UNITED
      STATES





SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB/A





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      fiscal year ended December 31, 2005





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





Commission
      file number 000-49715





CHINA
      DIGITAL COMMUNICATION GROUP





(Name
      of
      small business issuer in its charter)





Nevada
            
            91-2132336(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)




Number 2222. Jin Tian Road. An Lian
              Building
                15th
              Floor
                A-01 and A-02. Futian,
              Shenzhen,
                China
            
            518026(Address
                of principal executive offices)
            
            (Zip
                Code)




Issuer’s
      telephone number, including area code: 86-755-2698-3767





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, par value
      $0.001 per share





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 o No x





The
      Company’s revenues from continuing operations for its fiscal year ended December
      31, 2005 were $12,637,645.








The
      aggregate market value as at March 22, 2006 of the issuer’s Common Stock, its
      only class of voting stock, held by non-affiliates was approximately
      $21,238,591. For purposes of this computation, all executive officers, directors
      and 10% stockholders were deemed affiliates. Such a determination should not
      be
      construed as an admission that such 10% stockholders are
      affiliates.





The
      number of shares outstanding of the issuer’s Common Stock as at March 22, 2005
      was 72,960,626.





DOCUMENTS
      INCORPORATED BY REFERENCE





None.





Transitional
      Small Business Disclosure Format Yes o No x










TABLE
      OF
      CONTENTS





PAGEFORWARD
                LOOKING STATEMENTS
            1PART
                IITEM
                1.
            Description
                of Business
            2ITEM
                2.
            Description
                of Property
            13ITEM
                3.
            Legal
                Proceedings
            13ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            13PART
                IIITEM
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small
            13Business
                Issuer Purchases of Equity SecuritiesITEM
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            14ITEM
                7.
            Financial
                Statements
            16ITEM
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            16ITEM
                8A.
            Controls
                and Procedures
            16ITEM
                8B.
            Other
                Information
            17ITEM
                9.
            Directors
                and Executive Officers of the Registrant; Compliance with Section
                16(a) of
                the Exchange Act
            17ITEM
                10.
            Executive
                Compensation
            20ITEM
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            22ITEM
                12.
            Certain
                Relationships and Related Transactions
            24ITEM
                13.
            Exhibits
            24ITEM
                14.
            Principal
                Accountant Fees and Services
            26Financial
                Statements
            F-1




i




FORWARD
      LOOKING STATEMENTS





We
      have
      included and from time to time may make in our public filings, press releases
      or
      other public statements, certain statements, including, without limitation,
      those under “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” in Part II, Item 7. In some cases these statements are
      identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,”
“may,” “should,” “will,” “would” and similar expressions. You are cautioned not
      to place undue reliance on these forward-looking statements. In addition, our
      management may make forward-looking statements to analysts, investors,
      representatives of the media and others. These forward-looking statements are
      not historical facts and represent only our beliefs regarding future events,
      many of which, by their nature, are inherently uncertain and beyond our
      control.





The
      nature of our business makes predicting the future trends of our revenues,
      expenses and net income difficult. The risks and uncertainties involved in
      our
      businesses could affect the matters referred to in such statements and it is
      possible that our actual results may differ materially from the anticipated
      results indicated in these forward looking statements. Important factors that
      could cause actual results to differ from those in the forward-looking
      statements include, without limitation:





·
            the
                effect of political, economic and market conditions and geopolitical
                events;·
            the
                actions and initiatives of current and potential
                competitors;·
            our
                reputation;·
            investor
                sentiment; and·
            other
                risks and uncertainties detailed under “Risk Factors” in Part I and
                elsewhere throughout this report.




Accordingly,
      you are cautioned not to place undue reliance on forward-looking statements,
      which speak only as of the date on which they are made. We undertake no
      obligation to update publicly or revise any forward-looking statements to
      reflect the impact of circumstances or events that arise after the dates they
      are made, whether as a result of new information, future events or otherwise
      except as required by applicable law. You should, however, consult further
      disclosures we may make in future filings of our Annual Reports on Form 10-K,
      Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any
      amendments thereto.





1


PART
      1





ITEM
      1.
      DESCRIPTION OF BUSINESS.





OVERVIEW





We
      were
      incorporated in Nevada on March 27, 2001 under the name Jasmine’s Garden. In
      November 2004, we acquired Billion Electronic Co., Ltd., a company organized
      under the laws of the British Virgin Islands (“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
      (“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.





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
      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
      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 the terms of a Share Exchange Agreement (the
      “Exchange Agreement”) dated as of September 17, 2004, by and among the Company,
      Billion, the shareholders of Billion (the “Shareholders”) and E’Jenie, we
      acquired from the Shareholders (the “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 the Shareholders an aggregate of $1,500,000 in cash and issued them
      4,566,210 shares of our common stock. The consideration for the Acquisition
      was
      determined through arms length negotiations between us and Billion. As a result
      of the Acquisition we are the sole shareholder of Billion through which we
      own
      all of the issued and outstanding equity interests of E’Jenie.




2





In
      connection with the 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
      Shareholders under the Exchange Agreement. As consideration for Shiji’s
      guaranty, we issued 1,919,016 shares of our common stock to Shiji. 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.





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, digital
      cams,
      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.





3




PRODUCTS





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





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





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





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





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





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





·
            Low
                Pressure. It can be used under low pressure condition. The pressure
                is
                effected 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 types 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, and recorders and other
      electronic devices.




4




CUSTOMERS





In
      2005,
      our five largest customers represented approximately 63% of our total sales.
      The
      following table sets forth information regarding our five largest
      customers.




LIST
      OF
      MAJOR CUSTOMERS




Name
                of Customer
            
            Percentage of Total Revenue for 2005Shenzhen
                Bak
            
            
            30.19
            %Shenzhen
                Gao Yi Electronic Technology Co., Ltd.
            
            
            13.29
            %Dong
                Wan Mai Ke New Energy Resource Co., Ltd.
            
            
            8.46
            %Shenzhen
                Hua Bao Battery Co. Ltd.
            
            
            6.00
            %Shenzhen
                Yin Si Qi Electronic Co., Ltd.
            
            
            5.46
            %





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 30.19% of total sales for 2005. 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 15, 2006,
      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 15, 2006
      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.





5


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.





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.





REGULATORY
      MATTERS; 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.





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.





EMPLOYEES





We
      currently have eight employees, five of which are officers, two of which are
      executives and one administrative personnel. E’Jenie has nine divisions with 596
      employees in total, 39 of which are supervisors, 14 of which are administrative
      officers, nine of which are in marketing and 534 of which are on the production
      lines. The Labor Law of the China requires us to provide the certain benefits
      and insurance to all of its employees. We consider our relationships with our
      employees to be good.





6


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.·
            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.





7


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.





RISK
      FACTORS





RISKS
      RELATED TO OUR BUSINESS





WE
      DEPEND
      ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF KEY
      PERSONNEL COULD AFFECT OUR ABILITY TO SUCCESSFULLY GROW OUR
      BUSINESS.





We
      are
      highly dependent upon the services of our senior management team, particularly
      Changchun Zhen, our Chairman and Chief Executive Officer and Yao Miao, our
      Chief
      Financial Officer. The permanent loss for any of our key executives, could
      have
      a material adverse effect upon our operating results. We may not be able to
      locate suitable replacements for our executives if their services were lost.
      We
      do not maintain key man life insurance on any of these individuals.





OUR
      OPERATIONS DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN A HIGHLY SKILLED GROUP
      OF
      MANAGERS AND OTHER PERSONNEL.





Because
      of the highly specialized, technical nature of our business, we must attract
      and
      retain a highly skilled group of managers and a sizeable workforce of
      technically competent employees. Although we do not experience unacceptable
      attrition among our technical staff and sales force, if we were to lose a
      substantial portion of such persons, our ability to effectively pursue our
      business strategy could be materially and negatively affected. Although we
      believe our management and workers having the necessary education, training
      and
      technical skills to fill any positions that may become open is sufficient for
      our needs, the labor market for such managers and workers is becoming more
      competitive and we could have to pay higher salaries and wages and provide
      greater benefits in order for us to attract the necessary workers.





IF
      WE
      CANNOT EFFECTIVELY INCREASE AND ENHANCE OUR SALES AND MARKETING CAPABILITIES,
      WE
      MAY NOT BE ABLE TO INCREASE OUR REVENUES.





We
      need
      to further develop our sales and marketing capabilities to support our
      commercialization efforts. If we fail to increase and enhance our marketing
      and
      sales force, we may not be able to enter new or existing markets for lithium
      ion
      batteries. Failure to recruit, train and retain new sales personnel, or the
      inability of new sales personnel to effectively market and sell our products,
      could impair our ability to gain market acceptance of our products and services
      and cause our sales to suffer.





8


WE
      MAY
      NOT BE ABLE TO EFFECTIVELY MANAGE OUR ANTICIPATED GROWTH.





If
      we
      fail to effectively manage our internal growth in a manner that minimizes
      strains on our recourses, we could experience disruptions in our operations
      and
      ultimately be unable to sustain profitability. Furthermore we anticipate that
      we
      will significantly expand our operations over the next few years. Managing
      our
      anticipated growth may be difficult because:





·
            our
                management team has worked together for a relatively short period
                of time;
                and·
            we
                intend to purse acquisitions, joint ventures and other strategic
                transactions that will enhance or expand out technology and manufacturing
                base.





WE
      MAY
      NOT BE ABLE TO SUCCESSFULLY IDENTIFY, CONSUMMATE OR INTEGRATE STRATEGIC
      TRANSACTIONS.





We
      intend
      to pursue strategic transactions that provide access to new technologies,
      products, markets and manufacturing abilities. These transactions could include
      acquisitions, partnerships, joint ventures, business combinations and
      investments. In particular, we intend to focus our acquisition efforts on
      companies that will provide us with a new and established customer base. We
      may
      not be able to identify any potential strategic transactions. Even if we do
      identify one or more potentially beneficial strategic transactions, we may
      not
      be able to consummate these transactions on favorable terms or obtain the
      benefits we anticipate from such a transaction. If we are able to consummate
      any
      strategic transactions, the transactions could pose significant integration
      challenges or management and business disruptions.





A
      LIMITED
      NUMBER OF CUSTOMERS GENERATE A SIGNIFICANT PORTION OF OUR REVENUE.





For
      the
      near future, we expect that a significant portion of our revenues will be
      concentrated in a limited number of customers. For example, for the year ended
      December 31, 2005, revenues from five customers represented approximately 63%
      of
      our total revenues from operations. A reduction, delay, or cancellation of
      orders from one or more of our customers or the loss of one or more customer
      relationships could significantly reduce our revenues. Unless we establish
      long-term sales arrangements with these customers, they will have the ability
      to
      discontinue their purchases of our products on short notice.





RISKS
      RELATED TO DOING BUSINESS IN CHINA





ADVERSE
      CHANGES IN ECONOMIC AND POLITICAL POLICIES OF THE CHINESE GOVERNMENT COULD
      HAVE
      A MATERIAL ADVERSE EFFECT ON THE OVERALL ECONOMIC GROWTH OF CHINA, WHICH COULD
      ADVERSELY AFFECT OUR BUSINESS.





Substantially
      all of our business operations are conducted in China. Accordingly, our results
      of operations, financial condition and prospects are subject to a significant
      degree to economic, political and legal developments in China. China’s economy
      differs from the economies of most developed countries in many respects,
      including with respect to the amount of government involvement, level of
      development, growth rate, control of foreign exchange and allocation of
      resources. While the Chinese economy has experienced significant growth in
      the
      past 20 years, growth has been uneven across different regions and among various
      economic sectors of China. The Chinese government has implemented various
      measures to encourage economic development and guide the allocation of
      resources. Some of these measures benefit the overall Chinese economy, but
      may
      also have a negative effect on us. For example, our financial condition and
      results of operations may be adversely affected by government control over
      capital investments or changes in tax regulations that are applicable to us.
      Since early 2004, the Chinese government has implemented certain measures to
      control the pace of economic growth. Such measures may cause a decrease in
      the
      level of economic activity in China, which in turn could adversely affect our
      results of operations and financial condition.




9


RESTRICTIONS
      ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUES
      EFFECTIVELY.





Because
      a
      substantial amount of our revenues are in the form of Renminbi, the Chinese
      currency unit, any restrictions on currency exchanges may limit our ability
      to
      use revenue generated in Renminbi to fund any future business activities outside
      China. Although the Chinese government introduced regulations in 1996 to allow
      greater convertibility of the Renminbi for current account transactions,
      significant restrictions still remain, including primarily the restriction
      that
      foreign-invested enterprises may only buy, sell or remit foreign currencies,
      after providing valid commercial documents, at those banks authorized to conduct
      foreign exchange business. In addition, conversion of Renminbi for capital
      account items, including direct investment and loans, is subject to government
      approval in China, and companies are required to open and maintain separate
      foreign exchange accounts for capital account items. If the currency exchange
      system prevents us from obtaining sufficient foreign currency, we may be unable
      to fund business activities outside China or otherwise make payments in dollars.
      We cannot be certain that the Chinese regulatory authorities will not impose
      more stringent restrictions on the convertibility of the Renminbi, especially
      with respect to foreign exchange transactions. The value of our common stock
      will be affected by the foreign exchange rate between U.S. dollars and
      Renminbi.




To
      the
      extent that we need to convert U.S. dollars into Renminbi for our operational
      needs, should the Renminbi appreciate against the U.S. dollar at that time,
      our
      financial position and the price of our common stock may be adversely affected.
      Conversely, if we decide to convert our Renminbi into U.S. dollars and the
      U.S.
      dollar appreciates against the Renminbi, the U.S. dollar equivalent of our
      earnings from our subsidiaries in China would be reduced.





Until
      1994, the Renminbi experienced a gradual but significant devaluation against
      most major currencies, including U.S. dollars, and there was a significant
      devaluation of the Renminbi on January 1, 1994 in connection with the
      replacement of the dual exchange rate system with a unified managed floating
      rate foreign exchange system. Since 1994, the value of the Renminbi relative
      to
      the U.S. dollar has remained stable and has appreciated slightly against the
      U.S. dollar. Countries, including the United States, have argued that the
      Renminbi is artificially undervalued due to China’s current monetary policies
      and have pressured China to allow the Renminbi to float freely in world markets.
      On July 21, 2005 the Chinese government changed its policy of pegging the value
      of the Renminbi to the U.S. dollar. Under the new policy the Renminbi is
      permitted to fluctuate within a narrow and managed band against a basket of
      designated foreign currencies. While the international reaction to the Renminbi
      revaluation has generally been positive, there remains significant international
      pressure on the Chinese government to adopt an even more flexible currency
      policy, which could result in further and more significant appreciation of
      the
      Renminbi against the U.S. dollar.





Any
      significant revaluation of the Renminbi may materially and adversely affect
      our
      revenues, cash flow, earnings and financial position, and the value of any
      dividends payable in U.S. dollars. For example, an appreciation of the Renminbi
      against the dollar would make any Renminbi denominated investment or expenditure
      more costly to us, to the extent that we use dollars that we must convert into
      Renminbi for such purpose.





WE
      MAY BE
      UNABLE TO ENFORCE OUR LEGAL RIGHTS DUE TO POLICIES REGARDING THE REGULATION
      OF
      FOREIGN INVESTMENTS IN CHINA.





The
      Chinese legal system is a civil law system based on written statutes, in which
      system decided legal cases have little value as precedents unlike the common
      law
      system prevalent in the United States. China does not have a well-developed,
      consolidated body of laws governing foreign investment enterprises. As a result,
      the administration of laws and regulations by government agencies are subject
      to
      considerable discretion and variation on the part of the Chinese government,
      including its courts, and may be subject to influence by external forces
      unrelated to the legal merits of a particular matter. China’s regulations and
      policies with respect to foreign investments are evolving. Definitive
      regulations and policies with respect to such matters as the permissible
      percentage of foreign investment and permissible rates of equity returns have
      not yet been published. As a result, we may not be aware of any violations
      of
      these policies and rules until some time after the violation. Statements
      regarding these evolving policies have been conflicting and any such policies,
      as administered, are likely to be subject to broad interpretation and discretion
      and to be modified, perhaps on a case-by-case basis. The uncertainties regarding
      such regulations and policies present risks that may affect our ability to
      achieve our business objectives. If we are unable to enforce any legal rights
      we
      may have under our contracts or otherwise, our ability to compete with other
      companies in our industry could be materially and negatively affected. In
      addition, any litigation in China may be protracted and result in substantial
      cost and diversion of resources and management attention.





10





THERE
      CAN
      BE NO GUARANTEE THAT CHINA WILL COMPLY WITH THE MEMBERSHIP REQUIREMENTS OF
      THE
      WORLD TRADE ORGANIZATION.





Due
      in
      part to the relaxation of trade barriers following World Trade Organization
      accession in January 2002, we believe China will become one of the world’s
      largest markets by the middle of the twenty-first century. As a result, we
      believe the Chinese market presents a significant opportunity for both domestic
      and foreign companies. With the Chinese accession to the World Trade
      Organization, Chinese industries are gearing up to face the new regimes that
      are
      required by World Trade Organization regulation. The Chinese government has
      begun to reduce its average tariff on pharmaceuticals and healthcare products.
      China has also agreed that foreign companies will be allowed to import most
      products, including pharmaceuticals, into any part of China. Current trading
      rights and distribution restrictions are to be phased out over a three-year
      period. In the sensitive area of intellectual property rights, China has agreed
      to implement the trade-related intellectual property agreement of the Uruguay
      Round. However, there can be no assurances that China will implement any or
      all
      of the requirements of its membership in the World Trade Organization in a
      timely manner, if at all.





IT
      MAY BE
      DIFFICULT TO SERVE US WITH LEGAL PROCESS OR ENFORCE JUDGMENTS AGAINST OUR
      MANAGEMENT OR US.





All
      or a
      substantial portion of our assets are located in China. In addition, most of
      our
      directors and officers are non-residents of the United States, and all or
      substantial portions of the assets of such non-residents are located outside
      the
      United States. As a result, it may not be possible to effect service of process
      within the United States upon such persons. Moreover, there is doubt as to
      whether the courts of China would enforce:





·
            judgments
                of United States courts against us, our directors or our officers
                based on
                the civil liability provisions of the securities laws of the United
                States
                or any state; or·
            in
                original actions brought in China, liabilities against non-residents
                or us
                based upon the securities laws of the United States or any
                state.




RISKS
      RELATED TO THE OWNERSHIP OF OUR STOCK OUR STOCK PRICE IS HIGHLY
      VOLATILE.




The
      market price of our common stock may fluctuate significantly in response to
      a
      number of factors, some of which are beyond our control, including:





·
            quarterly
                variations in operating results;·
            changes
                in financial estimates by securities analysts;·
            announcements
                by us or our competitors of new products or of significant technical
                innovations, contracts, acquisitions, strategic partnerships or joint
                ventures;·
            changes
                in governmental regulations or policies in China;·
            additions
                or departures of key personnel;·
            any
                deviations in net sales or in losses from levels expected by securities
                analysts; and the operating and stock price performance of other
                comparable companies;·
            news
                and commentary emanating from the media, securities analysts or government
                bodies in China relating to us and to the industry in general;
                and·
            future
                sales of common stock.


11


General
      market conditions and domestic or international macroeconomic factors unrelated
      to our performance may also affect our stock price. For these reasons, investors
      should not rely on recent trends to predict future stock prices or financial
      results. In addition, following periods of volatility in a company’s securities,
      securities class action litigation against a company is sometimes instituted.
      This type of litigation could result in substantial costs and the diversion
      of
      management’s time and resources.





BECAUSE
      OUR SECURITIES TRADE ON THE OTC BULLETIN BOARD SELLING OUR SECURITIES IN THE
      SECONDARY MARKET MAY BE DIFFICULT.





Our
      shares of common stock have been listed and principally quoted on the Nasdaq
      OTC
      Bulletin Board since May 1994. Because our securities currently trade on the
      OTC
      Bulletin Board, they are subject to the rules promulgated under the Securities
      Exchange Act of 1934, as amended, which impose additional sales practice
      requirements on broker-dealers that sell securities governed by these rules
      to
      persons other than established customers and “accredited investors” (generally,
      individuals with a net worth in excess of $1,000,000 or annual individual income
      exceeding $200,000 or $300,000 jointly with their spouses). For such
      transactions, the broker-dealer must determine whether persons that are not
      established customers or accredited investors qualify under the rule for
      purchasing such securities and must receive that person’s written consent to the
      transaction prior to sale. Consequently, these rules may adversely effect the
      ability of purchasers to sell our securities and otherwise affect the trading
      market in our securities. Because our shares are deemed “penny stocks,” there
      may be difficulty in selling them in the secondary trading market.





The
      Securities and Exchange Commission has adopted regulations which generally
      define a “penny stock” to be any equity security that has a market price (as
      defined in the regulations) less than $5.00 per share or with an exercise price
      of less than $5.00 per share, subject to certain exceptions. Additionally,
      if
      the equity security is not registered or authorized on a national securities
      exchange or Nasdaq, the equity security also would constitute a “penny stock.”
As our common stock falls within the definition of penny stock, these
      regulations require the delivery, prior to any transaction involving our common
      stock, of a risk disclosure schedule explaining the penny stock market and
      the
      risks associated with it. Disclosure is also required to be made about
      compensation payable to both the broker-dealer and the registered representative
      and current quotations for the securities. In addition, monthly statements
      are
      required to be sent disclosing recent price information for the penny stocks.
      The ability of broker/dealers to sell our common stock and the ability of
      shareholders to sell our common stock in the secondary market would be limited.
      As a result, the market liquidity for our common stock would be severely and
      adversely affected. We can provide no assurance that trading in our common
      stock
      will not be subject to these or other regulations in the future, which would
      negatively affect the market for our common stock.





OUR
      FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER HAVE EFFECTIVE VOTING CONTROL
      OF
      THE COMPANY.





Yi
      Bo
      Sun, our former President and Chief Executive Officer and a former director,
      is
      also the Chief Executive Officer and Chairman of the Board of Cheering Limited.
      As a result, Mr. Sun may be entitled to direct the vote of the 5,700,000 shares
      of our common stock (or approximately 7.8% of our issued and outstanding common
      stock) owned by Cheering Limited. Additionally, until May 1, 2006 Mr. Sun is
      also entitled to direct the vote of an additional 30,000,000 shares of common
      stock that are owned by seven investor, for a total of 35,700,000 shares
      (approximately 48.9% of our issued and outstanding common stock) pursuant to
      certain irrevocable proxies granted to him in connection with the private
      placement of such securities to certain individuals. Upon the expiration of
      these proxies (and assuming that such proxies are not extended), the investors
      as a group will be able to exercise effective control over any matters requiring
      the vote of stockholders, including the approval of any business acquisition
      and
      the election of directors assuming no further issuances. This could delay or
      prevent a change in control of our board of directors. This may have the effect
      of precluding or delaying the opportunity of minority stockholders to sell
      their
      common stock to interested purchasers or may significantly reduce the offering
      price in any such transaction.





WE
      DO NOT
      INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.





We
      have
      not paid any dividends on our common stock to date and there are no plans for
      paying dividends in the foreseeable future. We intend to retain earnings, if
      any, to provide funds for the implementation of our new business plan. We do
      not
      intend to declare or pay any dividends in the foreseeable future. Therefore,
      there can be no assurance that holders of common stock will receive any
      additional cash, stock or other dividends on their shares of common stock until
      we have funds, which the Board of Directors determines, can be allocated to
      dividends.





OUR
      ARTICLES OF INCORPORATION CONTAIN PROVISIONS THAT DISCOURAGE A CHANGE OF
      CONTROL.





Our
      articles of incorporation contain provisions that could discourage an
      acquisition or change of control without our board of directors’ approval. Our
      articles of incorporation authorize our board of directors to issue preferred
      stock without shareholder approval. If our board of directors elects to issue
      preferred stock, it could be more difficult for a third party to acquire control
      of us, even if that change of control might be beneficial to our
      shareholders.





12


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 is for a term of one year and our rent is $1,225 a 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





We
      are
      not a party to any pending litigation and none is contemplated or
      threatened.





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





There
      were no matters submitted to the stockholders in the fourth quarter of our
      fiscal year ended December 31, 2005.





PART
      II





ITEM
      5.
      MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.





Our
      common stock trades under the symbol CHID.OB on the Over-the-Counter Bulletin
      Board Electronic Quotation System maintained by the National Association of
      Securities Dealers, Inc. Following is information about the range of high and
      low bid prices for our common stock for the each fiscal quarters listed below.
      Prior to the Acquisition, there was a limited market for our common stock.
      As a
      result, our stock had no or nominal trading volume and a very limited trading
      history. These quotations reflect inter-dealer prices, without retail mark-up,
      mark-down or commission, and may not necessarily represent actual
      transactions.





Quarter
                Ended
            
            High Bid Quotation
            
            Low Bid QuotationJune
                30, 2004
            
            $
            3.50
            
            $
            1.03September
                30, 2004
            
            $
            3.40
            
            $
            1.50December
                31, 2004
            
            $
            2.50
            
            $
            0.99March
                31, 2005
            
            $
            1.60
            
            $
            0.78June
                30, 2005
            
            $
            1.45
            
            $
            0.31September
                30, 2005
            
            $
            1.87
            
            $
            0.42December
                31, 2005
            
            $
            0.54
            
            $
            0.38





HOLDERS





As
      of
      March 22, 2006, there were 145 holders of record of our common stock, however,
      we believe that there are additional beneficial owners of our common stock
      who
      own their shares in “street name.”





DIVIDENDS





There
      have been no cash dividends declared on our common stock since inception.
      Dividends are declared at the sole discretion of our board of directors. It
      is
      not anticipated that any dividends will be declared for the foreseeable future
      on our common stock.





13


RECENT
      SALES OF UNREGISTERED SECURITIES





In
      March
      2004, we sold 30,000,000 shares of our 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 shares were issued pursuant
      to an exemption provided by Section 4(2) of the Securities Act of 1933, as
      amended.





As
      consideration for the Acquisition, we issued 4,566,210 shares of common stock
      to
      the Shareholders. As consideration for Shiji’s guaranty, we issued 1,919,016
      shares of common stock to Shiji in October 2004. The shares were issued pursuant
      to an exemption provided by Section 4(2) of the Securities Act of 1933, as
      amended.





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





**RESULTS
      OF OPERATIONS**




**Comparison
      of Fiscal Year 2005 Compared to Fiscal Year 2004**





The
      following table presents the statement of operations for the year ended December
      31, 2005 and the results of operations for the periods ended of December 31,
      2004. The discussion following the table is based on the these
      results.





**2005**
            
            **2004**Sales,
                net
            
            $
            12,742,088
            
            $
            1,412,276Cost
                of sales
            
            
            8,971,859
            
            
            718,785**************Gross
                profit**
            
            
            3,770,229
            
            
            693,491Operating
                ExpensesSelling
                expense
            
            
            165,780
            
            
            46,793General
                and administrative expenses
            
            
            1,202,359
            
            
            261,751Goodwill
                impairment
            
            
            1,213,843Consulting
                Fees
            
            
            -
            
            
            598,000Total
                operating expenses
            
            
            2,581,982
            
            
            906,544******Income
                from operations**
            
            
            1,188,248
            
            
            (213,053
            )Other
                (Income) ExpenseInterest
                income
            
            
            (3,877
            )
            
            (6
            )Miscellaneous
                income
            
            
            -
            
            
            5,141Interest
                expense
            
            
            32,856
            
            
            3,468Total
                Other Income
            
            
            28,979
            
            
            8,603******Income
                before income taxes**
            
            
            1,159,269
            
            
            (221,656
            )Provision
                for income taxes
            
            
            111,773
            
            
            13,555**Net
                income**
            
            $
            1,047,496
            
            $
            (235,211
            )




14




**Net
      sales**





Net
      sales
      for 2005 totaled $12,742,088 compared to $1,412,276 for 2004, an increase of
      $11,329,812, or approximately 802%. The increase was due to the expansion of
      our
      product lines in order to meet the needs of our customers in 2005 and also
      because the result of operations for 2004 only included the results from E’Jenie
      after the date of acquisition which was November 16, 2004.





**Cost
      of Sales**




Cost
      of
      sales for 2005 totaled $8,971,859, or approximately 70.4% of net sales, compared
      to $718,785, or approximately 50.9% of net sales, for 2004. The increase in
      cost
      of sales as a percentage of net sales was due to an increase in the cost of
      raw
      materials from the introduction of new product lines during 2004. As we
      increased our sales revenue in 2005 our cost of sales has also increased and
      also because the result of operations for 2004 only included the results from
      E’Jenie after the date of acquisition.





**Operating
      Expense**





Selling,
      general and administrative, and consulting fees for 2005 totaled $2,581,982,
      or
      approximately 20.3% of net sales, compared to 906,544, or approximately 64.2%
      of
      net sales, for 2004. This increase in operating expenses of $1,675,438, or
      approximately 185%, was due to $1,213,843 increase in goodwill impairment in
      2005. Overall operating expenses increase due to the overall increase in sales
      and employees during the year ended December 31, 2005 and also because the
      result of operations for 2004 only included the results from E’Jenie after the
      date of acquisition which was November 16, 2004.




**Income
      (Loss) from Operations**




Income
      (loss) from operations for 2005 was $1,188,248 as compared to income from
      operations of $(213,053) for 2004, an increase of $1,401,301, or approximately
      657.7%. This increase was due to the increase in our sales revenue and also
      because the result of operations for 2004 only included the results from E’Jenie
      after the date of acquisition which was November 16, 2004.





**Interest
      Expense**





Interest
      expense for 2005 totaled $32,856 compared to $3,468 for 2004, an increase of
      $29,388. The increase in interest expense was due to indebtedness related to
      the
      acquisition of fixed assets.





**Net
      Income**





Net
      income (loss) was $1,047,496 for 2005 compared to net income of $(235,211)for
      2004, an increase of $1,282,707. The increase was due to an increase in our
      sales revenue and also because the result of operations for 2004 only included
      the results from E’Jenie after the date of acquisition which was November 16,
      2004.





15


**LIQUIDTY
      AND CAPITAL RESOURCES**




China
      Digital, as the successor company, had no significant business operations or
      assets prior to the Acquisition. As such, the liquidity and capital resources
      described below of E'Jenie are the same for China Digital.




Cash
      has
      historically been generated from operations. Operations and liquidity needs
      are
      funded primarily through cash flows from operations and short-term borrowings.
      Cash and cash equivalents were $2,061,213 at December 31, 2005 and current
      assets totaled $4,765,684 at December 31, 2005. The Company's total current
      liabilities were $1,416,719 at December 31, 2005. Working capital at December
      31, 2005 was $3,348,965. We believe that the funds available to us are adequate
      to meet our operating needs for 2006. During 2005, net cash provided by
      operating activities was $2,087,181.




**Capital
      expenditures**




Total
      capital expenditures during the year ended December 31, 2005 was $535,843 for
      purchase of fixed assets.




**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.





**Off
      Balance Sheet Arrangements**




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





ITEM
      7.
      FINANCIAL STATEMENTS.





The
      Financial Statements of the Company appear at pages F-1 to F-26.





ITEM
      8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





We
      did
      not have any disagreement with our former accountants on accounting and
      financial disclosures. Please see our Amended Form 8-K filed on January 18,
      2006
      regarding our change of accountants.





ITEM
      8A.
      CONTROLS AND PROCEDURES.





Our
        management evaluated, with the participation of our Chief Executive and Chief
        Financial Officer, the effectiveness of our disclosure controls and procedures
        for the annual period ended December 31, 2005 **.** Based on
        this evaluation, our Chief Executive Officer and Chief Financial Officer
        has
        concluded that our disclosure controls and procedures (as defined in Rules
        13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange
        Act) are ineffective based on the material weakness described below:
  We
        concluded we have insufficient monitoring controls to determine the adequacy
        of
        our internal control over financial reporting and related policies and
        procedures; lack of competent financial management personnel with appropriate
        accounting knowledge and training; insufficient controls over our period-end
        financial close and reporting processes; ineffective controls over the
        accounting for acquisitions, in particular valuation and disclosure of the
        goodwill and intangible asset accounts and the related amortization and
        impairment expense accounts; and ineffective controls over reporting of
        discontinued operations.


16


1.
                  We
                      have engaged independent consultants to assist with the preparation
                      of our
                      financial statements and disclosure requirements on our behalf,
                      including
                      assisting with the evaluation of the acquisitions of our wholly-owned
                      subsidiaries referenced elsewhere in this
                      Report;
 
 2.
                  We
                      have commenced efforts to retain directors and officers who
                      are more
                      familiar and conversant with SEC reporting
                      issues.
 
 The
        remainder of the plan is dependent, in part, upon hiring additional accounting
        personnel, increased management oversight of accounting and reporting functions,
        re-design of accounting systems, reallocation of responsibilities among various
        personnel, possibly hiring additional personnel and additional funding. It
        should also be noted that the design of any system of controls is based in
        part
        upon certain assumptions about the likelihood of future events, and there
        can be
        no assurance that any design will succeed in achieving its stated goals under
        all potential future conditions, regardless of how
        remote.


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 officers
      and directors as of March 15, 2006.





NAME
            
            AGE
            
            POSITIONChangchun
                Zheng
            
            43
            
            Chairman
                and Chief Executive OfficerYu
                Xi Sun
            
            32
            
            President
                and DirectorYao
                Miao
            
            34
            
            Chief
                Financial OfficerHong
                Liang
            
            42
            
            Chief
                Operating Officer and DirectorMei
                Jin Bin
            
            28
            
            SecretaryXu
                Bao Dong
            
            35
            
            DirectorZu
                Zhuan Xu
            
            40
            
            DirectorAlfred
                L. Simon
            
            65
            
            DirectorYong
                Yang
            
            43
            
            Director





All
      directors have a term of office expiring at the next annual general meeting,
      unless re-elected or earlier vacated in accordance with the Bylaws. All officers
      have a term of office lasting until their removal or replacement by the Board
      of
      Directors.





Changchun
      Zheng, 43, has served as Chairman and Chief Executive Officer of China Digital
      since January 19, 2006. Prior to that Mr. Zheng was Chief Executive Officer
      of
      Shenzhen ShengNuo Digital Tech Co, Ltd. Under his leadership, he grew the
      company within fours years to become a recognized major vendor of IT and
      communications equipment in China. From 1996 to 2001, he served as Chief
      Executive Officer and Chairman of Shenzhen Hong Ye Science and Tech Co, Ltd.
      During his tenure, the company became a leading scientific investment company
      whose IT achievements are widely recognized in China. His experience also
      includes several years in executive positions at the Construction Bank of China,
      one of the largest banks in China. Mr. Zheng holds a Master of Science degree
      in
      National Economics and Management from the Chinese Academy of Social
      Science.





Yao
      Miao,
      34, has served as Chief Financial Officer of China Digital since February 2004.
      Before assuming this role, he was CFO of Shenzhen Southern Heng Ye Industrial
      Co., Ltd. From September 2002 through January 2004. He served as the auditing
      manager of the accounting department at Shenzhen Run Ze Universal Development
      Co., Ltd. From August 2001 through August 2002. He served as the accounting
      department director at Golden Butterfly International Software Co., Ltd. From
      June 1999 through July 2001. He has a Bachelor of Science degree in economics
      from Hubei University, and is a certified public accountant in
      China.





17


Hong
      Liang, 42, has served as Chief Operating Officer and as a director of China
      Digital since January 19, 2006. Prior to that Mr. Liang served as Senior Project
      Manager at Shenzhen High Tech Investments and Guarantee Co., Ltd. Previously,
      Mr. Liang served as Chief Financial Officer at Shenzhen Hua Mao Mortgage Loan
      Firm; Shenzhen Hua Bao Electronic Company, Inc.; and Shenzhen Yong Gao
      Industries. He is also the former Executive Editor, Southwestern University
      of
      Finance and Economic Publishing Press. He holds both Bachelors and Masters
      degree in Economics from Southwestern University of Finance and Economics in
      Chengdu, China.





Yu
      Xi
      Sun, 32, 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.





Mei
      Jin
      Bin, 28, 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, 35, 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.





Zu
      Zhuan
      Xu, 40, has served as a director of China Digital since December 2003. Since
      November 2002 he has served as the Vice Director of Human Resources and Senior
      Executive Assistant at Shenzhen Xin Jia Electronics Co., Ltd. From May 1999
      until March 2002, he was the Director of Human Resources at Shenzhen Golden
      Island Biao Industrial Group. His primary job duties were to maintain, create,
      and implement all programs in Human Resources. From October 1992 through April
      1999 he served as the Director of Human Resources at Shenzhen Xie Li Paper
      Products Co., Ltd. From April 1985 through September 1992 he served as the
      Primary Executive Secretary at E Zhou Huang Wei Electronic Generators
      Manufacture. Mr. Hu holds a Bachelor of Science degree from Shenzhen
      University.





Alfred
      L.
      Simon, 65, has been the Principal of American Capital Group, which provides
      corporate financial services specializing in merger and acquisitions and capital
      fundraising since March 1, 1998. Mr. Simon began his career as an auditor and
      CPA at Ernst & Ernst in 1962, and has held numerous executive level
      positions since, including Chief Financial Officer at Arcata Research Corp.,
      partner and co-director of research at Sanford C. Bernstein & Company, Vice
      President of Corporate Finance at Gruntal & Company; Director of Corporate
      Finance at Mabon Nugent & Company; and Director of Investment Banking at
      Philips Appel & Walden. He has also served on the Board of Directors of
      Carmel Container Systems and IIC Industries. Mr. Simon holds a Harvard MBA,
      CPA
      certification in NYSE and NASD registration as a General Securities Principal,
      Financial and Operations Principal and Supervisory Analyst. He also presently
      serves as a NASD Dispute Resolution Arbitrator.





Yong
      Yang, 43, earned his Doctoral Degree in Chemistry from Xiamen University (China)
      - University of Essex (UK). Between December 997 and December 1998, Dr. Yang
      attended Oxford University, where he studied Physics and Theoretical Chemistry.
      Since May 1994, Dr. Yang has taught at the University of Xiamen. Dr. Yang has
      published over 100 academic research papers and has four patents in which he
      was
      the sole inventor. In 1992, he was awarded the 2nd Award from China Education
      Department. Dr. Yang is also the Special Invited Editor for “Science News
      Press.” Dr. Yang has received multiple research grants from “China National
      Science Fund,” and “State Outstanding New Generation Fund” (formerly known as
      the “China President Fund”), which is the highest honor and recognition in the
      field of Science Research in China. Since February 1999, Dr. Yang has served
      as
      Lead for more than 10 China National Level Research Projects. Currently, Dr.
      Yang is teaching a group of 20 graduate students, including Masters and Doctoral
      candidates




18




INVOLVEMENT
      IN CERTAIN LEGAL PROCEEDINGS





To
      our
      knowledge, during the past five years, our officers and directors: have not
      filed a petition under the federal bankruptcy laws or any state insolvency
      law,
      nor had a receiver, fiscal agent or similar officer appointed by a court for
      the
      business or present of such a person, or any partnership in which he was a
      general partner at or within two years before the time of such filing, or any
      corporation or business association of which he was an executive officer within
      two years before the time of such filing; were not convicted in a criminal
      proceeding or named subject of a pending criminal proceeding (excluding traffic
      violations and other minor offenses); and were not the subject of any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of any
      court of competent jurisdiction, permanently or temporarily enjoining him from
      or otherwise limiting their respective activities.





INDEMNIFICATION





Under
      Section 145 of the Nevada General Corporation law, we have broad powers to
      indemnify our directors and officers against liabilities they may incur in
      such
      capacities, including liabilities under the Securities Act of 1933, as amended
      (the “Securities Act”). Our Bylaws also provide that we have the power to
      indemnify our directors, officers, employees and other agents to the maximum
      extent permitted by Nevada law.





Our
      articles of incorporation provides for the elimination of liability for monetary
      damages for breach of the directors’ fiduciary duty of care to us and our
      shareholders. The provision does not eliminate the directors’ duty of care and,
      in appropriate circumstances, equitable remedies such as injunctive or other
      forms of non-monetary relief will remain available under Nevada law. In
      addition, each director will continue to be subject to liability for breach
      of
      the director’s duty of loyalty to us, for acts or omissions not in good faith or
      involving intentional misconduct, for knowing violations of law, for any
      transaction from which the director derived an improper personal benefit, and
      for payment of dividends or approval of stock repurchases or redemptions that
      are unlawful under Nevada law. The provision does not affect director’s
      responsibilities under any other laws, such as the federal securities laws
      or
      state or federal environmental laws.





BOARD
      OF
      DIRECTORS’ MEETINGS AND COMMITTEES





We
      have
      undergone a significant change in management and restructuring of the Company.
      We are in the process of searching for outside directors to serve on our Board
      of Directors.





The
      Board
      of Directors has designated the following directors as independent directors:
      Xu
      Bao Dong, Zu Zhuan Xu, Albert Simon and Yong Yang.





NOMINATIONS
      FOR DIRECTORS





Our
      Board
      will adopt a formal policy regarding qualifications of director candidates.
      Currently, in evaluating director nominees, our Board considers a variety of
      factors, including the appropriate size of our Board of Directors; our needs
      o
      with respect to the particular talents and experience of our directors;
      experience with accounting rules and practices; and the desire to balance the
      benefit of continuity with the periodic injection of the fresh perspective
      provided by new Board members.





To
      date,
      we have not engaged third parties to identify or evaluate or assist in
      identifying potential nominees, although we reserve the right in the future
      to
      retain a third party search firm, if necessary.





During
      the fiscal year ended December 31, 2005, our Board of Directors met six times,
      and our Audit Committee met two times. No director attended fewer than 75%
      of
      the meetings of our Board or of each committee of which he was a
      member.





19




Our
      Board
      of Directors does not currently provide a process for securityholders to send
      communications to our Board of Directors as we believe that until this point
      it
      has been premature given the limited liquidity of our common stock to develop
      such processes.





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, Zu Zhuan Xu and Albert Simon serve on our audit committee and are all
      independent directors. Albert Simon is the Chairman and audit committee
      financial expert.





SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
      16(a) of the Securities Exchange Act of 1934 requires certain defined persons
      to
      file reports of and changes in beneficial ownership of a registered security
      with the Securities and Exchange Commission and the National Association of
      Securities Dealers in accordance with the rules and regulations promulgated
      by
      the Commission to implement the provisions of Section 16. Under the regulatory
      procedure, officers, directors, and persons who own more than ten percent of
      a
      registered class of a company’s equity securities are also required 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 Forms 3, 4 and 5
      furnished to the Company between January 1, 2005 through December 31, 2005,
      the
      Company’s officers, directors and greater than 10% beneficial owners complied
      with all Section 16(a) filing requirements except as follows: Young Yan has
      not
      filed a Form 3 for a transaction that occurred on may 12, 2005; Albert Simon
      has
      not filed a Form 3 for transaction that occurred on November 11,
      2005.





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.





ITEM
      10.
      EXECUTIVE COMPENSATION





The
      following sets forth the annual and long-term compensation for services in
      all
      capacities to us for the fiscal years ended December 31, 2005, 2004 and 2003
      paid to our Chief Executive Officer and the other executive officer who was
      serving as an executive officer at the end of the last completed fiscal year.
      This compensation information relates to compensation received by the named
      executive officer while employed by us.





20


SUMMARY
      COMPENSATION TABLE





LONG TERM COMPENSATIONANNUAL COMPENSATION
            
            AWARDS
            
            PAYOUTSName And Principal Position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Other
              Annual
              Compensation
              ($)
            
            Restricted
              Stock
              Award(s)
              ($)
            
            Securities
              Under-
              Lying
              Options/
              SARs (#)
            
            LTIP
              Payouts
              ($)
            
            All Other
              Compensation
              ($)Yi
                Bo Sun(1)
            
            
            2005
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —2003
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —








(1)
            Resigned
                as our Chairman, President and Chief Executive Officer on January
                19,
                2006.





OPTION
      GRANTS IN LAST FISCAL YEAR (JANUARY 1, 2005 - DECEMBER 31, 2005)





NAME
            
            NUMBER OF
              SECURITIES
              UNDERLYING
              OPTIONS
              GRANTED (1)
            
            % OF TOTAL
              OPTIONS
              GRANTED TO
              EMPLOYEES IN
              THE FISCAL YEAR
            
            EXERCISE
              PRICE
            
            EXPIRATION
              DATE
            
            POTENTIAL REALIZABLE
              VALUE AT ASSUMED
              ANNUAL RATE OF STOCK
              PRICE APPRECIATION FOR
              OPTION TERM5%
            
            
            10%Yi
                Bo Sun
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —








AGGREGATED
      OPTION EXERCISES IN LAST FISCAL YEAR-END




AND
      FISCAL YEAR-END OPTION VALUES TABLE





The
      following table contains information concerning the number of shares acquired
      and value realized from the exercise of options by the named executive officers
      during fiscal 2005 and the number of unexercised options held by the named
      executive officers at December 31, 2005.





NUMBER OF SHARES OF COMMON STOCK UNDERLYING
              UNEXERCISED OPTIONS AT YEAR END
              (DECEMBER 31 2005)
            
            VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT
              YEAR END (DECEMBER 31, 2005) (1)NAME
            
            
            EXERCISABLE
            
            
            UNEXERCISABLE
            
            
            EXERCISABLE
            
            
            UNEXERCISABLEYi
                Bo Sun
            
            
            —
            
            
            —
            
            
            —
            
            
            —





(1)
            Options
                are “in-the-money” if the market price of a share of common stock exceeds
                the exercise price of the option.





21


We
      have
      no retirement, pension or profit sharing program for the benefit of its
      directors, officers or other employees, but the Board of Directors may recommend
      one or more such programs for adoption in the future.





COMPENSATION
      OF DIRECTORS





All
      directors are reimbursed for out-of-pocket expenses in connection with
      attendance at Board meetings. During the fiscal year ended December 31, 2005,
      Albert Simon received $20,000 and options to purchase 100,000 shares of our
      common 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.





BONUSES
      AND DEFERRED COMPENSATION





We
      do not
      have any bonus, deferred compensation or retirement plan.





STOCK
      OPTIONS





Our
      Board
      of Directors chose to make option or warrant awards to select officers,
      directors, consultants, or shareholder/investors in order to induce them to
      assist it in implementing its business plan and to provide long term additional
      incentive. These options or warrants, as awarded, were not awarded pursuant
      to a
      plan but were specific individual awards with varying terms and conditions.
      In
      some instances, our Board of Directors reserved the right to cancel these awards
      for non-performance or other reasons, or established a vesting schedule pursuant
      to which the award is earned.





EMPLOYMENT
      CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
      ARRANGEMENTS





There
      are
      no compensatory plans or arrangements, including payments to be received from
      us, with respect to any person named in the Summary Compensation Table above,
      that would in any way result in payments to any such person because of his
      resignation, retirement, or other termination of such person’s employment with
      us or the our subsidiaries, or any change in control of us, or a change in
      the
      person’s responsibilities following a change of control.





ITEM
      11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.





The
      following table sets forth, as of March 15, 2006, certain information regarding
      the ownership of voting securities of China Digital by each stockholder known
      to
      our management to be (i) the beneficial owner of more than 5% of our outstanding
      common stock, (ii) our directors, (iii) our current executive officers and
      (iv)
      all executive officers and directors as a group. We believe that, except as
      otherwise indicated, the beneficial owners of the common stock listed below,
      based on information furnished by such owners, have sole investment and voting
      power with respect to such shares.




22




NAME AND ADDRESS OF
              BENEFICIAL OWNER (1)
            
            AMOUNT AND NATURE OF BENEFICIAL
              OWNERSHIP(2)
            
            PERCENT OF
              OUTSTANDING SHARES(2)Changchun
                Zheng
            
            
            —
            
            
            —Yao
                Miao
            
            
            —
            
            
            —Hong
                Liang
            
            
            —
            
            
            —Yu
                Xi Sun
            
            
            —
            
            
            —Mei
                Jin Bin
            
            
            —
            
            
            —Xu
                Bao Dong
            
            
            —
            
            
            —Zu
                Zhuan Xu
            
            
            —
            
            
            —Alfred
                L. Simon
            
            
            100,000(3
            )
            
            *Yong
                YangAll
                executive officers and directors as a group (6 persons)
            
            
            100,000
            
            
            *5%
                Stockholders:Cheering
                Limited
            
            
            5,700,000(4
            )
            
            7.8
            %Yi
                Bo Sun
            
            
            35,700,000(5
            )
            
            48.9
            %







*
            Less
                than 1%(1)
            The
                address of the persons named in this column is Number 2222. Jin Tian
                Road.
                An Lian Building, 15th Floor A-01 and A-02, Eutian, Shezhen,
                China.(2)
            Shares
                of common stock subject to stock options and warrants that are currently
                exercisable or exercisable within 60 days or shares that otherwise
                may be
                acquired within 60 days of this Report are deemed to be beneficially
                owned
                by the person holding the options and warrants or person with the
                right to
                acquire such shares for computing such person’s percentage, but are not
                treated as outstanding for computing the percentage of any other
                person.(3)
            Includes
                options to purchase 100,000 shares of our common stock.(4)
            Yi
                Bo Sun, our former Chairman and Chief Executive Officer, is also
                the
                Chairman and Chief Executive Officer of Cheering Limited. Cheering
                Limited
                beneficially owns 5,700,000 shares of our Common Stock. As the Chief
                Executive Officer and Chairman of the Board of Cheering Limited,
                Yi Bo Sun
                may be deemed to beneficially own shares owned by Cheering
                Limited.(5)
            In
                connection with the private placement we issued 30,000,000 shares
                of
                common stock, to the following
                investors:




Xiong
                Xin Gan
            
            
            7,200,000
            
            
            9.87
            %Ruan
                Ju Xiang
            
            
            6,000,000
            
            
            8.22
            %Fan
                Xi
            
            
            5,400,000
            
            
            7.40
            %Xu
                Zu Hong
            
            
            4,500,000
            
            
            6.17
            %Xu
                Zhu Zhuan
            
            
            3,750,000
            
            
            5.14
            %Fang
                Zao Jie
            
            
            1,250,000
            
            
            1.71
            %Wang
                Fu Xing
            
            
            1,900,000
            
            
            2.60
            %





each
      of
      these investors executed an Irrevocable Proxy granting Yi Bo Sun, our former
      Chairman and Chief Executive Officer, the right to vote all shares of our common
      stock purchased by such investors in such placement. The Irrevocable Proxies
      expire May 1, 2006. As a result, Yi Bo Sun will be entitled to vote an aggregate
      of 35,700,000 shares (or approximately 48.9%) of our Common Stock until May
      1,
      2006.





The
      following table sets forth certain information, as at December 31, 2005, with
      respect to the Company’s equity compensation plans:




23




PLAN
                CATEGORY
            
            NUMBER OF SECURITIES TO BE
              ISSUED UPON EXERCISE OF
              OUTSTANDING OPTIONS, WARRANTS
              AND RIGHTS
            
            WEIGHTED-AVERAGE
              EXERCISE PRICE OF
              OUTSTANDING OPTIONS,
              WARRANTS AND RIGHTS
            
            NUMBER OF SECURITIES
              REMAINING AVAILABLE FOR
              FUTURE ISSUANCE
              UNDER EQUITY COMPENSATION
              PLANSEquity
                compensation plans approved by security holders
            
            
            —
            
            
            —
            
            
            —Equity
                compensation plans not approved by security holders
            
            
            100,000(1
            )
            $
            0.53
            
            
            —Total
            
            
            —
            
            
            —
            
            
            —





(1)
            Represents
                options to purchase 100,000 shares of our comment stock granted to
                Albert
                Simon.




ITEM
      12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





During
      calendar years 2003 and 2004, we were parties to an agreement with Jack Gregory,
      our former President, whereby Mr. Gregory allowed us to use his office space
      rent-free until we were able to show significant revenue. This agreement
      terminated upon the consummation of the purchase of 5,700,000 shares of Common
      Stock by Cheering Limited.





ITEM
      13.
      EXHIBIT.





EXHIBIT
              NUMBER
            
            DOCUMENT
                DESCRIPTION2.1
            
            Share
                Exchange Agreement, dated as of February 14, 2006, among China Digital
                Communication Group, a Nevada corporation, UPE Limited (Far East),
                a BVI
                corporation, 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 (Exhibit 2.1 to Form 8-K filed with the
                Commission on February 21, 2006)2.2
            
            Amended
                and Restated Share Exchange Agreement dated as of March 22, 2006,
                by and
                among China Digital Communication Group, Galaxy View International
                Ltd.,
                Shenzhen Sono, and the shareholders of Galaxy View International
                Ltd.
                (Exhibit 2.1 to the Form 8-K filed March 24, 2006)3.1
            
            Articles
                of Incorporation (Exhibit 3(i)(1) to Form 8-K filed with the Commission
                on
                September 16, 2004)3.2
            
            Bylaws
                (Exhibit 3.4 to Registration Statement on Form SB-2/A, Amendment
                No. 8,
                filed with the Commission on March 22, 2002)3.3
            
            Certificate
                of Amendment to the Articles of Incorporation (Exhibit 3(i)(2) to
                Form 8-K
                filed with the Commission on September 16, 2004)3.4
            
            Certificate
                of Amendment to the Articles of Incorporation (Exhibit 3(i)(3) to
                Form 8-K
                filed with the Commission on September 16, 2004)4.1
            
            Form
                of Stock Certificate (Exhibit 4.1 to Registration Statement on Form
                SB-2/A, Amendment No. 8, filed with the Commission on March 22, 2002)4.2
            
            2004
                Equity Incentive Plan (Exhibit 4.1 to Registration Statement on Form
                S-8
                filed with the Commission on March 2, 2004)




24




4.3
              
              Form
                  of Class A, B and C Warrants10.1
              
              Form
                  of Subscription Agreement dated March 17, 2004 by and among Jasmine’s
                  Garden and the Investors (Exhibit 4.1 to Form 8-K filed with the
                  Commission on March 22, 2004)10.2
              
              Share
                  Exchange Agreement and Plan of Reorganization (Exhibit 10.1 to
                  the Form
                  8-K filed September 29, 2004)10.3
              
              Sales
                  Contract dated April 21, 2005 between Shenzhan E’Jenine Science &
                  Technology Co., LTD. and Shenzhen Gao Yi Electonics Co. LTD. (Exhibit
                  10.1
                  to Form 8-K filed with the Commission on April 22, 2005)10.4
              
              Sales
                  Contract dated July 12, 2005 between Shenzhan E’Jenine Science &
                  Technology Co., LTD. and Wuhan Jie Xin Communication Development
                  Co., LTD.
                  (Exhibit 2.1 to Form 8-K filed with the Commission on July 14,
                  200510.5
              
              Sales
                  Contract dated December 31, 2005 between Shenzhan E’Jenine Science &
                  Technology Co., LTD. and Yin Si Qi Electronics Co. (Exhibit 2.1
                  to Form
                  8-K field with the Commission on January 6, 2006)10.6
              
              Loan
                  Agreement dated March 10, 2006, between China Digital Communication
                  Group
                  and United Private Equity (The Pacific) Limited. (Exhibit 2.1 to
                  the Form
                  8-K filed March 15, 2006)


14.1
            
            Code
                of Ethics. (Exhibit
                14.1 to the Form 10KSB filed on March 30, 2006)31.1*
            
            Certification
                of principal executive officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange
                Act
                of 1934.31.2*
            
            Certification
                of principal financial officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange
                Act
                of 1934.32.1*
            
            Certification
                of Principal Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
                of Principal Financial Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.








*
            Filed
                with this Report. All other exhibits are incorporated herein by reference
                to the filing indicated in the parenthetical reference following
                the
                exhibit description.




25




ITEM
      14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Audit
      Fees:





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.





2004:





We
      incurred no audit fees to Kabani & Company for the year ended December 31,
      2004.





The
      aggregate fees billed by Lichter, Yu & Associates, for professional services
      rendered for the audit of our annual financial statements for the year ended
      December 31, 2004, and for the reviews of the financial statements included
      in
      our Quarterly Reports on Form 10-QSB during that fiscal year were
      $40,000.




Audit
      Related Fees:




2005





We
      incurred no audit related fees to Kabani & Company during the year ended
      December 31, 2005





We
      incurred no audit related fees to Lichter, Yu & Associates during the year
      ended December 31, 2005





2004





We
      incurred no audit related fees to Kabani & Company during the year ended
      December 31, 2004.





Lichter,
      Yu & Associates was paid additional fees of approximately $2,500 for
      assurance and related services reasonably related to the performance of the
      audit or review of our financial statements for the year ended December 31,
      2004.





Tax
      Fees:





We
      incurred no fees for professional services rendered by Kabani & Company,
      Inc. or Lichter, Yu & Associates, for tax compliance, tax advice and tax
      compliance services during the fiscal years ended December 31, 2005 and
      2004.





26


Audit
      Committee Pre-approval Policies and Procedures





Our
      Audit
      Committee’s policy is to pre-approve all audit and permissible non-audit
      services provided by our independent auditors. These services may include audit
      services, audit-related services, tax services and other services. Pre-approval
      is generally provided for up to one year and any pre-approval is detailed as
      to
      the particular service or category of services.





The
      independent auditor and management are required to periodically report to the
      Audit Committee regarding the extent of services provided by the independent
      auditor in accordance with this pre-approval.





SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized on
      August
      6, 2008..




CHINA
                DIGITAL COMMUNICATION GROUPBy:
            /s/
                Zhongnan XuName:
                Zhongnan XuTitle:
                Chief Executive Officer





Pursuant
      to the requirements of the Securities Act of 1933, this Registration Statement
      has been signed by the following persons in the capacities and on the dates
      indicated:




SIGNATURE
            
            TITLE
            
            DATE/s/
                Zhongnan Xu
            
            Chairman
                and Chief Executive Officer
            
            August
                  6, 2008Zhongnan
                Xu
            
            (Principal
                Executive Officer)/s/
                Jiangcheng Wu
            
            Chief
                Financial Officer
            
            August
                  6, 2008Jiangcheng
                Wu
            
            (Principal
                Financial and Accounting Officer)/s/
                Xu Bao Dong
            
            Secretary
            
            August
                  6, 2008Xu
                Bao Dong




27







**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**DECEMBER
      31, 2005**













**TABLE
      OF CONTENTS**


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










Report
      of
      Independent Registered Public Accounting Firm





Board
      of
      Directors and Stockholders of


China
      Digital Communication Group and Subsidiaries, Inc.





We
      have
      audited the accompanying consolidated balance sheets of China Digital
      Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
      31, 2005, and the related consolidated statements of operations, stockholders'
      equity, and cash flows for the years ended December 31, 2005 and 2004. These
      consolidated financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall consolidated financial statement presentation. We
      believe that our audits provide a reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of China
      Digital Communication Group and Subsidiaries, Inc. as of
      December 31, 2005, and the consolidated results of their operations and their
      consolidated cash flows for the years ended December 31, 2005 and 2004, in
      conformity with U.S. generally accepted accounting principles.




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







/s/
      Kabani & Company, Inc.


**Certified
      Public Accountants**





Los
      Angeles, California


March
      10,
      2006, except for Note C, D, H, J, P, Q and R, which is as of August 19,
      2007




F-1




**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEET**
 **December
            31, 2005**
 **(Restated)**
 **ASSETS****Current
                    Assets**Cash
                    and cash equivalents
                
                $
                2,061,213Accounts
                    receivable, net
                
                
                2,219,870Inventory
                
                
                343,705Prepaid
                    expenses
                
                
                130,501Other
                    receivables
                
                
                10,395Total
                    Current Assets
                
                
                4,765,684**Property
                    & equipment, net**
                
                
                684,298**Other
                    Assets**Deposits
                
                
                3,100Amortizable
                    intangible assets, net
                
                
                2,954,616Goodwill
                
                
                7,039,593Total
                    Other Assets
                
                
                9,997,309**Total
                    Assets**
                
                $
                15,447,291**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****Current
                    Liabilities**Accounts
                    payable and accrued expenses
                
                $
                856,747Advances
                
                
                81,050Income
                    tax payable
                
                
                56,322Loan
                    payable to related party
                
                
                174,600Short
                    term note payable
                
                
                248,000Total
                    Current Liabilities
                
                
                1,416,719**Stockholders'
                    Equity**Common
                    stock, $.001 par value, 140,000,000shares
                    authorized, 54,460,626 issued and outstanding
                
                
                54,460Additional
                    paid in capital
                
                
                13,107,324Statutory
                    reserve
                
                
                105,849Other
                    comprehensive income
                
                
                61,682Retained
                    earnings
                
                
                701,257**Total
                    Stockholders' Equity**
                
                
                14,030,572**Total
                    Liabilities and Stockholders' Equity**
                
                $
                15,447,291
  The
        accompanying notes are an integral part of these
        consolidated financial statements.




F-2




**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 **2005**
                
                
                **2004****(Restated)**
                
                
                **(Restated)**Sales,
                    net
                
                $
                12,742,088
                
                $
                1,412,276Cost
                    of sales
                
                
                8,971,859
                
                
                718,785**Gross
                    profit**
                
                
                3,770,229
                
                
                693,491Selling
                    expense
                
                
                165,780
                
                
                46,793General
                    and administrative expenses - Restated
                
                
                1,202,359
                
                
                261,751Goodwill
                    impairment
                
                
                1,213,843
                
                
                -Consulting
                    fees
                
                
                -
                
                
                598,000Total
                    operating expenses
                
                
                2,581,982
                
                
                906,544**Income
                    (loss) from operations**
                
                
                1,188,247
                
                
                (213,053
                )Other
                    (Income) ExpenseInterest
                    income
                
                
                (3,877
                )
                
                (6
                )Miscellaneous
                    expense
                
                
                -
                
                
                5,141Interest
                    expense
                
                
                32,856
                
                
                3,468Total
                    Other Income
                
                
                28,979
                
                
                8,603**Income
                    (loss) before income taxes**
                
                
                1,159,268
                
                
                (221,656
                )Provision
                    for income taxes
                
                
                111,773
                
                
                13,555Net
                    income (loss)
                
                
                1,047,496
                
                
                (235,211
                )Other
                    comprehensive incomeForeign
                    currency translation
                
                
                61,682
                
                
                -**Comprehensive
                    income (loss)**
                
                $
                1,109,178
                
                $
                (235,211
                )**Net
                    income (loss) per share:**Basic
                    & diluted
                
                $
                0.02
                
                $
                (0.01
                )**Weighted
                    average number of shares outstanding:**Basic
                    & diluted
                
                
                54,460,626
                
                
                40,496,438Weighted
                    average number of shares for dilutive securities has not been
                    taken since
                    the effect of dilutive securities is
                    anti-dilutive
  The
          accompanying notes are an integral part of these
          consolidated financial statements.


F-3


**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 **2005**
                
                
                **2004**(Restated)
                
                
                (Restated)**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    Income (loss)
                
                $
                1,047,496
                
                $
                (235,211
                )Adjustments
                    to reconcile net income (loss) to net cashprovided
                    by (used in) operating activities:Depreciation
                
                
                83,807
                
                
                730Amortization
                
                
                332,915
                
                
                41,614Gain
                    on disposal of property & equipment
                
                
                18,575
                
                
                -Goodwill
                    impairment
                
                
                1,213,843
                
                
                -Issuance
                    of stock options
                
                
                17,500
                
                
                -Issuance
                    of shares for consultants
                
                
                -
                
                
                598,000(Increase)
                    / decrease in assets:Accounts
                    receivables
                
                
                (204,021
                )
                
                (623,529
                )Inventory
                
                
                (112,452
                )
                
                30,910Other
                    receivables
                
                
                (2,707
                )
                
                18,271Other
                    receivables - related party
                
                
                -
                
                
                (4,990
                )Prepaid
                    expense
                
                
                (118,531
                )
                
                545Deposits
                
                
                (3,100
                )
                
                -Increase
                    / (decrease) in current liabilities:Accounts
                    payable and accrued expenses
                
                
                (197,862
                )
                
                141,407Income
                    tax payable
                
                
                (32,077
                )
                
                -Deferred
                    revenue
                
                
                43,795
                
                
                -Total
                    Adjustments
                
                
                1,039,685
                
                
                202,959**Net
                    cash provided by/(used in) operations**
                
                
                2,087,181
                
                
                (32,253
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of subsidiary
                
                
                -
                
                
                (1,500,000
                )Cash
                    acquired in acquisition
                
                
                -
                
                
                296,713Proceeds
                    from sale of property & equipment
                
                
                1,094
                
                
                -Acquisition
                    of property & equipment
                
                
                (536,937
                )
                
                (23,155
                )**Net
                    cash used in investing activities**
                
                
                (535,843
                )
                
                (1,226,442
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceed
                    from issuance of shares
                
                
                -
                
                
                1,500,000Proceed
                    from loan from related party
                
                
                -
                
                
                174,600**Net
                    cash provided by financing activities**
                
                
                -
                
                
                1,674,600Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                72,749
                
                
                -**Net
                    increase in cash and cash equivalents**
                
                
                1,624,087
                
                
                415,905**Cash
                    and cash equivalents, beginning balance**
                
                
                437,126
                
                
                21,221**Cash
                    and cash equivalents, ending balance**
                
                $
                2,061,213
                
                $
                437,126**SUPPLEMENTAL
                    DISCLOSURES:**Cash
                    paid during the year for:Income
                    tax payments
                
                $
                13,555
                
                $
                -Interest
                    payments
                
                $
                32,856
                
                $
                5,354Non-cash
                    investing and financing activities:Issuance
                    of stock for purchase of subsidiary
                
                $
                -
                
                $
                7,762,557Issuance
                    of stock for guarantee
                
                $
                -
                
                $
                3,262,327
  The
            accompanying notes are an integral part of these consolidated financial
            statements.


F-4




**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 **(Restated)**
 **Common
                  Stock****Additional
                  Paid**
              
              
              **Statutory**
              
              
              **Other**
              
              
              **Accumulated**
              
              
              **Total**
                **Stockholders'**
                **Equity/****Shares**
              
              
              **Amount**
              
              
              **In
                  Capital**
              
              
              **Reserve**
              
              
              **Comprehensive**
              
              
              **Deficit**
              
              
              **(Deficit)****Balance
                  December 31, 2003**
              
              
              6,015,400
              
              $
              6,015
              
              $
              15,385
              
              $
              -
              
              $
              -
              
              $
              (5,179
              )
              $
              16,221Shares
                  issued for cash
              
              
              30,000,000
              
              
              30,000
              
              
              1,470,000
              
              
              -
              
              
              -
              
              
              -
              
              
              1,500,000Shares
                  issued to consultant
              
              
              10,684,000
              
              
              10,684
              
              
              523,516
              
              
              -
              
              
              -
              
              
              -
              
              
              534,200Shares
                  issued to consultant
              
              
              1,276,000
              
              
              1,276
              
              
              62,524
              
              
              -
              
              
              **-**
              
              
              -
              
              
              63,800Shares
                  issued for acquisition of Billion
              
              
              4,566,210
              
              
              4,566
              
              
              7,757,991
              
              
              -
              
              
              **-**
              
              
              -
              
              
              7,762,557Shares
                  issued for guarantee
              
              
              1,919,016
              
              
              1,919
              
              
              3,260,408
              
              
              -
              
              
              -
              
              
              -
              
              
              3,262,327Transfer
                  to statutory reserve
              
              
              -
              
              
              -
              
              
              -
              
              
              11,522
              
              
              -
              
              
              (11,522
              )
              
              -Net
                  loss for the year ended December 31, 2004
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (235,211
              )
              
              (235,211
              )**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
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              61,682
              
              
              -
              
              
              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
              
              $
              14,030,572


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




F-5




**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


DECEMBER
      31, 2005





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





China
      Digital Communication Group, formerly Jasmine’s Garden, Inc. (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.
      Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
      Science and Technology Company, Limited (E’Jenie). Billion Electronics Co., Ltd.
      (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. 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.





The
      Company through its acquisition of Billion and E’Jenie is no longer considered a
      development stage company as it was during the year ended December 31, 2003.
      The
      Company is now engaged in the business of the research and development,
      manufacture, and distribution of battery casings.





**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 consolidated financial statements include the accounts of China Digital
      Communication Group and its wholly owned subsidiaries Billion and E’Jenie,
      collectively referred to within as the Company. All
      significant inter-company transactions and accounts have been eliminated in
      the
      consolidation.





The
      Company’s functional currency is the Chinese Yuan Renminbi; however the
      accompanying consolidated financial statements have been translated and
      presented in United States Dollars ($).





Use
      of
      Estimates




The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the consolidated financial statements and the amount of revenues
      and
      expenses during the reporting periods. Management makes these estimates using
      the best information available at the time the estimates are made. However,
      actual results could differ materially from those results.




Exchange
      Gain (Loss):




During
      the year ended December 31, 2005 and 2004, the transactions of E’Jenie and Sono
      we denominated in foreign currency and were recorded in Chinese Yuan Renminbi
      (CNY) at the rates of exchange in effect when the transactions occur. Exchange
      gains and losses are recognized for the different foreign exchange rates applied
      when the foreign currency assets and liabilities are settled.




F-6




**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


Translation
      adjustment




The
      reporting currency of the Company is the US dollar. The Company uses their
      local
      currency, Chinese Yuan Renminbi (CNY), as their functional currency. Results
      of
      operations and cash flow are translated at average exchange rates during the
      period, and assets and liabilities are translated at the unified exchange rate
      at the end of the period. Translation adjustments resulting from this process
      are included in accumulated other comprehensive income in the statement of
      shareholders' equity. Transaction gains and losses that arise from exchange
      rate
      fluctuations on transactions denominated in a currency other than the functional
      currency are included in the results of operations as incurred.




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
      Company's financial instruments primarily consist of cash and cash equivalents,
      accounts receivable, other receivables, advances to suppliers, accounts payable,
      other payable, tax payable, and related party advances and borrowings.




As
      of the
      balance sheet dates, the estimated fair values of the financial instruments
      were
      not materially different from their carrying values as presented on the balance
      sheet. This is attributed to the short maturities of the instruments and that
      interest rates on the borrowings approximate those that would have been
      available for loans of similar remaining maturity and risk profile at respective
      balance sheet dates.





Cash
      and Cash Equivalents





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





Accounts
      Receivable





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 $135,892
      as
      at December 31, 2005.





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, 2005, inventory consisted of raw material, work in
      progress and finished goods as follows:


**Inventory**Raw
                  Material
              
              $
              104,206Work-in-process
              
              
              74,182Finished
                  goods
              
              
              165,317$
              343,705
  F-7


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


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 years





As
      of
      December 31, 2005 Property, Plant & Equipment consist of the
      following:


Machinery
              
              $
              745,419Automobile
              
              
              9,531Leasehold
                  improvements
              
              
              24,510Office
                  equipment
              
              
              2,957782,418Accumulated
                  depreciation
              
              
              (98,120
              )$
              684,298




Depreciation
      expenses were $83,807 and $730 for the years ended December 31, 2005, and
      2004.




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.




F-8
 
  **CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


Impairment




The
      Company applies the provisions of Statement of Financial Accounting Standard
      No.
      144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
      No.
      144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No.
      144
      requires that long-lived assets be reviewed for impairment whenever events
      or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable through the estimated undiscounted cash flows expected to result
      from the use and eventual disposition of the assets. Whenever any such
      impairment exists, an impairment loss will be recognized for the amount by
      which
      the carrying value exceeds the fair value.




The
      Company tests long-lived assets, including property, plant and equipment and
      intangible assets subject to periodic amortization, for recoverability at least
      annually or more frequently upon the occurrence of an event or when
      circumstances indicate that the net carrying amount is greater than its fair
      value. Assets are grouped and evaluated at the lowest level for their
      identifiable cash flows that are largely independent of the cash flows of other
      groups of assets. The Company considers historical performance and future
      estimated results in its evaluation of potential impairment and then compares
      the carrying amount of the asset to the future estimated cash flows expected
      to
      result from the use of the asset. If the carrying amount of the asset exceeds
      estimated expected undiscounted future cash flows, the Company measures the
      amount of impairment by comparing the carrying amount of the asset to its fair
      value. The estimation of fair value is generally measured by discounting
      expected future cash flows as the rate the Company utilizes to evaluate
      potential investments. The Company estimates fair value based on the information
      available in making whatever estimates, judgments and projections are considered
      necessary.





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.




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.





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.




F-9
 
  **CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


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. The Company does not have any significant deferred
      tax
      asset or liabilities in the PRC tax jurisdiction.




According
      to the Provisional Regulations of the People's Republic of China on Income
      Tax,
      the Company’s operating subsidiaries in China is under a tax rate of 15% for the
      years ended December 31, 2005.




Segment
      reporting




Statement
      of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
      Segments of an Enterprise and Related Information" requires use of the
      "management approach" model for segment reporting. The management approach
      model
      is based on the way a company's management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.




SFAS
      No.
      131 has no effect on the Company's consolidated financial statements as the
      Company operates in one reportable business segment - manufacturing and
      marketing high-precision investment casting and metal fabrication products
      in
      China.




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.





F-10


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005





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.




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.




Recent
      accounting pronouncements





In
      December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
      an
      Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
      companies to recognize in the statement of operations the grant- date fair
      value
      of stock options and other equity-based compensation issued to employees. FAS
      No. 123R is effective beginning in the Company's second quarter of fiscal 2006.
      The Company believes that the adoption of this standard will have no material
      impact on its financial statements.





In
      December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of Nonmonetary
      Assets." The Statement is an amendment of APB Opinion No. 29 to eliminate the
      exception for nonmonetary exchanges of similar productive assets and replaces
      it
      with a general exception for exchanges of nonmonetary assets that do not have
      commercial substance. The Company believes that the adoption of this standard
      will have no material impact on its financial statements.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
      This statement applies to all voluntary changes in accounting principle and
      requires retrospective application to prior periods' financial statements of
      changes in accounting principle, unless this would be impracticable. This
      statement also makes a distinction between "retrospective application" of an
      accounting principle and the "restatement" of financial statements to reflect
      the correction of an error. This statement is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005.





F-11
 
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


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.




An
      entity
      should adopt this Statement as of the beginning of its first fiscal year that
      begins after September 15, 2006. Management believes that this statement will
      not have a significant impact on the financial statement.




In
      June
      2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
      Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance
      on
      determining the amortization period for leasehold improvements acquired in
      a
      business combination or acquired subsequent to lease inception. The guidance
      in
      EITF 05-6 will be applied prospectively and is effective for periods beginning
      after June 29, 2005. The company is in the process of evaluating the effect
      on
      its consolidated financial position or results of operations.





F-12


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


In
      September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (GAAP), and expands disclosures about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The management is currently
      evaluating the effect of this pronouncement on financial
      statements.




In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:




a.  A brief
      description of the provisions of this Statement




b.  The date
      that adoption is required




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




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





In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted subject
      to
      specific requirements outlined in the new Statement. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.





The
      new
      Statement allows entities to choose, at specified election dates, to measure
      eligible financial assets and liabilities at fair value that are not otherwise
      required to be measured at fair value. If a company elects the fair value option
      for an eligible item, changes in that item's fair value in subsequent reporting
      periods must be recognized in current earnings. FAS 159 also establishes
      presentation and disclosure requirements designed to draw comparison between
      entities that elect different measurement attributes for similar assets and
      liabilities. The
      management is currently evaluating the effect of this pronouncement on financial
      statements.




F-13


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


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





Goodwill





As
      of
      December 31, 2005, the Goodwill comprised of the following:


Acquisition
                  of Billion
              
              $
              8,253,436Goodwill
                  impairment
              
              
              (1,213,843
              )Goodwill,
                  net
              
              $
              7,039,593


The
      Company while evaluating the business found that it might not be able to attain
      the projected revenue in future years due to increased competition and also
      increase in the cost of raw materials. The Company then concluded that there
      was
      an impairment as to the carrying value of goodwill as of December 31, 2005.
      The
      Company evaluated the value of the subsidiary based upon market value and
      expected present value of future cash flows and recorded an impairment of
      $1,213,843.





Intangible
      assets





As
      of
      December 31, 2005 intangible assets consist of the following:


Customer
                  relationship
              
              $
              2,691,445Design
              
              
              366,850Proprietary
                  technology
              
              
              270,850Intangible
                  assets
              
              
              3,329,145Accumulated
                  amortization
              
              
              (374,529
              )$
              2,954,616




The
      intangible assets are amortized over 10 years. Amortization expenses were
      $332,915 and $41,614 for the years ended December 31, 2005 and
      2004.





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


2006
              
              $
              332,9152007
              
              
              332,9152008
              
              
              332,9152009
              
              
              332,9152010,
              
              
              332,915After
              
              
              1,290,041Total
              
              $
              2,954,616


F-14


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


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





As
      of
      December 31, 2005, accounts payable & accrued expenses comprised of the
      following:


**Description**Accounts
                  payable and accrued expenses
              
              $
              595,208VAT
                  tax payable
              
              
              261,539Total
              
              $
              856,747




**Note
      E-** **ADVANCES**





As
      of
      December 31, 2005, advances comprise of the following:


**Description**Advances
                  from employees
              
              $
              44,530Advances
                  from customers
              
              
              36,520Total
              
              $
              81,050




**Note
      F-** **LOAN
      PAYABLE**





At
      December 31, 2005, the Company had borrowings outstanding in the aggregate
      amount of $248,000. Payable as follows:


**Description**Secured
                  note payable to a bank in
              
              $
              248,000China,
                  interest at the rate of 5.58% per annum,due
                  on July 30, 2006Total
              
              $
              248,000





**Note
      G -** **RELATED
      PARTY TRANSACTIONS**





As
      of
      December 31, 2005, the Company has an unsecured, due on demand, interest free
      loan from a shareholder, in the amount of $174,600.





**Note
      H -** **COMMON
      STOCK (RESTATED)**




On
      March
      1, 2004, the Company announced a plan named “Jasmine’s Garden 2004 Equity
      Incentive Plan” (“Plan”) for providing incentives to attract, retain and
      motivate eligible persons whose presence and potential contributions are
      important to the success of the Company. 12,000,000 shares of common stock
      were
      allocated to the plan.





On
      March
      4, 2004, certain of the Company’s principal stockholders holding approximately
      52.53% of the then total issued and outstanding common stock, approved a written
      consent to adopt a resolution to amend the Company’s Articles of Incorporation
      to increase the number of shares of common stock authorized to be issued from
      50,000,000 to 140,000,000 and to establish a


lass
      of
      preferred stock consisting of 60,000,000 shares, par value $0.001 per share.
      The
      amendment was filed on April 28, 2004.





F-15
 
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005


On
      March
      9, 2004, the Company issued 11,960,000 shares under the Plan to a number of
      consultants who were engaged to provide various services to the Company during
      the period from January 1, 2004 to March 31, 2004 in relation to the Company’s
      proposed plan to identify and complete a merger or acquisition with private
      entities. These shares were valued at $0.05 per share or $598,000 and the amount
      was expensed as consulting fees in the statements of operations.





On
      March
      17, 2004, the Company completed a private offering of 30,000,000 shares of
      its
      common stock at a per share price of $0.05 to seven unaffiliated individuals,
      resulting in gross proceeds to the Company of $1,500,000. The proceeds were
      to
      be used for the Company’s proposed plan to identify and complete a merger or
      acquisition with private entities.





On
      September 30, 2004, the Company issued 1,919,016 shares of the Company’s common
      stock to a company for guarantee fees related to the acquisition of Billion.
      The
      guarantee was valued at $3,262,327.





**Note
      I -** **STOCK
      OPTION**





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 based compensation of $17,500
      and $0 for the years ended December 31, 2005 and 2004, respectively. The Company
      also recognized income tax benefits related to the stock based compensation
      of
      $6,000 and $0 for the years ended December 31, 2005 and 2004, respectively.






Stock ** options
—
      The Stock options have a five-year life and were fully vested upon issuance.
      The
      option holder has no voting or dividend rights. The grant price was in excess
      of
      the market price at the date of grant. The Company records the expense of the
      stock options over the related vesting period. The options were valued using
      the
      Black-Scholes option-pricing model at the date of grant stock option pricing
      assumptions.




Year
                ended December 31,2005
            
            
            2004Expected
                volatility
            
            
            58.0
            %
            
            N/AExpected
                term (in years)
            
            
            5.0
            
            
            N/AExpected
                dividends
            
            
            —
            
            
            —Risk-free
                rate of return (weighted average)
            
            
            4.0
            %
            
            N/AWeighted
                average grant-date fair value
            
            $
            0.53
            
            
            N/A




Expected
      volatility is based on the historical volatility of the Company's stock price.
      The expected term represents the estimated average period of time that the
      options remain outstanding. No dividend payouts were assumed, as the Company
      has
      no plans to declare dividends during the expected term of the stock options.
      The
      risk-free rate of return reflects the weighted average interest rate offered
      for
      zero coupon treasury bonds over the expected term of the options.




A
      summary
      of the stock option activity for the year ended December 31, 2005 is presented
      below:




F-16


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


Number
                of Options
            
            Weighted-Average
                Exercise Price
            
            Weighted-Average
                Remaining Contractual Term (years)
            
            Aggregate
                Intrinsic ValueOutstanding
                at January 1, 2005
            
            
            -
            
            
            -Granted
            
            
            100,000
            
            $
            0.53
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            --Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Outstanding
                at December 31, 2005
            
            
            100,000
            
            $
            0.53
            
            
            4.75
            
            $
            17,500Exercisable
                at December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -




As
      of
      December 31, 2005, there was $17,500 of compensation cost related to the
      outstanding stock options. The total fair value of the options vested during
      the
      year ended December 31, 2005 was $17,500.





**Note
      J -** **BUSINESS
      COMBINATION (RESTATED)**





On
      September 30, 2004, the Company entered into an Exchange Agreement with Billion
      Electronics Co., Ltd. (Billion), a company incorporated under the laws of the
      British Virgin Islands. Billion owns all of the issued and outstanding shares
      of
      Shenzhen E’Jenie Science and Technology Company, Ltd.. E’Jenie is incorporated
      under the laws of the Peoples Republic of China, and is engaged in the business
      of the research and development, manufacture, and distribution of battery
      casings.





Pursuant
      to the Exchange Agreement, the Company agreed to purchase all of the issued
      and
      outstanding shares of Billion from the shareholders 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. The Company also issued
      1,919,016 shares for guarantee related to the acquisition. This transaction
      closed on November 15, 2004.





The
      acquisition was accounted for using the purchase method of accounting and,
      accordingly, Billion’s and E’Jenie’s results of operations have been included in
      the consolidated financial statements since the date of
      acquisition.




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





F-17
 
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


Cash
                  and cash equivalents
              
              $
              296,713Accounts
                  receivable
              
              
              1,390,287Other
                  receivable
              
              
              25,730Prepaid
                  expenses
              
              
              10,830Inventories
              
              
              254,770Property,
                  plant, and equipment
              
              
              215,409Total
                  assets
              
              $
              2,193,739Accounts
                  payable
              
              $
              636,940Loan
                  payable
              
              
              242,000Other
                  current liabilities
              
              
              372,496Total
                  liabilities
              
              $
              1,251,436Net
                  tangible assets acquired
              
              $
              942,303CostTotal
                  cost of investment
              
              $
              12,524,884Less
                  intangible asset (customer relationship)
              
              
              (2,691,445
              )Less
                  intangible asset (proprietary technology)
              
              
              (270,850
              )Less
                  intangible asset (Design)
              
              
              (366,850
              )Net
                  tangible assets acquired
              
              
              (942,303
              )Goodwill
              
              $
              8,253,436




The
      following (unaudited) pro forma consolidated results of operations have been
      prepared as if the acquisition of Billion had occurred at January 1,
      2004:




December
                  31, 2004Net
                  revenue
              
              $
              5,181,694Net
                  income (loss)
              
              $
              540,115Net
                  income (loss) per share - basic and diluted
              
              $
              0.01**Weighted
                  average number of shares outstanding:**Basic
                  and diluted
              
              
              40,496,438





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





**Note
      K-** **INCOME
      TAXES**




The
      Company through its subsidiaries, E’Jenie, 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, 2005.




Pursuant
      to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) is at a statutory
      rate in Shenzhen (where E’Jenie is located) of 15%.




F-18


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


The
                  following is a reconciliation of income tax expense:12/31/2005
              
              
              U.S.
              
              
              State
              
              
              International
              
              
              TotalCurrent
              
              $
              0
              
              $
              0
              
              $
              111,773
              
              $
              111,773Deferred
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              0
              
              $
              0
              
              $
              111,773
              
              $
              111,77312/31/2004
              
              
              U.S.
              
              
              State
              
              
              International
              
              
              TotalCurrent
              
              $
              0
              
              $
              0
              
              $
              13,555
              
              $
              13,555Deferred
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              0
              
              $
              0
              
              $
              13,555
              
              $
              13,555Reconciliation
                  of the differences between the statutory U.S. Federal income tax
                  rate
                  and
                  the effective rate is as follows:12/31/2005
              
              
              12/31/2004US
                  statutory tax rate
              
              
              34
              %
              
              34
              %Foreign
                  income not recognized in US
              
              
              -34
              %
              
              -34
              %PRC
                  income tax
              
              
              15
              %
              
              15
              %Effective
                  rate
              
              
              15
              %
              
              15
              %





**Note
      L-** **COMMITTMENTS**





Operating
      Leases





The
      Company leases various office facilities under operating leases that terminate
      on various dates. Rental expense for these leases consisted of $73,386 for
      the
      year ended December 31, 2005. The Company has future minimum lease obligations
      as follows:


2006
              
              $
              90,677Total
              
              $
              90,677





**Note
      M -** **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




F-19


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


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





As
      of
      December 31, 2005, the Company reserve $31,442 as statutory common welfare
      fund.





**Note
      N -** **STATUTORY
      RESERVE**





In
      accordance with the Chinese Company Law, the company has allocated 10% of its
      annual net income, amounting $62,885 as statutory reserve for the year ended
      December 31, 2005.





**Note
      O -** **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
      P -** **OTHER
      COMPREHENSIVE INCOME (RESTATED)**





Balances
      of related after-tax components comprising accumulated other comprehensive
      income (loss), included in stockholders’ equity, at December 31, 2005 and
      December 31, 2004 are as follows:


Foreign
                  Currency Translation AdjustmentBalance
                  at December 31, 2004
              
              
              -Change
                  for 2005
              
              $
              61,682Balance
                  at December 31, 2005
              
              $
              61,682





**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,
      2005. The financial statements for the year ended December 31, 2005 have been
      restated to give effect to the changes to the opening balances.





F-20


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


The
      effect of the restatements is as follows:


**CONSOLIDATED
                  BALANCE SHEET**Reported
              
              Restated2005
              
              2005Amortizable
                  intangible assets, net
              
              $
              -
              
              $
              2,954,616Goodwill
              
              
              1,865,067
              
              
              7,039,593Total
                  Other Assets
              
              
              1,868,167
              
              
              9,997,309**Total
                  Assets**
              
              
              7,318,149
              
              
              15,447,291Accounts
                  payable and accrued expenses
              
              
              903,467
              
              
              856,747Income
                  tax payable
              
              
              100,822
              
              
              56,322Total
                  Liabilities
              
              
              1,507,939
              
              
              1,416,719Additional
                  paid in capital
              
              
              2,913,114
              
              
              13,107,324Statutory
                  reserve
              
              
              94,327
              
              
              105,849Other
                  comprehensive income
              
              
              111,684
              
              
              61,682Retained
                  earnings
              
              
              2,636,624
              
              
              701,251Total
                  Stockholders' Equity
              
              
              5,810,210
              
              
              14,030,572**Total
                  Liabilities and Stockholders' Equity**
              
              $
              7,318,149
              
              $
              15,447,291
 
 **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
              
              
              1,188,247**Income
                  (loss) before income taxes**
              
              
              2,736,052
              
              
              1,159,268**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


**CONSOLIDATED
                  STATEMENTS OF OPERATIONS**Reported
              
              
              Restated2004
              
              
              2004Sale,
                  net
              
              $
              2,338,718
              
              
              1,412,276Cost
                  of revenue
              
              
              1,294,346
              
              
              718,785**Gross
                  profit**
              
              
              1,044,372
              
              
              693,491Selling
                  expenses
              
              
              55,416
              
              
              46,793General
                  and administrative expenses
              
              
              227,082
              
              
              261,751Total
                  operating expenses
              
              
              880,498
              
              
              906,544**Loss
                  from operations**
              
              
              163,874
              
              
              (213,053
              )Miscellaneous
                  (income) expense
              
              
              145
              
              
              5,141Interest
                  expense
              
              
              7,384
              
              
              3,468Total
                  Other (Income) Expense
              
              
              7,523
              
              
              8,603**Income
                  (loss) before income taxes**
              
              
              156,351
              
              
              (221,656
              )Provision
                  for income taxes
              
              
              44,500
              
              
              13,555**Net
                  income (loss)**
              
              
              111,851
              
              
              (235,211
              )**Net
                  income (loss) per share:**Basic
                  and diluted
              
              
              0.00
              
              $
              (0.01
              )Basic
                  and diluted
              
              
              39,172,889
              
              
              40,496,438





F-21


**CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
  **Consolidated
              Statements of Cash Flow**


Reported
              
              
              Restated
              
              
              Reported
              
              
              Restated2005
              
              
              2005
              
              
              2004
              
              
              2004**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income
              
              $
              2,624,279
              
              $
              1,047,496
              
              $
              111,851
              
              $
              (235,211
              )Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
              
              
              83,807
              
              
              83,807
              
              
              13,500
              
              
              730Amortization
              
              
              -
              
              
              332,915
              
              
              -
              
              
              41,614Goodwill
                  impairment
              
              
              -
              
              
              1,213,843(Gain)/
                  loss on disposal of property & equipment
              
              
              18,575
              
              
              18,575
              
              
              -
              
              
              -Gain
                  on disposal of marketable securities
              
              
              -
              
              
              -
              
              
              8,791
              
              
              -(Increase)
                  / decrease in assets:Accounts
                  receivables
              
              
              (204,099
              )
              
              (204,021
              )
              
              (626,976
              )
              
              (623,529
              )Inventory
              
              
              (111,030
              )
              
              (112,452
              )
              
              (73,155
              )
              
              30,910Other
                  receivables
              
              
              2,328
              
              
              (2,707
              )
              
              182,045
              
              
              18,271Other
                  receivables - related party
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,990
              )Prepaid
                  expense
              
              
              (127,979
              )
              
              (118,531
              )
              
              (1,071
              )
              
              545Deposits
              
              
              5,454
              
              
              (3,100
              )
              
              (8,470
              )
              
              -Increase
                  / (decrease) in current liabilities:Accounts
                  payable and accrued expenses
              
              
              (231,904
              )
              
              (197,862
              )
              
              148,478
              
              
              141,407Income
                  tax payable
              
              
              (27,801
              )
              
              (32,077
              )Deferred
                  revenue
              
              
              43,795
              
              
              43,795
              
              
              35,724
              
              
              -Total
                  Adjustments
              
              
              (531,353
              )
              
              1,039,685
              
              
              407,718
              
              
              202,959**Net
                  cash provided by operations**
              
              
              2,092,926
              
              
              2,087,181
              
              
              519,569
              
              
              (32,253
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Cash
                  acquired in acquisition
              
              
              -
              
              
              -
              
              
              -
              
              
              296,713Acquisition
                  of property & equipment
              
              
              (536,937
              )
              
              (536,937
              )
              
              (103,665
              )
              
              (23,155
              )**Net
                  cash used in investing activities**
              
              
              (535,843
              )
              
              (535,843
              )
              
              (1,603,665
              )
              
              (1,226,442
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Payment
                  on loan payable
              
              
              (2,093
              )
              
              -Proceed
                  from loan from related party
              
              
              -
              
              
              -
              
              
              -
              
              
              174,600**Net
                  cash provided by financing activities**
              
              
              (2,093
              )
              
              -
              
              
              1,500,000
              
              
              1,674,600Effect
                  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
              
              
              7,384
              
              $
              5,354Non-cash
                  investing and financing activities:Issuance
                  of stock for purchase of subsidiary
              
              $
              -
              
              $
              -
              
              
              832,906
              
              $
              7,762,557Issuance
                  of stock for guarantee
              
              $
              -
              
              $
              -
              
              
              -
              
              $
              3,262,327




F-22


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005
  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
              
              $
              5,810,210
              
              $
              14,030,572




CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITYReported
              
              
              Restated2004
              
              
              2004Additional
                  Paid In CapitalShares
                  issued for acquisition of Billion
              
              
              223,745
              
              
              7,757,991Shares
                  issued for guarantee
              
              
              600,444
              
              
              3,260,408Balance
                  December 31, 2004
              
              
              2,895,614
              
              
              13,089,824Statutory
                  ReserveTransfer
                  from net income (loss)
              
              
              -
              
              
              11,522Balance
                  December 31, 2004
              
              
              -
              
              
              11,522Retained
                  earningsTransfer
                  to statutory reserve
              
              
              -
              
              
              (11,522
              )Net
                  income (loss)
              
              
              111,851
              
              
              (235,211
              )Balance
                  at end of year
              
              
              106,672
              
              
              (251,912
              )Total
                  Stockholder's Equity
              
              $
              $3,056,747
              
              $
              $12,903,894


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





F-23


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005





ASSETSOriginal
            
            
            
            
            
            
            
            
            Restated2005
            
            
            
            
            
            Adjustments
            
            
            2005Current
                AssetsCash
                and cash equivalents
            
            $
            2,061,213
            
            
            
            
            
            
            
            $
            2,061,213Accounts
                receivable, net
            
            
            2,219,870
            
            
            
            
            
            -
            
            
            2,219,870Inventory
            
            
            343,705
            
            
            
            
            
            -
            
            
            343,705Prepaid
                expenses
            
            
            130,501
            
            
            
            
            
            -
            
            
            130,501Other
                receivables
            
            
            10,395
            
            
            
            
            
            -
            
            
            10,395Other
                receivables - related parties
            
            
            -
            
            
            
            
            
            -
            
            
            -Total
                Current Assets
            
            
            4,765,684
            
            
            
            
            
            
            
            
            4,765,684Fixed
                Assets, net
            
            
            684,298
            
            
            
            
            
            -
            
            
            684,298Total
                Fixed Assets
            
            
            684,298
            
            
            
            
            
            
            
            
            684,298Other
                AssetsPrepaid
                expenses
            
            
            -
            
            
            
            
            
            -
            
            
            -Deposits
            
            
            3,100
            
            
            
            
            
            -
            
            
            3,100Amortizable
                intangible assets, net
            
            
            -
            
            
            1,3
            
            
            2,954,616
            
            
            2,954,616Goodwill
            
            
            1,865,067
            
            
            1,2
            
            
            5,174,526
            
            
            7,039,593Total
                Other Assets
            
            
            1,868,167
            
            
            
            
            
            
            
            
            9,997,309Total
                Assets
            
            $
            7,318,149
            
            
            
            
            
            
            
            $
            15,447,291LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                LiabilitiesAccounts
                payable and accrued expenses
            
            $
            903,467
            
            
            1
            
            
            (46,720
            )
            $
            856,747Advances
            
            
            81,050.00
            
            
            
            
            
            
            
            
            81,050Tax
                payable
            
            
            100,822.00
            
            
            1
            
            
            (44,500
            )
            
            56,322Loan
                payable - related party
            
            
            174,600.00
            
            
            
            
            
            -
            
            
            174,600Current
                portion, debt
            
            
            248,000
            
            
            
            
            
            -
            
            
            248,000Total
                Current Liabilities
            
            
            1,507,939
            
            
            
            
            
            
            
            
            1,416,719Stockholders'
                EquityCommon
                stock
            
            
            54,461.00
            
            
            1
            
            
            (1
            )
            
            54,460.00Additional
                paid in capital
            
            
            2,913,114.00
            
            
            1
            
            
            10,194,210
            
            
            13,107,324.00Statutory
                reserve
            
            
            94,327.00
            
            
            1
            
            
            11,522
            
            
            105,849.00Other
                comprehensive income
            
            
            111,684.00
            
            
            1
            
            
            (50,002
            )
            
            61,682.00Retained
                earnings (deficit)
            
            
            2,636,624
            
            
            1,2,3
            
            
            (1,935,367
            )
            
            701,257.00Total
                Stockholders' Equity
            
            
            5,810,210
            
            
            
            
            
            
            
            
            14,030,572Total
                Liabilities and Stockholders' Equity
            
            $
            7,318,149
            
            
            
            
            
            
            
            $
            15,447,291




F-24


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


Original
                
                
                
                
                
                Restated2005
                
                
                Adjustments
                
                
                2005Sales,
                    net
                
                $
                12,742,088
                
                
                -
                
                $
                12,742,088Cost
                    of sales
                
                
                8,971,859
                
                
                -
                
                
                8,971,859Gross
                    profit
                
                
                3,770,229
                
                
                
                
                
                3,770,229Selling
                    expense
                
                
                165,780
                
                
                -
                
                
                165,780General
                    and administrative expenses
                
                
                839,418
                
                
                362,941
                
                
                1,202,359Impairment
                    loss
                
                
                -
                
                
                1,213,843
                
                
                1,213,843Income
                    (loss) from operations
                
                
                2,765,031
                
                
                1,576,784
                
                
                1,188,247Other
                    (Income) ExpenseInterest
                    income
                
                
                (3,877
                )
                
                
                
                
                (3,877
                )Other
                    income
                
                
                -
                
                
                
                
                
                -Miscellaneous
                    expense
                
                
                -
                
                
                -
                
                
                -Interest
                    expense
                
                
                32,856
                
                
                -
                
                
                32,856Total
                    Other (Income) Expense
                
                
                28,979
                
                
                
                
                
                28,979Income
                    (loss) before income taxes
                
                
                2,736,052
                
                
                
                
                
                1,159,268Provison
                    for income taxes
                
                
                111,773
                
                
                -
                
                
                111,773Net
                    income (loss)
                
                $
                2,624,279
                
                
                
                
                $
                1,047,495




**AJE
                  #**
              
              **ACCOUNT**
              
              **DR**
              
              **CR**1
              
              Goodwill
              
              6,388,369Amortizable
                  intangible assets, net
              
              3,329,145Common
                  stock
              
              1Additional
                  paid in capital
              
              
              
              10,194,210Accumulated
                  amortization
              
              
              
              41,614Statutory
                  reserve
              
              
              
              11,522Accounts
                  payable
              
              46,720Income
                  tax payabel
              
              44,500Comprehensive
                  income
              
              50,002G&A
                  expenses
              
              30,025Retained
                  earnings
              
              358,584Adjustment
                  was made related to the restatement for the error in the valuation
                  of thecommon
                  shares and for the failure to appropriately identify intangible
                  assets for
                  theacquisition
                  of Billion in 2004 and to correct book balance to reflect
                  changesmade
                  from the use of incorrect acquisiton dates.2
              
              Impairment
              
              1,213,843Goodwill
              
              
              
              1,213,843Record
                  partial impairment of goodwill as of December 31, 20053
              
              Amortization
                  expense
              
              332,915Accumulated
                  amortization
              
              
              
              332,915Record
                  amortization of intangibles as of December 31, 2005




F-25


**CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005


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





On
      January 1, 2006 The Company renewed an operating lease agreement for the office
      space in Los Angeles that will terminate on July 31, 2006. The office will
      serve
      as the new center of operations in North America. Monthly rent is
      $1,200.





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





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




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




F-26