**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB/A**




(Mark
      One)




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




**For
      the fiscal year ended December 31, 2006**




**o**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**




**For
      the transition period from ___________ to ___________**




**Commission
      file number 000-49715**




**CHINA
      DIGITAL COMMUNICATION GROUP**


(Exact
      name of registrant as specified in its charter)




**Nevada**
            **91-2132336**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)**Number
                2222, Jin Tian Road**
              **An
                Lian Building 15****th****Floor
                A-01 and A-02 Futian**
              **Shenzhen,
                China**
            **51811**(Address
                of principal executive offices)
            (Zip
                Code)





Registrant’s
                telephone number, including area code
            **86-755-2698-3767**




Securities
                registered under Section 12(b) of the Exchange Act:Title
                of each class
            Name
                of each exchange on which registered**None**
            **None**Securities
                registered under Section 12(g) of the Exchange Act:**Common
                Stock, par value $.0001**(Title
                of class)




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 registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o




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 registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





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





State
      issuer’s revenues for its most recent fiscal year. $12,215,376





Aggregate
      market value of the voting and non-voting common stock held by non-affiliates
      of
      the Company as of December 31, 2006: $11,192.402.




Number
      of
      shares of the registrant’s Common Stock outstanding as of March 30, 2007:
      54,460,626.







**TABLE
      OF CONTENTS**





**Part
                I**Item
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            10Item
                3.
            Legal
                Proceedings
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            10**Part
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            11Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operations
            12Item
                7.
            Financial
                Statements
            14Item
                8.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            14Item
                8A.
            Controls
                and Procedures
            15Item
                8B.
            Other
                Information
            15**Part
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            15Item
                10.
            Executive
                Compensation
            17Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            18Item
                12.
            Certain
                Relationships and Related Transactions
            19Item
                13.
            Exhibits
            19Item
                14.
            Principal
                Accountant Fees and Services
            20**Signatures**
            
            21





2




*Except
      as otherwise required by the context, all references in this prospectus to
      "we",
      "us”, "our", “CHID”, or "Company" refer to the consolidated operations of China
      Digital Communication Group, a Nevada corporation, and its wholly owned
      subsidiaries.*




**Forward-Looking
      Statements and Associated Risks**




*The
      Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
      certain forward-looking statements. Some of the statements contained in this
      annual report of the Company discuss future expectations, contain
      projections of our operations or financial condition or state other
      forward-looking information. Some statements contained in this annual report
      on
      Form 10-KSB that are not historical facts (including without limitation
      statements to the effect that we "believe," "expect," "anticipate," "plan,"
      "intend," "foresee," or other similar expressions) and are forward-looking
      statements. These forward-looking statements are based on our current
      expectations and beliefs concerning future developments and their potential
      effects on us. There can be no assurance that future developments affecting
      us
      will be those anticipated by us. All comments concerning our expectations for
      future revenue and operating results are based on our forecasts of our plan
      of
      operation and do not include the potential impact of any future acquisitions
      or
      operations. These forward-looking statements involve significant risks and
      uncertainties (some of which are beyond our control) and assumptions. Should
      one
      or more of these risks or uncertainties materialize, or should any of our
      assumptions prove incorrect, actual results may vary in material respects from
      those projected in the forward-looking statements.*




**PART
      I**




**Item
                1.**
            **Description
                of Business.**





**Business
      Development**





***Overview***





We
      were
      incorporated in Nevada on March 27, 2001 under the name Jasmine's Garden. We
      operate our business through our two wholly-owned subsidiaries, Billion
      Electronic Co., Ltd., a company organized under the laws of the British Virgin
      Islands on July 27, 2004 (“Billion”), and Galaxy View International Ltd., a
      company organized under the laws of the British Virgin Islands on August 22,
      2005 (“Galaxy View”). On November 15, 2004, we acquired Billion and its
      wholly-owned operating subsidiary, Shenzhen E'Jenie Technology Development
      Co.,
      Ltd, a company incorporated under the laws of the Peoples Republic of China
      on
      July 8, 2002 (“E’Jenie”). Through E'Jenie, we manufacture and distribute lithium
      battery shells and related products primarily in China. Based upon
      specifications from its customers E'Jenie develops, customizes and produces
      steel, aluminum battery shells and aluminum caps. Currently, E'Jenie produces
      fourteen steel battery shell lines, nine aluminum battery shell lines, three
      aluminum battery cap lines and three steel battery cap lines. On June 29, 2006,
      we acquired Galaxy View and its wholly-owned operating subsidiary Sono Digital
      Electronic Technologies Co., Ltd., a company incorporated under the laws of
      the
      Peoples Republic of China on May 29, 2001 (“Sono”). Through Sono, we specialize
      in the mobile communication equipment industry and supply third-generation
      (3G)
      communications technology and equipment in China. Sono allows us to provide
      a
      broad range of services, including mobile equipment production, technical
      development, product standardization, market research, equipment setup and
      debugging, technical support, implementation analysis and searching for merger
      opportunities.





***History***





Until
      December 2, 2003, we operated a nationwide wholesale and retail business selling
      greeting cards, note cards and gift tags made from a design process involving
      photography and computer graphics. On December 2, 2003, Cheering Limited, an
      investment holding company organized under the laws of the British Virgin
      Islands ("Cheering"), acquired 5,700,000 shares of our common stock, par value
      $0.001, which constituted approximately 95% of the then issued and outstanding
      shares of our common stock from Jack and Jasmine Gregory, our former officers
      and directors, for cash consideration of $221,221 (the "Cheering Transaction").





In
      connection with the Cheering Transaction, our Board of Directors appointed
      Zu
      Zhuan Xu to serve as our President, elected four designees of Cheering to serve
      as directors, and Jack and Jasmine Gregory resigned from their positions as
      officers and directors of the Company. On February 18, 2004, Zu Zhuan Xu
      resigned as President and Yi Bo Sun was appointed as President and Chief
      Executive Officer and Xu Bao Dong was appointed to serve on our Board of
      Directors. On February 19, 2004, another director resigned from our Board of
      Directors and Mr. Sun was appointed to replace him. On January 19, 2006, Mr.
      Sun
      resigned as our President and Chief Executive Office and from our Board of
      Directors. Changchun Zheng was elected as Chairman of the Board and Chief
      Executive Officer. On February 23, 2006, Yu Xi Sun was appointed as President
      and as a Director. On April 4, 2006 Chang Chun Zheng resigned as Chairman and
      Chief Executive Officer and Yu Xi Sun, the Company’s current President, was
      appointed to serve as interim Chairman and Chief Executive Officer. On May
      30,
      2006 Ran Liang was appointed as Chief Executive Officer. On July 10, 2006,
      Hong
      Liang resigned as Chief Operating Officer and as a Director of the Company
      and
      Yao Miao resigned as Chief Financial Officer. Su Yi Zheng was appointed as
      Chief
      Operating Officer and as a Director and Sarah Shao was appointed as Chief
      Financial Officer, both effective as of July 10, 2006. Zu Zhuang Xu, Dr. Yong
      Yang, Alfred L. Simon were removed from CHID’s Board of Directors on September
      12, 2006. On January 4, 2007, Ran Liang resigned as Chief Executive Officer
      and
      as a member of the Board of Directors, and Xu Zhongnan was appointed as Chief
      Executive Officer and Chairman of the Board of Directors. On January 5, 2007,
      Sara Shao resigned as Chief Financial Officer, and Wu Jiangcheng was appointed
      as Chief Financial Officer. Su Yi Zheng resigned as Chief Operating Officer
      and
      member of the Board of Directors.




3


On
      March
      17, 2004, we sold 30,000,000 shares of common stock at a per share purchase
      price of $0.05 to seven unaffiliated individuals in a private placement, which
      yielded aggregate gross proceeds of $1,500,000 (the "Private Placement"). As
      a
      condition to the closing of the Private Placement, each of the investors
      executed an irrevocable proxy granting Mr. Sun, our former President and Chief
      Executive Officer, the right to vote all shares of the common stock purchased
      in
      the Private Placement. The irrevocable proxies expired on May 1, 2004, however,
      the investors and Mr. Sun extended the irrevocable proxies to May 2006. Mr.
      Sun
      as the Chairman and Chief Executive Officer of Cheering is the beneficial owner
      of the 5,700,000 shares of common stock, which represents approximately 7.8%,
      of
      the issued and outstanding shares of our common stock and prior to the
      expiration of the irrevocable proxies, Mr. Sun will have the power to vote
      or
      direct the voting of 30,000,000 shares issued in the Private Placement. As
      a
      result, until the irrevocable proxies expire on May 1, 2006, Mr. Sun will
      control approximately 48.9% of our issued and outstanding common
      stock.





On
      April
      28, 2004, we filed a certificate of amendment to our articles of incorporation
      with the Nevada Secretary of State to increase our authorized common stock
      to
      140,000,000 shares and to authorize 60,000,0000 shares, par value $0.001, of
      blank check preferred stock.





On
      September 3, 2004, we filed a certificate of amendment to our articles of
      incorporation with the Nevada Secretary of State to change our name from
      "Jasmine's Garden" to "China Digital Communication Group."





***Acquisition
      of Billion***





On
      November 15, 2004, pursuant to a Share Exchange Agreement (the "Billion Exchange
      Agreement") dated as of September 17, 2004, by and among the Company, Billion,
      the shareholders of Billion (the "Billion Shareholders") and E'Jenie, we
      acquired from the Billion Shareholders (the "Billion Acquisition") all of the
      issued and outstanding equity interests of Billion (the "Billion Shares").
      Billion is a holding company and the sole shareholder of E'Jenie. Billion has
      no
      other assets other than the shares of E'Jenie. As consideration for the Billion
      Shares, we paid to the Billion Shareholders an aggregate of $1,500,000 in cash
      and issued to them 4,566,210 shares of our common stock. The consideration
      for
      the Billion Acquisition was determined through arms length negotiations between
      us and Billion. As a result of the Billion Acquisition we are the sole
      shareholder of Billion through which we own all of the issued and outstanding
      equity interests of E'Jenie.





In
      connection with the Billion Acquisition we entered into a Guarantee Agreement,
      dated October 9, 2004, as amended October 11, 2004 (the "Guarantee"), with
      Shiji
      Ruichen Guaranty and Investment Co. Ltd., a company incorporated under the
      laws
      of the Peoples Republic of China ("Shiji"). Pursuant to the terms of the
      Guarantee, Shiji agreed to guarantee our performance and the performance of
      the
      Billion Shareholders under the Billion Exchange Agreement. As consideration
      for
      Shiji's guaranty, we issued to Shiji 1,919,016 shares of our common stock.
      As
      security for our obligations under the Guarantee, one of our principal
      shareholders deposited 5,000,000 of their shares of our common stock into
      escrow.





***Acquisition
      of Galaxy View***





On
      June
      29, 2006, pursuant to the terms of a Share Exchange Agreement (the "Galaxy
      View
      Exchange Agreement") dated as of March 22, 2006, by and among the Company,
      Galaxy View, the shareholders of Galaxy View (the " Galaxy View Shareholders")
      and Sono, we acquired from the Galaxy View Shareholders (the "Galaxy View
      Acquisition") all of the issued and outstanding equity interests of Galaxy
      View
      (the "Galaxy View Shares"). Galaxy View is a holding company and the sole
      shareholder of Sono. Galaxy View has no other assets other than the shares
      of
      Sono. As consideration for the Galaxy View Shares, we paid to the Galaxy View
      Shareholders an aggregate of $3,000,000 in cash and issued to them 7,575,757
      shares of our preferred stock. The consideration for the Acquisition was
      determined through arms length negotiations between us and Galaxy View. As
      a
      result of the Acquisition we are the sole shareholder of Galaxy View through
      which we own all of the issued and outstanding equity interests of Sono
      Digital.




4


**Our
      Business**





**LITHIUM
      BATTERIES**





***Industry***





The
      lithium battery was created in the 1990s, with its first mass production in
      1993
      in Japan. Lithium batteries were first used in notebook computers and now are
      used in cellular phones, video machines, laptops, digital cameras, MP3 players,
      global positioning satellite systems, 3G communication devices, hybrid cars
      and
      an array of other electronic products.





Batteries
      are becoming smaller, lighter, more efficient, longer lasting and free of
      pollution. The lithium battery's energy/weight ratio exceeds that of its
      counterparts and with an excellent safety standard we believe that it is the
      future of the battery industry. China has become one of the largest producer
      and
      consumer of lithium ion batteries. According to China Chemistry and Physics
      Electronic Industry Association, there were over $4.0 billion of lithium ion
      batteries sold in China in 2005. We anticipate that there will be even greater
      demand for lithium batteries in China and worldwide in the next few years.
      We
      believe that the current trend towards smaller, lighter portable consumer
      products will continue to grow and because of its size, the demand for the
      lithium battery will increase. By way of example, a mobile-phone battery has
      a
      typical usage life of 300 to 500 recharges, which translates to a ratio of
      1.8
      batteries in service life of each phone, according to official Chinese
      statistics. However, our internal data reveals that battery replacement demand
      is faster than this when consumers turn in their phones for new models before
      the normal life of the battery is over. A short product life combined with
      a
      short product innovation cycle creates rapid product turnover resulting in
      increased business for battery shell makers.





***Business
      Strategy***





We
      seek
      to maintain and strengthen our position as a provider of battery shells and
      caps
      while increasing the breadth of our product line and improving the quality
      of
      our products. In order to achieve our objective, we plan to pursue the key
      strategies described below.





·
            *Become
                a cost leader in an increasingly competitive market.*We
                believe we can ensure competitive pricing by integrating a labor-intensive
                production process with high-tech, proprietary manufacturing equipment.
                We
                believe our experience in designing and updating key manufacturing
                equipment and operating such equipment at a low cost gives us a cost
                advantage over our competitors.





·
            *Taking
                advantage of our ready production capacity and allowing for increased
                production capacity.*We
                believe our production capacity makes us more reliable, flexible
                and
                responsive in terms of fulfilling our customers' requirements than
                other
                providers. As such, existing and potential competitors may find it
                more
                difficult to compete with our production
                capabilities.





·
            *Enhanced
                research and development activities.*Upon completion of our new facility, we will have the space to enhance
                our
                existing research and development capabilities through the addition
                of
                state of the art equipment and experienced
                personnel.





·
            *Expanding
                our product lines to capture new market opportunities.*We
                are seeking to produce lithium battery cells that can be used in
                small
                electronic consumer products such as digital cameras, laptop computers,
                MP3 players and cellular telephones. By entering these markets, we
                believe
                we can achieve future revenue growth and improved profit
                margins.





***Products***





Our
      wholly-owned subsidiary, E'Jenie, is a producer of the following lithium ion
      battery shells and caps.





***Low-Carbon
      Steel Stretch Series.*** This
      square shape shell series stretches the low-carbon steel plate section by
      section. We use superficial galvanization to custom make sizes for different
      customers. The characteristics of this series are that it is clean and artistic;
      it has smooth cuttings, and is explosion proof, wear resistant and
      anti-corrosive. This series is suitable for square shaped nickel hydrogen
      batteries, lithium ion batteries and power batteries.




5


***F6,
      F8 Nickel Hydrogen and Lithium Ion Duel Functions
      Series.*** This
      series stretches the low-carbon steel plate section by section and uses oil
      pressure to make the final form. The characteristic of this series is a smooth
      surface. This series is suitable for nickel Hydrogen and Lithium Ion Duel
      Functions Rechargeable Battery Cells.





***Square
      Share Stainless Steel Series.*** This
      series uses a unique processing craft to stretch stainless steel to make the
      square steel. The characteristics of this series are that it is anticorrosive
      and it does not rust. This series is suitable for the square shaped Nickel
      Hydrogen and Lithium Ion Battery and related components.





***Aluminum
      Square Shell Series.*** **** This
      series is developed by us by continuously extruding to form the final shell
      shapes. The characteristic of this series is that it is explosion
      proof.





***Japanese
      Explosion-Proof Cap Series.*** Included
      in this series is the Japanese Steel Plate Patent Product Series and the
      Stainless Steel Explosion-Proof Cap Series. The characteristics of the Japanese
      Steel Plate Patent Series are as follows:





·
            *Low
                Pressure.*It
                can be used under low pressure condition. The pressure is affected
                by the
                thickness of the aluminum sheet and the diameter of holes within
                the
                caps.





·
            *Strong
                Resistance.*The aluminum material will not become stiff or rigid and therefore
                the
                product will not crack if it is
                hit.





·
            *Expanding
                the Gas Releasing Volume.*When the safety value is on the gas will be
                released.





The
      Japanese Steel Plate Patent Product Series is suitable for all of lithium ion
      batteries.





The
      Stainless Steel Explosion-Proof Cap Series was developed by us and for which
      we
      own a patent. This series is suitable for lithium ion batteries used in mobile
      phones, calculators, MP3 players, digital camera, recorders and other electronic
      devices.





***Distribution
      Methods of the Products and Services***





E’Jenie
      has maintained long-term relationships with its principal customers which are
      large lithium battery manufacturers. We believe that we continually receive
      orders from our loyal customers because of E’Jenie’s reputation and quality of
      the products. Our professional marketing team maintains relationships with
      our
      current customers and at the same time searches for other potential new
      customers.





***Competition***





The
      worldwide market for lithium battery shells and caps is highly competitive.
      We
      face competition from manufacturers not only within China but also from other
      parts of the world, particularly Japan, Taiwan, Malaysia, Indonesia, and Korea.
      We compete with these companies by striving to provide a higher quality product
      at a lower cost. Our primary competitors are Shenzhen Luhua Co., Ltd., Shenzhen
      TongLi Electronic Co. and Ningbo Pulaite Electronics Co., Ltd. We believe that
      by doing business in China we enjoy competitive advantages over similar
      companies based elsewhere, such as abundant labor resources and low cost raw
      materials.





***Manufacturing
      and Raw Materials***





We
      purchase various components and raw materials for use in our manufacturing
      processes. The principal raw materials we purchase are aluminum and steel.
      The
      price of steel has increased significantly in the past year, and we believe
      that
      it will continue to increase. The increases have had an adverse impact on gross
      margins, since some of the increases cannot be passed on to our
      customers.





Our
      three
      largest suppliers are Heng Yuang Li Stainless Steel Factory, Hongzhou Stainless
      Steel Product Co and Hua Yi Aluminum Co., which in the aggregate account
      approximately 50% of all components and raw materials purchased. Normally,
      the
      annual purchase plan for raw material, such as aluminum and steel, is determined
      at the beginning of the calendar year according to past customer's orders and
      our own sales forecast. Such purchase plans with key suppliers can be revised
      quarterly. Our actual requirements are based on weekly production plans. We
      believe that this arrangement protects us from inventory surplus when the orders
      from customers change.




6


For
      raw
      materials other than steel and aluminum, we normally maintain from one week
      up
      to one month of inventory at our warehouse. All components and raw materials
      are
      available from numerous sources. We have not experienced any significant
      shortages of manufactured components or raw materials and normally do not carry
      inventories of these items in excess of what is reasonably required to meet
      our
      production and shipping schedules.





***Dependence
      on One or a Few Customers***





In
      2006,
      our five largest customers represented approximately 56% of our total sales.
      The
      following table sets forth information regarding our five largest
      customers.





**MAJOR
                CUSTOMERS****Customer
                Name**
            
            **Percentage
                of Total Revenue for 2006**Shenzhen
                Bak Battery Co., Ltd.
            
            
            28.50
            %Shenzhen
                Yin Si Qi Electronic Co., Ltd.
            
            
            11.40
            %Shenzhen
                Gao Yi Electronic Technology Co., Ltd..
            
            
            8.90
            %Guizhou
                Aero Electric Source Tech. Co., Ltd.
            
            
            5.90
            %Shenzhen
                Huanyuda Battery Electronic Tech. Co., Ltd
            
            
            5.60
            %





Although
      we do not have formal contracts with our customers, we have established
      long-term relationships. Our customers place orders on a monthly basis and
      sales
      are processed with purchase orders. The loss of Shenzhen Bak as a customer
      would
      have an adverse effect on our revenues as sales to Shenzhen Bak represented
      approximately 28.50% of total sales for 2006. We believe that our relationship
      with Shenzhen Bak is good and do not anticipate a change in their current volume
      of business.





***Sales
      and Marketing***





We
      focus
      our sales and marketing initiatives on establishing China Digital as the leading
      manufacturer of caps and shells for lithium ion batteries. We promote our brand
      in order to build revenues, gain worldwide market share and promote consumer
      awareness and acceptance. Our in-house sales and marketing team contact local
      battery manufacturers to solicit interest in our products. If the manufacturer
      expresses an interest in our product offering, we ship them samples and if
      our
      products suit their needs orders are placed and filled. As of March 30, 2007,
      we
      had nine sales and marketing personnel who all were located in
      China.





***Intellectual
      Property***





We
      protect our proprietary technology through various methods such as patents
      and
      patent applications, trademarks, non-disclosure agreements and trade secrets.
      We
      have filed and obtained a number of patents in China. As of March 30, 2007
      we
      have been issued three patents by the China National Intelligent Assets Bureau.
      The expiration of these patents range from May 8, 2005 to May 8,
      2015.





We
      intend
      to continue to pursue the legal protection of our technology through
      intellectual property laws. However, we cannot be certain that the steps we
      have
      taken to protect our intellectual property rights will be adequate or that
      third
      parties will not infringe or misappropriate our propriety rights.




***Governmental
      Approval and Regulations; Environmental Consideration***




All
      factories in China must adhere to standards set forth by the Environmental
      Department and each factory must receive special permission from the
      Environmental Department to operate. We have officially received permission
      from
      the Environmental Department. Except as noted above, we are neither subject
      to
      any governmental regulations nor do we need governmental approvals to conduct
      our business.




7


**MOBILE
      COMMUNICATION EQUIPMENT**





***Products
      and Services***





Our
      wholly-owned subsidiary, Sono, provides a broad range of services, including
      mobile equipment production, technical development, product standardization,
      market research, equipment setup and debugging, technical support, and
      implementation analysis. Sono's products include a series of wireless base
      station extended coverage systems, series of repeaters, and series of indoor
      distributors. Base station extended coverage systems include: Base Station
      Power
      Amplifiers, Duplex Transmission In-line Tower Amplifiers, and Bi-directional
      In-line Tower Amplifiers. Repeaters include: radio frequency repeaters, optical
      fiber repeaters, and frequency shifting repeaters.





***Distribution
      Methods of the Products and Services***





Sono’s
      targeted clients are the largest mobile communication service carriers in the
      Chinese industry, including China Mobile Communication Corporation, China Unicom
      Telecommunications Corporation, etc. Sono’s service and distribution network
      encompasses all of China. Sono’s marketing team maintains close and stable
      relationships with mobile communication service carriers and continually
      receives orders from clients. The marketing team established its own
      distribution network. Sono also has a technical team which has complete
      experience in perambulating, designing, implementing, and maintaining mobile
      networks. Sono provides various service and technical support to our
      clients.





***Competition***





Sono
      owns
      10% of the optimizing mobile communication market. There are many potential
      mobile service subscribers in rural areas, however mobile signal coverage in
      the
      area is relatively small. In order to meet substantial demands of mobile service
      in rural areas, China Mobile and China Unicom increased its investment to
      improve mobile communication network in rural areas. Base station series
      products were ranked best in enlarging network coverage in 2006. Hunan Province
      Branch of China Mobile and Henan Province Branch of China Mobile consistently
      ranked Sono’s products as the most reliable and the best quality.





***Principal
      Supplier***





We
      rely
      on one supplier for our products and services, Beijing Yingmei Telecommunication
      Technology Co., Ltd.





***Dependence
      on One or a Few Customers***





In
      2006,
      our five largest customers represented approximately 51% of our total sales.
      The
      following table sets forth information regarding our five largest
      customers.





**MAJOR
                CUSTOMERS****Customer
                Name**
            
            **Percentage
                of Total Revenue for 2006**Hunan
                Province Branch of China Mobile Communication Corporation
            
            
            8.20
            %Henan
                Province Branch of China Mobile Communication Corporation
            
            
            11.80
            %Shanxi
                Province Branch of China Mobile Communication Corporation
            
            
            11.80
            %Heilongjiang
                Province Branch of China Mobile Communication Corporation
            
            
            10.50
            %Lishui
                of Zhejiang Province Branch of China Mobile Communication
                Corporation
            
            
            8.60
            %




8


***Governmental
      Approval and Regulations***





The
      Chinese government requires us to obtain certain licenses and certifications
      for
      our mobile communications products and services. The following certificates
      and
      permits were issued to us by the Chinese government:




1.
            GSM
                900MHZ base station amplifier (model number: GRSN-BPA900-I) authentication
                issued by the Ministry of Information Industry of the People's Republic
                of
                China. Certificate Number: 2002-694 Expiration date:
                7/26/2007




***Research
      and Development***





For
      the
      last two fiscal years, we did not spend anything on research and development
      activities.





**Doing
      Business in China**





*The
      Chinese Legal System*





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 designate 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 such as E'Jenie.





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.




9




·
            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.





·
            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, 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.




**Employees**





As
      of
      December 31, 2006, we had 6 employees, 4 of which are executive officers and
      2
      administrative personnel. E'Jenie had nine divisions with 596 employees in
      total, 39 of which are supervisors, 17 of which are administrative officers,
      5
      of which are in marketing and 470 of which are on the production lines. Sono
      Digital had 18 Employees in total, 5 of which are administrative officers,
      12 of
      which are engineers, 1 of which are marketing representative. We consider our
      relationships with our employees to be good. As of December 31, 2006, Sono
      has
      18 full-time employees. Chinese labor laws require us to provide to all of
      our
      employees certain benefits and insurance.





**Item
                2.**
            **Description
                of Property.**




Our
      manufacturing headquarters is located at A-3 Xinglian Industrial Zone, He Hua
      Ling Pingxin Road, Xin Nan, Ping Hua Town, Longgang, Shenzhen, China 51811.
      This
      facility is 6,708 square meters of which 15% or 1,000 square meters is used
      for
      offices, 4,500 square meters are used for the manufacturing line and storage
      and
      the remaining 1,208 square meters are used for employee dormitories. Our lease
      is for a term of one year and our rent is approximately $6,700 a month. In
      February 2005, we opened our first office in the United States. The Los
      Angeles-based office is located at 1901 Avenue of the Stars, Suite 201. Our
      lease was for a term of one year and our rent is $1,225 a month. The lease
      expired January 31, 2007. We then moved our office to 225 S. Lake Ave., Suite
      300, Pasadena 91101. Our lease is for a term of one year and our rent is $1,400
      per month.





We
      believe the facilities we occupy are adequate for the purposes for which they
      are currently used and are well maintained.





**Item
                3.**
            **Legal
                Proceedings.**




Neither
      the Company nor any of its subsidiaries is a party to any pending or threatened
      legal proceedings.





**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders.**




There
      were no matters submitted to a vote of security holders in the fourth quarter
      of
      the fiscal year ended December 31, 2006.




10


**PART
      II**





**Item
                5.**
            **Market
                for Common Equity and Related Stockholder
                Matters.**




**Market
      Information**





Our
      Common Stock is currently quoted on the OTCBB under the symbol “CHID”. There is
      a limited trading market for our Common Stock. The following table sets forth
      the range of high and low bid quotations for each quarter within the last two
      fiscal years and the subsequent interim period. These quotations as reported
      by
      the OTCBB reflect inter-dealer prices without retail mark-up, mark-down, or
      commissions and may not necessarily represent actual transactions.




**Closing
                Bid****YEAR
                2005**
            
            **High
                Bid**
            
            **Low
                Bid**1stQuarter Ended March 31
            
            $
            1.500
            
            $
            0.7602ndQuarter Ended June 30
            
            $
            1.450
            
            $
            0.3063rdQuarter Ended September 30
            
            $
            1.870
            
            $
            0.3804thQuarter Ended December 31
            
            $
            0.540
            
            $
            0.380**YEAR
                2006**
            
            
            **High
                Bid**
            
            
            **Low
                Bid**1stQuarter Ended March 31
            
            $
            0.700
            
            $
            0.3672ndQuarter Ended June 30
            
            $
            1.185
            
            $
            0.4113rdQuarter Ended September 30
            
            $
            0.620
            
            $
            0.2084thQuarter Ended December 31
            
            $
            0.445
            
            $
            0.192**YEAR
                2007**
            
            
            **High
                Bid**
            
            
            **Low
                Bid**Period
                Ended March 29
            
            $
            0.285
            
            $
            0.200





**Holders**





As
      of
      March 30, 2007 in accordance with our transfer agent records, we had 115 record
      holders of our Common Stock, holding 54,406,626 shares.





**Dividends**





Holders
      of our common stock are entitled to receive dividends if, as and when declared
      by the Board of Directors out of funds legally available therefore. We have
      never declared or paid any dividends on our common stock. We intend to retain
      any future earnings for use in the operation and expansion of our business.
      Consequently, we do not anticipate paying any cash dividends on our common
      stock
      to our stockholders for the foreseeable future.





**Recent
      Sales of Unregistered Securities**





Except
      as
      previously disclosed in our quarterly reports on Form 10-QSB and current reports
      on Form 8-K, we did not sell or issue any shares of stock.





**Securities
      Authorized for Issuance Under Equity Compensation Plan**





**Equity
      Compensation Plan Information**





**Plan
                Category**
            
            **Number
                of Securities to be Issued Upon Exercise of Outstanding Options,
                Warrants
                and Rights**
              **(a)**
            
            **Weighted-Average
                Exercise Price of Outstanding Options, Warrants and
                Rights**
              **(b)**
            
            **Number
                of Securities Remaining Available for Future Issuance Under Equity
                Compensation Plans (excluding securities reflected in column
                (a))**
              **(c)**Equity
                Compensation Plans Approved by Security Holders
            
            
            0
            
            
            0
            
            
            0Equity
                Compensation Plans Not Approved by Security Holders
            
            
            100,000
            (1)
            
            
            
            
            0**Total**
            
            
            **100,000**
            (1)
            
            
            
            
            **0**





(1)
            Represents
                options granted to Albert Simon, a former director of us, to purchase
                100,000 shares of our comment stock at an exercise price equal to
                115% of
                the average daily closing bid price of our common stock for the 60
                days
                prior to November 4, 2005. The options expire on November 3,
                2010.




11


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




The
      following management discussion and analysis of financial condition and results
      of operations (“MD&A”) should be read in conjunction with the December 31,
      2006 consolidated financial statements and notes. The discussion of results,
      causes and trends should not be construed to imply any conclusion that such
      results or trends will necessarily continue in the future.





The
      information contained in this MD&A, other than historical information,
      contains “forward looking statements” within the meaning of The Private
      Securities Litigation Reform Act of 1995 that are based on management’s current
      expectations and assumptions. This MD&A should be read in conjunction with
      the sections entitled “Additional Factors That May Affect Future Results” and
“Forward-Looking Statements.”





**OVERVIEW**




China
      Digital Communication Group (the “Company”) was incorporated under the laws of
      the State of Nevada on March 27, 2001. On September 30, 2004, the Company
      entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion).
      Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
      Science and Technology Company, Limited (E’Jenie). Billion, was incorporated
      under the laws of the British Virgin Islands on July 27, 2004. Shenzhen E’Jenie
      Science & Technology Company Limited was legally established on July 8, 2002
      under the laws of the Peoples’ Republic of China (PRC). On June 28, 2006, the
      Company finalized an Exchange Agreement with Galaxy View International, Ltd
      (Galaxy View). Galaxy View owns all of the issued and outstanding shares of
      Shenzhen Sono Digital Technologies Company Limited (Sono). Galaxy View was
      incorporated under the laws of the British Virgin Islands on August 22, 2005.
      Sono was legally established on May 29, 2001 under the laws of the Peoples’
Republic of China.





On
      September 30, 2004, the Company entered into an Exchange Agreement with Billion.
      Pursuant to the Exchange Agreement, the Company agreed to purchase all of the
      issued and outstanding shares of Billion for approximately $1,500,000 in cash
      and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the
      total issued and outstanding shares.




On
      June
      28, 2006, the Company finalized an Exchange Agreement with Galaxy View
      International Ltd. (“Galaxy View”, the Company and the shareholders of Galaxy
      View (the “Shareholders”). Pursuant to the Exchange Agreement, the Company
      acquired 100% of Galaxy View in a cash and stock transaction valued at
      approximately $6,787,879. Under the terms of the Agreement, the Company will
      pay
      to the Shareholders $3,000,000 million in cash and deliver 7,575,757
      unregistered shares of China Digital preferred stock valued at approximately
      $3,787,879.





The
      Company performed an impairment test related to goodwill arising from its
      acquisitions of E’Jenie and Galaxy View and concluded that there was impairment
      as to the carrying value of goodwill as of December 31, 2006 for Galaxy View.
      The Company evaluated value of the subsidiary based upon market value and
      expected present value of future cash flows and recorded an impairment of
      $3,779,181.





The
      Company prepares annual forecasts and is reviewed and modified as needed
      annually. The Company tests for impairment annually after the third quarter
      or
      as needed. During the first quarter of 2007, our two largest customers, China
      mobile and China Unicom changed their purchase procedures. In the past, purchase
      orders were made by their local branch offices based on their needs and demand.
      The change now only allowed their main head office to place purchase orders
      from
      their selected vendors. They evaluated all vendors based on their criteria
      and
      unfortunately Sono Digital was not selected as one of their vendors. With the
      loss of the two largest users of our products, the fact that the telecom
      industry in China was a monopoly, there was no longer a market for our
      products.





Once
      the
      decision was made by our two largest customers, the Company discussed and
      considered selling Galaxy View.





**RESULTS
      OF OPERATIONS**




The
      following table presents the statement of operations for the year ended December
      31, 2006 as compared to the comparable period of the year ended December 31,
      2005. The discussion following the table is based on these results.




12





**2006**
            
            **2005**Sales,
                net
            
            $
            12,215,376
            
            $
            12,742,088Cost
                of sales
            
            
            7,980,579
            
            
            8,971,859**Gross
                profit**
            
            
            4,234,797
            
            
            3,770,229Operating
                ExpensesSelling
                expense
            
            
            20,810
            
            
            165,780General
                and administrative expenses
            
            
            1,473,580
            
            
            1,202,359Goodwill
                impairment
            
            
            3,779,181
            
            
            1,213,843Total
                operating expenses
            
            
            5,273,571
            
            
            2,581,982**Income
                from operations**
            
            
            (1,038,774
            )
            
            1,188,248Other
                (Income) ExpenseInterest
                income
            
            
            (25,027
            )
            
            (3,877
            )Miscellaneous
                income
            
            
            (7,094
            )
            
            -Interest
                expense
            
            
            172,830
            
            
            32,856Total
                Other Income
            
            
            140,709
            
            
            28,979**Income
                before income taxes**
            
            
            (1,179,483
            )
            
            1,159,269Provision
                for income taxes
            
            
            74,887
            
            
            111,773**Net
                income**
            
            $
            (1,254,370
            )
            $
            1,047,496




**Net
      sales**




Net
      sales
      for the year ended December 31, 2006 totaled $ 12,215,376
      compared to $ 12,742,088
      for the year ended December 31, 2005, a
      decrease of $ 526,712
      or approximately 4.1%.





Total
      sales from E’Jenie were $9,854,954 in 2006 as compared to $12,742,088 in 2005, a
      decrease of $2,887,134 or approximately 22.7%. The decrease in sales for E’Jenie
      was due to decrease in demand from our customers as a result of increased
      competition but also due to the appreciation of our local currency (RMB), cost
      of raw material and the change in export policy by China Government. All of
      our
      customers lost some purchase orders from abroad as result of those reason and
      had to find other vendors who could offered products at a lower price, but
      also
      lower quality.





In
      accordance with SFAS 141, paragraph 51b and 58a the primary reasons for the
      acquisition was to diversify the Company and to acquire another line of business
      with proven growth and profitability. The acquisition of Galaxy View increased
      our net sales by $2,360,422 since June 28, 2006.




**Cost
      of Sales**




Total
      cost of sales for the year ended December 31, 2006 was $7,980,579 or
      approximately 65.3% of net sales compared to $8,971,859 for the year ended
      December 31, 2005, a decrease of $991,280 or approximately 11%.





Total
      cost of sales for E’Jenie was $6,986,873 in 2006 as compared to $8,971,859 in
      2005, a decrease of $1,984,986 or approximately 22.1%. The decrease was due
      to
      decrease in net sales for E’Jenie for the year ended December 31,
      2006.





Total
      cost of sales for Galaxy was $993,706 since the date of acquisition on June
      28,
      2006 or approximately 42.1% of net sales for Galaxy View.




**Operating
      Expenses**




Operating
      expenses for the year ended December 31, 2006 totaled $5,273,571 or
      approximately 43.2% of net sales compared to $2,581,982 or approximately 20.3%
      for the year ended December 31, 2005, an increase of $2,691,589 or approximately
      104.2%. The increase in operating expenses was primarily due to the impairment
      loss of $3,779,181 for the year ended December 31, 2006 and due to the increase
      in accounting and, legal, and other professional fees related to the SEC comment
      letters related to our financial statements and additional general and
      additional expense from Sono of $150,135 that was not included in the December
      31, 2005 numbers.





The
      Company in 2006 recognized impairment loss of $3,779,181 as compared to
      $1,213,843 in 2005. The impairment loss for 2006 was primarily due to the
      restructuring of their purchasing procedures for two of our largest customers,
      China mobile and China Unicom. In late 2006, these customers decided to
      restructure their purchase procedures to take all of their purchase order from
      their local branch offices to their main office. The change will have
      significant impact on our future revenue as new contacts and relationships
      will
      have to be made and also because we will be competing with other vendors, who
      already have established business relationship with the main
      office.





In
      2005,
      the Company recognized impairment loss of $1,213,843 due to increased
      competition in pricing and market share, and also due to the decrease in
      operating profits and cash flows that were originally forecasted; the Company
      revised the future forecasts. Based on the revised forecasts, a goodwill
      impairment loss of $1,213,843 was recognized as of December 31,
      2005.




**Income
      (Loss) from Operations**




Income
      (loss) from operations for the year ended December 31, 2006 totaled $(1,038,774)
      or approximately 8.56% of net sales compared to $1,188,248 or approximately
      9.3%
      for the year ended December 31, 2005, a decrease of $2,227,022 or approximately
      187.4%. The decrease was due primarily due to the impairment loss and increased
      operating expenses recognized in 2006.


13


**Interest
      Expense**




Interest
      expense for the year ended December 31, 2006 totaled $172,830 compared to
      $32,856 for the year ended December 31, 2005, an increase of $139,974 or
      approximately 426%. The increase was due to loan obtained for the acquisition
      of
      Galaxy and Sono.




**Net
      Income (Loss)**




Net
      income (loss) for the year ended December 31, 2006 totaled $(1,254,370) compared
      to $1,047,496 for the year ended December 31, 2005, a decrease of $2,301,866
      or
      approximately 219.8%. The decrease in net income was due primarily due to the
      impairment loss and increased operating expenses recognized in 2006 as described
      above.





**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      discussions on the liquidity and capital resource are from the statement of
      cash
      flow, which includes the beginning balance for Galaxy View from the date of
      acquisition, June 28, 2006. The changes in balance on the consolidate balance
      sheet for 2005 and 2006 will not agree with the changes discussed in this
      section.




Our
      primary source of liquidity as of December 31, 2006 is our cash on hand and
      accounts receivable. Net cash provided by operations for the year ended December
      31, 2006 was $2,195,422 as compared to net cash provided by operations of
      $2,087,181 during the same period in 2005. The increase in net cash provided
      by
      operating activities was a result of the decrease in accounts receivable and
      increased in accounts payable. Our cash and cash equivalents were $1,074,835
      and
      $2,061,213 as of December 31, 2006 and 2005, respectively. Our current assets
      totaled $5,523,446 on December 31, 2006. Our current liabilities were
      $1,270,564on December 31, 2006. Working capital was $4,252,882 as of December
      31, 2006.





Net
      cash
      used in investing activities totaled $3,327,187for the year ended December
      31,
      2006, compared with $535,843 for the same period in 2005. The net cash change
      was $(986,378) and $1,624,087 for the year ended December 31, 2006 and 2005,
      respectively.




The
      accounts receivable did increase from $2.2 million as of December 31, 2005
      to $4
      million as of December 31, 2006. The increase was due to the additional accounts
      receivable balance from Galaxy that was not included in 2005.




**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 its 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.




There
      are
      no off-balance sheet arrangements.




**Item
                7.**
            **Financial
                Statements.**




Our
      financial statements begin on page F-1 below.





**Item
                8.**
            **Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure.**




As
      reported in our Form 8-K filed January 18, 2006, effective as of January 12,
      2006, we dismissed Lichter, Yu & Associates ("Lichter") as our independent
      registered public accounting firm, and engaged Kabani & Company, Inc.
      ("Kabani") as our new independent registered public accounting firm. The change
      in independent registered public accounting firm is not the result of any
      disagreement with Lichter.


14




**Item
                8A.**
            **Controls
                and Procedures.**




**Evaluation
      of Disclosure Controls and Procedures**





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
      Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2006. Based
      on this evaluation, our principal executive officer and principal financial
      officer have concluded that our disclosure controls and procedures were
      ineffective.





**Changes
      in Internal Controls**





There
      were no changes (including corrective actions with regard to significant
      deficiencies or material weaknesses) in our internal controls over financial
      reporting that occurred during the fiscal year ended December 31, 2006 that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.





**Item
                8B.**
            **Other
                Information.**




None.





**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 executive
      officers and directors as of March 30, 2007.





**Name**
            
            **Age**
            
            **Position**
            
            **Date
                of Appointment**Zhongnan
                Xu
            
            59
            
            Chief
                Executive Officer and Chairman
            
            January
                4, 2007Yu
                Xi Sun
            
            32
            
            President
                and Director
            
            February
                23, 2006Jiangcheng
                Wu
            
            47
            
            Chief
                Financial Officer
            
            January
                5, 2007Mei
                Jin Bin
            
            28
            
            Secretary
            
            December
                2, 2003Xu
                Bao Dong
            
            35
            
            Director
            
            February
                18, 2004





Set
      forth
      below is a brief description of the background and business experience of our
      executive officers and directors for the past five years (and, in some
      instances, for prior years).





**Zhongnan
      Xu** has
      over
      40 years experience in manufacturing and management. He graduated from Wuhan
      Steel Institute where he earned a Bachelor of Science degree. He served as
      the
      Secretary of the Youth Union of Er Cheng Steel Manufactory for 5 years,
      supervising 3⁄4 of total employees’ of the Manufactory. Later as CEO of Er Cheng
      Magnet Steel Manufactory, Mr. Xu dedicated himself in developing new products
      and using leading technology to maintain the products’ competitive advantage. He
      served as the CEO of Er Cheng Magnet Steel Manufactory for 12 years. He also
      served as a CEO for Er Cheng Machinery Manufactory for 6 years. Mr. Xu served
      as
      a director of Enterprise Management Committee of Dingzu town of Er Zhou city
      for
      5 years. Mr. Xu founded Yi Xiang Chemical Co., Ltd. (Yi Xiang) and served as
      a
      CEO of the company for 7 years. From 2002 until now, Mr. Xu served as General
      Manager of Shenzhen E'Jenie Science and Technology Co., Ltd., during which
      term
      he devoted himself to develop new technology and maintain the distribution
      network for E’jenie.




15


**Yu
      Xi Sun** served
      as Vice President of Shenzhen E'Jenie Science and Technology Development Co.,
      Ltd. from December 2004 to February 2006, Assistant President from September
      2003 to December 2004 and Marketing Manager from May 2002 to August 2003. From
      January 2001 to April 2002 Ms. Sun was Marketing Director of the Eastern China
      Area at Shenzhen City Li Ke Energy Co., Ltd., and from July 1999 to December
      2000 was Legal Counsel for Hubei Xing Yuan Battery Co., Ltd. Ms. Sun earned
      an
      M.S. in Law from Hubei University.





**Jiangcheng
      Wu** served
      as a former CFO of Shenzhen Xie Fu Shun Co., Ltd. She was the CFO of Shenzhen
      Wan De Plastic Manufacturing Co., Ltd. from 1991 to 2000. From 1990 to 1991,
      she
      was an accounting manager of Shenzhen Chaoyin Electric Co., Ltd. Ms. Wu
      graduated in accounting major from Hu Bei Economic and Management Institute
      after 1990.





**Mei
      Jin Bin** has
      served as the Secretary of China Digital since February 2004. From February
      2002
      through June 2003 she was the executive general manager of Shenzhen E'Jenie
      Science and Technology Development Co., Ltd.From August 1999 January 2002 she
      served as the Executive Secretary of Shenzhen Gao Yi Electronic Co. Ltd. She
      is
      a graduate of Hubei Province Huangshi City Professional Institute.





**Xu
      Bao Dong** has
      served as a director of China Digital since February 2004. Since March 2003
      he
      served as Vice President at Shenzhen Heng Tian Tong Communication Equipment
      Inc.
      From August 2001 through February 2003 he served as the Marketing Director
      at
      Shenzhen Li Gao Electronics. From July 1999 until July 2001 he served as
      Marketing Director at Shenzhen Blue Hope Electronic Co., Ltd. He holds a
      Bachelors of Science degree from degree from Shenzhen University.




**Term
      of Office**




Our
      directors are appointed for a one-year term to hold office until the next annual
      general meeting of our shareholders or until removed from office in accordance
      with our bylaws. Our officers are appointed by our board of directors and hold
      office until removed by the board.





**Audit
      Committee**





The
      Company has an audit committee charter. The audit committee: (i) appoints the
      Company's independent auditors and monitors the independence of the Company's
      independent auditors; (ii) reviews the Company's policies and procedures on
      maintaining its accounting records and the adequacy of its internal controls;
      (iii) reviews management's implementation of recommendations made by the
      independent auditors and internal auditors; (iv) considers and pre-approves
      the
      range of audit and non-audit services performed by independent auditors and
      fees
      for such services; and (v) reviews and votes on all transactions between the
      Company and any of its officers, directors or other affiliates.





Xu
      Bao
      Dong serves on our audit committee and is an independent director.





**Code
      of Ethics**





We
      have
      adopted a Code of Ethics that applies to our principal executive officer and
      senior financial officers. Please see Item 13, Exhibit 14.1.





**Significant
      Employees**





None.





**Family
      Relationships**





No
      family
      relationships exist among our directors or executive officers.





**Involvement
      in Certain Legal Proceedings**




To
      our
      knowledge, during the past five years, none of our directors, executive
      officers, promoters, control persons, or nominees has been:




·
            the
                subject of any bankruptcy petition filed by or against any business
                of
                which such person was a general partner or executive officer either
                at the
                time of the bankruptcy or within two years prior to that time;




16





·
            convicted
                in a criminal proceeding or is subject to a pending criminal proceeding
                (excluding traffic violations and other minor offenses);





·
            subject
                to any order, judgment, or decree, not subsequently reversed, suspended
                or
                vacated, of any court of competent jurisdiction, permanently or
                temporarily enjoining, barring, suspending or otherwise limiting
                his
                involvement in any type of business, securities or banking activities;
                or





·
            found
                by a court of competent jurisdiction (in a civil action), the Commission
                or the Commodity Futures Trading Commission to have violated a federal
                or
                state securities or commodities law.





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




Section
      16(a) of the Securities Exchange Act of 1934 requires the Company's officers
      and
      directors, and persons who own more than 10 percent of a registered class of
      the
      Company's equity securities, to file reports of ownership and changes in
      ownership with the Securities and Exchange Commission (SEC). Officers,
      directors, and greater than 10 percent stockholders are required by SEC
      regulation to furnish the Company with copies of all Section 16(a) forms they
      file.





To
      the
      Company's knowledge, based solely on a review of the copies of such reports
      furnished to the Company, all reports under Section 16(a) required to be filed
      by its officers and directors and greater than ten percent beneficial owners
      were timely filed as of the date of this filing.




**Item
                10.**
            **Executive
                Compensation.**





**Compensation
      of Executive Officers**




The
      following summary compensation table sets forth all compensation awarded to,
      earned by, or paid to the named executive officers paid by us during the fiscal
      years ended December 31, 2006 and 2005 in all capacities for the accounts of
      our
      executives, including the Chief Executive Officer (CEO) and Chief Financial
      Officer (CFO):





**SUMMARY
      COMPENSATION TABLE**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock
                Awards**
              **($)**
            
            **Option
                Awards**
              **($)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
            
            **Non-Qualified
                Deferred Compensation Earnings**
              **($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Totals**
              **($)**Zhongnan
                Xu,(1)
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Chief
                Executive Officer
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Jiangcheng
                Wu,(2)
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Chief
                Financial Officer
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Yu
                Xi Sun,(3)
            
            
            2006
            
            
            50,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            50,000Former
                CEO
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Ran
                Liang,(4)
            
            
            2006
            
            
            17,500
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            17,500Former
                CEO
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Sara
                Shao,(5)
            
            
            2006
            
            
            15,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            15,000Former
                CFO
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Su
                Yi Zheng,(6)
            
            
            2006
            
            
            15,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            15,000Former
                COO
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Yi
                Bo Sun,(7)
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Former
                CEO and President
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0





(1)
            Zhongnan
                Xu was appointed as our Chief Executive Officer on January 4, 2007
                and was
                not previously an officer of us.




17




(2)
            Jiangcheng
                Wu was appointed as our Chief Financial Officer on January 4, 2007
                and was
                not previously an officer of us.(3)
            Yu
                Xi Sun was appointed as our President on February 23, 2006 and earned
                a
                monthly salary of.$5,000 for 10 months in 2006.(4)
            Ran
                Liang served as our CEO from May 30, 2006 until his resignation on
                January
                4, 2007 as CEO and Director. Mr. Liang earned a monthly salary of
                $2,500
                for 7 months.(5)
            Sara
                Shao served as our CFO from July 10, 2006 until her resignation on
                January
                5, 2007. Ms. Shao earned a monthly salary of $2,500 for 6
                months.(6)
            Su
                Yi Zheng served as our COO from July 10, 2006 until her resignation
                on
                January 5, 2007. Ms. Zheng earned a monthly salary of $2,500 for
                6
                months.(7)
            Yi
                Bo Sun served as our CEO and President from 2004 until resigning
                on
                February 23, 2006.





**Outstanding
      Equity Awards at Fiscal Year-End Table.** There
      were no individual grants of stock options to purchase our common stock made
      to
      the named executive officers in the Summary Compensation Table during the fiscal
      year ended December 31, 2006, and the subsequent period up to the date of the
      filing of this prospectus.




**Employment
      Agreements**




None
      of
      our executive officers have employment agreements.




**Compensation
      of Directors**




For
      the
      fiscal year ended December 31, 2006, we did not compensate our directors for
      their services.




**Item
                11.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.**





The
      following table sets forth certain information regarding the ownership of our
      capital stock, as of March 30, 2007, for: (i) each director; (ii) each person
      who is known to us to be the beneficial owner of more than 5% of our outstanding
      common stock; (iii) each of our executive officers named in the Summary
      Compensation Table; and (iv) all of our current executive officers and directors
      of as a group. Except as otherwise indicated in the footnotes, all information
      with respect to share ownership and voting and investment power has been
      furnished to us by the persons listed. Except as otherwise indicated in the
      footnotes, each person listed has sole voting power with respect to the shares
      shown as beneficially owned.





**Title
                of Class**
            
            **Name
                and Address of Beneficial Owner**
            
            **Amount
                and Nature of Beneficial Ownership**
            
            **Percent
                of**
              **Class****(2)**Common
                Stock
            
            
            Zhongnan
                Xu(1)
            
            
            —
            
            
            —Common
                Stock
            
            
            Yu
                Xi Sun(1)
            
            
            651,000
            
            
            1.2
            %Common
                Stock
            
            
            Jiangcheng
                Wu(1)
            
            
            —
            
            
            —Common
                Stock
            
            
            Mei
                Jin Bin(1)
            
            
            **—**
            
            
            **—**Common
                Stock
            
            
            Xu
                Bao Dong(1)
            
            
            **—**
            
            
            **—****Common
                Stock**
            
            
            **All
                officers and directors as a group****(5
                in number)**
            
            
            **651,000**
            
            
            **1.2**
            **%**





(1)
            The
                person listed is an officer and/or director of the Company and the
                address
                for each beneficial owner is Number 2222, Jin Tian Road, An Lian
                Building
                15th Floor A-01 and A-02, Futian Shenzhen, China 51811.(2)
            Based
                on 54,460,626 shares of Common Stock issued and outstanding as of
                March
                30, 2007.




18





**Item
                12.**
            **Certain
                Relationships and Related
                Transactions.**




None.




**Item
                13.**
            **Exhibits.**




**Exhibit No.**
            
            **Title
                of Document**
            
            **Location**2.1
            
            Share
                Exchange Agreement, dated February 14, 2006, between us, UPE Limited
                (Far
                East), Shenzhen Zhuo Tong Power Supply Industry Co., Ltd., and the
                shareholders of UPE Limited
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed February 21,
                20062.2
            
            Amended
                and Restated Share Exchange Agreement, dated March 22, 2006, between
                us,
                Galaxy View International Ltd., Shenzhen Sono, and the shareholders
                of
                Galaxy View International Ltd.
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed March 24,
                20062.3
            
            Share
                Exchange Agreement and Plan or Reorganization
            
            Incorporated
                by reference as Exhibit 10.1 to Form 8-K filed September 29,
                20043.1.1
            
            Articles
                of Incorporation
            
            Incorporated
                by reference as Exhibit 3(i)(1) to Form 8-K filed September 16,
                20043.1.2
            
            Amendment
                to Articles of Incorporation
            
            Incorporated
                by reference as Exhibit 3(i)(2) to Form 8-K filed September 16,
                20043.1.3
            
            Amendment
                to Articles of Incorporation
            
            Incorporated
                by reference as Exhibit 3(i)(3) to Form 8-K filed September 16,
                20043.1.4
            
            Certificate
                of Designation of Series A Convertible Preferred Stock
            
            Incorporated
                by reference as Exhibit 3(i) to Form 8-K filed July 28,
                20063.2
            
            Bylaws
            
            Incorporated
                by reference as Exhibit 3.4 to Form SB-2/A filed March 22,
                20024.1
            
            Form
                of Stock Certificate
            
            Incorporated
                by reference as Exhibit 4.1 to Form SB-2/A filed March 22,
                20024.2
            
            2004
                Equity Incentive Plan
            
            Incorporated
                by reference as Exhibit 4.1 to Form S-8 filed March 2,
                20044.3
            
            Form
                of Class A, B and C Warrants
            
            Incorporated
                by reference as Exhibit 4.3 to Form 10-KSB filed March 30,
                20064.4
            
            Form
                of Subscription Agreement dated March 17, 2004 by and among Jasmine's
                Garden and the Investors
            
            Incorporated
                by reference as Exhibit 4.1 to Form 8-K filed March 22,
                200410.1
            
            Sales
                Contract dated April 21, 2005 between Shenzhan E'Jenine Science &
                Technology Co., LTD. and Shenzhen Gao Yi Electonics Co.
                LTD.
            
            Incorporated
                by reference as Exhibit 10.1 to Form 8-K filed April 22,
                2005




19





10.2
            
            Sales
                Contract dated July 12, 2005 between Shenzhan E'Jenine Science &
                Technology Co., LTD. and Wuhan Jie Xin Communication Development
                Co.,
                LTD.
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed July 14,
                200510.3
            
            Sales
                Contract dated December 31, 2005 between Shenzhan E'Jenine Science
&
                Technology Co., LTD. and Yin Si Qi Electronics Co.
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed January 6,
                200610.4
            
            Loan
                Agreement dated March 10, 2006, between us and United Private Equity
                (The
                Pacific) Limited
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed March 15,
                200614.1
            
            Code
                of Ethics
            
            Incorporated
                by reference as Exhibit 14.1 to Form 10-KSB filed March 30, 200621.1
            
            Subsidiaries
            
            Filed
                herewith31.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002
            
            Filed
                herewith31.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith




**Item
                14.**
            **Principal
                Accounting Fees and
                Services.**




**Audit
      Fees**




2006





The
      aggregate fees billed by our auditors, Kabani & Company, Inc., for
      professional services rendered for the audit of our annual financial statements
      for the fiscal year ended December 31, 2006 were, and for professional services
      rendered for the reviews of the financial statements included in our Quarterly
      Reports on Form 10-QSB during fiscal year 2006 were $50,000.





2005





The
      aggregate fees billed by our auditors, Kabani & Company, Inc., for
      professional services rendered for the audit of our annual financial statements
      for the year ended December 31, 2005 were $32,000.





The
      aggregate fees billed by our former auditors, Lichter, Yu & Associates, 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
      $24,750.




**Tax
      Fees**




For
      our
      fiscal years ended December 31, 2006 and 2005, we were not billed for
      professional services rendered for tax compliance, tax advice, and tax
      planning.




**All
      Other Fees**




The
      Company did not incur any other fees related to services rendered by our
      principal accountant for the fiscal years ended December 31, 2006 and
      2005.




20





**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**CHINA
                DIGITAL COMMUNICATION GROUP**By:
            */s/
                Zhongnan Xu*ZHONGNAN
                XU
              President,
                Chief Executive Officer,
              Chief
                Financial OfficerDate:
            April
                25, 2008




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**Name**
            
            **Title**
            
            **Date***/s/
                Zhongnan Xu*
            
            Chief
                Executive Officer and Chairman of the Board of Directors
            
            April
                25, 2008ZHONGNAN
                XU*/s/
                Jiangcheng Wu*
            
            Chief
                Financial Officer
            
            April
                25, 2008JIANGCHENG
                WU*/s/
                Xu Bao Dong*
            
            Secretary
            
            April
                25, 2008XU
                BAO DONG




21










**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**DECEMBER
      31, 2006**















**TABLE
      OF CONTENTS**


****


Report
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheet (Restated)
            F-2Consolidated
                Statements of Operations (Restated)
            F-3Consolidated
                Statements of Cash Flow (Restated)
            F-4Consolidated
                Statements of Changes in Stockholders’ Equity/(Deficit)
                (Restated)
            F-5Notes
                to Consolidated Financial Statements
            F-6_F-26









Report
      of
      Independent Registered Public Accounting Firm




Board
      of
      Directors and Stockholders of


China
      Digital Communication Group and Subsidiaries, Inc.





We
      have
      audited the accompanying consolidated balance sheet of China Digital
      Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
      31, 2006, and the related consolidated statements of operation, stockholders'
      equity/(deficit), and cash flows for the years ended December 31, 2006 and
      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 audits 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 audits 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
      Digital Communication Group and Subsidiaries, Inc. as of
      December 31, 2006, and the consolidated results of their operations and their
      consolidated cash flows for the years ended December 31, 2006 and 2005, in
      conformity with U.S. generally accepted accounting principles.




As
      discussed in Note Q, the financial statements for the years ended December
      31,
      2006 and 2005 have been restated.







/s/
      Kabani & Company, Inc.


**Certified
      Public Accountants**





Los
      Angeles, California


March
      10,
      2007, except for Note C, F, K, M, N, Q and R, which is as of August 19,
      2007




F-1


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **December
        31, 2006**
 **(Restated)**


**ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              1,074,835Accounts
                  receivable, net
              
              
              4,093,717Inventory
              
              
              283,724Prepaid
                  expenses
              
              
              16,175Other
                  receivables
              
              
              54,995Total
                  Current Assets
              
              
              5,523,446**Property
                  & Equipment, net**
              
              
              1,120,570**Other
                  Assets**Deposits
              
              
              3,100Amortizable
                  intangible assets, net
              
              
              3,132,812Goodwill
              
              
              8,362,321Total
                  Other Assets
              
              
              11,498,233**Total
                  Assets**
              
              $
              18,142,249**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable and accrued expenses
              
              $
              837,545Loan
                  payable to related party
              
              
              174,600Note
                  payable
              
              
              256,400Unearned
                  revenue
              
              
              2,019Total
                  Current Liabilities
              
              
              1,270,564**Stockholders'
                  Equity**Common
                  stock, $.001 par value, 140,000,000shares
                  authorized, 54,460,626 issued and outstanding
              
              
              54,460Preferred
                  stock, $.001 par value, 7,575,757shares
                  authorized, 7,575,757, issued and outstanding
              
              
              7,576Additional
                  paid in capital
              
              
              16,887,627Statutory
                  reserve
              
              
              289,931Other
                  comprehensive income
              
              
              369,287Accumulated
                  deficit
              
              
              (737,196
              )Total
                  Stockholders' Equity
              
              
              16,871,685**Total
                  Liabilities and Stockholders' Equity**
              
              $
              18,142,249




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


F-2


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Restated)**


**2006**
                
                **2005**Sales,
                    net
                
                $
                12,215,376
                
                $
                12,742,088Cost
                    of sales
                
                
                7,980,579
                
                
                8,971,859**Gross
                    profit**
                
                
                4,234,798
                
                
                3,770,229Selling
                    expense
                
                
                20,810
                
                
                165,780General
                    and administrative expenses
                
                
                1,473,580
                
                
                1,202,359Impairment
                
                
                3,779,181
                
                
                1,213,843Total
                    operating expenses
                
                
                5,273,571
                
                
                2,581,982**Income
                    (loss) from operations**
                
                
                (1,038,773
                )
                
                1,188,248Other
                    (income) expenseInterest
                    income
                
                
                (25,027
                )
                
                (3,877
                )Miscellaneous
                    expense
                
                
                (7,093
                )
                
                -Interest
                    expense
                
                
                172,830
                
                
                32,856Total
                    other expense
                
                
                140,710
                
                
                28,979**Income
                    (loss) before income taxes**
                
                
                (1,179,483
                )
                
                1,159,269Provision
                    for income taxes
                
                
                74,887
                
                
                111,773Net
                    income (loss)
                
                
                (1,254,370
                )
                
                1,047,496Other
                    comprehensive incomeForeign
                    currency translation
                
                
                307,605
                
                
                61,682**Comprehensive
                    income (loss)**
                
                $
                (946,765
                )
                $
                1,109,178**Net
                    income (loss) per share:**Basic
                    & diluted
                
                $
                (0.02
                )
                $
                0.02**Weighted
                    average number of shares outstanding:**Basic
                    & diluted
                
                
                54,460,626
                
                
                54,460,626  Weighted
            average number of shares for dilutive securities has not been taken since
            the
            effect of dilutive securities is anti-dilutive


The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-3
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Restated)**
 **2006**
                  
                  **2005****CASH
                      FLOWS FROM OPERATING ACTIVITIES**Net
                      Income / (loss)
                  
                  $
                  (1,254,370
                  )
                  $
                  1,047,496Adjustments
                      to reconcile net income to net cashprovided
                      by operating activities:Depreciation
                  
                  
                  182,829
                  
                  
                  83,807Amortization
                  
                  
                  332,915
                  
                  
                  332,915Loss
                      on disposal of property & equipment
                  
                  
                  -
                  
                  
                  18,575Reserve
                      for bad debt
                  
                  
                  21,443
                  
                  
                  -Impairment
                      loss
                  
                  
                  3,779,181
                  
                  
                  1,213,843Issuance
                      of stock options
                  
                  
                  -
                  
                  
                  17,500(Increase)
                      / decrease in assets:Accounts
                      receivables
                  
                  
                  896,425
                  
                  
                  (204,021
                  )Inventory
                  
                  
                  70,266
                  
                  
                  (112,452
                  )Other
                      receivables
                  
                  
                  295,956
                  
                  
                  (2,707
                  )Prepaid
                      expense
                  
                  
                  116,016
                  
                  
                  (118,531
                  )Deposits
                  
                  
                  704
                  
                  
                  (3,100
                  )Increase
                      / (decrease) in current liabilities:Accounts
                      payable and accrued expenses
                  
                  
                  (2,122,808
                  )
                  
                  (197,862
                  )Income
                      tax payable
                  
                  
                  (42,908
                  )
                  
                  (32,077
                  )Advances
                  
                  
                  (80,227
                  )
                  
                  43,795Total
                      adjustments
                  
                  
                  3,449,792
                  
                  
                  1,039,685**Net
                      cash provided by operations**
                  
                  
                  2,195,422
                  
                  
                  2,087,181**CASH
                      FLOWS FROM INVESTING ACTIVITIES**Purchase
                      of subsidiary
                  
                  
                  (3,000,000
                  )
                  
                  -Cash
                      acquired in acquisition
                  
                  
                  708,002
                  
                  
                  -Proceeds
                      from sale of property & equipment
                  
                  
                  -
                  
                  
                  1,094Acquisition
                      of property & equipment
                  
                  
                  (1,035,189
                  )
                  
                  (536,937
                  )**Net
                      cash used in investing activities**
                  
                  
                  (3,327,187
                  )
                  
                  (535,843
                  )**CASH
                      FLOWS FROM FINANCING ACTIVITIES**Payment
                      on loan payable
                  
                  
                  (3,251,540
                  )
                  
                  -Proceed
                      from loan payable
                  
                  
                  3,251,540
                  
                  
                  -**Net
                      cash provided by financing activities**
                  
                  
                  -
                  
                  
                  -Effect
                      of exchange rate changes on cash and cash equivalents
                  
                  
                  145,388
                  
                  
                  72,749**Net
                      increase (decrease) in cash and cash equivalents**
                  
                  
                  (986,378
                  )
                  
                  1,624,087**Cash
                      and cash equivalents, beginning balance**
                  
                  
                  2,061,213
                  
                  
                  437,126**Cash
                      and cash equivalents, ending balance**
                  
                  $
                  1,074,835
                  
                  $
                  2,061,213**SUPPLEMENTAL
                      DISCLOSURES:**Cash
                      paid during the year for:Income
                      tax payments
                  
                  $
                  74,887
                  
                  $
                  13,555Interest
                      payments
                  
                  $
                  75,622
                  
                  $
                  32,856Non-cash
                      investing and financing activities:Issuance
                      of preferred stock for purchase of business
                  
                  $
                  3,787,879
                  
                  $
                  -
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-4
  **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
              STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 **(Restated)**
 **Common
                          Stock****Shares**
                      
                      **Amount**
                      
                      **Preferred**
                          **Stock**
                      
                      **Additional
                            Paid**
                          **In
                            Capital**
                      
                      **Statutory**
                          **Reserve**
                      
                      **Other**
                          **Comprehensive**
                      
                      **Retained
                            Earnings**
                          **(Accumulated
                            Deficit)**
                      
                      **Total**
                          **Stockholders'**
                          **Equity/(Deficit)****Balance
                          December 31, 2004**
                      
                      
                      54,460,626
                      
                      $
                      54,460
                      
                      $
                      -
                      
                      $
                      13,089,824
                      
                      $
                      11,522
                      
                      $
                      -
                      
                      $
                      (251,912
                      )
                      $
                      12,903,894Issuance
                          of stock options
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      17,500
                      
                      
                      -
                      
                      
                      
                      
                      
                      -
                      
                      
                      17,500Change
                          in foreign currency translation gain
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      
                      
                      
                      61682
                      
                      
                      -
                      
                      
                      61,682Transfer
                          to statutory reserve
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      94,327
                      
                      
                      -
                      
                      
                      (94,327
                      )
                      
                      -Net
                          income for the year ended December 31, 2005
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      1,047,496
                      
                      
                      1,047,496**Balance
                          December 31, 2005**
                      
                      
                      54,460,626
                      
                      
                      54,460
                      
                      
                      -
                      
                      
                      13,107,324
                      
                      
                      105,849
                      
                      
                      61,682
                      
                      
                      701,257
                      
                      
                      14,030,572Acquisition
                          of subsidiary
                      
                      
                      -
                      
                      
                      -
                      
                      
                      7,576
                      
                      
                      3,780,303
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      3,787,879Change
                          in foreign currency translation gain
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      307,605
                      
                      
                      -
                      
                      
                      307,605Transfer
                          to statutory reserve
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      184,082
                      
                      
                      -
                      
                      
                      (184,082
                      )
                      
                      -Net
                          income for the year ended December 31, 2006
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      (1,254,370
                      )
                      
                      (1,254,370
                      )**Balance
                          December 31, 2006**
                      
                      
                      54,460,626
                      
                      $
                      54,460
                      
                      
                      7,576
                      
                      $
                      16,887,627
                      
                      $
                      289,931
                      
                      $
                      369,287
                      
                      $
                      (737,196
                      )
                      $
                      16,871,686
 The
        accompanying notes are an integral part of these consolidated financial
        statements.




F-5


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2006


**Note
      A -** **ORGANIZATION**





China
      Digital Communication Group (the “Company”) was incorporated under the laws of
      the State of Nevada on March 27, 2001. On September 30, 2004, the Company
      entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion).
      Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
      Science and Technology Company, Limited (E’Jenie). Billion, was incorporated
      under the laws of the British Virgin Islands on July 27, 2004. Shenzhen
      E’Jenie Science & Technology Company Limited ,
      was
      legally established on July 8, 2002 under the laws of the Peoples’ Republic of
      China (PRC). On June 28, 2006, the Company finalized an Exchange Agreement
      with
      Galaxy View International, Ltd (Galaxy View). Galaxy View owns all of the issued
      and outstanding shares of Shenzhen Sono Digital Technologies Company Limited
      (Sono). Galaxy View was incorporated under the laws of the British Virgin
      Islands on August 22, 2005. Sono was legally established on May 29, 2001 under
      the laws of the Peoples’ Republic of China. When used in these notes, the terms
“Company,” “we,” “our,” or “us” mean China Digital Communication Group and its
      Subsidiaries.





On
      September 30, 2004, the Company entered into an Exchange Agreement with Billion.
      Pursuant to the Exchange Agreement, the Company agreed to purchase all of the
      issued and outstanding shares of Billion for approximately $1,500,000 in cash
      and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the
      total issued and outstanding shares.





On
      June
      28, 2006, the Company finalized an Exchnage Agreement with Galaxy View
      International Ltd., the Company and the shareholders of Galaxy View (the
“Shareholders”). Pursuant to the Exchange Agreement, the Company acquired 100%
      of Galaxy View in a cash and stock transaction valued at approximately
      $6,787,879. Under the terms of the Agreement, the Company will pay to the
      Shareholders $3,000,000 million in cash and deliver 7,575,757 unregistered
      shares of China Digital preferred stock valued at approximately $3,787,879.








**Note
      B -** **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 ($).




Exchange
      Gain (Loss):




During
      the year ended December 31, 2006 and 2005, the transactions of E’Jenie and Sono
      were denominated in foreign currency and were recorded in Chinese Yuan Renminbi
      (CNY) at the rates of exchange in effect when the transactions occur. Exchange
      gains and losses are recognized for the different foreign exchange rates applied
      when the foreign currency assets and liabilities are settled.








Translation
      Adjustment


As
      of
      December 31, 2006 and 2005, the accounts of E’Jenie and Sono 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.




F-6





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





Use
      of
      Estimates


The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States (“GAAP”) requires management to make
      certain 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.
      Significant estimates include collectibility of accounts receivable, accounts
      payable, sales returns and recoverability of long-term assets.





Principles of
      Consolidation


The
      consolidated financial statements include the accounts of China Digital
      Communication Group and its wholly owned subsidiaries Billion, E’Jenie, Galaxy
      View and Sono , collectively referred to within as the Company. All material
      intercompany accounts, transactions and profits have been eliminated in
      consolidation.





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.





The
      payment term for Sono is as follows; 30% of the invoice is due when the order
      is
      shipped and 60% of the invoice is within six months. The clients have another
      six month to pay for the remaining 10% balance.




Stock-Based
      Compensation




In
      December 2004, the FASB issued SFAS No. 123 (revised 2004),
‘‘Share-Based Payment’’ (‘‘SFAS 123R’’), which requires the measurement of all
      employee share-based payments to employees, including grants of employee stock
      options, using a fair-value-based method and the recording of such expense
      in
      the consolidated statements of operations. In March 2005, the SEC issued Staff
      Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation
      of SFAS 123R and the valuation of share-based payments for public companies.
      The
      Company has adopted SFAS 123R and related FASB Staff Positions (“FSPs”) as of
      October 01, 2005 and will recognize stock-based compensation expense using
      the
      modified prospective method.




Advertising


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




Income
      Taxes




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







F-7





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





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.





Risks
      and Uncertainties


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





Contingencies


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





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





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





Cash
      and Cash Equivalents


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





Allowance
      for Doubtful Accounts


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. Allowance for doubtful debts amounted to $151,513
      as
      at December 31, 2006.








F-8





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





Inventory


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, 2006, inventory consisted of raw material, work in
      progress and finished goods as follows:


**Inventory**Raw
                  Material
              
              $
              112,974Work-in-process
              
              
              22,382Finished
                  goods
              
              
              148,368$
              283,724




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
                  yearsEquipment
              5
                  yearsComputer
                  Hardware and Software
              5
                  yearsBuilding
              30
                  years




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





Machinery
            
            $
            782,623Leasehold
                improvement
            
            
            32,581Automobile
            
            
            9,854Office
                equipment
            
            
            83,668Building
            
            
            515,9781,424,704Accumulated
                depreciation
            
            
            (304,134
            )$
            1,120,570




Depreciation
      expenses were $182,829 and $83,807 for the years ended December 31, 2006, and
      2005.




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-9





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006







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.




Goodwill




Goodwill
      represents the excess of the purchase price over the fair value of the
      identifiable assets and liabilities acquired as a result of the Company’s
      acquisitions of interests in its subsidiaries. Under Statement of Financial
      Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
      Assets (“SFAS 142”),” goodwill is no longer amortized, but tested for impairment
      upon first adoption and annually, thereafter, or more frequently if events
      or
      changes in circumstances indicate that it might be impaired. The Company
      assesses goodwill for impairment annually after the third quarter or as needed
      in accordance with SFAS 142.




The
      Company incurred losses and also the revenue of the Company reduced
      significantly during the year ended December 31, 2006. The decrease in sales
      for
      E’Jenie was due to decrease in demand from our customers as a result of
      increased competition and also due to the appreciation of our local currency
      (RMB), cost of raw material and the change in export policy by China Government.
      For Galaxy, in late 2006, two of our largest customers decided to restructure
      their purchase procedures to take all of their purchase order from their local
      branch offices to their main office. The change has a significant impact on
      our
      future revenue as new contacts and relationships will have to be made and also
      because we will be competing with other vendors, who already have established
      business relationship with the main office.





The
      above
      mentioned conditions had the Company perform an impairment test related to
      goodwill arising from its acquisitions of E’Jenie and Galaxy. The Company
      concluded that there was impairment as to the carrying value of goodwill as
      of
      December 31, 2006 for Galaxy. The Company evaluated value of the subsidiary
      based upon market value and expected present value of future cash flows and
      recorded an impairment of $3,779,181.




Intangible
      Assets




The
      Company applies the criteria specified in SFAS No. 141, “Business
      Combinations” to determine whether an intangible asset should be recognized
      separately from goodwill. Intangible assets acquired through business
      acquisitions are recognized as assets separate from goodwill if they satisfy
      either the “contractual-legal” or “separability” criterion. Per SFAS 142,
      intangible assets with definite lives are amortized over their estimated useful
      life and reviewed for impairment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible
      assets, such as purchased technology, trademark, customer list, user base and
      non-compete agreements, arising from the acquisitions of subsidiaries and
      variable interest entities are recognized and measured at fair value upon
      acquisition. Intangible assets are amortized over their estimated useful lives
      from one to ten years. The Company reviews the amortization methods and
      estimated useful lives of intangible assets at least annually or when events
      or
      changes in circumstances indicate that it might be impaired. The recoverability
      of an intangible asset to be held and used is evaluated by comparing the
      carrying amount of the intangible asset to its future net undiscounted cash
      flows. If the intangible asset is considered to be impaired, the impairment
      loss
      is measured as the amount by which the carrying amount of the intangible asset
      exceeds the fair value of the intangible asset, calculated using a discounted
      future cash flow analysis. The Company uses estimates and judgments in its
      impairment tests, and if different estimates or judgments had been utilized,
      the
      timing or the amount of the impairment charges could be different.





F-10





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006




Effective
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
      144”), which addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
      the Results of Operations for a Disposal of a Segment of a Business.” The
      Company periodically evaluates the carrying value of long-lived assets to be
      held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
      to be recorded on long-lived assets used in operations when indicators of
      impairment are present and the undiscounted cash flows estimated to be generated
      by those assets are less than the assets’ carrying amounts. In that event, a
      loss is recognized based on the amount by which the carrying amount exceeds
      the
      fair market value of the long-lived assets. Loss on long-lived assets to be
      disposed of is determined in a similar manner, except that fair market values
      are reduced for the cost of disposal. Based on its review, the Company believes
      that, as of December 31, 2006 there were no significant impairments of its
      long-lived assets.




Recent
      accounting pronouncements


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
      March
      2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this
      Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      This Statement:





1.
            Requires
                an entity to recognize a servicing asset or servicing liability each
                time
                it undertakes an obligation to service a financial asset by entering
                into
                a servicing contract.


2.
            Requires
                all separately recognized servicing assets and servicing liabilities
                to be
                initially measured at fair value, if practicable.


3.
            Permits
                an entity to choose ‘Amortization method’ or  Fair value measurement
                method’ for each class of separately recognized servicing assets and
                servicing liabilities:


4.
            At
                its initial adoption, permits a one-time reclassification of
                available-for-sale securities to trading securities by entities with
                recognized servicing rights, without calling into question the treatment
                of other available-for-sale securities under Statement 115, provided
                that
                the available-for-sale securities are identified in some manner as
                offsetting the entity’s exposure to changes in fair value of servicing
                assets or servicing liabilities that a servicer elects to subsequently
                measure at fair value.





F-11





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





5.
            Requires
                separate presentation of servicing assets and servicing liabilities
                subsequently measured at fair value in the statement of financial
                position
                and additional disclosures for all separately recognized servicing
                assets
                and servicing liabilities.





This
      Statement is effective as of the beginning of the Company’s first fiscal year
      that begins after September 15, 2006. Management believes that this statement
      will not have a significant impact on the consolidated financial
      statements.





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 Statement 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 status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:




a.  A brief
      description of the provisions of this Statement




b.  The date
      that adoption is required




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




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




**Note
      C - GOODWILL AND INTANGIBLE ASSETS** **(RESTATED)**




F-12





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





As
      of
      December 31, 2006, the Goodwill comprised of the following:


**Goodwill****Balance
                  as of 12/31/03**
              
              $
              -Acquisition
                  of Billion
              
              
              8,253,436**Balance
                  as of 12/31/04**
              
              
              8,253,436Impairment
                  of Billion in 2005
              
              
              (1,213,843
              )**Balance
                  as of 12/31/05**
              
              
              7,039,593Acquisition
                  of Galaxy View in 2006
              
              
              5,101,909Impairment
                  of Galaxy View in 2006
              
              
              (3,779,181
              )**Balance
                  as of 12/31/06**
              
              $
              8,362,321




The
      Company incurred losses and also the revenue of the Company reduced
      significantly during the year ended December 31, 2006. The decrease in sales
      for
      E’Jenie was due to decrease in demand from our customers as a result of
      increased competition and also due to the appreciation of our local currency
      (RMB), cost of raw material and the change in export policy by China Government.
      For Galaxy, in late 2006, two of our largest customers decided to restructure
      their purchase procedures to take all of their purchase order from their local
      branch offices to their main office. The change has a significant impact on
      our
      future revenue as new contacts and relationships will have to be made and also
      because we will be competing with other vendors, who already have established
      business relationship with the main office.





The
      above
      mentioned conditions had the Company perform an impairment test related to
      goodwill arising from its acquisitions of E’Jenie and Galaxy. The Company
      concluded that there was impairment as to the carrying value of goodwill as
      of
      December 31, 2006 for Galaxy. The Company evaluated value of the subsidiary
      based upon market value and expected present value of future cash flows and
      recorded an impairment of $3,779,181.





The
      Company prepares annual forecasts and is reviewed and modified as needed
      annually. The Company tests for impairment annually after the third quarter
      or
      as needed. During the first quarter of 2007, our two largest customers, China
      mobile and China Unicom changed their purchase procedures. In the past, purchase
      orders were made by their local branch offices based on their needs and demand.
      The change now only allowed their main head office to place purchase orders
      from
      their selected vendors. They evaluated all vendors based on their criteria
      and
      unfortunately Sono Digital was not selected as one of their vendors. With the
      loss of the two largest users of our products, the fact that the telecom
      industry in China was a monopoly, there was no longer a market for our
      products.





Once
      the
      decision was made by our two largest customers, the Company discussed and
      considered selling Galaxy View.





**Intangible
      assets**





As
      of
      December 31, 2006 intangible assets consist of the following:





Customer
                relationship
            
            $
            2,691,445Design
            
            
            366,850Proprietary
                technology
            
            
            270,850Land
                rights
            
            
            515,978Intangible
                assets
            
            
            3,845,123Accumulated
                amortization
            
            
            (712,311
            )$
            3,132,812




F-13





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





During
      the year ended December 31, 2006, E’Jenie purchased the two facilities that they
      were previously leasing. The cost of the acquisition was approximately
      $1,031,956. Of that amount $515,978 was recorded as an intangible asset as
      land
      rights. Because the laws of the People’s Republic of China does not allow for
      ownership of land, the Company received a Certificate of Real Estate from the
      Ministry of Land and Resources for the use of the land.





The
      intangible assets are amortized over 10-30 years. Amortization expenses were
      $337,781 and $332,915 for the years ended December 31, 2006 and
      2005.





Amortization
      expenses for the Company’s intangible assets over the next five fiscal years is
      estimated to be:


2007
              
              $
              344,9152008
              
              
              344,9152009
              
              
              344,9152010
              
              
              344,9152011,
              
              
              344,915After
              
              
              1,408,237Total
              
              $
              3,132,812


**Note
      D -** **ACQUISTION AGREEMENTS**





On
      February 14, 2006, China Digital Communication Group, UPE Limited (Far East),
      a
      BVI corporation ("UPE Limited"), Shenzhen Zhuo Tong Power Supply Industry Co.,
      Ltd., a Shenzhen corporation and a wholly-owned subsidiary of UPE Limited ("Zhuo
      Tong"), and the shareholders of UPE Limited (the "Shareholders"), entered into
      a
      Share Exchange Agreement (the "Agreement") pursuant to which China Digital
      will
      acquire 100% of UPE Limited in an all stock transaction valued at approximately
      US$9.6 million. China Digital issued 18.5 million shares of its common stock
      to
      the Shareholders in exchange for all of the shares UPE Limited (the "Share
      Exchange"). Upon completion of the Share Exchange, the Shareholders will own
      approximately 25% of China Digital.





On
      June
      26, 2006, the Company issued a press release announcing that it had terminated
      its Share Exchange Agreement dated February 14, 2006 (the “Agreement”), with UPE
      Limited (Far East), a BVI corporation (UPE Limited”), Shenzhen Zhuo Tong Power
      Supply Industry Co., Ltd., a Shenzhen corporation and a wholly-owned subsidiary
      of UPE Limited, and the shareholders of UPE Limited (the “Shareholders”). As a
      result of the termination of the Agreement, the Shareholders returned, and
      the
      Company cancelled, the 18.5 million shares of the Company’s common stock that
      were previously issued to the Shareholders.




On
      March
      22, 2006, China Digital Communication Group, Galaxy View International LTD,
      a
      BVI corporation ("Galaxy"), Shenzhen Sono, a Shenzhen corporation and a
      wholly-owned subsidiary of Galaxy ("Sono"), and the shareholders of Galaxy
      (the
      "Shareholders"), entered into a Share Exchange Agreement (the "Agreement")
      pursuant to which China Digital will acquire 100% of Galaxy for approximately
      $6,787,879. China Digital paid $3 million dollars on March 12, 2006 to Galaxy and
      issued 7,575,757 million shares of Series A-1 Convertible Preferred Stock .
      The
      Company finalized the Agreement on June 28, 2006. Each share of Series A-1
      Preferred Stock entitles the holder thereof to seven votes per share on all
      matters to be voted on by the shareholders of the Company and is mandatorily
      convertible into one share of the Company’s common stock on June 29, 2011. Each
      share of Series A-1 Preferred Stock shall, with respect to rights on
      liquidation, dissolution or winding up, rank (i) on a parity with the Company’s
      common stock, and (ii) junior to any other class of the Company’s preferred
      stock.




F-14





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





**Note
      E -** **STOCK
      EXCHANGE AGREEMENTS**





**Galaxy
      View**





On
      June
      28, 2006 the Company completed the purchase of Galaxy View, which owns all
      of
      the issued and outstanding shares of Sono. By acquiring all of the outstanding
      capital stock of Galaxy View and Sono in exchange for $3,000,000 and 7,575,757
      shares of the Company’s Series A-1 Convertible Preferred Stock. The acquisition
      was accounted for using the purchase method of accounting and, accordingly,
      Galaxy View’s and Sono’s results of operations have been included in the
      consolidated financial statements since the date of acquisition. As of December
      31, 2006, the preferred stock was issued and recorded at a value of $3,787,879
      in the books of the Company.


Total
                  cash paid for the acquisition of Billion
              
              $
              3,000,0007,575,757
                  Series A-1 Convertible preferred shares at $0.50 per share
              
              
              3,787,879Total
                  Investment Cost
              
              $
              6,787,879




In
      accordance with SFAS 141, in particular paragraph 20 to 23, the Company used
      the
      quoted market price as of June 28, 2006 to determine the cost of the shares
      issued for the acquisition of Galaxy View.





During
      2006, E’Jenie did not know the potential impact of the changes made in the
      export policies by China Government. The Company was concerned and wanted to
      find another company with growth potential and a company that would not be
      impacted by the change in export policies. Galaxy View was both profitable
      and
      would not be impacted by the change in export policies. Galaxy View increased
      its revenue from approximately $1.6 million in 2004 to approximately $5.4
      million in 2005 and anticipated similar growth in the future. Management
      believed at the time of acquisition that Galaxy View would not only diversify
      the Company’s operation but also acquire another line of business with proven
      growth and profitability.




Based
      on
      the growth potential, the Company had to pay a premium to entice the
      shareholders of Galaxy View to sell their shares.




The
      following table presents the allocation of the acquisition cost, including
      professional fees and other related acquisition costs, to the fair value of
      assets acquired and liabilities assumed:




Cash
                  and cash equivalents
              
              $
              701,169Accounts
                  receivable
              
              
              2,648,929Other
                  receivable
              
              
              337,825Prepaid
              
              
              701Property,
                  plant, and equipment
              
              
              54,041Total
                  assets
              
              
              3,742,665Accounts
                  payable
              
              $
              1,991,591Deferred
                  revenue
              
              
              65,104Total
                  liabilities
              
              
              2,056,695Total
                  acquisition cost
              
              $
              1,685,970CostTotal
                  cost of investment
              
              $
              6,787,879Total
                  Acquisition cost
              
              
              1,685,970Goodwill
              
              $
              5,101,909


F-15





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006








The
      following (unaudited) pro forma consolidated results of operations have been
      prepared as if the acquisition of Galaxy View had occurred at January 1, 2006
      and 2005:


December
                  31, 2006
              
              December
                  31, 2005Sales
              
              $
              14,857,765
              
              $
              18,072,130Net
                  income
              
              $
              274,962
              
              $
              4,489,521Net
                  income per share - basic
              
              $
              0.01
              
              $
              0.08Net
                  income per share - diluted
              
              $
              0.005
              
              $
              0.08





The
      pro
      forma information is presented for informational purposes only and is not
      necessarily indicative of the results of operations that actually would have
      been achieved had the acquisitions been consummated as of that time, nor is
      it
      intended to be a projection of future results.





**Note
      F -** **ACCOUNTS PAYABLE & ACCRUED EXPENSES** **(RESTATED)**





As
      of
      December 31, 2006, accounts payable & accrued expenses comprised of the
      following:


Accounts
                  payable and accrued expenses
              
              $
              657,684Accrued
                  interest
              
              
              127,208Other
                  payable
              
              
              0VAT
                  payable
              
              
              52,652Total
              
              $
              837,544




**Note
      G - LOAN PAYABLE**





As
      of
      December 31, 2006, the Company has an unsecured, due on demand, non
      interest-bearing loan payable in the amount of $256,400 to a third
      party.





**Note
      H -** **RELATED
      PARTY TRANSACTIONS**





As
      of
      December 31, 2006, the Company has an unsecured, due on demand, non
      interest-bearing loan from Xuemei Fang, a shareholder, in the amount of
      $174,600.





**Note
      I -** **INCOME
      TAXES**




The
      Company through its subsidiaries, E’Jenie and Sono, is governed by the Income
      Tax Laws of the PRC. Operations in the United States of America have incurred
      net accumulated operating losses for income tax purposes. The Company believes
      that it is more likely than not that these net accumulated operating losses
      will
      not be utilized in the future and hence the Company has not recorded any
      deferred assets as of December 31, 2006.




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. E’Jenie qualified as a new technology enterprise and under PRC Income Tax
      Laws, is subject to a preferential tax rate of 15%. Sono is a Foreign Investment
      Enterprise and under PRC Income Tax Laws, they are entitled to either a
      three-year tax exemption followed by three years with a 50% reduction in the
      tax
      rate, commencing the first operating year, or a two-year tax exemption followed
      by three years with a 50% reduction in the tax rate, commencing the first
      profitable year.





F-16





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006


The
        following is a reconciliation of income tax expense:





12/31/2006
            
            U.S.
            
            State
            
            International
            
            TotalCurrent
            
            $
            0
            
            $
            0
            
            $
            74,887
            
            $
            74,887Deferred
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            0
            
            $
            0
            
            $
            74,887
            
            $
            74,88712/31/2005
            
            
            U.S.
            
            
            State
            
            
            International
            
            
            TotalCurrent
            
            $
            0
            
            $
            0
            
            $
            111,773
            
            $
            111,773Deferred
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            0
            
            $
            0
            
            $
            111,773
            
            $
            111,773




Reconciliation
        of the differences between the statutory U.S. Federal income tax rate and
        the
        effective rate is as follows:
 12/31/2006
                
                12/31/2005US
                    statutory tax rate
                
                
                34
                %
                
                34
                %Foreign
                    income not recognized in US
                
                
                -34
                %
                
                -34
                %PRC
                    income tax
                
                
                15
                %
                
                15
                %Effective
                    rate
                
                
                15
                %
                
                15
                %





**Note
      J-** **COMMITTMENTS**





Operating
      Leases


The
      Company leases various office facilities under operating leases that terminate
      on various dates. Rental expense for these leases consisted of approximately
      $90,677 for the year ended December 31, 2006. As of December 31, 2006, all
      operating leases had expired.





**Note
      K-** **STOCK
      OPTION** **(RESTATED)**





On
      November 4, 2005, the Company issued a nonqualified stock option for 100,000
      shares to a member of the board with an exercise price of $0.53 that will expire
      on November 3, 2010. The option shall vest and become exercisable
      immediately.





The
      Company's 2005 Stock Option Incentive Plan (the “Plan”) provides for the grant
      of 100,000 option rights to a non-employee director. The Plan is administered
      by
      the Company's Compensation Committee (“Compensation Committee”). The
      Compensation Committee, as administrator of the plan, has the authority to
      select plan participants and determine the terms and conditions of such awards.




The
      Company adopted SFAS 123(R) on November 1, 2005 using the modified prospective
      method. Prior to the adoption of SFAS 123(R) the Company did not have any stock
      options. The Company recorded expenses for stock base d
      compensation of $0 and $17,500 for the years ended December 31, 2006 and 2005,
      respectively. The Company also recognized income tax benefits related to the
      stock based compensation of $0 and $6,000 for the years ended December 31,
      2006
      and 2005, respectively.




Risk-free
                interest rate
            4.00%Expected
                life of the options
            5
                yearExpected
                volatility
            58.0%Expected
                dividend yield
            0
                %





F-17





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





On
      March
      20, 2006, the Company issued a non-incentive stock option for 150,000 shares
      to
      a consultant with an exercise price of $0.702 that will expire on March 19,
      2009. The option vested and became exercisable on May 1, 2006.





Risk-free
                interest rate
            4.77%Expected
                life of the options
            3
                yearExpected
                volatility
            126.76%Expected
                dividend yield
            0
                %


Options
      outstanding at December 31, 2006 and related weighted average price and
      intrinsic value is as follows:





Exercise
                Prices
            
            Total
              Options
              Outstanding
            
            Weighted
              Average
              Remaining
                Life
              (Years)
            
            Total
              Weighted
              Average
              Exercise
                Price
            
            Options
              Exercisable
            
            Weighted
              Average
              Exercise
                Price
            
            Aggegrate
                Intrinsic Value$0.530
            
            100,000
            
            0.75
            
            $0.530
            
            100,000
            
            $0.530
            
            -$0.702
            
            150,000
            
            0.75
            
            $0.702
            
            150,000
            
            $0.702
            
            -






**Note
      L-** **STATUTORY
      COMMON WELFARE FUND**





As
      stipulated by the Company Law of the People’s Republic of China (PRC), net
      income after taxation can only be distributed as dividends after appropriation
      has been made for the following:





i.
            Making
                up cumulative prior years’ losses, if any;





ii.
            Allocations
                to the “Statutory surplus reserve” of at least 10% of income after tax, as
                determined under PRC accounting rules and regulations, until the
                fund
                amounts to 50% of the Company’s registered capital;





iii.
            Allocations
                of 5-10% of income after tax, as determined under PRC accounting
                rules and
                regulations, to the Company’s “Statutory common welfare fund”, which is
                established for the purpose of providing employee facilities and
                other
                collective benefits to the Company’s employees; and





iv.
            Allocations
                to the discretionary surplus reserve, if approved in the stockholders’
                general meeting.





The
      Company established a reserve for the annual contribution of 5% of net income
      to
      the welfare fund in 2005. The amount included in the statutory reserve for
      the
      year ended December 31, 2006 amounted to $62,187 **.**





**Note
      M -** **STATUTORY
      RESERVE** **(RESTATED)**





In
      accordance with the Chinese Company Law, the company has allocated 10% of its
      annual net income, amounting $121,895 as statutory reserve for the year ended
      December 31, 2006.




F-18





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





**Note
      N -** **OTHER
      COMPREHENSIVE INCOME (RESTATED)**





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholders’ equity, at December 31, 2006 and 2005
      are as follows:


*Foreign
                  Currency Translation Adjustment*Balance
                  at December 31, 2005
              
              $
              61,682Change
                  for 2006
              
              
              307,605Balance
                  at December 31, 2006
              
              $
              369,287




**Note
      O-** **SEGMENT
      REPORTING**





The
      Company has two principal operating segments which are: battery
      components manufacturer and supplier of 3G telecommunications
      equipment ,
      and
      supplier of hi-tech telecommunication equipment to the telecommunications
      industry. These operating segments were determined based on the nature of the
      products offered. Operating segments are defined as components of an enterprise
      about which separate financial information is available that is evaluated
      regularly by the chief operating decision-maker in deciding how to allocate
      resources and in assessing performance. The Company's chief executive officer
      and chief financial officer have been identified as the chief operating decision
      makers. The Company’s chief operating decision makers direct the allocation of
      resources to operating segments based on the profitability, cash flows, and
      other measurement factors of each respective segment.




The
      Company has determined that battery
      components manufacturer and supplier of 3G telecommunications equipment, and
      supplier of hi-tech telecommunication equipment to the telecommunications
      industry are reportable segments as they meet the quantitative thresholds under
      Financial Accounting Standards Board Statement No. 131 (Disclosures about
      Segments of an Enterprise and Related Information).





The
      Company evaluates performance based on several factors, of which the primary
      financial measure is business segment income before taxes. The segments’
accounting policies are the same as those described in the summary of
      significant accounting policies. The following table shows the operations of
      the
      Company's reportable segments.





**Information
        about operations by operating segment for the year ended December 31,
        2006**
  **December
                    31, 2006**
                
                Battery
                
                Hi-TechComponent
                
                Telecommunication
                
                U.S
                
                TotalRevenues
                
                $
                    9,854,954
                
                $
                    2,360,422
                
                $
                    -
                
                $12,215,376Intersegment
                    sales
                
                -
                
                -
                
                -
                
                -Income
                    (loss) before taxes
                
                2,561,485
                
                1,227,215
                
                (4,968,183)
                
                (1,179,483)Depreciation
                    and amortization
                
                176,002
                
                6,827
                
                332,915
                
                515,744Interest
                    expense
                
                45,868
                
                (246)
                
                127,208
                
                172,830Goodwill
                    impairment
                
                -
                
                -
                
                3,779,181
                
                3,779,181Interest
                    income
                
                19,945
                
                5,082
                
                -
                
                25,027




The
      losses on the U.S. shell were mainly due to the $3,779,181 goodwill impairment
      and $332,915 amortization expense recognized as of December 31, 2006.




F-19





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





The
      Company only had one reportable segement for the year ended December 31,
      2005.





(1)
      Total
      business assets are the owned or allocated assets used by each business.
      Corporate assets consist of cash and cash equivalents, unallocated fixed assets
      of support divisions and common facilities, and certain other
      assets.





(2)
      Corporate property additions and depreciation and amortization expense include
      items attributable to the unallocated fixed assets of support divisions and
      common facilities.





Also,
      because all of the Company’s sales are derived from the sales of products in
      China, all long-lived assets are located in China.





**Note
      P -** **CURRENT
      VULNERABILITY DUE TO 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
      Q - RESTATEMENTS**





Subsequent
      to the issuance of the Company's financial statements for the year ended
      De c ember
      31,
      2004, the Company determined that certain transactions and presentation in
      the
      financial statements had not been accounted for properly in the Company's
      financial statements. Specifically,
      the purchase price allocation for the acquisition of Billion Electronics C o.
      Ltd.,
      was not done properly. Also, the acquisition balance sheet for Billion
      Electronics Co.
      Ltd.,
      was taken as of September 30, 2004 instead of November 15, 2004. The Company
      de cided
      to
      restate the financial statements for the year ended December 31, 2004 which
      resulted in a change in the opening numbers for the year ended December 31,
      2006
      and 2005. The financial statements for the year ended December 31, 2006 and
      2005
      have been restated to give effect to the changes to the opening
      balances.





The
      effect of the restatements is as follows:




F-20





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006


**CONSOLIDATED
                  BALANCE SHEET**Reported
              
              Restated2006
              
              2006Amortizable
                  intangible assets, net
              
              $
              511,111
              
              $
              3,132,812Goodwill
              
              
              3,187,795
              
              
              8,362,321Total
                  Other Assets
              
              
              3,702,006
              
              
              11,498,233Total
                  Assets
              
              
              10,346,021
              
              
              18,142,249Accounts
                  payable and accrued expenses
              
              
              887,042
              
              
              837,545Income
                  tax payable
              
              
              44,500
              
              
              -Total
                  Liabilities
              
              
              1,364,561
              
              
              1,270,564Additional
                  paid in capital
              
              
              6,693,417
              
              
              16,887,627Statutory
                  reserve
              
              
              218,701
              
              
              289,931Other
                  comprehensive income
              
              
              416,510
              
              
              369,287Accumulated
                  income/(deficit)
              
              
              1,590,796
              
              
              (737,196
              )Total
                  Stockholders' Equity
              
              
              8,981,460
              
              
              16,871,685Total
                  Liabilities and Stockholders' Equity
              
              $
              10,346,021
              
              $
              18,142,249




**CONSOLIDATED
                  STATEMENTS OF OPERATIONS**Reported
              
              Restated2006
              
              2006General
                  and administrative expenses
              
              $
              1,140,665
              
              $
              1,473,580Total
                  operating expenses
              
              
              4,940,656
              
              
              5,273,571Loss
                  from operations
              
              
              (705,859
              )
              
              (1,038,773
              )Income
                  (loss) before income taxes
              
              
              (846,568
              )
              
              (1,179,483
              )Net
                  income (loss)
              
              
              (921,455
              )
              
              (1,254,370
              )Other
                  comprehensive incomeForeign
                  currency translation
              
              
              304,826
              
              
              307,605Comprehensive
                  Income (Loss)
              
              $
              (616,629
              )
              $
              (946,765
              )
 **CONSOLIDATED
                    STATEMENTS OF OPERATIONS**Reported
                
                Restated2005
                
                2005General
                    and administrative expenses
                
                $
                839,418
                
                $
                1,202,359Goodwill
                    impairment
                
                
                
                
                
                1,213,843Total
                    operating expenses
                
                
                1,005,198
                
                
                2,581,982**Loss
                    from operations**
                
                
                2,765,031
                
                
                1,188,248**Income
                    (loss) before income taxes**
                
                
                2,736,052
                
                
                1,159,269**Net
                    income (loss)**
                
                
                2,624,279
                
                
                1,047,496Other
                    comprehensive incomeForeign
                    currency translation
                
                
                71,075
                
                
                61,682Comprehensive
                    Income (Loss)
                
                $
                2,695,354
                
                $
                1,109,178**Net
                    income (loss) per share:**Basic
                    and diluted
                
                $
                0.05
                
                $
                0.02





F-21





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





**CONSOLIDATED
                STATEMENTS OF CASH FLOWS****2006**
            
            **2006**(Reported)
            
            (Restated)CASH
              FLOWS FROM OPERATING ACTIVITIESNet
                Income (loss)
            
            
            
            
            $
            (921,455
            )
            $
            (1,254,370
            )Adjustments
                to reconcile net income (loss) to net cashprovided
                by operating activities:Amortization
            
            
            
            
            
            
            
            
            332,915Increase
                / (decrease) in current liabilities:Accounts
                payable and accrued expenses
            
            
            
            
            
            (2,043,189
            )
            
            (2,122,808
            )Tax
                payable
            
            
            
            
            
            (57,126
            )
            
            (42,908
            )Total
                Adjustments
            
            
            
            
            
            3,116,878
            
            
            3,449,792Net
                cash provided by operations
            
            
            
            
            
            2,195,423
            
            
            2,195,422Cash
                paid during the year for:Income
                tax payments
            
            
            
            
            $
            -
            
            $
            74,887Interest
                payments
            
            
            
            
            $
            45,622
            
            $
            75,622




**Consolidated
                  Statements of Cash Flow**Reported
              
              Restated2005
              
              2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income
              
              $
              2,624,279
              
              $
              1,047,496Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Amortization
              
              
              -
              
              
              332,915Goodwill
                  impairment
              
              
              -
              
              
              1,213,843(Increase)
                  / decrease in assets:Accounts
                  receivables
              
              
              (204,099
              )
              
              (204,021
              )Inventory
              
              
              (111,030
              )
              
              (112,452
              )Other
                  receivables
              
              
              2,328
              
              
              (2,707
              )Prepaid
                  expense
              
              
              (127,979
              )
              
              (118,531
              )Deposits
              
              
              5,454
              
              
              (3,100
              )Increase
                  / (decrease) in current liabilities:Accounts
                  payable and accrued expenses
              
              
              (231,904
              )
              
              (197,862
              )Income
                  tax payable
              
              
              (27,801
              )
              
              (32,077
              )Deferred
                  revenue
              
              
              43,795
              
              
              43,795Total
                  Adjustments
              
              
              (531,353
              )
              
              1,039,685**Net
                  cash provided by operations**
              
              
              2,092,926
              
              
              2,087,181**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Payment
                  on loan payable
              
              
              (2,093
              )
              
              -Proceed
                  from loan from related party
              
              
              -
              
              
              -**Net
                  cash provided by financing activities**
              
              
              (2,093
              )
              
              -Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              69,097
              
              
              72,749**SUPPLEMENTAL
                  DISCLOSURES:**Cash
                  paid during the year for:Interest
                  payments
              
              $
              99,140
              
              $
              32,856




F-22





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITYReported
              
              Restated2006
              
              2006Additional
                  Paid In CapitalBalance
                  at beginning of year
              
              $
              2,913,114
              
              $
              13,107,324Balance
                  December 31, 2006
              
              
              6,693,417
              
              
              16,887,627Statutory
                  ReserveBalance
                  at beginning of year
              
              
              94,327
              
              
              105,849Transfer
                  from net income (loss)
              
              
              124,374
              
              
              184,082Balance
                  December 31, 2006
              
              
              218,701
              
              
              289,931Other
                  Comprehensive IncomeBalance
                  at beginning of year
              
              
              111,684
              
              
              61,682Transfer
                  from net income (loss)
              
              
              304,826
              
              
              307,605Balance
                  December 31, 2006
              
              
              416,510
              
              
              369,287Retained
                  earningsBalance
                  at beginning of year
              
              
              2,636,624
              
              
              701,257Net
                  income (loss)
              
              
              (921,455
              )
              
              (1,254,370
              )Balance
                  at end of year
              
              
              1,590,796
              
              
              476,647Total
                  Stockholder's Equity
              
              $
              8,981,460
              
              $
              18,085,528




CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITYReported
              
              Restated2005
              
              2005Additional
                  Paid In CapitalBalance
                  at beginning of year
              
              $
              2,895,614
              
              $
              13,089,824Balance
                  December 31, 2005
              
              
              2,913,114
              
              
              13,107,324Statutory
                  ReserveBalance
                  at beginning of year
              
              
              -
              
              
              11,522Balance
                  December 31, 2005
              
              
              94,327
              
              
              105,849Other
                  Comprehensive IncomeTransfer
                  from net income (loss)
              
              
              111,684
              
              
              61,682Balance
                  December 31, 2005
              
              
              111,684
              
              
              61,682Retained
                  earningsBalance
                  at beginning of year
              
              
              106,672
              
              
              (251,912
              )Net
                  income (loss)
              
              
              2,624,279
              
              
              1,047,496Balance
                  at end of year
              
              
              2,636,624
              
              
              701,257Total
                  Stockholder's Equity
              
              $
              5,810,209
              
              $
              14,030,572




Disclosure
      for each separate adjustment made to the financial statements and the impact
      on
      each line item of the financial statements.





F-23





**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006


ASSETSOriginal
              
              
              
              
              
              Restated2006
              
              
              
              Adjustments
              
              2006Current
                  AssetsCash
                  and cash equivalents
              
              $
              1,074,836
              
              
              
              
              
              
              
              $
              1,074,836Accounts
                  receivable, net
              
              
              4,093,717
              
              
              
              
              
              -
              
              
              4,093,717Inventory
              
              
              283,724
              
              
              
              
              
              -
              
              
              283,724Prepaid
                  expenses
              
              
              16,174
              
              
              
              
              
              -
              
              
              16,174Other
                  receivables
              
              
              54,995
              
              
              
              
              
              -
              
              
              54,995Other
                  receivables - related parties
              
              
              -
              
              
              
              
              
              -
              
              
              -Total
                  Current Assets
              
              
              5,523,446
              
              
              
              
              
              
              
              
              5,523,446Fixed
                  Assets, net
              
              
              1,120,570
              
              
              
              
              
              -
              
              
              1,120,570Total
                  Fixed Assets
              
              
              1,120,570
              
              
              
              
              
              
              
              
              1,120,570Other
                  AssetsPrepaid
                  expenses
              
              
              -
              
              
              
              
              
              -
              
              
              -Deposits
              
              
              3,100
              
              
              
              
              
              -
              
              
              3,100Amortizable
                  intangible assets, net
              
              
              511,111
              
              
              1,3
              
              
              2,621,701
              
              
              3,132,812Goodwill
              
              
              3,187,795
              
              
              1,2
              
              
              5,174,526
              
              
              8,362,321Total
                  Other Assets
              
              
              3,702,006
              
              
              
              
              
              
              
              
              11,498,233Total
                  Assets
              
              $
              10,346,022
              
              
              
              
              
              
              
              $
              18,142,249LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  LiabilitiesAccounts
                  payable and accrued expenses
              
              $
              887,042
              
              
              1
              
              
              (49,497
              )
              $
              837,545Deferred
                  revenue
              
              
              2,019.00
              
              
              
              
              
              
              
              
              2,019Tax
                  payable
              
              
              44,500.00
              
              
              1
              
              
              (44,500
              )
              
              0Loan
                  payable - related party
              
              
              174,600.00
              
              
              
              
              
              -
              
              
              174,600Current
                  portion, debt
              
              
              256,400
              
              
              
              
              
              -
              
              
              256,400Total
                  Current Liabilities
              
              
              1,364,561
              
              
              
              
              
              
              
              
              1,270,564Stockholders'
                  EquityCommon
                  stock
              
              
              54,461.00
              
              
              1
              
              
              (1
              )
              
              54,460.00Preferred
                  stock
              
              
              7,576.00
              
              
              
              
              
              
              
              
              7,576.00Additional
                  paid in capital
              
              
              6,693,417.00
              
              
              1
              
              
              10,194,210
              
              
              16,887,627.00Statutory
                  reserve
              
              
              218,701.00
              
              
              1
              
              
              71,230
              
              
              289,931.00Other
                  comprehensive income
              
              
              416,510.00
              
              
              1,3
              
              
              (47,223
              )
              
              369,287.00Retained
                  earnings (deficit)
              
              
              1,590,796
              
              
              1,2,3
              
              
              (2,327,992
              )
              
              (737,196
              )Total
                  Stockholders' Equity
              
              
              8,981,461
              
              
              
              
              
              
              
              
              16,871,685Total
                  Liabilities and Stockholders' Equity
              
              $
              10,346,022
              
              
              
              
              
              
              
              $
              18,142,249




F-24


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2006




Original
              
              
              
              Restated2006
              
              Adjustments
              
              2006Sales,
                  net
              
              $
              12,215,376
              
              
              -
              
              $
              12,215,376Cost
                  of sales
              
              
              7,980,579
              
              
              -
              
              
              7,980,579Gross
                  profit
              
              
              4,234,797
              
              
              
              
              
              4,234,797Selling
                  expense
              
              
              20,810
              
              
              -
              
              
              20,810General
                  and administrative expenses
              
              
              1,140,665
              
              
              332,915
              
              
              1,473,580Impairment
                  loss
              
              
              3,779,181
              
              
              -
              
              
              3,779,181Income
                  (loss) from operations
              
              
              (705,859
              )
              
              332,915
              
              
              (1,038,774
              )Other
                  (Income) ExpenseInterest
                  income
              
              
              (25,027
              )
              
              
              
              
              (25,027
              )Other
                  income
              
              
              -
              
              
              
              
              
              -Miscellaneous
                  expense
              
              
              (7,094
              )
              
              -
              
              
              (7,094
              )Interest
                  expense
              
              
              172,830
              
              
              -
              
              
              172,830Total
                  Other (Income) Expense
              
              
              140,709
              
              
              
              
              
              140,709Income
                  (loss) before income taxes
              
              
              (846,568
              )
              
              
              
              
              (1,179,483
              )Provison
                  for income taxes
              
              
              74,887
              
              
              -
              
              
              74,887Net
                  income (loss)
              
              $
              (921,455
              )
              
              
              
              $
              (1,254,370
              )
  **AJE
                    #**
                
                **ACCOUNT**
                
                **DR**
                
                **CR**1
                
                Goodwill
                
                6,388,369Amortizable
                    intangible assets, net
                
                3,329,145Common
                    stock
                
                1Additional
                    paid in capital
                
                
                
                10,194,210Accumulated
                    amortization
                
                
                
                374,529Statutory
                    reserve
                
                
                
                11,522Accounts
                    payable
                
                49,497Income
                    tax payable
                
                44,500Comprehensive
                    income
                
                47,223Goodwill
                
                
                
                1,213,843Retained
                    earnings
                
                1,935,367Adjustment
                    was made related to the restatement for the error in the valuation
                    of thecommon
                    shares and for the failure to appropriately identify intangible
                    assets for
                    theacquisition
                    of Billion in 2004 and to correct book balance to reflect
                    changesmade
                    from 2004 and 20052
                
                Amortization
                    expense
                
                332,915Accumulated
                    amortization
                
                
                
                332,915Record
                    amortization of intangibles as of December 31, 20063
                
                Retained
                    earnings
                
                59,708Statutory
                    reserve
                
                
                
                59,708To
                    record current years statutory reserve
  F-25




**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2006





**Note
      R -** **SUBSEQUENT
      EVENTS** **(RESTATED)**





On
      January 20, 2007 Sono moved into a new office in the building and signed an
      operating lease agreement for the office space in Shenzhen, China that will
      terminate on December 31, 2007. Monthly rent is approximately $746.





On
      January 20, 2007 the Company moved into a new office in the building and signed
      an operating lease agreement for the office space in Pasadena, California that
      will terminate on December 31, 2007. The office will serve as the center of
      operations in North America. Monthly rent is $1,400.





During
      the first quarter of 2007, our two largest customers, China mobile and China
      Unicom changed their purchase procedures. In the past, purchase orders were
      made
      by their local branch offices based on their needs and demand. The change now
      only allowed their main head office to place purchase orders from their selected
      vendors. They evaluated all vendors based on their criteria and unfortunately
      Sono Digital was not selected as one of their vendors. With the loss of the
      two
      largest users of our products, the fact that the telecom industry in China
      was a
      monopoly, there was no longer a market for our products.





Once
      the
      decision was made by our two largest customers, the Company discussed and
      considered selling Galaxy View. The Company did not have any other choice but
      to
      dispose the Galaxy View and felt that the amount received was the best offer
      that the Company could have received.





On
      April
      24, 2007, the Company entered into an Agreement on Transfer of Shares of Sono
      Digital Electronic Technologies Co., Ltd. with Liu Changqing and Wang Feng
      (collectively, the Purchasers”) for the sale of our wholly-owned subsidiary Sono
      Digital Electronic Technologies Co., Ltd. (“Sono”) (the “Agreement”). Changqing
      will purchase a 60% interest and Feng will purchase a 40% interest in Sono.
      In
      exchange for all of the outstanding shares of Sono, the Purchasers will pay
      $3,000,000 USD as consideration for the acquisition. We will enter into
      promissory notes with the Purchasers for payment of their share of the
      $3,000,000 which is due within 90 days of April 24, 2007. If payment is not
      made
      within 90 days, the promissory notes will accrue interest at 18% per annum
      from
      the closing date. The company has recovered $2 million subsequent to June 30,
      2007.





F-26