Securities
      and Exchange Commission


Washington,
      D.C. 20549










FORM
      10-KSB










**[X]**
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
                for the year ended December 31,
                2005**





**[ 
                ]**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
                for the transition period from _______ to
                _______**




**COMMISSION
      FILE NUMBER: 001-14973**










**CHINA
      DIGITAL MEDIA CORPORATION**


(Exact
      name of small business issuer as specified in its charter)





**HAIRMAX
      INTERNATIONAL, INC.**


(Former
      name of registrant)




**Nevada**
              **13-3422912**(State
                  or other jurisdiction of
              (IRS
                  Employer identification No.)incorporation
                  or organization)




**2505-06,
      25/F, Stelux House, 698 Prince Edward Road E. Kowloon, Hong
      Kong**


(Address
      of principal executive offices)





**(011)
      852-2390-8600**


(Issuer's
      telephone number)











*Table
          of Contents*




Securities
      registered under Section 12(b) of the Exchange Act:





None.





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, $.001 par value





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 [ ]





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





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 an
      amendment to this Form 10-KSB. [x]





State
      issuer's revenues for its most recent fiscal year: $7,862,281.





As
      of
      February 13, 2006 there were 31,039,676 common shares outstanding and the
      aggregate market value of the common shares (based upon the average of the
      bid
      price of $1.26 and the asked price of $1.28 reported by brokers) held by
      non-affiliates was approximately $9,892,888.





Transitional
      Small Business Disclosure Format (check one): Yes [ ] No [X]





Number
      of
      shares of common stock outstanding as of February 13, 2006:
      31,039,676


Number
      of
      shares of preferred stock outstanding as of February 13, 2006:
      1,875,000





CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING INFORMATION





The
      discussion contained in this 10-KSB under the Securities Exchange Act of 1934,
      as amended, (the "Exchange Act") contains forward-looking statements that
      involve risks and uncertainties. The issuer's actual results could differ
      significantly from those discussed herein. These include statements about our
      expectations, beliefs, intentions or strategies for the future, which we
      indicate by words or phrases such as "anticipate," "expect," "intend," "plan,"
      "will," "we believe," "the Company believes," "management believes" and similar
      language, including those set forth in the discussion under "Description of
      Business," including the "Risk Factors" described in that section, and
      "Management's Discussion and Analysis or Plan of Operation" as well as those
      discussed elsewhere in this Form 10-KSB. We base our forward-looking statements
      on information currently available to us, and we assume no obligation to update
      them.





As
      used
      in this Form 10-KSB, unless the context requires otherwise, “we” or “us” or the
“Company” means China Digital Media Corporation and its
      subsidiaries..




2





**TABLE
                OF CONTENTS**PageNoPART
                1Item
                1.
            Description
                of Business
            4Item
                2.
            Properties
            13Item
                3.
            Legal
                Proceedings
            13Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            14PART
                IIItem
                5.
            Market
                for Registrantùs
                Common Equity and Related Stockholder Matters
            14Item
                6.
            Managementùs
                Discussion and Analysis of Financial Condition and Results of Operation
                .
            16Item
                7.
            Financial
                Statements and Supplementary Data
                21
            21Item
                8.
            Changes
                with and Disagreements With Accountants on Accounting
                and Financial Disclosure
            45Item
                8A.
            Controls
                and Procedures
            46PART
                IIIItem
                9.
            Directors
                and Executive Officers of Registrant
            48Item
                10.
            Executive
                Compensation 24
            50Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
            50Item
                12.
            Certain
                Relationships and Related Transactions
            51PART
                IVItem
                13.
            Exhibits,
                Financial Statement Schedules, and Reports on Form
                8-K
            52Item
                14.
            Principal
                Accountant Fees and Services.
            53







3
 *Table
          of Contents*





PART
      I








**ITEM
      1.**  **Description
      of Business**





**Corporate
      Organization**





China
      Digital Media Corporation (”CDMC”) was previously known as HairMax
      International, Inc. (“Hairmax”), a Nevada corporation. It was incorporated in
      Nevada in 1987. Arcotect Digital Technology Limited, a corporation organized
      under the laws of Hong Kong, consummated a reverse merger with Hairmax in March,
      2005, and Hairmax subsequently changed its name to China Digital Media
      Corporation, which is the corporate name. With the termination of the original
      businesses of Hairmax, all of China Digital Media Corporation’s businesses are
      now located in the People’s Republic of China (the “PRC” or ‘China”). Arcotect
      Digital Technology Limited has changed its name to China Digimedia Holdings
      Limited (“CDHL”), and is a wholly-owned subsidiary of CDMC.





CDHL
      was
      incorporated in Hong Kong on January 5, 2000 as an investment holding company.
      Through its wholly owned subsidiary, Arcotect (Guangzhou) Ltd. (“AGL”)
      incorporated in China as a wholly owned foreign limited liability company on
      September 24, 2001. AGL is engaged in software development, digital television
      subscriber and application platform development. AGL, through its Nanhai branch
      which was established in July 8, 2004, is engaged in the business of converting
      television signals from analog into digital system using digital television
      set-top-box and smart cards.





From
      July
      1, 2004 until March 28, 2005, we operated as a Business Development Company
      regulated pursuant to Sections 55-65 of the Investment Company Act of 1940,
      as
      amended. We terminated our BDC status at a Board of Directors meeting held
      on
      March 17, 2005, in which the negative financial results for the year ended
      December 31, 2004, as well as the demands of the regulatory scheme under the
      Investment Company Act of 1940, were factors weighing in favor of our
      decision.





On
      June
      15, 2005, CDHL entered into a Strategic Alliance Agreement with shareholders
      of
      Guangdong HuaGuang Digimedia Culture Development Limited (“HuaGuang”) whereby
      CDHL will hold a 90% variable interest in HuaGuang.





On
      August
      25, 2005, CDHL acquired a 100% interest in Guangdong M-Rider Media Company
      Limited (“M-Rider”), a limited liability company in the PRC. M-Rider is doing
      the business as television advertising agency.





On
      October 17, 2005, CDHL established a wholly-owned subsidiary, Digimedia Services
      (Shenzhen) Limited (“Digimedia Shenzhen”) in the PRC. The subsidiary has no
      operations since its incorporation





CDMC,
      CDHL, AGL, HuaGuang, M-Rider and Digimedia Shenzhen are hereinafter referred
      to
      as (“the Company”). Currently, the Company has around 240 employees located
      mainly in the PRC.




4
 *Table
          of Contents*




We
      are
      engaged in one of the fastest growing industries in the PRC, i.e. the business
      of broadcasting media and cable television. Our business plan is to strengthen
      our branding and to enlarge our presence and involvement in the media industry
      through investment, mergers, acquisitions and alliance partnership. In view
      of
      the rapid growth and potential opportunities of China's media industry, we
      will
      continue to invest our resources into the market across China while looking
      for
      potential distribution partners in the United States and other
      countries.






**Operation
      Business**





We
      are
      involved in:





1)
      Cable
      television operations and digital broadcasting technology
      development;


2)
      Television channel operations and advertising sales; and


3)
      Television program production and investment.





**Cable
      Television Operations and Digital Broadcasting Technology
      Development**





Arcotect
      (Guangzhou) Ltd, (“AGL”) a wholly owned foreign subsidiary of the CDMC doing
      business in China, is the sole contractor and operator of digital television
      (“DTV”) services in Nanhai, Guangdong Province, a city with over 400,000
      residential and commercial cable television subscribers. The cable broadcasting
      system had been completely analog.





On
      February 6, 2004, we signed a Cooperative Agreement for Total Migration into
      DTV
      System for the Nanhai District and subsequently signed a supplementary agreement
      on July 8, 2005 (collectively, the “Cooperative Agreements”) with the city-owned
      cable company. Pursuant to the Cooperative Agreements, we are responsible
      for:




(1)
            migrating
                all cable television subscribers in Nanhai from an analog to a digital
                system (“Migration”) by the end of
                2007;


(2)
            providing
                the first digital set-top-box (“STB”) for free to DTV subscribers;
                and


(3)
            providing
                operational support services including operating pay-TV and interactive
                services based on DTV technology.





According
      to the Cooperative Agreements, the Nanhai government provides a grant to us
      to
      subsidize the system migration, which totals approximately $6 million, and
      we
      share in the subscription fees paid by all cable television subscribers as
      well
      as paid by DTV subscribers for additional services. The city-owned cable company
      retains management of the broadcasting system and the fiber-optic network and
      is
      responsible for compliance with national broadcasting policies. The city-owned
      cable company is also obligated to outsource operations of the digital cable
      system to us and to pay most of our operating costs. The operations include
      migration planning, marketing, sales, billing, software development, call centre
      and logistics administration.




5
 *Table
          of Contents*





The
      table
      below summarizes certain information for our DTV operations as of December
      31:





2005
            
            2004Total
                number of Cable television Subscribers
            
            404,792
            
            383,285*Residential*
            
            *347,069*
            
            *329,949**Commercial*
            
            *54,963*
            
            *50,739**Others*
            
            *2,760*
            
            *2,597*Number
                of DTV Subscribers
            
            149,182
            
            69,788*As
                a % of Total Cable Television Subscribers*
            
            *36.9%*
            
            *18.2%*Additional
                STB Subscriptions
            
            21,165
            
            8,434*As
                a % of Total DTV Subscribers*
            
            *14.2%*
            
            *12.1%*Subscribers
                to Value Added Packages
            
            15,011
            
            6,776*As
                a % of Total DTV Subscribers*
            
            *10.1%*
            
            *9.7%*





*Migration
      into DTV Service*


We
      convert the analogue cable television service of Nanhai city into digital cable
      television service on a district by district basis. Each district usually has
      a
      few thousand of subscribers. We notify television subscribers of the Migration
      plan and our services through television advertising and notices published
      at
      the district. During the Migration period, usually for 3 to 4 weeks, we set
      up a
      service centre in the district and have customer representatives visit
      subscribers for providing service installation, training and new product
      promotion. Our experience is that the success rate for on-site selling of
      additional STBs and pay-TV services is relatively high. There is a grace period
      of 30 days before analog television signal is ceased to be delivered to the
      district. Television subscribers can only watch television programs through
      our
      STB via digital cable signal. As digital television signals are encrypted,
      television watchers have to install STB and have smart cards for viewing
      television programs. In Nanhai, there is only one television cable network
      operator and program provider. Television watchers have to subscribe to digital
      service through our operations. Through the Migration project, illegal wiring
      for watching of television is eliminated. From our experience, the number of
      subscribers increased in the district after the Migration to digital signal
      and
      our subscription fee increases accordingly.





*Basic
      Services*


Basic
      service is available to all cable television subscribers, which consists of
      38
      channels of programming. This service consists of programming provided by
      national television networks, provincial and city television stations, and
      one
      channel of programming is provided by us. The basic subscription fee is
      approximately $25 per annum.





*Value
      Added Packages*


This
      is
      only available to the DTV subscribers. Our value added packages offers 92 pay
      channels of programming, which are bundled in different packages, including:
      Movies, Life & Leisure, Sports, Drama, etc. The annual subscription fees for
      the value-added packages range from $15 to $74 each.





*Addition
      STB*


In
      the
      city of Nanhai, there is an average of more than two television sets in a
      household. DTV subscribers can buy an addition STB from us for their additional
      television set and pay a subscription fee for the additional STB. The yearly
      subscription fee is about $15 per each additional STB.




6
 *Table
          of Contents*





*Other
      Revenue Sources*


We
      also
      generate revenues from installation services, selling of additional STBs and
      reconnection services.





*High-Definition
      Television (“HDTV”)*


HDTV
      features high-resolution picture quality, better audio quality and a
      wide-screen, theater-like display. We are one of the pilot operators to begin
      trials of HDTV broadcasts in China, which commenced in September
      2005.





*IP
      based STB*


We
      are
      one of the first DTV operators in China to deploy, on a trial basis, IP based
      STB. The IP based STB in trial is equipped with an Ethernet port which could
      facilitate various Internet based services to end users; such as
      video-on-demand, online shopping channels, online games and interactive
      education services. We plan to offer this new IP based STB to new DTV
      subscribers in 2006.





*Customer
      and Technical Service*


We
      service our digital and cable television subscribers by using an in-house
      developed operating support system. Our operating support system manages all
      operating processes including technical support to customers, database
      management, billing services, inventory control, sales support, call center
      services, etc. in which our call centers provide 24/7 call answering capability
      and other technical support services.





*Technology
      Development*


From
      time
      to time, we work closely with our technology partners to develop new
      technologies and additional features in order to improve and enhance our
      operations and services. In October 2005, we partnered with a system technical
      consultant to design middleware for additional functions of our digital
      STB.





*Sales,
      Marketing and Advertising*


We
      have
      120 persons on our sales team. We sell our services through direct customer
      contact, retail outlets, door-to-door selling, television advertising and road
      show promotion.





In
      2005,
      our in-house program production team produced 47 in-house television commercials
      to promote our value-added packages and related services which have been
      broadcast on-air over 87,000 times. Our sales efforts generate incremental
      revenues and enhance the number of value added package subscriptions that are
      sold.





**Television
      Channel Management and Advertising Sales**





In
      September 2005, we, through our affiliate, completed the acquisition of M-Rider,
      a television channel management and advertising sales company. M-Rider is
      currently the exclusive advertising wholesaler for a provincial television
      station. We pay a fixed fee to the television station and are responsible for
      selling advertising space to advertising customers as well as providing advice
      and consultation on scheduling and planning to enhance the effectiveness of
      their advertisement.





*Pricing
      of Advertising Sales Space*


We
      sell
      advertising to customers directly or through advertising agents. The selling
      price is a discount off the list price in terms of dollars per minute which
      is
      agreed by the broadcasting television station. It is our decision to determine
      the optimal discount for our advertising sales because we pay a fixed amount
      to
      the television station. If we sell through an advertising agent, we also give
      a
      further discount to the agent.




7
 *Table
          of Contents*





If
      the
      advertising agent is a member of American Association of Advertising Agencies,
      usually known as a 4A Agent, they will buy our advertising space in Cost Per
      Rating Points (CPRP), which is a an international standard to calculate the
      value of advertising space. We will agree with the 4A Agent on a price per
      point. When advertising commercials are aired on television, we will make use
      of
      the rating report (viewership report) provided by AC Nielson or Central Viewer
      Survey and Consulting Center of China Central Television Station (CCTV), in
      order to get the number of points on the advertised spot. The value of the
      commercials is equal to the pre-agreed CPRP multiple times the actual numbers
      of
      points.





*Media
      Planning*


We
      have
      knowledgeable media planners who have years of experience in media planning
      for
      both local advertising agents and 4A Advertising Agents. The purpose of good
      media planning is to help our customers to deliver their commercial messages
      to
      the audience through a television channel according to its profile of audience
      in a cost effective way. At the same time, we make the best use of all available
      advertising timeslots so as to maximize the value for our company.





*Sales
      & Marketing*


Our
      Sales
& Marketing team conducts research and analysis on media trends, competitor
      analysis and customers survey in order to continuously refine our sales and
      marketing strategy. We offer different bundled products to different categories
      of customers based on seasonal or yearly terms. Product bundling has been a
      very
      successful means to drive extra sales in alcoholic and pharmaceutical industry.





*Sales
      Cycle Management and Software Development*


We
      are
      implementing new sales cycle management processes to be integrated into the
      overall media and advertising management system currently under development.
      We
      intend to make use of this system to support a larger scale of sales network
      to
      suit the future needs of expansion into other cities.





While
      M-Rider pays a fixed fee for advertising exclusivity, there is considerable
      upside potential for our profitability as the rates that M-Rider charges
      increase.





**Television
      Program Production and Investment**





With
      a
      growing subscriber base, we intend to capitalize on our distribution platform
      through the production of original programming. Our plan is to develop a
      long-term presence in television program production, but we realize that program
      production is a relatively high risk venture. Accordingly, we have chosen to
      gain experience by investing through a strategic partner, Guangdong Runshi
      Movie
& Music Production Co., Ltd., which has two ingredients essential for
      success in China: a Class A license that allows filming before submitting to
      censorship, which is cost effective, and a good program distribution network.





We
      have
      made a minority investment in two television series, XiGuan Affairs, with 40
      episodes, and The Story of a Small Town, with 24 episodes. XiGuan Affairs has
      already generated revenue for us in the last quarter of 2005.




8
 *Table
          of Contents*





**Consultants
      and Strategic Partnership**




Because
      of our forthcoming investment projects, we have appointed Yan XianQi, lead
      Consultant, and Tung ZhiYong, Consultant, in June 2005. Both consultants have
      extensive knowledge and experience in the China media industry where they would
      advice on broadcasting policy, television program production, and investment
      and
      acquisition of programming. Mr. Yan was the former Director-General of State
      Administrative of Radio, Firm and Television in Guangdong Provincial, Chairman
      of Guangdong Television Artists Association and the Founder of Guangdong Cable
      Network Company. Mr. Tung was the former Vice President of Guangdong Television
      Station and Director of Television Unit in Zhujiang Movie Production House.





In
      October 2005, we engaged Manta Finance Ltd. as a consultant to advise our
      officers and employees on matters relating to digital broadcasting technology
      development and digital broadcasting related strategy.





At
      present, some of our targeted businesses are subject to certain restrictions
      in
      China. In order to enable us to invest in certain media sectors such as
      television advertising and program production before related regulations and
      policies are relaxed for foreign investors, as is predicted for the future,
      we
      have strategically partnered with a Chinese registered company, Guangdong
      HuaGuang DigiMedia Culture Development Limited (“HuaGuang”), (previously
      Guangdong Pukonyi Culture Development Limited), to invest in media businesses
      in
      China by providing funding for its investment projects and subsidizing its
      potential losses. We are the exclusive service provider to HuaGuang and we
      have
      rights to assign a key management team to its investment in media companies.
      In
      return, we receive majority of its financial return from investment projects
      as
      compensation. As part of this arrangement, we are also required by FASB No.
      46
      to consolidate HuaGuang’s majority business costs and benefits on our
      consolidated financial statements even though we maintain its legal status
      as a
      Chinese enterprise.




**Pending
      2006 Acquisition**




On
      January 31, 2006, we, through
      our affiliate
      HuaGuang, have
      entered into an agreement (the “Agreement”) to purchase
      all media related businesses, assets, business contracts and management from
      Guiyang Classic & Fashion Advertising Co., Ltd., a television program
      production and advertising company in China. Pursuant to the terms of the
      Agreement, we will pay $2.2 million, in a combination of cash and restricted
      Company common stock, which payment is subject to reduction in the event that
      the acquired assets generate a cumulative profit less than $2.5 million over
      the
      next 2 years. The management team of Guiyang Classic & Fashion Advertising
      Co., Ltd. has approximately 10 years of business experience in the media
      industry in China. They have produced television programs for different
      television channels, including the well known program, a “true man show”, as
      well as adventure, nature and tourism productions, for which they have obtained
      several national awards in the last few years. The completion of the transaction
      is subject to certain conditions, including official approval, and verification
      of assets and business contracts. We expect to complete the acquisition in
      the
      first quarter of 2006.




9
 *Table
          of Contents*
  On
        February 8, 2006, we, through
        our affiliate
        HuaGuang, entered
        into a Memorandum of Understanding (the “MOU”) to form two joint ventures (the
“JV Agreements”) with a provincial television station. Pursuant to the MOU, the
        provincial television station will grant an exclusive right to manage the
        content of its television channel while outsourcing its entire advertising
        time
        slots into two joints ventures for a term of 5 years each, with rights to
        use
        their production resources and equipment. We are committed to invest
        approximately $2.5 million into the two joint ventures over a 5 year period.
        The
        two joint ventures are not restricted to provide services to certain television
        channels and stations if an opportunity arises to provide services to other
        customers. One of the joint ventures (the “Program Management JV”) is
        responsible for providing services to a television channel including program
        sourcing, schedule planning and production of television program and major
        events. The provincial television station partner owns a 51% equity interest
        in
        the Program Management JV and we own the balance, or a 49% interest. The
        second
        joint venture (the “Advertising Agent JV”) will act as an exclusive advertising
        wholesaler for the Program Management JV to sell its advertising time slots
        to
        advertising customers. We own a 51% equity interest in the Advertising Agent
        JV
        and the provincial television station partner owns the remaining 49%
        interest. The
        completion of the transaction is subject to certain conditions, including
        government approval. We expect to complete the acquisition in the second
        quarter
        of 2006.





**Growth
      Opportunities**





After
      the
      reverse merger, we have strengthened our management team and committed ourselves
      to cover three areas of the media industry. These three areas are: cable
      television operations and digital broadcasting technology development;
      television channel management and advertising sales; and television program
      production and investment.





*Cable
      Television Operations and Digital Broadcasting Technology
      Development*


Two
      years
      of experience has made our operations and migration process efficient and
      effective which has created a substantial platform for our future growth in
      other cities with a size similar to Nanhai. We are seeking other cities to
      repeat our Migration model. Currently, 90% of the cities in China have the
      infrastructure that is capable to broadcast DTV programs, but only 10 cities
      today are undertaking the city-wide digital Migration. A number of cities have
      expressed interest in working with us because of our proven skills in marketing,
      technology and operations experience. Although the operation of a DTV service
      business is a profitable business with long term stable recurring cash flow,
      substantial upfront capital investment has prevented us from investing in other
      cities until additional cash flow can be generated or financing arranged. We
      plan to sign up one to two more cities by 2007 or 2008 when the Migration in
      Nanhai is completed. At that time, the Nanhai operation and the return on
      investment from our advertising and program production businesses should
      generate sufficient cash flow to support the development of a Migration business
      in a second or third city.





*Television
      Channel Management and Advertising Sales*


While
      M-Rider pays a fixed fee for the advertising exclusivity, there is considerable
      upside potential for our net profit as the rates it charges increase. This
      business model has the potential to be applied to other television stations
      in
      other cities as well as in other provinces. We plan to sign more exclusive
      contracts with television stations in order to drive the growth in this sector.




10
 *Table
          of Contents*





*Television
      Program Production and Investment*


There
      is
      a reasonable probability of a positive return on investment in the production
      of
      television programs. When investment opportunities are available, we intend
      to
      invest in an additional television series on a minority basis in
      2006.





The
      acquisition of program production capability and an advertising company, and
      the
      setting up of two joint ventures with a provincial television station, should
      result in our being able to integrate our advertising and program production
      business and gain a competitive advantage in the China media industry. As an
      exclusive program planner, program producer and sourcing agent, the Program
      Management JV will help to enhance total viewership of the provincial television
      channel. This should build the value of the channel and its advertising sales.
      We believe that our integration of program production and advertising sales
      will
      be successful and we will duplicate this model in other cities or provinces
      in
      China.





**Growth
      Strategies**





In
      summary, we have already established a successful and profitable model for
      our
      DTV service in Nanhai. For the near term, we will drive our growth in
      advertising sales by building up a good customer base of international and
      domestic brand companies. In the mid or longer term, we will make use of the
      cash flow generated from our existing operations to invest and to replicate
      our
      successful business model in DTV service and integrated program production
      and
      advertising in other cities or provinces in China. In order to maintain our
      competitive edge and speed up our growth, we may enter into further investment,
      acquisition and alliances partnership arrangement. We may also seek further
      funding from the capital markets when suitable arrangements are available.
      We
      are also considering applying for the listing of our common stock on a National
      Exchange, such as the Nasdaq or the AMEX, when the Company meets listing
      requirements.





**Government
      Regulation**





The
      media
      industry in the PRC is subject to government control and censorship. Due to
      the
      PRC’s admission to membership in the World Trade Organization, the government is
      committed to opening its domestic markets for foreign investors and this should
      favorably impact the media industry. Some restrictions on the Company’s
      businesses have already been relaxed. For example, as a foreign company, we
      can
      now own a 100% equity interest in a company in the advertising business and
      up
      to a 49% equity interest in a company in the program production business.
      According to current regulations, we may take up to two to three years to
      qualify for holding an equity interest in certain media business. In order
      to
      avoid unnecessary delays, and to be able to invest in the media sectors such
      as
      television advertising and program production, we have strategically partnered
      with a Chinese registered company, Guangdong HuaGuang DigiMedia Culture
      Development Limited (“HuaGuang”), (previously Guangdong Pukonyi Culture
      Development Limited), to invest into media businesses in China by providing
      funding support for its invested projects and subsidizing its potential losses.
      We are its exclusive service provider and we have rights to assign a key
      management team to its investment companies. In return, we receive majority
      of
      its financial return as compensation. Through HuaGuang, we obtained majority
      business benefits of these companies while maintaining their legal status as
      Chinese enterprises. Our Chinese counsel has reviewed this arrangement and
      expressed the opinion that it comports with the foreign investment laws of
      the
      PRC.





**Effects
      of Inflation**





Our
      principal business is related to the media industry in China. Revenues and
      expenses remain relatively constant and are not affected by the levels of
      inflation in China or elsewhere. For the foreseeable future, we do not
      anticipate that inflation will affect our business.




11
 *Table
          of Contents*





**Competition**





*Cable
      Television*





In
      China,
      television has been the vehicle for the government to distribute information
      to
      the public. While government officials intend to control and monitor the content
      to be delivered through other broadcasting systems, the exertion of control
      on
      these other broadcasting systems may not be as dominant as it is for television.
      For this reason, the use of other methods of broadcasting systems to obtain
      licences for distribution of content will be difficult. For the forseeable
      future, government officials prefer to control the distribution of content
      through the cable television network. In order to enhance and effectively
      control the distribution of content, government officals plan to convert the
      current analogue television broadcasting signal into a digital signal. It is
      believed that cable television will remain as the main form of delivery for
      television programming in China in the coming years although there will be
      competition from satellite, IP television and other media.





*Advertising
      Sales*





Television
      advertising time sales is the major source of revenue for television stations
      and operators. Advertising time sales are directly related to a channel’s
      audience population and viewership. The PRC government exerts control over
      television programming content by supporting the China Central Television
      (“CCTV”) as the dominant broadcaster. CCTV has the largest audience base in
      China and there are 8 television channels available across the country. By
      the
      end of 2003, China had 37 national cable television stations, 363 city-level
      television stations, and 1,424 country-level cable television stations, which
      are permitted to have their own localized television channels and programs.
      Although CCTV has a strong influence on broadcasting in the country, localized
      television contents can serve the needs of audiences down to the city levels.
      Advertising revenues generated by local television stations are substantial.
      Recently, country-level cable television stations have tendered their television
      channels/air time to advertising agencies at fixed cost in order to generate
      guaranteed income. Competition in different parts of the country is fierce
      between advertising agencies and television channels at the provincial and
      city
      levels. In order to maximize profit, advertising agencies have begun to provide
      their own content to increase their channels’ viewership. Because of this trend,
      some advertising firms are trying to vertically integrate their business into
      program sourcing and production. It is believed that the television advertising
      industry will remain fiercely competitive and media firms will integrate their
      scope of business to include program production, sourcing and advertising sales.





*Television
      Program Production*





In
      China,
      there are many program production houses. Most of them are small individual
      firms and their size cannot be compared to the larger production houses common
      in the U.S. According to the PRC regulations, television programs distributed
      through television channel must be pre-approval by the relevant governmental
      departments before production begins. Provincial level television stations
      usually have Class A licenses. There are, however, few private Class A license
      production houses in China. Production houses with a Class A license have more
      freedom in the selection of programs and can obtain distribution approval before
      commencing production. This shortens the production cycle and the return on
      investment is higher. Our television program production investment is through
      a
      well-known production house with a Class A license so that the risk to our
      investment is relatively low. In view of the fierce competitive environment
      in
      China, the Company has planned cooperation and joint venture arrangements with
      television stations in television program production, and also makes programs
      available for exchange with television channel advertising time. This is also
      one of the successful models operated by some of the advertising firms. We
      anticipate that this strategy will enable us to expand our sales of programs
      and
      enlarge our advertising network to meet with the competition in the
      industry.




12
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          of Contents*





**Controls
      and Procedures**





(a)
      We
      have designed and applied our disclosure controls and procedures to assure
      that
      1) recorded transactions are valid; 2) valid transactions are recorded; and
      3)
      transactions are recorded in the proper period in a timely manner to produce
      financial statements which present fairly the financial condition, results
      of
      operations and cash flows for the respective periods being presented. Moreover,
      the evaluation did not reveal any significant deficiencies or material
      weaknesses in our disclosure controls and procedures.





(b)
      There
      have been no significant changes in our internal controls or in other factors
      that could significantly affect these controls since the last
      evaluation.





**Reports
      to Security Holders**





We
      are
      not required to deliver an annual report to security holders and we do not
      presently intend to voluntarily deliver such reports. However, should we choose
      to create and deliver annual reports to security holders, such annual reports
      will contain audited financial statements. We file all of our required
      information with the Securities and Exchange Commission (the "Commission"),
      including Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB,
      and
      Current Reports on Form 8-K. The public may read and copy any materials that
      are
      filed by us with the Commission at the Commission's Public Reference Room at
      450
      Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information
      on
      the operation of the Public Reference Room by calling the Commission at
      1-800-SEC-0330. The statements and reports filed by us with the Commission
      have
      been filed electronically and are available for viewing or copy on the
      Commission maintained Internet site that contains reports, proxy, and
      information statements, and other information regarding issuers that file
      electronically with the Commission. The Internet address for this site can
      be
      found at: http://www.sec.gov.





**ITEM
      2. Properties**





We
      leased
      an office for our subsidiary, Arcotect (Guangzhou) Limited, Nanhai Branch,
      with
      346 square meters for operation and paid total rent of $2,453 for year 2005.
      We
      leased an office for our subsidiary, AGL with 200 square meters for operation
      and paid total rent of $22,090 for year 2005. We leased an office for our
      subsidiary, Digimedia Service (Shenzhen) Limited, with 13 square meters and
      paid
      total rent of $1,664 for year 2005. Our variable interest entity (“VIE”) leased
      an office with 654 square meters and paid total rent of $18,515 for year 2005.
      We leased seven staff quarters with total area of 872 square meters and paid
      total rent of $9,144 for year 2005. All the above noncancelable leases expire
      at
      various dates through October 16, 2006 and shall be renewed according to their
      terms and conditions.





**ITEM
      3. Legal Proceedings**





As
      previously reported, a Complaint, dated March 3, 2005, in the matter of RM
      Coral
      Palm Plaza, Ltd., a Florida limited partnership, Plaintiff, vs. Hairmax of
      Florida, Inc. f/k/a National Beauty Corporation, a Florida corporation, and
      Hairmax International, Inc., f/k/a National Beauty Corporation, a Nevada
      corporation, Defendants, was filed in the Circuit Court of the Seventeenth
      Judicial Circuit in and for Broward County, Florida. The Complaint arose out
      of
      an alleged breach of lease by defendants Hairmax of Florida, Inc. and Hairmax
      International, Inc., with respect to its operation of a hair salon located
      at
      2031 North University Drive, Coral Springs, Florida 33071.




13
 *Table
          of Contents*





On
      April
      15, 2005, the parties entered into a Settlement Agreement that provided that
      the
      litigation would be dismissed with prejudice in exchange for the payment by
      the
      Defendants of an aggregate amount equal to $15,000. It was agreed that payment
      would be made in an amount equal to $10,000 upon execution of the Settlement
      Agreement, with the remaining $5,000 being paid in two installments by September
      5, 2005.





On
      May
      24, 2005, a Complaint was filed against us, among others, in the United States
      District Court for the Southern District of New York, in a matter captioned
      as
“Ziegler, Ziegler & Associates LLP and Scott Ziegler, Plaintiffs, v. China
      Digital Media Corporation and John Does 1-10, Defendants.” In the Complaint, the
      Plaintiffs allege, among other things, that we and John Does 1-10 used Plaintiff
      Scott Zeigler’s e-mail address and Plaintiff Ziegler, Ziegler & Associates,
      LLP’s internet domain name to distribute promotional information about us over
      the internet. The Plaintiffs seek a several types of relief, including damages
      in an amount not less than $1,250,000. Pre-trial discovery has commenced in
      the
      matter. The file number of the civil action is 05 CV 4960.





The
      Company contested the allegations of the Plaintiffs and has retained counsel
      admitted to practice in the U.S. District Court for the Southern District of
      New
      York to vigorously defend the action. The Company did not hire a stock promoter
      or a spammer to distribute promotional e-mails, and the emails themselves recite
      that they were paid for by a shareholder of our Company, and not by the Company
      or an affiliate. We believe that the shareholder referred to in the emails
      was
      promoting its own interest and we had nothing to do with such activity. We
      believe we have no liability in this matter.





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





None.





PART
      II





**ITEM
      5. Market for the Registrant’s Common Stock and Related Security Holder Matters**





(a)
            The
                principal market in which our common stock is traded is the
                Over-the-Counter Bulletin Board, under the symbol “CDGT”. The table below
                presents the high and low bid price for our common stock each quarter
                during the past two years and reflects inter-dealer prices, without
                retail
                markup, markdown, or commission, and may not represent actual
                transactions. We obtained the following information from QuoteMedia.com,
                an on-line source that provides historical pricing information.




Quarter
                  Ended
              Low
              High03/31/04
              10.00
              20.0006/30/04
              7.00
              18.0009/30/04
              4.00
              9.0012/31/04
              2.00
              9.0003/31/05
              1.01
              1.3006/30/05
              4.10
              4.4009/30/05
              1.85
              1.9012/31/05
              1.26
              1.55




14
 *Table
          of Contents*




The
      above
      stock prices have been retroactively adjusted in the above table a 100 for
      1
      reverse split in 2004.





(b)
      Holders. The approximate number of holders of record of the Registrant's Common
      Stock as of December 31, 2005 was 79.





(c)
      The
      Registrant has not paid dividends from inception to date and does not currently
      intend to do so.





Dividends





We
      have
      not declared any cash dividends on our common stock since our inception and
      do
      not anticipate paying such dividends in the foreseeable future. We plan to
      retain any future earnings for use in our business. Any decisions as to future
      payment of dividends will depend on our earnings and financial position and
      such
      other factors, as the Board of Directors deems relevant.





Dividend
      Policy





All
      shares of common stock are entitled to participate proportionally in dividends
      if our Board of Directors declares them out of the funds legally available.
      These dividends may be paid in cash, property or additional shares of common
      stock. We have not paid any dividends since our inception and presently
      anticipate that all earnings, if any, will be retained for development of our
      business. Any future dividends will be at the discretion of our Board of
      Directors and will depend upon, among other things, our future earnings,
      operating and financial condition, capital requirements, and other
      factors.





Our
      Shares are "Penny Stocks" within the Meaning of the Securities Exchange Act
      of
      1934.





Our
      Shares are "penny stocks" within the definition of that term as contained in
      the
      Securities Exchange Act of 1934, generally equity securities with a price of
      less than $5.00. Our shares will then be subject to rules that impose sales
      practice and disclosure requirements on certain broker-dealers who engage in
      certain transactions involving a penny stock.





Under
      the
      penny stock regulations, a broker-dealer selling penny stock to anyone other
      than an established customer or "accredited investor" must make a special
      suitability determination for the purchaser and must receive the purchaser's
      written consent to the transaction prior to the sale, unless the broker-dealer
      is otherwise exempt. Generally, an individual with a net worth in excess of
      $1,000,000 or annual income exceeding $200,000 individually or $300,000 together
      with his or her spouse is considered an accredited investor. In addition, unless
      the broker-dealer or the transaction is otherwise exempt, the penny stock
      regulations require the broker-dealer to deliver, prior to any transaction
      involving a penny stock, a disclosure schedule prepared by the Securities and
      Exchange Commission relating to the penny stock market. A broker-dealer is
      also
      required to disclose commissions payable to the broker-dealer and the Registered
      Representative and current bid and offer quotations for the securities. In
      addition a broker-dealer is required to send monthly statements disclosing
      recent price information with respect to the penny stock held in a customer's
      account, the account’s value and information regarding the limited market in
      penny stocks. As a result of these regulations, the ability of broker-dealers
      to
      sell our stock may affect the ability of Selling Security Holders or other
      holders to sell their shares in the secondary market. In addition, the penny
      stock rules generally require that prior to a transaction in a penny stock,
      the
      broker-dealer make a special written determination that the penny stock is
      a
      suitable investment for the purchaser and receive the purchaser's written
      agreement to the transaction.




15
 *Table
          of Contents*





These
      disclosure requirements may have the effect of reducing the level of trading
      activity in the secondary market for a stock that becomes subject to the penny
      stock rules. These additional sales practice and disclosure requirements could
      impede the sale of our securities, if our securities become publicly traded.
      In
      addition, the liquidity for our securities may be adversely affected, with
      concomitant adverse affects on the price our securities. Our shares may someday
      be subject to such penny stock rules and our shareholders will, in all
      likelihood, find it difficult to sell their securities.





**ITEM
      6.**  **Management’s
      Discussion and Analysis**





This
      discussion and analysis should be read in conjunction with the Company’s
      Consolidated Financial Statements and related notes thereto included in Part
      II,
      Item 7 of this Report. All amounts are expressed in U.S. dollars. Please also
      refer to our forward-looking information regarding our





Introduction





We
      are a
      Nevada corporation that legally changed our corporate name in March 2005 to
      China Digital Media Corporation and was previously known as Hairmax
      International, Inc.





The
      financial statements below include the CDMC’s wholly owned subsidiaries, China
      Digimedia Holdings Limited, Arcotect (Guangzhou) Limited, Digimedia Service
      (Shenzhen) Limited, Guangdong M-Rider Media Company since its acquisition on
      August 25, 2005 and 90% variable interest entity (“VIE”), Guangdong HuaGuang
      Digimedia Culture Development Limited since the effective date of the agreement
      on August 31, 2005.





Selected
                financial dataYear
                Ended December 312005
            
            2004Net
                sales
            
            $
            7,862,281
            
            $
            3,864,407Net
                profit after tax
            
            
            4,041,619
            
            
            1,945,743Net
                income per share -basic
            
            
            0.14
            
            
            1.30Net
                income per share -fully diluted
            
            
            0.11
            
            
            1.30Weighted
                average shares outstanding - basic
            
            
            28,231,555
            
            
            1,500,000Weighted
                average shares outstanding - fully diluted
            
            
            37,627,388
            
            
            1,500,000Total
                assets
            
            
            17,803,089
            
            
            6,573,322Working
                Capital (Deficit)
            
            
            (446,454
            )
            
            (2,215,939
            )Shareholders'
                equity
            
            
            10,582,961
            
            
            3,218,999




No
      dividends have been declared or paid for any of the periods
      presented




16
 *Table
          of Contents*





**CONSOLIDATED
      RESULTS OF OPERATIONS**





Year
      Ended December 31, 2005 Compared to Year Ended December 31, 2004





Other
      Comprehensive Income





We
      had
      other comprehensive loss, for the twelve months ended December 31, 2005 of
      $38,706. The loss was principally attributable to foreign currency translation
      of RMB and Hong Kong dollar against the Dollar.




Sales





Sales
      for
      the fiscal year ended December 31, 2005 were $7,862,281 as compared to revenues
      of $3,864,407 for the fiscal year ended December 31, 2004, an increase of
      $3,997,874. The increase was mainly due to the good progress in Nanhai
      digitalization television project. Because of the digitalization project,
      television subscribers had to install STBs in order to watch television
      programs. Both the number of new residential and commercial television
      subscribers increased significantly. In 2005, the total number of DTV
      subscribers increased to 149,182 from 69,788 in 2004. Revenues from new
      installation, additional STB subscriptions and Pay-television remained the
      major
      contribution to the revenue for the year end result. Number of additional STB
      subscribers increased by 151% from 8,434 in 2004 to 21,165 in 2005 and number
      of
      value added packages subscription raised by 122% from 6,776 in 2004 to 15,011
      in
      2005. The digitalization project will continue in 2006 and we expect that
      revenue would continue to grow before the completion of Nanhai project in 2007.
      The newly-acquired advertising agency and income from television program
      production also contributed to the total sales amount. As we completed the
      acquisition by the end of August 2005 and the investment in television program
      production was commencing in the second half of the year, we only recorded
      four
      months of results from M-Rider and part of the sales proceeds from television
      program production into our consolidated results for the year 2005.
      Nevertheless, the revenue from the new acquisition and investment represented
      approximately 10% of our total revenues. The Board anticipates that these
      segments of revenues will continue to grow and form an important part of our
      business in the coming years.





Net
      Income





We
      had
      net income of $4,041,619 or $0.14 per common share for the year ended December
      31, 2005, as compared to the net income of $1,945,743 for last fiscal year
      ended
      December 31, 2004, an increase of $2,095,876. The increase in net income was
      primarily due to an increase in subscription revenues from commercial and new
      television subscribers and a discount received for the purchase of STB from
      our
      vendor. Because of our acquisition of M-Rider in August 25, 2005, and investment
      in television program production, we have a new source of revenue from
      advertising and sales of television programming.




17
 *Table
          of Contents*




Minority
      Interest





Minority
      interest in the profits and losses of one of our consolidated variable interest
      represents the minority shareholders’ share of the profits or losses in such
      variable interest entity. For the year ended December 31, 2005, we recognized
      and recorded minority share in our profit of $7,899.




Other
      Income





We
      had
      other net income for the year ended December 31, 2005 of $1,988,874 as compared
      to other net income of $1,802 for last fiscal year ended December 31, 2004.
      The
      increase is mainly attributable to the volume discount received from our STBs
      vendor of $1,794,897.




Earnings
      before interest, tax, depreciation and amortization (“EBITDA”)





EBITDA
      for the whole year 2005 was $5,059,031. The increase of $2,387,014 or 89%,
      from
      $2,672,017 of last fiscal year ended December 31, 2004 was due primarily to
      the
      increase in total revenue, substantial other income from bulk discounts and
      gross profit margin.





Expenses





Selling,
      general, administrative and depreciation and amortization expenses for the
      twelve months ended December 31, 2005 increased by $1,899,137 or 220% to
      $2,763,568 in comparison with the last fiscal year ended December 31, 2004.
      The
      increase was mainly due to the increase in business activities to support
      increased revenue, appointment of additional personnel for the development
      of
      new value-added business and the negotiation of new business in television
      drama
      production and the operation of newly acquired subsidiary. Depreciation and
      amortization increased by $1,027,178 for the year ended December 31, 2005 due
      to
      the increase in the total number of STB for the migration of analog television
      into DTV project in Nanhai. We anticipate that depreciation and amortization
      expenses will continue to increase until the whole of 400,000 existing
      television subscribers are digitalized and the STBs are fully
      depreciated.





Income
      Taxes





Income
      taxes are provided in accordance with Statement of Financial Accounting
      Standards No. 109 (SFAS No. 109), “ *Accounting
      for Income Taxes* .”
A
      deferred tax asset or liability is recorded for all temporary differences
      between financial and tax reporting and net operating loss-carry
      forwards.




18
 *Table
          of Contents*





Non-Operating
      Expense Items





Recorded
      interest expense is attributable to interest paid on the outstanding shareholder
      loan balances during the 2005 periods.





Liquid
      Market





There
      is
      currently a limited trading market for our shares of Common Stock, and there
      can
      be no assurance that a more substantial market will ever develop or be
      maintained. Any market price for our shares of common stock is likely to be
      very
      volatile, and numerous factors beyond our control may have a significant adverse
      effect. In addition, the stock markets generally have experienced, and continue
      to experience, extreme price and volume fluctuations which have affected the
      market price of many small capital companies and which have often been unrelated
      to the operating performance of these companies. These broad market
      fluctuations, as well as general economic and political conditions, may also
      adversely affect the market price of our common stock. Further, there is no
      correlation between the present limited market price of our common stock and
      our
      revenues, book value, assets or other established criteria of value. The present
      limited quotations of our common stock should not be considered indicative
      of
      the actual value of our common stock.





Dividends





We
      have
      not paid any cash dividends to date and does not anticipate or contemplate
      paying cash dividends in the foreseeable future until earnings would generate
      funds in excess of those required to provide for our growth needs. **** We currently intend to retain any future earnings to fund the development and
      growth of its business.





Impact
      of
      Inflation





We
      believe that inflation has had a negligible effect on operations over the past
      two years. We believe that it can offset inflationary increases in the cost
      of
      labor by increasing sales and improving operating efficiencies.





Recent
      Sales of Unregistered Securities





During
      the fourth quarter of 2005, we signed an agreement to issue 800,000 shares
      to an
      investor, Manta Finance Limited, for US$1.0 million. The shares were issued
      in
      January, 2006. Manta Finance has a consultant agreement with us under which
      it
      has agreed to provide us with technical services in connection with the
      digitalization of cable television. The shares were issued at a price of $1.25
      per share, and we believed the issuance to be exempt pursuant to Regulation
      S
      under the Securities Act of 1933, as amended.





Trends,
      Events, and Uncertainties





Demand
      for our DTV services is stable as cable television service in Nanhai is
      monopolized by the local television bureau. The increase of DTV subscribers
      depends on the digitalization schedule. The number of subscribers will increase
      according to our plan and according to the rate of increase of residences in
      Nanhai. We are uncertain about the impact of technological changes on our
      business such as developments in IP TV, satellite and terrestrial broadcasting.
      However, we are studying the technology and will put more resources in the
      R&D in order to compete effectively with all technological
      development.




19
 *Table
          of Contents*





In
      advertising sales, we plan to enter into more exclusive television channel
      arrangements in order to increase our sales volume and try to boost our
      advertising rate. We expect that revenue will increase as the 2008 for Olympic
      Games hosted by the PRC in Beijing approach. We, however, have a concern that
      the cost to obtain exclusive television channel arrangements will escalate
      since
      the PRC is opening its advertising market to foreign investors.





Television
      program production will generate stable revenue for the Company. We believe
      that
      the government policy of the PRC to control the production and publication
      of
      media content, especially movie and television drama, is the most important
      factor. However, due to the demand of television programs and the digitalization
      of television as the primary task for SARFT, we anticipate that more investors
      will be allowed to enter the market and competition will be
      increased.





**Liquidity
      and Capital Resources**





Years
      ended December 31, 2005 and December 31, 2004





On
      December 31, 2005, we had cash of $1,124,912 and a working capital deficit
      of
      $446,454. This compares with cash of $160,177 and a working capital deficit
      of
      $2,215,939 at December 31, 2004. The increase in cash and decrease in working
      capital deficit was mainly due to receivable collections from Nanhai Network
      Company, additional paid in capital for the Company and the reduction of
      accounts payable to vendors. Operating activities had a net generation of cash
      in the amount of $3,760,857 for the whole year ended December 31, 2005
      reflecting an excess of revenues over expenditure and increased depreciation
      as
      mentioned above.





Net
      cash
      used in investing activities for the year ended December 31, 2005 was $5,823,507
      as compared with net cash used in investing activities of $5,831,289 for the
      last fiscal year ended December 31, 2004. Cash used for purchase of property
      and
      equipment decreased slightly by $49,478 for the year ended December 31, 2005
      over the previous fiscal year of 2004 was mainly due to a bulk discount for
      purchase of STBs received during the year of 2005.





Net
      cash
      provided by financing activities for the year ended December 31, 2005 was
      $3,066,091, representing an increase of $1,961,588 over the previous fiscal
      year
      of 2004. The net cash provided by financing activities was mainly due to the
      issuance of new shares to independent investors.





We
      had
      commenced to receive cash inflow from Nanhai Network Company according to the
      schedule for collecting basic television subscription fees commencing from
      July
      of 2005. The Company's investment in STBs and smart cards generated substantial
      accounts payable at December 31, 2005. In December of 2005, we changed our
      vendor for supplying of STBs resulting in more favorable price and payment
      terms. Due to the new acquisition in 2005, additional cash was required. We
      completed two placements of shares for cash to support our acquisitions in
      2005.
      For further business expansion and pending acquisition, we are now considering
      other financing method for funding. Such arrangements are in progress.




On
      a
      long-term basis, liquidity is dependent on continuation and expansion of
      operations, receipt of revenues, additional infusions of capital and debt
      financing. We continue to make acquisition to capture the growing opportunities
      in China. Our current capital and revenues are not sufficient to fund such
      acquisition and business expansion. We plan to raise capital through financing
      and additional follow-on stock offering. Funds would also be used to acquire
      media production firms and operate more exclusive television channels. However,
      we may not be able to obtain additional equity or debt financing in the future,
      if at all. If we are unable to raise additional capital, the growth potential
      will be adversely affected. Additionally, we will have to significantly modify
      its plans.





Critical
      Accounting Policies (FR-60)





Revenue
      recognition is a critical accounting policy of ours since it represents the
      majority of our entire financial statements taken as a whole. It is also
      important in light of the Staff Accounting Bulletins published by the Securities
      and Exchange Commission the past few years.




20
 *Table
          of Contents*




**ITEM
      7. Financial Statements**










CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES





CONSOLIDATED
      FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004











21
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES





CONTENTS


PagesReport
                  of Independent Registered Public Accounting
                  Firm
              23Consolidated
                  Balance Sheets as of December 31, 2005 and
                  2004
              24Consolidated
                  Statements of Operations for the years ended
                  December 31, 2005 and 2004
              25Consolidated
                  Statements of Stockholders’ Equity for the years
                  ended December 31, 2005 and 2004
              26Consolidated
                  Statements of Cash Flows for the years ended
                  December 31, 2005 and 2004
              28Notes
                  to the Consolidated Financial Statements as of December
                  31, 2005 and 2004
              29-44







22
 *Table
          of Contents*




**Jimmy
                C.H. Cheung & Co**
              *Certified
                Public Accountants*
              *(A
                member of Kreston International)*
            Registered
                with the Public Company AccountingOversight
                Board




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** ****







To
      the
      Board of Directors of:


China
      Digital Media Corporation and subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of China Digital Media
      Corporation and subsidiaries, as of December 31, 2005 and 2004 and the related
      consolidated statements of operations, stockholders’ equity and cash flows for the
      years
      ended December 31, 2005 and 200 4.
      These
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





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 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
      financial statement presentation. We believe that our audits of the financial
      statements provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of China Digital Media Corporation
      and
      subsidiaries, as of December 31, 2005 and 2004, and the results of its
      operations and its cash flows for the years ended December 31, 2005 and 2004,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.

















**/s/
      JIMMY C.H. CHEUNG & CO**


Certified
      Public Accountants








Hong
      Kong





Date:
      January 23, 2006













1607
                Dominion Centre, 43 Queen’s Road East, Wanchai, Hong Kong
              Tel:
                (852) 25295500 Fax: (852) 28651067 Email:
                jchc@krestoninternational.com.hk
              Website:
                http://www.jimmycheungco.com





23
 *Table
          of Contents*


CHINA
                    DIGITAL MEDIA CORPORATION
                  (PREVIOUSLY
                    HAIRMAX INTERNATIONAL, INC.)
                  AND
                    SUBSIDIARIES
                  CONSOLIDATED
                    BALANCE SHEETS
                  AS
                    OF DECEMBER 31, 2005 AND 2004**ASSETS**2005
              
              2004**CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              
              
              
              $
              1,124,912
              
              $
              160,177Accounts
                  receivable, net of allowance
              
              
              
              
              
              4,444,087
              
              
              311,411Due
                  from directors
              
              
              
              
              
              -
              
              
              26,442Inventories,
                  net
              
              
              
              
              
              426,027
              
              
              619,632Other
                  receivables and prepaid expenses
              
              
              
              
              
              750,591
              
              
              20,722Total
                  Current Assets
              
              
              
              
              
              6,745,617
              
              
              1,138,384**INTANGIBLE
                  ASSETS**
              
              
              
              
              
              392,521
              
              
              -**INVESTMENTS
                  IN TELEVISION SERIES, NET**
              
              
              
              
              
              771,115
              
              
              -**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              
              
              
              9,893,836
              
              
              5,434,938**TOTAL
                  ASSETS**
              
              
              
              
              $
              17,803,089
              
              $
              6,573,322**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              
              
              
              $
              4,792,339
              
              $
              2,882,104Other
                  payables and accrued liabilities
              
              
              
              
              
              248,675
              
              
              41,795Due
                  to a director
              
              
              
              
              
              41,981
              
              
              62,464Due
                  to a related company
              
              
              
              
              
              218,394
              
              
              29,690Value
                  added tax payable
              
              
              
              
              
              16,330
              
              
              25,634Income
                  tax payable
              
              
              
              
              
              1,874,352
              
              
              312,636Total
                  Current Liabilities
              
              
              
              
              
              7,192,071
              
              
              3,354,323**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              
              
              
              -
              
              
              -**MINORITY
                  INTERESTS**
              
              
              
              
              
              28,057
              
              
              -**STOCKHOLDERS'
                  EQUITY**Series
                  A convertible preferred stock ($0.001 par value, 40,000,000
                  sharesauthorized,
                  1,875,000 shares issued and outstanding as ofDecember
                  31, 2005; Nil shares issued and outstandingas
                  of December 31, 2004)
              
              
              
              
              
              1,875
              
              
              -Series
                  B convertible preferred stock ($0.001 par value, 1,000
                  sharesauthorized,
                  nil share issued and outstanding)
              
              
              
              
              
              -
              
              
              -Common
                  stock ($0.001 par value, 500,000,000 shares authorized,31,039,676
                  shares issued and outstanding as ofDecember
                  31, 2005; 1,500,000 shares issued and outstandingas
                  of December 31, 2004)
              
              
              
              
              
              31,040
              
              
              1,500Additional
                  paid-in capital
              
              
              
              
              
              4,907,679
              
              
              1,303,678Deferred
                  compensation
              
              
              
              
              
              (50,433
              )
              
              -Retained
                  earningsUnappropriated
              
              
              
              
              
              4,775,163
              
              
              1,380,409Appropriated
              
              
              
              
              
              956,343
              
              
              309,478Due
                  to a stockholder
              
              
              
              
              
              -
              
              
              223,934Accumulated
                  other comprehensive loss
              
              
              
              
              
              (38,706
              )
              
              -Total
                  Stockholders' Equity
              
              
              
              
              
              10,582,961
              
              
              3,218,999**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              
              
              
              
              17,803,089
              
              
              6,573,322$
              17,831,146
              
              $
              6,573,322






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




24
 *Table
          of Contents*


CHINA
                    DIGITAL MEDIA CORPORATION
                  (PREVIOUSLY
                    HAIRMAX INTERNATIONAL, INC.)
                  AND
                    SUBSIDIARIES
                  CONSOLIDATED
                    STATEMENTS OF OPERATIONS
                  FOR
                    THE YEARS ENDED DECEMBER 31, 2005 AND 20042005
              
              2004**NET
                  SALES**Revenue
                  from digitalization of television signals
              
              $
              5,391,730
              
              $
              2,595,838Revenue
                  from software development
              
              
              66,716
              
              
              59,087Revenue
                  from television advertising
              
              
              1,048,175
              
              
              -Income
                  from investment in television series
              
              
              123,274
              
              
              -Government
                  grant
              
              
              1,232,386
              
              
              1,209,4827,862,281
              
              
              3,864,407**COST
                  OF SALES**
              
              
              (1,482,300
              )
              
              (743,399
              )**GROSS
                  PROFIT**
              
              
              6,379,981
              
              
              3,121,008**OPERATING
                  EXPENSES**Selling,
                  general and administrative expenses
              
              
              1,320,950
              
              
              448,991Depreciation
                  and amortization
              
              
              1,442,618
              
              
              415,440Total
                  Operating Expenses
              
              
              2,763,568
              
              
              864,431**INCOME
                  FROM OPERATIONS**
              
              
              3,616,413
              
              
              2,256,577**OTHER
                  INCOME (EXPENSES)**Interest
                  income
              
              
              218,035
              
              
              1,095Interest
                  paid to related companies
              
              
              (9,542
              )
              
              -Volume
                  discount earned
              
              
              1,794,897
              
              
              -Other
                  (expenses) income, net
              
              
              (14,516
              )
              
              707Total
                  Other Income
              
              
              1,988,874
              
              
              1,802**INCOME
                  FROM OPERATIONS BEFORE TAXES**
              
              
              5,605,287
              
              
              2,258,379**INCOME
                  TAX EXPENSE**
              
              
              (1,555,769
              )
              
              (312,636
              )Minority
                  interests
              
              
              (7,899
              )
              
              -**NET
                  INCOME**
              
              $
              4,041,619
              
              $
              1,945,743**OTHER
                  COMPREHENSIVE LOSS**Foreign
                  currency translation loss
              
              
              (38,706
              )
              
              -**COMPREHENSIVE
                  INCOME**
              
              $
              4,002,913
              
              $
              1,945,743**Net
                  income per share-basic**
              
              $
              0.14
              
              $
              1.30**Net
                  income per share-diluted**
              
              $
              0.11
              
              $
              1.30Weighted
                  average number of shares outstanding during the year-basic
              
              
              28,231,555
              
              
              1,500,000Weighted
                  average number of shares outstanding during the year-diluted
              
              
              37,627,388
              
              
              1,500,000




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





25
 *Table
          of Contents*




CHINA
                    DIGITAL MEDIA CORPORATION
                  (PREVIOUSLY
                    HAIRMAX INTERNATIONAL, INC.)
                  AND
                    SUBSIDIARIES
                  CONSOLIDATED
                    STATEMENTS OF STOCKHOLDERS’ EQUITY
                  FOR
                    THE YEARS ENDED DECEMBER 31, 2005 AND 2004Series
                    A Convertible
                
                
                
                
                
                Series
                    B Convertible
                
                
                
                
                
                
                
                
                
                Additional
                
                
                
                Unappropriated
                
                Appropriated
                
                
                
                OtherPreferred
                    Stock
                
                
                
                
                
                Preferred
                    Stock
                
                
                
                
                
                Common
                    Stock
                
                
                
                paid-in
                
                Deferred
                
                retained
                
                retained
                
                Due
                    to
                
                CmprehensiveShares
                
                
                
                Amount
                
                Shares
                
                
                
                Amount
                
                Shares
                
                
                
                Amount
                
                capital
                
                Compensation
                
                earnings
                
                earnings
                
                stockholder
                
                loss
                
                TotalBalance
                    at January 1, 2003
                
                
                -
                
                
                
                
                $
                -
                
                
                -
                
                
                
                
                $
                -
                
                
                1,500,000
                
                
                
                
                $
                1,500
                
                $
                199,175
                
                
                -
                
                $
                (255,856
                )
                $
                -
                
                $
                -
                
                $
                -
                
                $
                (55,181
                )Capital
                    contribution from stockholder
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                1,104,503
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,104,503Note
                    payable to a stockholder
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                223,934
                
                
                -
                
                
                223,934Net
                    income for the year
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                1,945,743
                
                
                -
                
                
                -
                
                
                -
                
                
                1,945,743Transfer
                    to statutory and staffwelfare
                    reserves
                
                
                -
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                (309,478
                )
                
                309,478
                
                
                -
                
                
                -
                
                
                -Balance
                    at December 31, 2004
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                1,500,000
                
                
                
                
                
                1,500
                
                
                1,303,678
                
                
                -
                
                
                1,380,409
                
                
                309,478
                
                
                223,934
                
                
                -
                
                
                3,218,999Stock
                    issued in recapitalization
                
                
                1,975,000
                
                
                
                
                
                1,975
                
                
                -
                
                
                
                
                
                -
                
                
                1,993,363
                
                
                
                
                
                1,993
                
                
                6,905,364
                
                
                -
                
                
                (6,909,332
                )
                
                -
                
                
                -
                
                
                -
                
                
                -Recapitalization
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                (6,909,332
                )
                
                -
                
                
                6,909,332
                
                
                -
                
                
                -
                
                
                -
                
                
                -Shares
                    issue for convertible
                
                
                (100,000
                )
                
                
                
                
                (100
                )
                
                -
                
                
                
                
                
                -
                
                
                20,000,000
                
                
                
                
                
                20,000
                
                
                (19,900
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -perferred
                    stockshares
                    issue for promissory notes
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                6,586,500
                
                
                
                
                
                6,587
                
                
                2,283,438
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,290,025shares
                    issue for reverse split
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                113
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -shares
                    issue for services
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                7,500
                
                
                
                
                
                8
                
                
                32,242
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                32,250shares
                    issue for acquisitions
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                29,158
                
                
                
                
                
                29
                
                
                62,112
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                62,141shares
                    issue for acquisitions
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                83,042
                
                
                
                
                
                83
                
                
                182,917
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                183,000shares
                    issue for services
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                40,000
                
                
                
                
                
                40
                
                
                67,960
                
                
                (50,433
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                17,567shares
                    issue for placement
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                800,000
                
                
                
                
                
                800
                
                
                999,200
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,000,000Net
                    income for the year
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                4,041,619
                
                
                -
                
                
                -
                
                
                -
                
                
                4,041,619Repayment
                    from stockholders
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (223,934
                )
                
                -
                
                
                (223,934
                )Other
                    comprehensive loss
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (38,706
                )
                
                (38,706
                )Transfer
                    to statutory and staffwelfare
                    reserves
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                (646,865
                )
                
                646,865
                
                
                -
                
                
                -
                
                
                -Balance
                    at December 31, 20051,875,000
                
                
                
                
                $
                1,875
                
                
                -
                
                
                
                
                $
                -
                
                
                31,039,676
                
                
                
                
                $
                31,040
                
                $
                4,907,679
                
                
                (50,433
                )
                $
                4,775,163
                
                $
                956,343
                
                $
                -
                
                $
                (38,706
                )
                $
                10,582,961




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




26
 *Table
          of Contents*




CHINA
                  DIGITAL MEDIA CORPORATION
                (PREVIOUSLY
                  HAIRMAX INTERNATIONAL, INC.)
                AND
                  SUBSIDIARIES
                CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS’ EQUITY
                FOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND 2004
                (CONTINUED)Series
                  A Convertible
              
              
              
              
              
              Series
                  B Convertible
              
              
              
              
              
              
              
              
              
              Additional
              
              
              
              Unappropriated
              
              Appropriated
              
              
              
              OtherPreferred
                  Stock
              
              
              
              
              
              Preferred
                  Stock
              
              
              
              
              
              Common
                  Stock
              
              
              
              paid-in
              
              Deferred
              
              retained
              
              retained
              
              Due
                  to
              
              CmprehensiveShares
              
              
              
              Amount
              
              Shares
              
              
              
              Amount
              
              Shares
              
              
              
              Amount
              
              capital
              
              Compensation
              
              earnings
              
              earnings
              
              stockholder
              
              loss
              
              TotalBalance
                  at January 1, 2003
              
              
              -
              
              
              
              
              $
              -
              
              
              -
              
              
              
              
              $
              -
              
              
              1,500,000
              
              
              
              
              $
              1,500
              
              $
              199,175
              
              
              -
              
              $
              (255,856
              )
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (55,181
              )Capital
                  contribution from
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              1,104,503
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,104,503stockholderNote
                  payable to a stockholder
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              223,934
              
              
              -
              
              
              223,934Net
                  income for the year
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              1,945,743
              
              
              -
              
              
              -
              
              
              -
              
              
              1,945,743Transfer
                  to statutory and staffwelfare
                  reserves
              
              
              -
              
              
              
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              (309,478
              )
              
              309,478
              
              
              -
              
              
              -
              
              
              -Balance
                  at December 31, 2004
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              1,500,000
              
              
              
              
              
              1,500
              
              
              1,303,678
              
              
              -
              
              
              1,380,409
              
              
              309,478
              
              
              223,934
              
              
              -
              
              
              3,218,999Stock
                  issued in recapitalization
              
              
              1,975,000
              
              
              
              
              
              1,975
              
              
              -
              
              
              
              
              
              -
              
              
              1,993,363
              
              
              
              
              
              1,993
              
              
              6,905,364
              
              
              -
              
              
              (6,909,332
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Recapitalization
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              (6,909,332
              )
              
              -
              
              
              6,909,332
              
              
              -
              
              
              -
              
              
              -
              
              
              -Shares
                  issue for convertible
              
              
              (100,000
              )
              
              
              
              
              (100
              )
              
              -
              
              
              
              
              
              -
              
              
              20,000,000
              
              
              
              
              
              20,000
              
              
              (19,900
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -perferred
                  stockshares
                  issue for promissory notes
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              6,586,500
              
              
              
              
              
              6,587
              
              
              2,283,438
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,290,025shares
                  issue for reverse split
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              113
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -shares
                  issue for services
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              7,500
              
              
              
              
              
              8
              
              
              32,242
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              32,250shares
                  issue for acquisitions
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              29,158
              
              
              
              
              
              29
              
              
              62,112
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              62,141shares
                  issue for acquisitions
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              83,042
              
              
              
              
              
              83
              
              
              182,917
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              183,000shares
                  issue for services
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              40,000
              
              
              
              
              
              40
              
              
              67,960
              
              
              (50,433
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              17,567shares
                  issue for placement
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              800,000
              
              
              
              
              
              800
              
              
              999,200
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000,000Net
                  income for the year
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              4,041,619
              
              
              -
              
              
              -
              
              
              -
              
              
              4,041,619Repayment
                  from stockholders
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (223,934
              )
              
              -
              
              
              (223,934
              )Other
                  comprehensive loss
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (38,706
              )
              
              (38,706
              )Transfer
                  to statutory and staffwelfare
                  reserves
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              (646,865
              )
              
              646,865
              
              
              -
              
              
              -
              
              
              -Balance
                  at December 31, 20051,875,000
              
              
              
              
              $
              1,875
              
              
              -
              
              
              
              
              $
              -
              
              
              31,039,676
              
              
              
              
              $
              31,040
              
              $
              4,907,679
              
              
              (50,433
              )
              $
              4,775,163
              
              $
              956,343
              
              $
              -
              
              $
              (38,706
              )
              $
              10,582,961




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





27
 *Table
          of Contents*




CHINA
                    DIGITAL MEDIA CORPORATION
                  (PREVIOUSLY
                    HAIRMAX INTERNATIONAL, INC.)
                  AND
                    SUBSIDIARIES
                  CONSOLIDATED
                    STATEMENTS OF CASH FLOWS
                  FOR
                    THE YEARS ENDED DECEMBER 31, 2005 AND 20042005
                
                2004**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    income
                
                $
                4,041,619
                
                $
                1,945,743Adjusted
                    to reconcile net income to cash providedby
                    operating activities:Amortization
                    - cost of sales
                
                
                83,668Depreciation
                
                
                1,442,618
                
                
                415,440Stock
                    issued for services
                
                
                49,817
                
                
                -Minority
                    interests
                
                
                7,899
                
                
                -Changes
                    in operating assets and liabilitiesIncrease
                    in accounts receivable, net of allowance
                
                
                (4,003,333
                )
                
                (311,411
                )Increase
                    in other receivable and prepaid expenses
                
                
                (481,972
                )
                
                (10,151
                )Decrease/(increase)
                    in inventories, net
                
                
                193,605
                
                
                (619,632
                )Decrease
                    in due from directors
                
                
                26,442
                
                
                204,068Decrease
                    in due to a director
                
                
                (20,483
                )
                
                -Increase
                    in due to related parties
                
                
                188,704
                
                
                -Increase
                    in accounts payable
                
                
                465,157
                
                
                2,882,104Increase
                    in other payables and accrued liabilities
                
                
                214,704
                
                
                41,795(Decrease)/increase
                    in value added tax payable
                
                
                (315,993
                )
                
                24,297Increase
                    in income tax payables
                
                
                1,868,405
                
                
                312,636Net
                    cash provided by operating activities
                
                
                3,760,857
                
                
                4,884,889**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Net
                    cash inflow from consolidation of VIE (Note 3)
                
                
                5,618
                
                
                -Net
                    cash inflow from business combination (Note 2)
                
                
                77,791
                
                
                -Investments
                    in television series
                
                
                (125,105
                )
                
                -Purchase
                    of property and equipment
                
                
                (5,781,811
                )
                
                (5,831,289
                )Net
                    cash used in investing activities
                
                
                (5,823,507
                )
                
                (5,831,289
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Proceeds
                    from stock issuance in private placement
                
                
                1,000,000
                
                
                -Repayments
                    from promissory notes
                
                
                2,290,025
                
                
                -Repayments
                    to stockholder
                
                
                (223,934
                )
                
                1,104,503Net
                    cash provided by financing activities
                
                
                3,066,091
                
                
                1,104,503**NET
                    INCREASE IN CASH AND CASH EQUIVALENTS**
                
                
                1,003,441
                
                
                158,103**EFFECT
                    OF EXCHANGE RATE ON CASH**
                
                
                (38,706
                )
                
                -**CASH
                    AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
                
                
                160,177
                
                
                2,074**CASH
                    AND CASH EQUIVALENTS AT END OF YEAR**
                
                $
                1,124,912
                
                $
                160,177**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION**Cash
                    paid for interest
                
                $
                9,542
                
                $
                -




**SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING
      ACTIVITIES:**


During
      2005, the Company issued 1,500,000 shares of common stock for 100% of the common
      stock of China Digimedia Holdings Limited.


During
      2005, the Company issued 7,500 shares of common stock for consultancy
      services.


During
      2005, the Company issued 29,158 shares of common stock as a part of
      consideration of 100% of the common stock of Guangdong M-Rider Media Company
      Limited.


During
      2005, the Company issued 83,042 shares of common stock for 90% of management
      control of GuangDong HuaGuang Culture Development Limited.


During
      2005, the Company issued 40,000 shares of common stock for consultancy
      services.





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




28
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







**1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES AND
                ORGANIZATION**





(A)  
      Organization





China
      Digital Media Corporation (“CDMC”) (previously HairMax International, Inc.) was
      incorporated in the State of Nevada on August 13, 1987.





China
      Digimedia Holdings Limited (“CDHL”) (previously Arcotect Digital Technology
      Limited) was incorporated in Hong Kong on January 5, 2000 as an investment
      holding company. Through its wholly owned subsidiary, Arcotect (Guangzhou)
      Ltd.
      (“ AGL”) incorporated in the People’s Republic of China (“PRC”) as a wholly
      owned foreign limited liability company on September 24, 2001. AGL is engaged
      in
      software development, digital television subscriber and application platform
      development (“software development”). Through its Nanhai Branch (“AGL Nanhai
      Branch”) established in July 8, 2004, AGL is also engaged in the business of
      converting television signals from analogue into digital format (“digitalization
      of television signals”), using digital television set-top-box (STB) and smart
      cards.




On
      December 28, 2004, CDMC entered into a Plan of Exchange (“the Agreement”) with
      CDHL pursuant to which:





(i)
      the
      Stockholders of CDHL purchased 2,850,000 shares of the Company’s Series A
      Convertible Preferred Stock from the majority Stockholders of the Company in
      return for the payment of $400,000 in cash.





(ii)
      the
      Stockholders of CDHL has agreed to transfer all of CDHL’s common stock to the
      Company for the issue of 20,000,000 shares of restricted common stock of the
      Company.





The
      Agreement was consummated on March 31, 2005 whereupon 1,500,000 shares of
      restricted common stock were issued by the Company to the Stockholders of CDHL
      in lieu of the 20,000,000 shares of restricted common stock contemplated by
      the
      Agreement. The reduction was consented by the Stockholders of CDHL in light
      of
      the significant increase in the price of the shares of common stock of the
      Company since the execution of the Agreement.





Additionally,
      it was subsequently discovered that 875,000 shares of the Company’s Series A
      Convertible Preferred Stock were previously converted before the execution
      of
      the Agreement. The Stockholders of CDHL accepted the remaining 1,975,000 shares
      of the Company’s Series A Convertible Preferred Stock and 1,750,000 shares of
      common stock converted from the 875,000 shares of the Company’s Series A
      Convertible Preferred Stock in lieu of the 2,875,000 shares of the Company’s
      Series A Convertible Preferred Stock in return for the payment of $400,000
      in
      cash.




On
      Completion of the Agreement in March 2005, the merger of CDMC and CDHL was
      treated for accounting purposes as a capital transaction and recapitalization
      by
      CDHL (“the accounting acquirer”) and re-organization by CDMC (“the accounting
      acquiree”). The financial statements have been prepared as if the reorganization
      had occurred retroactively.





Accordingly,
      the financial statements include the following:





(1)
            The
                balance sheet consists of the net assets of the acquirer at historical
                cost and the net assets of the acquiree at historical
                cost.





(2)
            The
                statement of operations includes the operations of the acquirer for
                the
                periods presented and the operations of the acquiree from the date
                of the
                merger.





The
      Company changed its name to China Digital Media Corporation in March
      2006.





29
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







1. **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**





(A)   
      Organization (Continued)





On
      June
      15, 2005, CDHL entered into a Strategic Alliance Agreement with shareholders
      of
      Guangdong HuaGuang Digimedia Culture Development Limited (“HuaGuang”) whereby
      CDHL will hold a 90% variable interest in HuaGuang for the issue of 83,042
      shares of CDMC.





On
      August
      25, 2005, CDHL acquired a 100% interest in M-Rider, a limited liability company
      in the PRC, from the shareholders of M-Rider for US$132,927 in cash and 29,158
      shares of CDMC.





On
      October 17, 2005, CDHL established a wholly-owned subsidiary, Digimedia Services
      (Shenzhen) Limited (“Digimedia Shenzhen”) in the PRC with a registered capital
      of $100,000. The subsidiary has no operations since its
      incorporation.





CDMC,
      CDHL, AGL, HuaGuang, M-Rider and Digimedia Shenzhen are hereinafter referred
      to
      as (“the Company”).





(B)
            Use
                of estimates





The preparation of the financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amount 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.





(C)
            Principles
                of consolidation




The
      accompanying 2005 consolidated financial statements include the financial
      statements of CDMC and its 100% owned subsidiaries CDHL, AGL and its Nanhai
      Branch, M-Rider and Digimedia Shenzhen and its 90% variable interest entity
      in
      HuaGuang.





The
      accompanying 2004 consolidated financial statements include the accounts of
      CDHL, AGL and its Nanhai Branch.





All
      significant inter-company transactions and balances have been eliminated in
      consolidation.





(D)
            Consolidation
                of variable interest entity





In
      accordance with Interpretation No. 46R, *Consolidation
      of Variable Interest Entities* (“FIN 46R”),
      variable interest entities (VIEs) are generally entities that lack sufficient
      equity to finance their activities without additional financial support from
      other parties or whose equity holders lack adequate decision making ability.
      All
      VIEs with which the Company is involved must be evaluated to determine the
      primary beneficiary of the risks and rewards of the VIE. The primary beneficiary
      is required to consolidate the VIE for financial reporting purposes.




In
      connection with the adoption of FIN 46R, the Company concluded that
      HuaGuang is a VIE and that the company is the primary beneficiary. Under
      FIN 46R transition rules, the financial statements of HuaGuang are then
      consolidated into the Company’s consolidated financial statements.







(E)
            Cash
                and cash equivalents





For
      purpose of the statements of cash flows, cash and cash equivalents include
      cash
      on hand and demand deposits with a bank with a maturity of less than 3
      months.





30
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







1. **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**





(F)
            Accounts
                receivable





The
      Company extends unsecured credit to its customers in the ordinary course of
      business but mitigates the associated risks by performing credit checks and
      actively pursuing past due accounts. An allowance for doubtful accounts is
      established and recorded based on managements’ assessment of the credit history
      with the customer and current relationships with them.





As
      of
      December 31, 2005 and 2004, the Company considers all its accounts receivable
      to
      be collectible and no provision for doubtful accounts has been made in the
      financial statements.





(G)
            Inventories





Inventories
      are stated at lower of cost or market value, cost being determined on a first
      in
      first out method. The Company provided inventory allowances based on excess
      and
      obsolete inventories determined principally by customer demand. Inventory
      consists of finished goods purchased directly from manufacturers.





(H)
            Property
                and equipment





Property
      and equipment are stated at cost, less accumulated depreciation. Expenditures
      for additions, major renewals and betterments are capitalized and expenditures
      for maintenance and repairs are charged to expense as incurred.





Depreciation
      is provided on a straight-line basis, less estimated residual value over the
      assets’ estimated useful lives. The estimated useful lives are as
      follows:





STB
      and
      smart cards    5 Years


Motor
      vehicles 10
      Years


Furniture,
      fixtures and equipment 5
      Years





(I)
            Investments
                in television series





Investments
      in television series represent the unamortized costs of acquired television
      series production and participation costs. The investments are stated at the
      lower of cost less accumulated amortization or fair values. The investments
      are
      amortized, using the individual television series forecast method, in the
      proportion that current revenue bears to management’s estimate of ultimate
      revenue expected to be recognized from the exploitation and exhibition of the
      television series. The ultimate revenue which includes estimates over a period
      not to exceed 10 years following the date of initial release are prepared on
      a
      title-by-title basis and reviewed periodically based on current market
      conditions. Estimate of future revenue involve measurement uncertainty and
      it is
      therefore possible that reduction in the carrying value of investments in
      television series may be required as a consequence of changes in management’s
      future revenue estimates.





(J)
            Long-lived
                assets





The
      Company accounts for long-lived assets under the Statements of Financial
      Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other
      Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived
      Assets” (“SFAS No. 142 and 144”). In accordance with SFAS No. 142 and 144,
      long-lived assets held and used by the Company are reviewed for impairment
      annually or more frequently if events or changes in circumstances indicate
      that
      the carrying amount of an asset may not be recoverable. For purposes of
      evaluating the recoverability of long-lived assets, when undiscounted future
      cash flows will not be sufficient to recover an asset’s carrying amount, the
      asset is written down to its fair value. The Company believes that no impairment
      of property and equipment and other investments exist at December 31,
      2005.





31
 *Table
          of Contents*


CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







**1.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
                (CONTINUED)**








(K)
            Fair
                value of financial instruments





Statement
      of Financial Accounting Standards No. 107, "Disclosure About Fair Value of
      Financial Instruments," requires certain disclosures regarding the fair value
      of
      financial instruments. Fair value of financial instruments is made at a specific
      point in time, based on relevant information about financial markets and
      specific financial instruments. As these estimates are subjective in nature,
      involving uncertainties and matters of significant judgment, they cannot be
      determined with precision. Changes in assumptions can significantly affect
      estimated fair values.





The
      carrying value of cash and cash equivalents, accounts receivable (trade and
      others), accounts payable (trade and related party) and accrued liabilities
      approximate their fair value because of the short-term nature of these
      instruments. The Company places its cash and cash equivalents with what it
      believes to be high credit quality financial institutions. The Company has
      a
      diversified customer base, most of which are in the PRC. The Company controls
      credit risk related to accounts receivable through credit approvals, credit
      limit 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.




The
      Company’s major operation is in the PRC, which may give rise to significant
      foreign currency risks from fluctuations and the degree of volatility of foreign
      exchange rates between the United States dollars (“US$”) and the Chinese
      Renminbi (“RMB”). On July 21, 2005, PRC let the RMB to fluctuate ending its
      decade-old valuation peg to the US$. The new RMB rate reflects an approximately
      2% increase in value against the US$. Historically, the PRC government has
      benchmarked the RMB exchange ratio against the US$, thereby mitigating the
      associated foreign currency exchange rate fluctuation risk. The Company does
      not
      believe that its foreign currency exchange rate fluctuation risk is significant,
      especially if the PRC government continues to benchmark the RMB against the
      US$.




(L)
            Revenue
                recognition




Software development





The
      Company provides various information technology professional services to its
      customers based on a negotiated fixed-price time and materials contract. The
      Company recognizes services-based revenue from all of its contracts when the
      services have been performed, the customers have approved the completion of
      the
      services and invoices have been issued and collectibility is reasonably assured.




Digitalization
      of television signals





The
      Company entered into an agreement with Nanhai Network Company to assist its
      subscriber on the conversion of television signal from analog into digital
      by
      providing STB and smart cards to the subscribers in Nanhai City on a lease
      basis. The Company is entitled to a portion of fees payable by the existing
      subscribers under a subscription agreement between the subscribers and the
      Nanhai Network Company. Revenue is recognized on a straight line basis in
      accordance with the terms of the subscription agreement. The Company also
      charges installation fees and sells STB and smart cards to new subscribers.
      Revenue arising from these services is recognized when the subscriber is
      invoiced for the STB and smart cards upon the completion of installation
      works.





Government
      grant





The
      local
      government of Nanhai City also approved a grant of Rmb10,000,000 each year
      for
      five years to finance the purchase of STB and smart cards for sale and lease
      to
      subscribers. The grant is recognized as revenue on receipt from the local
      government.





As
      of
      December 31, 2005 and 2004, the Company received $1,232,386 and 1,209,482 of
      government grant respectively.




32
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







1. **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**





(M)
            Revenue
                recognition (Continued)





Advertising
      sales





The
      Company acts as an advertising agent for certain television channels by selling
      advertising air time spaces and television program backdrops to customers.
      The
      Company's advertising services revenue is derived from billings that are earned
      when the advertisements are placed and revenue is recognized as the media
      placements appear. During 2005, the Company purchase blocks of advertising
      and
      was the primary obligor and carried all of the credit risk for the advertisement
      placements and accordingly, recorded the full amount of such billings from
      the
      advertisement placements as revenue. Deferred revenues are recognized as a
      liability when billings are received in advance of the date before revenues
      are
      earned.





Television
      series





The
      Company invested in the production of two television series. Revenue from
      investments in television series is recognized upon receipt from the production
      company.




Volume
      Discounts





Income
      from volume discounts are recognized upon receipt from the vendors.




(N)
            Advertising
                costs





Advertising
      costs for the years ended December 31, 2005 and 2004 were $718,799 and $Nil
      respectively, are expensed as incurred and included in cost of sales in the
      statements of operations.





(O)
            Income
                taxes





The
      Company accounts for income taxes under the Statement of Financial Accounting
      Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
      Statement 109, deferred tax assets and liabilities are recognized for the future
      tax consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. Under Statement 109, the
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period that included the enactment date.





(P)
            Foreign
                currency transactions





CDMC,
      CDHL, AGL, M-Rider, HuaGuang and Shenzhen DigiMedia maintain their accounting
      records in their functional currencies of US$, Hong Kong Dollars (“HK$”), RMB,
      RMB, RMB and RMB respectively.





Foreign
      currency transactions during the year are translated to the functional currency
      at the approximate rates of exchange on the dates of transactions. Monetary
      assets and liabilities denominated in foreign currencies at the balance sheet
      date are translated at the approximate rates of exchange at that date.
      No-monetary assets and liabilities are translated at the rates of exchange
      prevailing at the time the asset or liability was acquired. Exchange gains
      or
      losses are recorded in the statement of operations.





33
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          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







1. **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
      (CONTINUED)**





(Q)
            Foreign
                currency translation





The
      financial statements of the subsidiaries (whose functional currency is HK$
      or
      RMB) are translated into US$ using the closing rate method. The balance sheet
      items are translated into US$ using the exchange rates at the respective balance
      sheet dates. The capital and various reserves are translated at historical
      exchange rates prevailing at the time of the transactions while income and
      expenses items are translated at the average exchange rate for the year. All
      exchange differences are recorded within equity. Translation loss for the years
      ended December 31, 2005 and 2004 were
      $38,706 and $Nil respectively





(R)
            Comprehensive
                income (loss)





The
      foreign currency translation gain or loss resulting from translation of the
      financial statements expressed in HK$ and RMB to US$ is reported as other
      comprehensive income (loss) in the statements of operations and stockholders’
equity. Comprehensive loss for the years ended December 31, 2005 and 2004 were
      $38,706 and $Nil respectively.




(S)
            Income
                per share




Basic
      income per share is computed by dividing income available to common shareholders
      by the weighted average number of common shares outstanding during the period.
      Diluted income per share is computed similar to basic income per share except
      that the denominator is increased to include the number of additional common
      shares that would have been outstanding if the potential common shares had
      been
      issued and if the additional common shares were dilutive.





(T)
            Segments





The
      Company operates in five reportable segments, digitalization of television
      signals, software development, television advertising, investment holding and
      other.





(U)
            Recent
                Accounting Pronouncements





Statement
      of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an
      amendment of ARB No. 43, Chapter 4”, SFAS No. 152, “Accounting for Real Estate
      Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67”, SFAS
      No. 153, “Exchanges of Non-monetary Assets - an amendment of APB Opinion No.
      29”, SFAS No. 123 (revised 2004), “Share-Based Payment” and SFAS No. 154,
“Accounting Changes and Error Corrections - a replacement of APB Opinion No.
      20
      and FASB Statement No. 3 were recently issued. SFAS No. 151, 152, 153, 123
      (revised 2004) and 154 have no current applicability to the Company and have
      no
      effect on the financial statements.





34
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          of Contents*


CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







2. **BUSINESS
      COMBINATION**





On
      July
      12, 2005, pursuant to a Share Transfer Agreement (“ST Agreement”), CDHL acquired
      all of the issued and outstanding capital of M-Rider, a PRC company engaged
      in
      the design, production and distribution of advertisements through television
      channels. Under the terms of the ST Agreement, CDHL purchased all of the issued
      and outstanding capital of M-Rider for a total consideration of $1,047,559;
      $132,927 payable in cash and $914,632 payable by the issue of shares of the
      Company’s common stock. The ST Agreement became effective on August 25, 2005
      when approval from the PRC Government of the acquisition was obtained. On the
      effective date, CDHL paid the cash consideration of $132,927 and the issue
      of
      29,158 shares of the Company’s restricted common stock having a value of $62,141
      to the stockholders of M-Rider, such value of shares were based on the average
      closing price of the Company’s common stock for the ten trading days preceding
      the effective date. The balance of $852,491 in value of the Company’s shares of
      common stock is payable one year from the effective date on the condition that
      the net operating cash flow of M-Rider on that day is not less than $1,129,512.
      If the net operating cash flow is less than this amount, the number of shares
      to
      be issued will be reduced proportionately.





The
      preliminary allocation of the net assets acquired is as follows:


Cash
                  and cash equivalents
              
              $
              210,718Accounts
                  receivable
              
              
              129,343Other
                  receivables and prepaid expenses
              
              
              197,877Total
                  Current Assets
              
              
              537,938Property
                  and equipment, net
              
              
              56,137Total
                  Assets
              
              
              594,075Less:
                  Accounts payable and accrued liabilities
              
              
              (791,528
              )Net
                  liabilities acquired
              
              
              (197,453
              )Consideration
                  for acquisition
              
              
              195,068Goodwill
              
              $
              392,521







Analysis
      of the net inflow of cash and cash equivalents in respect of the business
      combination is as follows:


Cash
                  consideration paid
              
              $
              132,927Less:
                  cash and cash equivalents acquired
              
              
              (210,718
              )Net
                  cash inflow
              
              $
              (77,791
              )




The
      acquisition of M-Rider was accounted for as a purchase under SFAS No. 141,
      Business Combinations. Accordingly, the operating results of M-Rider have been
      included in the consolidated statements of operation and comprehensive income
      after the effective acquisition date of August 31, 2005.





The
      following table reflects the unaudited pro forma combined results of operations
      for the year ended December 31, 2005 and 2004, assuming the acquisition had
      occurred at the beginning of 2004.


2005
              
              2004Revenues
              
              $
              8,491,075
              
              $
              3,864,407Net
                  income
              
              $
              3,234,647
              
              $
              1,945,743Net
                  income per share-
                  basic
              
              $
              0.11
              
              $
              1.30-
                  diluted
              
              $
              0.09
              
              $
              1.30




In
      accordance with SFAS No. 142 “Goodwill and other intangible assets”, goodwill is
      not amortized but is tested for impairment. The Company performed an assessment
      on goodwill arising from M-Rider acquisition and concluded there was no
      impairment as to the carrying value of the goodwill in 2005.




35
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          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







3. **CONSOLIDATION
      OF VARIABLE INTEREST ENTITY**





On
      June
      15, 2005 CDMC entered into a Strategic Alliance Agreement (“the SA Agreement”)
      with HuaGuang in which CDMC becomes the exclusive service provider to HuaGuang’s
      business development and operations for ten years. HuaGuang is engaged in the
      businesses of creating television programs for sale and the selling of
      commercial advertising to customers in the PRC.





On
      October 14, 2005, the Company issued 83,042 shares of the Company’s restricted
      common stock having a value of $183,000 to shareholders of HuaGuang. The value
      is based on the average closing price for the ten trading days preceding the
      date of issue. In addition, CDMC is required to provide financial support and/or
      guarantees to HuaGuang for an amount not exceeding US$1.2 million during the
      term of the SA Agreement in return for 90% of the gross profit or bear 90%
      of
      the gross loss of HuaGuang.





With
      effect from September 2005, CDMC consolidated the financial statement of
      HuaGuang, a VIE under the requirements of FASB Interpretation No. 46 (R),
      Consolidation of Variable Interest Entities, an interpretation of ARB No. 51
      (“FIN 46”).





The
      net
      inflow of cash and cash equivalents in respect of the consolidation of the
      VIE
      amounted to $5,618.





4. **ACCOUNTS RECEIVABLE**





Accounts receivable at December 31, 2005 and 2004 consisted of the
      following:


2005
              
              2004Accounts
                  receivable
              
              $
              4,444,087
              
              $
              311,411Less:
                  allowance for doubtful accounts
              
              
              -
              
              
              -Accounts
                  receivable, net
              
              $
              4,444,087
              
              $
              311,411




As of December 31, 2005 and 2004, the Company considered all accounts receivable
      collectable and has not recorded a provision for doubtful accounts.








5. **INVENTORIES**





Inventories at December 31, 2005 and 2004 consisted of the
      following:


2005
              
              2004Finished
                  goods
              
              $
              426,027
              
              $
              619,632Less:
                  provision of obsolescence
              
              
              -
              
              
              -$
              426,027
              
              $
              619,632





For both of the years ended December 31, 2005 and 2004, the Company has not
      recorded a provision for obsolete inventories.








6. **OTHER RECEIVABLES AND PREPAID EXPENSES**





Other receivables and prepaid expenses at December 31, 2005 and 2004 consisted
      of the following:


2005
              
              2004Deposit
                  paid for the sole advertising agency
              
              
              631,319
              
              
              -Advances
                  to staff
              
              
              17,851
              
              
              -Prepayments
              
              
              85,743
              
              
              20,722Trade
                  deposits
              
              
              7,280
              
              
              -Utility
                  deposits
              
              
              8,398
              
              
              -$
              750,591
              
              $
              20,722







36
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          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







7. **INVESTMENTS
      IN TELEVISION SERIES, NET**





Investments
      in television series related to investments in the production of two television
      series through HuaGuang, a 90% held VIE:-


2005
              
              2004Television
                  paticipation costs
              
              
              854,783
              
              
              -Less:
                  accumulated amortization
              
              
              83,668
              
              
              -Television
                  paticipation costs, net
              
              $
              771,115
              
              $
              -







a)
            HuaGuang
                a VIE entered into two investment contracts to participate in the
                production of two television series.The
                Company’s participation is 20% and 34% of the total production costs. The
                Company does not have the ability to exercise significant influence
                and
                the investments are accounted for under the cost method of accounting.





b)
            As
                at December 31, 2005 and 2004, the Company had accrued participation
                costs
                of $577,065 and $Nil respectively that it expects to pay in the year
                ending December 31, 2006.





c)
            Amortization
                expenses for the year ended December 31, 2005 and 2004 were $83,668
                and
                $Nil respectively.





d)
            During
                the year ended December 31, 2005, the Company reviewed future revenue
                projections supporting the carrying value of its investments in television
                series in accordance with its accounting policy described in note
                1 (i).
                No write-down of the carrying values is
                required.








8. **PROPERTY AND EQUIPMENT, NET**





The
      following is a summary of property and equipment at December 31:


2005
              
              2004STB
                  and smart cards leased to subscribers
              
              $
              11,498,100
              
              $
              5,626,289Motor
                  vehicles
              
              
              71,955
              
              
              39,823Furniture
                  and office equipment
              
              
              202,391
              
              
              196,99411,772,446
              
              
              5,863,106Less:
                  accumulated depreciation
              
              
              1,878,610
              
              
              428,168Property
                  and equipment, net
              
              $
              9,893,836
              
              $
              5,434,938




Depreciation
      expenses for the years ended December 31, 2005 and 2004 were $1,442,618 and
      $415,440 respectively.





9. **OTHER
      PAYABLES AND ACCRUED LIABILITIES**





Other
      payables and accrued liabilities at December 31, 2005 and 2004 consist of the
      following:


2005
              
              2004Advances
                  to staff
              
              $
              87,546
              
              $
              903Deposits
                  received from customers
              
              
              74,302
              
              
              -Accrued
                  liabilities
              
              
              86,827
              
              
              40,892$
              248,675
              
              $
              41,795




37
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          of Contents*





CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







10. **INCOME TAX**





a
            CDMC
                was incorporated in the United States and has incurred net operating
                loss
                as for income tax purposes for 2005 and
                2004.





CDHL
      was
      incorporated in Hong Kong and is subject to Hong Kong profits tax. No provision
      for Hong Kong profits tax has been made since CDHL incurred a loss during 2005
      and 2004.





AGL,
      M-Rider, HuaGuang and Shenzhen DigiMedia were incorporated in the PRC and are
      subject to PRC income tax which is computed according to the relevant laws
      and
      regulations in the PRC. The applicable tax rate has been 33% and no tax benefit
      is expected from the tax credits in the future. The income tax expenses for
      2005
      and 2004 are summarized as follows:


PRC
                  Income Tax
              
              2005
              
              2004Current
              
              $
              102,141
              
              $
              -Deferred
              
              
              1,453,618
              
              
              312,636$
              1,555,759
              
              $
              312,636




Deferred
      tax liabilities result from temporary differences relating to revenue earned
      but
      not yet taxable.




b
            The
                Company’s deferred tax asset at December 31, 2005 and 2004 consists of net
                operating losses carry forwards calculated using statutory effective
                tax
                rates. Due to its history of losses for CDMC and CDHL, the Company
                believes that sufficient objective, positive evidence currently exists
                to
                conclude that recoverability of its net deferred tax assets is unlikely
                than not. Consequently, the Company has provided a valuation allowance
                covering 100% of its net deferred tax assets.




As
      at
      December 31, 2005, CDMC had loss carryforwards of approximately $132,131 for
      U.S. income tax purposes available for offset against future taxable U.S. income
      expiring in 2025.




As
      at
      December 31, 2005, CDHL has Hong Kong tax loss carryforwards of approximately
      $193,000. Currently, the Hong Kong tax losses can be carried forward
      indefinitely.





c
            The
                reconciliation of income taxes computed at the statutory income tax
                rates
                to total income taxes for the years ended December 31, 2005 and 2004
                is as
                follows:


**2005**
              
              2004CDMCIncome
                  tax computed at the federal statutory rate
              
              
              **34**
              **%**
              
              34
              %State
                  income taxes, net of federal tax benefit
              
              
              **5**
              **%**
              
              5
              %Valuation
                  allowance
              
              
              **(39**
              **%)**
              
              (39
              %)CDHLIncome
                  tax computed at applicable tax rate
              
              
              **17.5**
              **%**
              
              17.5
              %Valuation
                  allowance
              
              
              **(17.5**
              **%)**
              
              (17.5
              %)Total
                  deferred tax asset
              
              
              **0**
              **%**
              
              0
              %


38
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          of Contents*





CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







11. **NET INCOME PER SHARE**





The
      following is information of net income per share at December 31:


2005
              
              2004Net
                  income
              
              $
              4,041,619
              
              $
              1,945,743Basic
                  weighted-average common stock outstanding
              
              
              28,231,555
              
              
              1,500,000Effect
                  of dilutive securitiesSeries
                  A convertible perferred stock
              
              
              9,395,833
              
              
              -Diluted
                  weighted-average common stock outstanding
              
              
              37,627,388
              
              
              1,500,000Net
                  income per share - basic
              
              
              0.14
              
              
              1.30Net
                  income per share - diluted
              
              
              0.11
              
              
              1.30




39
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







12. **SEGMENTS**





The
      Company operates in five reportable segments; digitalization of television
      signals, software development, television advertising, investment holding and
      other. The accounting policies of the segments are the same as described in
      the
      summary of significant accounting policies. The Company evaluates segment
      performance based on income from operations. All inter-company transactions
      between segments have been eliminated. As a result, the components of operating
      income for one segment may not be comparable to another segment. The following
      is a summary of the Company’s segment information for the years ended December
      31, 2005 and 2004:


Digitalizationof
                  television
              
              Software
              
              Television
              
              Investmentsignals
              
              development
              
              advertising
              
              holding
              
              Other
              
              Total**2005**Revenues
              
              $
              6,624,116
              
              $
              66,716
              
              $
              1,048,175
              
              $
              123,274
              
              $
              -
              
              $
              7,862,281Gross
                  profit
              
              
              5,944,653
              
              
              66,346
              
              
              329,376
              
              
              39,606
              
              
              -
              
              
              6,379,981Total
                  assets
              
              
              14,869,366
              
              
              268,576
              
              
              1,573,084
              
              
              908,211
              
              
              183,852
              
              
              17,803,089Capital
                  expenditure
              
              
              5,878,105
              
              
              5,424
              
              
              6,476
              
              
              201,233
              
              
              11,511
              
              
              6,102,749Depreciation
                  and amortization
              
              
              1,413,862
              
              
              11,694
              
              
              3,914
              
              
              6,853
              
              
              6,295
              
              
              1,442,618**2004**Revenues
              
              $
              3,805,320
              
              $
              59,087
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              3,864,407Gross
                  profit
              
              
              3,075,852
              
              
              45,156
              
              
              -
              
              
              -
              
              
              -
              
              
              3,121,008Total
                  assets
              
              
              6,457,276
              
              
              100,379
              
              
              -
              
              
              -
              
              
              15,667
              
              
              6,573,322Capital
                  expenditure
              
              
              5,785,686
              
              
              27,697
              
              
              -
              
              
              -
              
              
              17,906
              
              
              5,831,289Depreciation
                  and amortization
              
              
              401,467
              
              
              9,496
              
              
              -
              
              
              -
              
              
              4,477
              
              
              415,440




40
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          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







13. **STOCKHOLDERS’ EQUITY**





**(A)
      Stock issuances**





(1)
            Stock
                issued for convertible preferred
                stock





On
      January 18, 2005, the Company issued 20,000,000 shares of restricted common
      stock to a director and stockholder for conversion of 100,000 shares of the
      Company’s Series A Convertible Preferred Stock.





(2)
            Stock
                issued for reverse merger




On
      May 5,
      2005, the
      Company issued 1,500,000 shares of restricted common stock to a director and
      Stockholder in exchange for all of the shares of CDHL pursuant to the Plan
      of
      Exchange.





(3)
            Stock
                issued for reverse split




During
      2005, the Company issued 113 shares of common stock to certain Stockholders
      due
      to the rounding up of common shares on account of the 1:100 reverse stock splits
      that became effective on January 10, 2005.





(4)
            Stock
                split




On
      January 10, 2005, the Company effected a 1:100 reverse stock split.  All
      share and per share amounts have been retroactively restated to reflect the
      stock split.





(5)
            Stock
                issued for promissory notes




On
      February 7, 2005, the Company issued 6,586,500 shares of restricted common
      shares to six creditors for an aggregate consideration of $2,290,025 in debt
      principal in the form of 9% ninety-day promissory notes. On May 1, 2005, the
      company extended these notes for an additional two months in return for an
      increase of three percentage points in the annual percentage interest rate
      under
      the notes. The notes were further extended on July 1, 2005 for an additional
      three months. As of December 31, 2005, all principal plus interest due on these
      notes had been fully paid.




(6)
            Stock
                issued for services




On
      June
      28, 2005, the Company issued 7,500 shares of its restricted common stock to
      a
      consultant for services retained. The shares were valued at the market on the
      date of issuance, or $4.30 per share, yielding an aggregate fair value of
      $32,250. This expense is included in our accompanying financial
      statements.




On
      November 5, 2005, the Company issued 40,000 shares of restricted common stock
      to
      CEOCast Inc. for services retained. The shares were valued at the market on
      the
      date of issuance, or $1.70 per share, yielding an aggregate fair value of
      $68,000. The fair value will be amortized over twelve months, the life of the
      agreement. The Company recognized expense of $17,567 and recorded deferred
      stock
      compensation of $50,433 as of December 31, 2005.





(7)
            Stock
                issued for acquisitions




On
      October 14, 2005, the company issued 29,158 shares of restricted common stock
      with a fair value of $62,141 to acquire all of the issued and outstanding
      registered capital of Guangdong M-Rider Media Company Limited.




On
      October 14, 2005, the company issued 83,042 shares of restricted common stock
      with a fair value of $183,000 for a 90% VIE of HuaGuang under a Strategic
      Alliance Agreement.





(8)
            Stock
                issued for placement




On
      December 29, 2005, the company received $1,000,000 from a corporation investor
      for an issue of 800,000 shares of restricted common stock at $1.25 by a private
      placement.





41
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          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







13. **STOCKHOLDERS’ EQUITY (CONTINUED)**





**(B)
      Change in conversion ratio of the Series A Convertible Preferred
      Stock**





On
      October 13, 2005, the Company filed a Certificate of Amendment to the
      Certificate of Designation of our Series A Convertible Preferred Stock with
      the
      Secretary of State of Nevada, which amendment decreases the Conversion Ratio
      of
      the Series A Convertible Preferred Stock from two hundred (200) shares of fully
      paid and nonassessable shares of Common Stock for each share of Series A
      Convertible Preferred Stock to five (5) shares of fully paid and nonassessable
      shares of Common Stock for each share of Series A Convertible Preferred Stock.
      The new Conversion Ratio is set forth in Section 3(a) of the Certificate of
      Designation.




**(C)
      Appropriated retained earnings**





The
      Company’s PRC subsidiaries are required to make appropriations to reserves
      funds, comprising the statutory surplus reserve, statutory public welfare fund
      and discretionary surplus reserve, based on after-tax net income determined
      in
      accordance with generally accepted accounting principles of the People’s
      Republic of China (the “PRC GAAP”). Appropriation to the statutory surplus
      reserve should be at least 10% of the after tax net income determined in
      accordance with the PRC GAAP until the reserve is equal to 50% of the entities’
registered capital. Appropriations to the statutory public welfare fund are
      at
      5% to 10% of the after tax net income determined in accordance with the PRC
      GAAP. The statutory public welfare fund is established for the purpose of
      providing employee facilities and other collective benefits to the employees
      and
      is non-distributable other than in liquidation. Appropriations to the
      discretionary surplus reserve are made at the discretion of the Board of
      Directors.





During
      2005 and 2004, the Company appropriated $646,865 and $309,478, respectively
      to
      the reserves funds based on its net income under PRC GAAP.




**(D)**
            **Contributed
                capital**





During
      2005 and 2004, CDHL contributed restricted capital of $2,885,804 and $1,104,503
      respectively to AGL.








14. **RELATED PARTY TRANSACTIONS**





In
      2004,
      the Company loaned $26,442 to directors of AGL as a short-term unsecured loan
      free of interest payment. This loan was repaid in 2005.





In
      2005
      and 2004, the Company owed a director $41,981 and $62,464 respectively for
      short-term advances. Interest is charged at 6% per annum on the amount
      owed.





During
      the year ended December 31, 2005 and 2004, the Company received service revenue
      of $54,562 and $70,416 respectively from a related company. The Company owed
      to
      the related company $218,394 and $29,690 in 2005 and 2004 respectively, as
      short-term unsecured advances. Interest is charged at 6% per annum on the
      outstanding balances.





In
      2005,
      the Company issued 20,000,000 shares of restricted common stock to a director
      and stockholder for conversion of 100,000 shares of the Company’s Series A
      Convertible Preferred Stock.





In
      2005, the Company issued 1,500,000 shares of restricted common stock to a
      director and stockholder in exchange for all of the shares of CDHL pursuant
      to
      the Plan of Exchange. See note 1 (A).





In
      2005,
      the Company entered a Strategic Alliance Agreement with a director and
      stockholders.





42
 *Table
          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







15 **.
      COMMITMENTS**





(A)
            Employee
                benefits





The
      full
      time employees of the Company in China are entitled to employee benefits
      including medical care, welfare subsidies, unemployment insurance and pension
      benefits through a Chinese government mandated multi-employer defined
      contribution plan. The Company is required to accrue for those benefits based
      on
      certain percentages of the employees’ salaries and make contributions to the
      plans out of the amounts accrued for medical and pension benefits. The total
      provision and contributions made for such employee benefits was $18,018 and
      $1,795 for the years ended December 31, 2005 and 2004, respectively. The Chinese
      government is responsible for the medical benefits and the pension liability
      to
      be paid to these employees.




The
      Company also operates a Mandatory Provident Fund plan (“the plan”) which is
      available to all employees in Hong Kong. Both the Company and the employees
      are
      required to contribute 5% (subject to an aggregate amount of $256) per month
      of
      the employees’ relevant income. Contributions from the Company are 100% vested
      in the employees as soon as they are paid to the plan. Contributions to the
      plan
      are expensed as they become payable in accordance with the rules of the plan
      and
      amounted to $2,448 and $1,795 for the years ended December 31, 2005 and 2004
      respectively. The assets of the plan are held separately from those of the
      Company and are managed by independent professional fund managers.





(B)
            Operating
                leases commitments





The
      Company leases office spaces from third parties under three operating leases
      which expire on December 31, 2007, August 6, 2006 and August 31, 2006 at monthly
      rental of $4,535, 1,954 and 555. The Company also leases spaces for staff
      quarters from third parties under four operating leases which expire from
      February 23, 2006 to October 16, 2006 with total monthly rental of $579.
      Accordingly, for the years ended December 31, 2005 and 2004, the Company
      recognized rental expense for these spaces in the amount of $46,713 and $24,020,
      respectively.





As
      of
      December 31, 2005, the Company has outstanding commitments with respect to
      the
      above non-cancelable operating leases, which are due as follows:


2006
              
              $
              75,6852007
              
              
              54,420$
              130,105




(C)
            Capital
                commitments





According
      to the amended Articles of Association of AGL, the Company has to fulfill
      registered capital contributions of $5 million within two years from July 16,
      2004. As of December 31, 2005, the Company has fulfilled $4,189,090 of the
      registered capital requirement and has registered capital commitments of
      $810,910.





(D)
            Contingent
                consideration




As
      stated
      in note 2, the Company acquired all of the issued and outstanding capital of
      M-Rider for a total consideration of $1,047,559 of which $132,927 was payable
      in
      cash and $914,632 payable by the issue of shares of the Company’s common stock.
      On the effective date of August 25, 2005, CDHL paid the cash consideration
      of
      $132,927 and 29,158 shares of the Company’s common stock having a value of
      $62,141 were issued to the stockholders of M-Rider. At December 31, 2005, the
      Company is contingently liable to issue shares of common stock to the value
      of
      $852,491 one year from the effective date, adjusted proportionately for the
      achievement by M-Rider by that date that their net operating cash flow is not
      less than $1,129,512.





43
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          of Contents*




CHINA
      DIGITAL MEDIA CORPORATION


(PREVIOUSLY
      HAIRMAX INTERNATIONAL, INC.)


AND
      SUBSIDIARIES


NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


AS
      OF
      DECEMBER 31, 2005 AND 2004







16 **.  
       CONTINGENCIES**





The
      Company accounts for loss contingencies in accordance with SFAS 5 “Accounting
      for Loss Contingencies”, and other related guidance. Set forth below is a
      description of certain loss contingencies as of December 31, 2005 and
      management’s opinion as to the likelihood of loss in respect of each loss
      contingency.





On
      May
      24, 2005, Ziegler, Ziegler & Associates LLP and Scott Ziegler filed a
      Complaint against the Company in the United States District Court for the
      Southern District of New York for using their internet domain name to distribute
      the Company’s promotional information over the internet. The Plaintiffs seek
      several types of damages in an amount not less than $1,250,000. The Company’s
      counsel was instructed to vigorously defend the action as the emails in question
      were distributed by a party not hired nor associated with the Company.
      Accordingly, no provision has been made as of December 31, 2005.





On
      January 18, 2006, counsel for plaintiff threatened to file a complaint in the
      County Court in and for Miami-Dade County, Florida against the Company in an
      action for damages that does not exceed $15,000, exclusive of court costs,
      attorney’s fees and interest. The plaintiff alleged that the Company was a
      guarantor of a lease entered into by its Hairmax of Florida, Inc. subsidiary,
      which abandoned the lease and failed to pay the full rental due under the lease.





The
      Company has made a settlement offer to the plaintiff of $9,000 and is awaiting
      the plaintiff’s response. The Company has accrued $9,000 as at December 31,
      2005.





17. **CONCENTRATIONS AND RISKS**





During 2005 and 2004, 100% of the Company’s assets were located in China and
      100% of the Company’s revenues were derived from customers in China.





The Company relied on two suppliers and purchases from those suppliers for
      the
      year ended December 31, 2005 and 2004 are as follows:


For
                  the year ended
              
              
              
              Supplier
                  A
              
              Supplier
                  BDecember
                  31, 2005
              
              
              
              
              
              71
              %
              
              21
              %December
                  31, 2004
              
              
              
              
              
              85
              %
              
              0
              %




At
      December 31, 2005 and 2004, accounts payable to those two suppliers totaled
      $2,990,456 and $870,149 respectively.





18. **SUBSEQUENT EVENT**





On
      January 31, 2006, HuaGuang, a VIE, entered into an Asset Transfer Agreement
      (the
“Agreement”) with Guiyang Classic & Fashion Advertising Co., Limited
      (“Guiyang Classic”), a television program production company organized and
      existing under the laws of the PRC, pursuant to which HuaGuang will acquire
      all
      media related businesses, assets, contracts and management from Guiyang Classic
      and inject those assets into a newly formed PRC subsidiary known as Guizhou
      HuaGuang Digimedia Company Limited. Pursuant to the terms of the Agreement,
      the
      Company will pay $2.2 million to Guiyang Classic by a combination of cash and
      restricted common stock of the Company, subject to certain adjustments in the
      event that the acquired assets generate a profit less of than $2.5 million
      in
      the next 2 years. The completion of this transaction is subject to certain
      conditions, including official PRC Government approval and due diligence. The
      Company expects to complete the acquisition during the first quarter of
      2006.





On
      February 8, 2006, HuaGuang entered
      into a Memorandum of Understanding (the “MOU”) to form two joint ventures (the
“JV Agreements”) with a provincial television station. Pursuant to the MOU, the
      provincial television station will outsource its entire advertising time slots
      into two joints ventures for a term of 5 years each, with rights to use their
      production resources and equipment. The Company will commit to invest
      approximately $2.5 million into the two joint ventures over a 5 year period.





44
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          of Contents*
  **ITEM
        8. Changes with and Disagreements With Accountants on Accounting And Financial
        Disclosure**




On
      July 18,
      2005, we accepted the resignation of Perrella & Associates, P.A. as our
      independent certifying accountant. Perrella & Associates had been the
      independent registered public accounting firm for and audited our consolidated
      financial statements as of December 31, 2004 and December 31, 2003. The reports
      of Perrella & Associates on our consolidated financial statements for the
      past two fiscal years contained no adverse opinion or disclaimer of opinion,
      and
      were not qualified or modified as to uncertainty, audit scope or accounting
      principles, except for an explanatory paragraph relating to our ability to
      continue as a "going concern."  The decision to accept the resignation of
      Perrella & Associates was approved unanimously by the Board of Directors of
      the Registrant.




In
      connection
      with the audits for the two most recent fiscal years and in connection with
      Perrella & Associates’ review of the subsequent interim periods through the
      date of resignation on July 18, 2005, there have been no disagreements between
      us and Perrella & Associates on any matter of accounting principles or
      practices, financial statement disclosure, or auditing scope or procedure,
      which, if not resolved to the satisfaction of Perrella & Associates, would
      have caused Perrella & Associates to make reference thereto in their report
      on our financial statements for these fiscal years.




On
      July 18,
      2005, we engaged Jimmy C.H. Cheung & Co., Certified Public Accountants, as
      our independent registered public accounting firm. We had not consulted with
      Jimmy C.H. Cheung & Co. regarding the application of accounting principles
      to any contemplated or completed transactions nor the type of audit opinion
      that
      might be rendered on the our financial statements, and neither written nor
      oral
      advice was provided that would be an important factor considered by us in
      reaching a decision as to an accounting, auditing or financial reporting
      issue.




45
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          of Contents*





**ITEM
      8A. Controls and Procedures**





*Quarterly
      Evaluation of Controls* .
      As of
      the end of the period covered by this annual report on Form 10-KSB, we evaluated
      the effectiveness of the design and operation of (i) our disclosure controls
      and
      procedures ("Disclosure Controls"), and (ii) our internal control over financial
      reporting ("Internal Controls"). This evaluation ("Evaluation") was performed
      by
      our President and Chief Executive Officer, Ng Chi Shing ("CEO"), and by Lui
      Chi
      Keung, our Chief Financial Officer ("CFO"). In this section, we present the
      conclusions of our CEO and CFO based on and as of the date of the Evaluation,
      (i) with respect to the effectiveness of our Disclosure Controls, and (ii)
      with
      respect to any change in our Internal Controls that occurred during the most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect our Internal Controls.





*CEO
      and CFO Certifications* .
      Attached to this annual report, as Exhibits 31.1 and 31.2, are certain
      certifications of the CEO and CFO, which are required in accordance with the
      Exchange Act and the Commission's rules implementing such section (the "Rule
      13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains
      the information concerning the Evaluation referred to in the Rule
      13a-14(a)/15d-14(a) Certifications. This information should be read in
      conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
      understanding of the topic presented.





*Disclosure
      Controls and Internal Controls* .
      Disclosure Controls are procedures designed with the objective of ensuring
      that
      information required to be disclosed in our reports filed with the Commission
      under the Exchange Act, such as this annual report, is recorded, processed,
      summarized and reported within the time period specified in the Commission's
      rules and forms. Disclosure Controls are also designed with the objective of
      ensuring that material information relating to us is made known to the CEO
      and
      the CFO by others, particularly during the period in which the applicable report
      is being prepared. Internal Controls, on the other hand, are procedures which
      are designed with the objective of providing reasonable assurance that (i)
      our
      transactions are properly authorized, (ii) the Company's assets are safeguarded
      against unauthorized or improper use, and (iii) our transactions are properly
      recorded and reported, all to permit the preparation of complete and accurate
      financial statements in conformity with accounting principals generally accepted
      in the United States.





*Limitations
      on the Effectiveness of Controls* .
      Our
      management does not expect that our Disclosure Controls or our Internal Controls
      will prevent all error and all fraud. A control system, no matter how well
      developed and operated, can provide only reasonable, but not absolute assurance
      that the objectives of the control system are met. Further, the design of the
      control system must reflect the fact that there are resource constraints, and
      the benefits of controls must be considered relative to their costs. Because
      of
      the inherent limitations in all control systems, no evaluation of controls
      can
      provide absolute assurance that all control issues and instances so of fraud,
      if
      any, within the Company have been detected. These inherent limitations include
      the realities that judgments in decision-making can be faulty, and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the control. The design of a system
      of controls also is based in part upon certain assumptions about the likelihood
      of future events, and there can be no assurance that any design will succeed
      in
      achieving its stated objectives under all potential future conditions. Over
      time, control may become inadequate because of changes in conditions, or because
      the degree of compliance with the policies or procedures may deteriorate.
      Because of the inherent limitations in a cost-effective control system,
      misstatements due to error or fraud may occur and not be detected.




46
 *Table
          of Contents*





*Scope
      of the Evaluation* .
      The CEO
      and CFO's evaluation of our Disclosure Controls and Internal Controls included
      a
      review of the controls' (i) objectives, (ii) design, (iii) implementation,
      and
      (iv) the effect of the controls on the information generated for use in this
      annual report. In the course of the Evaluation, the CEO and CFO sought to
      identify data errors, control problems, acts of fraud, and they sought to
      confirm that appropriate corrective action, including process improvements,
      was
      being undertaken. This type of evaluation is done on a quarterly basis so that
      the conclusions concerning the effectiveness of our controls can be reported
      in
      our quarterly reports on Form 10-QSB and annual reports on Form 10-KSB. The
      overall goals of these various evaluation activities are to monitor our
      Disclosure Controls and our Internal Controls, and to make modifications if
      and
      as necessary. Our external auditors also review Internal Controls in connection
      with their audit and review activities. Our intent in this regard is that the
      Disclosure Controls and the Internal Controls will be maintained as dynamic
      systems that change (including improvements and corrections) as conditions
      warrant.





Among
      other matters, we sought in our Evaluation to determine whether there were
      any
      significant deficiencies or material weaknesses in our Internal Controls, which
      are reasonably likely to adversely affect our ability to record, process,
      summarize and report financial information, or whether we had identified any
      acts of fraud, whether or not material, involving management or other employees
      who have a significant role in our Internal Controls. This information was
      important for both the Evaluation, generally, and because the Rule
      13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
      disclose that information to our Board (audit committee), and to our independent
      auditors, and to report on related matters in this section of the annual report.
      In the professional auditing literature, "significant deficiencies" are referred
      to as "reportable conditions". These are control issues that could have
      significant adverse affect on the ability to record, process, summarize and
      report financial data in the financial statements. A "material weakness" is
      defined in the auditing literature as a particularly serious reportable
      condition where the internal control does not reduce, to a relatively low level,
      the risk that misstatement cause by error or fraud may occur in amounts that
      would be material in relation to the financial statements and not be detected
      within a timely period by employee in the normal course of performing their
      assigned functions. We also sought to deal with other controls matters in the
      Evaluation, and in each case, if a problem was identified, we considered what
      revisions, improvements and/or corrections to make in accordance with our
      ongoing procedures.





*Conclusions* .
      Based
      upon the Evaluation, our disclosure controls and procedures are designed to
      provide reasonable assurance of achieving our objectives. Our CEO and CFO have
      concluded that our disclosure controls and procedures are effective at that
      reasonable assurance level to ensure that material information relating to
      the
      Company is made known to management, including the CEO and CFO, particularly
      during the period when our periodic reports are being prepared, and that our
      Internal Controls are effective at that assurance level to provide reasonable
      assurance that our financial statements are fairly presented inconformity with
      accounting principals generally accepted in the United States. Additionally,
      there has been no change in our Internal Controls that occurred during our
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      affect, our Internal Controls.




47
 *Table
          of Contents*





**ITEM
      9. Directors and Executive Officers of the Registrant**





(a)
            Identification
                of Directors





The
      following information, as of December 31, 2005 is furnished with respect to
      each
      Director and Executive Officer:


Date
                  ofName
                  of Director
              Age
              Service
              Position
                  with CompanyNg
                  Chi Shing
              41
              2004
              President,
                  Chief Executive Officer, DirectorLui
                  Chi Keung
              53
              2004
              Chief
                    Financial Officer, DirectorChen
                  Lu
              36
              2005
              DirectorChen
                  Juan
              29
              2005
              DirectorZhow
                  Wei Yu
              33
              2005
              Director





All
      Directors serve for one-year terms.





All
      officers serve at the pleasure of the Board.





There
      are
      no arrangements or understandings pursuant to which any of them were elected
      as
      officers.




**Mr.
      Ng Chi
      Shing** is our
      President and Chief Executive Officer and Director. Mr. Ng is founder and CEO
      of
      Arcotect Digital Technology Limited. Arcotect Digital Technology Limited was
      founded to capitalize on the numerous opportunities in China arising from the
      digitization of cable television services and the reform of state owned cable
      television enterprises. Mr. Ng has extensive experience in Cable TV operations,
      Internet and information technology industry. Over his 15 years experience
      in
      the industry, he has been Chairman, CEO and director of public companies in
      Hong
      Kong, such companies including DCP Holdings Ltd., Hong Kong Cable TV Ltd, the
      first cable TV operator in Hong Kong, Hong Kong Star Internet Ltd., the first
      Internet Service Provider in Hong Kong. Mr. Ng is also the Chairman of Hong
      Kong
      Information Technology Federation and the founder member of Hong Kong Internet
      Service Providers Association. Besides, Mr. Ng was elected as Hong Kong’s “Ten
      Outstanding Young Digi Persons” by Hong Kong Productivity Council and Hong Kong
      Junior Chamber in 2000.




**Mr.
      Lui Chi
      Keung** is our
      Chief Financial Officer and Director. Prior to joining ADT, Mr. Lui was the
      founder and managing director of Beth Group. Mr. Lui has over 20 years
      experience in merchant banking, investment & software industry. Mr. Lui has
      been managing director, general manager and director for a number of companies
      in Hong Kong, including Beth Group and Tomson Pacific Group.




**Mr.
      Chen
      Lu** is a
      Director of the Company. Mr. Chen has over 16 years experience in banking,
      telecom and broadcasting industry in China. His valuable relationship and
      networking is one of the driving forces to take our Company grow fa st.
      Mr.
      Chen was the founde r
      and
      general manager of Guangzhou Vispac Telecom Co Ltd. and Guangzhou DaiLin
      Communication Co. Ltd.




48
 *Table
          of Contents*






**Mr.
      Zhow Wei
      Yu** is a
      Director of the Company. He is currently general manager of Gu Wu Fei Yung
      Production Company Limited since 2000. Mr. Zhow worked in the Bank of China
      from
      1989 to 2000.




**Ms.
      Chen
      Juan** is a
      Director of the Company. She is currently a teacher of computer related courses
      in Guangdong Dance College since 1999.





There
      have been no events under any bankruptcy act, any criminal proceedings and
      any
      judgments or injunctions material to the evaluation of the ability and integrity
      of any director or executive officer during the past 5 years.





Section
      16(a) Beneficial Ownership Reporting Compliance





Based
      on
      information furnished to Registrant, no officer, director, or ten percent
      shareholder failed to file on a timely basis reports on Forms 3, 4, or 5 during
      the most recent two fiscal years.





**Audit
      Committee Financial Expert**





The
      Company does not have a separately designated standing audit committee. Pursuant
      to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts
      as an audit committee for the purpose of overseeing the accounting and financial
      reporting processes, and our audits of the financial statements. The Commission
      recently adopted new regulations relating to audit committee composition and
      functions, including disclosure requirements relating to the presence of an
      "audit committee financial expert" serving on its audit committee. In connection
      with these new requirements, our Board of Directors examined the Commission's
      definition of "audit committee financial expert" and concluded that we do not
      currently have a person that qualifies as such an expert. Presently, there
      are
      only five (5) directors serving on our Board, and we are not in a position
      at
      this time to attract, retain and compensate additional directors in order to
      acquire a director who qualifies as an "audit committee financial expert",
      but
      we intend to retain an additional director who will qualify as such an expert,
      as soon as reasonably practicable. While neither of our current directors meets
      the qualifications of an "audit committee financial expert", each of our
      directors, by virtue of his past employment experience, has considerable
      knowledge of financial statements, finance, and accounting, and has significant
      employment experience involving financial oversight responsibilities.
      Accordingly, we believe that our current directors capably fulfill the duties
      and responsibilities of an audit committee in the absence of such an
      expert.





**Code
      of Ethics**





We
      have
      adopted a code of ethics that applies to our principal executive officer,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions. Such code of ethics will be provided
      to
      any person without charge, upon request, a copy of such code of ethics by
      sending such request to us at our principal office.




49
 *Table
          of Contents*





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Under
      Section 16(a) of the Exchange Act, all executive officers, directors, and each
      person who is the beneficial owner of more than 10% of the common stock of
      a
      company that files reports pursuant to Section 12 of the Exchange Act, are
      required to report the ownership of such common stock, options, and stock
      appreciation rights (other than certain cash-only rights) and any changes in
      that ownership with the Commission. Specific due dates for these reports have
      been established, and the Company is required to report, in this Form 10-KSB,
      any failure to comply therewith during the fiscal year ended December 2005.
      We
      believe that all of these filing requirements were satisfied by our executive
      officers, directors and by the beneficial owners of more than 10% of our common
      stock. In making this statement, we have relied solely on copies of any
      reporting forms received by it, and upon any written representations received
      from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial
      Ownership) was required to be filed under applicable rules of the
      Commission.





**ITEM
      10. Executive Compensation**





As
      of
      December 31, 2005, none of the Company’s executive officers or directors
      currently serving as such had annual compensation exceeded US$100,000 in any
      of
      the last three fiscal years.





**ITEM
      11. Security Ownership of Certain Beneficial Owners and Management**





(a)
            Security
                Ownership of Certain Beneficial Owners





All
      persons known by the Registrant to own beneficially more than 5% of any class
      of
      the Company's outstanding stock on December 31, 2005, are listed below:





Title
                of Class
            Name
                and Address
            #
                Shares
            Nature
                of Ownership
            Current
                % OwnedCommon
                Stock, $.001 Par Value
            Ng
                Chi Shing
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            23,250,000
            Direct
            76.9%Preferred
                Stock, $.001 Par Value(z)
            Ng
                Chi Shing
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            1,875,000
            Direct
            100%





(z)
      Each
      share of preferred stock is convertible into five shares of common
      stock.





(b)
            Security
                Ownership of Management





The
      following table sets forth the number of shares owned beneficially on December
      31, 2005, by each Director and by all Officers and Directors as a group.
      Information as to the beneficial ownership is based upon statements furnished
      to
      the Company by such persons.




50
 *Table
          of Contents*





Title
                of Class
            Name
                and Address
            #
                Shares
            Nature
                of Ownership
            Current
                % Owned (w)Common
                Stock, $.001 Par Value
            Ng
                Chi Shing
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            23,250,000
            Direct
            76.9%Common
                Stock, $.001 Par Value
            Lui
                Chi Keung
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            None
            Direct
            -0-%Common
                Stock, $.001 Par Value
            Chen
                Lu
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            None
            Direct
            -0-%Common
                Stock, $.001 Par Value
            Chen
                Juan
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            None
            Direct
            -0-%Common
                Stock, $.001 Par Value
            Zhow
                Wei Yu
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            None
            Direct
            -0-%Common
                Stock, $.001 Par Value
            All
                Officers and Directors as a Group
            23,250,000
            Direct
            76.9%Preferred
                Stock, $.001 Par Value(z)
            Ng
                Chi Shing
              2505-06,
                25F, 698 Prince Edward Road E., Hong Kong
            1,875,000
            Direct
            100%





(z)
            Each
                share of preferred stock is convertible into five shares of common
                stock,
                and votes together with the common stock on all matters on an “as
                converted” basis..





(c)
            Changes
                in Control


The Company knows of no arrangements that may at a subsequent date result in
      a
      change of control in the Company.





**ITEM
      12. Certain Relationships and Related Transactions**





(a)
            We
                have 1,875,000 shares of Series “A” preferred stock outstanding at
                December 31, 2005. These shares are owned by our majority
                shareholder.


(b)
            During
                2004, aPlan of Exchange was entered into, whereby Arcotect Digital Technology
                Ltd. was acquired in a reverse merger by Hairmax International, Inc.
                The
                merged company changed its name to China Digital Media Corporation
                on
                March 31, 2005.


(c)
            Through
                a stock placement, we have issued 800,000 restricted shares to Manta
                Finance Limited for $1,000,000 in an offering that we believe to
                be exempt
                from registration under Regulation S pursuant to the Securities Act
                of
                1933, as amended. Manta Finance Limited is our technical consultant
                to
                advise us on our DTV development.




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**ITEM
      13. Exhibits and Reports on Form 8-K**





(a)
            Financial
                Statements


1.
      The
      following financial statements of China Digital Media Corp. & Subsidiaries
      are included in Part II, Item 7:








Independent
      Auditors’ Report


Balance
      Sheet-December 31, 2005


Statements
      of Operations - years ended December
      31, 2005 and 2004


Statements
      of Cash Flows - years ended December
      31, 2005 and 2004


Statements
      of Stockholders’ Equity - years ended December
      31, 2005 and 2004


Notes
      to
      Financial Statements




2.
      Exhibits


10.1
      Management Agreement, dated December 15, 2005, between
      the Company and Daniel Ng. Chief Executive Officer


31.1.
      Rule 13a-14(a)/15d-14(a) Certifications of Chief
      Executive Officer


31.2.
      Rule 13a-14(a)/15d-14(a) Certifications of Chief
      Financial Officer


32.1  Section
      1350 Certifications of Chief Executive
      Officer & Chief Financial Officer




(b)
            Reports
                on Form 8-K





We
      issued
      reports on Form 8-K during the three months ended December 31, 2005. Key
      components are as follows:





(1)
            On
                November 1, 2005, we filed an 8-K regarding the decreases in the
                Conversion Ratio of the Series A Convertible Preferred
                Stock.


(2)
            On
                December 12, 2005, we filed an 8-K to report that we entered into
                an
                Advertising Distribution Agreement with Southern International Media
                Advertising Co., Ltd., a limited liability company organized under
                the
                laws of the Peoples’ Republic of China, pursuant to which M-Rider agreed
                to manage and operate television commercial airtime for a television
                channel for one year starting from January 1, 2006, which agreement
                is
                extendable for an additional year.


(3)
            On
                January 3, 2006, we filed an 8-K regarding the appointments of the
                two new
                Directors.


(4)
            On
                January 18, 2006, we filed an 8-K regarding a Management Agreement,
                dated
                December 15, 2005 and effective on January 1, 2006, with Daniel Ng,
                our
                Chief Executive Officer and
                Founder.


(5)
            On
                February 6, 2006, we filed an 8-K to report that Guangdong HuaGuang
                Digimedia Cultural Development Limited has entered into an Asset
                Transfer
                Agreement with Guiyang Classic & Fashion Advertising Co., Ltd., a
                television program production company, pursuant to which HuaGuang
                will
                acquire the business and assets of Guiyang Classic and incorporate
                those
                assets into a newly formed Chinese subsidiary known as Guizhou HuaGuang
                Digimedia Company Limited.





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**Item
      14.**  **Principal
      Accountant Fees and Services**





**Fees
      Billed For Audit and Non-Audit Services**





The
      following table represents the aggregate fees billed for professional audit
      services rendered to the independent auditor, Perrella & Associates,
      ("Perrella") for our audit of the annual financial statements for the years
      ended December 31, 2004 and first quarter of 2005. For the 2rnd quarter of
      2005,
      we have changed our independent auditor to Jimmy Cheung and Co. (“Jimmy”). Audit
      fees and other fees of auditors are listed as follows:





Year
                Ended December 31
            
            2005
            
            
            
            2004
                and Q1 2005Jimmy
            
            
            
            PerrellaAudit
                Fees(1)
            
            $
            43,500
            (2
            )
            
            
            $
            24,000
            (3)Audit-Related
                Fees(2)
            
            
            --
            
            
            
            
            
            --Tax
                Fees(3)
            
            
            --
            
            
            
            
            
            --All
                Other Fees(4)
            
            
            --
            
            
            
            
            
            --Total
                Accounting Fees and Services
            
            $
            43,500
            
            
            
            
            $
            24,000







(1)
            *Audit
                Fees*.
                These are fees for professional services for our audit of the annual
                financial statements, and for the review of the financial statements
                included in our filings on Form 10-QSB, and for services that are
                normally
                provided in connection with statutory and regulatory filings or
                engagements.




(2)
            *Audit-Related
                Fees*.
                These are fees for the assurance and related services reasonably
                related
                to the performance of the audit or the review of our financial
                statements.




(3)
            *Tax
                Fees*.
                These are fees for professional services with respect to tax compliance,
                tax advice, and tax planning.




(4)
            *All
                Other Fees*.
                These are fees for permissible work that does not fall within any
                of the
                other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax
                Fees.




**Subsequent
      Events.**




On
      January 31, 2006, through
      our affiliate
      HuaGuang, the Company entered
      into an agreement (the “Agreement”) to purchase
      all media related businesses, assets, business contracts and management from
      Guiyang Classic & Fashion Advertising Co., Ltd., a television program
      production and advertising company in China. Pursuant to the terms of the
      Agreement, we will pay $2.2 million, in a combination of cash and restricted
      Company common stock, which payment is subject to a downward adjustment in
      the
      event that the acquired assets generate a cumulative profit less than $2.5
      million over the next 2 years. The management team of Guiyang Classic &
Fashion Advertising Co., Ltd. has approximately 10 years of business experience
      in the media industry in China. They have produced television programs for
      different television channels, including the well known program, a “true man
      show”, as well as adventure, nature and tourism productions, for which they have
      obtained several national awards in the last few years. The completion of the
      transaction is subject to certain conditions, including official approval,
      and
      verification of assets and business contracts. We expect to complete the
      acquisition in the first quarter of 2006.




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  On
        February 8, 2006, through
        our affiliate
        HuaGuang, the Company entered
        into a Memorandum of Understanding (the “MOU”) to form two joint ventures (the
“JV Agreements”) with a provincial television station. Pursuant to the MOU, the
        provincial television station will grant an exclusive right to manage the
        content of its television channel and outsourcing its entire advertising
        time
        slots into two joints ventures for a term of 5 years each, with rights to
        use
        their production resources and equipment. We are committed to invest
        approximately $2.5 million into the two joint ventures over the 5 year period.
        The two joint ventures are not limited in their ability to serve other
        television channels and stations if the right opportunity to do so arises.
        One
        of the joint ventures (the “Program Management JV”) is responsible for providing
        services to a television channel including program sourcing, schedule planning
        and production of television programming and major events. The provincial
        television station partner owns a 51% equity interest in the Program Management
        JV and we own the balance, or a 49% interest. The second joint venture (the
        “Advertising Agent JV”) will act as an exclusive advertising wholesaler for the
        Program Management JV to sell its advertising time slots to advertising
        customers. We own a 51% equity interest in the Advertising Agent JV and the
        provincial television station partner owns the remaining 49%
        interest. The
        completion of the transaction is subject to certain conditions, including
        government approval. We expect to complete the acquisition in the second
        quarter
        of 2006.














--Signature
      Page Follows--






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**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.







**CHINA
      DIGITAL MEDIA CORPORATION**


(Registrant)







Date:
      February 13, 2006







/s/
      Ng
      Chi Shing


Ng
      Chi
      Shing


President,
      CEO and Director





/s/
      Lui Chi Keung


Lui
      Chi
      Keung


CFO
      and
      Director





/s/
      Chen Lu


Chen
      Lu


Director





/s/
      Chen Juan


Chen
      Juan


Director





/s/
      Zhow Wei Yu


Zhow
      Wei
      Yu


Director





55