information, visit http://www.china3cgroup.com .

Forward-looking Statements:

Certain of the statements set forth in this press release constitute "Forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We have included and from time to time may make in our public filings, press releases or other public statements, certain forward-looking statements, including, without limitation, those under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K. 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" or words or expressions of similar meaning. 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. There can be no assurance that such forward-looking statements will prove to be accurate and China 3C Group undertakes no obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements.

                        (financial tables below)


                    CHINA 3C GROUP AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF INCOME
            FOR YEARS ENDING DECEMBER 31, 2007 AND 2006


                                                2007               2006

    Sales, net                            $276,026,673       $148,218,848

    Cost of sales                          226,656,242        125,411,758
    Gross profit                            49,370,431         22,807,090

    General and administrative expenses     13,614,500          5,544,924
    Income from operations                  35,755,931         17,262,166

    Other (Income) Expense
    Interest income                            (88,413)           (31,293)
    Other expense                               74,215            100,646
    Interest expense                                --              7,565
    Total Other (Income) Expense               (14,198)            76,918
    Income before income taxes              35,770,129         17,185,248

    Provision for income taxes              12,850,429          5,908,122
    Net income                            $ 22,919,700       $ 11,277,126

    Net income per share:
    Basic & diluted                       $       0.44       $       0.24

    Weighted average number of
     shares outstanding:
    Basic & diluted                         52,671,438         46,179,507



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


                 ASSETS                     12/31/2007         12/31/2006

    Current Assets
    Cash and cash equivalents             $ 24,952,614       $  6,498,450
    Accounts receivable, net                 8,077,533          8,013,071
    Inventory                                6,725,371          2,779,506
    Advance to supplier                      2,572,285          2,215,841
    Prepaid expenses                           382,769             60,059
    Total Current Assets                    42,710,572         19,566,927

    Property & equipment, net                   89,414             65,803
    Goodwill                                20,348,278         20,348,278
    Refundable deposits                         48,541              6,567
    Total Assets                          $ 63,196,805       $ 39,987,575

      LIABILITIES AND STOCKHOLDERS' EQUITY

    Current Liabilities
    Accounts payable and accrued expenses $  3,108,235       $  1,964,663
    Income tax payable                       2,684,487          2,596,517
    Notes payable                                   --          4,500,000
    Total Current Liabilities                5,792,722          9,061,180

    Stockholders' Equity

    Common stock, $.001 par value,
     100,000,000 shares authorized,
     52,673,938 and 52,488,938 issued
     and outstanding                            52,674             52,489
    Additional paid in capital              19,465,776         17,352,691
    Subscription receivable                    (50,000)           (50,000)
    Statutory reserve                        7,234,295          3,320,755
    Other comprehensive income               1,872,334            427,616
    Retained earnings                       28,829,004          9,822,844
    Total Stockholders' Equity              57,404,083         30,926,395
    Total Liabilities and
    Stockholders' Equity                  $ 63,196,805       $ 39,987,575



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


                                                 2007              2006
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net Income                            $ 22,919,700       $ 11,277,126
    Adjustments to reconcile net
     income to net cash provided by
     operating activities:
    Depreciation                                40,714             20,191
    Gain on asset disposition                       --               (936)
    Provision for bad debts                      9,021             82,686
    Stock based compensation                 2,113,270
    Amortization of deferred
     consulting expense                             --            387,945
    (Increase) / decrease in assets:
    Accounts receivables                       (73,483)        (2,375,209)
    Inventory                               (3,945,865)          (487,593)
    Prepaid expense                           (322,710)            85,216
    Advance to supplier                       (356,444)          (848,848)
    Deposits                                   (41,974)            (5,929)
    Increase / (decrease) in current
     liabilities:
    Accounts payable and accrued expenses    1,143,572          1,356,272
    Income tax payable                          87,970          1,477,695
    Total Adjustments                       (1,345,929)          (308,510)

    Net cash provided by operating
     activities                             21,573,771         10,968,616

    CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property & equipment           (64,325)           (30,591)
    Proceeds from asset sales                       --              1,508
    Net cash used by Investing activities      (64,325)           (29,083)

    CASH FLOWS FROM FINANCING ACTIVITIES
    Payments of acquisition notes -
     net of cash acquired                   (4,500,000)        (6,550,157)
    Payments of notes - other                       --             (7,769)
    Net cash provided by financing
     activities                             (4,500,000)        (6,557,926)

    Effect of exchange rate changes
     on cash and cash equivalents            1,444,718            167,621
    Net change in cash and cash
     equivalents                            18,454,164          4,549,228
    Cash and cash equivalents,
     beginning balance                       6,498,450          1,949,222
    Cash and cash equivalents,
     ending balance                       $ 24,952,614       $  6,498,450
    SUPPLEMENTAL DISCLOSURES:
    Cash paid during the year for:
    Income tax payments                   $ 12,762,459       $  3,534,155
    Interest payments                     $         --       $      7,565


    Non cash transactions relating to
     acquisitions
    Purchased Goodwill                                       $(20,348,278)
    Fair value of assets purchased                             (5,451,879)
     less cash acquired
    Acquisition financed with stock
     issuance                                                  14,750,000
    Acquisition financed with notes                            12,500,000
     Net cash acquired in acquisitions                       $  1,449,843