**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB/A**




(Mark
      One)




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




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


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


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




**Commission
      file number 000-49715**




**CHINA
      DIGITAL COMMUNICATION GROUP**


(Exact
      name of registrant as specified in its charter)




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





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




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




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




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





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





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





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




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









**TABLE
      OF CONTENTS**





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





2




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




**Forward-Looking
      Statements and Associated Risks**




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




**PART
      I**




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





**Business
      Development**





***Overview***





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





***History***





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





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





3




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





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





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





***Acquisition
      of Billion***





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





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





***Acquisition
      of Galaxy View***





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





4




**Our
      Business**





**LITHIUM
      BATTERIES**





***Industry***





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





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





***Business
      Strategy***





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





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





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





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





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





***Products***





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





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





5




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





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





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





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





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





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





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





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





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





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





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





***Competition***





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





***Manufacturing
      and Raw Materials***





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





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





6




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





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





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





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





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





***Sales
      and Marketing***





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





***Intellectual
      Property***





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





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




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




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





7




**MOBILE
      COMMUNICATION EQUIPMENT**





***Products
      and Services***





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





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





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





***Competition***





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





***Principal
      Supplier***





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





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





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





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




8




***Governmental
      Approval and Regulations***





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




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




***Research
      and Development***





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





**Doing
      Business in China**





*The
      Chinese Legal System*





The
      practical effect of the People's Republic of China legal system on our business
      operations in China can be viewed from two separate but intertwined
      considerations. First, as a matter of substantive law, the Foreign Invested
      Enterprise laws provide significant protection from government interference.
      In
      addition, these laws guarantee the full enjoyment of the benefits of corporate
      Articles and contracts to Foreign Invested Enterprise participants. These laws,
      however, do impose standards concerning corporate formation and governance,
      which are not qualitatively different from the general corporation laws of
      the
      several states. Similarly, the People's Republic of China accounting laws
      mandate accounting practices, which are not consistent with U.S. Generally
      Accepted Accounting Principles. China's accounting laws require that an annual
      "statutory audit" be performed in accordance with People's Republic of China
      accounting standards and that the books of account of Foreign Invested
      Enterprises are maintained in accordance with Chinese accounting laws. Article
      14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law
      requires a Wholly Foreign-Owned Enterprise to submit certain periodic fiscal
      reports and statements to designate financial and tax authorities, at the risk
      of business license revocation.





Second,
      while the enforcement of substantive rights may appear less clear than United
      States procedures, the Foreign Invested Enterprises and Wholly Foreign- Owned
      Enterprises are Chinese registered companies, which enjoy the same status as
      other Chinese registered companies in business-to-business dispute resolution.
      Generally, the Articles of Association provide that all business disputes
      pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration
      Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying
      Chinese substantive law. Any award rendered by this arbitration tribunal is,
      by
      the express terms of the respective Articles of Association, enforceable in
      accordance with the "United Nations Convention on the Recognition and
      Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical
      matter, although no assurances can be given, the Chinese legal infrastructure,
      while different in operation from its United States counterpart, should not
      present any significant impediment to the operation of Foreign Invested
      Enterprises such as E'Jenie.





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





·
            We
                will be able to capitalize on economic
                reforms.




9




·
            The
                Chinese government will continue its pursuit of economic reform
                policies.





·
            The
                economic policies, even if pursued, will be
                successful.





·
            Economic
                policies will not be significantly altered from time to
                time.





·
            Business
                operations in China will not become subject to the risk of
                nationalization.





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





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





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




**Employees**





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





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




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





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





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




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





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




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




10




**PART
      II**





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




**Market
      Information**





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




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





**Holders**





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





**Dividends**





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





**Recent
      Sales of Unregistered Securities**





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





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





**Equity
      Compensation Plan Information**


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


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


11


**ITEM
              6.** **MANAGEMENT'S
              DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**
 The
        following management discussion and analysis of financial condition and results
        of operations (“MD&A”) should be read in conjunction with the December 31,
        2006 consolidated financial statements and notes. The discussion of results,
        causes and trends should not be construed to imply any conclusion that such
        results or trends will necessarily continue in the future.
 
 The
        information contained in this MD&A, other than historical information,
        contains “forward looking statements” within the meaning of The Private
        Securities Litigation Reform Act of 1995 that are based on management’s current
        expectations and assumptions. This MD&A should be read in conjunction with
        the sections entitled “Additional Factors That May Affect Future Results” and
“Forward-Looking Statements.”
 
 **OVERVIEW**
  China
        Digital Communication Group (the “Company”) was incorporated under the laws of
        the State of Nevada on March 27, 2001. On September 30, 2004, the Company
        entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion).
        Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
        Science and Technology Company, Limited (E’Jenie). Billion, was incorporated
        under the laws of the British Virgin Islands on July 27, 2004. Shenzhen
        E’Jenie Science & Technology Company Limited
        was legally established on July 8, 2002 under the laws of the Peoples’ Republic
        of China (PRC). On June 28, 2006, the Company finalized an Exchange Agreement
        with Galaxy View International, Ltd (Galaxy View). Galaxy View owns all of
        the
        issued and outstanding shares of Shenzhen Sono Digital Technologies Company
        Limited (Sono). Galaxy View was incorporated under the laws of the British
        Virgin Islands on August 22, 2005. Sono was legally established on May 29,
        2001
        under the laws of the Peoples’ Republic of China.
 
 On
        September 30, 2004, the Company entered into an Exchange Agreement with Billion.
        Pursuant to the Exchange Agreement, the Company agreed to purchase all of
        the
        issued and outstanding shares of Billion for approximately $1,500,000 in
        cash
        and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the
        total issued and outstanding shares.
  On
        June
        28, 2006, the Company finalized an Exchange Agreement with Galaxy View
        International Ltd., the Company and the shareholders of Galaxy View (the
        “Shareholders”). Pursuant to the Exchange Agreement, the Company acquired 100%
        of Galaxy View in a cash and stock transaction valued at approximately
        $6,787,879. Under the terms of the Agreement, the Company will pay to the
        Shareholders $3,000,000 million in cash and deliver 7,575,757 unregistered
        shares of China Digital preferred stock valued at approximately $3,787,879.
 
 **RESULTS
        OF OPERATIONS**
  The
        following table presents the statement of operations for the year ended December
        31, 2006 as compared to the comparable period of the year ended December
        31,
        2005. The discussion following the table is based on these results.
  12
  **2006**
                
                
                **2005**Sales,
                  net
                
                $
                12,215,376
                
                $
                12,742,088Cost
                  of sales
                
                
                7,980,579
                
                
                8,971,859**Gross
                    profit**
                
                
                4,234,797
                
                
                3,770,229Operating
                    ExpensesSelling
                    expense
                
                
                20,810
                
                
                165,780General
                    and administrative expenses
                
                
                1,473,580
                
                
                1,202,359Goodwill
                    impairment
                
                
                3,779,181
                
                
                1,213,843Total
                    operating expenses
                
                
                5,273,571
                
                
                2,581,982**Income
                    from operations**
                
                
                (1,038,774
                )
                
                1,188,248Other
                    (Income) ExpenseInterest
                    income
                
                
                (25,027
                )
                
                (3,877
                )Miscellaneous
                    income
                
                
                (7,094
                )
                
                -Interest
                    expense
                
                
                172,830
                
                
                32,856Total
                    Other Income
                
                
                140,709
                
                
                28,979**Income
                    before income taxes**
                
                
                (1,179,483
                )
                
                1,159,269Provision
                  for income taxes
                
                
                74,887
                
                
                111,773**Net
                    income**
                
                $
                (1,254,370
                )
                $
                1,047,496
  Weighted
                    average of dilutive securities has not been calculated since
                    the effect of
                    dilutive securities is anti
                    dilutive.
 
 **Net
        sales**
  Net
        sales
        for the year ended December 31, 2006 totaled $ 12,215,376
        compared to $ 12,742,088
        for the year ended December 31, 2005, a
        decrease of $ 526,712
        or approximately 4.1%.
        Total sales from E’Jenie were $9,854,954 in 2006 as compared to $ 12,742,088
 in
        2005,
        a decrease of $2,887,134 or approximately 22.7%. The decrease in sales was
        due
        to decreased in demand from our customers in 2006 as compared to
        2005. ****
  **Cost
        of Sales**
  Cost
        of
        sales for the year ended December 31, 2006 totaled $ 7,980,579
        or approximately 65.3% of net sales compared to $ 8,971,859
        for the year ended December 31, 2005, a decrease of
        $ 991,280
 or
        approximately 11%. Total cost of sales for E’Jenie was $6,986,873 in 2006 as
        compared to $8,971,859 in 2005, a decrease of $1,984,986 or approximately
        22.1%.
        The decrease was due to decrease in net sales for E’Jenie for the year ended
        December 31.
  **Operating
        Expenses**
  Operating
        expenses for the year ended December 31, 2006 totaled $5,273,571
        or approximately 43.2% of net sales compared to $ 2,581,982or
        approximately 20.3% for the year ended December 31, 2005, an increase of $2,691,589
        or approximately 104.2%. The
        increase in operating expenses was primarily due to the impairment loss of
        $3,779,181 for the year ended December 31, 2006 and due to the increase in
        accounting and, legal, and other professional fees related to the SEC comment
        letters related to our financial statements and additional general and
        additional expense from Sono of $150,135 that was not included in the December
        31, 2005 numbers.
  **Income
        (Loss) from Operations**
  Income
        (loss) from operations for the year ended December 31, 2006 totaled
        $ (1,038,774)
        or approximately 8.56% of net sales compared to $1,188,248
        or approximately 9.3% for the year ended December 31, 2005 ,
        a
        decrease of
        $ 2,227,022
        or approximately 187.4%. The
        decrease was due primarily due to the impairment loss and increased operating
        expenses recognized in 2006.
  13
  **Interest
        Expense**
  Interest
        expense for the year ended December 31, 2006 totaled $172,830
        compared to $32,856
        for the year ended December 31, 2005, an increase
        of $ 139,974
        or approximately 426%.
        The increase
        was due to loan obtained for the acquisition of Galaxy and Sono.
  **Net
        Income (Loss)**
  Net
        income (loss) for the year ended December 31, 2006 totaled $ (1,254,370)
        compared to $ 1,047,496
        for the year ended December 31, 2005, a
        decrease of $ 2,301,866
        or approximately 219.8%.
        The decrease in net income was due primarily due to the impairment loss and
        increased operating expenses recognized in 2006 as described above.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
  Our
        primary source of liquidity as of December 31, 2006 is our cash on hand and
        accounts receivable. Net cash provided by operations for the year ended December
        31, 2006 was $2,195,422 as compared to net cash provided by operations of
        $2,087,181 during the same period in 2005. The increase in net cash provided
        by
        operating activities was a result of the decrease in accounts receivable
        and
        increased in accounts payable. Our cash and cash equivalents were $1,074,835
        and
        $2,061,213 as of December 31, 2006 and 2005, respectively. Our current assets
        totaled $5,523,446 on December 31, 2006. Our current liabilities were
        $1,270,564on December 31, 2006. Working capital was $4,252,882 as of December
        31, 2006.
 
 Net
        cash
        used in investing activities totaled $3,327,187for the year ended December
        31,
        2006, compared with $535,843 for the same period in 2005. The net cash change
        was $(986,378) and $1,624,087 for the year ended December 31, 2006 and 2005,
        respectively.
 
 
 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.
  At
        December, the Company had $0 outstanding under its $6 million bank line of
        credit from United Private Equity Ltd. The Company borrowed under the line
        of
        credit to fund the cash portion of the purchase price for the acquisition
        of
        Galaxy View International, Ltd.
  **Working
        Capital Requirements**
  Historically
        operations and short term financing have been sufficient to meet our cash
        needs.
        We believe that we will be able to generate revenues from sales and raise
        capital through private placement offerings of its equity securities to provide
        the necessary cash flow to meet anticipated working capital requirements.
        However, our actual working capital needs for the long and short term will
        depend upon numerous factors, including operating results, competition, and
        the
        availability of credit facilities, none of which can be predicted with
        certainty. Future expansion will be limited by the availability of financing
        products and raising capital.
  [ There
        are no off-balance sheet arrangements .




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




Our
      financial statements begin on page F-1 below.





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





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





14




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




**Evaluation
      of Disclosure Controls and Procedures**





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
      Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2006. Based
      on this evaluation, our principal executive officer and principal financial
      officer have concluded that our disclosure controls and procedures are effective
      to ensure that information required to be disclosed by us in the reports we
      file
      or submit under the Exchange Act is recorded, processed, summarized, and
      reported within the time periods specified in the Securities and Exchange
      Commission's rules and forms and that our disclosure and controls are designed
      to ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is accumulated and communicated to our
      management, including our principal executive officer and principal financial
      officer, or persons performing similar functions, as appropriate to allow timely
      decisions regarding required disclosure.





**Changes
      in Internal Controls**





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





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




None.





**PART
      III**




**Item
                9.**
            **Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act.**




The
      following table sets forth the name, age and position of each of our executive
      officers and directors as of March 30, 2007.


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





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





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





15




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





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





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





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




**Term
      of Office**




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





**Audit
      Committee**





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





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





**Code
      of Ethics**





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





**Significant
      Employees**





None.





**Family
      Relationships**





No
      family
      relationships exist among our directors or executive officers.





**Involvement
      in Certain Legal Proceedings**




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




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




16




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





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





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





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




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





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




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





**Compensation
      of Executive Officers**




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





**SUMMARY
      COMPENSATION TABLE**





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





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




17




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





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




**Employment
      Agreements**




None
      of
      our executive officers have employment agreements.




**Compensation
      of Directors**




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




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





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





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





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




18




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




None.




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




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




19




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




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




**Audit
      Fees**




2006





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





2005





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





The
      aggregate fees billed by our former auditors, Lichter, Yu & Associates, for
      professional services rendered for the reviews of the financial statements
      included in our Quarterly Reports on Form 10-QSB during fiscal year 2005 were
      $24,750.




**Tax
      Fees**




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




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




20





**SIGNATURES**




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




**CHINA
                DIGITAL COMMUNICATION GROUP**By:
            */s/
                Zhongnan Xu*ZHONGNAN
                XU
              President,
                Chief Executive Officer,
              Chief
                Financial OfficerDate:
            October
                  9, 2007






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





**Name**
            
            **Title**
            
            **Date***/s/
                Zhongnan Xu*
            
            Chief
                  Executive Officer and Chairman of the Board of
                  Directors
            
            October
                  9, 2007ZHONGNAN
                XU*/s/
                Jiangcheng Wu*
            
            Chief
                  Financial Officer
            
            October
                  9, 2007JIANGCHENG
                WU*/s/
                Xu Bao Dong*
            
            Secretary
            
            October
                  9, 2007XU
                BAO DONG








**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2006**
    
 
 
 **TABLE
        OF CONTENTS**
 Report
                    of Independent Registered Public Accounting Firm
                
                1Consolidated
                    Balance Sheet (Restated)
                
                2Consolidated
                    Statements of Operations (Restated)
                
                3Consolidated
                    Statements of Cash Flow (Restated)
                
                4Consolidated
                    Statements of Changes in Stockholders’ Equity/(Deficit)
                    (Restated)
                
                5Notes
                    to Consolidated Financial Statements
                
                6-23
 
 Report
        of
        Independent Registered Public Accounting Firm
 
 
 Board
        of
        Directors and Stockholders of
 China
        Digital Communication Group and Subsidiaries, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of China Digital
        Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
        31, 2006, and the related consolidated statements of operation, stockholders’
equity/(deficit), and cash flows for the years ended December 31, 2006 and
        2005.
        These consolidated financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these consolidated
        financial statements based on our audit.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall consolidated financial statement presentation.
        We
        believe that our audits provide a reasonable basis for our opinion.
  In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of China
        Digital Communication Group and Subsidiaries, Inc. as of
        December 31, 2006, and the consolidated results of their operations and their
        consolidated cash flows for the years ended December 31, 2006 and 2005, in
        conformity with U.S. generally accepted accounting principles.
  As
        discussed in Note Q, the financial statements for the years ended December
        31,
        2006 and 2005 have been restated.
  /s/
        Kabani & Company, Inc.
 **Certified
        Public Accountants**
 
 Los
        Angeles, California
 March
        10,
        2007, except for Note C, F, K, M, N, Q and R, which is as of August 19,
        2007
 
 1


**CHINA
                    DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEET****December
                    31, 2006****(Restated)**
 **ASSETS****Current
                      Assets**Cash
                      and cash equivalents
                  
                  $
                  1,074,835Accounts
                      receivable, net
                  
                  
                  4,093,717Inventory
                  
                  
                  283,724Prepaid
                      expenses
                  
                  
                  16,175Other
                      receivables
                  
                  
                  54,995Total
                      Current Assets
                  
                  
                  5,523,446**Property
                      & Equipment, net**
                  
                  
                  1,120,570**Other
                      Assets**Deposits
                  
                  
                  3,100Amortizable
                      intangible assets, net
                  
                  
                  3,132,812Goodwill
                  
                  
                  8,362,321Total
                      Other Assets
                  
                  
                  11,498,233**Total
                      Assets**
                  
                  $
                  18,142,249**LIABILITIES
                      AND STOCKHOLDERS' EQUITY****Current
                      Liabilities**Accounts
                      payable and accrued expenses
                  
                  $
                  837,545Loan
                      payable to related party
                  
                  
                  174,600Note
                      payable
                  
                  
                  256,400Unearned
                      revenue
                  
                  
                  2,019Total
                      Current Liabilities
                  
                  
                  1,270,564**Stockholders'
                      Equity**Common
                      stock, $.001 par value, 140,000,000shares
                      authorized, 54,460,626 issued and outstanding
                  
                  
                  54,460Preferred
                      stock, $.001 par value, 7,575,757shares
                      authorized, 7,575,757, issued and outstanding
                  
                  
                  7,576Additional
                      paid in capital
                  
                  
                  16,887,627Statutory
                      reserve
                  
                  
                  289,931Other
                      comprehensive income
                  
                  
                  369,287Accumulated
                      deficit
                  
                  
                  (737,196
                  )Total
                      Stockholders' Equity
                  
                  
                  16,871,685**Total
                      Liabilities and Stockholders' Equity**
                  
                  $
                  18,142,249
  The
              accompanying notes are an integral part of these consolidated financial
              statements.
 2
  **CHINA
                    DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF OPERATIONS****FOR
                    THE YEARS ENDED DECEMBER 31, 2006 AND 2005****(Restated)**
 **2006**
                
                **2005**Sales,
                    net
                
                $
                12,215,376
                
                $
                12,742,088Cost
                    of sales
                
                
                7,980,579
                
                
                8,971,859**Gross
                    profit**
                
                
                4,234,798
                
                
                3,770,229Selling
                    expense
                
                
                20,810
                
                
                165,780General
                    and administrative expenses
                
                
                1,473,580
                
                
                1,202,359Impairment
                
                
                3,779,181
                
                
                1,213,843Total
                    operating expenses
                
                
                5,273,571
                
                
                2,581,982**Income
                    (loss) from operations**
                
                
                (1,038,773
                )
                
                1,188,248Other
                    (income) expenseInterest
                    income
                
                
                (25,027
                )
                
                (3,877
                )Miscellaneous
                    expense
                
                
                (7,093
                )
                
                -Interest
                    expense
                
                
                172,830
                
                
                32,856Total
                    other expense
                
                
                140,710
                
                
                28,979**Income
                    (loss) before income taxes**
                
                
                (1,179,483
                )
                
                1,159,269Provision
                    for income taxes
                
                
                74,887
                
                
                111,773Net
                    income (loss)
                
                
                (1,254,370
                )
                
                1,047,496Other
                    comprehensive incomeForeign
                    currency translation
                
                
                307,605
                
                
                61,682**Comprehensive
                    income (loss)**
                
                $
                (946,765
                )
                $
                1,109,178**Net
                    income (loss) per share:**Basic
                    & diluted
                
                $
                (0.02
                )
                $
                0.02**Weighted
                    average number of shares outstanding:**Basic
                    & diluted
                
                
                54,460,626
                
                
                54,460,626
  Weighted
          average number of shares for dilutive securities has not been taken since
          the
          effect of dilutive securities is anti-dilutive
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  3
 **CHINA
                    DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS****FOR
                    THE YEARS ENDED DECEMBER 31, 2006 AND 2005****(Restated)**
  **2006**
                
                **2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    Income / (loss)
                
                $
                (1,254,370
                )
                $
                1,047,496Adjustments
                    to reconcile net income to net cashprovided
                    by operating activities:Depreciation
                
                
                182,829
                
                
                83,807Amortization
                
                
                332,915
                
                
                332,915Loss
                    on disposal of property & equipment
                
                
                -
                
                
                18,575Reserve
                    for bad debt
                
                
                21,443
                
                
                -Impairment
                    loss
                
                
                3,779,181
                
                
                1,213,843Issuance
                    of stock options
                
                
                -
                
                
                17,500(Increase)
                    / decrease in assets:Accounts
                    receivables
                
                
                896,425
                
                
                (204,021
                )Inventory
                
                
                70,266
                
                
                (112,452
                )Other
                    receivables
                
                
                295,956
                
                
                (2,707
                )Prepaid
                    expense
                
                
                116,016
                
                
                (118,531
                )Deposits
                
                
                704
                
                
                (3,100
                )Increase
                    / (decrease) in current liabilities:Accounts
                    payable and accrued expenses
                
                
                (2,122,808
                )
                
                (197,862
                )Income
                    tax payable
                
                
                (42,908
                )
                
                (32,077
                )Advances
                
                
                (80,227
                )
                
                43,795Total
                    adjustments
                
                
                3,449,792
                
                
                1,039,685**Net
                    cash provided by operations**
                
                
                2,195,422
                
                
                2,087,181**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Purchase
                    of subsidiary
                
                
                (3,000,000
                )
                
                -Cash
                    acquired in acquisition
                
                
                708,002
                
                
                -Proceeds
                    from sale of property & equipment
                
                
                -
                
                
                1,094Acquisition
                    of property & equipment
                
                
                (1,035,189
                )
                
                (536,937
                )**Net
                    cash used in investing activities**
                
                
                (3,327,187
                )
                
                (535,843
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Payment
                    on loan payable
                
                
                (3,251,540
                )
                
                -Proceed
                    from loan payable
                
                
                3,251,540
                
                
                -**Net
                    cash provided by financing activities**
                
                
                -
                
                
                -Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                145,388
                
                
                72,749**Net
                    increase (decrease) in cash and cash equivalents**
                
                
                (986,378
                )
                
                1,624,087**Cash
                    and cash equivalents, beginning balance**
                
                
                2,061,213
                
                
                437,126**Cash
                    and cash equivalents, ending balance**
                
                $
                1,074,835
                
                $
                2,061,213**SUPPLEMENTAL
                    DISCLOSURES:**Cash
                    paid during the year for:Income
                    tax payments
                
                $
                74,887
                
                $
                13,555Interest
                    payments
                
                $
                75,622
                
                $
                32,856Non-cash
                    investing and financing activities:Issuance
                    of preferred stock for purchase of business
                
                $
                3,787,879
                
                $
                -
 The
                      accompanying notes are an integral part of these consolidated
                      financial
                      statements.
  4
  **CHINA
                                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                                STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)****FOR
                                THE YEARS ENDED DECEMBER 31, 2006 AND 2005****(Restated)**
  **Common
                                Stock**
                            
                            **Preferred**
                            
                            **Additional**
                              **Paid
                                In**
                            
                            **Statutory**
                            
                            **Other**
                            
                            **Retained
                                Earnings**
                              **(Accumulated**
                            
                            **Total**
                                **Stockholders'**
                                **Equity/****Shares**
                            
                            **Amount**
                            
                            **Stock**
                            
                            **Capital**
                            
                            **Reserve**
                            ****
                            **Comprehensive**
                            
                            **Deficit)**
                            
                            **(Deficit)****Balance
                                December 31, 2004**
                            
                            
                            54,460,626
                            
                            $
                            54,460
                            
                            $
                            -
                            
                            $
                            13,089,824
                            
                            $
                            11,522
                            
                            $
                            -
                            
                            $
                            (251,912
                            )
                            $
                            12,903,894Issuance
                                of stock options
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            17,500
                            
                            
                            -
                            
                            
                            
                            
                            
                            -
                            
                            
                            17,500Change
                                in foreign currency translation gain
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            
                            
                            
                            61682
                            
                            
                            -
                            
                            
                            61,682Transfer
                                to statutory reserve
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            94,327
                            
                            
                            -
                            
                            
                            (94,327
                            )
                            
                            -Net
                                income for the year ended December 31, 2005
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            1,047,496
                            
                            
                            1,047,496**Balance
                                December 31, 2005**
                            
                            
                            54,460,626
                            
                            
                            54,460
                            
                            
                            -
                            
                            
                            13,107,324
                            
                            
                            105,849
                            
                            
                            61,682
                            
                            
                            701,257
                            
                            
                            14,030,572Acquisition
                                of subsidiary
                            
                            
                            -
                            
                            
                            -
                            
                            
                            7,576
                            
                            
                            3,780,303
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            3,787,879Change
                                in foreign currency translation gain
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            307,605
                            
                            
                            -
                            
                            
                            307,605Transfer
                                to statutory reserve
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            184,082
                            
                            
                            -
                            
                            
                            (184,082
                            )
                            
                            -Net
                                income for the year ended December 31, 2006
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -
                            
                            
                            (1,254,370
                            )
                            
                            (1,254,370
                            )**Balance
                                December 31, 2006**
                            
                            
                            54,460,626
                            
                            $
                            54,460
                            
                            
                            7,576
                            
                            $
                            16,887,627
                            
                            $
                            289,931
                            
                            $
                            369,287
                            
                            $
                            (737,196
                            )
                            $
                            16,871,686
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
 5
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
 **Note
        A -** **ORGANIZATION**
 
 China
        Digital Communication Group (the “Company”) was incorporated under the laws of
        the State of Nevada on March 27, 2001. On September 30, 2004, the Company
        entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion).
        Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
        Science and Technology Company, Limited (E’Jenie). Billion, was incorporated
        under the laws of the British Virgin Islands on July 27, 2004. Shenzhen
        E’Jenie Science & Technology Company Limited ,
        was
        legally established on July 8, 2002 under the laws of the Peoples’ Republic of
        China (PRC). On June 28, 2006, the Company finalized an Exchange Agreement
        with
        Galaxy View International, Ltd (Galaxy View). Galaxy View owns all of the
        issued
        and outstanding shares of Shenzhen Sono Digital Technologies Company Limited
        (Sono). Galaxy View was incorporated under the laws of the British Virgin
        Islands on August 22, 2005. Sono was legally established on May 29, 2001
        under
        the laws of the Peoples’ Republic of China. When used in these notes, the terms
“Company,” “we,” “our,” or “us” mean China Digital Communication Group and its
        Subsidiaries.
 
 On
        September 30, 2004, the Company entered into an Exchange Agreement with Billion.
        Pursuant to the Exchange Agreement, the Company agreed to purchase all of
        the
        issued and outstanding shares of Billion for approximately $1,500,000 in
        cash
        and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the
        total issued and outstanding shares.
 
 On
        June
        28, 2006, the Company finalized an Exchnage Agreement with Galaxy View
        International Ltd., the Company and the shareholders of Galaxy View (the
        “Shareholders”). Pursuant to the Exchange Agreement, the Company acquired 100%
        of Galaxy View in a cash and stock transaction valued at approximately
        $6,787,879. Under the terms of the Agreement, the Company will pay to the
        Shareholders $3,000,000 million in cash and deliver 7,575,757 unregistered
        shares of China Digital preferred stock valued at approximately $3,787,879.
 
 **Note
        B -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Basis
        of Presentation
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America.
        The Company’s functional currency is the Chinese Renminbi; however the
        accompanying consolidated financial statements have been translated and
        presented in United States Dollars ($).
  Exchange
        Gain (Loss):
  During
        the year ended December 31, 2006 and 2005, the transactions of E’Jenie and Sono
        were denominated in foreign currency and were recorded in Chinese Yuan Renminbi
        (CNY) at the rates of exchange in effect when the transactions occur. Exchange
        gains and losses are recognized for the different foreign exchange rates
        applied
        when the foreign currency assets and liabilities are settled.
 
 Translation
        Adjustment
  As
        of
        December 31, 2006 and 2005, the accounts of E’Jenie and Sono were maintained,
        and its financial statements were expressed, in Chinese Yuan Renminbi (CNY).
        Such financial statements were translated into U.S. Dollars (USD) in accordance
        with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign
        Currency Translation,” with the CNY as the functional currency. According to the
        Statement, all assets and liabilities were translated at the current exchange
        rate, stockholder’s equity are translated at the historical rates and income
        statement items are translated at the average exchange rate for the period.
        The
        resulting translation adjustments are reported under other comprehensive
        income
        in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component
        of shareholders’ equity.
 6
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
 Use
        of
        Estimates
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles in the United States (“GAAP”) requires management to make
        certain estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those estimates.
        Significant estimates include collectibility of accounts receivable, accounts
        payable, sales returns and recoverability of long-term assets.
 
 Principles of
        Consolidation
  The
        consolidated financial statements include the accounts of China Digital
        Communication Group and its wholly owned subsidiaries Billion, E’Jenie, Galaxy
        View and Sono , collectively referred to within as the Company. All material
        intercompany accounts, transactions and profits have been eliminated in
        consolidation.
 
 Revenue
        Recognition
  The
        Company’s revenue recognition policies are in compliance with Staff accounting
        bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectibility is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are satisfied are recorded as unearned
        revenue.
 
 The
        payment term for Sono is as follows; 30% of the invoice is due when the order
        is
        shipped and 60% of the invoice is within six months. The clients have another
        six month to pay for the remaining 10% balance.
  Stock-Based
        Compensation
  In
        December 2004, the FASB issued SFAS No. 123 (revised 2004),
‘‘Share-Based Payment’’ (‘‘SFAS 123R’’), which requires the measurement of all
        employee share-based payments to employees, including grants of employee
        stock
        options, using a fair-value-based method and the recording of such expense
        in
        the consolidated statements of operations. In March 2005, the SEC issued
        Staff
        Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation
        of SFAS 123R and the valuation of share-based payments for public companies.
        The
        Company has adopted SFAS 123R and related FASB Staff Positions (“FSPs”) as of
        October 01, 2005 and will recognize stock-based compensation expense using
        the
        modified prospective method.
  Advertising
  Advertising
        expenses consist primarily of costs of promotion for corporate image and
        product
        marketing and costs of direct advertising. The Company expenses all advertising
        costs as incurred.
  Income
        Taxes
  The
        Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
        recognition of deferred tax assets and liabilities for the expected future
        tax
        consequences of events that have been included in the financial statements
        or
        tax returns. Under this method, deferred income taxes are recognized for
        the tax
        consequences in future years of differences between the tax bases of assets
        and
        liabilities and their financial reporting amounts at each period end based
        on
        enacted tax laws and statutory tax rates applicable to the periods in which
        the
        differences are expected to affect taxable income. Valuation allowances are
        established, when necessary, to reduce deferred tax assets to the amount
        expected to be realized.
 7
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
 Statement
        of Cash Flows
  In
        accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
        Company’s operations is based upon the local currencies. As a result, amounts
        related to assets and liabilities reported on the statement of cash flows
        will
        not necessarily agree with changes in the corresponding balances on the balance
        sheet.
 
 Concentration
        of Credit Risk
  Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are cash, accounts receivable and other receivables arising from its
        normal
        business activities. The Company places its cash in what it believes to be
        credit-worthy financial institutions. The Company has a diversified customer
        base, most of which are in China. The Company controls credit risk related
        to
        accounts receivable through credit approvals, credit limits and monitoring
        procedures. The Company routinely assesses the financial strength of its
        customers and, based upon factors surrounding the credit risk, establishes
        an
        allowance, if required, for uncollectible accounts and, as a consequence,
        believes that its accounts receivable credit risk exposure beyond such allowance
        is limited.
 
 Risks
        and Uncertainties
  The
        Company is subject to substantial risks from, among other things, intense
        competition associated with the industry in general, other risks associated
        with
        financing, liquidity requirements, rapidly changing customer requirements,
        limited operating history, foreign currency exchange rates and the volatility
        of
        public markets.
 
 Contingencies
  Certain
        conditions may exist as of the date the financial statements are issued,
        which
        may result in a loss to the Company but which will only be resolved when
        one or
        more future events occur or fail to occur. The Company’s management and legal
        counsel assess such contingent liabilities, and such assessment inherently
        involves an exercise of judgment. In assessing loss contingencies related
        to
        legal proceedings that are pending against the Company or unasserted claims
        that
        may result in such proceedings, the Company’s legal counsel evaluates the
        perceived merits of any legal proceedings or unasserted claims as well as
        the
        perceived merits of the amount of relief sought or expected to be
        sought.
 
 If
        the
        assessment of a contingency indicates that it is probable that a material
        loss
        has been incurred and the amount of the liability can be estimated, then
        the
        estimated liability would be accrued in the Company’s financial statements. If
        the assessment indicates that a potential material loss contingency is not
        probable but is reasonably possible, or is probable but cannot be estimated,
        then the nature of the contingent liability, together with an estimate of
        the
        range of possible loss if determinable and material would be disclosed.
 
 Loss
        contingencies considered to be remote by management are generally not disclosed
        unless they involve guarantees, in which case the guarantee would be
        disclosed.
 
 Cash
        and Cash Equivalents
  Cash
        and
        cash equivalents inc lude
        cash
        in hand and cash in time deposits, certificates of deposit and all highly
        liquid
        debt instruments with original maturities of three months or less.
 
 Allowance
        for Doubtful Accounts
  The
        Company maintains reserves for potential credit losses on accounts receivable.
        Management reviews the composition of accounts receivable and analyzes
        historical bad debts, customer concentrations, customer credit worthiness,
        current economic trends and changes in customer payment patterns to evaluate
        the
        adequacy of these reserves. Allowance for doubtful debts amounted to $151,513
        as
        at December 31, 2006.
 8
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
 Inventory
  Inventories
        are valued at the lower of cost (determined on a weighted average basis)
        or
        market. The Management compares the cost of inventories with the market value
        and allowance is made for writing down their inventories to market value,
        if
        lower. As of December 31, 2006, inventory consisted of raw material, work
        in
        progress and finished goods as follows:
 **Inventory**Raw
                    Material
                
                $
                112,974Work-in-process
                
                
                22,382Finished
                    goods
                
                
                148,368$
                283,724
  Property,
        Plant & Equipment
  Property
        and equipment are stated at cost. Expenditures for maintenance and repairs
        are
        charged to earnings as incurred; additions, renewals and betterments are
        capitalized. When property and equipment are retired or otherwise disposed
        of,
        the related cost and accumulated depreciation are removed from the respective
        accounts, and any gain or loss is included in operations. Depreciation of
        property and equipment is provided using the straight-line method for
        substantially all assets with estimated lives of:
  Furniture
                    and Fixtures
                
                
                5
                    yearsEquipment
                
                
                5
                    yearsComputer
                    Hardware and Software
                
                
                5
                    yearsBuilding
                
                
                30
                    years
 As
        of
        December 31, 2006 Property, Plant & Equipment consist of the
        following:
  Machinery
                
                $
                782,623Leasehold
                    improvement
                
                
                32,581Automobile
                
                
                9,854Office
                    equipment
                
                
                83,668Building
                
                
                515,9781,424,704Accumulated
                    depreciation
                
                
                (304,134
                )$
                1,120,570
  Depreciation
        expenses were $182,829 and $83,807 for the years ended December 31, 2006,
        and
        2005.
  Fair
        Value of Financial Instruments
  Statement
        of financial accounting standard No. 107, Disclosures about fair value of
        financial instruments, requires that the Company disclose estimated fair
        values
        of financial instruments. The carrying amounts reported in the statements
        of
        financial position for current assets and current liabilities qualifying
        as
        financial instruments are a reasonable estimate of fair value.
  9
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
  Basic
        and Diluted Earnings Per Share
  Earnings
        per share is calculated in accordance with the Statement of financial accounting
        standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
        Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
        all
        periods presented has been restated to reflect the adoption of SFAS No. 128.
        Basic net loss per share is based upon the weighted average number of common
        shares outstanding. Diluted net loss per share is based on the assumption
        that
        all dilutive convertible shares and stock options were converted or exercised.
        Dilution is computed by applying the treasury stock method. Under this method,
        options and warrants are assumed to be exercised at the beginning of the
        period
        (or at the time of issuance, if later), and as if funds obtained thereby
        were
        used to purchase common stock at the average market price during the period.
  Goodwill
  Goodwill
        represents the excess of the purchase price over the fair value of the
        identifiable assets and liabilities acquired as a result of the Company’s
        acquisitions of interests in its subsidiaries. Under Statement of Financial
        Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
        Assets (“SFAS 142”),” goodwill is no longer amortized, but tested for impairment
        upon first adoption and annually, thereafter, or more frequently if events
        or
        changes in circumstances indicate that it might be impaired. The Company
        assesses goodwill for impairment periodically in accordance with SFAS 142.
  Intangible
        Assets
  The
        Company applies the criteria specified in SFAS No. 141, “Business
        Combinations” to determine whether an intangible asset should be recognized
        separately from goodwill. Intangible assets acquired through business
        acquisitions are recognized as assets separate from goodwill if they satisfy
        either the “contractual-legal” or “separability” criterion. Per SFAS 142,
        intangible assets with definite lives are amortized over their estimated
        useful
        life and reviewed for impairment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible
        assets, such as purchased technology, trademark, customer list, user base
        and
        non-compete agreements, arising from the acquisitions of subsidiaries and
        variable interest entities are recognized and measured at fair value upon
        acquisition. Intangible assets are amortized over their estimated useful
        lives
        from one to ten years. The Company reviews the amortization methods and
        estimated useful lives of intangible assets at least annually or when events
        or
        changes in circumstances indicate that it might be impaired. The recoverability
        of an intangible asset to be held and used is evaluated by comparing the
        carrying amount of the intangible asset to its future net undiscounted cash
        flows. If the intangible asset is considered to be impaired, the impairment
        loss
        is measured as the amount by which the carrying amount of the intangible
        asset
        exceeds the fair value of the intangible asset, calculated using a discounted
        future cash flow analysis. The Company uses estimates and judgments in its
        impairment tests, and if different estimates or judgments had been utilized,
        the
        timing or the amount of the impairment charges could be different.
  Effective
        January 1, 2002, the Company adopted Statement of Financial Accounting Standards
        No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
        144”), which addresses financial accounting and reporting for the impairment
        or
        disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
        Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
        the Results of Operations for a Disposal of a Segment of a Business.” The
        Company periodically evaluates the carrying value of long-lived assets to
        be
        held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
        to be recorded on long-lived assets used in operations when indicators of
        impairment are present and the undiscounted cash flows estimated to be generated
        by those assets are less than the assets’ carrying amounts. In that event, a
        loss is recognized based on the amount by which the carrying amount exceeds
        the
        fair market value of the long-lived assets. Loss on long-lived assets to
        be
        disposed of is determined in a similar manner, except that fair market values
        are reduced for the cost of disposal. Based on its review, the Company believes
        that, as of December 31, 2006 there were no significant impairments of its
        long-lived assets.
 10
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
  Recent
        accounting pronouncements
  In
        February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interests that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company’s first fiscal year that begins
        after September 15, 2006.
 
 In
        March
        2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this
        Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
        of Financial Assets and Extinguishments of Liabilities, with respect to the
        accounting for separately recognized servicing assets and servicing liabilities.
        This Statement:
 
 1.
              Requires
                  an entity to recognize a servicing asset or servicing liability
                  each time
                  it undertakes an obligation to service a financial asset by entering
                  into
                  a servicing contract.
 2.
              Requires
                  all separately recognized servicing assets and servicing liabilities
                  to be
                  initially measured at fair value, if practicable.
 3.
              Permits
                  an entity to choose ‘Amortization method’ or  Fair value measurement
                  method’ for each class of separately recognized servicing assets and
                  servicing liabilities:
 4.
              At
                  its initial adoption, permits a one-time reclassification of
                  available-for-sale securities to trading securities by entities
                  with
                  recognized servicing rights, without calling into question the
                  treatment
                  of other available-for-sale securities under Statement 115, provided
                  that
                  the available-for-sale securities are identified in some manner
                  as
                  offsetting the entity’s exposure to changes in fair value of servicing
                  assets or servicing liabilities that a servicer elects to subsequently
                  measure at fair value.
 5.
              Requires
                  separate presentation of servicing assets and servicing liabilities
                  subsequently measured at fair value in the statement of financial
                  position
                  and additional disclosures for all separately recognized servicing
                  assets
                  and servicing liabilities.
 
 This
        Statement is effective as of the beginning of the Company’s first fiscal year
        that begins after September 15, 2006. Management believes that this statement
        will not have a significant impact on the consolidated financial
        statements.
 
 In
        September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. This Statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
  11
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
  In
              September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
              Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
              88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
              employer to recognize the over funded or under funded status of a defined
              benefit postretirement plan (other than a multiemployer plan) as an
              asset or
              liability in its statement of financial position and to recognize changes
              in
              that funded status in the year in which the changes occur through comprehensive
              income of a business entity or changes in unrestricted net assets of
              a
              not-for-profit organization. This Statement also improves financial
              reporting by
              requiring an employer to measure the funded status of a plan as of
              the date of
              its year-end statement of financial position, with limited exceptions.
              An
              employer with publicly traded equity securities is required to initially
              recognize the funded status of a defined benefit postretirement plan
              and to
              provide the required disclosures as of the end of the fiscal year ending
              after
              December 15, 2006. An employer without publicly traded equity securities
              is
              required to recognize the funded status of a defined benefit postretirement
              plan
              and to provide the required disclosures as of the end of the fiscal
              year ending
              after June 15, 2007. However, an employer without publicly traded equity
              securities is required to disclose the following information in the
              notes to
              financial statements for a fiscal year ending after December 15, 2006,
              but
              before June 16, 2007, unless it has applied the recognition provisions
              of this
              Statement in preparing those financial
              statements:
  a.  A brief
        description of the provisions of this Statement
  b.  The date
        that adoption is required
  c.  The date
        the employer plans to adopt the recognition provisions of this Statement,
        if
        earlier.
  The
        requirement to measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end statement of financial position is effective for
        fiscal years ending after December 15, 2008. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
  **Note
        C - GOODWILL AND INTANGIBLE ASSETS** **(RESTATED)**
 
 **Goodwill**
 
 As
        of
        December 31, 2006, the Goodwill comprised of the following:
  **Goodwill**Acquisition
                    of Billion
                
                $
                7,039,593Acquisition
                    of Galaxy View
                
                
                1,322,728$
                8,362,321
  The
        Company performed an impairment test relating to goodwill arising from its
        acquisitions and concluded that there was an impairment as to the carrying
        value
        of goodwill as of December 31, 2006. The Company had projected better revenues
        from Galaxy View as of the date of acquisition. However, during the year,
        due to
        the loss of customers, projected revenue reduced significantly . The Company
        evaluated value of the subsidiaries based upon market value and recorded
        an
        impairment of $3,779,181 and $1,213,843 as of December 31, 2006 and 2005
        respectively.
 12
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
 **Intangible
        assets**
 
 As
        of
        December 31, 2006 intangible assets consist of the following:
 Customer
                    relationship
                
                $
                2,691,445Design
                
                
                366,850Proprietary
                    technology
                
                
                270,850Land
                    rights
                
                
                515,978Intangible
                    assets
                
                
                3,845,123Accumulated
                    amortization
                
                
                (712,311
                )$
                3,132,812
  The
        intangible assets are amortized over 10-30 years. Amortization expenses were
        $337,781 and $332,915 for the years ended December 31, 2006 and
        2005.
 
 Amortization
        expenses for the Company’s intangible assets over the next five fiscal years is
        estimated to be:
  2007
                
                $
                344,9152008
                
                
                344,9152009
                
                
                344,9152010
                
                
                344,9152011,
                
                
                344,915After
                
                
                1,408,237Total
                
                $
                3,132,812
  **Note
        D -** **ACQUISTION AGREEMENTS**
 
 On
        February 14, 2006, China Digital Communication Group, UPE Limited (Far East),
        a
        BVI corporation (“UPE Limited”), Shenzhen Zhuo Tong Power Supply Industry Co.,
        Ltd., a Shenzhen corporation and a wholly-owned subsidiary of UPE Limited
        (“Zhuo
        Tong”), and the shareholders of UPE Limited (the “Shareholders”), entered into a
        Share Exchange Agreement (the “Agreement”) pursuant to which China Digital will
        acquire 100% of UPE Limited in an all stock transaction valued at approximately
        US$9.6 million. China Digital issued 18.5 million shares of its common stock
        to
        the Shareholders in exchange for all of the shares UPE Limited (the “Share
        Exchange”). Upon completion of the Share Exchange, the Shareholders will own
        approximately 25% of China Digital.
 
 On
        June
        26, 2006, the Company issued a press release announcing that it had terminated
        its Share Exchange Agreement dated February 14, 2006 (the “Agreement”), with UPE
        Limited (Far East), a BVI corporation (UPE Limited”), Shenzhen Zhuo Tong Power
        Supply Industry Co., Ltd., a Shenzhen corporation and a wholly-owned subsidiary
        of UPE Limited, and the shareholders of UPE Limited (the “Shareholders”). As a
        result of the termination of the Agreement, the Shareholders returned, and
        the
        Company cancelled, the 18.5 million shares of the Company’s common stock that
        were previously issued to the Shareholders.
  On
        March
        22, 2006, China Digital Communication Group, Galaxy View International LTD,
        a
        BVI corporation ( “Galaxy”),
        Shenzhen Sono, a Shenzhen corporation and a wholly-owned subsidiary of Galaxy
        (“Sono”), and the shareholders of Galaxy (the “Shareholders”), entered into a
        Share Exchange Agreement (the “Agreement”) pursuant to which China Digital will
        acquire 100% of Galaxy for approximately $6,787,879. China Digital paid $3
        million dollars on March 12, 2006 to Galaxy and issued 7,575,757 million
        shares
        of Series A-1 Convertible Preferred Stock . The Company finalized the Agreement
        on June 28, 2006. Each share of Series A-1 Preferred Stock entitles the holder
        thereof to seven votes per share on all matters to be voted on by the
        shareholders of the Company and is mandatorily convertible into one share
        of the
        Company’s common stock on June 29, 2011. Each share of Series A-1 Preferred
        Stock shall, with respect to rights on liquidation, dissolution or winding
        up,
        rank (i) on a parity with the Company’s common stock, and (ii) junior to any
        other class of the Company’s preferred stock.
 13
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2006
 **Note
        E -** **STOCK
        EXCHANGE AGREEMENTS**
 
 **Galaxy
        View**
 
 On
        June
        28, 2006 the Company completed the purchase of Galaxy View, which owns all
        of
        the issued and outstanding shares of Sono. By acquiring all of the outstanding
        capital stock of Galaxy View and Sono in exchange for $3,000,000 and 7,575,757
        shares of the Company ’s
        Series
        A-1 Convertible Preferred Stock. The acquisition was accounted for using
        the
        purchase method of accounting and, accordingly, Galaxy View’s and Sono’s results
        of operations have been included in the consolidated financial statements
        since
        the date of acquisition. As of December 31, 2006, the preferred stock was
        issued
        and recorded at a value of $3,787,879 in the books of the Company.
  The
        following table presents the allocation of the acquisition cost, including
        professional fees and other related acquisition costs, to the fair value
        of
        assets acquired and liabilities assumed:
  Cash
                    and cash equivalents
                
                $
                701,169Accounts
                    receivable
                
                
                2,648,929Other
                    receivable
                
                
                337,825Prepaid
                
                
                701Property,
                    plant, and equipment
                
                
                54,041Total
                    assets
                
                
                3,742,665Accounts
                    payable
                
                $
                1,991,591Deferred
                    revenue
                
                
                65,104Total
                    liabilities
                
                
                2,056,695Total
                    acquisition cost
                
                $
                1,685,970CostTotal
                    cost of investment
                
                $
                6,787,879Total
                    Acquisition cost
                
                
                1,685,970Goodwill
                
                $
                5,101,909
 
 The
        following (unaudited) pro forma consolidated results of operations have been
        prepared as if the acquisition of Galaxy View had occurred at January 1,
        2006
        and 2005:
  December
                    31, 2006
                
                December
                    31, 2005Sales
                
                $
                14,857,765
                
                $
                18,072,130Net
                    income
                
                $
                274,962
                
                $
                4,489,521Net
                    income per share - basic
                
                $
                0.01
                
                $
                0.08Net
                    income per share - diluted
                
                $
                0.005
                
                $
                0.08
 
 The
        pro
        forma information is presented for informational purposes only and is not
        necessarily indicative of the results of operations that actually would have
        been achieved had the acquisitions been consummated as of that time, nor
        is it
        intended to be a projection of future results.
 14
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2006
 **Note
        F -** **ACCOUNTS PAYABLE & ACCRUED EXPENSES** **(RESTATED)**
 
 As
        of
        December 31, 2006, accounts payable & accrued expenses comprised of the
        following:
  Accounts
                    payable and accrued expenses
                
                $
                657,684Accrued
                    interest
                
                
                127,208VAT
                    payable
                
                
                52,652Total
                
                $
                837,544
  **Note
        G - LOAN PAYABLE**
 
 As
        of
        December 31, 2006, the Company has an unsecured, due on demand, non
        interest-bearing loan payable in the amount of $256,400 to a third
        party.
 
 **Note
        H -** **RELATED
        PARTY TRANSACTIONS**
 
 As
        of
        December 31, 2006, the Company has an unsecured, due on demand, non
        interest-bearing loan from Xuemei Fang, a shareholder, in the amount of
        $174,600.
 
 **Note
        I -** **INCOME
        TAXES**
  The
        Company through its subsidiaries, E’Jenie and Sono, is governed by the Income
        Tax Laws of the PRC. Operations in the United States of America have incurred
        net accumulated operating losses for income tax purposes. The Company believes
        that it is more likely than not that these net accumulated operating losses
        will
        not be utilized in the future and hence the Company has not recorded any
        deferred assets as of December 31, 2006.
  Pursuant
        to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) is at a statutory
        rate of 33%, which is comprises of 30% national income tax and 3% local income
        tax. E’Jenie qualified as a new technology enterprise and under PRC Income Tax
        Laws, is subject to a preferential tax rate of 15%. Sono is a Foreign Investment
        Enterprise and under PRC Income Tax Laws, they are entitled to either a
        three-year tax exemption followed by three years with a 50% reduction in
        the tax
        rate, commencing the first operating year, or a two-year tax exemption followed
        by three years with a 50% reduction in the tax rate, commencing the first
        profitable year.
 15
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2006
 The
                  following is a reconciliation of income tax expense:
  12/31/2006
                        
                        U.S.
                        
                        State
                        
                        International
                        
                        TotalCurrent
                        
                        $
                        0
                        
                        $
                        0
                        
                        $
                        74,887
                        
                        $
                        74,887Deferred
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Total
                        
                        $
                        0
                        
                        $
                        0
                        
                        $
                        74,887
                        
                        $
                        74,88712/31/2005
                        
                        
                        U.S.
                        
                        
                        State
                        
                        
                        International
                        
                        
                        TotalCurrent
                        
                        $
                        0
                        
                        $
                        0
                        
                        $
                        111,773
                        
                        $
                        111,773Deferred
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Total
                        
                        $
                        0
                        
                        $
                        0
                        
                        $
                        111,773
                        
                        $
                        111,773
 Reconciliation
                  of the differences between the statutory U.S. Federal income tax
                  rate and the
                  effective rate is as follows:
  12/31/2006
                          
                          12/31/2005US
                              statutory tax rate
                          
                          
                          34
                          %
                          
                          34
                          %Foreign
                              income not recognized in US
                          
                          
                          -34
                          %
                          
                          -34
                          %PRC
                              income tax
                          
                          
                          15
                          %
                          
                          15
                          %Effective
                              rate
                          
                          
                          15
                          %
                          
                          15
                          %
  **Note
                J-** **COMMITTMENTS**
 
 Operating
        Leases
 The
        Company leases various office facilities under operating leases that terminate
        on various dates. Rental expense for these leases consisted of approximately
        $90,677 for the year ended December 31, 2006. As of December 31, 2006, all
        operating leases had expired.
 
 **Note
        K-** **STOCK
        OPTION** **(RESTATED)**
 
 On
        November 4, 2005, the Company issued a nonqualified stock option for 100,000
        shares to a member of the board with an exercise price of $0.53 that will
        expire
        on November 3, 2010. The option shall vest and become exercisable
        immediately.
 
 The
        Company’s 2005 Stock Option Incentive Plan (the “Plan”) provides for the grant
        of 100,000 option rights to a non-employee director. The Plan is administered
        by
        the Company’s Compensation Committee (“Compensation Committee”). The
        Compensation Committee, as administrator of the plan, has the authority to
        select plan participants and determine the terms and conditions of such awards.
  The
        Company adopted SFAS 123(R) on November 1, 2005 using the modified prospective
        method. Prior to the adoption of SFAS 123(R) the Company did not have any
        stock
        options. The Company recorded expenses for stock base d
        compensation of $0 and $17,500 for the years ended December 31, 2006 and
        2005,
        respectively. The Company also recognized income tax benefits related to
        the
        stock based compensation of $0 and $6,000 for the years ended December 31,
        2006
        and 2005, respectively.
  Risk-free
                    interest rate
                4.00%Expected
                    life of the options
                5
                    yearExpected
                    volatility
                58.0%Expected
                    dividend yield
                0
                    %
 16
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
 On
              March
              20, 2006, the Company issued a non-incentive stock option for 150,000
              shares to
              a consultant with an exercise price of $0.702 that will expire on March
              19,
              2009. The option vested and became exercisable on May 1,
              2006.
  Risk-free
                    interest rate
                4.77%Expected
                    life of the options
                3
                    yearExpected
                    volatility
                126.76%Expected
                    dividend yield
                0
                    %
  Options
        outstanding at December 31, 2006 and related weighted average price and
        intrinsic value is as follows:
 
 Exercise
                  Prices
              
              Total
                Options
                Outstanding
              
              Weighted
                Average
                Remaining
                  Life
                (Years)
              
              Total
                Weighted
                Average
                Exercise
                  Price
              
              Options
                Exercisable
              
              Weighted
                Average
                Exercise
                  Price
              
              Aggegrate
                Intrinsic
                Value$
              0.530
              
              
              100,000
              
              
              0.75
              
              $
              0.530
              
              
              100,000
              
              $
              0.530
              
              
              -$
              0.702
              
              
              150,000
              
              
              0.75
              
              $
              0.702
              
              
              150,000
              
              $
              0.702
              
              
              -
  **Note
        L-** **STATUTORY
        COMMON WELFARE FUND**
 
 As
        stipulated by the Company Law of the People’s Republic of China (PRC), net
        income after taxation can only be distributed as dividends after appropriation
        has been made for the following:
 
 i.
              Making
                  up cumulative prior years’ losses, if any;
 
 ii.
              Allocations
                  to the “Statutory surplus reserve” of at least 10% of income after tax, as
                  determined under PRC accounting rules and regulations, until the
                  fund
                  amounts to 50% of the Company’s registered capital;
 
 iii.
              Allocations
                  of 5-10% of income after tax, as determined under PRC accounting
                  rules and
                  regulations, to the Company’s “Statutory common welfare fund”, which is
                  established for the purpose of providing employee facilities and
                  other
                  collective benefits to the Company’s employees; and
 
 iv.
              Allocations
                  to the discretionary surplus reserve, if approved in the stockholders’
                  general meeting.
 
 The
        Company established a reserve for the annual contribution of 5% of net income
        to
        the welfare fund in 2005. The amount included in the statutory reserve for
        the
        year ended December 31, 2006 amounted to $62,187 **.**
 
 **Note
        M -** **STATUTORY
        RESERVE** **(RESTATED)**
 
 In
        accordance with the Chinese Company Law, the company has allocated 10% of
        its
        annual net income, amounting $121,895 as statutory reserve for the year ended
        December 31, 2006.
 17
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
 **Note
              N -** **OTHER
              COMPREHENSIVE INCOME (RESTATED)**
 
 Balances
        of related after-tax components comprising accumulated other comprehensive
        income (loss), included in stockholders’ equity, at December 31, 2006 and 2005
        are as follows:
  *Foreign
                    Currency*
                  *Translation
                    Adjustment*Balance
                    at December 31, 2005
                
                $
                61,682Change
                    for 2006
                
                
                307,605Balance
                    at December 31, 2006
                
                $
                369,287
 
 **Note
        O-** **SEGMENT
        REPORTING**
 
 The
        Company has two principal operating segments which are: battery
        components manufacturer and supplier of 3G telecommunications
        equipment ,
        and
        supplier of hi-tech telecommunication equipment to the telecommunications
        industry. These operating segments were determined based on the nature of
        the
        products offered. Operating segments are defined as components of an enterprise
        about which separate financial information is available that is evaluated
        regularly by the chief operating decision-maker in deciding how to allocate
        resources and in assessing performance. The Company’s chief executive officer
        and chief financial officer have been identified as the chief operating decision
        makers. The Company’s chief operating decision makers direct the allocation of
        resources to operating segments based on the profitability, cash flows, and
        other measurement factors of each respective segment.
  The
        Company has determined that battery
        components manufacturer and supplier of 3G telecommunications equipment, and
        supplier of hi-tech telecommunication equipment to the telecommunications
        industry are reportable segments as they meet the quantitative thresholds
        under
        Financial Accounting Standards Board Statement No. 131 (Disclosures about
        Segments of an Enterprise and Related Information).
 
 The
        Company evaluates performance based on several factors, of which the primary
        financial measure is business segment income before taxes. The segments’
accounting policies are the same as those described in the summary of
        significant accounting policies. The following table shows the operations
        of the
        Company’s reportable segments.
  **Information
          about operations by operating segment for the year ended December 31, 2006
          is as
          follows:**
  **December
                      31, 2006**
                  
                  Battery
                  
                  Hi-TechComponent
                  
                  Telecommunication
                  
                  U.S
                  
                  TotalRevenues
                  
                  $
                  9,854,954
                  
                  $
                  2,360,422
                  
                  $
                  -
                  
                  $
                  12,215,376Intersegment
                      sales
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Income
                      (loss) before taxes
                  
                  
                  2,561,485
                  
                  
                  1,227,215
                  
                  
                  (4,968,183
                  )
                  
                  (1,179,483
                  )Depreciation
                      and amortization
                  
                  
                  176,002
                  
                  
                  6,827
                  
                  
                  332,915
                  
                  
                  515,744Interest
                      expense
                  
                  
                  45,868
                  
                  
                  (246
                  )
                  
                  127,208
                  
                  
                  172,830Goodwill
                      impairment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,779,181
                  
                  
                  3,779,181Interest
                      income
                  
                  
                  19,945
                  
                  
                  5,082
                  
                  
                  -
                  
                  
                  25,027
  The
        Company only had one reportable segement for the year ended December 31,
        2005.
 18
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
 (1)
        Total
        business assets are the owned or allocated assets used by each business.
        Corporate assets consist of cash and cash equivalents, unallocated fixed
        assets
        of support divisions and common facilities, and certain other
        assets.
 
 (2)
        Corporate property additions and depreciation and amortization expense include
        items attributable to the unallocated fixed assets of support divisions and
        common facilities.
 
 Also,
        because all of the Company’s sales are derived from the sales of products in
        China, all long-lived assets are located in China.
 
 **Note
        P -** **CURRENT
        VULNERABILITY DUE TO RISK FACTORS**
 
 The
        Company’s operations are carried out in the PRC. Accordingly, the Company’s
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environments in the PRC, by the general state
        of
        the PRC’s economy. The Company’s business may be influenced by changes in
        governmental policies with respect to laws and regulations, anti-inflationary
        measures, currency conversion and remittance abroad, and rates and methods
        of
        taxation, among other things.
  **Note
        Q - RESTATEMENTS**
 
 Subsequent
        to the issuance of the Company’s financial statements for the year ended
        De c ember
        31,
        2004, the Company determined that certain transactions and presentation in
        the
        financial statements had not been accounted for properly in the Company’s
        financial statements. Specifically,
        the purchase price allocation for the acquisition of Billion Electronics C o.
        Ltd.,
        was not done properly. Also, the acquisition balance sheet for Billion
        Electronics Co.
        Ltd.,
        was taken as of September 30, 2004 instead of November 15, 2004. The Company
        de cided
        to
        restate the financial statements for the year ended December 31, 2004 which
        resulted in a change in the opening numbers for the year ended December 31,
        2006
        and 2005. The financial statements for the year ended December 31, 2006 and
        2005
        have been restated to give effect to the changes to the opening
        balances.
  19
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
 The
        effect of the restatements is as
        follows:


**CONSOLIDATED
          BALANCE SHEET**
  Reported
                
                Restated2006
                
                2006Amortizable
                    intangible assets, net
                
                $
                511,111
                
                $
                3,132,812Goodwill
                
                
                3,187,795
                
                
                8,362,321Total
                    Other Assets
                
                
                3,702,006
                
                
                11,498,233Total
                    Assets
                
                
                10,346,021
                
                
                18,142,249Accounts
                    payable and accrued expenses
                
                
                887,042
                
                
                837,545Income
                    tax payable
                
                
                44,500
                
                
                -Total
                    Liabilities
                
                
                1,364,561
                
                
                1,270,564Additional
                    paid in capital
                
                
                6,693,417
                
                
                16,887,627Statutory
                    reserve
                
                
                218,701
                
                
                289,931Other
                    comprehensive income
                
                
                416,510
                
                
                369,287Retained
                    earnings/(Accumulated deficit)
                
                
                1,590,796
                
                
                (737,196
                )Total
                    Stockholders' Equity
                
                
                8,981,460
                
                
                16,871,685Total
                    Liabilities and Stockholders' Equity
                
                $
                10,346,021
                
                $
                18,142,249
  CONSOLIDATED
          STATEMENTS OF
          OPERATIONS
  Reported
                
                Restated2006
                
                2006General
                    and administrative expenses
                
                $
                1,140,665
                
                $
                1,473,580Total
                    operating expenses
                
                
                4,940,656
                
                
                5,273,571Loss
                    from operations
                
                
                (705,859
                )
                
                (1,038,773
                )Income
                    (loss) before income taxes
                
                
                (846,568
                )
                
                (1,179,483
                )Net
                    income (loss)
                
                
                (921,455
                )
                
                (1,254,370
                )Other
                    comprehensive incomeForeign
                    currency translation
                
                
                304,826
                
                
                307,605Comprehensive
                    Income (Loss)
                
                $
                (616,629
                )
                $
                (946,765
                )
  CONSOLIDATED
          STATEMENTS OF
          OPERATIONS
  Reported
                
                Restated2005
                
                2005General
                    and administrative expenses
                
                $
                839,418
                
                $
                1,202,359Goodwill
                    impairment
                
                
                
                
                
                1,213,843Total
                    operating expenses
                
                
                1,005,198
                
                
                2,581,982**Loss
                    from operations**
                
                
                2,765,031
                
                
                1,188,248**Income
                    (loss) before income taxes**
                
                
                2,736,052
                
                
                1,159,269**Net
                    income (loss)**
                
                
                2,624,279
                
                
                1,047,496Other
                    comprehensive incomeForeign
                    currency translation
                
                
                71,075
                
                
                61,682Comprehensive
                    Income (Loss)
                
                $
                2,695,354
                
                $
                1,109,178**Net
                    income (loss) per share:**Basic
                    and diluted
                
                $
                0.05
                
                $
                0.02
  20
  ******CHINA
          DIGITAL COMMUNICATION GROUP AND
          SUBSIDIARIES******


**NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2006
  **CONSOLIDATED
                STATEMENTS OF CASH FLOWS**
  **2006**
                      
                      **2006**(Reported)
                      
                      (Restated)CASH
                          FLOWS FROM OPERATING ACTIVITIESNet
                          Income (loss)
                      
                      $
                      (921,455
                      )
                      $
                      (1,254,370
                      )Adjustments
                          to reconcile net income (loss) to net cashprovided
                          by operating activities:Amortization
                      
                      
                      
                      
                      
                      332,915Increase
                          / (decrease) in current liabilities:Accounts
                          payable and accrued expenses
                      
                      
                      (2,043,189
                      )
                      
                      (2,122,808
                      )Tax
                          payable
                      
                      
                      (57,126
                      )
                      
                      (42,908
                      )Total
                          Adjustments
                      
                      
                      3,116,878
                      
                      
                      3,449,792Net
                          cash provided by operations
                      
                      
                      2,195,423
                      
                      
                      2,195,422Cash
                          paid during the year for:Income
                          tax payments
                      
                      $
                      -
                      
                      $
                      74,887Interest
                          payments
                      
                      $
                      45,622
                      
                      $
                      75,622
 **Consolidated
                    Statements of Cash Flow**
  Reported
                          
                          Restated2005
                          
                          2005**CASH
                              FLOWS FROM OPERATING ACTIVITIES**Net
                              Income
                          
                          $
                          2,624,279
                          
                          $
                          1,047,496Adjustments
                              to reconcile net income to net cashprovided
                              by operating activities:Amortization
                          
                          
                          -
                          
                          
                          332,915Goodwill
                              impairment
                          
                          
                          -
                          
                          
                          1,213,843(Increase)
                              / decrease in assets:Accounts
                              receivables
                          
                          
                          (204,099
                          )
                          
                          (204,021
                          )Inventory
                          
                          
                          (111,030
                          )
                          
                          (112,452
                          )Other
                              receivables
                          
                          
                          2,328
                          
                          
                          (2,707
                          )Prepaid
                              expense
                          
                          
                          (127,979
                          )
                          
                          (118,531
                          )Deposits
                          
                          
                          5,454
                          
                          
                          (3,100
                          )Increase
                              / (decrease) in current liabilities:Accounts
                              payable and accrued expenses
                          
                          
                          (231,904
                          )
                          
                          (197,862
                          )Income
                              tax payable
                          
                          
                          (27,801
                          )
                          
                          (32,077
                          )Deferred
                              revenue
                          
                          
                          43,795
                          
                          
                          43,795Total
                              Adjustments
                          
                          
                          (531,353
                          )
                          
                          1,039,685**Net
                              cash provided by operations**
                          
                          
                          2,092,926
                          
                          
                          2,087,181**CASH
                              FLOWS FROM FINANCING ACTIVITIES**Payment
                              on loan payable
                          
                          
                          (2,093
                          )
                          
                          -Proceed
                              from loan from related party
                          
                          
                          -
                          
                          
                          -**Net
                              cash provided by financing activities**
                          
                          
                          (2,093
                          )
                          
                          -Effect
                              of exchange rate changes on cash and cash equivalents
                          
                          
                          69,097
                          
                          
                          72,749**SUPPLEMENTAL
                              DISCLOSURES:**Cash
                              paid during the year for:Interest
                              payments
                          
                          $
                          99,140
                          
                          $
                          32,856


21
  CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2006
  **CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITY**
  Reported
                        
                        Restated2006
                        
                        2006Additional
                            Paid In CapitalBalance
                            at beginning of year
                        
                        $
                        2,913,114
                        
                        $
                        13,107,324Balance
                            December 31, 2006
                        
                        
                        6,693,417
                        
                        
                        16,887,627Statutory
                            ReserveBalance
                            at beginning of year
                        
                        
                        94,327
                        
                        
                        105,849Transfer
                            from net income (loss)
                        
                        
                        124,374
                        
                        
                        184,082Balance
                            December 31, 2006
                        
                        
                        218,701
                        
                        
                        289,931Other
                            Comprehensive IncomeBalance
                            at beginning of year
                        
                        
                        111,684
                        
                        
                        61,682Transfer
                            from net income (loss)
                        
                        
                        304,826
                        
                        
                        307,605Balance
                            December 31, 2006
                        
                        
                        416,510
                        
                        
                        369,287Accumulated
                            deficitBalance
                            at beginning of year
                        
                        
                        2,636,624
                        
                        
                        701,257Net
                            income (loss)
                        
                        
                        (921,455
                        )
                        
                        (1,254,370
                        )Balance
                            at end of year
                        
                        
                        1,590,796
                        
                        
                        (737,196
                        )Total
                            Stockholder's Equity
                        
                        $
                        8,981,460
                        
                        $
                        16,871,685
  CONSOLIDATED
                    STATEMENT OF STOCKHOLDERS' EQUITY
  Reported
                          
                          Restated2005
                          
                          2005Additional
                              Paid In CapitalBalance
                              at beginning of year
                          
                          $
                          2,895,614
                          
                          $
                          13,089,824Balance
                              December 31, 2005
                          
                          
                          2,913,114
                          
                          
                          13,107,324Statutory
                              ReserveBalance
                              at beginning of year
                          
                          
                          -
                          
                          
                          11,522Balance
                              December 31, 2005
                          
                          
                          94,327
                          
                          
                          105,849Other
                              Comprehensive IncomeTransfer
                              from net income (loss)
                          
                          
                          111,684
                          
                          
                          61,682Balance
                              December 31, 2005
                          
                          
                          111,684
                          
                          
                          61,682Retained
                              earningsBalance
                              at beginning of year
                          
                          
                          106,672
                          
                          
                          (251,912
                          )Net
                              income (loss)
                          
                          
                          2,624,279
                          
                          
                          1,047,496Balance
                              at end of year
                          
                          
                          2,636,624
                          
                          
                          701,257Total
                              Stockholder's Equity
                          
                          $
                          5,810,209
                          
                          $
                          14,030,572
 **Note
        R -** **SUBSEQUENT
        EVENTS** **(RESTATED)**
  On
        January 20, 2007 Sono moved into a new office in the building and signed
        an
        operating lease agreement for the office space in Shenzhen, China that will
        terminate on December 31, 2007. Monthly rent is approximately $746.
 
 On
        January 20, 2007 the Company moved into a new office in the building and
        signed
        an operating lease agreement for the office space in Pasadena, California
        that
        will terminate on December 31, 2007. The office will serve as the center
        of
        operations in North America. Monthly rent is $1,400.
 22
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2006
 On
        April
        24, 2007, the Company entered into an Agreement on Transfer of Shares of
        Sono
        Digital Electronic Technologies Co., Ltd. with Liu Changqing and Wang Feng
        (collectively, the Purchasers”) for the sale of our wholly-owned subsidiary Sono
        Digital Electronic Technologies Co., Ltd. (“Sono”) (the “Agreement”). Changqing
        will purchase a 60% interest and Feng will purchase a 40% interest in Sono.
        In
        exchange for all of the outstanding shares of Sono, the Purchasers will pay
        $3,000,000 USD as consideration for the acquisition. We will enter into
        promissory notes with the Purchasers for payment of their share of the
        $3,000,000 which is due within 90 days of April 24, 2007. If payment is not
        made
        within 90 days, the promissory notes will accrue interest at 18% per annum
        from
        the closing date. The company has recovered $2 million subsequent to June
        30,
        2007.
 
 23