ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS or PLAN OF OPERATION

Item 1. Safe Harbor Declaration

The comments made throughout this 10-KSB report should be read in conjunction with our financial statements and the notes thereto, and other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words, "believes," "anticipates," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of factors beyond the Company's control. The Company does not undertake to publicly update or revise any of its forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are also urged to carefully review and consider the Company's discussions regarding the various factors, which affect company business, included in this section and elsewhere in this report.

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation

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

Plan of Operation

We were originally incorporated in Nevada on October 18, 2004 as a development stage company named "Crawford Lake Mining, Inc." in the business of mineral exploration. On August 17, 2006, we entered in an agreement with Jinan Yinquan Technology Co., Ltd., a Chinese registered company. Upon the effectiveness of the Acquisition, the Company succeeded to the business of Jinan Yinquan, which will be continued as its sole line of business. Accordingly, the Company has changed its name to China VoIP & Digital Telecom Inc. and has also changed its symbol to CVDT.

During the next twelve months, we expect to take the following steps in connection with the development of our business and the implementation of our plan of operations:

We intend to continue with our marketing strategies to market our NPSoft Switch System in the People's Republic of China. We currently offer our products to 17 cities within the Shandong Province, 3 cities within Zhejiang Province and 1 city in Anhui Province. Furthermore, our NP Soft Switch system is being tested in 2 other markets.

Along with the continued marketing activities of our current products and services, we are also developing other telecommunication technologies in order to complement our VOIP product offering.

During the next twelve months, the Company expects to enlarge the whole China market for its virtualization technology, and to obtain more customers via its new IBCC communication platform. In addtion, the Company wish to make a wider acknowledge of its virtualization technology and IBCC platform by sponsoring the 11th National Games of PRC.

Our aggressive expansion plan will be replied on such capital support. We can not assure the successful result of fund raising. As such, we may not execute our initial business strategy or plan as expected, and furthermore, our competitors may stand in a better position than us, which results in an adverse effect on our business, although we believe that currently, even without such funds, we can still run a healthy business within our already occupied markets.

Critical Accounting Policies

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Senior management has discussed the development and selection of these critical accounting policies and their disclosure in this Report with the Audit Committee of our Board of Directors.
We believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments: revenue recognition; allowance for doubtful accounts; income taxes; stock-based compensation; asset impairment.

Revenue Recognition

In accordance with generally accepted accounting principles ("GAAP") in the United States, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collection of the resulting receivable is reasonably assured. Noted below are brief descriptions of the product or service revenues that the Company recognizes in the financial statements contained herein.

Sale of goods
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 advances from customers.

Rendering of services
When the provision of services is started and completed within the same accounting year, revenue is recognized at the time of completion of the services.
When the provision of services is started and completed in different accounting year, revenue is recognized using the percentage of completion method.

Amounts collected prior to satisfying the above revenue recognition criteria are included in deferred revenue.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts could be required. We initially record a provision for doubtful accounts based on our historical experience, and then adjust this provision at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the provision for doubtful accounts, we consider: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable; (iv) our historical provision for doubtful accounts;
(v) the credit worthiness of the customer; and (vi) the economic conditions of the customer's industry as well as general economic conditions, among other factors.

Income taxes

We account for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS 109 prescribes the use of the liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, or increase or decrease this allowance in a period, we increase or decrease our income tax provision in our statement of operations. If any of our estimates of our prior period taxable income or loss prove to be incorrect, material differences could impact the amount and timing of income tax benefits or payments for any period.

The Company operates in several countries. As a result, we are subject to numerous domestic and foreign tax jurisdictions and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions are taxed on various bases: income before taxes, deemed profits and withholding taxes based on revenue. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations.

We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carry forwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary.

Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.

Asset Impairment

We periodically evaluate the carrying value of other long-lived assets, including, but not limited to, property and equipment and intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Significant estimates are utilized to calculate expected future cash flows utilized in impairment analyses. We also utilize judgment to determine other factors within fair value analyses, including the applicable discount rate.

Results of Operations for the years ended December 31, 2008 and 2007

During the year ended December 31, 2008, we recorded revenue of $8,524,413 as compared to $6,083,671 of 2007, an increase of $2,440,742 or 40%. The sharp increase of revenue is mainly contributed to more acceptances of our products and services. In addition, with the fund support, we were able to expand to more geographic areas. In addition, during 2008, we acquired a new subsidiary, Beijing Power&Unique, which contributed revenue of approximately $490,035 since acquisition.

Cost of sales increased to $6,264,736 during the year ended December 31, 2008 from $3,916,360 during 2007, an increase of $2,348,376 or 60%. The sharp increase of the cost is mainly due to the increase of our settlement price with the telecom cooperator - China Tietong this year. In addition, in order to promote the new IBCC platform, we presented new customers the tested telephone charge for their tests on the platform which incurred a large amount of cost.

The gross profit increased from $2,167,311 in the year ended December 31, 2007 to $2,259,677 during 2008. The increase of 4.26% or $92,366 is due to the increase of revenue. However, due to the global finance crisis in 2008, we adopted the price-cut policy to maintain existing customer base and also the market share, it resulted the decrease of the profit rate. Meanwhile, the increase of our settlement price with the telecom cooperator - China Tietong and the presented test telephone charge activity for IBCC promotion resulted the increase of the cost, so the gross profit didn't increase too much.

Selling, general and administrative expenses were $4,259,836 during year ended December 31, 2008 as compared to $874,810 during 2007, an increase of $3,385,026 or 387%. The increase was mainly contributed to the marketing expenses in order to achieve higher revenue and more administrative expenses in relation to more sales offices in China. The increase was also because we recorded an impairment of goodwill of $402,328 on December 31,2008. The goodwill resulted from the acquisition of Beijing Power Unique. In addition, we incurred market promotion cost for our virtual technology and new developed IBCC platform. Especially, we sponsored the 11th National Games of PRC which will be held in October 2009 by expense of $1.5 million.

Depreciation and amortization expenses increased by 293% or $457,466 to $613,578 during the year ended December 31, 2008 as compared to 2007. The increase is mainly attributed to the increase of equipments used for current business and future expansion purposes, and also due to we moved to the new office building without renting office anymore, as well as the amortization of intangible assets acquired.

We recorded operation loss of $2,000,159 during the year ended December 31, 2008 as compared to the income of $1,292,501 during year 2007. The loss is mainly incurred by the increase of various expenses while revenue increased not too much

Other income/(expenses) is comprised of other expense of amortization of convertible debt of $1,666,667, interest expenses of $651,617, subsidy income of $105,076, interest income of $69,119 and other income of change in derivative liability of $6,512,616 during the year ended December 31, 2008. Among such expenses, amortization of convertible debt of $1,666,667, interest expenses of $651,617, and other income of change in derivative liability of $6,512,616 were resulted from convertible notes issued in December of 2007. The income of change in derivative liability of $6,512,616 was varied in accordance with our stock market price.

Net income was recorded $2,438,162 during the year ended December 31, 2008 as compared to net loss of $1,327,907 of 2007, an increase of $3,766,069 or 284%.
Apart from the net income from other income due to change in derivative liability, the gain in 2008 was mainly due to the increase in revenue.

Liquidity and Capital Resources

Cash used in operating activities were $1,288,453 during the year 2008 as compared to cash provided by operating activities of $659,482 for 2007.
Although net income of 2008 was $2,438,162, after setting off non-cash income of change in derivative liabilities of $6,512,616, adding non-cash expense of change in conversion feature of $1,666,667, and other non-cash expenses of $1,082,898 in total, the Company actually incurred net loss of $922,561. Furthermore, change of working capital and minority interest resulted in additional cash outflow of $365,892. Thus, $1,288,453 cash was used in operating activities of 2008. Cash provided by operating activities during of 2007 mainly resulted from net loss of $1,327,907 by setting off non-cash expenses of $2,997,427 in net, which is 1,669,520 net cash inflow. However, change of working capital resulted in cash outflow of $1,010,038, which is very close to 2008's figure. Such increase of working capital was generally in line with increase of revenue and business scope.

Cash flows used in investing activities were $4,831,578 during 2008, as compared to $1,412,302 during 2007. Cash used in investing activities during 2008 mainly consisted of purchase of property and equipment of $879,940, purchase of intangible assets of$1,621,218, invest in interest bearing loan of $1,611,099, payment of long term prepaid expenses of $46,249 and cash payment in connection of acquisition of new subsidiary of $673,072. The cash used in investing activities during 2007 represents the cash used for purchase of property and equipment.

Cash flows provided by financing activities were $962,333 in 2008, as compared to $4,566,033 in 2007. Cash provided by financing activities in 2008 represents the cash proceeds from short term loan and the cash provided by financing activities in 2007 mainly resulted in cash proceeds on convertible debts of $4,556,033.

Foreign currency translation effect in cash flows were $152,864 during 2008 as compared to $45,136 during 2007.