UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

(Mark One)

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

For the fiscal year ended December 31, 2006

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

For the transition period from ___________ to ___________

Commission file number 000-49715

CHINA DIGITAL COMMUNICATION GROUP

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

TABLE OF CONTENTS

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

2

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

Forward-Looking Statements and Associated Risks

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

PART I

Item 1. Description of Business.

Business Development 

Overview

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

History

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

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

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

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

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

Acquisition of Billion

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

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

Acquisition of Galaxy View

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

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Our Business

LITHIUM BATTERIES

Industry

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

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

Business Strategy

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

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

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

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

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

Products

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

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

5

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

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

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

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

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

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

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

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

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

Distribution Methods of the Products and Services

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

Competition

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

Manufacturing and Raw Materials

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

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

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

Dependence on One or a Few Customers

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

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

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

Sales and Marketing

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

Intellectual Property

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

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

Governmental Approval and Regulations; Environmental Consideration

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

7

MOBILE COMMUNICATION EQUIPMENT

Products and Services

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

Distribution Methods of the Products and Services

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

Competition

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

Principal Supplier

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

Dependence on One or a Few Customers

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

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

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Governmental Approval and Regulations

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

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

Research and Development

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

Doing Business in China

The Chinese Legal System

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

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

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

· We will be able to capitalize on economic reforms.

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

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

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

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

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

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

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

Employees

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

Item 2. Description of Property.

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

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

Item 3. Legal Proceedings.

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

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

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

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PART II

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

Market Information

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

	Closing Bid
YEAR 2005	High Bid		Low Bid
1st Quarter Ended March 31	$	1.500	$	0.760
2nd Quarter Ended June 30	$	1.450	$	0.306
3rd Quarter Ended September 30	$	1.870	$	0.380
4th Quarter Ended December 31	$	0.540	$	0.380
YEAR 2006		High Bid		Low Bid
1st Quarter Ended March 31	$	0.700	$	0.367
2nd Quarter Ended June 30	$	1.185	$	0.411
3rd Quarter Ended September 30	$	0.620	$	0.208
4th Quarter Ended December 31	$	0.445	$	0.192
YEAR 2007		High Bid		Low Bid
Period Ended March 29	$	0.285	$	0.200

Holders

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

Dividends

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

Recent Sales of Unregistered Securities

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

Securities Authorized for Issuance Under Equity Compensation Plan

Equity Compensation Plan Information

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

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

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

The following management discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the December 31, 2006 consolidated financial statements and notes. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.

The information contained in this MD&A, other than historical information, contains “forward looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. This MD&A should be read in conjunction with the sections entitled “Additional Factors That May Affect Future Results” and “Forward-Looking Statements.”

OVERVIEW

China Digital Communication Group (the “Company”) was incorporated under the laws of the State of Nevada on March 27, 2001. On September 30, 2004, the Company entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion). Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie Science and Technology Company, Limited (E’Jenie). Billion, was incorporated under the laws of the British Virgin Islands on July 27, 2004. Shenzhen E’Jenie Science & Technology Company Limited was legally established on July 8, 2002 under the laws of the Peoples’ Republic of China (PRC). On June 28, 2006, the Company finalized an Exchange Agreement with Galaxy View International, Ltd (Galaxy View). Galaxy View owns all of the issued and outstanding shares of Shenzhen Sono Digital Technologies Company Limited (Sono). Galaxy View was incorporated under the laws of the British Virgin Islands on August 22, 2005. Sono was legally established on May 29, 2001 under the laws of the Peoples’ Republic of China.

On September 30, 2004, the Company entered into an Exchange Agreement with Billion. Pursuant to the Exchange Agreement, the Company agreed to purchase all of the issued and outstanding shares of Billion for approximately $1,500,000 in cash and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the total issued and outstanding shares.

On June 28, 2006, the Company finalized an Exchange Agreement with Galaxy View International Ltd., the Company and the shareholders of Galaxy View (the “Shareholders”). Pursuant to the Exchange Agreement, the Company acquired 100% of Galaxy View in a cash and stock transaction valued at approximately $6,787,879. Under the terms of the Agreement, the Company will pay to the Shareholders $3,000,000 million in cash and deliver 7,575,757 unregistered shares of China Digital preferred stock valued at approximately $3,787,879.

RESULTS OF OPERATIONS

The following table presents the statement of operations for the year ended December 31, 2006 as compared to the comparable period of the year ended December 31, 2005. The discussion following the table is based on these results.

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		2006			2005
Sales, net	$	12,215,376		$	12,742,088
Cost of sales		7,980,579			8,971,859
Gross profit		4,234,797			3,770,229
Operating Expenses
Selling expense		20,810			165,780
General and administrative expenses		1,473,580			1,202,359
Goodwill impairment		3,779,181			1,213,843
Total operating expenses		5,273,571			2,581,982
Income from operations		(1,038,774	)		1,188,248
Other (Income) Expense
Interest income		(25,027	)		(3,877	)
Miscellaneous income		(7,094	)		-
Interest expense		172,830			32,856
Total Other Income		140,709			28,979
Income before income taxes		(1,179,483	)		1,159,269
Provision for income taxes		74,887			111,773
Net income	$	(1,254,370	)	$	1,047,496

 Weighted average of dilutive securities has not been calculated since the effect of dilutive securities is anti dilutive.

Net sales

Net sales for the year ended December 31, 2006 totaled $12,215,376 compared to $12,742,088 for the year ended December 31, 2005, a decrease of $526,712 or approximately 4.1%. Total sales from E’Jenie were $9,854,954 in 2006 as compared to $12,742,088

in 2005, a decrease of $2,887,134 or approximately 22.7%. The decrease in sales was due to decreased in demand from our customers in 2006 as compared to 2005.

Cost of Sales

Cost of sales for the year ended December 31, 2006 totaled $7,980,579 or approximately 65.3% of net sales compared to $8,971,859 for the year ended December 31, 2005, a decrease of $991,280

or approximately 11%. Total cost of sales for E’Jenie was $6,986,873 in 2006 as compared to $8,971,859 in 2005, a decrease of $1,984,986 or approximately 22.1%. The decrease was due to decrease in net sales for E’Jenie for the year ended December 31.

Operating Expenses

Operating expenses for the year ended December 31, 2006 totaled $5,273,571 or approximately 43.2% of net sales compared to $2,581,982or approximately 20.3% for the year ended December 31, 2005, an increase of $2,691,589 or approximately 104.2%. The increase in operating expenses was primarily due to the impairment loss of $3,779,181 for the year ended December 31, 2006 and due to the increase in accounting and, legal, and other professional fees related to the SEC comment letters related to our financial statements and additional general and additional expense from Sono of $150,135 that was not included in the December 31, 2005 numbers.

Income (Loss) from Operations

Income (loss) from operations for the year ended December 31, 2006 totaled $(1,038,774) or approximately 8.56% of net sales compared to $1,188,248 or approximately 9.3% for the year ended December 31, 2005, a decrease of $2,227,022 or approximately 187.4%. The decrease was due primarily due to the impairment loss and increased operating expenses recognized in 2006.

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Interest Expense

Interest expense for the year ended December 31, 2006 totaled $172,830 compared to $32,856 for the year ended December 31, 2005, an increase of $139,974 or approximately 426%. The increase was due to loan obtained for the acquisition of Galaxy and Sono.

Net Income (Loss)

Net income (loss) for the year ended December 31, 2006 totaled $(1,254,370) compared to $1,047,496 for the year ended December 31, 2005, a decrease of $2,301,866 or approximately 219.8%. The decrease in net income was due primarily due to the impairment loss and increased operating expenses recognized in 2006 as described above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity as of December 31, 2006 is our cash on hand and accounts receivable. Net cash provided by operations for the year ended December 31, 2006 was $2,195,422 as compared to net cash provided by operations of $2,087,181 during the same period in 2005. The increase in net cash provided by operating activities was a result of the decrease in accounts receivable and increased in accounts payable. Our cash and cash equivalents were $1,074,835 and $2,061,213 as of December 31, 2006 and 2005, respectively. Our current assets totaled $5,523,446 on December 31, 2006. Our current liabilities were $1,270,564on December 31, 2006. Working capital was $4,252,882 as of December 31, 2006.

Net cash used in investing activities totaled $3,327,187for the year ended December 31, 2006, compared with $535,843 for the same period in 2005. The net cash change was $(986,378) and $1,624,087 for the year ended December 31, 2006 and 2005, respectively.

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

At December, the Company had $0 outstanding under its $6 million bank line of credit from United Private Equity Ltd. The Company borrowed under the line of credit to fund the cash portion of the purchase price for the acquisition of Galaxy View International, Ltd.

Working Capital Requirements

Historically operations and short term financing have been sufficient to meet our cash needs. We believe that we will be able to generate revenues from sales and raise capital through private placement offerings of its equity securities to provide the necessary cash flow to meet anticipated working capital requirements. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, and the availability of credit facilities, none of which can be predicted with certainty. Future expansion will be limited by the availability of financing products and raising capital.

[There are no off-balance sheet arrangements.

Item 7. Financial Statements.

Our financial statements begin on page F-1 below.

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

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

14

Item 8A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

Item 8B. Other Information.

None.

PART III

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

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

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

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

Zhongnan Xu has over 40 years experience in manufacturing and management. He graduated from Wuhan Steel Institute where he earned a Bachelor of Science degree. He served as the Secretary of the Youth Union of Er Cheng Steel Manufactory for 5 years, supervising ¾ of total employees’ of the Manufactory. Later as CEO of Er Cheng Magnet Steel Manufactory, Mr. Xu dedicated himself in developing new products and using leading technology to maintain the products’ competitive advantage. He served as the CEO of Er Cheng Magnet Steel Manufactory for 12 years. He also served as a CEO for Er Cheng Machinery Manufactory for 6 years. Mr. Xu served as a director of Enterprise Management Committee of Dingzu town of Er Zhou city for 5 years. Mr. Xu founded Yi Xiang Chemical Co., Ltd. (Yi Xiang) and served as a CEO of the company for 7 years. From 2002 until now, Mr. Xu served as General Manager of Shenzhen E'Jenie Science and Technology Co., Ltd., during which term he devoted himself to develop new technology and maintain the distribution network for E’jenie.

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

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

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

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

Term of Office

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

Audit Committee

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

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

Code of Ethics

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

Significant Employees

None.

Family Relationships

No family relationships exist among our directors or executive officers.

Involvement in Certain Legal Proceedings

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

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

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

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

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

Compliance with Section 16(a) of the Exchange Act

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

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

Item 10. Executive Compensation.

Compensation of Executive Officers

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

SUMMARY COMPENSATION TABLE

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

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

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

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

Employment Agreements

None of our executive officers have employment agreements.

Compensation of Directors

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

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

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

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

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

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Item 12. Certain Relationships and Related Transactions.

None.

Item 13. Exhibits.

Exhibit No.	Title of Document	Location
2.1	Share Exchange Agreement, dated February 14, 2006, between us, UPE Limited (Far East), Shenzhen Zhuo Tong Power Supply Industry Co., Ltd., and the shareholders of UPE Limited	Incorporated by reference as Exhibit 2.1 to Form 8-K filed February 21, 2006
2.2	Amended and Restated Share Exchange Agreement, dated March 22, 2006, between us, Galaxy View International Ltd., Shenzhen Sono, and the shareholders of Galaxy View International Ltd.	Incorporated by reference as Exhibit 2.1 to Form 8-K filed March 24, 2006
2.3	Share Exchange Agreement and Plan or Reorganization	Incorporated by reference as Exhibit 10.1 to Form 8-K filed September 29, 2004
3.1.1	Articles of Incorporation	Incorporated by reference as Exhibit 3(i)(1) to Form 8-K filed September 16, 2004
3.1.2	Amendment to Articles of Incorporation	Incorporated by reference as Exhibit 3(i)(2) to Form 8-K filed September 16, 2004
3.1.3	Amendment to Articles of Incorporation	Incorporated by reference as Exhibit 3(i)(3) to Form 8-K filed September 16, 2004
3.1.4	Certificate of Designation of Series A Convertible Preferred Stock	Incorporated by reference as Exhibit 3(i) to Form 8-K filed July 28, 2006
3.2	Bylaws	Incorporated by reference as Exhibit 3.4 to Form SB-2/A filed March 22, 2002
4.1	Form of Stock Certificate	Incorporated by reference as Exhibit 4.1 to Form SB-2/A filed March 22, 2002
4.2	2004 Equity Incentive Plan	Incorporated by reference as Exhibit 4.1 to Form S-8 filed March 2, 2004
4.3	Form of Class A, B and C Warrants	Incorporated by reference as Exhibit 4.3 to Form 10-KSB filed March 30, 2006
4.4	Form of Subscription Agreement dated March 17, 2004 by and among Jasmine's Garden and the Investors	Incorporated by reference as Exhibit 4.1 to Form 8-K filed March 22, 2004
10.1	Sales Contract dated April 21, 2005 between Shenzhan E'Jenine Science & Technology Co., LTD. and Shenzhen Gao Yi Electonics Co. LTD.	Incorporated by reference as Exhibit 10.1 to Form 8-K filed April 22, 2005

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

Item 14. Principal Accounting Fees and Services.

Audit Fees

2006

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

2005

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

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

Tax Fees

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

All Other Fees

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

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SIGNATURES

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

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

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

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

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheet (Restated)	2
Consolidated Statements of Operations (Restated)	3
Consolidated Statements of Cash Flow (Restated)	4
Consolidated Statements of Changes in Stockholders’ Equity/(Deficit) (Restated)	5
Notes to Consolidated Financial Statements	6-23

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

China Digital Communication Group and Subsidiaries, Inc.

We have audited the accompanying consolidated balance sheet of China Digital Communication Group and Subsidiaries, Inc. (a Nevada corporation) as of December 31, 2006, and the related consolidated statements of operation, stockholders’ equity/(deficit), and cash flows for the years ended December 31, 2006 and 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Digital Communication Group and Subsidiaries, Inc. as of December 31, 2006, and the consolidated results of their operations and their consolidated cash flows for the years ended December 31, 2006 and 2005, in conformity with U.S. generally accepted accounting principles.

As discussed in Note Q, the financial statements for the years ended December 31, 2006 and 2005 have been restated.

/s/ Kabani & Company, Inc.

Certified Public Accountants

Los Angeles, California

March 10, 2007, except for Note C, F, K, M, N, Q and R, which is as of August 19, 2007

1

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2006

(Restated)

ASSETS
Current Assets
Cash and cash equivalents	$	1,074,835
Accounts receivable, net		4,093,717
Inventory		283,724
Prepaid expenses		16,175
Other receivables		54,995
Total Current Assets		5,523,446
Property & Equipment, net		1,120,570
Other Assets
Deposits		3,100
Amortizable intangible assets, net		3,132,812
Goodwill		8,362,321
Total Other Assets		11,498,233
Total Assets	$	18,142,249
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	837,545
Loan payable to related party		174,600
Note payable		256,400
Unearned revenue		2,019
Total Current Liabilities		1,270,564
Stockholders' Equity
Common stock, $.001 par value, 140,000,000
shares authorized, 54,460,626 issued and outstanding		54,460
Preferred stock, $.001 par value, 7,575,757
shares authorized, 7,575,757, issued and outstanding		7,576
Additional paid in capital		16,887,627
Statutory reserve		289,931
Other comprehensive income		369,287
Accumulated deficit		(737,196	)
Total Stockholders' Equity		16,871,685
Total Liabilities and Stockholders' Equity	$	18,142,249

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

2

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(Restated)

	2006			2005
Sales, net	$	12,215,376		$	12,742,088
Cost of sales		7,980,579			8,971,859
Gross profit		4,234,798			3,770,229
Selling expense		20,810			165,780
General and administrative expenses		1,473,580			1,202,359
Impairment		3,779,181			1,213,843
Total operating expenses		5,273,571			2,581,982
Income (loss) from operations		(1,038,773	)		1,188,248
Other (income) expense
Interest income		(25,027	)		(3,877	)
Miscellaneous expense		(7,093	)		-
Interest expense		172,830			32,856
Total other expense		140,710			28,979
Income (loss) before income taxes		(1,179,483	)		1,159,269
Provision for income taxes		74,887			111,773
Net income (loss)		(1,254,370	)		1,047,496
Other comprehensive income
Foreign currency translation		307,605			61,682
Comprehensive income (loss)	$	(946,765	)	$	1,109,178
Net income (loss) per share:
Basic & diluted	$	(0.02	)	$	0.02
Weighted average number of shares outstanding:
Basic & diluted		54,460,626			54,460,626

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

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

3

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(Restated)

	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income / (loss)	$	(1,254,370	)	$	1,047,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		182,829			83,807
Amortization		332,915			332,915
Loss on disposal of property & equipment		-			18,575
Reserve for bad debt		21,443			-
Impairment loss		3,779,181			1,213,843
Issuance of stock options		-			17,500
(Increase) / decrease in assets:
Accounts receivables		896,425			(204,021	)
Inventory		70,266			(112,452	)
Other receivables		295,956			(2,707	)
Prepaid expense		116,016			(118,531	)
Deposits		704			(3,100	)
Increase / (decrease) in current liabilities:
Accounts payable and accrued expenses		(2,122,808	)		(197,862	)
Income tax payable		(42,908	)		(32,077	)
Advances		(80,227	)		43,795
Total adjustments		3,449,792			1,039,685
Net cash provided by operations		2,195,422			2,087,181
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary		(3,000,000	)		-
Cash acquired in acquisition		708,002			-
Proceeds from sale of property & equipment		-			1,094
Acquisition of property & equipment		(1,035,189	)		(536,937	)
Net cash used in investing activities		(3,327,187	)		(535,843	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on loan payable		(3,251,540	)		-
Proceed from loan payable		3,251,540			-
Net cash provided by financing activities		-			-
Effect of exchange rate changes on cash and cash equivalents		145,388			72,749
Net increase (decrease) in cash and cash equivalents		(986,378	)		1,624,087
Cash and cash equivalents, beginning balance		2,061,213			437,126
Cash and cash equivalents, ending balance	$	1,074,835		$	2,061,213
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments	$	74,887		$	13,555
Interest payments	$	75,622		$	32,856
Non-cash investing and financing activities:
Issuance of preferred stock for purchase of business	$	3,787,879		$	-

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

4

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(Restated)

	Common Stock				Preferred		Additional Paid In		Statutory		Other		Retained Earnings (Accumulated			Total Stockholders' Equity/
	Shares		Amount		Stock		Capital		Reserve		Comprehensive		Deficit)			(Deficit)
Balance December 31, 2004		54,460,626	$	54,460	$	-	$	13,089,824	$	11,522	$	-	$	(251,912	)	$	12,903,894
Issuance of stock options		-		-		-		17,500		-				-			17,500
Change in foreign currency translation gain		-		-		-		-				61682		-			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
Acquisition of subsidiary		-		-		7,576		3,780,303		-		-		-			3,787,879
Change in foreign currency translation gain		-		-		-		-		-		307,605		-			307,605
Transfer to statutory reserve		-		-		-		-		184,082		-		(184,082	)		-
Net income for the year ended December 31, 2006		-		-		-		-		-		-		(1,254,370	)		(1,254,370	)
Balance December 31, 2006		54,460,626	$	54,460		7,576	$	16,887,627	$	289,931	$	369,287	$	(737,196	)	$	16,871,686

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

5

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

Note A - ORGANIZATION

China Digital Communication Group (the “Company”) was incorporated under the laws of the State of Nevada on March 27, 2001. On September 30, 2004, the Company entered into an Exchange Agreement with Billion Electronics Co., Ltd. (Billion). Billion owns all of the issued and outstanding shares of Shenzhen E’Jenie Science and Technology Company, Limited (E’Jenie). Billion, was incorporated under the laws of the British Virgin Islands on July 27, 2004. Shenzhen E’Jenie Science & Technology Company Limited, was legally established on July 8, 2002 under the laws of the Peoples’ Republic of China (PRC). On June 28, 2006, the Company finalized an Exchange Agreement with Galaxy View International, Ltd (Galaxy View). Galaxy View owns all of the issued and outstanding shares of Shenzhen Sono Digital Technologies Company Limited (Sono). Galaxy View was incorporated under the laws of the British Virgin Islands on August 22, 2005. Sono was legally established on May 29, 2001 under the laws of the Peoples’ Republic of China. When used in these notes, the terms “Company,” “we,” “our,” or “us” mean China Digital Communication Group and its Subsidiaries.

On September 30, 2004, the Company entered into an Exchange Agreement with Billion. Pursuant to the Exchange Agreement, the Company agreed to purchase all of the issued and outstanding shares of Billion for approximately $1,500,000 in cash and 4,566,210 shares of the Company’s common stock, or approximately 8.7% of the total issued and outstanding shares.

On June 28, 2006, the Company finalized an Exchnage Agreement with Galaxy View International Ltd., the Company and the shareholders of Galaxy View (the “Shareholders”). Pursuant to the Exchange Agreement, the Company acquired 100% of Galaxy View in a cash and stock transaction valued at approximately $6,787,879. Under the terms of the Agreement, the Company will pay to the Shareholders $3,000,000 million in cash and deliver 7,575,757 unregistered shares of China Digital preferred stock valued at approximately $3,787,879.

Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company’s functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in United States Dollars ($).

Exchange Gain (Loss):

During the year ended December 31, 2006 and 2005, the transactions of E’Jenie and Sono were denominated in foreign currency and were recorded in Chinese Yuan Renminbi (CNY) at the rates of exchange in effect when the transactions occur. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.

Translation Adjustment

As of December 31, 2006 and 2005, the accounts of E’Jenie and Sono were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such financial statements were translated into U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,” with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholder’s equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity.

6

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectibility of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

Principles of Consolidation

The consolidated financial statements include the accounts of China Digital Communication Group and its wholly owned subsidiaries Billion, E’Jenie, Galaxy View and Sono , collectively referred to within as the Company. All material intercompany accounts, transactions and profits have been eliminated in consolidation.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectibility is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The payment term for Sono is as follows; 30% of the invoice is due when the order is shipped and 60% of the invoice is within six months. The clients have another six month to pay for the remaining 10% balance.

Stock-Based Compensation

In December 2004, the FASB issued SFAS No. 123 (revised 2004), ‘‘Share-Based Payment’’ (‘‘SFAS 123R’’), which requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. The Company has adopted SFAS 123R and related FASB Staff Positions (“FSPs”) as of October 01, 2005 and will recognize stock-based compensation expense using the modified prospective method.

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred.

Income Taxes

The Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

7

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

Statement of Cash Flows

In accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the Company’s operations is based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Allowance for doubtful debts amounted to $151,513 as at December 31, 2006.

8

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

Inventory

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. The Management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if lower. As of December 31, 2006, inventory consisted of raw material, work in progress and finished goods as follows:

Inventory
Raw Material	$	112,974
Work-in-process		22,382
Finished goods		148,368
	$	283,724

Property, Plant & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

Furniture and Fixtures	5 years
Equipment	5 years
Computer Hardware and Software	5 years
Building	30 years

As of December 31, 2006 Property, Plant & Equipment consist of the following:

Machinery	$	782,623
Leasehold improvement		32,581
Automobile		9,854
Office equipment		83,668
Building		515,978
		1,424,704
Accumulated depreciation		(304,134	)
	$	1,120,570

Depreciation expenses were $182,829 and $83,807 for the years ended December 31, 2006, and 2005.

Fair Value of Financial Instruments

Statement of financial accounting standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

9

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

Basic and Diluted Earnings Per Share

Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s acquisitions of interests in its subsidiaries. Under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets (“SFAS 142”),” goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company assesses goodwill for impairment periodically in accordance with SFAS 142.

Intangible Assets

The Company applies the criteria specified in SFAS No. 141, “Business Combinations” to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2006 there were no significant impairments of its long-lived assets.

10

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

Recent accounting pronouncements

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interest in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on the qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for all financial instruments acquired or issued after the beginning of the Company’s first fiscal year that begins after September 15, 2006.

In March 2006 FASB issued SFAS 156 ‘Accounting for Servicing of Financial Assets’ this Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement:

1.   Requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract.

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

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

4.   At its initial adoption, permits a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available-for-sale securities under Statement 115, provided that the available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value.

5.   Requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.

This Statement is effective as of the beginning of the Company’s first fiscal year that begins after September 15, 2006. Management believes that this statement will not have a significant impact on the consolidated financial statements.

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

11

CHINA DIGITAL COMMUNICATION GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006

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

a. A brief description of the provisions of this Statement

b. The date that adoption is required

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

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

Note C - GOODWILL AND INTANGIBLE ASSETS (RESTATED)

Goodwill

As of December 31, 2006, the Goodwill comprised of the following: