UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(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, 2008




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




For the
transition period from ___________ to ___________




Commission
File No. 000-49715




CHINA
DIGITAL COMMUNICATION GROUP


(Name
of small business issuer in its charter)




NEVADA
            91-2132336(State
      or other jurisdiction of
              incorporation
      or organization)
            (IRS
      Employer Identification No.)NO.
      2222 Jintian Road, Anlian Building
              15th
      Floor A-01 and A-02, Futian, Shenzhen, China
            51811(Address
      of principal executive offices)
            (Zip
      Code)




(86-755-2698-3767


(Registrant’s
telephone number, including area code)




Securities
      registered under Section 12(b) of the Exchange Act:Title
      of each class registered:
            Name
      of each exchange on which registered:None
            NoneSecurities
      registered under Section 12(g) of the Exchange Act:Common
      Stock, par value $0.0001
              (Title
      of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.       
Yes o    No x




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




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




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





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




Large
      accelerated filer
            o
            
            Accelerated
      filer
            oNon-accelerated
      filer
              (Do
      not check if a smaller reporting company)
            o
            
            Smaller
      reporting company
            x





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





The
aggregate market value of the registrant’s voting common stock held by
non-affiliates as of June 30, 2008 based upon the closing price reported for
such date on the OTC Bulletin Board was $2,178,425.





As of
April 15, 2009, the registrant had 54,460,626 shares of its common stock
outstanding.





Documents Incorporated by
Reference: None.









TABLE
OF CONTENTS





PART
      IITEM
      1.
            
            Business
            3ITEM1A.
            
            Risk
      Factors
            8ITEM
      2.
            
            Properties
            9ITEM
      3.
            
            Legal
      Proceedings
            9ITEM
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            9PART
      IIITEM
      5.
            
            Market
      for Registrant’s
      Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
            9ITEM
      6.
            
            Selected
      Financial Data
            10ITEM
      7.
            
            Management’s
      Discussion and Analysis of Financial Condition
      and Results of Operation
            10ITEM7A.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            15ITEM
      8.
            
            Financial
      Statements and Supplementary Data
            15ITEM
      9.
            
            Changes
      in andDisagreements
      with Accountants on Accounting and Financial
      Disclosure
            16ITEM
      9A(T)
            
            Controls
      and Procedures
            16PART
      IIIITEM
      10.
            
            Directors,
      Executive Officers and Corporate Governance
            16ITEM
      11.
            
            Executive
      Compensation
            18ITEM
      12.
            
            Security
      Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            18ITEM
      13.
            
            Certain
      Relationships and Related Transactions, and Director
      Independence
            18ITEM
      14.
            
            Principal
      Accounting Fees and Services
            19PART
      IVITEM
      15.
            
            Exhibits,
      Financial Statement Schedules
            19SIGNATURES
            21




2




PART
I





ITEM
1.      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”).





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.




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.




3





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"). 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.





During
the first quarter of 2007, Sono lost two of their largest customers and users of
their products, the fact that the telecom industry in China was a monopoly;
there was no longer a market for our products.





On April
24, 2007, the Company entered into an Agreement on Transfer of Shares of Galaxy
View with Liu Changqing and Wang Feng (collectively, the Purchasers”) for the
sale of our wholly-owned subsidiary Galaxy View (the “Agreement”). Changqing
purchased a 60% interest and Feng will purchase a 40% interest in Galaxy View.
In exchange for all of the outstanding shares of Galaxy View, the Purchasers
agreed to pay $3,000,000 USD as consideration for the acquisition. We entered
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. As of December 31, 2007, the amount has been paid in
full.




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.




4





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.





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.




5





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 Shenzhen Da Ke Battery Co., Ltd., Shenzhen Tian Lu Battery
Co., Ltd. and Shenzhen Di Kai Te Battery Electronic Tech. Co., Ltd which in the
aggregate account approximately 80% 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. Compare to 2007, our five largest
venders change a little bit which was due to our entry into the new business
segment. The unit price for the battery is much higher than the battery shell
which made the percentage of the purchased amount higher. Our new five largest
venders are listed as following:
  Vendors
      names
              
              Percentage
      of
                Total
                purchased
                amount
      in
                2008Shenzhen
      Da Ke Battery Co., Ltd.
              
              
              28.8
              %Shenzhen
      Tian Lu Battery Co., Ltd.
              
              
              26.9
              %Shenzhen
      Di Kai Te Battery Electronic Tech. Co., Ltd
              
              
              24.4
              %Shenzhen
      Yibao Tech.Co., Ltd.
              
              
              10.1
              %Shenzhen
      Huayi Aluminum Co.
              
              
              5.2
              %Total
              
              
              100
              %
  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.




6





Dependence
on One or a Few Customers
 
 In
2007, our five largest customers represented approximately 61% of our total
sales. The following table sets forth information regarding our five largest
customers. In 2008, due to higher sales price of our new developed battery
business and we also just have one customer, one of our major customer concluded
74.8% of our sales.
 
 MAJOR
      CUSTOMERSCustomer
      Name
              
              Percentage
      of Total Revenue for 2007Shenzhen
      Bak Battery Co., Ltd.
              
              
              22.8
              %Shenzhen
      Yin Si Qi Electronic Co., Ltd.
              
              
              14.0
              %Shenzhen
      Gao Yi Electronic Technology Co., Ltd..
              
              
              11.5
              %Guizhou
      Aero Electric Source Tech. Co., Ltd.
              
              
              6.8
              %Shenzhen
      Huanyuda Battery Electronic Tech. Co., Ltd
              
              
              6.0
              %
 
 Customer
      Name
              
              Percentage
      of Total Revenue for 2008Shenzhen
      Hua Yin Tong Battery Electronic Tech.  Co., Ltd.
              
              
              74.8
              %Shenzhen
      Huanyuda battery Electronic Tech. Co., Ltd.
              
              
              3.7
              %Shenzhen
      Bak Battery Co;, Ltd
              
              
              3.5
              %Shenzhen
      Hui Yang Da Electronic Co., Ltd
              
              
              2.7
              %Shenzhen
      Yin Si Qi Electronic Co., Ltd.
              
              
              1.9
              %Shenzhen
      Ping Bu Tech. Co., Ltd
              
              
              1.9
              %Total
              
              
              100
              %
 
 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. Compared to the sales in 2007, the total
sales of Shenzhen Bak increased in 2008. However, due to the unit price of
battery was much higher than the battery shell, it caused the significant drop
for Shenzhen Bak’s percentage of total revenue. 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
December 31, 2008, we had 5 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 December 31, 2008 we
have been issued 3 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.




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.




7





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.




·
            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, 2008, we had 4 employees, 1 of which are executive officers and 1
administrative personnel. E'Jenie had 6 divisions with 330 employees in total,
37 of which are supervisors and 288 of which are on the production lines. We
consider our relationships with our employees to be good. Chinese labor laws
require us to provide to all of our employees certain benefits and
insurance.


ITEM 1A.  RISK FACTORS




Not
applicable because we are a smaller reporting company.




8





ITEM 2.      PROPERTIES





Our
manufacturing headquarters and office 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. We recently closed our U.S. office located at 225 S. Lake Ave.,
Suite 300, Pasadena 91101.





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





There are
no pending legal proceedings to which the Company is a party or in which any
director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company. The Company’s property is not the subject of any pending
legal proceedings.





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





None.





PART
II





ITEM
5.   MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





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 fiscal
year. 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.





2007
            
            
            High
            
            
            
            LowFirst
      Quarter
            
            $
            0.28
            
            
            $
            0.21Second
      Quarter
            
            $
            0.24
            
            
            $
            0.17Third
      Quarter
            
            $
            0.25
            
            
            $
            0.13Fourth
      quarter
            
            $
            0.22
            
            
            $
            0.082008First
      Quarter
            
            $
            0.11
            
            
            $
            0.05Second
      Quarter
            
            $
            0.06
            
            
            $
            0.04Third
      Quarter
            
            $
            0.10
            
            
            $
            0.02Fourth
      Quarter
            
            $
            0.09
            
            
            $
            0.032009First
      Quarter
            
            $
            0.06
            
            
            $
            0.03




The
source of these high and low prices was the OTC Bulletin Board. These quotations
reflect inter-dealer prices, without retail mark-up, markdown or commissions and
may not represent actual transactions. The high and low prices listed have been
rounded up to the next highest two decimal places.




The
market price of our common stock is subject to significant fluctuations in
response to variations in our quarterly operating results, general trends in the
market, and other factors, over many of which we have little or no control. In
addition, broad market fluctuations, as well as general economic, business and
political conditions, may adversely affect the market for our common stock,
regardless of our actual or projected performance.





Holders




As of
April 15, 2009, in accordance with our transfer agent records, we had 115
recordholders of our 54,460,626 shares of Common Stock.




9





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-Q and current reports
on Form 8-K, we did not sell or issue any shares of stock.





ITEM 6.     SELECTED FINANCIAL DATA





Not
applicable because we are a smaller reporting company.





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





The
following discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 relating to future events or our future performance. Actual
results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this
prospectus. Although management believes that the assumptions made and
expectations reflected in the forward-looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual results will not be different from expectations expressed
in this report.





BUSINESS
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”).





We
manufacture and distribute battery shells and covers for cellular phone. We have
been maintaining long-term relationships with large lithium battery
manufacturers. We believe that we will continually receive orders from our loyal
customers because of our 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. 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.





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.




10





Recently
development





Under the
current depressed economic environment, the management of the Company has made
some strategic adjustments to keep the Company running and growing. On the basis
of keeping the existing battery pack accessories segment, the Company has
decided get into a related field business, finished battery distribution, to
diversify the products’ chain; consequently, the Company has created an
opportunity to keep competing in the whole battery industry. We currently engage
in battery distribution business with a customer that generated $14,748,595
during the year ended December 31, 2008.





Having
engaged in battery business for years, the management of the Company have
accumulated abundant knowledge about the battery industry, established a strong
network among many battery companies which are on both lower and upper position
of the battery distribution flow, and gained a lot of experience of battery
distributing; therefore, we believe that the Company is in a more favorable
position than other companies in distributing finished battery. Distributing
finished battery has a much higher profit margin than manufacturing battery
accessories, so the management of the Company is very confident that the battery
distribution business is profitable due to the outstanding battery quality and
the strong distribution network that the Company has been building for
years.




11





RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 AND 2007




The
following table presents certain consolidated statement of operations
information for the year ended December 31, 2008 and 2007. The discussion
following the table is based on these results. Certain columns may not add due
to rounding.




December 31,
      2008
              
              
              December 31,
      2007Revenue,
netBatteryshell and
      cover
              
              $
              4,967,813
              
              
              $
              2,696,267Batterydistribution
              
              
              14,748,595
              
              
              
              -19,716,408
              
              
              
              2,696,267Cost of
    revenueBatteryshell and
      cover
              
              
              4,158,868
              
              
              
              2,818,079Batterydistribution
              
              
              9,851,127
              
              
              
              -14,009,995
              
              
              
              2,818,079Gross
      profit
              
              
              5,706,413
              
              
              
              (121,812
              )Operating
      ExpensesSelling
      expense
              
              
              135,456
              
              
              
              24,270General
      and administrative expenses
              
              
              586,433
              
              
              
              1,132,212Goodwill
      impairment
              
              
              -
              
              
              
              9,012,191Total operating
      expenses
              
              
              721,889
              
              
              
              10,168,673Income
      (loss) from operations
              
              
              4,984,524
              
              
              
              (10,290,485
              )Other
      Income (Expense)Other
      income (expense), net
              
              
              -
              
              
              
              (4,466
              )Miscellaneous
      income (expense)
              
              
              (40,257
              )
              
              
              114,499Interest income
      (expense)
              
              
              (38,525
              )
              
              
              23,370Total
      other income (expense)
              
              
              (78,782
              )
              
              
              133,403Income
      (loss) before income taxes
              
              
              4,905,742
              
              
              
              (10,157,082
              )Provision for income
      taxes
              
              
              454,670
              
              
              
              -Income (loss) from continuing
      operations
              
              
              4,451,072
              
              
              
              (10,157,082
              )Discontinued
      operationsLoss on disposal
      of subsidiary
              
              
              -
              
              
              
              (35,635
              )Goodwill
      impairment
              
              
              -
              
              
              
              (1,295,556
              )Loss from
      discontinued operations
              
              
              -
              
              
              
              (37,578
              )Total
      loss from discontinued operations
              
              
              -
              
              
              
              (1,368,769
              )Net Income
      (loss)
              
              $
              4,451,072
              
              
              $
              (11,525,852
              )




12




Net
Revenue





Net
revenue for the year ended December 31, 2008 totaled $19,716,408 compared to
$2,696,267 for the year ended December 31, 2007, an increase of $17,020,141, or
approximately 631%. The increase was primarily due to the company’s entry into a
new segment of business as a distributor of batteries during the year ended
December 31, 2008. This new segment generated revenue of $14,748,595, or 75% of
total sales.





The
Company’s existing battery shell and cover business had net revenue of
$4,967,813 during the year ended December 31, 2008 compared with $2,696,267 for
the year ended December 31, 2007, and increase of $2,271,546, or
84%.  The increase in our sales in this segment was related to a
general increase in sales to existing customers as well as sales of
approximately $220,000 to three new customers.


The
Company has one customer that accounts for all of our sales of batteries. This
customer contracts with us on a monthly basis.




Cost
of Revenue





Cost of
sales for the year ended December 31, 2008 totaled $14,009,995or approximately
71% of net sales compared to $2,818,079 or 105% of net sales for the year ended
December 31, 2007, an increase of $11,191,916 or approximately 397%. Cost of
revenue of our new battery distribution segment was $9,851,127, or 50% of
revenue.




The
Company had developed effective purchasing techniques that enable it to remain competitive
in marketing its batteries, and it have limited the number of suppliers and have
negotiated preferable arrangements with them. This has enabled the Company to
realized gross margins of approximately 67% for this line of
product.


Cost of
sales related to our existing battery shell and cover business during the year
ended December 31, 2008 was $4,158,868, or 84% of battery
shellsales compared to $2,818,079 for the year ended December 31, 2007,
or 105% of sales.  The reduction in our cost of sales as a percentage
of sales is due to our ability to generate additional revenue with the current
infrastructure that we have in place.





Operating
Expense





Operating
expenses for the year ended December 31, 2008 totaled $721,889 or approximately
4% of net revenue compared to $10,168,673 or approximately 377% of net revenue
for the year ended December 31, 2007 a decrease of $9,446,784, or approximately
93%. The decrease in operating expenses has to do primarily with a goodwill
impairment computed during the year 2007 of $9,012,191.





Selling
expense for the year ended December 31, 2008 totaled $135,456 compared to
$24,270 for the same period in 2007.  The increase in selling expense
of $111,186 was due to an increase in wages for additional staff based on our
increased sales.





General
and administrative expenses for the year ended December 31, 2008 totaled
$586,433 compared to $1,132,212 for the same period in 2007.  The
decrease in general and administrative expenses of $545,779 was mainly due to a
decrease in our professional fees of $186,808 and a decrease in our payroll of
$82,174.





Income
(Loss) from Operations





Income
from operations for the year ended December 31, 2008 totaled $4,984,524 or
approximately 25% of net revenue compared to a loss from operations of
$(10,290,485) or approximately 381% of net revenue for the year ended December
31, 2007, an increase in net income of $15,275,009 or approximately 148%. The
increase in income from operations was primarily due to the reasons listed above
which include an increase in our revenue while decreasing our cost of revenue
and our operating expenses as a percentage of revenue.





Other
(Income) Expense





During
the year ended December 31, 2008 we had other expense of $78,782 compared to
other income of $133,403 for the year ended December 10, 2007, an increase in
other expense of $212,185.





Net
Income (Loss)





Net
income for the year ended December 31, 2008 totaled $4,451,072 compared to a net
loss of $(11,525,851) for the year ended December 31, 2007, an increase in net
income of $15,976,923 or approximately 139%. In addition to the reasons listed
above, the increase in net income was primarily due to the expenses incurred
during the year ended December 31, 2007 related to losses from discontinued
operations of $1,368,769.





LIQUIDITY
AND CAPITAL RESOURCES




Cash has
historically been generated from operations. Operations and liquidity needs are
funded primarily through cash flows from operations and short-term borrowings.
Cash and cash equivalents were $6,969,454 at December 31, 2008 and current
assets totaled $15,136,302 at December 31, 2008. The Company's total current
liabilities were $6,241,943 at December 31, 2008. Working capital at December
31, 2008 was $8,894,359. During the year ended December 31, 2008 and 2007, net
cash provided by (used in) operating activities were $1,184,532 and $2,149,443,
respectively.


Net cash
provided by (used in) investing activities totaled $(6,025) for the year ended
December 31, 2008, compared with $807,735 for the same period ended December 31,
2007.


13




Net cash
provided by financing activities totaled $2,162,250 for the year ended December
31, 2008. The net cash change was $3,175,328 and $3,224,158 for the years ended
December 31, 2008 and 2007, respectively.





We will
continue to evaluate alternative sources of capital to meet our growth
requirements, including other asset or debt financing, issuing equity securities
and entering into other financing arrangements. There can be no assurance,
however, that any of the contemplated financing arrangements described herein
will be available and, if available, can be obtained on terms favorable to
us.





The sale
of Galaxy View for $3 million dollar increased our cash balance and our working
capital.  The Company's current operations are now generating
sufficient cash to cover its operating costs.  However we have
suffered recurring losses in the past and have a large accumulated
deficit.  These conditions raise substantial doubt about the Company's
ability to continue as a going concern.  The Company has taken certain
restructuring steps to provide the necessary capital to continue its operations.
These steps included: 1) acquire profitable operations through issuance of
equity instruments, 2) to continue actively seeking additional funding and
restructure the acquired subsidiaries to increase profits and minimize the
liabilities and 3) enter into the battery distribution business in which we can
generate a higher gross margin.




Working Capital
Requirements




Historically
operations, short term financing and the sale of our company stock have been
sufficient to meet our cash needs. We believe that we will be able to generate
revenues from sales. However, our actual working capital needs for the long and
short term will depend upon numerous factors, including operating results,
competition, and the availability of credit facilities, none of which can be
predicted with certainty. Future expansion will be limited by the availability
of financing products and raising capital.




OFF-BALANCE
SHEET ARRANGEMENTS




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





CRITICAL
ACCOUNTING POLICIES





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





A summary
of significant accounting policies is included in Note 2 to the audited
consolidated financial statements included in this annual report. Management
believes that the application of these policies on a consistent basis enables us
to provide useful and reliable financial information about our Company's
operating results and financial condition.





Recent
accounting pronouncements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations and for an acquirer to be
identified for each business combination. This statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 141 (R) to
have a significant impact on its results of operations or financial
position.




14





In March,
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows.





FASB
Statement No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk–related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important.  The adoption of SFAS 161 did not
have a significant impact on its results of operations or financial
position.





In May
2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60.  The scope of
the statement is limited to financial guarantee insurance (and reinsurance)
contracts.  The pronouncement is effective for fiscal years beginning
after December 31, 2008.  The company does not believe this
pronouncement will impact its financial statements.





On
December 30, 2008 FASB issued FIN 48-3, “Effective Date of FASB Interpretation
No. 48 for Certain Nonpublic Enterprises”. This FSP defers the effective date of
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for
certain non-public enterprises as defined in paragraph 289, as amended, of FASB
Statement No. 109, Accounting for Income Taxes, including non-public
not-for-profit organizations. However, non-public consolidated entities of
public enterprises that apply U. S. GAAP are not eligible for the deferral.
Nonpublic enterprises that have applied the recognition, measurement, and
disclosure provisions of Interpretation 48 in a full set of annual financial
statements issued prior to the issuance of this FSP also are not eligible for
the deferral. This FSP shall be effective upon issuance. The Company does not
believe this pronouncement will impact its financial statements.





On
January 12, 2009 FASB issued FSP EITF 99-20-01, “Amendment to the Impairment
Guidance of EITF Issue No. 99-20”. This FSP amends the impairment guidance in
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to be Held
by a Transferor in Securitized Financial Assets,” to achieve more consistent
determination of whether an other-than-temporary impairment has occurred. The
FSP also retains and emphasizes the objective of an other-than-temporary
impairment assessment and the related disclosure requirements in FASB Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
other related guidance. The FSP is shall be effective for interim and annual
reporting periods ending after December 15, 2008, and shall be applied
prospectively. Retrospective application to a prior interim or annual reporting
period is not permitted. The Company does not believe this pronouncement will
impact its financial statements.




ITEM 7A.  QUANTITIATIVE AND QUALITATIVE DISCLOUSURES ABOUT
MARKET RISK





Not
applicable because we are a smaller reporting company.




ITEM 8.      FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.




15





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





None.





ITEM 9A(T).  CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CFO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CFO, as appropriate, to allow timely decisions regarding required
disclosure.





Management's
Annual Report on Internal Control Over Financial Reporting.





The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company.  Our internal control system was designed to, in general,
provide reasonable assurance to the Company’s management and board regarding the
preparation and fair presentation of published financial statements, but because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008.  The framework used by
management in making that assessment was the criteria set forth in the document
entitled “ Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that assessment,
our management has determined that as of December 31, 2008, the Company’s
internal control over financial reporting was effective for the purposes for
which it is intended.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.




Changes
in Internal Control over Financial Reporting





No change
in our system of internal control over financial reporting occurred during the
period covered by this report, fourth quarter of the fiscal year ended December
31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE





Directors and Executive
Officers




Set forth
below is certain information relating to our directors and executive officers,
including their names, ages, and positions.





Name
            
            Age
            
            Position
            
            Date
      of AppointmentZhongnan
      Xu
            
            60
            
            Chief
      Executive Officer and Chairman of the Board of Directors
            
            January
      4, 2007Jiangcheng
      Wu
            
            48
            
            Chief
      Financial Officer
            
            January
      5, 2007




16




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).





Zhongan Xuhas 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.





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.





Director
Compensation




None of
our directors receive any compensation for their services as a member of the
board of directors.





Auditors;
Code of Ethics; Financial Expert





We do not
have an audit committee financial expert.  We do not have an audit
committee financial expert because we believe the cost related to retaining a
financial expert at this time is prohibitive.  Furthermore, because we
are only beginning our commercial operations, at the present time, we believe
the services of a financial expert are not warranted.




Family
Relationships





There are
no family relationships among any of our officers or directors.





Involvement
in Certain Legal Proceedings




To the
best of our knowledge, none of our directors or executive officers have been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.





Compliance with Section
16(A) of the Exchange Act




Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who beneficially own more than 10% of a registered class of the Company
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and are required to furnish copies to the
Company. To the best of the Company’s knowledge, any reports required to be
filed were timely filed in the year ended December 31, 2008.




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.




17





ITEM 11.   EXECUTIVE COMPENSATION





The
following table sets forth information with respect to compensation paid by us
to our officers and directors during the three most recent fiscal years. This
information includes the dollar value of base salaries, bonus awards and number
of stock options granted, and certain other compensation, if any.




Non-
            
            
            NonqualifiedName
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Equity
            
            
            Deferred
            
            
            Alland
            
            
            
            
            
            
            
            
            
            Stock
            
            
            Option
            
            
            Incentive
            
            
            Compensation
            
            
            OtherPrincipal
            
            
            
            Salary
            
            
            Bonus
            
            
            Awards
            
            
            Awards
            
            
            Plan
            
            
            Earnings
            
            
            Compensation
            
            
            TotalPosition
            
            Year
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)
            
            
            (US$)(a)
            
            (b)
            
            (c)
            
            
            (d)
            
            
            (e)
            
            
            (f)
            
            
            (g)
            
            
            (h)
            
            
            (i)
            
            
            (j)Zhongnan
      Xu
            
            2008
            
            $
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            0CEO
      and Chairman
            
            2007
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            02006
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Jiangcheng
      Wu
            
            2008
            
            $
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            $
            0CFO
            
            2007
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            02006
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0





Employment
Agreements




We do not
have any employment agreements in place with our directors and
officers.





Compensation of
Directors





We have
no arrangements for the remuneration of officers and directors, except that they
will be entitled to receive reimbursement for actual, demonstrable out-of-pocket
expenses, including travel expenses, if any, made on our behalf in the
investigation of business opportunities. Other than as reflected in the table
above, no remuneration has been paid to our officers or directors. There are no
agreements or understandings with respect to the amount or remuneration those
officers and directors are expected to receive in the future. As of the date of
this Annual Report, no stock options have been issued to our officers or
directors.




ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT





The
following table sets forth, as of the date of this report, the total number of
shares owned beneficially by our sole director and officer and the present
owners of 5% or more of our total outstanding shares. The table also reflects
what their ownership will be assuming completion of the sale of all shares in
this offering. The stockholders listed below have direct ownership of his/her
shares and possess voting and dispositive power with respect to the
shares.




Title
      of Class
            
            Name
      and Address of Beneficial Owner
            
            Amount
      and Nature of Beneficial Ownership
            
            
            Percent
      of
              Class
      (2)Common
      Stock
            
            Zhongan
      Xu(1)
            
            
            —
            
            
            
            —Common
      Stock
            
            Yu
      Xi Sun(1)
            
            
            651,000
            
            
            
            1.2
            %Common
      Stock
            
            Jiangcheng
      Wu(1)
            
            
            —
            
            
            
            —Common
      Stock
            
            All
      officers and directors as a group (2 persons)
            
            
            0
            
            
            
            0
            %





(1) 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 April 15,
2009.





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




As of
December 31, 2008 and 2007, the Company has an unsecured, due on demand, and non
interest-bearing loan from a shareholder in the amount of $174,600.




18




ITEM 14.   PRINCIPAL ACCOUNTING FEES AND
SERVICES





(1)
Audit Fees





The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for our audit of annual financial
statements and review of financial statements included in our Form 10-K or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years
was:




2008
            
            $
            50,000
            
            Kabani
      & Company, Inc.2007
            
            $
            50,000
            
            Kabani
      & Company, Inc.




Audit Related
Fees





There
were no fees for audit related services for the years ended December 31, 2008
and 2007.




Tax Fees




For the
Company’s fiscal years ended December 31, 2008 and 2007, 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, 2008 and
2007.




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





Effective
May 6, 2003, the Securities and Exchange Commission adopted rules that require
that before our auditor is engaged by us to render any auditing or permitted
non-audit related service, the engagement be:





-
            approved
      by our audit committee; or





-
            entered
      into pursuant to pre-approval policies and procedures established by the
      audit committee, provided the policies and procedures are detailed as to
      the particular  service,  the  audit
      committee is informed of each service, and such policies and procedures do
      not include delegation of the audit committee's responsibilities to
      management.





We do not
have an audit committee.  Our entire board of directors pre-approves
all services provided by our independent auditors. The pre-approval process has
just been implemented in response to the new rules. Therefore, our board of
directors does  not have  records of  what
percentage of the above fees were pre-approved.  However, all of the
above services and fees were reviewed and approved by the entire board of
directors either before or after the respective services were
rendered.





PART
IV





ITEM 15.   EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.




a)
Documents filed as part of this Annual Report




1.
Financial Statements




2.
Financial Statement Schedules




3.
Exhibits




Exhibit No.
            
            Title
      of Document
            
            Location2.1
            
            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,
      2004




19




3.1.1
            
            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,
    2004




10.1
            
            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,
    200510.2
            
            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




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 GROUPDate:
      April 15, 2009
            By:
            /s/ Zhongnan
      XuZhongnan
      XuChief
      Executive Officer and Chairman of the Boardof
      Directors




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Name
            
            Title
            Date/s/Zhongnan Xu
            
            Chief
      Executive Officer and Chairman
            April  15,
      2009Zhongnan
      Xu/s/Jiangcheng
      Wu
            
            Chief
      Financial Officer
            April  15,
      2009Jiangcheng
      Wu




21





CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 DECEMBER
31, 2008
  
  TABLE
OF CONTENTS
  Report
      of Independent Registered Public Accounting Firm
              F-1Consolidated
      Balance Sheets
              F-2Consolidated
      Statements of Operations
              F-3Consolidated
      Statements of Cash Flow
              F-4Consolidated
      Statements of Changes in Stockholders’ Equity/(Deficit)
              F-5Notes
      to Consolidated Financial Statements
              F-6-21
 
 
  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 sheets of China Digital
Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
31, 2008 and 2007, and the related consolidated statements of operation,
stockholders' equity, and cash flows for the years ended December 31, 2008 and
2007. 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 audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
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 DigitalCommunication Group and Subsidiaries,
Inc. as of December 31, 2008 and 2007, and the consolidated results of
their operations and their consolidated cash flows for the years ended December
31, 2008 and 2007, in conformity with U.S. generally accepted accounting
principles.
  As explained in Note 12 to the
accompanying financial statements, one customer accounted for 100% of the
companies revenue from the sales of batteries, which accounted for 75% of the
companies total revenue for the year ended December 31, 2008.  Three vendors
provided 100% of batteries to the companyin the year ended December 31,
2008.
  /s/
Kabani & Company, Inc.
 Certified
Public Accountants
 
 Los
Angeles, California
 March 6,
2009
  F-1
  CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSAS
      OF DECEMBER 31, 2008 AND 2007
  ASSETS2008
                
                
                2007Current
      assetsCash
      and cash equivalents
                
                $
                6,969,454
                
                
                $
                3,794,126Accounts
      receivable
                
                
                7,407,371
                
                
                
                254,374Inventory
                
                
                759,477
                
                
                
                886,806Prepaid
      expenses
                
                
                -
                
                
                
                1,726Total
      current assets
                
                
                15,136,302
                
                
                
                4,937,032Plant,
      property & equipment, net
                
                
                859,232
                
                
                
                1,011,601Other
      assetsOther
      assets
                
                
                -
                
                
                
                8,530Tax
      receivable
                
                
                -
                
                
                
                183,020Intangible
      assets, net
                
                
                880,920
                
                
                
                927,617Total
      other assets
                
                
                880,920
                
                
                
                1,119,167Total
      assets
                
                $
                16,876,454
                
                
                $
                7,067,800LIABILITIES AND
      STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                3,467,324
                
                
                $
                725,333Tax
      payable
                
                
                399,519
                
                
                
                -Loan
      payable
                
                
                2,200,500
                
                
                
                274,200Loan
      payable to related party
                
                
                174,600
                
                
                
                174,600Total
      current liabilities
                
                
                6,241,943
                
                
                
                1,174,133Stockholders'
      equityPreferred
      stock, $.001 par value, 7,575,757 shares authorized,7,575,757,
      issued and outstanding
                
                
                7,576
                
                
                
                7,576Common
      stock, $.001 par value, 140,000,000 shares authorized,54,460,626,
      issued and outstanding
                
                
                54,460
                
                
                
                54,460Additional
      paid in capital
                
                
                16,950,348
                
                
                
                16,950,348Statutory
      reserve
                
                
                593,445
                
                
                
                105,849Other
      comprehensive income
                
                
                1,144,170
                
                
                
                854,398Accumulated
      deficit
                
                
                (8,115,488
                )
                
                
                (12,078,964
                )Total
      stockholders' equity
                
                
                10,634,511
                
                
                
                5,893,667Total
      liabilities and stockholders' equity
                
                $
                16,876,454
                
                
                $
                7,067,800
 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, 2008 AND 2007
  2008
                      
                      
                      2007Revenue,
      netBattery
      shell and cover
                      
                      $
                      4,967,813
                      
                      
                      $
                      2,696,267Battery
                      
                      
                      14,748,595
                      
                      
                      
                      -Total
      revenue
                      
                      
                      19,716,408
                      
                      
                      
                      2,696,267Cost
      of salesBattery
      shell and cover
                      
                      
                      4,158,868
                      
                      
                      
                      2,818,079Battery
                      
                      
                      9,851,127
                      
                      
                      
                      -Total
      cost of revenue
                      
                      
                      14,009,995
                      
                      
                      
                      2,818,079Gross
      profit (loss)
                      
                      
                      5,706,413
                      
                      
                      
                      (121,812
                      )Operating
      expensesSelling
      expense
                      
                      
                      135,456
                      
                      
                      
                      24,270General
      and administrative expenses
                      
                      
                      586,433
                      
                      
                      
                      1,132,212Goodwill
      impairment
                      
                      
                      -
                      
                      
                      
                      9,012,191Total
      operating expenses
                      
                      
                      721,889
                      
                      
                      
                      10,168,673Income
      (loss) from operations
                      
                      
                      4,984,524
                      
                      
                      
                      (10,290,485
                      )Other
      income (expense)Other
      income (expense), net
                      
                      
                      -
                      
                      
                      
                      (4,466
                      )Miscellaneous
      income (expense)
                      
                      
                      (40,257
                      )
                      
                      
                      114,499Interest
      income (expense)
                      
                      
                      (38,525
                      )
                      
                      
                      23,370Total
      other income (expense)
                      
                      
                      (78,782
                      )
                      
                      
                      133,403Income
      (loss) before income taxes
                      
                      
                      4,905,742
                      
                      
                      
                      (10,157,082
                      )Provision
      for income taxes
                      
                      
                      (454,670
                      )
                      
                      
                      -Income
      (loss) from continuing operations
                      
                      
                      4,451,072
                      
                      
                      
                      (10,157,082
                      )Discontinued
      operationsLoss
      on disposal of subsidiary
                      
                      
                      -
                      
                      
                      
                      (35,635
                      )Goodwill
      impairment
                      
                      
                      
                      
                      
                      
                      (1,295,556
                      )Loss
      from discontinued operations
                      
                      
                      -
                      
                      
                      
                      (37,578
                      )Total
      loss from discontinued operations
                      
                      
                      -
                      
                      
                      
                      (1,368,769
                      )Net
      income (loss)
                      
                      
                      4,451,072
                      
                      
                      
                      (11,525,851
                      )Other
      comprehensive incomeForeign
      currency translation
                      
                      
                      289,772
                      
                      
                      
                      485,112Comprehensive
      income (loss)
                      
                      $
                      4,740,844
                      
                      
                      $
                      (11,040,740
                      )Net
      income (loss) per share from continuing operationsBasic
                      
                      $
                      0.08
                      
                      
                      $
                      (0.19
                      )Diluted
                      
                      $
                      0.08
                      
                      
                      $
                      (0.19
                      )Net
      loss per share from discontinued operationsBasic
                      
                      $
                      -
                      
                      
                      $
                      (0.03
                      )Diluted
                      
                      $
                      -
                      
                      
                      $
                      (0.03
                      )Net
      income (loss) per share from net lossBasic
                      
                      $
                      0.08
                      
                      
                      $
                      (0.21
                      )Diluted
                      
                      $
                      0.08
                      
                      
                      $
                      (0.21
                      )Weighted
      average number of shares outstanding:Basic
                      
                      
                      54,460,626
                      
                      
                      
                      54,460,626Diluted
                      
                      
                      54,460,626
                      
                      
                      
                      54,460,626
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-3
  CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED DECEMBER 31, 2008 AND
2007
  2008
                  
                  
                  2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income (loss)
                  
                  $
                  4,451,072
                  
                  
                  $
                  (11,525,851
                  )Adjustments
      to reconcile net income (loss) to net cashprovided
      by operating activities:Depreciation
      expense
                  
                  
                  225,349
                  
                  
                  
                  205,008Amortization
      of intangible assets
                  
                  
                  83,437
                  
                  
                  
                  267,352Goodwill
      & intangible assets impairment
                  
                  
                  -
                  
                  
                  
                  9,012,191Loss
      on disposal of subsidiary
                  
                  
                  -
                  
                  
                  
                  35,635Stock
      option issued
                  
                  
                  -
                  
                  
                  
                  62,721(Increase)
      / decrease in current assets:Accounts
      receivables
                  
                  
                  (7,011,157
                  )
                  
                  
                  1,407,430Inventory
                  
                  
                  186,132
                  
                  
                  
                  (560,280
                  )Other
      receivables
                  
                  
                  -
                  
                  
                  
                  14,237Prepaid
      expense
                  
                  
                  1,726
                  
                  
                  
                  14,841Deposits
                  
                  
                  8,530
                  
                  
                  
                  (5,430
                  )Increase/(Decrease)
      in current liabilities:Accounts
      payable and accrued expenses
                  
                  
                  2,654,437
                  
                  
                  
                  13,510Tax
      payable
                  
                  
                  585,006
                  
                  
                  
                  (229,850
                  )Advance
                  
                  
                  -
                  
                  
                  
                  (2,073
                  )Total
      Adjustments
                  
                  
                  (3,266,541
                  )
                  
                  
                  10,235,292Net
      cash provided by (used in) operating activities from continuing
      operations
                  
                  
                  1,184,532
                  
                  
                  
                  (1,290,559
                  )Net
      cash provided by operating activities from discontinued
      operations
                  
                  
                  -
                  
                  
                  
                  3,440,002Net
      cash provided by operating activities
                  
                  
                  1,184,532
                  
                  
                  
                  2,149,443CASH
      FLOWS FROM INVESTING ACTIVITIESProceed
      from sale of subsidiary
                  
                  
                  -
                  
                  
                  
                  3,000,000Acquisition
      of property & equipment
                  
                  
                  (6,025
                  )
                  
                  
                  (75,371
                  )Net
      cash provided by (used in) investing activities from continuing
      operations
                  
                  
                  (6,025
                  )
                  
                  
                  2,924,629Net
      cash used in investing activities from discontinued
    operations
                  
                  
                  -
                  
                  
                  
                  (2,116,894
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  (6,025
                  )
                  
                  
                  807,735CASH
      FLOWS FROM FINANCING ACTIVITIESProceed
      from loan payable
                  
                  
                  2,162,250
                  
                  
                  
                  -Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  (165,428
                  )
                  
                  
                  266,980Net
      increase in cash and cash equivalents
                  
                  
                  3,175,328
                  
                  
                  
                  3,224,158Cash
      and cash equivalents, beginning balance
                  
                  
                  3,794,126
                  
                  
                  
                  569,968Cash
      and cash equivalents, ending balance
                  
                  $
                  6,969,454
                  
                  
                  $
                  3,794,126SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Income
      tax payments
                  
                  $
                  454,670
                  
                  
                  $
                  -Interest
      payments
                  
                  $
                  38,525
                  
                  
                  $
                  2,607
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-4
  CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2008 AND
2007
  Other
                    
                    
                    
                    
                    
                    
                    
                    
                    TotalCommon
      Stock
                    
                    
                    Preferred
                    
                    
                    Additional
      Paid
                    
                    
                    Comprehensive
                    
                    
                    Statutory
                    
                    
                    (Accumulated
                    
                    
                    Stockholders'Shares
                    
                    
                    Amount
                    
                    
                    Stock
                    
                    
                    in
      Capital
                    
                    
                    Income
                    
                    
                    Reserve
                    
                    
                    Deficit)
                    
                    
                    EquityBalance
      as of December 31, 2006
                    
                    
                    54,460,626
                    
                    
                    $
                    54,460
                    
                    
                    $
                    7,576
                    
                    
                    $
                    16,887,627
                    
                    
                    $
                    369,287
                    
                    
                    $
                    105,849
                    
                    
                    $
                    (553,113
                    )
                    
                    $
                    16,871,686Change
      in foreign currency translation gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    485,112
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    485,112Issuance
      of stock option
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,721
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,721Net
      income for the year ended December 31, 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (11,525,851
                    )
                    
                    
                    (11,525,851
                    )Balance
      as of December 31, 2007
                    
                    
                    54,460,626
                    
                    
                    $
                    54,460
                    
                    
                    $
                    7,576
                    
                    
                    $
                    16,950,348
                    
                    
                    $
                    854,398
                    
                    
                    $
                    105,849
                    
                    
                    $
                    (12,078,964
                    )
                    
                    $
                    5,893,667Change
      in foreign currency translation gain
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    289,772
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    289,772Statutory
      reserve
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    487,596
                    
                    
                    
                    (487,596
                    )
                    
                    
                    -Net
      income for the year ended December 31, 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,451,072
                    
                    
                    
                    4,451,072Balance
      as of December 31, 2008
                    
                    
                    54,460,626
                    
                    
                    $
                    54,460
                    
                    
                    $
                    7,576
                    
                    
                    $
                    16,950,348
                    
                    
                    $
                    1,144,170
                    
                    
                    $
                    593,445
                    
                    
                    $
                    (8,115,488
                    )
                    
                    $
                    10,634,511
 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, 2008
  Note
1 – 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 in cash and deliver 7,575,757 unregistered shares
of China Digital preferred stock valued at approximately
$3,787,879.
 
 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.  The Company
disposed off Galaxy View on April 24, 2007.
  Note
2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
Presentation
 
 The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America.  The Company’s functional currency is the Chinese Renminbi;
however the accompanying consolidated financial statements have been translated
and presented in United States Dollars ($).
  Exchange Gain
(Loss):
  During
the year ended December 31, 2008 and 2007, the transactions of E’Jenie 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.
  F-6
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  Translation
Adjustment
 
 As of
December 31, 2008 and 2007, the accounts of E’Jenie 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.
 
 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,
collectively referred to within as the Company.  All material
intercompany accounts, transactions and profits have been eliminated in
consolidation.
 
 Revenue
Recognition
 
 The Company manufacture
and distribute battery shells and covers for cellular phone. The Company
established a new division in 2008, through which the Company began selling
batteries in Peoples Republic of China. The Company's revenue recognition
policies are in compliance with Staff accounting bulletin (SAB) 104. Sales
revenue is recognized when the significant risks and rewards of the ownership of
goods have been transferred to the buyers. No revenue is recognized if there are
significant uncertainties regarding the recovery of the consideration due, the
possible return of goods, or when the amount of revenue and the costs incurred
or to be incurred in respect of the transaction cannot be measured
reliably.
 
 The
company acquire all of its battery products from three customers and sold all of
its battery product to one customer. The sales and purchase agreements with the
customer and vendors are on a month to month basis.
  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.
  F-7
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 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.
  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.
  F-8
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 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.
 
 Inventory
 
 Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. 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, 2008 and 2007, inventory consisted of raw
material, work in progress and finished goods as follows:
 
 Inventory
                
                2008
                
                
                2007Raw
Material
                
                $
                81,444
                
                
                $
                450,578Work-in-process
                
                
                21,017
                
                
                
                28,475Finished
    goods
                
                
                657,016
                
                
                
                407,753$
                759,477
                
                
                $
                886,806
  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
  F-9
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  As of
December 31, 2008 and 2007 Property, Plant & Equipment consist of the
following:
  2008
                
                
                2007Machinery
                
                $
                969,103
                
                
                $
                890,853Automobile
                
                
                36,508
                
                
                
                34,119Office
      equipment
                
                
                7,736
                
                
                
                16,332Building
                
                
                590,436
                
                
                
                551,7981,603,783
                
                
                
                1,493,102Accumulated
      depreciation
                
                
                (744,551
                )
                
                
                (481,501
                )$
                859,232
                
                
                $
                1,011,601
  Depreciation
expenses was $225,349 and $205,008 for the years ended December 31, 2008, and
2007.
  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.
  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.
  Intangible
Assets
  The
Company applies  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 assets may 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, 2008
  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.
  Recent accounting
pronouncements
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. This statement requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 141 (R) to
have a significant impact on its results of operations or financial
position.
  F-11
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 In March,
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows.
  FASB
Statement No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk–related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important.  The adoption of SFAS 161 did not
have a significant impact on its results of operations or financial
position.
 
 In May
2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60.  The scope of
the statement is limited to financial guarantee insurance (and reinsurance)
contracts.  The pronouncement is effective for fiscal years beginning
after December 31, 2008.  The company does not believe this
pronouncement will impact its financial statements.
  On
December 30, 2008 FASB issued FIN 48-3, “Effective Date of FASB Interpretation
No. 48 for Certain Nonpublic Enterprises”. This FSP defers the effective date of
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for
certain non-public enterprises as defined in paragraph 289, as amended, of FASB
Statement No. 109, Accounting for Income Taxes, including non-public
not-for-profit organizations. However, non-public consolidated entities of
public enterprises that apply U. S. GAAP are not eligible for the deferral.
Nonpublic enterprises that have applied the recognition, measurement, and
disclosure provisions of Interpretation 48 in a full set of annual financial
statements issued prior to the issuance of this FSP also are not eligible for
the deferral. This FSP shall be effective upon issuance. The Company does not
believe this pronouncement will impact its financial statements.
  On
January 12, 2009 FASB issued FSP EITF 99-20-01, “Amendment to the Impairment
Guidance of EITF Issue No. 99-20”. This FSP amends the impairment guidance in
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to be Held
by a Transferor in Securitized Financial Assets,” to achieve more consistent
determination of whether an other-than-temporary impairment has occurred. The
FSP also retains and emphasizes the objective of an other-than-temporary
impairment assessment and the related disclosure requirements in FASB Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
other related guidance. The FSP is shall be effective for interim and annual
reporting periods ending after December 15, 2008, and shall be applied
prospectively. Retrospective  application to a prior interim
or  annual reporting period is not permitted. The Company does not
believe this pronouncement will impact its financial statements.
  F-12
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  Note
3 – GOODWILL AND INTANGIBLE
ASSETS
 
 As of
December 31, 2008,  Goodwill comprised of the following:
  GoodwillBalance as of
      12/31/03
                
                $
                -Acquisition of
      Billion
                
                
                8,253,436Balance 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
                
                
                8,362,321Impairment of E'Jenie in
      2007
                
                
                (7,039,593
                )Impairment of Galaxy View in
      2007
                
                
                (1,295,556
                )Loss on sale of Galaxy
      View
                
                
                (27,172
                )Balance as of
      12/31/07
                
                $
                -Balance as of
      12/31/08
                
                $
                -
 
 The
Company tests for impairment annually or as needed.  The Company
projected for the decrease in revenue for 2008 in their revised forecast as of
December 31, 2007 and recorded their impairment as of December 31, 2007 for
future decrease in revenue.
 
 E’Jenie
incurred losses and also its revenue reduced significantly during the year ended
December 31, 2007. 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.  The Company performed
goodwill impairment test and concluded that there was impairment as to the
carrying value of goodwill of E’Jenie amounting to $7,039,593 as of December 31,
2007.
 
 The
Company disposed off Galaxy View on April 24, 2007 and recorded an impairment of
goodwill of $1,322,728 on the Galaxy acquisition based on the recoverable value
of the entity as of April 2007.
  F-13
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  Intangible
assets
 
 As of
December 31, 2008 and 2007 intangible assets consisted of the
following:
  2008
                
                
                2007Customer
      relationship
                
                $
                2,691,445
                
                
                $
                2,691,445Design
                
                
                366,850
                
                
                
                366,850Proprietary
      technology
                
                
                270,850
                
                
                
                270,850Land rights
                
                
                590,436
                
                
                
                551,798Intangible
      assets
                
                
                3,919,581
                
                
                
                3,880,943Impairment in
      2007
                
                
                (1,972,598
                )
                
                
                (1,972,598
                )Accumulated
      amortization
                
                
                (1,066,063
                )
                
                
                (980,728
                )Intangible,
    net
                
                $
                880,920
                
                
                $
                927,617
 
 
 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 $1,103,596.  Of that amount $551,798 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.
 
 E’Jenie
incurred losses and also its revenue reduced significantly during the year ended
December 31, 2007. 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 the China Government.  The Company
performed intangible assets impairment test and concluded that there was
impairment as to the carrying value of intangible assets of E’Jenie amounting to
$1,972,598 as of December 31, 2007.
 
 The
intangible assets are amortized over 10-30 years.  Amortization
expenses were $83,437 and $267,352 for the years ended December 31, 2008 and
2007 respectively.
 
 Amortization expensesfor the Company’s intangible assets over the next five
fiscalyears is estimated
to be:
 
 2009
                
                $
                83,4372010
                
                
                83,4372011
                
                
                83,4372012
                
                
                83,4372013,
                
                
                83,437After
                
                
                463,735Total
                
                $
                880,920
  F-14
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  Note
4 ­– VAT TAX AND INCOME TAX
RECEIVABLE (PAYABLE)
 
 As of
December 31, 2008 and 2007, tax payable and tax receivable comprised of the
following:
 
 2008
                
                
                2007Income tax receivable /
      (payable)
                
                $
                (256,170
                )
                
                $
                104,481VAT tax  receivable /
      (payable)
                
                
                (143,349
                )
                
                
                78,539Total
                
                $
                (399,519
                )
                
                $
                183,020
  Note
5 –ACCOUNTS PAYABLE
& ACCRUED EXPENSES
 
 As of
December 31, 2008 and December 31, 2007, accounts payable & accrued expenses
comprised of the following:
  2008
                  
                  
                  2007Accounts
      payable
                  
                  $
                  3,009,376
                  
                  
                  $
                  123,707Accrued professional
      fees
                  
                  
                  210,300
                  
                  
                  
                  365,742Accrued
      payroll
                  
                  
                  62,161
                  
                  
                  
                  46,149Welfare
      payable
                  
                  
                  91,274
                  
                  
                  
                  189,735Other accrued
      expenses
                  
                  
                  94,213
                  
                  
                  
                  -Total
                  
                  $
                  3,467,324
                  
                  
                  $
                  725,333
  Note
6 - LOAN PAYABLE
 
 As of
December 31, 2007, the Company has an unsecured, due on demand, and non
interest-bearing loan payable in the amount of $274,200 to a third
party.
 
 On August
25, 2008, the Company entered a bank loan agreement in the amount of $2,200,500
(RMB 15,000,000). The loan is unsecured, with floating rate interest-bearing
ranging from 6.66% to 7.47%, and is due on August 24, 2009.
 
 Note
7 – RELATED PARTY
TRANSACTIONS
 
 As of
December 31, 2008 and 2007, the Company has an unsecured, due on demand, and non
interest-bearing loan from a shareholder in the amount of $174,600.
 
 Note
8 – INCOME
TAXES
 
 The
Company is registered in the State of Navada and has operations in primarily two
tax jurisdictions - the PRC, British Virgin Island and the United States. For
certain operations in the US, the Company has 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. Therefore, the Company has provided full valuation allowance for the
deferred tax assets arising from the losses at the location as of December 31,
2008 and 2007. Accordingly, the Company has no net deferred tax
assets.
  F-15
 
 CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 The provision for income taxes
from continuing operations
on income consistedof the following for thetwelvemonth periods endedDecember31, 2008 and 2007:
 
 2008
              
              
              2007USCurrentIncome Tax ExpenseFederal
              
              $
              -
              
              
              $
              -State
              
              
              -
              
              
              
              -$
              -
              
              
              $
              -PRC
      Current Income Expense
              
              $
              454,670
              
              
              $
              -Total
      Provision for Income Tax
              
              $
              454,670
              
              
              $
              -
  The
following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Statement of
Operations:
 
 
 2008
              
              
              2007Tax
      expense (credit) at statutory rate - federal
              
              
              34
              %
              
              
              34
              %State
      tax expense net of federal tax
              
              
              6
              %
              
              
              6
              %Changes
      in valuation allowance
              
              
              (40
              %)
              
              
              (40
              %)Foreign
      income tax - PRC
              
              
              18
              %
              
              
              15
              %Exempt
      from income tax
              
              
              (9
              %)
              
              
              (15
              %)Tax
      expense at actual rate
              
              
              9
              %
              
              
              0
              %
 
 United States of
America
  As of
December 31, 2008, the Company  in the United States had approximately
$451,974 in net operating loss carry forwards available to offset future taxable
income. Federal net operating losses can generally be carried forward 20 years.
The deferred tax assets for the United States entities at December 31, 2008
consisted mainly of net operating loss carry forwards and were fully reserved as
the management believes it is more likely than not that these assets will not be
realized in the future.
 
 The
following table sets forth the significant components of the net deferred tax
assets for operation in the US as ofDecember 31, 2008and December 31,
2007.
 
 2008
              
              
              2007Net
      operation loss carry forward
              
              $
              (451,974
              )
              
              $
              (3,497,210
              )Total
      deferred tax assets
              
              
              1,423,450
              
              
              
              1,189,051Less:
      valuation allowance
              
              
              (1,423,450
              )
              
              
              (1,189,051
              )Net
      deferred tax assets
              
              $
              -
              
              
              $
              -
  People’s Republic of China
(PRC)
 
 Pursuant
to the PRC Income Tax Laws, the Company's subsidiary is generally subject to
Enterprise Income Taxes ("EIT") at a statutory rate of 33%, which comprises 30%
national income tax and 3% local income tax. The subsidiary is qualified as a
new technology enterprises and under PRC Income Tax Laws, it subject to a
preferential tax rate of 18%.
 
 Beginning
January 1, 2008, the new Enterprise Income Tax ("EIT") law will replace the
existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises
("FIEs"). The new standard EIT rate of 25% will replace the 33% rate currently
applicable to both DES and FIEs. The two years tax exemption, three years 50%
tax reduction tax holiday for production-oriented FIEs will be continued. The
Company’s applicable EIT rate under new EIT law is 9% which was approved by
local Tax department.
  F-16
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 As of
December 31, 2008, the Company’s PRC subsidiary had net operating gain in the
amount of $4,875,971. However, the Company had net operating loss carry forwards
from prior years which can be carried forward 5 years to offset this year’s
taxable income. The deferred tax assets for the PRC subsidiary at December 31,
2008 consists mainly of net operating loss carry forwards and were fully
reserved as the management believes it is more likely than not that these assets
will not be realized in the future.
 
 The
following table sets forth the significant components of the net deferred tax
assets for operation in PRC as of December 31, 2008 and December
31,2007.
  2008
              
              
              2007Net
      operation gian (loss) carry forward
              
              $
              4,650,371
              
              
              $
              (225,600
              )Total
      deferred tax assets
              
              
              -
              
              
              
              33,840Less:
      valuation allowance
              
              
              -
              
              
              
              (33,840
              )Net
      deferred tax assets
              
              $
              -
              
              
              $
              -
 
 Aggregate
net deferred tax assets
 
 The
following table sets forth the significant components of the aggregate net
deferred tax assets of the Company as of December 31, 2008 and December 31,
2007:
 
 2008
              
              
              2007Aggregate:Total
      deferred tax assets
              
              $
              1,423,450
              
              
              $
              1,222,891Less:
      valuation allowance
              
              
              (1,423,450
              )
              
              
              (1,222,891
              )Net
      deferred tax assets
              
              $
              -
              
              
              $
              -
 
 
 Note
9- 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 $15,768 for the year ended December 31, 2007.  As of
December 31, 2007, all operating leases had expired.
 
 Note
10– STOCK
OPTIONS
 
 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.
  F-17
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 The Company adopted SFAS 123(R) on
November 1, 2005 using themodified prospective method. Prior to
the adoption of SFAS 123(R) the Company did not have any stock options. The
Companydid notrecord expense for stock
based compensation for the year ended December 31, 2006.
  Risk-free
      interest rate
              
              
              4.00
              %Expectedlife
      of the options
              
              5yearExpected
      volatility
              
              
              58.0
              %Expected
      dividend yield
              
              
              0
              %
  
  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 options  vested and became exercisable on May 1,
2006.
 
 Risk-free
      interest rate
              
              
              4.77
              %Expected
      life of the options
              
              3yearExpected
      volatility
              
              
              126.76
              %Expected
      dividend yield
              
              
              0
              %
 
 The
outstaning options as of December 31, 2008 and December 31, 2007 listed as
follow:
 
 Number
      ofSharesOutstanding
      atJanuary01,
      2007
              
              
              250,000Granted
              
              
              -Exercised
              
              
              -Canceled
              
              
              -Outstanding
      at December 31, 2007
              
              
              250,000Granted
              
              
              -Exercised
              
              
              -Canceled
              
              
              -Outstanding
      at December 31, 2008
              
              
              250,000Exercisable
      at December 31, 2008
              
              
              250,000
  Options
outstanding atDecember
31,
2008and
related weighted average price andintrinsic
valueis
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
              
              
              
              1.84
              
              
              $
              0.530
              
              
              
              100,000
              
              
              $
              0.530
              
              
              
              -$
              0.702
              
              
              
              150,000
              
              
              
              0.21
              
              
              $
              0.702
              
              
              
              150,000
              
              
              $
              0.702
              
              
              
              -
  F-18
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  Note
11 – STATUTORY
RESERVE
 
 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 statutory common welfare fund is no longer
      required per the new cooperation law executed in
    2006.
  iv)
              Allocations
      to the discretionary surplus reserve, if approved in the shareholders'
      general meeting.
  In
accordance with the Chinese Company Law, the company has established a policy to
reserve 10% of its annual net income as statutory reserve. The Company reserved
$487,597 for year ended December 31, 2008 and $0 for the year ended December 31,
2007.
 
 Note
12 - MAJOR CUSTOMERS AND
VENDORS
 
 The
Company purchased its battery products from three vendors during the year ended
December 31, 2008 with each vendor individually accounting for about 36%, 34%
and 30% of purchases. Accounts payable to the venders amounted to RMB 7,497,200
($1,009,839), RMB 6,081,550 ($892,163) and RMB 5,637,270 ($826,988) as of
December 31, 2008. The Company did not purchase or sales battery product during
the year ended December 31, 2007.
 
 One major
customer accounted 100% of the battery sales during the year ended December 31,
2008. Accounts receivable from the customer amounted to RMB 48,124,656
($7,059,887) as of December 31, 2008.  The sales agreement with the
customer is on a monthto month basis. The Company did not have sales of battery
products in the year ended December 31, 2007.
 
 The
Company purchased its raw materials for battery shell business from three
vendors, who purchased more than 10% of the raw material for battery shell,
during the year ended December 31, 2008, with each vendor individually
accounting for about 51%, 26% and 17%. Accounts payable to the venders amounted
to RMB 832,570 ($122,138), RMB 308,000 ($45,184) and RMB 136,800 ($20,069),
respectively, as of December 31, 2008. The Company purchased its raw materials
for battery shell business from two vendors who purchased more than 10% of its
raw materials for battery shell, during the year ended December 31, 2007, with
each vendor individually accounting for about 27.4% and 27.3%. Accounts payable
to the vendors amounted to RMB 682,075 ($93,512) and RMB 1,300,355 ($178,279),
respectively, as of December 31, 2007.
 
 The
Company had four customers accounted over 10% of the battery shell sales during
the year ended December 31, 2008 with each customer individually accounting for
about 19%, 17%, 14% and 10%. Accounts receivable from the customer amount to RMB
381,132 ($55,912), RMB 456,166 ($66,919), RMB 173,304 ($25,424) and RMB 154,682
($22,692). The Company had three customers which accounted over 10% of the
battery shell sales for the year ended December 31, 2007 with each customer
individually accounting for about 22.8%, 14.0% and 11.5%. Accounts receivable
from the customers amounted to RMB 516,384 ($70,796), RMB 180,812 ($24,789) and
RMB 592,463 ($81,227) as of December 31, 2007.
  F-19
  CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 Note
13 – OTHER
COMPREHENSIVE INCOME
 
 Balances
of related after-tax components comprising accumulated other comprehensive
income (loss), included in stockholders’ equity, at December 31, 2008 and 2007
are as follows:
 
 Foreign
      Currency Translation AdjustmentBalance
      at December 31, 2006
                
                $
                369,287Change
      for 2007
                
                
                458,111Balance
      at December 31, 2007
                
                $
                854,398Change
      for 2008
                
                
                289,772Balance
      at December 31, 2008
                
                $
                1,144,170
 Note
14– SEGMENT
REPORTING
 
 The
Company had two principal operating segments which were: battery components manufacturerand distributor of battery.  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 disposed off the supplier of 3G telecommucations equipment, Galaxy,
during the six month period ended June 30, 2007 and has determined that the
battery components manufacturer is the only reportable segment for the year
ended December 31, 2007. The operations of Galaxy have been presented
separately, as discontinued operations, in the accompanying financial
statements. The loss of discounting operations during the periods ended December
31, 2007 was $37,578 and the loss on disposal of Galaxy was
$35,635.
  F-20
 CHINA
DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 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:
 
 2008
              
              
              2007Revenues
      from unaffiliated customers:Battery
      shell and cover
              
              $
              4,967,813
              
              
              $
              2,696,267Battery
              
              
              14,748,595
              
              
              
              -Consolidated
              
              $
              19,716,408
              
              
              $
              2,696,267Operating
      income (loss):Battery
      shell and cover
              
              $
              545,889
              
              
              $
              (10,290,485
              )Battery
              
              
              4,889,879
              
              
              
              -Corporation
      (1)
              
              
              (451,244
              )
              
              
              -Consolidated
              
              $
              4,984,524
              
              
              $
              (10,290,485
              )Net
      income (loss) before taxes:Battery
      shell and cover
              
              $
              467,047
              
              
              $
              (10,157,082
              )Battery
              
              
              4,889,879
              
              
              
              -Corporation
      (1)
              
              
              (451,184
              )
              
              
              -Consolidated
              
              $
              4,905,742
              
              
              $
              (10,157,082
              )Net
      income (loss) :Battery
      shell and cover
              
              $
              353,592
              
              
              $
              (225,600
              )Battery
              
              
              4,549,514
              
              
              
              -Corporation
      (1)
              
              
              (452,034
              )
              
              
              (11,325,658
              )Consolidated
              
              $
              4,451,072
              
              
              $
              (11,525,.851
              )Identifiable
      assets:Battery
      shell and cover
              
              $
              15,948,228
              
              
              $
              6,540,890Battery
              
              
              594,510
              
              
              
              -Corporation
      (1)
              
              
              333,716
              
              
              
              526,910Consolidated
              
              $
              16,876,454
              
              
              $
              7,067,800Depreciation
      and amortization:Battery
      shell and cover
              
              $
              239,216
              
              
              $
              222,673Battery
              
              
              -
              
              
              
              -Corporation
      (1)
              
              
              69,570
              
              
              
              249,687Consolidated
              
              $
              308,786
              
              
              $
              472,360Capital
      expenditures:Battery
      shell and cover
              
              $
              6,025
              
              
              $
              75,371Battery
              
              
              -
              
              
              
              -Corporation
      (1)
              
              
              -
              
              
              
              -Consolidated
              
              $
              6,025
              
              
              $
              75,371
  (1). Unallocated loss from Operating
income (loss) and Net income (loss) before taxes are primarily related to
general corporate
expenses.
 
 Note 15 –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.
  F-21