Unassociated Document

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:

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.

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.

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

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

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

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

judgments of United States courts against us, our directors or our officers based on the civil liability provisions of the securities laws of the United States or any state; or

in original actions brought in China, liabilities against non-residents or us based upon the securities laws of the United States or any state.

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

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

quarterly variations in operating results;

changes in financial estimates by securities analysts;

announcements by us or our competitors of new products or of significant technical innovations, contracts, acquisitions, strategic partnerships or joint ventures;

changes in governmental regulations or policies in China;

additions or departures of key personnel;

any deviations in net sales or in losses from levels expected by securities analysts; and the operating and stock price performance of other comparable companies;

news and commentary emanating from the media, securities analysts or government bodies in China relating to us and to the industry in general; and

future sales of common stock.

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

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

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

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

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

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

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

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

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

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

ITEM 2. DESCRIPTION OF PROPERTY.

Our manufacturing headquarters is located at A-3 Xinglian Industrial Zone, He Hua Ling Pingxin Road, Xin Nan, Ping Hua Town, Longgang, Shenzhen, China 51811. This facility is 6,708 square meters of which 15% or 1,000 square meters is used for offices, 4,500 square meters are used for the manufacturing line and storage and the remaining 1,208 square meters are used for employee dormitories. Our lease is for a term of one year and our rent is approximately $6,700 a month

In February 2005, we opened our first office in the United States. The Los Angeles-based office is located at 1901 Avenue of the Stars, Suite 201. Our lease is for a term of one year and our rent is $1,225 a month.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

PART II

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

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

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

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		$	1,412,276

Cost of sales		8,971,859			718,785
Gross profit		3,770,229			693,491

Operating Expenses
Selling expense		165,780			46,793
General and administrative expenses		1,202,359			261,751
Goodwill impairment		1,213,843
Consulting Fees		-			598,000

Total operating expenses		2,581,982			906,544

Income from operations		1,188,248			(213,053	)

Other (Income) Expense
Interest income		(3,877	)		(6	)
Miscellaneous income		-			5,141
Interest expense		32,856			3,468
Total 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.

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.

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	$	104,206
Work-in-process		74,182
Finished 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 years
Equipment	5 years
Computer Hardware and Software	5 years

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

Machinery	$	745,419
Automobile		9,531
Leasehold improvements		24,510
Office equipment		2,957
		782,418

Accumulated 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:

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.

Requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.

Permits an entity to choose ‘Amortization method’ or Fair value measurement method’ for each class of separately recognized servicing assets and servicing liabilities:

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.

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 brief description of the provisions of this Statement

The date that adoption is required

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	$	8,253,436
Goodwill 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	$	2,691,445
Design		366,850
Proprietary technology		270,850
Intangible assets		3,329,145

Accumulated 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	$	332,915
2007		332,915
2008		332,915
2009		332,915
2010,		332,915
After		1,290,041
Total	$	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	$	595,208
VAT tax payable		261,539
Total	$	856,747

Note E- ADVANCES

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

Description
Advances from employees	$	44,530
Advances from customers		36,520
Total	$	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	$	248,000
Total	$	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	2004
Expected volatility	58.0%	N/A
Expected term (in years)	5.0	N/A
Expected dividends	—	—
Risk-free rate of return (weighted average)	4.0%	N/A
Weighted 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 of Options	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2005	-	-
Granted	100,000	$0.53	-	-
Exercised	-	-	-	--
Forfeited	-	-	-	-
Outstanding at December 31, 2005	100,000	$0.53	4.75	$17,500
Exercisable 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	$	296,713
Accounts receivable		1,390,287
Other receivable		25,730
Prepaid expenses		10,830
Inventories		254,770
Property, plant, and equipment		215,409
Total assets	$	2,193,739

Accounts payable	$	636,940
Loan payable		242,000
Other current liabilities		372,496
Total liabilities	$	1,251,436

Net tangible assets acquired	$	942,303

Cost
Total cost of investment	$	12,524,884
Less 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, 2004

Net revenue	$	5,181,694

Net income (loss)	$	540,115

Net 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%.

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

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

		PAGE
FORWARD LOOKING STATEMENTS		1

PART I

ITEM 1.	Description of Business	1

ITEM 2.	Description of Property	13

ITEM 3.	Legal Proceedings	13

ITEM 4.	Submission of Matters to a Vote of Security Holders	14

PART II

ITEM 5.	Market for Common Equity, Related Stockholder Matters and Small

	Business Issuer Purchases of Equity Securities	14

ITEM 6.	Management’s Discussion and Analysis or Plan of Operation	15

ITEM 7.	Financial Statements	17

ITEM 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	17

ITEM 8A.	Controls and Procedures	17

ITEM 8B.	Other Information	17

ITEM 9.	Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act	18

ITEM 10.	Executive Compensation	22

ITEM 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	24

ITEM 12.	Certain Relationships and Related Transactions	26

ITEM 13.	Exhibits	26

ITEM 14.	Principal Accountant Fees and Services	27

Financial Statements		F-1

Name of Customer	Percentage of Total Revenue for 2005
Shenzhen 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	%

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	%

NAME	AGE	POSITION
Changchun Zheng	43	Chairman and Chief Executive Officer
Yu Xi Sun	32	President and Director
Yao Miao	34	Chief Financial Officer
Hong Liang	42	Chief Operating Officer and Director
Mei Jin Bin	28	Secretary
Xu Bao Dong	35	Director
Zu Zhuan Xu	40	Director
Alfred L. Simon	65	Director
Yong Yang	43	Director

									LONG TERM COMPENSATION
			ANNUAL COMPENSATION						AWARDS				PAYOUTS
Name 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		—		—		—		—		—		—		—

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 TERM
										5%	10%
Yi Bo Sun		—		—		—		—		—	—

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 Yang
All 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	%

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 PLANS
Equity compensation plans approved by security holders		—			—		—
Equity compensation plans not approved by security holders		100,000(1	)	$	0.53		—
Total		—			—		—

EXHIBIT NUMBER		DOCUMENT DESCRIPTION
2.1		Share Exchange Agreement, dated as of February 14, 2006, among China Digital Communication Group, a Nevada corporation, UPE Limited (Far East), a BVI corporation, Shenzhen Zhuo Tong Power Supply Industry Co., Ltd., a Shenzhen corporation and a wholly-owned subsidiary of UPE Limited, and the shareholders of UPE Limited (Exhibit 2.1 to Form 8-K filed with the Commission on February 21, 2006)

2.2		Amended and Restated Share Exchange Agreement dated as of March 22, 2006, by and among China Digital Communication Group, Galaxy View International Ltd., Shenzhen Sono, and the shareholders of Galaxy View International Ltd. (Exhibit 2.1 to the Form 8-K filed March 24, 2006)

3.1		Articles of Incorporation (Exhibit 3(i)(1) to Form 8-K filed with the Commission on September 16, 2004)

3.2		Bylaws (Exhibit 3.4 to Registration Statement on Form SB-2/A, Amendment No. 8, filed with the Commission on March 22, 2002)

3.3		Certificate of Amendment to the Articles of Incorporation (Exhibit 3(i)(2) to Form 8-K filed with the Commission on September 16, 2004)

3.4		Certificate of Amendment to the Articles of Incorporation (Exhibit 3(i)(3) to Form 8-K filed with the Commission on September 16, 2004)

4.1		Form of Stock Certificate (Exhibit 4.1 to Registration Statement on Form SB-2/A, Amendment No. 8, filed with the Commission on March 22, 2002)

4.2		2004 Equity Incentive Plan (Exhibit 4.1 to Registration Statement on Form S-8 filed with the Commission on March 2, 2004)

4.3		Form of Class A, B and C Warrants

10.1		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, 2005

10.5		Sales Contract dated December 31, 2005 between Shenzhan E’Jenine Science & Technology Co., LTD. and Yin Si Qi Electronics Co. (Exhibit 2.1 to Form 8-K field with the Commission on January 6, 2006)

10.6		Loan Agreement dated March 10, 2006, between China Digital Communication Group and United Private Equity (The Pacific) Limited. (Exhibit 2.1 to the Form 8-K filed March 15, 2006)

14.1*		Code of Ethics.

21.1*		List of Subsidiaries

23.1*		Consent of Lichter, Yu & Associates

23.2*		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.

CHINA DIGITAL COMMUNICATION GROUP

By:	/s/ Zhongnan Xu
	Name: Zhongnan Xu
	Title: Chief Executive Officer

SIGNATURE	TITLE	DATE

/s/ Zhongnan Xu	Chairman and Chief Executive Officer	October 9, 2007
Zhongnan Xu	(Principal Executive Officer)

/s/ Jiangcheng Wu	Chief Financial Officer	October 9, 2007
Jiangcheng Wu	(Principal Financial and Accounting Officer)

/s/ Xu Bao Dong	Secretary	October 9, 2007
Xu Bao Dong

Report of Independent Registered Public Accounting Firm	F-3

Consolidated Balance Sheet (Restated)	F-4

Consolidated Statements of Operations (Restated)	F-5

Consolidated Statements of Cash Flow (Restated)	F-6

Consolidated Statements of Changes in Stockholders’ Equity/(Deficit) (Restated)	F-7

Notes to Consolidated Financial Statements	F-8-F-26

ASSETS

Current Assets
Cash and cash equivalents	$	2,061,213
Accounts receivable, net		2,219,870
Inventory		343,705
Prepaid expenses		130,501
Other receivables		10,395
Total Current Assets		4,765,684

Property & equipment, net		684,298

Other Assets
Deposits		3,100
Amortizable intangible assets, net		2,954,616
Goodwill		7,039,593
Total Other Assets		9,997,309

Total Assets	$	15,447,291

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable and accrued expenses	$	856,747
Advances		81,050
Income tax payable		56,322
Loan payable to related party		174,600
Short term note payable		248,000
Total Current Liabilities		1,416,719

Stockholders’ Equity

Common stock, $.001 par value, 140,000,000 shares authorized, 54,460,626 issued and outstanding		54,460
Additional paid in capital		13,107,324
Statutory reserve		105,849
Other comprehensive income		61,682
Retained earnings		701,257
Total Stockholders’ Equity		14,030,572

Total Liabilities and Stockholders’ Equity	$	15,447,291

	2005			2004
	(Restated)			(Restated)
Sales, net	$	12,742,088		$	1,412,276

Cost of sales		8,971,859			718,785
Gross profit		3,770,229			693,491

Selling expense		165,780			46,793
General and administrative expenses - Restated		1,202,359			261,751
Goodwill impairment		1,213,843			-
Consulting fees		-			598,000
Total operating expenses		2,581,982			906,544

Income (loss) from operations		1,188,247			(213,053	)

Other (Income) Expense
Interest income		(3,877	)		(6	)
Miscellaneous expense		-			5,141
Interest expense		32,856			3,468
Total Other Income		28,979			8,603

Income (loss) before income taxes		1,159,268			(221,656	)

Provision for income taxes		111,773			13,555

Net income (loss)		1,047,496			(235,211	)

Other comprehensive income Foreign 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

	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			730
Amortization		332,915			41,614
Gain 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	)		30,910
Other receivables		(2,707	)		18,271
Other receivables - related party		-			(4,990	)
Prepaid expense		(118,531	)		545
Deposits		(3,100	)		-
Increase / (decrease) in current liabilities:
Accounts payable and accrued expenses		(197,862	)		141,407
Income 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		-			296,713
Proceeds 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		-			1,500,000
Proceed from loan from related party		-			174,600

Net cash provided by financing activities		-			1,674,600

Effect 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		$	5,354

Non-cash investing and financing activities:

Issuance of stock for purchase of subsidiary	$	-		$	7,762,557

Issuance of stock for guarantee	$	-		$	3,262,327

	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	)	$	16,221

Shares issued for cash		30,000,000		30,000		1,470,000		-		-		-			1,500,000

Shares issued to consultant		10,684,000		10,684		523,516		-		-		-			534,200

Shares issued to consultant		1,276,000		1,276		62,524		-		-		-			63,800

Shares issued for acquisition of Billion		4,566,210		4,566		7,757,991		-		-		-			7,762,557

Shares issued for guarantee		1,919,016		1,919		3,260,408		-		-		-			3,262,327

Transfer 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	)		12,903,894

Issuance of stock options		-		-		17,500		-				-			17,500

Change in foreign currency translation gain		-		-		-				61,682		-			61,682

Transfer 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