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

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. 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.

BUSINESS OVERVIEW

China VoIP Digital Telecom Inc. ("the Company"), formerly, Crawford Lake Mining, Inc. acquired on August 17, 2006, all of the outstanding capital stock of Jinan YinQuan Technology Co. Ltd. ("Jinan Yinquan") in exchange for the issuance of 40,000,000 shares of our common stock to the Jinan Shareholders and $200,000. Such shares are restricted in accordance with Rule 144 of the 1933 Securities Act. In addition, as further consideration for the acquisition, Apollo Corporation, the principal shareholder of the Company, agreed to cancel 11,750,000 post-split shares of its outstanding common stock. Based upon same, Jinan Yinquan became our wholly-owned subsidiary.

Jinan Yinquan is an equity joint venture established in Jinan in 2001, in the People's Republic of China ("the PRC"). The exchange of shares with Jinan Yinquan has been accounted for as a reverse acquisition under the purchase method of accounting since the stockholders of the Jinan Yinquan obtained control of the consolidated entity. Accordingly, the merger of the two companies has been recorded as a recapitalization of Jinan Yinquan, with Jinan Yinquan being treated as the continuing entity. The historical financial statements presented are those of Jinan Yinquan. The continuing company has retained December 31 as its fiscal year end. The financial statements of the legal acquirer are not significant; therefore, no pro forma financial information is submitted.

On May 7, 2008 (the "Closing Date"), Yinquan completed the acquisition of Beijing PowerUnique Technologies Co., Ltd. ("BPUT"), a company incorporated under the laws of the People's Republic of China, in accordance with the Investment Agreement. On the Closing Date, pursuant to the terms of the Investment Agreement, Yinquan invested $583,507(RMB4,000,000) to BPUT; and BPUT transferred 80% of the shares and ownership interests of BPUT to Yinquan. On the Closing Date, Yinquan became the controlling shareholder of BPUT. On June 24, 2008, the Company decided to pay another $583,507 (RMB 4,000,000) to acquire the remaining 20% ownership from the original shareholders of BPUT and became 100% shareholder of BPUT thereafter. As of July 5, 2008, the acquisition was completed. In July 2008, Jinan YinQuan increased the share capital of BPUT with extra RMB 6 million to RMB 11 million. BPUT is a company incorporated under the laws of the People's Republic of China. It is a privately held software company in Beijing specializing in enterprise application software research and development. It creates reliable, secure and efficient information technology platforms for enterprise clients. It is committed to providing the highest quality solutions to enterprises in both information security and virtual technology.

Jinan Yinquan's principal activities are development and sales of computer software and hardware, digital video pictures system; development and sales of computer network and network audio devices, parts, low value consumables and etc. After completing the acquisition of BPUT, it currently is focused on the Voice over Internet Phone ("VoIP"), information security and virtualization technology related business.

In 2008, Yinquan launched a new communication platform based on its VoIP technology. The new platform, International Business Communication Center (IBCC) is designed to meet all the communication requirements for the operation of a modern enterprise. It includes telephone, fax, email, SMS, conference calling and video conferencing together with Office Automation (OA) and Customer Relationship Management (CRM ) software, in a single integrated package. In addition, IBCC also provides its registered users with information on more than 8 million industrial enterprises. These enterprises have been classified into 20 categories in order to expedite users' searches for critical information. The most important function of IBCC is that it allows users to click to call the person or enterprise they want through the webpage.

All of the communications functions of IBCC are structured using the existing VoIP technology of Yinquan, which ensures the lowest possible rate for communications services. Furthermore, IBCC will provide users with a region-free office thanks to its VoIP technology. Users' offices can be anywhere as long as there is broadband service. This is the original reason Yinquan designed IBCC.

IBCC offers five advantages over current competition:

· Multiple and convenient basic communications functions: the IBCC package contains all basic communications requirements like telephone, fax, email and SMS, and all functions can be accessed with one click on the web

· Powerful value-added communications functions, including multi-party conference calls and video conferencing

· Lowest available communications rates: thanks to VoIP technology, users may enjoy both IP telephone and fax on IBCC without the equipment but with the lowest rate

· Region-free offices: users may login to their own office platforms anywhere and anytime

· Free OA and CRM software: IBCC offers these critical applications for free

The virtualization business is primarily conducted through BPUT outside Shandong area, while Yinquan is primarily focusing on Shangdong area . Currently, both Yinquan and BPUT are the leaders in applied virtual technology field in China. In May, 2008, BPUT became an official Technology Alliance Partner (TAP) of VMware (NYSE: VMW). VMware is the global leader in virtualization solutions from the desktop to the data center. Customers of all sizes rely on VMware to reduce capital and operating expenses, ensure business continuity, strengthen security and go green. VMware has more than 100,000 customers worldwide and all Fortune 100 enterprises are using the mature virtual technology of VMware. The alliance partnership allows BPUT to leverage VMware's advanced virtual technology in the information security products marketplace in order to broaden its product offerings and strengthen its competitive advantage.

After Yinquan launched both the virtualization application technology and IBCC service platform in 2008, its virtualization technology and its IBCC service platform have been endorsed as the designated virtualization application technology product and the designated communications service platform for the 11th National Games of China, respectively. Yinquan will implement the virtualization technology in the National Games dedicated data center. The virtualization technology should significantly reduce system purchases and operating costs. It should also improve the reliability and manageability of the system and safeguard the information used during the Games. In addition, the IBCC service platform will be run as the sub-website of the National Games' official website for athletes, coaches, staff, volunteers and sponsors so they may enjoy unified communication services including an online office system, telephone, SMS, email, fax, conference call and video conference.

RESULTS OF OPERATIONS

Results of operations for the three month periods ended June 30, 2009

Revenue. During the three month periods ended June 30, 2009, we recorded revenue of $1,467,976, a decrease of $1,667,987, or 53.19%, compared to $3,135,963 during the same period of 2008. The sharp decrease of revenue is mainly attributable to fewer software development projects in the second quarter 2009 as a result of our emphasis on the new International Business Communication Center (IBCC) platform and virtualization solutions businesses.

Cost of Revenue. Cost of revenues was $1,424,143, a decline of $619,531, or 30.31%, in the second quarter 2009 compared with $2,043,674 during the same period of 2008 as a result of lower revenues realized in the quarter in 2009.

Gross Profit. The gross profit was $43,833 in the second quarter 2009, a decline of 1,048,456, or 96%, from $1,092,289 in the same period of 2008. Lower gross profit from the quarter was due to higher cost of sales and lower revenue. As a result of global economic slowdown, we lowered the price to maintain our existing customer base as well as market share. The pricing policy reduced our gross profit margin.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $428,720 during the three month periods ended June 30, 2009, an increase of $34,955, or 8.88%, compared to $393,765 during the same period of 2008. The increase was mainly driven by higher marketing expenses for the new products and services such as IBCC and virtualization solutions.

Depreciation and Amortization Expenses. Depreciation and amortization expenses were $182,568 during the three month periods ended June 30, 2009, an increase of $9,213, or 5.31%,compared to $173,355 in the same period of 2008. The increase of depreciation and amortization expenses is mainly attributable to the increase of equipment used for current business and future expansion purposes and the amortization of intangible assets acquired.

Operation Loss. We recorded operation loss of $567,455 during the three month periods ended June 30, 2009, an increase of $42,286, or 8%, compared to operation income of $525,169 during the same period of 2008. The operating loss was driven by the increase of various expense items coupled with lower revenue in the period.

Other Income. Other income (expenses) recorded other expense of amortization of convertible debt of $416,667, interest expenses of $261,171 and other income of change in derivative liability of $2,360,855 during the three month periods ended June 30, 2009 which were resulted from convertible notes issued in December of 2007. The income of change in derivative liability of $2,360,855 was impacted by the company's stock price. After netting off other expenses, net other income was $1,819,664 during the three month periods ended June 30, 2009, a decrease of $3,034,666, or 63%, compared to the income of $4,854,330 during the same period of 2008.

Net Loss. Net income was $1,252,209 during the three month periods ended June 30, 2009, a decrease of $4,110,319, or 76.65%, compared to a net income of $5,362,528 during the same period of 2008. The lower net income was mainly driven by the operating loss and higher expense associated with the convertible debt.

Results of operations for the six month periods ended June 30, 2009

Revenue. During the six month periods ended June 30, 2009, we recorded revenue of $3,060,980, a decrease of $2,074,724, or 40%, compared to $5,135,704 of same period of 2008. The decrease of revenue was mainly due to lower revenues realized from software development projects in the first six months of 2009 as a result of our emphasis on the new IBCC platform and virtualization solutions businesses.

Cost of Revenue. Cost of revenue was $2,859,870 during the six month periods ended June 30, 2009, a decrease of $191,360, or 6%, compared with $3,051,230 in the same period of 2008 given lower revenue realized in the first half of 2009.

Gross Profit. The gross profit was $201,110 in the six month periods ended June 30, 2009, the decrease of $1,883,364, or 90%, compared with $2,084,474 in the same period in 2008. Lower gross profit was due to the decrease of revenue and higher cost of sales. As a result of global economic slowdown, we lowered the price to maintain our existing customer base as well as market share. The pricing policy reduced our gross margin. Meanwhile, the increase of our settlement price with the telecom operator - China Tietong and the charges associated with the IBCC promotion increased the cost of sales and reduced the gross profit in 2009.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $762,220 during the six month periods ended June 30, 2009, an increase of $85,710, or 13%, compared to $676,510 during the same period of 2008. The increase was mainly attributed to the higher marketing cost and increased administrative expenses related to additional sales offices in China.
Depreciation and amortization expenses increased by $173,941, 80%, to $390,302 during the six month periods ended June 30, 2009 compared to $216,361 the same period of 2008. The increase is mainly attributed to the increase of equipment for current business and future expansion purposes.

Operation Loss. We recorded operation loss of $951,412 during the six month periods ended June 30, 2009, an increase of $2,143,015, or 180%, compared to an operating income of $1,191,603 during the same period of 2008. The loss is mainly incurred by the increase of various expense items and lower revenue realized in the period.

Other Income. Other income(expenses) recorded other expense of amortization of convertible debt of $833,334, interest expenses of $475,410 and other income of change in derivative liability of $3,047,380 during the six month periods ended June 30, 2009 which were resulted from convertible notes issued in December of 2007. After netting-off other income, net other expenses recorded $4,141,640 during the six months ended June 30, 2009 compared to the expense of $396,130 during the same period of 2008.

Net Loss. was $5,093,052 in the six month periods ended June 30, 2009, a decrease of $5,857,235, or 766%, compared to net income of $764,183 during the same period of 2008. The net loss was mainly driven by higher operating loss and increased expense associated with the change in derivative liability.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2009, the Company's cash was $252,505 as compared to $2,953,513 as of June 30, 2008.

Net Cash Used in Operating Activities

Cash used in operating activities was $373,343 during the six month periods ended June 30, 2009 compared to cash provided by operating activities of $424,225 for the same period in 2008. Cash used in operating activities mainly consisted of a change in derivative liability of $3,047,380, an increase in advance to suppliers of $36,009, a decrease in inventory of $137,248 and an increase in accrued expenses and other current liabilities of $408,786, partially offset by net loss of $5,093,052, a change in beneficial conversion feature of $833,333, depreciation and amortization of $390,302, provision for bad debt of $89,812, and amortization of debt discount and fund raising fee of $72,494. Cash used in operating activities during the same period of 2008 mainly consisted of an increase of minority interest of $180,789, an increase of advances to suppliers of $951,442, and an increase in inventory of $445,150, partially netting off by net income of $764,183, a decrease of prepaid and other current assets of $44,434, depreciation and amortization of $216,361 and a decrease of other current liabilities of $403,691.

Net Cash Used in Investing Activities

Cash flows used in investing activities was $1,497,539 during the six month periods ended June 30, 2009 compared to $2,813,067 during the same period of 2008. Cash used in investing activities during the six month periods ended June 30, 2009 mainly consisted of purchase of property and equipment of $26,872, purchase of intangible assets of $66, payment for deposit of software of $663,621 and cash for payment for interest bearing loan of $806,980. The cash used in investing activities during the six month periods ended June 30, 2008 represented the cash used for purchase of property and equipment as well as cash for acquisition of subsidiary.

Net Cash Provided by Financing Activities

Cash flows provided by financing activities were $1,796,515 during the six months ending June 30, 2009, as compared to $0.00 in the six months ending June 30, 2008. Cash provided by financing activities in the six months ending June 30, 2009 represents the cash proceeds from a short term loan.

Foreign currency translation effect in cash flows were $(14,459) during the six months ending June 30, 2009 compared to $(3,809) during the six months ending June 30, 2008

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.

A summary of significant accounting policies is included in Note 2 to the unaudited consolidated financial statements included in this quarterly report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our Company's operating results and financial condition.

Recently Issued Accounting Policies

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements". This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company's fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on financial statements.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations". This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company's fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.

In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity's financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Management is currently evaluating the effect of this pronouncement on financial statements.

In May 0f 2008, FSAB issued SFASB No.162, The Hierarchy of Generally Accepted Accounting Principles. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The company does not believe this pronouncement will impact its financial statements

In May of 2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The company does not believe this pronouncement will impact its financial statements.

On December 30, 2008 FASB issued FIN 48-3, "Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises". This FSP defers the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in . . .