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 were 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 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 as well as 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 developing and sales of computer software and hardware, digital video pictures system; developing and sales of computer network and network audio devices, parts, low value consumables and etc (exclusive of the business not obtained the license). After completing the acquisition of BPUT, it 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 OA and 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. It's 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 were 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 is used as the sub-website of the National Games' official website for athletes, coaches, staff, volunteers and sponsors so they enjoy unified communication services including an online office system, telephone, SMS, email, fax, conference call and video conference.

As a result of the political riot on July 5 in Urumqi, the capital of the Xinjiang Uygur Autonomous region, the Chinese government issued an order in July 2009 to block VoIP services. The government has not removed the order to resume services. The Company is considering discontinuing the VoIP service and focusing on providing the virtualization solutions and services. It was not anticipated by the Company that the government would issue this order, nor did the Company expect such a long duration of the suspension of VoIP services. As a result, the Company's telecom service business has suffered tremendously. The company's future VoIP operations may face great uncertainties and challenges.

RESULTS OF OPERATIONS

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

Revenue. During the three month periods ended September 30, 2009, we recorded revenue of $457,358, a decrease of $843,548, or 64.84%, compared to $1,300,906 during the same period of 2008. The sharp decrease of revenue is mainly attributable to fewer software development projects in the third 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 $374,665, a decline of $1,380,664, or 78.66%, in the third quarter 2009 compared with $1,755,329 during the same period of 2008 as a result of lower revenues realized in the quarter in 2009.

Gross Profit. The gross profit was $82,693 in the third quarter 2009, an increase of $537,116, or 118.2%, from ($454,423) in the same period of 2008. The increased gross profit from the quarter was due to sharply lowered 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 profit margin.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1,279,559 during the three month periods ended September 30, 2009, an increase of $888,334, or 227%, compared to $391,225 during the same period of 2008. The increase was mainly because we made allowance for advance to one supplier in the amount of $1,041,549. We terminated the cooperation with the supplier in the end of July 2009.

Depreciation and Amortization Expenses. Depreciation and amortization expenses were $242,881 during the three month periods ended September 30, 2009, an increase of $69,321, or 39.94 %,compared to $173,560 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.

Operating Income (Loss). We recorded operation loss of $1,439,747 during the three month periods ended September 30, 2009, a decrease of $420,539, or 41%, compared to operation loss of $1,019,208 during the same period of 2008. The decrease of operating income was driven by the block of VoIP service by the government in the period.

Other Income (Expense). Other income (expenses) recorded other expense of amortization of convertible debt of $416,666, interest expenses of $228,569 and change in derivative liability of $ 1,107,691 during the three month periods ended September 30, 2009 which were resulted from convertible notes issued in December of 2007. The income of change in derivative liability of $1,107,691 was impacted by the company's stock price. After netting off other expenses, net other income was $627,779 during the three month periods ended September 30, 2009, a decrease of $2,219.376, or 77.96%, compared to the income of $2,847,155 during the same period of 2008.

Net Income (Loss). Net loss was $811,968 during the three month periods ended September 30, 2009, a decrease of $2,639,915, or 144.45 %, compared to a net income of $1,827,947 during the same period of 2008. The lower net income was mainly driven by the lower operating income.

Results of operations for the nine month periods ended September 30, 2009

Revenue. During the nine month periods ended September 30, 2009, we recorded revenue of $3,518,338, a decrease of $3,181,030, or 47.48%, compared to $6,699,368 of same period of 2008. The decrease of revenue was mainly due to lower revenues realized from software development projects in the first nine months of 2009 as a result of our emphasis on the new IBCC platform and virtualization solutions businesses, as well as the block of VoIP services in third quarter of 2009.

Cost of Revenue. Cost of revenue was $3,234,535 during the nine month periods ended September 30, 2009, a decrease of $ 1,567,583, or 32.64%, compared with $4,802,118 in the same period of 2008 given lower revenue realized in the nine month period ended September 30,2009.

Gross Profit. The gross profit was $283,803 in the nine month periods ended September 30, 2009, the decrease of $1,613,447, or 85.04%, compared with $1,897,250 in the same period in 2008. Lower gross profit was due to the decrease of 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 margin. Meanwhile, the increase of our settlement price with the telecom operator - China Tietong and the charges associated with the IBCC and virtualization solutions promotion increased the cost of sales and reduced the gross profit in 2009.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $2,041,779 during the nine month periods ended September 30, 2009, an increase of $978,380, or 92%, compared to $1,063,399 during the same period of 2008. The increase was mainly because we made allowance for advance to one supplier in the amount of $1,041,549. We terminated the cooperation with the supplier in end July 2009.. Depreciation and amortization expenses increased by $243,262 or 62.39%, to $633,183 during the nine month periods ended September 30, 2009 compared to $ 389,921 in the same period of 2008. The increase is mainly attributed to the increase of equipment for current business and future expansion purposes.

Operation Income (Loss). We recorded operation loss of $2,391,159 during the nine month periods ended September 30, 2009, a decrease of $2,835,089, or 638.63%, compared to an operating income of $443,930 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 (Expense). Other income(expenses) recorded other expense of amortization of convertible debt of $1,250,000, interest expenses of $703,979 and change in derivative liability of ($1,939,689) during the nine month periods ended September 30, 2009 which were resulted from convertible notes issued in December of 2007. After netting-off other income, other expenses were recorded $3,513,861 during the nine months ended September 30, 2009 compared to other income of $2,459,911 during the same period of 2008.

Net Income(Loss). Net loss was $5,905,020 in the nine month periods ended September 30, 2009, a decrease of $8,808,861, or 303.35%, compared to net income of $2,792,724 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 September 30, 2009, the Company's cash was $585,041 as compared to $341,331 as of December 31, 2009.

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.

A summary of significant accounting policies is included in Note 2 to the unaudited consolidated financial statements included in this quarter 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 March 2008, the FASB issued FASB Statement No. 161, "Disclosures about Derivative Instruments and Hedging Activities"(ASC 815). 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 as amended (ASC 815); and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. FASB Statement No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity's liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important. Based on current conditions, the Company does not expect the adoption of SFAS 161(ASC 815) to have a significant impact on its results of operations or financial position.

In May 2008, FASB 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 2008, FASB issued SFASB No. 163(ASC 944), "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.

EITF Issue No. 07-5(ASC 815), "Determining Whether an Instrument (or embedded Feature) is Indexed to an Entity's Own Stock" (EITF 07-5) was issued in June 2008 to clarify how to determine whether certain instruments or features were indexed to an entity's own stock under EITF Issue No. 01-6(ASC 815),, "The Meaning of "Indexed to a Company's Own Stock" (EITF 01-6) (ASC 815),. EITF 07-5(ASC 815), applies to any freestanding financial instrument (or embedded feature) that has all of the characteristics of a derivative as defined in FAS 133, for purposes of determining whether that instrument (or embedded feature) qualifies for the first part of the paragraph 11(a) scope exception. It is also applicable to any freestanding financial instrument (e.g., gross physically settled warrants) that is potentially settled in an entity's own stock, regardless of whether it has all of the characteristics of a derivative as defined in FAS 133, for purposes of determining whether to apply EITF 00-19(ASC 815). EITF 07-5(ASC 815) does not apply to share-based payment awards within the scope of FAS 123(R), Share-Based Payment (FAS 123(R)(ASC 718)). However, an equity-linked financial instrument issued to investors to establish a market-based measure of the fair value of employee stock options is not within the scope of FAS 123(R) and therefore is subject to EITF 07-5(ASC 815).

The guidance is applicable to existing instruments and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Management is currently considering the effect of this EITF on financial statements for the year beginning July 1, 2009.

On January 12, 2009 FASB issued FSP EITF 99-20-01(ASC 325), "Amendment to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20(ASC 325), "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to be Held by a Transferor in Securitized Financial Assets," to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115(ASC 320), "Accounting for Certain Investments in Debt and Equity Securities", and other related guidance. The FSP is shall be effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The Company does not believe this pronouncement will impact its financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.