UNITED
      STATES





SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB/A





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





For
      the
      fiscal year ended December 31, 2005





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





Commission
      file number 000-49715





CHINA
      DIGITAL COMMUNICATION GROUP





(Name
      of
      small business issuer in its charter)





Nevada
            
            91-2132336(State
                or other jurisdiction ofincorporation or organization)
            
            (I.R.S.
                EmployerIdentification No.)




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




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





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





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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes xNo 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 oNo
x





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





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





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





DOCUMENTS
      INCORPORATED BY REFERENCE





None.





Transitional
      Small Business Disclosure FormatYes oNo x







TABLE
      OF
      CONTENTS


PAGEFORWARD
                  LOOKING STATEMENTS
              1PART
                  IITEM
                  1.
              Description
                  of Business
              1ITEM
                  2.
              Description
                  of Property
              13ITEM
                  3.
              Legal
                  Proceedings
              13ITEM
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              14PART
                  IIITEM
                  5.
              Market
                  for Common Equity, Related Stockholder Matters and SmallBusiness
                  Issuer Purchases of Equity Securities
              14ITEM
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operation
              15ITEM
                  7.
              Financial
                  Statements
              17ITEM
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              17ITEM
                  8A.
              Controls
                  and Procedures
              17ITEM
                  8B.
              Other
                  Information
              17ITEM
                  9.
              Directors
                  and Executive Officers of the Registrant; Compliance with Section
                  16(a) of
                  the Exchange Act
              18ITEM
                  10.
              Executive
                  Compensation
              22ITEM
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              24ITEM
                  12.
              Certain
                  Relationships and Related Transactions
              26ITEM
                  13.
              Exhibits
              26ITEM
                  14.
              Principal
                  Accountant Fees and Services
              27Financial
                Statements
              F-1




FORWARD
        LOOKING STATEMENTS
 
 We
        have
        included and from time to time may make in our public filings, press releases
        or
        other public statements, certain statements, including, without limitation,
        those under “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations” in Part II, Item 7. In some cases these statements are
        identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,”
“may,” “should,” “will,” “would” and similar expressions. You are cautioned not
        to place undue reliance on these forward-looking statements. In addition,
        our
        management may make forward-looking statements to analysts, investors,
        representatives of the media and others. These forward-looking statements
        are
        not historical facts and represent only our beliefs regarding future events,
        many of which, by their nature, are inherently uncertain and beyond our
        control.
 
 The
        nature of our business makes predicting the future trends of our revenues,
        expenses and net income difficult. The risks and uncertainties involved in
        our
        businesses could affect the matters referred to in such statements and it
        is
        possible that our actual results may differ materially from the anticipated
        results indicated in these forward looking statements. Important factors
        that
        could cause actual results to differ from those in the forward-looking
        statements include, without limitation:
 
 ·
              the
                  effect of political, economic and market conditions and geopolitical
                  events;
 
 ·
              the
                  actions and initiatives of current and potential
                  competitors;
 
 ·
              our
                  reputation;
 
 ·
              investor
                  sentiment; and
 
 ·
              other
                  risks and uncertainties detailed under “Risk Factors” in Part I and
                  elsewhere throughout this report.
 
 Accordingly,
        you are cautioned not to place undue reliance on forward-looking statements,
        which speak only as of the date on which they are made. We undertake no
        obligation to update publicly or revise any forward-looking statements to
        reflect the impact of circumstances or events that arise after the dates
        they
        are made, whether as a result of new information, future events or otherwise
        except as required by applicable law. You should, however, consult further
        disclosures we may make in future filings of our Annual Reports on Form 10-K,
        Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any
        amendments thereto.
 
 PART
        1
 
 ITEM
        1.
        DESCRIPTION OF BUSINESS.
 
 OVERVIEW
 
 We
        were
        incorporated in Nevada on March 27, 2001 under the name Jasmine’s Garden. In
        November 2004, we acquired Billion Electronic Co., Ltd., a company organized
        under the laws of the British Virgin Islands (“Billion”), and its wholly owned
        operating subsidiary, Shenzhen E’Jenie Technology Development Co., Ltd, a
        company incorporated under the laws of the Peoples Republic of China
        (“E’Jenie”). Through E’Jenie we manufacture and distribute lithium battery
        shells and related products primarily in China. Based upon specifications
        from
        its customers E’Jenie develops, customizes and produces steel, aluminum battery
        shells and aluminum caps. Currently, E’Jenie produces fourteen steel battery
        shell lines, nine aluminum battery shell lines, three aluminum battery cap
        lines
        and three steel battery cap lines.
  1
 
 HISTORY
 
 Until
        December 2, 2003, we operated a nationwide wholesale and retail business
        selling
        greeting cards, note cards and gift tags made from a design process involving
        photography and computer graphics. On December 2, 2003, Cheering Limited,
        an
        investment holding company organized under the laws of the British Virgin
        Islands (“Cheering”), acquired 5,700,000 shares of our common stock, par value
        $0.001, which constituted approximately 95% of the then issued and outstanding
        shares of our common stock from Jack and Jasmine Gregory, our former officers
        and directors, for cash consideration of $221,221 (the “Cheering
        Transaction”).
 
 In
        connection with the Cheering Transaction, our Board of Directors appointed
        Zu
        Zhuan Xu to serve as our President, elected four designees of Cheering to
        serve
        to serve as directors, and Jack and Jasmine Gregory resigned from their
        positions as officers and directors of the Company. On February 18, 2004,
        Zu
        Zhuan Xu resigned as President and Yi Bo Sun was appointed as President and
        Chief Executive Officer and Xu Bao Dong was appointed to serve on our Board
        of
        Directors. On February 19, 2004, another director resigned from our Board
        of
        Directors and Mr. Sun was appointed to replace him. On January 19, 2006,
        Mr. Sun
        resigned as our President and Chief Executive Office and from our Board of
        Directors. Changchun Zheng was elected as Chairman of the Board and Chief
        Executive Officer.
 
 On
        March
        17, 2004, we sold 30,000,000 shares of common stock at a per share purchase
        price of $0.05 to seven unaffiliated individuals in a private placement,
        which
        yielded aggregate gross proceeds of $1,500,000 (the “Private Placement”). As a
        condition to the closing of the Private Placement, each of the investors
        executed an irrevocable proxy granting Mr. Sun, our former President and
        Chief
        Executive Officer, the right to vote all shares of the common stock purchased
        in
        the Private Placement. The irrevocable proxies expired on May 1, 2004, however,
        the investors and Mr. Sun extended the irrevocable proxies to May 2006. Mr.
        Sun
        as the Chairman and Chief Executive Officer of Cheering is the beneficial
        owner
        of the 5,700,000 shares of common stock, which represents approximately 7.8%,
        of
        the issued and outstanding shares of our common stock and prior to the
        expiration of the irrevocable proxies, Mr. Sun will have the power to vote
        or
        direct the voting of 30,000,000 shares issued in the Private Placement. As
        a
        result, until the irrevocable proxies expire on may 1, 2006, Mr. Sun will
        control approximately 48.9% of our issued and outstanding common
        stock.
 
 On
        April
        28, 2004, we filed a certificate of amendment to our articles of incorporation
        with the Nevada Secretary of State to increase our authorized common stock
        to
        140,000,000 shares and to authorize 60,000,0000 shares, par value $0.001,
        of
        blank check preferred stock.
 
 On
        September 3, 2004, we filed a certificate of amendment to our articles of
        incorporation with the Nevada Secretary of State to change our name from
        “Jasmine’s Garden” to “China Digital Communication Group.”
 
 ACQUISITION
        OF BILLION
 
 On
        November 15, 2004, pursuant to the terms of a Share Exchange Agreement (the
        “Exchange Agreement”) dated as of September 17, 2004, by and among the Company,
        Billion, the shareholders of Billion (the “Shareholders”) and E’Jenie, we
        acquired from the Shareholders (the “Acquisition”) all of the issued and
        outstanding equity interests of Billion (the “Billion Shares”). Billion is a
        holding company and the sole shareholder of E’Jenie. Billion has no other assets
        other than the shares of E’Jenie. As consideration for the Billion Shares, we
        paid the Shareholders an aggregate of $1,500,000 in cash and issued them
        4,566,210 shares of our common stock. The consideration for the Acquisition
        was
        determined through arms length negotiations between us and Billion. As a
        result
        of the Acquisition we are the sole shareholder of Billion through which we
        own
        all of the issued and outstanding equity interests of E’Jenie.
  2
 
 In
        connection with the Acquisition we entered into a Guarantee Agreement, dated
        October 9, 2004, as amended October 11, 2004 (the “Guarantee”), with Shiji
        Ruichen Guaranty and Investment Co. Ltd., a company incorporated under the
        laws
        of the Peoples Republic of China (“Shiji”). Pursuant to the terms of the
        Guarantee, Shiji agreed to guarantee our performance and the performance
        of the
        Shareholders under the Exchange Agreement. As consideration for Shiji’s
        guaranty, we issued 1,919,016 shares of our common stock to Shiji. As security
        for our obligations under the Guarantee, one of our principal shareholders
        deposited 5,000,000 of their shares of our common stock into
        escrow.
 
 INDUSTRY
 
 The
        lithium battery was created in the 1990s, with its first mass production
        in 1993
        in Japan. Lithium batteries were first used in notebook computers and now
        are
        used in cellular phones, video machines, laptops, digital cameras, digital
        cams,
        MP3 players, global positioning satellite systems, 3G communication devices,
        hybrid cars and an array of other electronic products.
 
 Batteries
        are becoming smaller, lighter, more efficient, longer lasting and free of
        pollution. The lithium battery’s energy/weight ratio exceeds that of its
        counterparts and with an excellent safety standard we believe that it is
        the
        future of the battery industry. China has become one of the largest producer
        and
        consumer of lithium ion batteries. According to China Chemistry and Physics
        Electronic Industry Association, there were over $4.0 billion of lithium
        ion
        batteries sold in China in 2005. We anticipate that there will be even greater
        demand for lithium batteries in China and worldwide in the next few years.
        We
        believe that the current trend towards smaller, lighter portable consumer
        products will continue to grow and because of its size, the demand for the
        lithium battery will increase. By way of example, a mobile-phone battery
        has a
        typical usage life of 300 to 500 recharges, which translates to a ratio of
        1.8
        batteries in service life of each phone, according to official Chinese
        statistics. However, our internal data reveals that battery replacement demand
        is faster than this when consumers turn in their phones for new models before
        the normal life of the battery is over. A short product life combined with
        a
        short product innovation cycle creates rapid product turnover resulting in
        increased business for battery shell makers.
 
 BUSINESS
        STRATEGY
 
 We
        seek
        to maintain and strengthen our position as a provider of battery shells and
        caps
        while increasing the breadth of our product line and improving the quality
        of
        our products. In order to achieve our objective, we plan to pursue the key
        strategies described below.
 
 ·
              Become
                  a cost leader in an increasingly competitive market. We believe
                  we can
                  ensure competitive pricing by integrating a labor-intensive production
                  process with high-tech, proprietary manufacturing equipment. We
                  believe
                  our experience in designing and updating key manufacturing equipment
                  and
                  operating such equipment at a low cost gives us a cost advantage
                  over our
                  competitors.
 
 ·
              Taking
                  advantage of our ready production capacity and allowing for increased
                  production capacity. We believe our production capacity makes us
                  more
                  reliable, flexible and responsive in terms of fulfilling our customers’
                  requirements than other providers. As such, existing and potential
                  competitors may find it more difficult to compete with our production
                  capabilities.
  3
   ·
              Enhanced
                  research and development activities. Upon completion of our new
                  facility,
                  we will have thespace
                  to enhance our existing research and development capabilitiesthrough 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 lithium ion battery
        shells and caps listed below.
 
 Low-Carbon
        Steel Stretch Series. This square shape shell series stretches the low-carbon
        steel plate section by section. We use superficial galvanization to custom
        make
        sizes for different customers. The characteristics of this series are that
        it is
        clean and artistic, it has smooth cuttings, and is explosion proof, wear
        resistant and anti-corrosive. This series is suitable for square shaped nickel
        hydrogen batteries, lithium ion batteries and power batteries.
 
 F6,
        F8
        Nickel Hydrogen and Lithium Ion Duel Functions Series. This series stretches
        the
        low-carbon steel plate section by section and uses oil pressure to make the
        final form. The characteristic of this series is a smooth surface. This series
        is suitable for nickel Hydrogen and Lithium Ion Duel Functions Rechargeable
        Battery Cells.
 
 Square
        Share Stainless Steel Series. This series uses a unique processing craft
        to
        stretch stainless steel to make the square steel. The characteristics of
        this
        series are that it is anticorrosive and it does not rust. This series is
        suitable for the square shaped Nickel Hydrogen and Lithium Ion Battery and
        related components.
 
 Aluminum
        Square Shell Series. This series is developed by us by continuously extruding
        to
        form the final shell shapes. The characteristic of this series is that it
        is
        explosion proof.
 
 Japanese
        Explosion-Proof Cap Series. Included in this series is the Japanese Steel
        Plate
        Patent Product Series and the Stainless Steel Explosion-Proof Cap Series.
        The
        characteristics of the Japanese Steel Plate Patent Series are as
        follows:
 
 ·
                Low
                    Pressure. It can be used under low pressure condition. The pressure
                    is
                    effected by the thickness of the aluminum sheet and the diameter
                    of holes
                    within the caps.
 
 ·
              Strong
                  Resistance. The aluminum material will not become stiff or rigid
                  and
                  therefore the product will not crack if it is
                  hit.
 
 ·
              Expanding
                  the Gas Releasing Volume. When the safety value is on the gas will
                  be
                  released.
 
 The
        Japanese Steel Plate Patent Product Series is suitable for all types of lithium
        ion batteries.
 
 The
        Stainless Steel Explosion-Proof Cap Series was developed by us and for which
        we
        own a patent. This series is suitable for lithium ion batteries used in mobile
        phones, calculators, MP3 players, digital camera, and recorders and other
        electronic devices.
   4
 
 CUSTOMERS
 
 In
        2005,
        our five largest customers represented approximately 63% of our total sales.
        The
        following table sets forth information regarding our five largest
        customers.
  LIST
        OF
        MAJOR CUSTOMERS
  Name
                    of Customer
                
                Percentage of Total Revenue for 2005Shenzhen
                    Bak
                
                
                30.19
                %Shenzhen
                    Gao Yi Electronic Technology Co., Ltd.
                
                
                13.29
                %Dong
                    Wan Mai Ke New Energy Resource Co., Ltd.
                
                
                8.46
                %Shenzhen
                    Hua Bao Battery Co. Ltd.
                
                
                6.00
                %Shenzhen
                    Yin Si Qi Electronic Co., Ltd.
                
                
                5.46
                %
 
 Although
        we do not have formal contracts with our customers, we have established
        long-term relationships. Our customers place orders on a monthly basis and
        sales
        are processed with purchase orders. The loss of Shenzhen Bak as a customer
        would
        have an adverse effect on our revenues as sales to Shenzhen Bak represented
        approximately 30.19% of total sales for 2005. We believe that our relationship
        with Shenzhen Bak is good and do not anticipate a change in their current
        volume
        of business.
 
 SALES
        AND
        MARKETING
 
 We
        focus
        our sales and marketing initiatives on establishing China Digital as the
        leading
        manufacturer of caps and shells for lithium ion batteries. We promote our
        brand
        in order to build revenues, gain worldwide market share and promote consumer
        awareness and acceptance. Our in-house sales and marketing team contact local
        battery manufacturers to solicit interest in our products. If the manufacturer
        expresses an interest in our product offering, we ship them samples and if
        our
        products suit their needs orders are placed and filled. As of March 15, 2006,
        we
        had nine sales and marketing personnel who all were located in
        China.
 
 INTELLECTUAL
        PROPERTY
 
 We
        protect our proprietary technology through various methods such as patents
        and
        patent applications, trademarks, non-disclosure agreements and trade secrets.
        We
        have filed and obtained a number of patents in China. As of March 15, 2006
        we
        have been issued three patents by the China National Intelligent Assets Bureau.
        The expiration of these patents range from May 8, 2005 to May 8,
        2015.
 
 We
        intend
        to continue to pursue the legal protection of our technology through
        intellectual property laws. However, we cannot be certain that the steps
        we have
        taken to protect our intellectual property rights will be adequate or that
        third
        parties will not infringe or misappropriate our propriety rights.
 
 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.
  5
 
 Our
        three
        largest suppliers are Heng Yuang Li Stainless Steel Factory, Hongzhou Stainless
        Steel Product Co and Hua Yi Aluminum Co., which in the aggregate account
        approximately 50% of all components and raw materials purchased. Normally,
        the
        annual purchase plan for raw material, such as aluminum and steel, is determined
        at the beginning of the calendar year according to past customer’s orders and
        our own sales forecast. Such purchase plans with key suppliers can be revised
        quarterly. Our actual requirements are based on weekly production plans.
        We
        believe that this arrangement protects us from inventory surplus when the
        orders
        from customers change.
 
 For
        raw
        materials other than steel and aluminum, we normally maintain from one week
        up
        to one month of inventory at our warehouse. All components and raw materials
        are
        available from numerous sources. We have not experienced any significant
        shortages of manufactured components or raw materials and normally do not
        carry
        inventories of these items in excess of what is reasonably required to meet
        our
        production and shipping schedules.
 
 REGULATORY
        MATTERS; ENVIRONMENTAL CONSIDERATION
 
 All
        factories in China must adhere to standards set forth by the Environmental
        Department and each factory must receive special permission from the
        Environmental Department to operate. We have officially received permission
        from
        the Environmental Department.
 
 COMPETITION
 
 The
        worldwide market for lithium battery shells and caps is highly competitive.
        We
        face competition from manufacturers not only within China but also from other
        parts of the world, particularly Japan, Taiwan, Malaysia, Indonesia, and
        Korea.
        We compete with these companies by striving to provide a higher quality product
        at a lower cost. Our primary competitors are Shenzhen Luhua Co., Ltd., Shenzhen
        TongLi Electronic Co. and Ningbo Pulaite Electronics Co., Ltd. We believe
        that
        by doing business in China we enjoy competitive advantages over similar
        companies based elsewhere, such as abundant labor resources and low cost
        raw
        materials.
 
 EMPLOYEES
 
 We
        currently have eight employees, five of which are officers, two of which
        are
        executives and one administrative personnel. E’Jenie has nine divisions with 596
        employees in total, 39 of which are supervisors, 14 of which are administrative
        officers, nine of which are in marketing and 534 of which are on the production
        lines. The Labor Law of the China requires us to provide the certain benefits
        and insurance to all of its employees. We consider our relationships with
        our
        employees to be good.
 
 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.
  6
  
 Second,
        while the enforcement of substantive rights may appear less clear than United
        States procedures, the Foreign Invested Enterprises and Wholly Foreign- Owned
        Enterprises are Chinese registered companies, which enjoy the same status
        as
        other Chinese registered companies in business-to-business dispute resolution.
        Generally, the Articles of Association provide that all business disputes
        pertaining to Foreign Invested Enterprises are to be resolved by the Arbitration
        Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden applying
        Chinese substantive law. Any award rendered by this arbitration tribunal
        is, by
        the express terms of the respective Articles of Association, enforceable
        in
        accordance with the “United Nations Convention on the Recognition and
        Enforcement of Foreign Arbitral Awards (1958).” Therefore, as a practical
        matter, although no assurances can be given, the Chinese legal infrastructure,
        while different in operation from its United States counterpart, should not
        present any significant impediment to the operation of Foreign Invested
        Enterprises such as E’Jenie.
 
 Although
        the Chinese government owns the majority of productive assets in China, in
        the
        past several years the government has implemented economic reform measures
        that
        emphasize decentralization and encourage private economic activity. Because
        these economic reform measures may be inconsistent or ineffectual, there
        are no
        assurances that:
  ·
              We
                  will be able to capitalize on economic
                  reforms.
 
 ·
              The
                  Chinese government will continue its pursuit of economic reform
                  policies.
 
 ·
              The
                  economic policies, even if pursued, will be
                  successful.
 
 ·
              Economic
                  policies will not be significantly altered from time to
                  time.
 
 ·
              Business
                  operations in China will not become subject to the risk of
                  nationalization.
 
 Since
        1979, the Chinese government has reformed its economic systems. Because many
        reforms are unprecedented or experimental, they are expected to be refined
        and
        improved. Other political, economic and social factors, such as political
        changes, changes in the rates of economic growth, unemployment or inflation,
        or
        in the disparities in per capita wealth between regions within China, could
        lead
        to further readjustment of the reform measures. This refining and readjustment
        process may negatively affect our operations.
 
 Over
        the
        last few years, China’s economy has registered a high growth rate. Recently,
        there have been indications that rates of inflation have increased. In response,
        the Chinese government recently has taken measures to curb this excessively
        expansive economy. These measures have included devaluations of the Chinese
        currency, the renminbi, restrictions on the availability of domestic credit,
        reducing the purchasing capability of certain of its customers, and limited
        re-centralization of the approval process for purchases of some foreign
        products. These austerity measures alone may not succeed in slowing down
        the
        economy’s excessive expansion or control inflation, and may result in severe
        dislocations in the Chinese economy. The Chinese government may adopt additional
        measures to further combat inflation, including the establishment of freezes
        or
        restraints on certain projects or markets.
  7


To
        date
        reforms to China’s economic system have not adversely impacted our operations
        and are not expected to adversely impact operations in the foreseeable future;
        however, there can be no assurance that the reforms to China’s economic system
        will continue or that we will not be adversely affected by changes in China’s
        political, economic, and social conditions and by changes in policies of
        the
        Chinese government, such as changes in laws and regulations, measures which
        may
        be introduced to control inflation, changes in the rate or method of taxation,
        imposition of additional restrictions on currency conversion and remittance
        abroad, and reduction in tariff protection and other import
        restrictions.
 
 RISK
        FACTORS
 
 RISKS
        RELATED TO OUR BUSINESS
 
 WE
        DEPEND
        ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF KEY
        PERSONNEL COULD AFFECT OUR ABILITY TO SUCCESSFULLY GROW OUR
        BUSINESS.
 
 We
        are
        highly dependent upon the services of our senior management team, particularly
        Changchun Zhen, our Chairman and Chief Executive Officer and Yao Miao, our
        Chief
        Financial Officer. The permanent loss for any of our key executives, could
        have
        a material adverse effect upon our operating results. We may not be able
        to
        locate suitable replacements for our executives if their services were lost.
        We
        do not maintain key man life insurance on any of these individuals.
 
 OUR
        OPERATIONS DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN A HIGHLY SKILLED GROUP
        OF
        MANAGERS AND OTHER PERSONNEL.
 
 Because
        of the highly specialized, technical nature of our business, we must attract
        and
        retain a highly skilled group of managers and a sizeable workforce of
        technically competent employees. Although we do not experience unacceptable
        attrition among our technical staff and sales force, if we were to lose a
        substantial portion of such persons, our ability to effectively pursue our
        business strategy could be materially and negatively affected. Although we
        believe our management and workers having the necessary education, training
        and
        technical skills to fill any positions that may become open is sufficient
        for
        our needs, the labor market for such managers and workers is becoming more
        competitive and we could have to pay higher salaries and wages and provide
        greater benefits in order for us to attract the necessary workers.
 
 IF
        WE
        CANNOT EFFECTIVELY INCREASE AND ENHANCE OUR SALES AND MARKETING CAPABILITIES,
        WE
        MAY NOT BE ABLE TO INCREASE OUR REVENUES.
 
 We
        need
        to further develop our sales and marketing capabilities to support our
        commercialization efforts. If we fail to increase and enhance our marketing
        and
        sales force, we may not be able to enter new or existing markets for lithium
        ion
        batteries. Failure to recruit, train and retain new sales personnel, or the
        inability of new sales personnel to effectively market and sell our products,
        could impair our ability to gain market acceptance of our products and services
        and cause our sales to suffer.
 
 WE
        MAY
        NOT BE ABLE TO EFFECTIVELY MANAGE OUR ANTICIPATED GROWTH.
 
 If
        we
        fail to effectively manage our internal growth in a manner that minimizes
        strains on our recourses, we could experience disruptions in our operations
        and
        ultimately be unable to sustain profitability. Furthermore we anticipate
        that we
        will significantly expand our operations over the next few years. Managing
        our
        anticipated growth may be difficult because:
  8
 
 ·
                our management team has worked together for
                    a relatively
                    short period of time; and
 
 ·
                we intend to purse acquisitions, joint ventures
                    and other
                    strategic transactions that will enhance or expand out technology
                    and
                    manufacturing base.
 
 WE
        MAY
        NOT BE ABLE TO SUCCESSFULLY IDENTIFY, CONSUMMATE OR INTEGRATE STRATEGIC
        TRANSACTIONS.
 
 We
        intend
        to pursue strategic transactions that provide access to new technologies,
        products, markets and manufacturing abilities. These transactions could include
        acquisitions, partnerships, joint ventures, business combinations and
        investments. In particular, we intend to focus our acquisition efforts on
        companies that will provide us with a new and established customer base.
        We may
        not be able to identify any potential strategic transactions. Even if we
        do
        identify one or more potentially beneficial strategic transactions, we may
        not
        be able to consummate these transactions on favorable terms or obtain the
        benefits we anticipate from such a transaction. If we are able to consummate
        any
        strategic transactions, the transactions could pose significant integration
        challenges or management and business disruptions.
 
 A
        LIMITED
        NUMBER OF CUSTOMERS GENERATE A SIGNIFICANT PORTION OF OUR REVENUE.
 
 For
        the
        near future, we expect that a significant portion of our revenues will be
        concentrated in a limited number of customers. For example, for the year
        ended
        December 31, 2005, revenues from five customers represented approximately
        63% of
        our total revenues from operations. A reduction, delay, or cancellation of
        orders from one or more of our customers or the loss of one or more customer
        relationships could significantly reduce our revenues. Unless we establish
        long-term sales arrangements with these customers, they will have the ability
        to
        discontinue their purchases of our products on short notice.
 
 RISKS
        RELATED TO DOING BUSINESS IN CHINA
 
 ADVERSE
        CHANGES IN ECONOMIC AND POLITICAL POLICIES OF THE CHINESE GOVERNMENT COULD
        HAVE
        A MATERIAL ADVERSE EFFECT ON THE OVERALL ECONOMIC GROWTH OF CHINA, WHICH
        COULD
        ADVERSELY AFFECT OUR BUSINESS.
 
 Substantially
        all of our business operations are conducted in China. Accordingly, our results
        of operations, financial condition and prospects are subject to a significant
        degree to economic, political and legal developments in China. China’s economy
        differs from the economies of most developed countries in many respects,
        including with respect to the amount of government involvement, level of
        development, growth rate, control of foreign exchange and allocation of
        resources. While the Chinese economy has experienced significant growth in
        the
        past 20 years, growth has been uneven across different regions and among
        various
        economic sectors of China. The Chinese government has implemented various
        measures to encourage economic development and guide the allocation of
        resources. Some of these measures benefit the overall Chinese economy, but
        may
        also have a negative effect on us. For example, our financial condition and
        results of operations may be adversely affected by government control over
        capital investments or changes in tax regulations that are applicable to
        us.
        Since early 2004, the Chinese government has implemented certain measures
        to
        control the pace of economic growth. Such measures may cause a decrease in
        the
        level of economic activity in China, which in turn could adversely affect
        our
        results of operations and financial condition.
  RESTRICTIONS
        ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUES
        EFFECTIVELY.
 
 Because
        a
        substantial amount of our revenues are in the form of Renminbi, the Chinese
        currency unit, any restrictions on currency exchanges may limit our ability
        to
        use revenue generated in Renminbi to fund any future business activities
        outside
        China. Although the Chinese government introduced regulations in 1996 to
        allow
        greater convertibility of the Renminbi for current account transactions,
        significant restrictions still remain, including primarily the restriction
        that
        foreign-invested enterprises may only buy, sell or remit foreign currencies,
        after providing valid commercial documents, at those banks authorized to
        conduct
        foreign exchange business. In addition, conversion of Renminbi for capital
        account items, including direct investment and loans, is subject to government
        approval in China, and companies are required to open and maintain separate
        foreign exchange accounts for capital account items. If the currency exchange
        system prevents us from obtaining sufficient foreign currency, we may be
        unable
        to fund business activities outside China or otherwise make payments in dollars.
        We cannot be certain that the Chinese regulatory authorities will not impose
        more stringent restrictions on the convertibility of the Renminbi, especially
        with respect to foreign exchange transactions. The value of our common stock
        will be affected by the foreign exchange rate between U.S. dollars and
        Renminbi.
  9
  To
        the
        extent that we need to convert U.S. dollars into Renminbi for our operational
        needs, should the Renminbi appreciate against the U.S. dollar at that time,
        our
        financial position and the price of our common stock may be adversely affected.
        Conversely, if we decide to convert our Renminbi into U.S. dollars and the
        U.S.
        dollar appreciates against the Renminbi, the U.S. dollar equivalent of our
        earnings from our subsidiaries in China would be reduced.
 
 Until
        1994, the Renminbi experienced a gradual but significant devaluation against
        most major currencies, including U.S. dollars, and there was a significant
        devaluation of the Renminbi on January 1, 1994 in connection with the
        replacement of the dual exchange rate system with a unified managed floating
        rate foreign exchange system. Since 1994, the value of the Renminbi relative
        to
        the U.S. dollar has remained stable and has appreciated slightly against
        the
        U.S. dollar. Countries, including the United States, have argued that the
        Renminbi is artificially undervalued due to China’s current monetary policies
        and have pressured China to allow the Renminbi to float freely in world markets.
        On July 21, 2005 the Chinese government changed its policy of pegging the
        value
        of the Renminbi to the U.S. dollar. Under the new policy the Renminbi is
        permitted to fluctuate within a narrow and managed band against a basket
        of
        designated foreign currencies. While the international reaction to the Renminbi
        revaluation has generally been positive, there remains significant international
        pressure on the Chinese government to adopt an even more flexible currency
        policy, which could result in further and more significant appreciation of
        the
        Renminbi against the U.S. dollar.
 
 Any
        significant revaluation of the Renminbi may materially and adversely affect
        our
        revenues, cash flow, earnings and financial position, and the value of any
        dividends payable in U.S. dollars. For example, an appreciation of the Renminbi
        against the dollar would make any Renminbi denominated investment or expenditure
        more costly to us, to the extent that we use dollars that we must convert
        into
        Renminbi for such purpose.
 
 WE
        MAY BE
        UNABLE TO ENFORCE OUR LEGAL RIGHTS DUE TO POLICIES REGARDING THE REGULATION
        OF
        FOREIGN INVESTMENTS IN CHINA.
 
 The
        Chinese legal system is a civil law system based on written statutes, in
        which
        system decided legal cases have little value as precedents unlike the common
        law
        system prevalent in the United States. China does not have a well-developed,
        consolidated body of laws governing foreign investment enterprises. As a
        result,
        the administration of laws and regulations by government agencies are subject
        to
        considerable discretion and variation on the part of the Chinese government,
        including its courts, and may be subject to influence by external forces
        unrelated to the legal merits of a particular matter. China’s regulations and
        policies with respect to foreign investments are evolving. Definitive
        regulations and policies with respect to such matters as the permissible
        percentage of foreign investment and permissible rates of equity returns
        have
        not yet been published. As a result, we may not be aware of any violations
        of
        these policies and rules until some time after the violation. Statements
        regarding these evolving policies have been conflicting and any such policies,
        as administered, are likely to be subject to broad interpretation and discretion
        and to be modified, perhaps on a case-by-case basis. The uncertainties regarding
        such regulations and policies present risks that may affect our ability to
        achieve our business objectives. If we are unable to enforce any legal rights
        we
        may have under our contracts or otherwise, our ability to compete with other
        companies in our industry could be materially and negatively affected. In
        addition, any litigation in China may be protracted and result in substantial
        cost and diversion of resources and management attention.
  10
 
 THERE
        CAN
        BE NO GUARANTEE THAT CHINA WILL COMPLY WITH THE MEMBERSHIP REQUIREMENTS OF
        THE
        WORLD TRADE ORGANIZATION.
 
 Due
        in
        part to the relaxation of trade barriers following World Trade Organization
        accession in January 2002, we believe China will become one of the world’s
        largest markets by the middle of the twenty-first century. As a result, we
        believe the Chinese market presents a significant opportunity for both domestic
        and foreign companies. With the Chinese accession to the World Trade
        Organization, Chinese industries are gearing up to face the new regimes that
        are
        required by World Trade Organization regulation. The Chinese government has
        begun to reduce its average tariff on pharmaceuticals and healthcare products.
        China has also agreed that foreign companies will be allowed to import most
        products, including pharmaceuticals, into any part of China. Current trading
        rights and distribution restrictions are to be phased out over a three-year
        period. In the sensitive area of intellectual property rights, China has
        agreed
        to implement the trade-related intellectual property agreement of the Uruguay
        Round. However, there can be no assurances that China will implement any
        or all
        of the requirements of its membership in the World Trade Organization in
        a
        timely manner, if at all.
 
 IT
        MAY BE
        DIFFICULT TO SERVE US WITH LEGAL PROCESS OR ENFORCE JUDGMENTS AGAINST OUR
        MANAGEMENT OR US.
 
 All
        or a
        substantial portion of our assets are located in China. In addition, most
        of our
        directors and officers are non-residents of the United States, and all or
        substantial portions of the assets of such non-residents are located outside
        the
        United States. As a result, it may not be possible to effect service of process
        within the United States upon such persons. Moreover, there is doubt as to
        whether the courts of China would enforce:
 
 ·
              judgments
                  of United States courts against us, our directors or our officers
                  based on
                  the civil liability provisions of the securities laws of the United
                  States
                  or any state; or
 
 ·
              in
                  original actions brought in China, liabilities against non-residents
                  or us
                  based upon the securities laws of the United States or any
                  state.
 
 RISKS
        RELATED TO THE OWNERSHIP OF OUR STOCK OUR STOCK PRICE IS HIGHLY
        VOLATILE.
 
 The
        market price of our common stock may fluctuate significantly in response
        to a
        number of factors, some of which are beyond our control, including:
 
 ·
              quarterly
                  variations in operating results;
 
 ·
              changes
                  in financial estimates by securities
                  analysts;
  11
 
 ·
              announcements
                  by us or our competitors of new products or of significant technical
                  innovations, contracts, acquisitions, strategic partnerships or
                  joint
                  ventures;
 
 ·
              changes
                  in governmental regulations or policies in
                  China;
 
 ·
              additions
                  or departures of key personnel;
 
 ·
              any
                  deviations in net sales or in losses from levels expected by securities
                  analysts; and the operating and stock price performance of other
                  comparable companies;
 
 ·
              news
                  and commentary emanating from the media, securities analysts or
                  government
                  bodies in China relating to us and to the industry in general;
                  and
 
 ·
              future
                  sales of common stock.
 
 General
        market conditions and domestic or international macroeconomic factors unrelated
        to our performance may also affect our stock price. For these reasons, investors
        should not rely on recent trends to predict future stock prices or financial
        results. In addition, following periods of volatility in a company’s securities,
        securities class action litigation against a company is sometimes instituted.
        This type of litigation could result in substantial costs and the diversion
        of
        management’s time and resources.
 
 BECAUSE
        OUR SECURITIES TRADE ON THE OTC BULLETIN BOARD SELLING OUR SECURITIES IN
        THE
        SECONDARY MARKET MAY BE DIFFICULT.
 
 Our
        shares of common stock have been listed and principally quoted on the Nasdaq
        OTC
        Bulletin Board since May 1994. Because our securities currently trade on
        the OTC
        Bulletin Board, they are subject to the rules promulgated under the Securities
        Exchange Act of 1934, as amended, which impose additional sales practice
        requirements on broker-dealers that sell securities governed by these rules
        to
        persons other than established customers and “accredited investors” (generally,
        individuals with a net worth in excess of $1,000,000 or annual individual
        income
        exceeding $200,000 or $300,000 jointly with their spouses). For such
        transactions, the broker-dealer must determine whether persons that are not
        established customers or accredited investors qualify under the rule for
        purchasing such securities and must receive that person’s written consent to the
        transaction prior to sale. Consequently, these rules may adversely effect
        the
        ability of purchasers to sell our securities and otherwise affect the trading
        market in our securities. Because our shares are deemed “penny stocks,” there
        may be difficulty in selling them in the secondary trading market.
 
 The
        Securities and Exchange Commission has adopted regulations which generally
        define a “penny stock” to be any equity security that has a market price (as
        defined in the regulations) less than $5.00 per share or with an exercise
        price
        of less than $5.00 per share, subject to certain exceptions. Additionally,
        if
        the equity security is not registered or authorized on a national securities
        exchange or Nasdaq, the equity security also would constitute a “penny stock.”
As our common stock falls within the definition of penny stock, these
        regulations require the delivery, prior to any transaction involving our
        common
        stock, of a risk disclosure schedule explaining the penny stock market and
        the
        risks associated with it. Disclosure is also required to be made about
        compensation payable to both the broker-dealer and the registered representative
        and current quotations for the securities. In addition, monthly statements
        are
        required to be sent disclosing recent price information for the penny stocks.
        The ability of broker/dealers to sell our common stock and the ability of
        shareholders to sell our common stock in the secondary market would be limited.
        As a result, the market liquidity for our common stock would be severely
        and
        adversely affected. We can provide no assurance that trading in our common
        stock
        will not be subject to these or other regulations in the future, which would
        negatively affect the market for our common stock.
  12
  OUR
        FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER HAVE EFFECTIVE VOTING CONTROL
        OF
        THE COMPANY.
 
 Yi
        Bo
        Sun, our former President and Chief Executive Officer and a former director,
        is
        also the Chief Executive Officer and Chairman of the Board of Cheering Limited.
        As a result, Mr. Sun may be entitled to direct the vote of the 5,700,000
        shares
        of our common stock (or approximately 7.8% of our issued and outstanding
        common
        stock) owned by Cheering Limited. Additionally, until May 1, 2006 Mr. Sun
        is
        also entitled to direct the vote of an additional 30,000,000 shares of common
        stock that are owned by seven investor, for a total of 35,700,000 shares
        (approximately 48.9% of our issued and outstanding common stock) pursuant
        to
        certain irrevocable proxies granted to him in connection with the private
        placement of such securities to certain individuals. Upon the expiration
        of
        these proxies (and assuming that such proxies are not extended), the investors
        as a group will be able to exercise effective control over any matters requiring
        the vote of stockholders, including the approval of any business acquisition
        and
        the election of directors assuming no further issuances. This could delay
        or
        prevent a change in control of our board of directors. This may have the
        effect
        of precluding or delaying the opportunity of minority stockholders to sell
        their
        common stock to interested purchasers or may significantly reduce the offering
        price in any such transaction.
 
 WE
        DO NOT
        INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
 
 We
        have
        not paid any dividends on our common stock to date and there are no plans
        for
        paying dividends in the foreseeable future. We intend to retain earnings,
        if
        any, to provide funds for the implementation of our new business plan. We
        do not
        intend to declare or pay any dividends in the foreseeable future. Therefore,
        there can be no assurance that holders of common stock will receive any
        additional cash, stock or other dividends on their shares of common stock
        until
        we have funds, which the Board of Directors determines, can be allocated
        to
        dividends.
 
 OUR
        ARTICLES OF INCORPORATION CONTAIN PROVISIONS THAT DISCOURAGE A CHANGE OF
        CONTROL.
 
 Our
        articles of incorporation contain provisions that could discourage an
        acquisition or change of control without our board of directors’ approval. Our
        articles of incorporation authorize our board of directors to issue preferred
        stock without shareholder approval. If our board of directors elects to issue
        preferred stock, it could be more difficult for a third party to acquire
        control
        of us, even if that change of control might be beneficial to our
        shareholders.
 
 ITEM
        2.
        DESCRIPTION OF PROPERTY.
 
 Our
        manufacturing headquarters is located at A-3 Xinglian Industrial Zone, He
        Hua
        Ling Pingxin Road, Xin Nan, Ping Hua Town, Longgang, Shenzhen, China 51811.
        This
        facility is 6,708 square meters of which 15% or 1,000 square meters is used
        for
        offices, 4,500 square meters are used for the manufacturing line and storage
        and
        the remaining 1,208 square meters are used for employee dormitories. Our
        lease
        is for a term of one year and our rent is approximately $6,700 a
        month
 
 In
        February 2005, we opened our first office in the United States. The Los
        Angeles-based office is located at 1901 Avenue of the Stars, Suite 201. Our
        lease is for a term of one year and our rent is $1,225 a month.
 
 We
        believe the facilities we occupy are adequate for the purposes for which
        they
        are currently used and are well maintained:
  13
  ITEM
        3.
        LEGAL PROCEEDINGS
 
 We
        are
        not a party to any pending litigation and none is contemplated or
        threatened.
 
 ITEM
        4.
        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
 There
        were no matters submitted to the stockholders in the fourth quarter of our
        fiscal year ended December 31, 2005.
 
 PART
        II
 
 ITEM
        5.
        MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
 Our
        common stock trades under the symbol CHID.OB on the Over-the-Counter Bulletin
        Board Electronic Quotation System maintained by the National Association
        of
        Securities Dealers, Inc. Following is information about the range of high
        and
        low bid prices for our common stock for the each fiscal quarters listed below.
        Prior to the Acquisition, there was a limited market for our common stock.
        As a
        result, our stock had no or nominal trading volume and a very limited trading
        history. These quotations reflect inter-dealer prices, without retail mark-up,
        mark-down or commission, and may not necessarily represent actual
        transactions.
 
 Quarter
                  Ended
              
              High Bid Quotation
              
              Low Bid QuotationJune
                  30, 2004
              
              $
              3.50
              
              $
              1.03September
                  30, 2004
              
              $
              3.40
              
              $
              1.50December
                  31, 2004
              
              $
              2.50
              
              $
              0.99March
                  31, 2005
              
              $
              1.60
              
              $
              0.78June
                  30, 2005
              
              $
              1.45
              
              $
              0.31September
                  30, 2005
              
              $
              1.87
              
              $
              0.42December
                  31, 2005
              
              $
              0.54
              
              $
              0.38
 
 HOLDERS
 
 As
        of
        March 22, 2006, there were 145 holders of record of our common stock, however,
        we believe that there are additional beneficial owners of our common stock
        who
        own their shares in “street name.”
 
 DIVIDENDS
 
 There
        have been no cash dividends declared on our common stock since inception.
        Dividends are declared at the sole discretion of our board of directors.
        It is
        not anticipated that any dividends will be declared for the foreseeable future
        on our common stock.
 
 RECENT
        SALES OF UNREGISTERED SECURITIES
 
 In
        March
        2004, we sold 30,000,000 shares of our common stock at a per share purchase
        price of $0.05 to seven unaffiliated individuals in a private placement,
        which
        yielded aggregate gross proceeds of $1,500,000. The shares were issued pursuant
        to an exemption provided by Section 4(2) of the Securities Act of 1933, as
        amended.
 
 As
        consideration for the Acquisition, we issued 4,566,210 shares of common stock
        to
        the Shareholders. As consideration for Shiji’s guaranty, we issued 1,919,016
        shares of common stock to Shiji in October 2004. The shares were issued pursuant
        to an exemption provided by Section 4(2) of the Securities Act of 1933, as
        amended.
  14
  **ITEM
        6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION.**
 
 **RESULTS
        OF OPERATIONS**
  **Comparison
        of Fiscal Year 2005 Compared to Fiscal Year 2004**
 The
          following table presents the statement of operations for the year ended
          December
          31, 2005 and the results of operations for the periods ended of December
          31,
          2004. The discussion following the table is based on the these
          results.
 
 **2005**
                
                **2004**Sales,
                    net
                
                $
                12,742,088
                
                $
                1,412,276Cost
                    of sales
                
                
                8,971,859
                
                
                718,785**Gross
                    profit**
                
                
                3,770,229
                
                
                693,491Operating
                    ExpensesSelling
                    expense
                
                
                165,780
                
                
                46,793General
                    and administrative expenses
                
                
                1,202,359
                
                
                261,751Goodwill
                    impairment
                
                
                1,213,843Consulting
                    Fees
                
                
                -
                
                
                598,000Total
                    operating expenses
                
                
                2,581,982
                
                
                906,544**Income
                    from operations**
                
                
                1,188,248
                
                
                (213,053
                )Other
                    (Income) ExpenseInterest
                    income
                
                
                (3,877
                )
                
                (6
                )Miscellaneous
                    income
                
                
                -
                
                
                5,141Interest
                    expense
                
                
                32,856
                
                
                3,468Total
                    Other Income
                
                
                28,979
                
                
                8,603**Income
                    before income taxes**
                
                
                1,159,269
                
                
                (221,656
                )Provision
                    for income taxes
                
                
                111,773
                
                
                13,555**Net
                    income**
                
                $
                1,047,496
                
                $
                (235,211
                )
  **Net
        sales**
 Net
          sales
          for 2005 totaled $12,742,088 compared to $1,412,276 for 2004, an increase
          of
          $11,329,812, or approximately 802%. The increase was due to the expansion
          of our
          product lines in order to meet the needs of our customers in 2005 and also
          because the result of operations for 2004 only included the results from
          E’Jenie
          after the date of acquisition which was November 16, 2004.
 **Cost
        of Sales**
  Cost
        of
        sales for 2005 totaled $8,971,859, or approximately 70.4% of net sales, compared
        to $ 718,785 ,
        or
        approximately 50.9% of net sales, for 2004. The increase in cost of sales
        as a
        percentage of net sales was due to an increase in the cost of raw materials
        from
        the introduction of new product lines during 2004. As we increased our sales
        revenue in 2005 our cost of sales has also increased and also because the
        result
        of operations for 2004 only included the results from E’Jenie after the date of
        acquisition.
 15
 **Operating
        Expense**
 
 Selling,
        general and administrative, and consulting fees for 2005 totaled $2,581,982,
        or
        approximately 20.3% of net sales, compared to 906,544, or
        approximately 64.2% of net sales, for 2004. This increase in operating expenses
        of $ 1,675,438 ,
        or
        approximately 185%, was due to $1,213,843 increase in goodwill impairment
        in
        2005. Overall operating expenses increase due to the overall increase in
        sales
        and employees during the year ended December 31, 2005 and also because the
        result of operations for 2004 only included the results from E’Jenie after the
        date of acquisition which was November 16, 2004.
  **Income
        (Loss) from Operations**
  Income
        (loss) from operations for 2005 was $1,188,248 as compared to income from
        operations of $ (213,053) for
        2004,
        an increase of $1,401,301 ,
        or
        approximately 657.7% .
        This
        increase was due to the increase in our sales revenue and also because the
        result of operations for 2004 only included the results from E’Jenie after the
        date of acquisition which was November 16, 2004.
 
 **Interest
        Expense**
 
 Interest
        expense for 2005 totaled $32,856 compared to $ 3,468 for
        2004,
        an increase of $ 29,388 .
        The
        increase in interest expense was due to indebtedness related to the acquisition
        of fixed assets.
 
 **Net
        Income**
 
 Net
        income (loss) was $1,047,496 for 2005 compared to net income of $ (235,211) for
        2004,
        an increase of $ 1,282,707 .
        The
        increase was due to an increase in our sales revenue and also because the
        result
        of operations for 2004 only included the results from E’Jenie after the date of
        acquisition which was November 16, 2004.
 
 **LIQUIDTY
        AND CAPITAL RESOURCES**
  China
        Digital, as the successor company, had no significant business operations
        or
        assets prior to the Acquisition. As such, the liquidity and capital resources
        described below of E'Jenie are the same for China Digital.
  Cash
        has
        historically been generated from operations. Operations and liquidity needs
        are
        funded primarily through cash flows from operations and short-term borrowings.
        Cash and cash equivalents were $2,061,213 at December 31, 2005 and current
        assets totaled $4,765,684 at December 31, 2005. The Company's total current
        liabilities were $1,416,719 at December 31, 2005. Working capital at December
        31, 2005 was $3,348,965. We believe that the funds available to us are adequate
        to meet our operating needs for 2006. During 2005, net cash provided by
        operating activities was $2,087,181.
  **Capital
        expenditures**
  Total
        capital expenditures during the year ended December 31, 2005 was $535,843
        for
        purchase of fixed assets.
  **Working
        Capital Requirements**
  Historically
        operations and short term financing have been sufficient to meet our cash
        needs.
        We believe that we will be able to generate revenues from sales and raise
        capital through private placement offerings of its equity securities to provide
        the necessary cash flow to meet anticipated working capital requirements.
        However, our actual working capital needs for the long and short term will
        depend upon numerous factors, including operating results, competition, and
        the
        availability of credit facilities, none of which can be predicted with
        certainty. Future expansion will be limited by the availability of financing
        products and raising capital.
 
 **Off
        Balance Sheet Arrangements**
  We
        have
        never entered into any off-balance sheet financing arrangements and have
        never
        established any special purpose entities. We have not guaranteed any debt
        or
        commitments of other entities or entered into any options on non-financial
        assets.


16


ITEM
      7.
      FINANCIAL STATEMENTS.





The
      Financial Statements of the Company appear at pages F-1 to F-21.





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





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





ITEM
      8A.
      CONTROLS AND PROCEDURES.





As
      of the
      end of the period covered by this report, management of the Company, with the
      participation of the Company’s principal executive officer and the Company’s
      principal financial officer, evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as defined in Rule 13a-15(e) under the
      Securities Exchange Act of 1934. Based on that evaluation, these officers
      concluded that, as of the date of their evaluation, the Company’s disclosure
      controls and procedures were effective to provide reasonable assurance that
      information required to be disclosed in the Company’s periodic filings under the
      Securities Exchange Act of 1934 is accumulated and communicated to the Company’s
      management, including those officers, to allow timely decisions regarding
      required disclosure.





During
      the period covered by this Report, there were no changes in the Company’s
      internal control over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





ITEM
      8B.
      OTHER INFORMATION.





None.


17





PART
      III





ITEM
      9.
      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      SECTION 16(A) OF THE EXCHANGE ACT.





The
      following table sets forth the name, age and position of each of our officers
      and directors as of March 15, 2006.





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





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





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





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





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




18


Yu
      Xi
      Sun, 32, served as Vice President of Shenzhen E’Jenie Science and Technology
      Development Co., Ltd. from December 2004 to February 2006, Assistant President
      from September 2003 to December 2004 and Marketing Manager from May 2002 to
      August 2003. From January 2001 to April 2002 Ms. Sun was Marketing Director
      of
      the Eastern China Area at Shenzhen City Li Ke Energy Co., Ltd., and from July
      1999 to December 2000 was Legal Counsel for Hubei Xing Yuan Battery Co., Ltd.
      Ms. Sun earned an M.S. in Law from Hubei University.





Mei
      Jin
      Bin, 28, has served as the Secretary of China Digital since February 2004.
      From
      February 2002 through June 2003 she was the executive general manager of
      Shenzhen E’Jenie Science and Technology Development Co., Ltd. From August 1999
      January 2002 she served as the Executive Secretary of Shenzhen Gao Yi Electronic
      Co. Ltd. She is a graduate of Hubei Province Huangshi City Professional
      Institute.





Xu
      Bao
      Dong, 35, has served as a director of China Digital since February 2004. Since
      March 2003 he served as Vice President at Shenzhen Heng Tian Tong Communication
      Equipment Inc. From August 2001 through February 2003 he served as the Marketing
      Director at Shenzhen Li Gao Electronics. From July 1999 until July 2001 he
      served as Marketing Director at Shenzhen Blue Hope Electronic Co., Ltd. He
      holds
      a Bachelors of Science degree from degree from Shenzhen University.





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





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





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




19


INVOLVEMENT
      IN CERTAIN LEGAL PROCEEDINGS





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





INDEMNIFICATION





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





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





BOARD
      OF
      DIRECTORS’ MEETINGS AND COMMITTEES





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





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





NOMINATIONS
      FOR DIRECTORS





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





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





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


20


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





AUDIT
      COMMITTEE





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





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





SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
      16(a) of the Securities Exchange Act of 1934 requires certain defined persons
      to
      file reports of and changes in beneficial ownership of a registered security
      with the Securities and Exchange Commission and the National Association of
      Securities Dealers in accordance with the rules and regulations promulgated
      by
      the Commission to implement the provisions of Section 16. Under the regulatory
      procedure, officers, directors, and persons who own more than ten percent of
      a
      registered class of a company’s equity securities are also required to furnish
      the Company with copies of all Section 16(a) forms they file.





To
      the
      Company’s knowledge, based solely on a review of the copies of Forms 3, 4 and 5
      furnished to the Company between January 1, 2005 through December 31, 2005,
      the
      Company’s officers, directors and greater than 10% beneficial owners complied
      with all Section 16(a) filing requirements except as follows: Young Yan has
      not
      filed a Form 3 for a transaction that occurred on may 12, 2005; Albert Simon
      has
      not filed a Form 3 for transaction that occurred on November 11,
      2005.





CODE
      OF
      ETHICS





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


21





ITEM
      10.
      EXECUTIVE COMPENSATION





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





SUMMARY
      COMPENSATION TABLE





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








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


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


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


22


AGGREGATED
      OPTION EXERCISES IN LAST FISCAL YEAR-END




AND
      FISCAL YEAR-END OPTION VALUES TABLE





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





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





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





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





COMPENSATION
      OF DIRECTORS





All
      directors are reimbursed for out-of-pocket expenses in connection with
      attendance at Board meetings. During the fiscal year ended December 31, 2005,
      Albert Simon received $20,000 and options to purchase 100,000 shares of our
      common stock at an exercise price equal to 115% of the average daily closing
      bid
      price of our common stock for the 60 days prior to November 4,
      2005.





BONUSES
      AND DEFERRED COMPENSATION





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





STOCK
      OPTIONS





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





EMPLOYMENT
      CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
      ARRANGEMENTS





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


23





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





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





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




*
              Less
                  than 1%




(1)
            The
                address of the persons named in this column is Number 2222. Jin Tian
                Road.
                An Lian Building, 15th Floor A-01 and A-02, Eutian, Shezhen,
                China.





(2)
            Shares
                of common stock subject to stock options and warrants that are currently
                exercisable or exercisable within 60 days or shares that otherwise
                may be
                acquired within 60 days of this Report are deemed to be beneficially
                owned
                by the person holding the options and warrants or person with the
                right to
                acquire such shares for computing such person’s percentage, but are not
                treated as outstanding for computing the percentage of any other
                person.


24





(3)
            Includes
                options to purchase 100,000 shares of our common
                stock.





(4)
            Yi
                Bo Sun, our former Chairman and Chief Executive Officer, is also
                the
                Chairman and Chief Executive Officer of Cheering Limited. Cheering
                Limited
                beneficially owns 5,700,000 shares of our Common Stock. As the Chief
                Executive Officer and Chairman of the Board of Cheering Limited,
                Yi Bo Sun
                may be deemed to beneficially own shares owned by Cheering
                Limited.





(5)
            In
                connection with the private placement we issued 30,000,000 shares
                of
                common stock, to the following
                investors:




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





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





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




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





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




25





ITEM
      12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





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





ITEM
      13.
      EXHIBIT.





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


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




26




14.1*
            
            Code
                of Ethics.21.1*
            
            List
                of Subsidiaries23.1*
            
            Consent
                of Lichter, Yu & Associates23.2*
            
            Consent
                of Kabani & Company, Inc.31.1*
            
            Certification
                of principal executive officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange
                Act
                of 1934.


31.2*
            
            Certification
                of principal financial officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange
                Act
                of 1934.32.1*
            
            Certification
                of Principal Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2*
            
            Certification
                of Principal Financial Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.








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





ITEM
      14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Audit
      Fees:





2005:





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





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





2004:





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





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




27


Audit
      Related Fees:




2005





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





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





2004





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





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





Tax
      Fees:





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





Audit
      Committee Pre-approval Policies and Procedures





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





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




28


SIGNATURES





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





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





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




SIGNATURE
            
            TITLE
            
            DATE/s/
                Zhongnan Xu
            
            Chairman
                and Chief Executive Officer
            
            October
                9, 2007Zhongnan
                Xu
            
            (Principal
                Executive Officer)/s/
                Jiangcheng
                Wu
            
            Chief
                Financial Officer
            
            October
                  9, 2007Jiangcheng
                  Wu
            
            (Principal
                Financial and Accounting
                Officer)/s/
                Xu
                Bao Dong
            
            Secretary
            
            October
                  9, 2007Xu
                Bao Dong




29


**CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 
 **DECEMBER
        31, 2005**
  F-1
  **TABLE
        OF CONTENTS**
 
 Report
                  of Independent Registered Public Accounting Firm
              F-3Consolidated
                  Balance Sheet (Restated)
              F-4Consolidated
                  Statements of Operations (Restated)
              F-5Consolidated
                  Statements of Cash Flow (Restated)
              F-6Consolidated
                  Statements of Changes in Stockholders’ Equity/(Deficit)
                  (Restated)
              F-7Notes
                  to Consolidated Financial Statements
              F-8-F-26
 
 F-2
  Report
        of
        Independent Registered Public Accounting Firm
 
 Board
        of
        Directors and Stockholders of
 China
        Digital Communication Group and Subsidiaries, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheets of China Digital
        Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December
        31, 2005, and the related consolidated statements of operations, stockholders'
        equity, and cash flows for the years ended December 31, 2005 and 2004. These
        consolidated financial statements are the responsibility of the Company's
        management. Our responsibility is to express an opinion on these consolidated
        financial statements based on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall consolidated financial statement presentation.
        We
        believe that our audits provide a reasonable basis for our opinion.
  In
        our opinion, the consolidated financial statements referred to above present
        fairly, in all material respects, the consolidated financial position of China
        Digital Communication Group and Subsidiaries, Inc. as of December 31, 2005, and the consolidated results of their operations
        and
        their consolidated cash flows for the years ended December 31, 2005 and 2004,
        in
        conformity with U.S. generally accepted accounting principles.
  As
        discussed in Note
        Q ,
        the
        financial statements for the year ended December 31, 2005 have been
        restated.
  
 /s/
        Kabani & Company, Inc.
 **Certified
        Public Accountants**
 
 Los
        Angeles, California
 March
        10,
        2006, except for Note C, D, H, J, P, Q and R, which is as of August 19,
        2007






F-3




**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**


**December
      31, 2005**


**(Restated)**





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




F-4




**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





**2005**
            
            **2004****(Restated)**
            
            **(Restated)**Sales,
                    net
            
            $
            12,742,088
            
            $
            1,412,276Cost
                of sales
            
            
            8,971,859
            
            
            718,785**Gross
                profit**
            
            
            3,770,229
            
            
            693,491Selling
                expense
            
            
            165,780
            
            
            46,793General
                and administrative expenses - Restated
            
            
            1,202,359
            
            
            261,751Goodwill
                impairment
            
            
            1,213,843
            
            
            -Consulting
                fees
            
            
            -
            
            
            598,000Total
                operating expenses
            
            
            2,581,982
            
            
            906,544**Income
                (loss) from operations**
            
            
            1,188,247
            
            
            (213,053
            )Other
                (Income) ExpenseInterest
                income
            
            
            (3,877
            )
            
            (6
            )Miscellaneous
                expense
            
            
            -
            
            
            5,141Interest
                expense
            
            
            32,856
            
            
            3,468Total
                Other Income
            
            
            28,979
            
            
            8,603**Income
                (loss) before income taxes**
            
            
            1,159,268
            
            
            (221,656
            )Provision
                for income taxes
            
            
            111,773
            
            
            13,555Net
                income (loss)
            
            
            1,047,496
            
            
            (235,211
            )Other
                    comprehensive incomeForeign currency translation
            
            
            61,682
            
            
            -**Comprehensive
                income (loss)**
            
            $
            1,109,178
            
            $
            (235,211
            )**Net
                income (loss) per share:**Basic
                & diluted
            
            $
            0.02
            
            $
            (0.01
            )**Weighted
                average number of shares outstanding:**Basic
                & diluted
            
            
            54,460,626
            
            
            40,496,438





Weighted
      average number of shares for dilutive securities has not been taken since the
      effect of dilutive securities is anti-dilutive




F-5




**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





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




F-6




**CHINA
      DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


**(Restated)**





**Common
                Stock**
            
            **Additional
                Paid**
            
            **Statutory**
            
            **Other**
            
            **Accumulated**
            
            **Total**
              **Stockholders’****Shares**
            
            **Amount**
            
            **In
                Capital**
            
            **Reserve**
            
            **Comprehensive**
            
            **Deficit**
            
            **Equity/(Deficit)****Balance
                December 31, 2003**
            
            
            6,015,400
            
            $
            6,015
            
            $
            15,385
            
            $
            -
            
            $
            -
            
            $
            (5,179
            )
            $
            16,221Shares
                issued for cash
            
            
            30,000,000
            
            
            30,000
            
            
            1,470,000
            
            
            -
            
            
            -
            
            
            -
            
            
            1,500,000Shares
                issued to consultant
            
            
            10,684,000
            
            
            10,684
            
            
            523,516
            
            
            -
            
            
            -
            
            
            -
            
            
            534,200Shares
                issued to consultant
            
            
            1,276,000
            
            
            1,276
            
            
            62,524
            
            
            -
            
            
            **-**
            
            
            -
            
            
            63,800Shares
                issued for acquisition of Billion
            
            
            4,566,210
            
            
            4,566
            
            
            7,757,991
            
            
            -
            
            
            **-**
            
            
            -
            
            
            7,762,557Shares
                issued for guarantee
            
            
            1,919,016
            
            
            1,919
            
            
            3,260,408
            
            
            -
            
            
            -
            
            
            -
            
            
            3,262,327Transfer
                to statutory reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            11,522
            
            
            -
            
            
            (11,522
            )
            
            -Net
                loss for the year ended December 31, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (235,211
            )
            
            (235,211
            )**Balance
                December 31, 2004**
            
            
            54,460,626
            
            
            54,460
            
            
            13,089,824
            
            
            11,522
            
            
            -
            
            
            (251,912
            )
            
            12,903,894Issuance
                of stock options
            
            
            -
            
            
            -
            
            
            17,500
            
            
            -
            
            
            
            
            
            -
            
            
            17,500Change
                in foreign currency translation gain
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            61,682
            
            
            -
            
            
            61,682Transfer
                to statutory reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            94,327
            
            
            -
            
            
            (94,327
            )
            
            -Net
                income for the year ended December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,047,496
            
            
            1,047,496**Balance
                December 31, 2005**
            
            
            54,460,626
            
            $
            54,460
            
            $
            13,107,324
            
            $
            105,849
            
            $
            61,682
            
            $
            701,257
            
            $
            14,030,572




F-7




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




**Note
        A -** **ORGANIZATION**
 
 China
        Digital Communication Group, formerly Jasmine’s Garden, Inc. (the “Company”) was
        incorporated under the laws of the State of Nevada on March 27, 2001. On
        September 30, 2004, the Company entered into an Exchange Agreement with Billion.
        Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie
        Science and Technology Company, Limited (E’Jenie). Billion Electronics Co., Ltd.
        (Billion), was incorporated under the laws of the British Virgin Islands
        on July
        27, 2004. Shenzhen
        E’Jenie Science & Technology Company Limited ,
        was
        legally established on July 8, 2002 under the laws of the Peoples’ Republic of
        China. When used in these notes, the terms “Company,” “we,” “our,” or “us” mean
        China Digital Communication Group and its Subsidiaries.
 
 On
        September 30, 2004, the Company entered into an Exchange Agreement with Billion.
        Pursuant to the Exchange Agreement, the Company agreed to purchase all of
        the
        issued and outstanding shares of Billion for approximately $1,500,000 in
        cash
        and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the
        total issued and outstanding shares.
 
 The
        Company through its acquisition of Billion and E’Jenie is no longer considered a
        development stage company as it was during the year ended December 31, 2003.
        The
        Company is now engaged in the business of the research and development,
        manufacture, and distribution of battery casings.
  **Note
        B -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Basis
        of Presentation
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America.
        The consolidated financial statements include the accounts of China Digital
        Communication Group and its wholly owned subsidiaries Billion and E’Jenie,
        collectively referred to within as the Company. All significant inter-company transactions and accounts have been eliminated
        in
        the consolidation.
 
 The
        Company’s functional currency is the Chinese Yuan Renminbi; however the
        accompanying consolidated financial statements have been translated and
        presented in United States Dollars ($).
 
 Use
        of
        Estimates
  The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the consolidated financial statements and the amount of revenues
        and
        expenses during the reporting periods. Management makes these estimates using
        the best information available at the time the estimates are made. However,
        actual results could differ materially from those results.
  Exchange
        Gain (Loss):
  During
        the year ended December 31, 2005 and 2004, the transactions of E’Jenie and Sono
        were denominated in foreign currency and were recorded in Chinese Yuan Renminbi
        (CNY) at the rates of exchange in effect when the transactions occur. Exchange
        gains and losses are recognized for the different foreign exchange rates
        applied
        when the foreign currency assets and liabilities are settled.
  F-8
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
  Translation
        adjustment
  The
        reporting currency of the Company is the US dollar. The Company uses their
        local
        currency, Chinese Yuan Renminbi (CNY), as their functional currency. Results
        of
        operations and cash flow are translated at average exchange rates during
        the
        period, and assets and liabilities are translated at the unified exchange
        rate
        at the end of the period. Translation adjustments resulting from this process
        are included in accumulated other comprehensive income in the statement of
        shareholders' equity. Transaction gains and losses that arise from exchange
        rate
        fluctuations on transactions denominated in a currency other than the functional
        currency are included in the results of operations as incurred.
  Financial
        instruments
  Statement
        of Financial Accounting Standard No. 107, "Disclosures about Fair Value of
        Financial Instruments", requires that the Company disclose estimated fair
        values
        of financial instruments.
  The
        Company's financial instruments primarily consist of cash and cash equivalents,
        accounts receivable, other receivables, advances to suppliers, accounts payable,
        other payable, tax payable, and related party advances and borrowings.
  As
        of the
        balance sheet dates, the estimated fair values of the financial instruments
        were
        not materially different from their carrying values as presented on the balance
        sheet. This is attributed to the short maturities of the instruments and
        that
        interest rates on the borrowings approximate those that would have been
        available for loans of similar remaining maturity and risk profile at respective
        balance sheet dates.
  Cash
        and Cash Equivalents
 
 Cash
        and
        cash equivalents include cash in hand and cash in time deposits, certificates
        of
        deposit and all highly liquid debt instruments with original maturities of
        three
        months or less.
 
 Accounts
        Receivable
 
 The
        Company maintains reserves for potential credit losses on accounts receivable.
        Management reviews the composition of accounts receivable and analyzes
        historical bad debts, customer concentrations, customer credit worthiness,
        current economic trends and changes in customer payment patterns to evaluate
        the
        adequacy of these reserves. Allowance for doubtful debts amounted to $135,892
        as
        at December 31, 2005.
 
 Inventory
 
 Inventories
        are valued at the lower of cost (determined on a weighted average basis)
        or
        market. The Management compares the cost of inventories with the market value
        and allowance is made for writing down their inventories to market value,
        if
        lower. As of December 31, 2005, inventory consisted of raw material, work
        in
        progress and finished goods as follows:
 **Inventory**Raw
                    Material
                
                $
                104,206Work-in-process
                
                
                74,182Finished
                    goods
                
                
                165,317$
                343,705
  F-9
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
  Property,
        Plant & Equipment
  Property
        and equipment are stated at cost. Expenditures for maintenance and repairs
        are
        charged to earnings as incurred; additions, renewals and betterments are
        capitalized. When property and equipment are retired or otherwise disposed
        of,
        the related cost and accumulated depreciation are removed from the respective
        accounts, and any gain or loss is included in operations. Depreciation of
        property and equipment is provided using the straight-line method for
        substantially all assets with estimated lives of:
 Furniture
                    and Fixtures
                5
                    yearsEquipment
                5
                    yearsComputer
                    Hardware and Software
                5
                    years
  As
        of
        December 31, 2005 Property, Plant & Equipment consist of the
        following:
 Machinery
                
                $
                745,419Automobile
                
                
                9,531Leasehold
                    improvements
                
                
                24,510Office
                    equipment
                
                
                2,957782,418Accumulated
                    depreciation
                
                
                (98,120
                )$
                684,298
  Depreciation
        expenses were $83,807 and $730 for the years ended December 31, 2005, and
        2004.
  Goodwill
  Goodwill
        represents the excess of the purchase price over the fair value of the
        identifiable assets and liabilities acquired as a result of the Company’s
        acquisitions of interests in its subsidiaries. Under Statement of Financial
        Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
        Assets (“SFAS 142”),” goodwill is no longer amortized, but tested for impairment
        upon first adoption and annually, thereafter, or more frequently if events
        or
        changes in circumstances indicate that it might be impaired. The Company
        assesses goodwill for impairment periodically in accordance with SFAS 142.
  Intangible
        Assets
  The
        Company applies the criteria specified in SFAS No. 141, “Business
        Combinations” to determine whether an intangible asset should be recognized
        separately from goodwill. Intangible assets acquired through business
        acquisitions are recognized as assets separate from goodwill if they satisfy
        either the “contractual-legal” or “separability” criterion. Per SFAS 142,
        intangible assets with definite lives are amortized over their estimated
        useful
        life and reviewed for impairment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible
        assets, such as purchased technology, trademark, customer list, user base
        and
        non-compete agreements, arising from the acquisitions of subsidiaries and
        variable interest entities are recognized and measured at fair value upon
        acquisition. Intangible assets are amortized over their estimated useful
        lives
        from one to ten years. The Company reviews the amortization methods and
        estimated useful lives of intangible assets at least annually or when events
        or
        changes in circumstances indicate that it might be impaired. The recoverability
        of an intangible asset to be held and used is evaluated by comparing the
        carrying amount of the intangible asset to its future net undiscounted cash
        flows. If the intangible asset is considered to be impaired, the impairment
        loss
        is measured as the amount by which the carrying amount of the intangible
        asset
        exceeds the fair value of the intangible asset, calculated using a discounted
        future cash flow analysis. The Company uses estimates and judgments in its
        impairment tests, and if different estimates or judgments had been utilized,
        the
        timing or the amount of the impairment charges could be different.
  F-10
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
  Impairment
  The
        Company applies the provisions of Statement of Financial Accounting Standard
        No.
        144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
        No.
        144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No.
        144
        requires that long-lived assets be reviewed for impairment whenever events
        or
        changes in circumstances indicate that the carrying amount of an asset may
        not
        be recoverable through the estimated undiscounted cash flows expected to
        result
        from the use and eventual disposition of the assets. Whenever any such
        impairment exists, an impairment loss will be recognized for the amount by
        which
        the carrying value exceeds the fair value.
  The
        Company tests long-lived assets, including property, plant and equipment
        and
        intangible assets subject to periodic amortization, for recoverability at
        least
        annually or more frequently upon the occurrence of an event or when
        circumstances indicate that the net carrying amount is greater than its fair
        value. Assets are grouped and evaluated at the lowest level for their
        identifiable cash flows that are largely independent of the cash flows of
        other
        groups of assets. The Company considers historical performance and future
        estimated results in its evaluation of potential impairment and then compares
        the carrying amount of the asset to the future estimated cash flows expected
        to
        result from the use of the asset. If the carrying amount of the asset exceeds
        estimated expected undiscounted future cash flows, the Company measures the
        amount of impairment by comparing the carrying amount of the asset to its
        fair
        value. The estimation of fair value is generally measured by discounting
        expected future cash flows as the rate the Company utilizes to evaluate
        potential investments. The Company estimates fair value based on the information
        available in making whatever estimates, judgments and projections are considered
        necessary.
  Revenue
        Recognition
  The
        Company's revenue recognition policies are in compliance with Staff accounting
        bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectibility is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are satisfied are recorded as unearned
        revenue.
  Stock-Based
        Compensation
  In
        December 2004, the FASB issued SFAS No. 123 (revised 2004),
‘‘Share-Based Payment’’ (‘‘SFAS 123R’’), which requires the measurement of all
        employee share-based payments to employees, including grants of employee
        stock
        options, using a fair-value-based method and the recording of such expense
        in
        the consolidated statements of operations. In March 2005, the SEC issued
        Staff
        Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation
        of SFAS 123R and the valuation of share-based payments for public companies.
 
 Advertising
 
 Advertising
        expenses consist primarily of costs of promotion for corporate image and
        product
        marketing and costs of direct advertising. The Company expenses all advertising
        costs as incurred.
  F-11
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
 Income
        Taxes
  The
        Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
        recognition of deferred tax assets and liabilities for the expected future
        tax
        consequences of events that have been included in the financial statements
        or
        tax returns. Under this method, deferred income taxes are recognized for
        the tax
        consequences in future years of differences between the tax bases of assets
        and
        liabilities and their financial reporting amounts at each period end based
        on
        enacted tax laws and statutory tax rates applicable to the periods in which
        the
        differences are expected to affect taxable income. Valuation allowances are
        established, when necessary, to reduce deferred tax assets to the amount
        expected to be realized. The Company does not have any significant deferred
        tax
        asset or liabilities in the PRC tax jurisdiction.
  According
        to the Provisional Regulations of the People's Republic of China on Income
        Tax,
        the Company’s operating subsidiaries in China is under a tax rate of 15% for the
        years ended December 31, 2005.
  Segment
        reporting
  Statement
        of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
        Segments of an Enterprise and Related Information" requires use of the
        "management approach" model for segment reporting. The management approach
        model
        is based on the way a company's management organizes segments within the
        company
        for making operating decisions and assessing performance. Reportable segments
        are based on products and services, geography, legal structure, management
        structure, or any other manner in which management disaggregates a company.
  SFAS
        No.
        131 has no effect on the Company's consolidated financial statements as the
        Company operates in one reportable business segment - manufacturing and
        marketing high-precision investment casting and metal fabrication products
        in
        China.
  Statement
        of Cash Flows
  In
        accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
        Company’s operations is based upon the local currencies. As a result, amounts
        related to assets and liabilities reported on the statement of cash flows
        will
        not necessarily agree with changes in the corresponding balances on the balance
        sheet.
  Concentration
        of Credit Risk
  Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are cash, accounts receivable and other receivables arising from its
        normal
        business activities. The Company places its cash in what it believes to be
        credit-worthy financial institutions. The Company has a diversified customer
        base, most of which are in China. The Company controls credit risk related
        to
        accounts receivable through credit approvals, credit limits and monitoring
        procedures. The Company routinely assesses the financial strength of its
        customers and, based upon factors surrounding the credit risk, establishes
        an
        allowance, if required, for uncollectible accounts and, as a consequence,
        believes that its accounts receivable credit risk exposure beyond such allowance
        is limited.
  Risks
        and Uncertainties
 
 The
        Company is subject to substantial risks from, among other things, intense
        competition associated with the industry in general, other risks associated
        with
        financing, liquidity requirements, rapidly changing customer requirements,
        limited operating history, foreign currency exchange rates and the volatility
        of
        public markets.
  F-12
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
 Contingencies
 
 Certain
        conditions may exist as of the date the financial statements are issued,
        which
        may result in a loss to the Company but which will only be resolved when
        one or
        more future events occur or fail to occur. The Company’s management and legal
        counsel assess such contingent liabilities, and such assessment inherently
        involves an exercise of judgment. In assessing loss contingencies related
        to
        legal proceedings that are pending against the Company or unasserted claims
        that
        may result in such proceedings, the Company’s legal counsel evaluates the
        perceived merits of any legal proceedings or unasserted claims as well as
        the
        perceived merits of the amount of relief sought or expected to be
        sought.
 
 If
        the
        assessment of a contingency indicates that it is probable that a material
        loss
        has been incurred and the amount of the liability can be estimated, then
        the
        estimated liability would be accrued in the Company’s financial statements. If
        the assessment indicates that a potential material loss contingency is not
        probable but is reasonably possible, or is probable but cannot be estimated,
        then the nature of the contingent liability, together with an estimate of
        the
        range of possible loss if determinable and material would be disclosed.
 
 Loss
        contingencies considered to be remote by management are generally not disclosed
        unless they involve guarantees, in which case the guarantee would be
        disclosed.
  Basic
        and Diluted Earnings Per Share
  Earnings
        per share is calculated in accordance with the Statement of financial accounting
        standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
        Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
        all
        periods presented has been restated to reflect the adoption of SFAS No. 128.
        Basic net loss per share is based upon the weighted average number of common
        shares outstanding. Diluted net loss per share is based on the assumption
        that
        all dilutive convertible shares and stock options were converted or exercised.
        Dilution is computed by applying the treasury stock method. Under this method,
        options and warrants are assumed to be exercised at the beginning of the
        period
        (or at the time of issuance, if later), and as if funds obtained thereby
        were
        used to purchase common stock at the average market price during the period.
  Recent
        accounting pronouncements
 
 In
        December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
        an
        Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
        companies to recognize in the statement of operations the grant- date fair
        value
        of stock options and other equity-based compensation issued to employees.
        FAS
        No. 123R is effective beginning in the Company's second quarter of fiscal
        2006.
        The Company believes that the adoption of this standard will have no material
        impact on its financial statements.
 
 In
        December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of Nonmonetary
        Assets." The Statement is an amendment of APB Opinion No. 29 to eliminate
        the
        exception for nonmonetary exchanges of similar productive assets and replaces
        it
        with a general exception for exchanges of nonmonetary assets that do not
        have
        commercial substance. The Company believes that the adoption of this standard
        will have no material impact on its financial statements.
  F-13
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
 In
        May
        2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
        This statement applies to all voluntary changes in accounting principle and
        requires retrospective application to prior periods' financial statements
        of
        changes in accounting principle, unless this would be impracticable. This
        statement also makes a distinction between "retrospective application" of
        an
        accounting principle and the "restatement" of financial statements to reflect
        the correction of an error. This statement is effective for accounting changes
        and corrections of errors made in fiscal years beginning after December 15,
        2005.
 
 In
        February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
        Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interests that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company’s first fiscal year that begins
        after September 15, 2006.
  In
        March 2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’
this Statement amends FASB Statement No. 140, Accounting for Transfers and
        Servicing of Financial Assets and Extinguishments of Liabilities, with respect
        to the accounting for separately recognized servicing assets and servicing
        liabilities. This Statement:
  1.
              Requires
                  an entity to recognize a servicing asset or servicing liability
                  each time
                  it undertakes an obligation to service a financial asset by entering
                  into
                  a servicing contract.
  2.
              Requires
                  all separately recognized servicing assets and servicing liabilities
                  to be
                  initially measured at fair value, if practicable.
  3.
              Permits
                  an entity to choose ‘Amortization method’ or Fair value measurement
                  method’ for each class of separately recognized servicing assets and
                  servicing liabilities:
  4.
              At
                  its initial adoption, permits a one-time reclassification of
                  available-for-sale securities to trading securities by entities
                  with
                  recognized servicing rights, without calling into question the
                  treatment
                  of other available-for-sale securities under Statement 115, provided
                  that
                  the available-for-sale securities are identified in some manner
                  as
                  offsetting the entity’s exposure to changes in fair value of servicing
                  assets or servicing liabilities that a servicer elects to subsequently
                  measure at fair value.
  5.
              Requires
                  separate presentation of servicing assets and servicing liabilities
                  subsequently measured at fair value in the statement of financial
                  position
                  and additional disclosures for all separately recognized servicing
                  assets
                  and servicing liabilities.
  An
        entity
        should adopt this Statement as of the beginning of its first fiscal year
        that
        begins after September 15, 2006. Management believes that this statement
        will
        not have a significant impact on the financial statement.
  In
        June
        2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
        Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides guidance
        on
        determining the amortization period for leasehold improvements acquired in
        a
        business combination or acquired subsequent to lease inception. The guidance
        in
        EITF 05-6 will be applied prospectively and is effective for periods beginning
        after June 29, 2005. The company is in the process of evaluating the effect
        on
        its consolidated financial position or results of operations.
  F-14
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
 In
        December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
        an
        Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
        companies to recognize in the statement of operations the grant-date fair
        value
        of stock options and other equity-based compensation issued to employees.
        FAS
        No. 123R is effective beginning in the Company's second quarter of fiscal
        2006.
        The company is still in the process of determining the effect of the
        pronouncement on the financials.
  In
        September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. This Statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
  In
        September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
        Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
        88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
        employer to recognize the over funded or under funded status of a defined
        benefit postretirement plan (other than a multiemployer plan) as an asset
        or
        liability in its statement of financial position and to recognize changes
        in
        that funded status in the year in which the changes occur through comprehensive
        income of a business entity or changes in unrestricted net assets of a
        not-for-profit organization. This Statement also improves financial reporting
        by
        requiring an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. An
        employer with publicly traded equity securities is required to initially
        recognize the funded status of a defined benefit postretirement plan and
        to
        provide the required disclosures as of the end of the fiscal year ending
        after
        December 15, 2006. An employer without publicly traded equity securities
        is
        required to recognize the funded status of a defined benefit postretirement
        plan
        and to provide the required disclosures as of the end of the fiscal year
        ending
        after June 15, 2007. However, an employer without publicly traded equity
        securities is required to disclose the following information in the notes
        to
        financial statements for a fiscal year ending after December 15, 2006, but
        before June 16, 2007, unless it has applied the recognition provisions of
        this
        Statement in preparing those financial statements:
  a.
              A
                  brief description of the provisions of this Statement
  b.
              The
                  date that adoption is required
  c.
              The
                  date the employer plans to adopt the recognition provisions of
                  this
                  Statement, if earlier.
  The
        requirement to measure plan assets and benefit obligations as of the date
        of the
        employer’s fiscal year-end statement of financial position is effective for
        fiscal years ending after December 15, 2008. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
  In
        February 2007, FASB issued FASB Statement No. 159, The Fair Value Option
        for
        Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
        years beginning after November 15, 2007. Early adoption is permitted subject
        to
        specific requirements outlined in the new Statement. Therefore, calendar-year
        companies may be able to adopt FAS 159 for their first quarter 2007 financial
        statements.
  F-15
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
  The
        new Statement allows entities to choose, at specified election dates, to
        measure
        eligible financial assets and liabilities at fair value that are not otherwise
        required to be measured at fair value. If a company elects the fair value
        option
        for an eligible item, changes in that item's fair value in subsequent reporting
        periods must be recognized in current earnings. FAS 159 also establishes
        presentation and disclosure requirements designed to draw comparison between
        entities that elect different measurement attributes for similar assets and
        liabilities. The
        management is currently evaluating the effect of this pronouncement on financial
        statements.
  **Note
        C - GOODWILL AND INTANGIBLE ASSETS (RESTATED)**
 
 Goodwill
 
 As
        of
        December 31, 2005, the Goodwill comprised of the following:
 Acquisition
                    of Billion
                
                $
                8,253,436Goodwill
                    impairment
                
                
                (1,213,843
                )Goodwill,
                    net
                
                $
                7,039,593
 
 The
        Company performed an impairment test relating to goodwill arising from its
        acquisitions of E’Jenie in 2004 and concluded that there was an impairment as to
        the carrying value of goodwill as of December 31, 2005. The Company evaluated
        value of the subsidiary based upon market value and recorded an impairment
        of
        $1,213,843.
 
 Intangible
        assets
 
 As
        of
        December 31, 2005 intangible assets consist of the following:
 Customer
                      relationship
                  
                  $
                  2,691,445Design
                  
                  
                  366,850Proprietary
                      technology
                  
                  
                  270,850Intangible
                      assets
                  
                  
                  3,329,145Accumulated
                      amortization
                  
                  
                  (374,529
                  )$
                  2,954,616
 The
        intangible assets are amortized over 10 years. Amortization expenses were
        $332,915 and $41,614 for the years ended December 31, 2005 and
        2004.
 
 Amortization
        expenses for the Company’s intangible assets over the next five fiscal years is
        estimated to be:
 2006
                
                $
                332,9152007
                
                
                332,9152008
                
                
                332,9152009
                
                
                332,9152010,
                
                
                332,915After
                
                
                1,290,041Total
                
                $
                2,954,616
 F-16
 **CHINA
            DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
            31, 2005
 **Note
            D -** **ACCOUNTS PAYABLE & ACCRUED EXPENSES
            (RESTATED)**
 
 As
        of
        December 31, 2005, accounts payable & accrued expenses comprised of the
        following:
 **Description**Accounts
                    payable and accrued expenses
                
                $
                595,208VAT
                    tax payable
                
                
                261,539Total
                
                $
                856,747
  **Note
        E-** **ADVANCES**
 
 As
        of
        December 31, 2005, advances comprise of the following:
  **Description**Advances
                    from employees
                
                $
                44,530Advances
                    from customers
                
                
                36,520Total
                
                $
                81,050
  **Note
        F-** **LOAN
        PAYABLE**
 
 At
        December 31, 2005, the Company had borrowings outstanding in the aggregate
        amount of $248,000. Payable as follows:
 **Description**Secured
                    note payable to a bank in China,
                    interest at the rate of 5.58% per annum, due
                    on July 30, 2006
                
                $
                248,000Total
                
                $
                248,000
  **Note
        G -** **RELATED
        PARTY TRANSACTIONS**
 
 As
        of
        December 31, 2005, the Company has an unsecured, due on demand, interest
        free
        loan from a shareholder, in the amount of $174,600.
  **Note
        H -** **COMMON
        STOCK (RESTATED)**
  On
        March
        1, 2004, the Company announced a plan named “Jasmine’s Garden 2004 Equity
        Incentive Plan” (“Plan”) for providing incentives to attract, retain and
        motivate eligible persons whose presence and potential contributions are
        important to the success of the Company. 12,000,000 shares of common stock
        were
        allocated to the plan.
  F-17
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 On
        March
        4, 2004, certain of the Company’s principal stockholders holding approximately
        52.53% of the then total issued and outstanding common stock, approved a
        written
        consent to adopt a resolution to amend the Company’s Articles of Incorporation
        to increase the number of shares of common stock authorized to be issued
        from
        50,000,000 to 140,000,000 and to establish a class of preferred stock consisting
        of 60,000,000 shares, par value $0.001 per share. The amendment was filed
        on
        April 28, 2004.
 
 On
        March
        9, 2004, the Company issued 11,960,000 shares under the Plan to a number
        of
        consultants who were engaged to provide various services to the Company during
        the period from January 1, 2004 to March 31, 2004 in relation to the Company’s
        proposed plan to identify and complete a merger or acquisition with private
        entities. These shares were valued at $0.05 per share or $598,000 and the
        amount
        was expensed as consulting fees in the statements of operations.
 
 On
        March
        17, 2004, the Company completed a private offering of 30,000,000 shares of
        its
        common stock at a per share price of $0.05 to seven unaffiliated individuals,
        resulting in gross proceeds to the Company of $1,500,000. The proceeds were
        to
        be used for the Company’s proposed plan to identify and complete a merger or
        acquisition with private entities.
 
 On
        September 30, 2004, the Company issued 1,919,016 shares of the Company’s common
        stock to a company for guarantee fees related to the acquisition of Billion.
        The
        guarantee was valued at $3,262,327.
 
 **Note
        I -** **STOCK
        OPTION**
 
 On
        November 4, 2005, the Company issued a nonqualified stock option for 100,000
        shares to a member of the board with an exercise price of $0.53 that will
        expire
        on November 3, 2010. The option shall vest and become exercisable
        immediately.
 
 The
        Company's 2005 Stock Option Incentive Plan (the “Plan”) provides for the grant
        of 100,000 option rights to a non-employee director. The Plan is administered
        by
        the Company's Compensation Committee (“Compensation Committee”). The
        Compensation Committee, as administrator of the plan, has the authority to
        select plan participants and determine the terms and conditions of such awards.
  The
        Company adopted SFAS 123(R) on November 1, 2005 using the modified prospective
        method. Prior to the adoption of SFAS 123(R) the Company did not have any
        stock
        options. The Company recorded expenses for stock based compensation of $17,500
        and $0 for the years ended December 31, 2005 and 2004, respectively. The
        Company
        also recognized income tax benefits related to the stock based compensation
        of
        $6,000 and $0 for the years ended December 31, 2005 and 2004, respectively.
   Stock ** options
—
        The Stock options have a five-year life and were fully vested upon issuance.
        The
        option holder has no voting or dividend rights. The grant price was in excess
        of
        the market price at the date of grant. The Company records the expense of
        the
        stock options over the related vesting period. The options were valued using
        the
        Black-Scholes option-pricing model at the date of grant stock option pricing
        assumptions.
  Year
                  ended December 31,2005
              2004Expected
                  volatility
              58.0%
              N/AExpected
                  term (in years)
              5.0
              N/AExpected
                  dividends
              —
              —Risk-free
                  rate of return (weighted average)
              4.0%
              N/AWeighted
                  average grant-date fair value
              $0.53
              N/A
  F-18
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 Expected
        volatility is based on the historical volatility of the Company's stock price.
        The expected term represents the estimated average period of time that the
        options remain outstanding. No dividend payouts were assumed, as the Company
        has
        no plans to declare dividends during the expected term of the stock options.
        The
        risk-free rate of return reflects the weighted average interest rate offered
        for
        zero coupon treasury bonds over the expected term of the options.
  A
        summary
        of the stock option activity for the year ended December 31, 2005 is presented
        below:
  Number
                  ofOptions
              Weighted-AverageExercise
                  Price
              Weighted-Average
                  Remaining Contractual Term (years)
              Aggregate
                  Intrinsic ValueOutstanding
                  at January 1, 2005
              -
              -Granted
              100,000
              $0.53
              -
              -Exercised
              -
              -
              -
              --Forfeited
              -
              -
              -
              -Outstanding
                  at December 31, 2005
              100,000
              $0.53
              4.75
              $17,500Exercisable
                  at December 31, 2005
              -
              -
              -
              -
  As
        of December 31, 2005, there was $17,500 of compensation cost related to the
        outstanding stock options. The total fair value of the options vested during
        the
        year ended December 31, 2005 was $17,500.
  **Note
        J -** **BUSINESS
        COMBINATION (RESTATED)**
 
 On
        September 30, 2004, the Company entered into an Exchange Agreement with Billion
        Electronics Co., Ltd. (Billion), a company incorporated under the laws of
        the
        British Virgin Islands. Billion owns all of the issued and outstanding shares
        of
        Shenzhen E’Jenie Science and Technology Company, Ltd.. E’Jenie is incorporated
        under the laws of the Peoples Republic of China, and is engaged in the business
        of the research and development, manufacture, and distribution of battery
        casings.
 
 Pursuant
        to the Exchange Agreement, the Company agreed to purchase all of the issued
        and
        outstanding shares of Billion from the shareholders for approximately $1,500,000
        in cash and 4,566,210 shares of the Company’s common stock, or approximately
        8.7% of the total issued and outstanding shares. The Company also issued
        1,919,016 shares for guarantee related to the acquisition. This transaction
        closed on November 15, 2004.
 
 The
        acquisition was accounted for using the purchase method of accounting and,
        accordingly, Billion’s and E’Jenie’s results of operations have been included in
        the consolidated financial statements since the date of
        acquisition.
  F-19
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 The
        following table presents the allocation of the acquisition cost, including
        professional fees and other related acquisition costs, to the assets acquired
        and liabilities assumed:
  Cash
                    and cash equivalents
                
                $
                296,713Accounts
                    receivable
                
                
                1,390,287Other
                    receivable
                
                
                25,730Prepaid
                    expenses
                
                
                10,830Inventories
                
                
                254,770Property,
                    plant, and equipment
                
                
                215,409Total
                    assets
                
                $
                2,193,739Accounts
                    payable
                
                $
                636,940Loan
                    payable
                
                
                242,000Other
                    current liabilities
                
                
                372,496Total
                    liabilities
                
                $
                1,251,436Net
                    tangible assets acquired
                
                $
                942,303CostTotal
                    cost of investment
                
                $
                12,524,884Less
                    intangible asset (customer relationship)
                
                
                (2,691,445
                )Less
                    intangible asset (proprietary technology)
                
                
                (270,850
                )Less
                    intangible asset (Design)
                
                
                (366,850
                )Net
                    tangible assets acquired
                
                
                (942,303
                )Goodwill
                
                $
                8,253,436
  The
        following (unaudited) pro forma consolidated results of operations have been
        prepared as if the acquisition of Billion had occurred at January 1,
        2004:
  December
                    31, 2004Net
                    revenue
                
                $
                5,181,694Net
                    income (loss)
                
                $
                540,115Net
                    income (loss) per share - basic and diluted
                
                $
                0.01**Weighted
                    average number of shares outstanding:**Basic
                    and diluted
                
                
                40,496,438
  The
        pro
        forma information is presented for informational purposes only and is not
        necessarily indicative of the results of operations that actually would have
        been achieved had the acquisitions been consummated as of that time, nor
        is it
        intended to be a projection of future results.
  **Note
        K-** **INCOME
        TAXES**
  The
        Company through its subsidiaries, E’Jenie, is governed by the Income Tax Laws of
        the PRC. Operations in the United States of America have incurred net
        accumulated operating losses for income tax purposes. The Company believes
        that
        it is more likely than not that these net accumulated operating losses will
        not
        be utilized in the future and hence the Company has not recorded any deferred
        assets as of December 31, 2005.
  Pursuant
        to the PRC Income Tax Laws, the Enterprise Income Tax (“EIT”) is at a statutory
        rate in Shenzhen (where E’Jenie is located) of 15%.
  F-20
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 The
              following is a reconciliation of income tax expense:
  12/31/2005
                    
                    U.S.
                    
                    State
                    
                    International
                    
                    TotalCurrent
                    
                    $
                    0
                    
                    $
                    0
                    
                    $
                    111,773
                    
                    $
                    111,773Deferred
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Total
                    
                    $
                    0
                    
                    $
                    0
                    
                    $
                    111,773
                    
                    $
                    111,773
  12/31/2004
                    
                    U.S.
                    
                    State
                    
                    International
                    
                    TotalCurrent
                    
                    $
                    0
                    
                    $
                    0
                    
                    $
                    13,555
                    
                    $
                    13,555Deferred
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Total
                    
                    $
                    0
                    
                    $
                    0
                    
                    $
                    13,555
                    
                    $
                    13,555
  Reconciliation
              of the differences between the statutory U.S. Federal income tax rate
and
              the effective rate is as follows:
  12/31/2005
                    
                    12/31/2004US
                        statutory tax rate
                    
                    
                    34
                    %
                    
                    34
                    %Foreign
                        income not recognized in US
                    
                    
                    -34
                    %
                    
                    -34
                    %PRC
                        income tax
                    
                    
                    15
                    %
                    
                    15
                    %Effective
                        rate
                    
                    
                    15
                    %
                    
                    15
                    %
 **Note
        L-** **COMMITTMENTS**
 
 Operating
        Leases
 
 The
        Company leases various office facilities under operating leases that terminate
        on various dates. Rental expense for these leases consisted of $73,386 for
        the
        year ended December 31, 2005. The Company has future minimum lease obligations
        as follows:
 2006
                
                $
                90,677Total
                
                $
                90,677
 
 **Note
        M -** **STATUTORY
        COMMON WELFARE FUND**
 
 As
        stipulated by the Company Law of the People’s Republic of China (PRC), net
        income after taxation can only be distributed as dividends after appropriation
        has been made for the following:
 
 i.
              Making
                  up cumulative prior years’ losses, if any;
 
 ii.
              Allocations
                  to the “Statutory surplus reserve” of at least 10% of income after tax, as
                  determined under PRC accounting rules and regulations, until the
                  fund
                  amounts to 50% of the Company’s registered capital;
 
 iii.
              Allocations
                  of 5-10% of income after tax, as determined under PRC accounting
                  rules and
                  regulations, to the Company’s “Statutory common welfare fund”, which is
                  established for the purpose of providing employee facilities and
                  other
                  collective benefits to the Company’s employees; and
  F-21
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 iv.
              Allocations
                  to the discretionary surplus reserve, if approved in the stockholders’
                  general meeting.
 
 As
        of
        December 31, 2005, the Company reserve $31,442 as statutory common welfare
        fund.
 
 **Note
        N -** **STATUTORY
        RESERVE**
 
 In
        accordance with the Chinese Company Law, the company has allocated 10% of
        its
        annual net income, amounting $62,885 as statutory reserve for the year ended
        December 31, 2005.
  **Note
        O -** **CURRENT
        VULNERABILITY DUE TO RISK FACTORS**
 
 The
        Company’s operations are carried out in the PRC. Accordingly, the Company’s
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environments in the PRC, by the general state
        of
        the PRC’s economy. The Company’s business may be influenced by changes in
        governmental policies with respect to laws and regulations, anti-inflationary
        measures, currency conversion and remittance abroad, and rates and methods
        of
        taxation, among other things.
  **Note
        P -** **OTHER
        COMPREHENSIVE INCOME (RESTATED)**
 
 Balances
        of related after-tax components comprising accumulated other comprehensive
        income (loss), included in stockholders’ equity, at December 31, 2005 and
        December 31, 2004 are as follows:
 *Foreign
                    Currency*
                  *Translation
                    Adjustment*Balance
                    at December 31, 2004
                
                
                -Change
                    for 2005
                
                $
                61,682Balance
                    at December 31, 2005
                
                $
                61,682
 
 **Note
        Q -** **RESTATEMENTS**
 
 Subsequent
        to the issuance of the Company's financial statements for the year ended
        De c ember
        31,
        2004, the Company determined that certain transactions and presentation in
        the
        financial statements had not been accounted for properly in the Company's
        financial statements. Specifically,
        the purchase price allocation for the acquisition of Billion Electronics C o.
        Ltd., was not done properly. Also, the acquisition balance sheet for Billion
        Electronics Co.
        Ltd.,
        was taken as of September 30, 2004 instead of November 15, 2004. The Company
        de cided
        to restate the financial statements for the year ended December 31, 2004
        which
        resulted in a change in the opening numbers for the year ended December 31,
        2005. The financial statements for the year ended December 31, 2005 have
        been
        restated to give effect to the changes to the opening balances.
 
 F-22
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 The
        effect of the restatements is as follows:
  **CONSOLIDATED
          BALANCE SHEET**
  Reported
                
                Restated2005
                
                2005Amortizable
                    intangible assets, net
                
                $
                -
                
                $
                2,954,616Goodwill
                
                
                1,865,067
                
                
                7,039,593Total
                    Other Assets
                
                
                1,868,167
                
                
                9,997,309**Total
                    Assets**
                
                
                7,318,149
                
                
                15,447,291Accounts
                    payable and accrued expenses
                
                
                903,467
                
                
                856,747Income
                    tax payable
                
                
                100,822
                
                
                56,322Total
                    Liabilities
                
                
                1,507,939
                
                
                1,416,719Additional
                    paid in capital
                
                
                2,913,114
                
                
                13,107,324Statutory
                    reserve
                
                
                94,327
                
                
                105,849Other
                    comprehensive income
                
                
                111,684
                
                
                61,682Retained
                    earnings
                
                
                2,636,624
                
                
                701,257Total
                    Stockholders' Equity
                
                
                5,810,210
                
                
                14,030,572**Total
                    Liabilities and Stockholders' Equity**
                
                $
                7,318,149
                
                $
                15,447,291
  **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 Reported
                
                Restated2005
                
                2005General
                    and administrative expenses
                
                $
                839,418
                
                $
                1,202,359Goodwill
                    impairment
                
                
                -
                
                
                1,213,843Total
                    operating expenses
                
                
                1,005,198
                
                
                2,581,982**Income
                    from operations**
                
                
                2,765,031
                
                
                1,188,248**Income
                    (loss) before income taxes**
                
                
                2,736,052
                
                
                1,159,268**Net
                    income (loss)**
                
                
                2,624,279
                
                
                1,047,495Other
                    comprehensive incomeForeign
                    currency translation
                
                
                71,075
                
                
                61,682Comprehensive
                    Income (Loss)
                
                $
                2,695,354
                
                $
                1,109,177**Net
                    income (loss) per share:**Basic
                    and diluted
                
                $
                0.05
                
                $
                0.02
  **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 Reported
                
                Restated2004
                
                2004Sale,
                    net
                
                $
                2,338,718
                
                
                1,412,276Cost
                    of revenue
                
                
                1,294,346
                
                
                718,785**Gross
                    profit**
                
                
                1,044,372
                
                
                693,491Selling
                    expenses
                
                
                55,416
                
                
                46,793General
                    and administrative expenses
                
                
                227,082
                
                
                261,751Total
                    operating expenses
                
                
                880,498
                
                
                906,544**Loss
                    from operations**
                
                
                163,874
                
                
                (213,053
                )Miscellaneous
                    (income) expense
                
                
                145
                
                
                5,141Interest
                    expense
                
                
                7,384
                
                
                3,468Total
                    Other (Income) Expense
                
                
                7,523
                
                
                8,603**Income
                    (loss) before income taxes**
                
                
                156,351
                
                
                (221,656
                )Provision
                    for income taxes
                
                
                44,500
                
                
                13,555**Net
                    income (loss)**
                
                
                111,851
                
                
                (235,211
                )**Net
                    income (loss) per share:**Basic
                    and diluted
                
                
                0.00
                
                $
                (0.01
                )Basic
                    and diluted
                
                
                39,172,889
                
                
                40,496,438
  F-23
 
  **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 **CONSOLIDATED
          STATEMENTS OF CASH FLOW**
  Reported
                
                Restated
                
                Reported
                
                Restated2005
                
                2005
                
                2004
                
                2004**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    Income
                
                $
                2,624,279
                
                $
                1,047,496
                
                $
                111,851
                
                $
                (235,211
                )Adjustments
                      to reconcile net income to net cashprovided by operating
                      activities:Depreciation
                
                
                83,807
                
                
                83,807
                
                
                13,500
                
                
                730Amortization
                
                
                -
                
                
                332,915
                
                
                -
                
                
                41,614Goodwill
                    impairment
                
                
                -
                
                
                1,213,843(Gain)/
                    loss on disposal of property & equipment
                
                
                18,575
                
                
                18,575
                
                
                -
                
                
                -Gain
                    on disposal of marketable securities
                
                
                -
                
                
                -
                
                
                8,791
                
                
                -(Increase)
                    / decrease in assets:Accounts
                    receivables
                
                
                (204,099
                )
                
                (204,021
                )
                
                (626,976
                )
                
                (623,529
                )Inventory
                
                
                (111,030
                )
                
                (112,452
                )
                
                (73,155
                )
                
                30,910Other
                    receivables
                
                
                2,328
                
                
                (2,707
                )
                
                182,045
                
                
                18,271Other
                    receivables - related party
                
                
                -
                
                
                -
                
                
                -
                
                
                (4,990
                )Prepaid
                    expense
                
                
                (127,979
                )
                
                (118,531
                )
                
                (1,071
                )
                
                545Deposits
                
                
                5,454
                
                
                (3,100
                )
                
                (8,470
                )
                
                -Increase
                    / (decrease) in current liabilities:Accounts
                    payable and accrued expenses
                
                
                (231,904
                )
                
                (197,862
                )
                
                148,478
                
                
                141,407Income
                    tax payable
                
                
                (27,801
                )
                
                (32,077
                )Deferred
                    revenue
                
                
                43,795
                
                
                43,795
                
                
                35,724
                
                
                -Total
                    Adjustments
                
                
                (531,353
                )
                
                1,039,685
                
                
                407,718
                
                
                202,959**Net
                    cash provided by operations**
                
                
                2,092,926
                
                
                2,087,181
                
                
                519,569
                
                
                (32,253
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Cash
                    acquired in acquisition
                
                
                -
                
                
                -
                
                
                -
                
                
                296,713Acquisition
                    of property & equipment
                
                
                (536,937
                )
                
                (536,937
                )
                
                (103,665
                )
                
                (23,155
                )**Net
                    cash used in investing activities**
                
                
                (535,843
                )
                
                (535,843
                )
                
                (1,603,665
                )
                
                (1,226,442
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Payment
                    on loan payable
                
                
                (2,093
                )
                
                -Proceed
                    from loan from related party
                
                
                -
                
                
                -
                
                
                -
                
                
                174,600**Net
                    cash provided by financing activities**
                
                
                (2,093
                )
                
                -
                
                
                1,500,000
                
                
                1,674,600Effect
                    of exchange rate changes on cash and cash equivalents
                
                
                69,097
                
                
                72,749**SUPPLEMENTAL
                    DISCLOSURES:**Cash
                    paid during the year for:Interest
                    payments
                
                $
                99,140
                
                $
                32,856
                
                
                7,384
                
                $
                5,354Non-cash
                    investing and financing activities:Issuance
                    of stock for purchase of subsidiary
                
                $
                -
                
                $
                -
                
                
                832,906
                
                $
                7,762,557Issuance
                    of stock for guarantee
                
                $
                -
                
                $
                -
                
                
                -
                
                $
                3,262,327
  F-24
 
 **CHINA
        DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
        31, 2005


**CONSOLIDATED
          STATEMENT OF STOCKHOLDERS' EQUITY**
 Reported
                
                Restated2005
                
                2005Additional
                    Paid In CapitalBalance
                    at beginning of year
                
                $
                2,895,614
                
                $
                13,089,824Balance
                    December 31, 2005
                
                
                2,913,114
                
                
                13,107,324Statutory
                    ReserveBalance
                    at beginning of year
                
                
                -
                
                
                11,522Balance
                    December 31, 2005
                
                
                94,327
                
                
                105,849Other
                    Comprehensive IncomeTransfer
                    from net income (loss)
                
                
                111,684
                
                
                61,682Balance
                    December 31, 2005
                
                
                111,684
                
                
                61,682Retained
                    earningsBalance
                    at beginning of year
                
                
                106,672
                
                
                (251,912
                )Net
                    income (loss)
                
                
                2,624,279
                
                
                1,047,496Balance
                    at end of year
                
                
                2,636,624
                
                
                701,257Total
                    Stockholder's Equity
                
                $
                5,810,210
                
                $
                14,030,572
  **CONSOLIDATED
          STATEMENT OF STOCKHOLDERS' EQUITY**
 Reported
                
                Restated2004
                
                2004Additional
                    Paid In CapitalShares
                    issued for acquisition of Billion
                
                
                223,745
                
                
                7,757,991Shares
                    issued for guarantee
                
                
                600,444
                
                
                3,260,408Balance
                    December 31, 2004
                
                
                2,895,614
                
                
                13,089,824Statutory
                    ReserveTransfer
                    from net income (loss)
                
                
                -
                
                
                11,522Balance
                    December 31, 2004
                
                
                -
                
                
                11,522Retained
                    earningsTransfer
                    to statutory reserve
                
                
                -
                
                
                (11,522
                )Net
                    income (loss)
                
                
                111,851
                
                
                (235,211
                )Balance
                    at end of year
                
                
                106,672
                
                
                (251,912
                )Total
                    Stockholder's Equity
                
                $
                $3,056,747
                
                $
                $12,903,894
  F-25
 **CHINA
          DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 DECEMBER
          31, 2005
 **Note
          R -** **SUBSEQUENT
          EVENTS (RESTATED)**
 
 On
        January 1, 2006 The Company renewed an operating lease agreement for the
        office
        space in Los Angeles that will terminate on July 31, 2006. The office will
        serve
        as the new center of operations in North America. Monthly rent is
        $1,200.
 
 On
        February 14, 2006, China Digital Communication Group, UPE Limited (Far East),
        a
        BVI corporation ("UPE Limited"), Shenzhen Zhuo Tong Power Supply Industry
        Co.,
        Ltd., a Shenzhen corporation and a wholly-owned subsidiary of UPE Limited
        ("Zhuo
        Tong"), and the shareholders of UPE Limited (the "Shareholders"), entered
        into a
        Share Exchange Agreement (the "Agreement") pursuant to which China Digital
        will
        acquire 100% of UPE Limited in an all stock transaction valued at approximately
        US$9.6 million. China Digital issued 18.5 million shares of its common stock
        to
        the Shareholders in exchange for all of the shares UPE Limited (the "Share
        Exchange"). Upon completion of the Share Exchange, the Shareholders will
        own
        approximately 25% of China Digital.
 
 On
        June
        26, 2006, the Company issued a press release announcing that it had terminated
        its Share Exchange Agreement dated February 14, 2006 (the “Agreement”), with UPE
        Limited (Far East), a BVI corporation (UPE Limited”), Shenzhen Zhuo Tong Power
        Supply Industry Co., Ltd., a Shenzhen corporation and a wholly-owned subsidiary
        of UPE Limited, and the shareholders of UPE Limited (the “Shareholders”). As a
        result of the termination of the Agreement, the Shareholders returned, and
        the
        Company cancelled, the 18.5 million shares of the Company’s common stock that
        were previously issued to the Shareholders.
  On
        March
        22, 2006, China Digital Communication Group, Galaxy View International LTD,
        a
        BVI corporation ("Galaxy"), Shenzhen Sono, a Shenzhen corporation and a
        wholly-owned subsidiary of Galaxy ("Sono"), and the shareholders of Galaxy
        (the
        "Shareholders"), entered into a Share Exchange Agreement (the "Agreement")
        pursuant to which China Digital will acquire 100% of Galaxy for approximately
        $6,787,879. China Digital paid $3 million dollars on March 12, 2006 to Galaxy
        and issued 7,575,757 million shares of Series A-1 Convertible Preferred Stock
        .
        The Company finalized the Agreement on June 28, 2006. Each share of Series
        A-1
        Preferred Stock entitles the holder thereof to seven votes per share on all
        matters to be voted on by the shareholders of the Company and is mandatorily
        convertible into one share of the Company’s common stock on June 29, 2011. Each
        share of Series A-1 Preferred Stock shall, with respect to rights on
        liquidation, dissolution or winding up, rank (i) on a parity with the Company’s
        common stock, and (ii) junior to any other class of the Company’s preferred
        stock.
 
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