**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**




(Mark
      One)




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




**For
      the fiscal year ended December 31, 2007**




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




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




**Commission
      file number 000-49715**




**CHINA
      DIGITAL COMMUNICATION GROUP**


(Exact
      name of registrant as specified in its charter)




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





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




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




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




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





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





State
      issuer’s revenues for its most recent fiscal year. $2,696,267





Aggregate
      market value of the voting and non-voting common stock held by non-affiliates
      of
      the Company as of December 31, 2007:$4,573,818.21.




Number
      of
      shares of the registrant’s Common Stock outstanding as of December 31, 2007:
      54,460,626.









**TABLE
      OF CONTENTS**





**Part
                I**Item
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            9Item
                3.
            Legal
                Proceedings
            9Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            9**Part
                II**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            9Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operations
            10Item
                7.
            Financial
                Statements
            13Item
                8.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure
            13Item
                8A.
            Controls
                and Procedures
            13Item
                8B.
            Other
                Information
            13**Part
                III**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            13Item
                10.
            Executive
                Compensation
            16Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            18Item
                12.
            Certain
                Relationships and Related Transactions
            18Item
                13.
            Exhibits
            20Item
                14.
            Principal
                Accountant Fees and Services
            21**Signatures**
            
            22





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




2




**Forward-Looking
      Statements and Associated Risks**




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




**PART
      I**




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





**Business
      Development**





***Overview***




We
        were
        incorporated in Nevada on March 27, 2001 under the name Jasmine's Garden.
        We
        operate our business through our two wholly-owned subsidiaries, Billion
        Electronic Co., Ltd., a company organized under the laws of the British Virgin
        Islands on July 27, 2004 (“Billion”), and Galaxy View International Ltd., a
        company organized under the laws of the British Virgin Islands on August
        22,
        2005 (“Galaxy View”). On November 15, 2004, we acquired Billion and its
        wholly-owned operating subsidiary, Shenzhen E'Jenie Technology Development
        Co.,
        Ltd, a company incorporated under the laws of the Peoples Republic of China
        on
        July 8, 2002 (“E’Jenie”). Through E'Jenie, we manufacture and distribute lithium
        battery shells and related products primarily in China. Based upon
        specifications from its customers E'Jenie develops, customizes and produces
        steel, aluminum battery shells and aluminum caps. Currently, E'Jenie produces
        fourteen steel battery shell lines, nine aluminum battery shell lines, three
        aluminum battery cap lines and three steel battery cap lines. On June 29,
        2006,
        we acquired Galaxy View and its wholly-owned operating subsidiary Sono Digital
        Electronic Technologies Co., Ltd., a company incorporated under the laws
        of the
        Peoples Republic of China on May 29, 2001 (“Sono”).
  ***History***





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





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




3





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





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





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





***Acquisition
      of Billion***





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





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





***Acquisition
      of Galaxy View***




On
        June
        29, 2006, pursuant to the terms of a Share Exchange Agreement (the "Galaxy
        View
        Exchange Agreement") dated as of March 22, 2006, by and among the Company,
        Galaxy View, the shareholders of Galaxy View (the " Galaxy View Shareholders")
        and Sono, we acquired from the Galaxy View Shareholders (the "Galaxy View
        Acquisition") all of the issued and outstanding equity interests of Galaxy
        View
        (the "Galaxy View Shares"). As consideration for the Galaxy View Shares,
        we paid
        to the Galaxy View Shareholders an aggregate of $3,000,000 in cash and issued
        to
        them 7,575,757 shares of our preferred stock. The consideration for the
        Acquisition was determined through arms length negotiations between us and
        Galaxy View.
 
 During
        the first quarter of 2007, Sono lost two of their largest customers and users
        of
        their products, the fact that the telecom industry in China was a monopoly;
        there was no longer a market for our products.
 
 On
        April
        24, 2007, the Company entered into an Agreement on Transfer of Shares of
        Galaxy
        View with Liu Changqing and Wang Feng (collectively, the Purchasers”) for the
        sale of our wholly-owned subsidiary Galaxy View (the “Agreement”). Changqing
        purchased a 60% interest and Feng will purchase a 40% interest in Galaxy
        View.
        In exchange for all of the outstanding shares of Galaxy View, the Purchasers
        agreed to pay $3,000,000 USD as consideration for the acquisition. We entered
        into promissory notes with the Purchasers for payment of their share of the
        $3,000,000 which is due within 90 days of April 24, 2007. If payment is not
        made
        within 90 days, the promissory notes will accrue interest at 18% per annum
        from
        the closing date. As of December 31, 2007, the amount has been paid in
        full.
  **Our
      Business**





**LITHIUM
      BATTERIES**





***Industry***





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





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




4





***Business
      Strategy***





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





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





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





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





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





***Products***





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





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





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





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





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





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


Patent
      Series are as follows:





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





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




5




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





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





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





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





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





***Competition***





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





***Manufacturing
      and Raw Materials***





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





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








Vendors
                names
            
            Percentage
                of Total purchased amount in 2007Shenzhen
                Yibao Tech. Co., Ltd
            
            
            27.41
            %Shenzhen
                Huayi Aluminum Co.
            
            
            27.34
            %Nanhai
                xincheng Stainless Steel Factory
            
            
            8.07
            %Foshan
                Hongzhou Stainless Steel Product. Co.
            
            
            6.95
            %Rongjiang
                Stainless Steel Raw Material Co.
            
            
            5.82
            %Foshan
                Chan City Yongguan Stainless Steel factory
            
            
            5.22
            %Yixing
                Foresight metal Factory
            
            
            4.99
            %Total
            
            
            100.00
            %




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




6





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





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





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








Customer
                Name
            
            Percentage
                of Total Revenue for 2007Shenzhen
                Bak Battery Co., Ltd.
            
            
            22.824
            %Shenzhen
                Yin Si Qi Electronic Co., Ltd.
            
            
            14.027
            %Shenzhen
                Huanyuda battery Electronic Tech. Co;, Ltd
            
            
            11.467
            %Shenzhen
                Di Kai Te Battery Electronic Tech. Co., Ltd
            
            
            6.769
            %Shenzhen
                Yi Li Energy Co., Ltd.
            
            
            5.956
            %Total
            
            
            100.000
            %





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 22.824% of total sales for 2007. We believe that our relationship
      with Shenzhen Bak is good and do not anticipate a change in their current volume
      of business.





***Sales
      and Marketing***





We
      focus
      our sales and marketing initiatives on establishing China Digital as the leading
      manufacturer of caps and shells for lithium ion batteries. We promote our brand
      in order to build revenues, gain worldwide market share and promote consumer
      awareness and acceptance. Our in-house sales and marketing team contact local
      battery manufacturers to solicit interest in our products. If the manufacturer
      expresses an interest in our product offering, we ship them samples and if
      our
      products suit their needs orders are placed and filled. As of December 31,
      2007,
      we had nine sales and marketing personnel who all were located in
      China.





***Intellectual
      Property***





We
      protect our proprietary technology through various methods such as patents
      and
      patent applications, trademarks, non-disclosure agreements and trade secrets.
      We
      have filed and obtained a number of patents in China. As of December 31, 2007
      we
      have been issued three patents by the China National Intelligent Assets Bureau.
      The expiration of these patents range from May 8, 2005 to May 8,
      2015.




7





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




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




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




**Doing
      Business in China**





*The
      Chinese Legal System*





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





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.




8




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





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





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





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




**Employees**




As
        of
        December 31, 2007, we had 4 employees, 1 of which are executive officers
        and 1
        administrative personnel. E'Jenie had nine divisions with 244 employees in
        total, 4 of which are supervisors and 237 of which are on the production
        lines.
        We consider our relationships with our employees to be good. Chinese labor
        laws
        require us to provide to all of our employees certain benefits and
        insurance.


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




Our
      manufacturing headquarters and office is located at A-3 Xinglian Industrial
      Zone, He Hua Ling Pingxin Road, Xin Nan, Ping Hua Town, Longgang, Shenzhen,
      China 51811. This facility is 6,708 square meters of which 15% or 1,000 square
      meters is used for offices, 4,500 square meters are used for the manufacturing
      line and storage and the remaining 1,208 square meters are used for employee
      dormitories. We recently closed our U.S. office located at 225 S. Lake Ave.,
      Suite 300, Pasadena 91101.





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





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




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





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




There
      were no matters submitted to a vote of security holders in the fourth quarter
      of
      the fiscal year ended December 31, 2007.




**PART
      II**





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




**Market
      Information**





Our
      Common Stock is currently quoted on the OTCBB under the symbol “CHID”. There is
      a limited trading market for our Common Stock.





**Holders**





As
      of
      December 31, 2007 in accordance with our transfer agent records, we had 115
      record holders of our Common Stock, holding 54,460,626 shares.




9





**Dividends**





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





**Recent
      Sales of Unregistered Securities**





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





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





**Equity
      Compensation Plan Information**





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




**Item
                6.**
            **Management’s
                Discussion and Analysis or Plan of
                Operations.**




*The
      following discussion should be read in conjunction with the Consolidated
      Financial Statements and Notes thereto appearing elsewhere in this Form 10-KSB.
      The following discussion contains forward-looking statements within the meaning
      of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
      Exchange Act of 1934 relating to future events or our future performance. Actual
      results may materially differ from those projected in the forward-looking
      statements as a result of certain risks and uncertainties set forth in this
      prospectus. Although management believes that the assumptions made and
      expectations reflected in the forward-looking statements are reasonable, there
      is no assurance that the underlying assumptions will, in fact, prove to be
      correct or that actual results will not be different from expectations expressed
      in this report.*




**RESULTS
      OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 AND
      2006**




The
      following table presents the statement of operations for the year ended December
      31, 2007 as compared to the comparable period of the year ended December 31,
      2006. The discussion following the table is based on these results.




10


**Year
                  Ended****December
                  31, 2007**
              
              **December
                  31, 2006**Revenue,
                  net
              
              $
              2,696,267
              
              $
              9,854,954Cost
                  of sales
              
              
              2,818,079
              
              
              6,986,873**Gross
                  profit**
              
              
              (121,812
              )
              
              2,868,081Operating
                  ExpensesSelling
                  expense
              
              
              24,270
              
              
              28,929General
                  and administrative expenses
              
              
              1,132,212
              
              
              1,315,326Goodwill
                  impairment
              
              
              9,012,191
              
              
              -Total
                  operating expenses
              
              
              10,168,673
              
              
              1,344,255**Income
                  (loss) from operations**
              
              
              (10,290,485
              )
              
              1,523,826Other
                  (Income) ExpenseInterest
                  income
              
              
              (25,977
              )
              
              (19,945
              )Miscellaneous
                  (income) expense
              
              
              (114,499
              )
              
              (1,789
              )Foreign
                  exchange loss
              
              
              4,466Interest
                  expense
              
              
              2,607
              
              
              173,076Total
                  Other Expense
              
              
              (133,403
              )
              
              151,342**Income
                  (loss) before income taxes**
              
              
              (10,157,082
              )
              
              1,372,484Provision
                  for income taxes
              
              
              -
              
              
              74,887Income
                  (loss) from continuing operations
              
              
              (10,157,082
              )
              
              1,297,597**Discontinued
                  operations**Loss
                  on disposal of subsidiary
              
              
              (35,635
              )
              
              -Goodwill
                  impairment
              
              
              (1,295,556
              )
              
              (3,779,181
              )Loss
                  from discontinued operations
              
              
              (37,578
              )
              
              1,227,214Net
                  Income (loss)
              
              $
              (11,525,851
              )
              $
              (1,254,370
              )




**Net
      sales**




Total
      sales were $2,696,267 in 2007 as compared to $9,854,954 in 2006, a decrease
      of
      $7,158,687 or approximately 72.6%. The decrease in sales for E’Jenie was due to
      decrease in demand from our customers as a result of increased competition
      and
      also due to the appreciation of our local currency (RMB), cost of raw material
      and the change in export policy by China Government. All of our customers lost
      some purchase orders from abroad as result of those reasons and had to find
      other vendors who could offer products at a lower price, and also lower quality.




**Cost
      of Sales**




Cost
      of
      sales for the year ended December 31, 2007 totaled $ 2,818,079
      or 104.5% of net revenue compared to $ 6,986,873
      or approximately 70.1% of net revenue for the year ended December 31, 2006,
      a decrease
      of $ 4,168,794
      or approximately 60%. The
      decrease was due to decreased net revenue for the year ended December 31, 2007.
      The percentage cost of sales increased 34.4% due to the change of labor cost
      structure during 2007 as compare to 2006. In order to retain skilled workers,
      the company decided to use fixed salary instead of variable salary based on
      quantity of units produced.





**Operating
      Expense**




Selling
      and general and administrative expenses for the year ended December 31, 2007
      totaled $10,168,673
      or approximately 377.1% of net revenue compared to $ 1,344,255
      or approximately 13.6% of net revenue for the year ended December 31, 2006,
      an increase of
      $ 8,824,418
      or approximately 656.5%.
      The increase in general and administrative expenses was primarily due to the
      additional impairment recognized for Goodwill from E’Jenie of $9,012,151 in
      2007.




11





**Income
      (Loss) from Operations**




Income
      (Loss) from operations for the year ended December 31, 2007 totaled $(10,290,485)
      or approximately 381.7% of net revenue compared to $1,523,826
      or approximately 15.5% of net revenue for the year ended December
      31, 2006, a decrease of
      $ 11,814,311
      or approximately 775.3%. The
      decrease in income from operations was primarily due to decrease in sales and
      impairment loss recognized during the year ended December 31, 2007.





**Discontinued
      Operations**




Discontinued
      operations for the year ended December 31, 2007 totaled $(1,368,769) as compared
      to $(2,551,967) for the year ended December 31, 2006. The Company acquired
      Galaxy View on June 26, 2006 and during the first quarter of 2007, our two
      largest customers; China mobile and China Unicom changed their purchase
      procedures. In the past, purchase orders were made by their local branch offices
      based on their needs and demand. The change now only allowed their main head
      office to place purchase orders from their selected vendors. They evaluated
      all
      vendors based on their criteria and unfortunately Sono Digital was not selected
      as one of their vendors. With the loss of the two largest users of our products,
      the fact that the telecom industry in China was a monopoly, there was no longer
      a market for our products.





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





On
      April
      24, 2007, the Company entered into an Agreement on Transfer of Shares of Galaxy
      View with Liu Changqing and Wang Feng (collectively, the Purchasers”) for the
      sale of our wholly-owned subsidiary Galaxy View (the “Agreement”). Changqing
      purchased a 60% interest and Feng will purchase a 40% interest in Galaxy View.
      In exchange for all of the outstanding shares of Galaxy View, the Purchasers
      agreed to pay $3,000,000 USD as consideration for the acquisition. We entered
      into promissory notes with the Purchasers for payment of their share of the
      $3,000,000 which is due within 90 days of April 24, 2007. If payment is not
      made
      within 90 days, the promissory notes will accrue interest at 18% per annum
      from
      the closing date. As of December 31, 2007, the amount has been paid in
      full.


**I** **nterest
      Expense (Income)**




Interest
      expense (income) for the year ended December 31, 2007 totaled $(23,370) compared
      to $153,131 for the year ended December 31, 2006, a decrease of $176,501, or
      approximately 115.3%. The decrease in interest expense was due to indebtedness
      related to the potential acquisition of new business during 2006.




**Net
      Income**




Net
        income (loss) for the year ended December 31, 2007 totaled $ (11,521,851)
        compared to $ (1,254,370)
        for the year ended December 31, 2006, a
        decrease of $ 10,271,481
        or approximately 818.5%.
        The decrease in net income was primarily due to reason described
        above.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Cash
      has
      historically been generated from operations. Operations and liquidity needs
      are
      funded primarily through cash flows from operations and short-term borrowings.
      Cash and cash equivalents were $3,794,126 at December 31, 2007 and current
      assets totaled $4,937,032 at December 31, 2007. The Company's total current
      liabilities were $1,174,133 at December 31, 2007. Working capital at December
      31, 2007 was $3,762,899. During the year ended December 31, 2007, net cash
      provided by operating activities was $2,149,443.





Net
      cash
      provided by (used in) investing activities totaled $807,735 for the year ended
      December 31, 2007, compared with $(3,832,055) for the same periods ended
      December 31, 2006.





Net
      cash
      provide by (used in) financing activities totaled $0 for the year ended December
      31, 2007. The net cash change was $3,224,158 and $(1,491,245) for the year
      ended
      December 31, 2007 and 2006, respectively.





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




12





The
      sale
      of Galaxy View for $3 million dollar has helped our cash balance and our working
      capital. The Company's current operations do not generate sufficient cash to
      cover its operating costs. These conditions raise substantial doubt about the
      Company's ability to continue as a going concern. The Company has taken certain
      restructuring steps to provide the necessary capital to continue its operations.
      These steps included: 1) acquire profitable operations through issuance of
      equity instruments, 2) to continue actively seeking additional funding and
      restructure the acquired subsidiaries to increase profits and minimize the
      liabilities.




**Working
      Capital Requirements**




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




**OFF-BALANCE
      SHEET ARRANGEMENTS**




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





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




Our
      financial statements begin on page F-1 below.





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





None.





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





**Evaluation
      of Disclosure Controls and Procedures**





Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
      Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2007. Based
      on this evaluation, our principal executive officer and principal financial
      officer have concluded that our disclosure controls and procedures are effective
      to ensure that information required to be disclosed by us in the reports we
      file
      or submit under the Exchange Act is recorded, processed, summarized, and
      reported within the time periods specified in the Securities and Exchange
      Commission's rules and forms and that our disclosure and controls are designed
      to ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is accumulated and communicated to our
      management, including our principal executive officer and principal financial
      officer, or persons performing similar functions, as appropriate to allow timely
      decisions regarding required disclosure.





**Changes
      in Internal Controls**





There
      were no changes (including corrective actions with regard to significant
      deficiencies or material weaknesses) in our internal controls over financial
      reporting that occurred during the fiscal year ended December 31, 2007 that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.





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




None.





**PART
      III**




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




The
      following table sets forth the name, age and position of each of our executive
      officers and directors as of December 31, 2007.





**Name**
            
            **Age**
            
            **Position**
            
            **Date
                of Appointment**Zhongan
                Xu
            
            59
            
            Chief
                Executive Officer and Chairman of the Board of Directors
            
            January
                4, 2007Jiangcheng
                Wu
            
            47
            
            Chief
                Financial Officer
            
            January
                5, 2007




13




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





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





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





**Term
      of Office**




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





**Audit
      Committee**





The
        Company does not have an Audit committee at this time.


**Code
      of Ethics**





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





**Significant
      Employees**





None.





**Family
      Relationships**





No
      family
      relationships exist among our directors or executive officers.




14





**Involvement
      in Certain Legal Proceedings**




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




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




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





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





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





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




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





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




**ITEM
      9A. CONTROLS AND PROCEDURES**




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




***Management’s
      Report on Internal Controls over Financial
      Reporting***





Internal
      control over financial reporting is a process to provide reasonable assurance
      regarding the reliability of consolidated financial reporting and the
      preparation of financial statements for external purposes in accordance with
      U.S. generally accepted accounting principles.  There has been no change in
      the Company’s internal control over financial reporting during the year ended
      December 31, 2007 that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.




15




The
      Company’s management, including the Company’s CEO and CAO, does not expect that
      the Company’s disclosure controls and procedures or the Company’s internal
      controls will prevent all errors and all fraud. A control system, no matter
      how
      well conceived and operated, can provide only reasonable, not absolute,
      assurance that the objectives of the control system are met. Further, the design
      of a control system must reflect the fact that there are resource constraints,
      and the benefits of controls must be considered relative to their costs. Because
      of the inherent limitations in all control systems, no evaluation of the
      controls can provide absolute assurance that all control issues and instances
      of
      fraud, if any, within the Company have been detected.





Management
      conducted an evaluation of the effectiveness of our internal control over
      financial reporting based on the framework in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on this evaluation, management concluded that the company’s internal control
      over financial reporting was effective as of December 31, 2007.




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





**Compensation
      of Executive Officers**




The
      following summary compensation table sets forth all compensation awarded to,
      earned by, or paid to the named executive officers paid by us during the fiscal
      years ended December 31, 2007 and 2006 in all capacities for the accounts of
      our
      executives, including the Chief Executive Officer (CEO) and Chief Financial
      Officer (CFO):





**SUMMARY
      COMPENSATION TABLE**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock
                Awards**
              **($)**
            
            **Option
                Awards**
              **($)**
            
            **Non-Equity
                Incentive Plan Compensation ($)**
            
            **Non-Qualified
                Deferred Compensation Earnings**
              **($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Totals**
              **($)**Zhongan
                Xu,(1)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Chief
                Executive Officer
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Jiangcheng
                Wu,(2)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Chief
                Financial Officer
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Yu
                Xi Sun,(3)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            50,000Former
                CEO
            
            
            2006
            
            
            50,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Ran
                Liang,(4)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            17,500Former
                CEO
            
            
            2006
            
            
            17,500
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Sara
                Shao,(5)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            15,000Former
                CFO
            
            
            2006
            
            
            15,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Su
                Yi Zheng,(6)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            15,000Former
                COO
            
            
            2006
            
            
            15,000
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Yi
                Bo Sun,(7)
            
            
            2007
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Former
                CEO and President
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0




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




16




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





**Outstanding
      Equity Awards at Fiscal Year-End Table.** There
      were no individual grants of stock options to purchase our common stock made
      to
      the named executive officers in the Summary Compensation Table during the fiscal
      year ended December 31, 2007, and the subsequent period up to the date of the
      filing of this prospectus.




**Employment
      Agreements**




None
      of
      our executive officers have employment agreements.




**Compensation
      of Directors**




For
      the
      fiscal year ended December 31, 2007, we did not compensate our directors for
      their services.




17




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





The
      following table sets forth certain information regarding the ownership of our
      capital stock, as of December 31, 2007, for: (i) each director; (ii) each person
      who is known to us to be the beneficial owner of more than 5% of our outstanding
      common stock; (iii) each of our executive officers named in the Summary
      Compensation Table; and (iv) all of our current executive officers and directors
      of as a group. Except as otherwise indicated in the footnotes, all information
      with respect to share ownership and voting and investment power has been
      furnished to us by the persons listed. Except as otherwise indicated in the
      footnotes, each person listed has sole voting power with respect to the shares
      shown as beneficially owned.


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





(1) The
      person listed is an officer and/or director of the Company and the address
      for
      each beneficial owner is Number 2222, Jin Tian Road, An Lian Building 15th
      Floor
      A-01 and A-02, Futian Shenzhen, China 51811.





(2) Based on
      54,460,626 shares of Common Stock issued and outstanding as of December 31,
      2007.




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




None.




18




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




**Exhibit No.**
            
            **Title
                of Document**
            
            **Location**2.1
            
            Share
                Exchange Agreement, dated February 14, 2006, between us, UPE Limited
                (Far
                East), Shenzhen Zhuo Tong Power Supply Industry Co., Ltd., and the
                shareholders of UPE Limited
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed February 21,
                20062.2
            
            Amended
                and Restated Share Exchange Agreement, dated March 22, 2006, between
                us,
                Galaxy View International Ltd., Shenzhen Sono, and the shareholders
                of
                Galaxy View International Ltd.
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed March 24,
                20062.3
            
            Share
                Exchange Agreement and Plan or Reorganization
            
            Incorporated
                by reference as Exhibit 10.1 to Form 8-K filed September 29,
                20043.1.1
            
            Articles
                of Incorporation
            
            Incorporated
                by reference as Exhibit 3(i)(1) to Form 8-K filed September 16,
                20043.1.2
            
            Amendment
                to Articles of Incorporation
            
            Incorporated
                by reference as Exhibit 3(i)(2) to Form 8-K filed September 16,
                20043.1.3
            
            Amendment
                to Articles of Incorporation
            
            Incorporated
                by reference as Exhibit 3(i)(3) to Form 8-K filed September 16,
                20043.1.4
            
            Certificate
                of Designation of Series A Convertible Preferred Stock
            
            Incorporated
                by reference as Exhibit 3(i) to Form 8-K filed July 28,
                20063.2
            
            Bylaws
            
            Incorporated
                by reference as Exhibit 3.4 to Form SB-2/A filed March 22,
                20024.1
            
            Form
                of Stock Certificate
            
            Incorporated
                by reference as Exhibit 4.1 to Form SB-2/A filed March 22,
                20024.2
            
            2004
                Equity Incentive Plan
            
            Incorporated
                by reference as Exhibit 4.1 to Form S-8 filed March 2,
                2004




19




4.3
            
            Form
                of Class A, B and C Warrants
            
            Incorporated
                by reference as Exhibit 4.3 to Form 10-KSB filed March 30,
                20064.4
            
            Form
                of Subscription Agreement dated March 17, 2004 by and among Jasmine's
                Garden and the Investors
            
            Incorporated
                by reference as Exhibit 4.1 to Form 8-K filed March 22,
                2004




10.1
            
            Sales
                Contract dated April 21, 2005 between Shenzhan E'Jenine Science &
                Technology Co., LTD. and Shenzhen Gao Yi Electonics Co.
                LTD.
            
            Incorporated
                by reference as Exhibit 10.1 to Form 8-K filed April 22,
                200510.2
            
            Sales
                Contract dated July 12, 2005 between Shenzhan E'Jenine Science &
                Technology Co., LTD. and Wuhan Jie Xin Communication Development
                Co.,
                LTD.
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed July 14,
                200510.3
            
            Sales
                Contract dated December 31, 2005 between Shenzhan E'Jenine Science
&
                Technology Co., LTD. and Yin Si Qi Electronics Co.
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed January 6,
                200610.4
            
            Loan
                Agreement dated March 10, 2006, between us and United Private Equity
                (The
                Pacific) Limited
            
            Incorporated
                by reference as Exhibit 2.1 to Form 8-K filed March 15,
                200614.1
            
            Code
                of Ethics
            
            Incorporated
                by reference as Exhibit 14.1 to Form 10-KSB filed March 30, 200621.1
            
            Subsidiaries
            
            Filed
                herewith31.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002
            
            Filed
                herewith31.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith




20




32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith




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




**Audit
      Fees**




2007





The
      aggregate fees billed by our auditors, Kabani & Company, Inc., for
      professional services rendered for the audit of our annual financial statements
      for the fiscal year ended December 31, 2007 were, and for professional services
      rendered for the reviews of the financial statements included in our Quarterly
      Reports on Form 10-QSB during fiscal year 2007 were $50,000.





2006





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




**Tax
      Fees**




For
      our
      fiscal years ended December 31, 2007 and 2006, we were not billed for
      professional services rendered for tax compliance, tax advice, and tax
      planning.




20


**All
      Other Fees**




The
      Company did not incur any other fees related to services rendered by our
      principal accountant for the fiscal years ended December 31, 2007 and
      2006.





**Audit
      and Non-Audit Service Pre-Approval Policy**




We
        currently do not have an audit committee. However, our board of directors
        has
        approved the services described above.


21





**SIGNATURES**




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




**CHINA
                DIGITAL COMMUNICATION GROUP**By:
            */s/
                Zhongan Xu*
              ZHONGAN
                XU
              President,
                Chief Executive Officer,
              Chief
                Financial OfficerDate:
            **March
                26, 2008**




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





**Name**
            
            **Title**
            
            **Date***/s/
                Zhongan Xu*
            
            Chief
                Executive Officer and Chairman
            
            **March
                26, 2008**ZHONGAN
                XU*/s/
                Jiangcheng Wu*
            
            Chief
                Financial Officer
            
            **March
                26, 2008**JIANGCHENG
                WU




22




**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2007**
  23
  **TABLE
        OF CONTENTS**
 
 Report
                  of Independent Registered Public Accounting Firm
              
              F-1Consolidated
                  Balance Sheet
              
              F-2Consolidated
                  Statements of Operations
              
              F-3Consolidated
                  Statements of Cash Flow
              
              F-4Consolidated
                  Statements of Changes in Stockholders’ Equity/(Deficit)
              
              F-5Notes
                  to Consolidated Financial Statements
              
              F-6-21
  24
  Report
        of
        Independent Registered Public Accounting Firm
 
 Board
        of
        Directors and Stockholders of
 China
        Digital Communication Group and Subsidiaries, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of China Digital
        Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
        31, 2007, and the related consolidated statements of operation, stockholders'
        equity, and cash flows for the years ended December 31, 2007 and 2006. 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, 2007, and the consolidated results of their operations and their
        consolidated cash flows for the years ended December 31, 2007 and 2006, in
        conformity with U.S. generally accepted accounting principles.
  The
        Company’s consolidated financial statements are prepared using generally
        accepted accounting principles applicable to a going concern, which contemplates
        the realization of assets and liquidation of liabilities in the normal course
        of
        business. The company has accumulated deficit of $12,078,964 at December
        31,
        2007 including a net loss of $11,525,851 and $1,254,370 for the years ended
        December 31, 2007 and 2006. These factors as discussed in Note R to the
        financial statements, raise substantial doubt about the Company’s ability to
        continue as a going concern. Management’s plans in regard to these matters are
        also described in Note R. The financial statements do not include any
        adjustments that might result from the outcome of this uncertainty.
 
 /s/
        Kabani & Company, Inc.
 **Certified
        Public Accountants**
 
 Los
        Angeles, California
 February
        5, 2008
  F-1
  **CHINA
                      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                      BALANCE SHEET****DECEMBER
                      31, 2007**
  **ASSETS****Current
                      assets**Cash
                      and cash equivalents
                  
                  $
                  3,794,126Accounts
                      receivable
                  
                  
                  254,374Inventory
                  
                  
                  886,806Prepaid
                      expenses
                  
                  
                  1,726Total
                      Current Assets
                  
                  
                  4,937,032**Plant,
                      property & equipment, net**
                  
                  
                  1,011,601**Other
                      assets**Other
                      assets
                  
                  
                  8,530VAT
                      tax and income tax receivable
                  
                  
                  183,020Intangible
                      assets, net
                  
                  
                  927,617Total
                      Other Assets
                  
                  
                  1,119,167**Total
                      assets**
                  
                  $
                  7,067,800**LIABILITIES
                      AND STOCKHOLDERS' EQUITY****Current
                      liabilities**Accounts
                      payable and accrued expenses
                  
                  $
                  725,333Loan
                      payable
                  
                  
                  274,200Loan
                      payable to related party
                  
                  
                  174,600Total
                      Current Liabilities
                  
                  
                  1,174,133**Stockholders'
                      equity**Common
                      stock, $.001 par value, 140,000,000shares
                      authorized, 54,460,626, issued and outstanding
                  
                  
                  54,460Preferred
                      stock, $.001 par value, 7,575,757shares
                      authorized, 7,575,757, issued and outstanding
                  
                  
                  7,576Additional
                      paid in capital
                  
                  
                  16,950,348Statutory
                      reserve
                  
                  
                  105,849Other
                      comprehensive income - restated
                  
                  
                  854,399Retained
                      earnings
                  
                  
                  (12,078,964
                  )**Total
                      stockholders' equity**
                  
                  
                  5,893,667**Total
                      liabilities and stockholders' equity**
                  
                  $
                  7,067,800
  The
          accompanying notes are an integral part of these audited consolidated financial
          statements.
 F-2
 **CHINA
                      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **CONSOLIDATED
                      STATEMENTS OF OPERATIONS****FOR
                      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
  **2007**
                  
                  **2006******Revenue,
                      net
                  
                  $
                  2,696,267
                  
                  $
                  9,854,954Cost
                      of sales
                  
                  
                  2,818,079
                  
                  
                  6,986,873**Gross
                      profit (loss)**
                  
                  
                  (121,812
                  )
                  
                  2,868,081Operating
                      expensesSelling
                      expense
                  
                  
                  24,270
                  
                  
                  28,929General
                      and administrative expenses
                  
                  
                  1,132,212
                  
                  
                  1,315,326Goodwill
                      impairment
                  
                  
                  9,012,191
                  
                  
                  -Total
                      operating expenses
                  
                  
                  10,168,673
                  
                  
                  1,344,255**Loss
                      from operations**
                  
                  
                  (10,290,485
                  )
                  
                  1,523,826Other
                      (Income) expenseInterest
                      income
                  
                  
                  (25,977
                  )
                  
                  (19,945
                  )Miscellaneous
                      expense
                  
                  
                  (114,499
                  )
                  
                  (1,788
                  )Foreign
                      exchange loss
                  
                  
                  4,466
                  
                  
                  -Interest
                      expense
                  
                  
                  2,607
                  
                  
                  173,076Total
                      other (income) expense
                  
                  
                  (133,403
                  )
                  
                  151,343**Loss
                      before income taxes**
                  
                  
                  (10,157,082
                  )
                  
                  1,372,484Provision
                      for income taxes
                  
                  
                  -
                  
                  
                  74,887**Loss
                      from continuing operations**
                  
                  
                  (10,157,082
                  )
                  
                  1,297,597**Discontinued
                      operations**Loss
                      on disposal of subsidiary
                  
                  
                  (35,635
                  )
                  
                  -Goodwill
                      impairment
                  
                  
                  (1,295,556
                  )
                  
                  (3,779,181
                  )Loss
                      from discontinued operations
                  
                  
                  (37,578
                  )
                  
                  1,227,214Total
                      loss from disontinued operations
                  
                  
                  (1,368,769
                  )
                  
                  (2,551,967
                  )**Net
                      loss**
                  
                  
                  (11,525,851
                  )
                  
                  (1,254,370
                  )Other
                      comprehensive incomeForeign
                      currency translation
                  
                  
                  485,112
                  
                  
                  307,605**Comprehensive
                      loss**
                  
                  $
                  (11,040,740
                  )
                  $
                  (946,765
                  )**Net
                      loss per share from continuing operations**Basic
                      & diluted
                  
                  $
                  (0.19
                  )
                  $
                  0.02**Net
                      income (loss) per share from discontinued
                      operations**Basic
                      & diluted
                  
                  $
                  (0.03
                  )
                  $
                  (0.05
                  )**Net
                      loss per share from net loss**Basic
                      & diluted
                  
                  $
                  (0.21
                  )
                  $
                  (0.02
                  )**Weighted
                      average number of shares outstanding:**Basic
                      & diluted
                  
                  
                  54,460,626
                  
                  
                  54,460,626
  The
          accompanying notes are an integral part of these
          audited consolidated financial statements.
 F-3
 **CHINA
                      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****FOR
                      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
  **2007**
                  
                  **2006********CASH
                      FLOWS FROM OPERATING ACTIVITIES**Net
                      loss
                  
                  $
                  (11,525,851
                  )
                  $
                  1,297,597Adjustments
                      to reconcile net loss to net cashprovided
                      by/(used in) operating activities:Depreciation
                  
                  
                  205,008
                  
                  
                  176,002Amortization
                      of intangible assets
                  
                  
                  267,352
                  
                  
                  332,915Stock
                      option issued
                  
                  
                  62,721
                  
                  
                  -Goodwill
                      & intangible assets impairment
                  
                  
                  9,012,191
                  
                  
                  -Loss
                      on disposal of subsidiary
                  
                  
                  35,635
                  
                  
                  -Reserve
                      for bad debt
                  
                  
                  -(Increase)
                      / decrease in current assets:Accounts
                      receivables
                  
                  
                  1,407,430
                  
                  
                  671,742Inventory
                  
                  
                  (560,280
                  )
                  
                  70,266Other
                      receivables
                  
                  
                  14,237
                  
                  
                  (956
                  )Prepaid
                      expense
                  
                  
                  14,841
                  
                  
                  116,016Deposits
                  
                  
                  (5,430
                  )
                  
                  -Increase/(Decrease)
                      in current liabilities:Accounts
                      payable and accrued expenses
                  
                  
                  13,510
                  
                  
                  (164,496
                  )Tax
                      payable
                  
                  
                  (229,850
                  )
                  
                  (42,908
                  )Advance
                  
                  
                  (2,073
                  )
                  
                  (80,227
                  )Total
                      Adjustments
                  
                  
                  10,235,292
                  
                  
                  1,078,355Net
                      cash provided by/(used in) operating activities from continuing
                      operations
                  
                  
                  (1,290,559
                  )
                  
                  2,375,951Net
                      cash provided by/(used in) operating activities from disposal
                      of
                      subsidiary
                  
                  
                  3,440,002
                  
                  
                  (180,529
                  )**Net
                      cash provided by operating activities**
                  
                  
                  2,149,443
                  
                  
                  2,195,422**CASH
                      FLOWS FROM INVESTING ACTIVITIES**Advance
                      for business acquisition
                  
                  
                  -
                  
                  
                  (3,000,000
                  )Proceed
                      from sale of subsiidary
                  
                  
                  3,000,000
                  
                  
                  -Acquisition
                      of property & equipment
                  
                  
                  (75,371
                  )
                  
                  (1,035,189
                  )Net
                      cash provided by/(used in) investing activities from continuing
                      operations
                  
                  
                  2,924,629
                  
                  
                  (4,035,189
                  )Net
                      cash provided by/(used in) investing activities from disposal
                      of
                      subsidiary
                  
                  
                  (2,116,894
                  )
                  
                  203,134**Net
                      cash provided by/(used) in investing activities**
                  
                  
                  807,735
                  
                  
                  (3,832,055
                  )**CASH
                      FLOWS FROM FINANCING ACTIVITIES**Payment
                      on loan payable
                  
                  
                  -
                  
                  
                  (3,251,540
                  )Proceed
                      from loan payable
                  
                  
                  -
                  
                  
                  3,251,540**Net
                      cash provided by financing activities from continuing
                      operations**
                  
                  
                  -
                  
                  
                  -Effect
                      of exchange rate changes on cash and cash equivalents
                  
                  
                  266,980
                  
                  
                  145,388**Net
                      increase/(decrease) in cash and cash equivalents**
                  
                  
                  3,224,158
                  
                  
                  (1,491,245
                  )**Cash
                      and cash equivalents, beginning balance**
                  
                  
                  569,968
                  
                  
                  2,061,213**Cash
                      and cash equivalents, ending balance**
                  
                  $
                  3,794,126
                  
                  $
                  569,968**SUPPLEMENTAL
                      DISCLOSURES:**Cash
                      paid during the year for:Income
                      tax payments
                  
                  $
                  -
                  
                  $
                  74,887Interest
                      payments
                  
                  $
                  2,607
                  
                  $
                  75,622Non
                      cash transactions:Issuance
                      of shares in advance for purchase of business
                  
                  $
                  -
                  
                  $
                  3,787,879
  The
          accompanying notes are an integral part of these
          audited consolidated financial statements.
 F-4
 **CHINA
                      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES****CONSOLIDATED
                      STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**
  **Retained****Common
                      Stock**
                  
                  **Preferred**
                  
                  **Additional
                      Paid**
                  
                  **Other**
                      **Comprehensive**
                  
                  **Statutory**
                  
                  **Earnings**
                      **(Accumulated**
                  
                  **Total**
                      **Stockholders'****Shares**
                  
                  **Amount**
                  
                  **Stock**
                  
                  **in
                      Capital**
                  
                  **Income**
                  
                  **Reserve**
                  
                  **Deficit)**
                  
                  **Equity****Balance
                      as of December 31, 2005**
                  
                  
                  54,460,626
                  
                  
                  54,460
                  
                  
                  -
                  
                  
                  13,107,324
                  
                  
                  61,682
                  
                  
                  105,849
                  
                  
                  701,257
                  
                  
                  14,030,572Issuance
                      of shares for acquisition of subsidiary
                  
                  
                  -
                  
                  
                  -
                  
                  
                  7,576
                  
                  
                  3,780,303
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,787,879Change
                      in foreign currency translation gain
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  307,605
                  
                  
                  -
                  
                  
                  -
                  
                  
                  307,605Net
                      income for the year ended December 31, 2006
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,254,370
                  )
                  
                  (1,254,370
                  )**Balance
                      as of December 31, 2006**
                  
                  
                  54,460,626
                  
                  $
                  54,460
                  
                  $
                  7,576
                  
                  $
                  16,887,627
                  
                  $
                  369,287
                  
                  $
                  105,849
                  
                  $
                  (553,113
                  )
                  $
                  16,871,686Change
                      in foreign currency translation gain
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  485,112
                  
                  
                  -
                  
                  
                  -
                  
                  
                  485,112Issuance
                      of stock option
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  62,721
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  62,721Net
                      income for the year ended December 31, 2007
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (11,525,851
                  )
                  
                  (11,525,851
                  )**Balance
                      as of December 31, 2007**
                  
                  
                  54,460,626
                  
                  $
                  54,460
                  
                  $
                  7,576
                  
                  $
                  16,950,348
                  
                  $
                  854,399
                  
                  $
                  105,849
                  
                  $
                  (12,078,964
                  )
                  $
                  5,893,667
  The accompanying notes are an integral part of
        these audited consolidated financial statements.  F-5
  **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2007
 
 **Note
        A -** **ORGANIZATION**
 
 China
        Digital Communication Group (the “Company”) was incorporated under the laws of
        the State of Nevada on March 27, 2001. On September 30, 2004, the Company
        entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion).
        Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
        Science and Technology Company, Limited (E’Jenie). Billion, was incorporated
        under the laws of the British Virgin Islands on July 27, 2004. Shenzhen
        E’Jenie Science & Technology Company Limited ,
        was
        legally established on July 8, 2002 under the laws of the Peoples’ Republic of
        China (PRC). On June 28, 2006, the Company finalized an Exchange Agreement
        with
        Galaxy View International, Ltd (Galaxy View). Galaxy View owns all of the
        issued
        and outstanding shares of Shenzhen Sono Digital Technologies Company Limited
        (Sono). Galaxy View was incorporated under the laws of the British Virgin
        Islands on August 22, 2005. Sono was legally established on May 29, 2001
        under
        the laws of the Peoples’ Republic of China. When used in these notes, the terms
“Company,” “we,” “our,” or “us” mean China Digital Communication Group and its
        Subsidiaries.
 
 On
        September 30, 2004, the Company entered into an Exchange Agreement with Billion.
        Pursuant to the Exchange Agreement, the Company agreed to purchase all of
        the
        issued and outstanding shares of Billion for approximately $1,500,000 in
        cash
        and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the
        total issued and outstanding shares.
 
 On
        June
        28, 2006, the Company finalized an Exchnage Agreement with Galaxy View
        International Ltd., the Company and the shareholders of Galaxy View (the
        “Shareholders”). Pursuant to the Exchange Agreement, the Company acquired 100%
        of Galaxy View in a cash and stock transaction valued at approximately
        $6,787,879. Under the terms of the Agreement, the Company will pay to the
        Shareholders $3,000,000 in cash and deliver 7,575,757 unregistered shares
        of
        China Digital preferred stock valued at approximately $3,787,879.
 
 During
        the second quarter of 2007, the Company decided to dispose Galaxy View. The
        Company disposed off Galaxy View for $3,000,000 on April 26, 2007 and received
        the consideration in 2007.
 
 **Note
        B -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Basis
        of Presentation
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America.
        The Company’s functional currency is the Chinese Renminbi; however the
        accompanying consolidated financial statements have been translated and
        presented in United States Dollars ($).
  Exchange
        Gain (Loss):
  During
        the year ended December 31, 2007 and 2006, the transactions of E’Jenie were
        denominated in foreign currency and were recorded in Chinese Yuan Renminbi
        (CNY)
        at the rates of exchange in effect when the transactions occur. Exchange
        gains
        and losses are recognized for the different foreign exchange rates applied
        when
        the foreign currency assets and liabilities are settled.
 
 Translation
        Adjustment
 
 As
        of
        December 31, 2007 and 2006, the accounts of E’Jenie were maintained, and its
        financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such
        financial statements were translated into U.S. Dollars (USD) in accordance
        with
        Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency
        Translation,” with the CNY as the functional currency. According to the
        Statement, all assets and liabilities were translated at the current exchange
        rate, stockholder’s equity are translated at the historical rates and income
        statement items are translated at the average exchange rate for the period.
        The
        resulting translation adjustments are reported under other comprehensive
        income
        in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component
        of shareholders’ equity.
  F-6
 **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
              31, 2007
  Use
              of
              Estimates
 
 The
              preparation of financial statements in conformity with generally accepted
              accounting principles in the United States (“GAAP”) requires management to make
              certain estimates and assumptions that affect the reported amounts
              of assets and
              liabilities and disclosure of contingent assets and liabilities at
              the date of
              the financial statements and the reported amounts of revenues and expenses
              during the reporting period. Actual results could differ from those
              estimates.
              Significant estimates include collectibility of accounts receivable,
              accounts
              payable, sales returns and recoverability of long-term assets.
 
 Principles
              of Consolidation
 
 The
              consolidated financial statements include the accounts of China Digital
              Communication Group and its wholly owned subsidiaries Billion, E’Jenie,
              collectively referred to within as the Company. All material intercompany
              accounts, transactions and profits have been eliminated in
              consolidation.
 
 Revenue
              Recognition
 
 The
              Company’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.
              The
              Company has adopted SFAS 123R and related FASB Staff Positions (“FSPs”) as of
              October 01, 2005 and will recognize stock-based compensation expense
              using the
              modified prospective method.
 
 Advertising
 
 Advertising
              expenses consist primarily of costs of promotion for corporate image
              and product
              marketing and costs of direct advertising. The Company expenses all
              advertising
              costs as incurred.
  Income
              Taxes
  The
              Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
              recognition of deferred tax assets and liabilities for the expected
              future tax
              consequences of events that have been included in the financial statements
              or
              tax returns. Under this method, deferred income taxes are recognized
              for the tax
              consequences in future years of differences between the tax bases of
              assets and
              liabilities and their financial reporting amounts at each period end
              based on
              enacted tax laws and statutory tax rates applicable to the periods
              in which the
              differences are expected to affect taxable income. Valuation allowances
              are
              established, when necessary, to reduce deferred tax assets to the amount
              expected to be realized.
  F-7
 **CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                  31, 2007
 
 Statement
              of Cash Flows
 
 In
              accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
              Company’s operations is based upon the local currencies. As a result, amounts
              related to assets and liabilities reported on the statement of cash
              flows will
              not necessarily agree with changes in the corresponding balances on
              the balance
              sheet.
 
 Concentration
              of Credit Risk
 
 Financial
              instruments that potentially subject the Company to concentrations
              of credit
              risk are cash, accounts receivable and other receivables arising from
              its normal
              business activities. The Company places its cash in what it believes
              to be
              credit-worthy financial institutions. The Company has a diversified
              customer
              base, most of which are in China. The Company controls credit risk
              related to
              accounts receivable through credit approvals, credit limits and monitoring
              procedures. The Company routinely assesses the financial strength of
              its
              customers and, based upon factors surrounding the credit risk, establishes
              an
              allowance, if required, for uncollectible accounts and, as a consequence,
              believes that its accounts receivable credit risk exposure beyond such
              allowance
              is limited.
 
 Risks
              and Uncertainties
 
 The
              Company is subject to substantial risks from, among other things, intense
              competition associated with the industry in general, other risks associated
              with
              financing, liquidity requirements, rapidly changing customer requirements,
              limited operating history, foreign currency exchange rates and the
              volatility of
              public markets.
 
 Contingencies
 
 Certain
              conditions may exist as of the date the financial statements are issued,
              which
              may result in a loss to the Company but which will only be resolved
              when one or
              more future events occur or fail to occur. The Company’s management and legal
              counsel assess such contingent liabilities, and such assessment inherently
              involves an exercise of judgment. In assessing loss contingencies related
              to
              legal proceedings that are pending against the Company or unasserted
              claims that
              may result in such proceedings, the Company’s legal counsel evaluates the
              perceived merits of any legal proceedings or unasserted claims as well
              as the
              perceived merits of the amount of relief sought or expected to be
              sought.
 
 If
              the
              assessment of a contingency indicates that it is probable that a material
              loss
              has been incurred and the amount of the liability can be estimated,
              then the
              estimated liability would be accrued in the Company’s financial statements. If
              the assessment indicates that a potential material loss contingency
              is not
              probable but is reasonably possible, or is probable but cannot be estimated,
              then the nature of the contingent liability, together with an estimate
              of the
              range of possible loss if determinable and material would be disclosed.
  Loss
                contingencies considered to be remote by management are generally
                not disclosed
                unless they involve guarantees, in which case the guarantee would
                be
                disclosed.
  F-8
 **CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                  31, 2007
 Cash
              and Cash Equivalents
 
 Cash
              and
              cash equivalents include cash in hand and cash in time deposits, certificates
              of
              deposit and all highly liquid debt instruments with original maturities
              of three
              months or less.
 
 Allowance
              for Doubtful Accounts
 
 The
              Company maintains reserves for potential credit losses on accounts
              receivable.
              Management reviews the composition of accounts receivable and analyzes
              historical bad debts, customer concentrations, customer credit worthiness,
              current economic trends and changes in customer payment patterns to
              evaluate the
              adequacy of these reserves.
 
 Inventory
 
 Inventories
              are valued at the lower of cost (determined on a weighted average basis)
              or
              market. Management compares the cost of inventories with the market
              value and
              allowance is made for writing down their inventories to market value,
              if lower.
              As of December 31, 2007, inventory consisted of raw material, work
              in progress
              and finished goods as follows:
 **Inventory**Raw
                          Material
                      
                      $
                      450,578Work-in-process
                      
                      
                      28,475Finished
                          goods
                      
                      
                      407,753$
                      886,806
 Property,
              Plant & Equipment
  Property
              and equipment are stated at cost. Expenditures for maintenance and
              repairs are
              charged to earnings as incurred; additions, renewals and betterments
              are
              capitalized. When property and equipment are retired or otherwise disposed
              of,
              the related cost and accumulated depreciation are removed from the
              respective
              accounts, and any gain or loss is included in operations. Depreciation
              of
              property and equipment is provided using the straight-line method for
              substantially all assets with estimated lives of:
  Furniture
                        and Fixtures
                    
                    5
                        yearsEquipment
                    
                    5
                        yearsComputer
                        Hardware and Software
                    
                    5
                        yearsBuilding
                    
                    30
                        years
  As
              of
              December 31, 2007 Property, Plant & Equipment consist of the
              following:
 Machinery
                      
                      $
                      890,853Automobile
                      
                      
                      34,119Office
                          equipment
                      
                      
                      16,332Building
                      
                      
                      551,7981,493,102Accumulated
                          depreciation
                      
                      
                      (481,501
                      )$
                      1,011,601
  F-9
 **CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                  31, 2007
 Depreciation
              expenses was $205,008 and $176,002 for the years ended December 31,
              2007, and
              2006.
  Fair
              Value of Financial Instruments
  Statement
              of financial accounting standard No. 107, Disclosures about fair value
              of
              financial instruments, requires that the Company disclose estimated
              fair values
              of financial instruments. The carrying amounts reported in the statements
              of
              financial position for current assets and current liabilities qualifying
              as
              financial instruments are a reasonable estimate of fair value.
  Basic
              and Diluted Earnings Per Share
  Earnings
              per share is calculated in accordance with the Statement of financial
              accounting
              standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
              Accounting Principles Board Opinion No.15 (APB 15). Net loss per share
              for all
              periods presented has been restated to reflect the adoption of SFAS
              No. 128.
              Basic net loss per share is based upon the weighted average number
              of common
              shares outstanding. Diluted net loss per share is based on the assumption
              that
              all dilutive convertible shares and stock options were converted or
              exercised.
              Dilution is computed by applying the treasury stock method. Under this
              method,
              options and warrants are assumed to be exercised at the beginning of
              the period
              (or at the time of issuance, if later), and as if funds obtained thereby
              were
              used to purchase common stock at the average market price during the
              period.
  Goodwill
  Goodwill
              represents the excess of the purchase price over the fair value of
              the
              identifiable assets and liabilities acquired as a result of the Company’s
              acquisitions of interests in its subsidiaries. Under Statement of Financial
              Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
              Assets (“SFAS 142”),” goodwill is no longer amortized, but tested for impairment
              upon first adoption and annually, thereafter, or more frequently if
              events or
              changes in circumstances indicate that it might be impaired.
  Intangible
              Assets
  The
              Company applies criteria specified in SFAS No. 141, “Business Combinations”
to determine whether an intangible asset should be recognized separately
              from
              goodwill. Intangible assets acquired through business acquisitions
              are
              recognized as assets separate from goodwill if they satisfy either
              the
“contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets
              with definite lives are amortized over their estimated useful life
              and reviewed
              for impairment in accordance with SFAS No. 144, “Accounting for the
              Impairment or Disposal of Long-lived Assets.” Intangible assets, such as
              purchased technology, trademark, customer list, user base and non-compete
              agreements, arising from the acquisitions of subsidiaries and variable
              interest
              entities are recognized and measured at fair value upon acquisition.
              Intangible
              assets are amortized over their estimated useful lives from one to
              ten years.
              The Company reviews the amortization methods and estimated useful lives
              of
              intangible assets at least annually or when events or changes in circumstances
              indicate that assets may be impaired. The recoverability of an intangible
              asset
              to be held and used is evaluated by comparing the carrying amount of
              the
              intangible asset to its future net undiscounted cash flows. If the
              intangible
              asset is considered to be impaired, the impairment loss is measured
              as the
              amount by which the carrying amount of the intangible asset exceeds
              the fair
              value of the intangible asset, calculated using a discounted future
              cash flow
              analysis. The Company uses estimates and judgments in its impairment
              tests, and
              if different estimates or judgments had been utilized, the timing or
              the amount
              of the impairment charges could be different.
  F-10
 **CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                  31, 2007
 Effective
              January 1, 2002, the Company adopted Statement of Financial Accounting
              Standards
              No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
              144”), which addresses financial accounting and reporting for the impairment
              or
              disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
              Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
              Of,”
and the accounting and reporting provisions of APB Opinion No. 30,
“Reporting
              the Results of Operations for a Disposal of a Segment of a Business.” The
              Company periodically evaluates the carrying value of long-lived assets
              to be
              held and used in accordance with SFAS 144. SFAS 144 requires impairment
              losses
              to be recorded on long-lived assets used in operations when indicators
              of
              impairment are present and the undiscounted cash flows estimated to
              be generated
              by those assets are less than the assets’ carrying amounts. In that event, a
              loss is recognized based on the amount by which the carrying amount
              exceeds the
              fair market value of the long-lived assets. Loss on long-lived assets
              to be
              disposed of is determined in a similar manner, except that fair market
              values
              are reduced for the cost of disposal.
  Recent
              accounting pronouncements
 
 In
              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.
  F-11
 **CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                  31, 2007
 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.
 
 In
              December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
              Consolidated Financial Statements”. This Statement amends ARB 51 to establish
              accounting and reporting standards for the noncontrolling (minority)
              interest in
              a subsidiary and for the deconsolidation of a subsidiary. It clarifies
              that a
              noncontrolling interest in a subsidiary is an ownership interest in
              the
              consolidated entity that should be reported as equity in the consolidated
              financial statements. SFAS No. 160 is effective for the Company’s fiscal year
              beginning October 1, 2009. Management is currently evaluating the effect
              of this
              pronouncement on financial statements.
 
 In
              March
              2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
              Instruments and Hedging Activities. The new standard is intended to
              improve
              financial reporting about derivative instruments and hedging activities
              by
              requiring enhanced disclosures to enable investors to better understand
              their
              effects on an entity’s financial position, financial performance, and cash
              flows. It is effective for financial statements issued for fiscal years
              and
              interim periods beginning after November 15, 2008, with early application
              encouraged. The new standard also improves transparency about the location
              and
              amounts of derivative instruments in an entity’s financial statements; how
              derivative instruments and related hedged items are accounted for under
              Statement 133; and how derivative instruments and related hedged items
              affect
              its financial position, financial performance, and cash flows. Management
              is
              currently evaluating the effect of this pronouncement on financial
              statements.
 
 In
              December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
              Statement replaces SFAS No. 141, Business Combinations. This Statement
              retains
              the fundamental requirements in Statement 141 that the acquisition
              method of
              accounting (which Statement 141 called the purchase method) be used
              for all
              business combinations and for an acquirer to be identified for each
              business
              combination. This Statement also establishes principles and requirements
              for how
              the acquirer: a) recognizes and measures in its financial statements
              the
              identifiable assets acquired, the liabilities assumed, and any noncontrolling
              interest in the acquiree; b) recognizes and measures the goodwill acquired
              in
              the business combination or a gain from a bargain purchase and c) determines
              what information to disclose to enable users of the financial statements
              to
              evaluate the nature and financial effects of the business combination.
              SFAS No.
              141(R) will apply prospectively to business combinations for which
              the
              acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
              While the Company has not yet evaluated this statement for the impact,
              if any,
              that SFAS No. 141(R) will have on its consolidated financial statements,
              the
              Company will be required to expense costs related to any acquisitions
              after
              September 30, 2009.
  F-12
 **CHINA
                  DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                  31, 2007
 **Note
              C - GOODWILL AND INTANGIBLE ASSETS**
 
 As
              of
              December 31, 2007, Goodwill comprised of the following:
 **Goodwill****Balance
                          as of 12/31/03**
                      
                      $
                      -Acquisition
                          of Billion
                      
                      
                      8,253,436**Balance
                          as of 12/31/04**
                      
                      
                      8,253,436Impairment
                          of Billion in 2005
                      
                      
                      (1,213,843
                      )**Balance
                          as of 12/31/05**
                      
                      
                      7,039,593Acquisition
                          of Galaxy View in 2006
                      
                      
                      5,101,909Impairment
                          of Galaxy View in 2006
                      
                      
                      (3,779,181
                      )**Balance
                          as of 12/31/06**
                      
                      
                      8,362,321Impairment
                          of E'Jenie in 2007
                      
                      
                      (7,039,593
                      )Impairment
                          of Galaxy View in 2007
                      
                      
                      (1,295,556
                      )**Loss
                          on sale of Galaxy View**
                      
                      
                      (27,172
                      )**Balance
                          as of 12/31/07**
                      
                      $
                      -
  The
                Company tests for impairment annually or as needed. The Company projected
                for
                the decrease in revenue for 2008 in their revised forecast as of
                December 31,
                2007 and recorded their impairment as of December 31, 2007 for future
                decrease
                in revenue.
 
 The
              Company tested goodwill impairment and concluded that there was impairment
              as to
              the carrying value of goodwill as of December 31, 2007 and 2006. The
              Company
              evaluated value of the subsidiaries based upon market value and expected
              present
              value of future cash flows and recorded an impairment of $7,039,593
              and
              $3,779,181 for the years ended of December 31, 2007 and 2006
              respectively.
 
 E’Jenie
              incurred losses and also its revenue reduced significantly during the
              year ended
              December 31, 2007. The decrease in sales for E’Jenie was due to decrease in
              demand from our customers as a result of increased competition and
              also due to
              the appreciation of our local currency (RMB), cost of raw material
              and the
              change in export policy by China Government. The Company performed
              goodwill
              impairment test and concluded that there was impairment as to the carrying
              value
              of goodwill of E’Jenie amounting to $7,039,593 as of December 31,
              2007.
 
 The
              Company disposed off Galaxy View on April 24, 2007 and recorded an
              impairment of
              goodwill of $1,322,728 on the Galaxy acquisition based on the recoverable
              value
              of the entity as of April 2007.
  **Intangible
              assets**
 
 As
              of
              December 31, 2007 intangible assets consist of the following:
  Design
                    
                    $
                    366,850Customer
                        relationship
                    
                    
                    2,691,445Proprietary
                        technology
                    
                    
                    270,850Land
                        rights
                    
                    
                    551,798Intangible
                        assets
                    
                    
                    3,880,943Accumulated
                        amortization
                    
                    
                    (980,728
                    )Intangible
                        before impairment, net
                    
                    
                    2,900,215Impairment
                    
                    
                    1,972,598Intangible,
                        net
                    
                    $
                    927,617
  During
              the year ended December 31, 2006, E’Jenie purchased the two facilities that they
              were previously leasing. The cost of the acquisition was approximately
              $1,103,596. Of that amount $551,798 was recorded as an intangible asset
              as land
              rights. Because the laws of the People’s Republic of China does not allow for
              ownership of land, the Company received a Certificate of Real Estate
              from the
              Ministry of Land and Resources for the use of the land.
 
 E’Jenie
              incurred losses and also its revenue reduced significantly during the
              year ended
              December 31, 2007. The decrease in sales for E’Jenie was due to decrease in
              demand from our customers as a result of increased competition and
              also due to
              the appreciation of our local currency (RMB), cost of raw material
              and the
              change in export policy by the China Government. The Company performed
              intangible assets impairment test and concluded that there was impairment
              as to
              the carrying value of intangible assets of E’Jenie amounting to $1,972,598 as of
              December 31, 2007.
 
 The
              intangible assets are amortized over 10-30 years. Amortization expenses
              were
              $267,352 and $332,915 for the years ended December 31, 2007 and 2006
              respectively.
 
 Amortization
              expenses for the Company’s intangible assets over the next five fiscal years is
              estimated to be:
 
 2008
                    
                    $
                    75,7622009
                    
                    
                    75,7622010
                    
                    
                    75,7622011
                    
                    
                    75,7622012,
                    
                    
                    75,762After
                    
                    
                    548,807Total
                    
                    $
                    927,617
  **Note
              D -** **ACQUISTION AGREEMENTS**
 
 On
              February 14, 2006, China Digital Communication Group, UPE Limited (Far
              East), a
              BVI corporation ("UPE Limited"), Shenzhen Zhuo Tong Power Supply Industry
              Co.,
              Ltd., a Shenzhen corporation and a wholly-owned subsidiary of UPE Limited
              ("Zhuo
              Tong"), and the shareholders of UPE Limited (the "Shareholders"), entered
              into a
              Share Exchange Agreement (the "Agreement") pursuant to which China
              Digital will
              acquire 100% of UPE Limited in an all stock transaction valued at approximately
              US$9.6 million. China Digital issued 18.5 million shares of its common
              stock to
              the Shareholders in exchange for all of the shares UPE Limited (the
              "Share
              Exchange"). Upon completion of the Share Exchange, the Shareholders
              will own
              approximately 25% of China Digital.
 
 On
              June
              26, 2006, the Company issued a press release announcing that it had
              terminated
              its Share Exchange Agreement dated February 14, 2006 (the “Agreement”), with UPE
              Limited (Far East), a BVI corporation (UPE Limited”), Shenzhen Zhuo Tong Power
              Supply Industry Co., Ltd., a Shenzhen corporation and a wholly-owned
              subsidiary
              of UPE Limited, and the shareholders of UPE Limited (the “Shareholders”). As a
              result of the termination of the Agreement, the Shareholders returned,
              and the
              Company cancelled, the 18.5 million shares of the Company’s common stock that
              were previously issued to the Shareholders.
  On
              March
              22, 2006, China Digital Communication Group, Galaxy View International
              LTD, a
              BVI corporation ("Galaxy"), Shenzhen Sono, a Shenzhen corporation and
              a
              wholly-owned subsidiary of Galaxy ("Sono"), and the shareholders of
              Galaxy (the
              "Shareholders"), entered into a Share Exchange Agreement (the "Agreement")
              pursuant to which China Digital will acquire 100% of Galaxy for approximately
              $6,787,879. China Digital paid $3 million dollars on March 12, 2006
              to Galaxy
              and issued 7,575,757 million shares of Series A-1 Convertible Preferred
              Stock .
              The Company finalized the Agreement on June 28, 2006. Each share of
              Series A-1
              Preferred Stock entitles the holder thereof to seven votes per share
              on all
              matters to be voted on by the shareholders of the Company and is mandatorily
              convertible into one share of the Company’s common stock on June 29, 2011. Each
              share of Series A-1 Preferred Stock shall, with respect to rights on
              liquidation, dissolution or winding up, rank (i) on a parity with the
              Company’s
              common stock, and (ii) junior to any other class of the Company’s preferred
              stock.
  F-13
  **CHINA
              DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2007
  **Note
            E -** **STOCK
            EXCHANGE AGREEMENTS**
 
 **Galaxy
            View**
 
 On
            June
            28, 2006 the Company completed the purchase of Galaxy View, which owns
            all of
            the issued and outstanding shares of Sono. By acquiring all of the outstanding
            capital stock of Galaxy View and Sono in exchange for $3,000,000 and
            7,575,757
            shares of the Company’s Series A-1 Convertible Preferred Stock. The acquisition
            was accounted for using the purchase method of accounting and, accordingly,
            Galaxy View’s and Sono’s results of operations have been included in the
            consolidated financial statements since the date of acquisition. As of
            December
            31, 2006, the preferred stock was issued and recorded at a value of $3,787,879
            in the books of the Company.
 
 Total
                      cash paid for the acquisition of Billion
                  
                  $
                  3,000,0007,575,757
                      Series A-1 Convertible preferred shares at $0.50 per share
                  
                  
                  3,787,879Total
                      Investment Cost
                  
                  $
                  6,787,879
 
 In
            accordance with SFAS 141, in particular paragraph 20 to 23, the Company
            used the *quoted
            market price* as of
            June 28, 2006 to determine the cost of the shares issued for the acquisition
            of
            Galaxy View.
 
 During
            2006, the Company did not know the potential impact of the changes made
            in the
            export policies by China Government. The Company was concerned and wanted
            to
            find another company with growth potential and a company that would not
            be
            impacted by the change in export policies. Galaxy View was both profitable
            and
            would not be impacted by the change in export policies. . Galaxy View
            increased
            its revenue from approximately $1.6 million in 2004 to approximately
            $5.4
            million in 2005 and anticipated similar growth in the future. Management
            believed at the time of acquisition that Galaxy View would not only diversify
            the Company’s operation but also acquire another line of business with proven
            growth and profitability.
 
 Based
            on
            the tremendous growth potential, the Company had to pay a premium to
            entice the
            shareholders of Galaxy View to sell their shares.
  The
            following table presents the allocation of the acquisition cost, including
            professional fees and other related acquisition costs, to the fair value
            of
            assets acquired and liabilities assumed:
 Cash
                        and cash equivalents
                    
                    $
                    701,169Accounts
                        receivable
                    
                    
                    2,648,929Other
                        receivable
                    
                    
                    337,825Prepaid
                    
                    
                    701Property,
                        plant, and equipment
                    
                    
                    54,041Total
                        assets
                    
                    
                    3,742,665Accounts
                        payable
                    
                    $
                    1,991,591Deferred
                        revenue
                    
                    
                    65,104Total
                        liabilities
                    
                    
                    2,056,695Total
                        acquisition cost
                    
                    $
                    1,685,970CostTotal
                        cost of investment
                    
                    $
                    6,787,879Total
                        Acquisition cost
                    
                    
                    1,685,970Goodwill
                    
                    $
                    5,101,909
 F-14
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2007
 The
            following (unaudited) pro forma consolidated results of operations have
            been
            prepared as if the acquisition of Galaxy View had occurred at January
            1, 2006:
  December
                        31, 2006Sales
                    
                    $
                    14,857,765Net
                        income
                    
                    $
                    274,962Net
                        income per share - basic
                    
                    $
                    0.01Net
                        income per share - diluted
                    
                    $
                    0.005
 The
            pro
            forma information is presented for informational purposes only and is
            not
            necessarily indicative of the results of operations that actually would
            have
            been achieved had the acquisitions been consummated as of that time,
            nor is it
            intended to be a projection of future results.
 
 **Note
            F - VAT TAX AND INCOME TAX RECEIVABLE**
  **As
            of December 31, 2007, tax payable comprised of the
            following:**
  Income
                        tax receivable
                    
                    $
                    104,481VAT
                        tax
                    
                    
                    78,539Total
                    
                    $
                    183,020
  **Note
            G -** **ACCOUNTS PAYABLE & ACCRUED EXPENSES**
 
 As
            of
            December 31, 2007, accounts payable & accrued expenses comprised of the
            following:
  Accounts
                        payable and accrued expenses
                    
                    $
                    489,449Accrued
                        payroll
                    
                    
                    46,149Welfare
                        payable
                    
                    
                    189,735Total
                    
                    $
                    725,333
 **Note
            H - LOAN PAYABLE**
 
 As
            of
            December 31, 2007, the Company has an unsecured, due on demand, non
            interest-bearing loan payable in the amount of $274,200 to a third
            party.
 
 **Note
            I -** **RELATED
            PARTY TRANSACTIONS**
 
 As
            of
            December 31, 2007, the Company has an unsecured, due on demand, non
            interest-bearing loan from Xuemei Fang, a shareholder, in the amount
            of
            $174,600.
 
 **Note
            J -** **INCOME
            TAXES**
 
 The
            Company is registered in the State of Navada and has operations in primarily
            two
            tax jurisdictions - the PRC, British Virgin Island and the United States.
            For
            certain operations in the US and PRC, the Company has incurred net accumulated
            operating losses for income tax purposes The Company believes that it
            is more
            likely than not that these net accumulated operating losses will not
            be utilized
            in the future. Therefore, the Company has provided full valuation allowance
            for
            the deferred tax assets arising from the losses at these locations as
            of
            December 31, 2007. Accordingly, the Company has no net deferred tax
            assets.
  The
            provision for income taxes from continuing operations on income consists
            of the
            following for the years ended December 31, 2007 and 2006:
 
 2007
                  
                  2006US
                      Current Income Tax Expense (Benefit)Federal
                  
                  $
                  -
                  
                  $
                  -State
                  
                  
                  -
                  
                  
                  -$
                  -
                  
                  $
                  -PRC
                      Current Income Expense (Benefit)
                  
                  $
                  -
                  
                  $
                  74,887Total
                      Provision for Income Tax
                  
                  $
                  -
                  
                  $
                  74,887
  F-15
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2007
 The
            following is a reconciliation of the provision for income taxes at the
            U.S.
            federal income tax rate to the income taxes reflected in the Statement
            of
            Operations:
  2007
                  
                  2006Tax
                      expense (credit) at statutory rate - federal
                  
                  
                  34
                  %
                  
                  34
                  %State
                      tax expense net of federal tax
                  
                  
                  6
                  %
                  
                  6
                  %Changes
                      in valuation allowance
                  
                  
                  (40
                  %)
                  
                  (40
                  %)Foreign
                      income tax - PRC
                  
                  
                  15
                  %
                  
                  15
                  %Exempt
                      from income tax due to net loss
                  
                  
                  (15
                  %)
                  
                  0
                  %Tax
                      expense at actual rate
                  
                  
                  0
                  %
                  
                  15
                  %
 
 United
            States of America
  As
            of
            December 31, 2007, the Company in the United States had approximately
            $11,525,851 in net operating loss carry forwards available to offset
            future
            taxable income. Federal net operating losses can generally be carried
            forward 20
            years. The deferred tax assets for the United States entities at December
            31,
            2007 consists mainly of net operating loss carry forwards and were fully
            reserved as the management believes it is more likely than not that these
            assets
            will not be realized in the future.
 
 The
            following table sets forth the significant components of the net deferred
            tax
            assets for operation in the US as of December 31, 2007 and
            2006.
 
 2007
                  
                  2006Net
                      operation loss carry forward
                  
                  $
                  11,305,150
                  
                  $
                  1,189,002Total
                      deferred tax assets
                  
                  
                  1,189,051
                  
                  
                  521,974Less:
                      valuation allowance
                  
                  
                  (1,189,051
                  )
                  
                  (521,974
                  )Net
                      deferred tax assets
                  
                  $
                  -
                  
                  $
                  -
  People’s
            Republic of China (PRC)
 
 Pursuant
            to the PRC Income Tax Laws, the Company's subsidiary is generally subject
            to
            Enterprise Income Taxes ("EIT") at a statutory rate of 33%, which comprises
            30%
            national income tax and 3% local income tax. The subsidiary is qualified
            as a
            new technology enterprises and under PRC Income Tax Laws, it subject
            to a
            preferential tax rate of 15%.
 
 As
            of
            December 31, 2007 and 2006, the Company’s PRC subsidiary had net operating loss
            carry forwards which can be carried forward 5 years to offset future
            taxable
            income. The deferred tax assets for the PRC subsidiary at December 31,
            2007
            consists mainly of net operating loss carry forwards and were fully reserved
            as
            the management believes it is more likely than not that these assets
            will not be
            realized in the future.
 
 The
            following table sets forth the significant components of the net deferred
            tax
            assets for operation in PRC as of December 31, 2007 and 2006.
 
 2007
                  
                  2006Net
                      operation loss carry forward
                  
                  $
                  225,600
                  
                  $
                  -Total
                      deferred tax assets
                  
                  
                  33,840
                  
                  
                  -Less:
                      valuation allowance
                  
                  
                  (33,840
                  )
                  
                  -Net
                      deferred tax assets
                  
                  $
                  -
                  
                  $
                  -
  F-16
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2007
 ***Aggregate
            net deferred tax assets***
 
 The
            following table sets forth the significant components of the aggregate
            net
            deferred tax assets of the Company as of December 31, 2007 and
            2006:
 
 2007
                  
                  2006Aggregate:Total
                      deferred tax assets
                  
                  $
                  1,222,891
                  
                  $
                  521,974Less:
                      valuation allowance
                  
                  
                  (1,222,891
                  )
                  
                  (521,974
                  )Net
                      deferred tax assets
                  
                  $
                  -
                  
                  $
                  -
 
 Income
            tax payable was approximately $0 and $74,887 for the years ended December
            31,
            2007 and 2006, respectively.
 
 **Note
            K-** **COMMITTMENTS**
 
 Operating
            Leases
 The
            Company leases various office facilities under operating leases that
            terminate
            on various dates. Rental expense for these leases consisted of approximately
            $15,768 for the year ended December 31, 2007. As of December 31, 2007,
            all
            operating leases had expired.
 
 **Note
            L-** **STOCK
            OPTIONS**
 
 On
            November 4, 2005, the Company issued a nonqualified stock option for
            100,000
            shares to a member of the board with an exercise price of $0.53 that
            will expire
            on November 3, 2010. The option shall vest and become exercisable
            immediately.
 
 The
            Company's 2005 Stock Option Incentive Plan (the “Plan”) provides for the grant
            of 100,000 option rights to a non-employee director. The Plan is administered
            by
            the Company's Compensation Committee (“Compensation Committee”). The
            Compensation Committee, as administrator of the plan, has the authority
            to
            select plan participants and determine the terms and conditions of such
            awards.
  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 did
            not
            record expense for stock based compensation for the year ended December
            31,
            2006.
  Risk-free
                      interest rate
                  
                  
                  4.00
                  %Expected
                      life of the options
                  
                  
                  5
                      yearExpected
                      volatility
                  
                  
                  58.0
                  %Expected
                      dividend yield
                  
                  
                  0
                  %
  On
            March
            20, 2006, the Company issued a non-incentive stock option for 150,000
            shares to
            a consultant with an exercise price of $0.702 that will expire on March
            19,
            2009. The options vested and became exercisable on May 1, 2006.
 
 Risk-free
                      interest rate
                  
                  
                  4.77
                  %Expected
                      life of the options
                  
                  
                  3
                      yearExpected
                      volatility
                  
                  
                  126.76
                  %Expected
                      dividend yield
                  
                  
                  0
                  %
  F-17
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2007
 Options
            outstanding at December 31, 2007 and related weighted average price and
            intrinsic value is as follows:
 
 Exercise
                      Prices
                  
                  Total
                    Options
                    Outstanding
                  
                  Weighted
                    Average
                    Remaining
                      Life
                    (Years)
                  
                  Total
                    Weighted
                    Average
                    Exercise
                      Price
                  
                  Options
                    Exercisable
                  
                  Weighted
                    Average
                    Exercise
                      Price
                  
                  Aggegrate
                      Intrinsic Value$
                  0.530
                  
                  
                  100,000
                  
                  
                  0.57
                  
                  $
                  0.530
                  
                  
                  100,000
                  
                  $
                  0.530
                  
                  
                  -$
                  0.702
                  
                  
                  150,000
                  
                  
                  0.41
                  
                  $
                  0.702
                  
                  
                  150,000
                  
                  $
                  0.702
                  
                  
                  -
  **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
 
 iv.
                  Allocations
                      to the discretionary surplus reserve, if approved in the stockholders’
                      general meeting.
 
 The
            Company established a reserve for the annual contribution of 5% of net
            income to
            the welfare fund in 2005. The Company did not transfer any amount to
            statutory
            reserve for the year ended December, 2007 as the Company did not earn
            any
            profits during the year.
 
 **Note
            N -** **STATUTORY
            RESERVE**
 
 In
            accordance with the Chinese Company Law, the company has established
            a policy to
            reserve 10% of its annual net income as statutory reserve. The Company
            reserved
            $0 for year ended December 31, 2007 as the Company did not earn any profits
            during the year.
  F-18
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2007
 **Note
            O -** **OTHER
            COMPREHENSIVE INCOME**
 
 Balances
            of related after-tax components comprising accumulated other comprehensive
            income (loss), included in stockholders’ equity, at December 31, 2007 and 2006
            are as follows:
 *Foreign
                        Currency**Translation
                        Adjustment*Balance
                        at December 31, 2006
                    
                    $
                    369,287Change
                        for 2007
                    
                    
                    485,112Balance
                        at December 31, 2007
                    
                    $
                    854,399
  **Note
            P-** **SEGMENT
            REPORTING**
 
 The
            Company had two principal operating segments which were: battery
            components manufacturer and supplier of 3G telecommunications
            equipment ,
            and
            supplier of hi-tech telecommunication equipment to the telecommunications
            industry. These operating segments were determined based on the nature
            of the
            products offered. Operating segments are defined as components of an
            enterprise
            about which separate financial information is available that is evaluated
            regularly by the chief operating decision-maker in deciding how to allocate
            resources and in assessing performance. The Company's chief executive
            officer
            and chief financial officer have been identified as the chief operating
            decision
            makers. The Company’s chief operating decision makers direct the allocation of
            resources to operating segments based on the profitability, cash flows,
            and
            other measurement factors of each respective segment.
  The
            Company disposed off the supplier of 3G telecommucations equipment, Galaxy,
            during the six month period ended June 30, 2007 and has determined that
            the
            battery components manufacturer is the only reportable segment. The operations
            of Galaxy have been presented separately, as discontinued operations,
            in the
            accompanying financial statements. The loss of discounting operations
            during the
            periods ended June 30, 2007 was $37,578 and the loss on disposal of Galaxy
            was
            $35,635.
 
 The
            Company evaluates performance based on several factors, of which the
            primary
            financial measure is business segment income before taxes. The segments’
accounting policies are the same as those described in the summary of
            significant accounting policies. The following table shows the operations
            of the
            Company's reportable segments:
 Battery
                        Component
                    
                    Discontinued
                      Operations
                    
                    Parent
                    
                    TotalRevenues
                    
                    $
                    2,696,267
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    2,696,267Loss
                        before taxes of continuing operations
                    
                    
                    (220,701
                    )
                    
                    -
                    
                    
                    (9,936,381
                    )
                    
                    (10,157,082
                    )Total
                        identifiable assets
                    
                    
                    6,357,809
                    
                    
                    -
                    
                    
                    709,991
                    
                    
                    7,067,800Capital
                        expenditures
                    
                    
                    75,371
                    
                    
                    -
                    
                    
                    -
                    
                    
                    75,371Depreciation
                        and amortization
                    
                    
                    222,673
                    
                    
                    -
                    
                    
                    249,687
                    
                    
                    472,360Interest
                        expense
                    
                    
                    2,607
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,607Interest
                        income
                    
                    $
                    21,089
                    
                    $
                    -
                    
                    $
                    4,888
                    
                    $
                    25,977
 (1)
            Total
            identifiable assets are the owned or allocated assets used by each business.
            Corporate assets consist of cash and cash equivalents, unallocated fixed
            assets
            of support divisions and common facilities, and certain other
            assets.
 
 (2)
            Capital expenditures and depreciation and amortization expense include
            items
            attributable to the unallocated fixed assets of support divisions and
            common
            facilities.
  F-19
 **CHINA
                DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
                31, 2007
 Also,
            because all of the Company’s sales are derived from the sales of products
            outside of the United States, all long-lived assets are located outside
            the
            United States.
 
 **Note
            Q -** **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
            R - GOING CONCERN**
 
 The
            accompanying consolidated financial statements have been prepared in
            conformity
            with generally accepted accounting principles which contemplate continuation
            of
            the company as a going concern. However, the Company has an accumulated
            deficit
            of $12,078,964 as of December 31, 2007 including losses of $11,525,851
            and
            $1,254,370 for the years ended December 31, 2007 and 2006 ,
            and the
            Company's operations do not generate sufficient cash to cover its operating
            costs. In
            view
            of the matters described above, recoverability of a major portion of
            the
            recorded asset amounts shown in the accompanying consolidated balance
            sheet is
            dependent upon continued operations of the company, which in turn is
            dependent
            upon the Company’s ability to raise additional capital, obtain financing and
            succeed in its future operations, The financial statements do not include
            any
            adjustments relating to the recoverability and classification of recorded
            asset
            amounts or amounts and classification of liabilities that might be necessary
            should the Company be unable to continue as a going concern.
 
 Management
            has taken certain restructuring steps to provide the necessary capital
            to
            continue its operations. These steps included: 1) acquire profitable
            operations
            through issuance of equity instruments; and 2) to continue actively seeking
            additional funding and restructure the acquired subsidiaries to increase
            profits
            and minimize the liabilities.
  F-20