**U.S.
Securities and Exchange Commission**
 **Washington,
D.C. 20549**
  
 **FORM
10-KSB/A**
  
 x
    **ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the year ended December 31,
2004**
 
 o
    **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      for the transition period from _______ to
  _______**
 
 **COMMISSION
FILE NUMBER: 001-14973**
 
 CHINA
DIGITAL MEDIA CORPORATION
 (Exact
name of small business issuer as specified in its charter)
 
 **HAIRMAX
INTERNATIONAL, INC.**
 **(Former
name of registrant)**
 
 ******** Nevada13-3422912
 (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)**
 
 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 o
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or an
amendment to this Form 10-KSB. x
 
 
 
  State
issuer's revenues for its most recent fiscal year:  $-0-.
 
 As of
April 15, 2005 there were 30,079,500 common shares outstanding and the aggregate
market value of the common shares (based upon the average of the bid price of
$1.35 and the asked price of $1.90 reported by brokers) held by non-affiliates
was approximately  $13,941,687.
 
 Transitional
Small Business Disclosure Format (check one): Yes o
No x
 
 Number of
shares of common stock outstanding as of April 15, 2005: 30,079,500
 Number of
shares of preferred stock outstanding as of April 15, 2005:
1,975,000
  
 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. Statements contained in this Form 10-KSB that are not historical facts are
forward-looking statements that are subject to the "safe harbor" created by the
Private Securities Litigation Reform Act of 1995.
  2
  **Explanatory Note**
 
 On April 15, 2005, China Digital Media Corporation
(the "Company") filed with the Securities Exchange Commission its Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2004. This Amendment No. 1
on Form 10-KSB/A to the Annual Report on Form 10-KSB has been filed to include
the Consolidated Notes to Financial Statements and the Report of Independent
Registered Public Accounting Firm inadvertently omitted and to correct certain
typographical and clerical errors in the original
filing.
  3
  **PART
I**
 
 
 **ITEM
1.**  **Description
of Business**
 
 **Corporate
Organization**
 
 As used
herein the term “we” or “us” refers to China Digital Media Corporation, (a
Nevada Corporation), formerly known as HairMax International, Inc. since 2004
and its subsidiaries and predecessors, unless the context indicates otherwise.
Originally incorporated in 1987 as Tri-Capital Corporation, the name was changed
in 1988 to Advanced Appearance of America, which operated beauty salons until
1995. At that time, we discontinued its operations and went inactive until early
1998. In March of 1998, the Company changed its name to ATR Industries, Inc. On
June 1, 1998, the Company acquired ATR Industries, Inc. of Florida (AKA Cleaning
Express USA and Cleaning Express of South Palm Beach, Inc.), a private Florida
Corporation, for 3,000,000 restricted shares of Common Stock. On September 12,
2002, one of our subsidiaries legally changed its name to Hairmax of Florida,
Inc. from Beautyworks USA of Florida, Inc.
 
 Since
1998, we concentrated our operations primarily on the home cleaning and beauty
salon services industries until we discontinued all of these operations in 2005.
In January 2000, we commenced operations of a new division of operations related
to the preparation, development and marketing of cosmetics and beauty products
via an e-commerce Internet site. These operations were conducted through our
wholly owned subsidiary Beautymerchant.com, Inc., a Florida corporation. In
2001, we have ceased any further investment into Beautymerchant.com Inc, that
had encountered numerous distribution and inventory problems, and after a
developmental period, it was deemed not prudent to make any further investment.
In 2005, we officially ceased any further investment into all of our hair salons
and cleaning operations. These operations appear as discontinued as of March 31,
2005 in our accompanying audited statements of operations and related
footnotes.
 
 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 matters 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.
  **Cleaning
Express USA.** Cleaning
Express USA is a wholly owned Florida subsidiary corporation. Prior to
discontinuance in 2005, our home services operations were primarily involved
home cleaning services. Through its emphasis on budget pricing, we have
developed a market in the home cleaning industry. We currently operate a central
office and dispatches 15 to 20 workers in teams of two workers on a daily basis.
The present geographic area in which we operated included Broward and South Palm
Beach County areas of South Florida. Marketing for the home cleaning services
was accomplished through print ads, television and radio commercials.
Additionally, we utilized a referral program that rewards customers with future
discounts for referring a client. The home cleaning industry is highly
competitive with respect to price, service, quality and location. There are
numerous, well-established, larger competitors in the home cleaning industry
possessing substantially greater financial, marketing, personnel and other
resources than us. We were not successful in achieving this goal since 1996. The
primary market for Cleaning Express USA Inc., was individual households. No
single customer made up more than ten percent of the total revenues of Cleaning
Express USA, Inc. We
had two full time employees and contracts with 18-20 workers that were each
independently contracted with us to service and provide home cleaning services
to existing and new customers.
  4
 ****
  **Hairmax
of Florida, Inc. and Hairmax of Nevada, Inc.**  Hairmax
of Florida Inc., a Florida corporation, and Hairmax of Nevada, Inc., a Nevada
corporation had a limited operating history. Having just started these services
operation in the year 2001, we had a short operating history upon which to
evaluate its business and prospects. Both
operations were discontinued as of March 31, 2005. We were
unsuccessful in implementing the following:
  
 1. Retain
existing customers.
 2.
Attract new customers.
 3. Meet
customer demands.
 4.
Fulfill all customer needs.
 5.
Maintain sufficient in-store traffic.
 6.
Increase our media exposure.
 7.
Monitor the competition.
 8.
Ability to hire and retain qualified service personnel
(hairstylists).
 9. Locate
and acquire independent salons.
 
 The
principal suppliers to Hairmax Corporation were wholesale distributors, who do
not sell retail.
 
 In prior
years, we opened two locations for Hairmax salons in Coral Springs, Florida,
including an existing location in Boca Raton, Florida; during the year we
operated four Hairmax operations. Two salons were operating in Las Vegas, Nevada
as of this date. These locations did not perform as expected, in comparison to
the Florida operations.
 
 The hair
services industry was highly competitive with respect to price, service, and
location. As a result, the potential for failure in this industry is
significant. There were numerous, well-established, larger competitors in the
beauty services industry with considerable expertise, possessing substantially
greater financial, marketing, personnel and other resources than us.
 
 Consistent,
Quality Service. We were committed to meeting its customer’s hair care needs by
providing competitively priced services and products in high traffic retail
locations with professional and knowledgeable stylists. Our operations and
marketing emphasize high quality services to create customer loyalty, to
encourage referrals and to distinguish our salons from its competitors. The
major services supplied by our salons are haircutting and styling, hair coloring
and waving, shampooing, conditioning and waxing.
 
 **Growth
Opportunities:**
 
 We
believed we could expand our salon operations through a future franchise program
and refine the Hairmax concept of "WE Style For Less", offering high quality
hair services, through everyday low prices, appealing to the mass consumers and
families. Our expansion was to focus on acquisition growth for the next 12
months, while continuing to develop Hair Max. We were unsuccessful with
this.
 
 5
 
 **Industry
Overview**
 
 Management
estimates that annual revenues of the hair care industry are $50 billion in the
United States. The industry is highly fragmented with the vast majority of hair
care salons independently owned. However, the influence of chains, both
franchise and company-owned, has increased substantially. Management believes
that chains will continue to have a significant influence on the overall market
and will continue to increase their presence. Management also believes that the
demand for salon services and products will continue to increase as the overall
population continues to focus on personal health and beauty, as well as
convenience
 
 In August
2002, we discontinued all Internet operations, to focus on the family hair salon
concept. The corporate name was changed to HAIRMAX, and a trademark application
has been filed with the US Patent and Trademark office, registration #76461424.
In addition the Florida corporation name was changed to Hairmax of Florida Inc.,
which then operated all salon operations in Florida. In September 2002, we
formed a Nevada subsidiary corporation to operate the new Hairmax operations in
Nevada. We were formed as Hairmax of Nevada Inc., and once entered into a lease
for the flagship store which opened in the Spring 2003.
 
 **Government
Regulation**
 
 No
government approvals were required to conduct our principal operations, and we
are not aware of any probable governmental regulation of our business sectors in
the near future.
 
 **Effects
of Inflation**
 
 We
primarily compensated our salon employees with percentage commissions based on
sales they generate, thereby enabling salon payroll expense as a percent of
revenues to remain relatively constant. Accordingly, this provided us certain
protection against inflationary increases as payroll expense and related
benefits (our major expense components) are, with respect to these concepts,
variable costs of sales. We do not believe inflation, due to its low rate, had a
significant impact on the results of operations associated with hourly paid
hairstylists for the remainder of our mall based and strip center salons. In
addition all services provided by Cleaning Express USA, were accomplished by
independent contractors.
 
 **Competition**
 
 The hair
care industry is highly fragmented and competitive. There are competitors
offering similar hair care services and products at similar prices. We faced
severe competition within malls from companies which operate salons within
department stores and from smaller chains of salons, independently owned salons
and, to a lesser extent, salons which, although independently owned, are
operating under franchises from a franchising company that may assist such
salons in areas of training, marketing and advertising.
 
 6
 
 Significant
entry barriers exist for chains to expand nationally due to the need to
establish customer awareness, systems and infrastructure, recruitment of
experienced hair care management and adequate store staff, and leasing of
quality sites. The principal factors of competition in the affordable hair care
category are quality, consistency and convenience. We continually strive to
improve its performance in each of these areas and to create additional points
of difference versus the competition.
 
 Products
and Geographic Expansion
 
 We began
retail brick and mortar operations in second quarter 2002.
 
 Management
attempted, but failed, to expand to expand sales on a continual
basis.
 
 **Customer
Service**
 
 We
believe our ability to establish long-term relationships with our customers
encouraged repeat sales. We provided customer service with on-premise personnel
and qualified management available at all locations.
 
 **Controls
and Procedures**
 
 (a) As
of December 31, 2004, our Chief Executive Officer and Chief Financial
Officer made an evaluation of our disclosure controls and procedures. In our
opinion, the disclosure controls and procedures are adequate because the systems
of controls and procedures are designed to assure, among other items, 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 its 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.
 
 7
 ****
 **ITEM
2. Properties**
 
  We leased
our executive offices with 900 square feet for administration at 9900 West
Sample Road, Coral Springs, Florida 33065 for approximately $950 per month. We
leased our beauty salon facility of 1,100 square feet at the Del Mar Shopping
Village, located at Powerline Road at Palmetto Park Road, Boca Raton, Florida,
for $3,173 per month. We leased our beauty salon facility of 900 square feet at
the Coral Palm Plaza, located on University Drive, Coral Springs, Florida, for
$2,226 per month. We leased our beauty salon facility of 1,100 square feet at
the Brookside Plaza, located on Wiles Road, Coral Springs, Florida, for
approximately $3,100 per month. These noncancelable leases expire at varying
dates through December 31, 2007. These
leased premises have been discontinued as of March 31, 2005.
   **ITEM
3. Legal Proceedings**
 
 We are
not presently involved in any pending legal proceedings. However, we have been
involved in legal proceedings during 2004 that would not be considered routine
litigation incidental to our business. The following is a summary of these legal
proceedings.
 
 Dadon
v. Roth et al. , CV
03-08735 CAS (MANx). On December 1, 2003, a civil complaint was filed in the
United States District Court for the Central District of California, Western
Division, against the defendants by David Dadon, a shareholder and our former
officer, seeking a preliminary injunction to enjoin, among other things, the
Roth defendants from refusing to recognize David Dadon as Chairman and our
Secretary, and refusing to recognize the removal of the Roth defendants as
officers and directors of us pursuant to a Consent of Shareholders in Lieu of
Special Meeting of Shareholders, dated November 14, 2003, and a Special Meeting
of the Shareholders of the Registrant held on November 15, 2003, both of which
shareholder actions were organized by Dadon and other shareholders sympathetic
with his cause.
 
 On
December 19, 2003, United States District Judge Christina A. Snyder issued her
Findings of Fact and Conclusions of Law and Order Denying Preliminary Injunction
in the case. The Judge’s ruling concluded in Paragraph 14 that the preliminary
injunction should not issue. Accordingly, plaintiff’s request for a preliminary
injunction was denied by the Court. An interim restraining order seeking only to
maintain the status quo, which was imposed on the Roth defendants and their
affiliates on December 4, 2003, in order to enjoin stock issuances and sales
pursuant to a Registration Statement on Form S-8 pending the outcome of this
litigation, was also dissolved by Judge Snyder.
 
 In
Paragraph 6 of her opinion, Judge Snyder concluded as a matter of law that
“Plaintiff has not demonstrated a probability of success on the merits”. She
noted that the 3,302,000 votes cast approving the removal of Edward and Alisha
Roth Constituted less than two-thirds of the 19,618,858 votes entitled to vote.
She further concluded as a matter of law that “plaintiff has failed to
demonstrate that there is likelihood that the 1,400,000 shares of Series A
[convertible]
 Preferred
Stock [with ten votes per share] issued to Edward and Alisha Roth were invalid.”
In addition, the Judge concluded as a matter of law that “Plaintiff has unclean
hands in this case, which weighs in favor of denying the injunction”. She noted
that plaintiff induced us to issue 2,000,000 shares of its common stock to
Revenge Games, Inc., an allegedly independent entity. However, Revenge Games,
Inc. appears to be under plaintiff’s control and the 2,000,000 shares paid to
Revenge Games, Inc. appear to have been secured to be used in an attempt to
remove Edward and Alisha Roth from their positions as officers and directors of
us. Finally, Judge Snyder concluded as a matter of law that “Plaintiff’s
credibility as a witness in this matter was further impeached by the fact the he
was on August 6, 2003, enjoined by the United States District court for the
District of Arizona in a similar contest for control of a corporation from
representing himself to be Chairman of the Board, or any other officer or
employee, of Viastar Holdings, Inc.”
 
 8
 
 There
have been several motions made by the parties since December 19, 2003 Order in
the case. None of the motions have been ruled on, nor would they be considered
dispositive.
 
 Hairmax
International Corp. v. David Dadon, Case No.
03-62149. On December 2, 2003, we filed a civil lawsuit against David Dadon in
the United States District Court for the Southern District of Florida, Fort
Lauderdale Division. While the case has been filed with the Court, a copy of the
Summons and Complaint has not been served on the defendant to date. In the
Complaint, the Company includes causes of action for fraud, breach of fiduciary
duty, intentional and negligent misrepresentation, tortuous interference with
contractual relations, libel and slander, and permanent injunction. We have
requested that the Court grant a preliminary injunction, prohibiting the
defendant from taking actions that violate the law and perpetuate a fraud on us
by representing to any person or entity that he is Chairman of the Board of us
or any other officer of us, or is an employee, representative or agent of us, or
is authorized to enter into agreements or make statements on our behalf. In
addition, our Complaint seeks compensatory and punitive damages in an amount
equal to $5.0 million for the damage caused by Defendant’s action.
 
 On
October 7, 2004, we entered into a settlement agreement with respect to both of
the above cases, which were dismissed without
loss or benefit to us.
 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
 
 We
reported in a Form 8-K in 2005 that a Complaint, dated March 3, 2005, captioned
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. In general, the Complaint
is an action by a landlord to evict a tenant from real property located at 2031
North University Drive, Coral Springs, Florida, and for damages in excess of
$15,000, exclusive of interest and attorneys’ fees and costs.
 
 The
action arose out of an alleged breach of lease by defendant Hairmax of Florida,
Inc., relating to our operation of a hair salon located at the 2031 North
University Drive address. If all of the allegations of the plaintiff are proven
at trial, the plaintiff may be entitled to damages of approximately $90,000,
representing delinquent rents and an acceleration of rents due for the balance
of the lease term, which extends through February of 2008. The plaintiff
alleges, among other things, that we are the alter ego of its subsidiary,
Hairmax of Florida, Inc., which is a our subsidiary that was formed to operate
beauty salons in south Florida, and we should therefore be held responsible to
the same extent as Hairmax of Florida, Inc.
 
  In April,
2005, we entered into a settlement agreement for non-payment of rents for this
beauty salon. The salon was closed in 2005 as further discussed in the footnotes
to our audited financial statements. We agreed, and the lessor accepted, to pay
$15,000 in accordance with the terms and conditions as set forth in the
settlement agreement. The $15,000 is included in accounts payable in our audited
balance sheet at December 31, 2004. It was
agreed that the lawsuits against both HairMax entities would be dismissed with
prejudice.
  
 9
 ****
 **ITEM
4. Submission of Matters to a Vote of Security Holders**
 
 In the
fourth quarter, the majority of the shareholders voted to approve our issuances
of common stock to various officers, directors and outside consultants for
services received.
 
 **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 Lexis.com, an
      on-line source that provides historical pricing information.
  Quarter
      Ended
    BidLow
    High03/31/03
    1.00
    4.0006/30/03
    1.00
    2.0009/30/03
    1.00
    2.0012/31/03
    1.00
    2.0003/31/04
    10.00
    20.0006/30/04
    7.00
    18.0009/30/04
    4.00
    9.0012/31/04
    2.00
    9.00
 The above
stock prices have been retroactively adjusted in the above table for a 50 for 1
reverse stock split in 2003 and a 100 for 1 reverse split in 2004.
  10
  (b)
Holders. The approximate number of holders of record of the Registrant's Common
Stock as of April 15, 2004 was 80.
 
 (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.
 
 11
 
 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**
 
 Introduction
 
 We are a
Nevada corporation that legally changed our corporate name in March 2005 to
China Digital Media Corporation and was formerly known as Hairmax International,
Inc.
 
 The
financial statements below include its wholly owned subsidiaries, Cleaning
Express USA, and Hairmax of Florida, Inc. (FKA Beauty Works USA, Inc.). We were
a full service cleaning company offering daily residential cleaning services,
carpet cleaning and other related services in the South Florida area under the
name of Cleaning Express USA. We also offered beauty salon services and products
though its two retail beauty salons in the South Florida area under our Hairmax
of Florida, Inc. subsidiary.
  Selected
      financial dataYear
      Ended December 312003
    
    2004Net
      Sales
    
    $
    476,581
    
    $
    561,699Net
      Loss
    
    
    (3,513,287
    )
    
    (1,223,924
    )Net
      Loss perCommon
      Share
    
    
    (192.19
    )
    
    (1.36
    )Weighted
      AverageCommon
      Shares Outstanding
    
    
    18,280
    
    
    897,643As
      of December 31,2003
    
    
    2004Total
      Assets
    
    $
    90,697
    
    $
    -0-Working
      Capital (Deficit)
    
    
    (139,712
    )
    
    (141,809
    )Shareholders’
      Equity (Deficit)
    
    
    (58,925
    )
    
    (141,809
    )
 
 No
dividends have been declared or paid for any of the periods
presented.
 
 12
 
 Results
of Operations
 
 Year
Ended December 31, 2004 Compared to Year Ended December 31, 2003
 
 Sales
 
 Sales,
which were all shown under discontinued operations, for the year ended December
31, 2004 increased to $561,699 from $476,581 for the year ended December 31,
2003, an increase of 18%. The increase in revenues was primarily attributable to
having more salons open full-time in 2004 as compared to 2003.
 
 Income /
Losses
 
 Net
losses for the year ended December 31, 2004 decreased to $1,223,924 from
$3,513,287 for the year ended December 31, 2003, a decrease of 65%. The
substantial decrease in loss was attributable primarily to an impairment of
$2,200,000 in 2003 which was related to an asset acquisition in
2003.
 
 The
profitability measure used by the chief decision makers in allocating resources
and assessing segment performance is net cash flows. Net cash flows are
monitored closely for each segment on a timely basis and adjustments, if any,
are made in order to strive for optimal profits. The Chief Executive Officer
uses net cash flow as his primary profitability measure in assessing segment
performance and allocating resources.
 
 We expect
to continue to incur losses at least through fiscal 2005 and may not be able to
achieve or maintain profitability or sustain its revenue growth in the future.
 
 Expenses
 
 Selling,
general and administrative expenses for the year ended December 31, 2004,
decreased to $33,712 from $35,150 for the year ended December 31, 2003, a
decrease of 4. The decrease in selling, general and administrative expenses was
the result of decrease in general corporate overhead not directly related to
discontinued operations of the hair salons and cleaning operations. Stock issued
for consulting fees decreased due to fewer common stock share issuances during
2004 compared to 2003 that were paid to consultants to assist us in our growth
plans.
 
 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.
 
 Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, some portion or all of the deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws and rates on the date of
enactment.
 
 13
 
 Non-Operating
Expense Items
 
 Recorded
interest expense is attributable to interest paid on the outstanding shareholder
loan balances during the 2004 and 2003 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 2004, we issued 3,000,000 common shares to an unrelated
entity in exchange for a $30,000 promissory note receivable. The note was in
default and deemed uncollectible and written off in 2004.
 
 14
 
 Trends,
Events, and Uncertainties
 
 Demand
for our home cleaning services and beauty salon services will be dependent on,
among other things, market acceptance of our concept and general economic
conditions, which are cyclical in nature. Inasmuch as a major portion of our
activities is the receipt of revenues from the sales of its products, our
business operations may be adversely affected by our competitors and prolonged
recessionary periods.
 
 Liquidity
and Capital Resources
 
 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.
 
 Years
ended December 31, 2004 and December 31, 2003
 
 Cash
flows used in operations were a negative $101,874 for the year ended December
31, 2004, and a negative $204,341 for the year ended December 31, 2003. Negative
cash flows from operating activities for the years ended December 31, 2004 and
2003 are primarily attributable to losses from operations, partially offset by
the common stock issued for services in both years.
 
 Cash
flows from investing activities were a positive $71,905 for the year ended
December 31, 2004 and a negative $53,349 for the same period in 2003. Both
yearly investing cash flows were solely attributable to discontinued operations
during 2003.
 
 Cash
flows provided by financing activities were $25,975 and $162,847 for the years
ended December 31, 2004 and 2003, respectively. The positive cash flows in 2004
and 2003 were primarily due to the equity placement of common stock sold during
2004 and 2003 and proceeds from a shareholder loan made by our officer and
director in 2003.
 
 We have
funded its cash needs from inception through December 31, 2004 with a series of
shareholder debt and equity transactions, including private
placements.
 
 We have
1,975,000 shares of preferred stock outstanding at December 31, 2004, which are
convertible at the option of the shareholder into 395,000,000 shares of common
stock. During 2004, 875,000 preferred shares were converted into 175,000,000
(pre-split), 1,750,000 (post-split) common shares by one of our former officers
and majority shareholder. During 2003, 600,000 preferred shares were converted
into 6,000,000 common shares by two of our former officers and majority
shareholders.
 
 We have
suffered recurring losses and have yet to generate an internal cash flow. We
substantially relied on the revenues from the home cleaning business and from
the revenues of the beauty salons in Boca Raton, Florida, Coral Springs, Florida
and Las Vegas, Nevada. We projected that current and projected revenues and
capital reserves will not sustain us for the next twelve months. Since the
projected revenues of these sources fall short of needed capital because of a
decrease in demand for the company's services as well as other factors, we were
not be able to sustain our capital needs for more than twelve months. Therefore,
we decided to discontinue the hair salon and cleaning operations in
2005.
 
 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 are considering launching a wide scale marketing and advertising
campaign. Our current capital and revenues are not sufficient to fund such a
campaign. If we choose to launch such a campaign it well require substantially
more capital. If necessary, we plan to raise this capital through an additional
follow-on stock offering. The funds raised from this offering will be used to
develop and execute the marketing and advertising strategy that may include the
use of television, radio, print and Internet advertising. Funds would also be
used to acquire beauty salons. 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.
 
 Basic EPS
equals diluted EPS because of the loss above. Preferred stock had no effect on
the calculation of EPS. Co mmon
stock purchase options are common stock equivalents that were excluded from the
computation of diluted loss per share.
 
 15
 ****
 **ITEM
7. Financial Statements**
  **CHINA
      DIGITAL MEDIA CORPORATION & SUBSIDIARIES****F/K/A
      HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**Consolidated
      Balance Sheet*December
      31, 2004*ASSETSTOTAL
      ASSETS
    
    $
    -LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
    
    $
    141,809TOTAL
      CURRENT LIABILITIES
    
    
    141,809STOCKHOLDERS'
      DEFICITSeries
      A convertible preferred stock ($0.001 par value, 40,000,000 shares
      authorized, 1,975,000 shares issued and outstanding)
    
    
    1,975Series
      B 2% convertible preferred stock ($0.001 par value, 1,000 shares
      authorized, -0- shares issued and outstanding)
    
    
    -Common
      stock ($0.001 par value, 100,000,000 shares authorized, 1,993,363
      sharesissued and outstanding
    
    
    1,993Additional
      paid in capital
    
    
    6,763,555Accumulated
      deficit
    
    
    (6,909,332
    )TOTAL
      STOCKHOLDERS' DEFICIT
    
    
    (141,809
    )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
    
    $
    -The
      accompanying notes are an integral part of these consolidated financial
      statements.
  16
  **CHINA
      DIGITAL MEDIA CORPORATION & SUBSIDIARIES****F/K/A
      HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**Consolidated
      Statements of Operations*For
      the years ended December 31,2004 and 2003*2004
    
    2003REVENUE
      AND COST OF SALES:Sales
    
    $
    -
    
    $
    -Cost
      of sales
    
    
    -
    
    
    -Gross
      Profit
    
    
    -
    
    
    -EXPENSES:Stock
      issued for services
    
    
    881,192
    
    
    988,661Selling,
      general and administrative
    
    
    33,712
    
    
    35,150Total
      Expenses
    
    
    914,904
    
    
    1,023,811OPERATING
      LOSS
    
    
    (914,904
    )
    
    (1,023,811
    )OTHER
      INCOME (EXPENSE):Interest
      expense
    
    
    (2,762
    )
    
    (1,656
    )Loss
      from impairment of asset acquisition
    
    
    -
    
    
    (2,200,000
    )Unrealized
      gain on trading securities
    
    
    -
    
    
    5,416Total
      Other Income (Expenses)
    
    
    (2,762
    )
    
    (2,196,240
    )NET
      LOSS FROM CONTINUING OPERATIONS
    
    
    (917,666
    )
    
    (3,220,051
    )DISCONTINUED
      OPERATIONS:Loss
      from discontinued operations
    
    
    (306,258
    )
    
    (293,236
    )NET
      LOSS
    
    $
    (1,223,924
    )
    $
    (3,513,287
    )Net
      loss per common share from continued operations
    
    
    (1.02
    )
    
    (176.15
    )Net
      loss per common share from discontinued operations
    
    
    (0.34
    )
    
    (16.04
    )Basic
      and fully diluted net loss per common share
    
    $
    (1.36
    )
    $
    (192.19
    )Weighted
      Average Shares Outstanding, basic and fully diluted
    
    
    897,643
    
    
    18,280The
      accompanying notes are an integral part of these consolidated financial
      statements.
 17
 ****
 **CHINA
      DIGITAL MEDIA CORPORATION & SUBSIDIARIES****F/K/A
      HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**Consolidated
      Statements of Changes in Stockholders' Deficit*For
      the years ended December 31, 2004 and 2003*Series
      "A" Convertible
    
    Series
      "B" 2% Convertible
    
    
    
    
    AdditionalPreferred
      Stock, $0.001 Par
    
    Preferred
      Stock, $0.001 Par
    
    Common
      Stock, $0.001 Par
    
    Paid-in
    
    AccumulatedShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalances,
      December 31, 2002
    
    
    750,000
    
    $
    750
    
    
    -
    
    
    -
    
    
    7,060
    
    $
    7
    
    $
    2,272,488
    
    $
    (2,172,121
    )
    $
    101,124Common
      stock issued for services received
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    12,539
    
    
    13
    
    
    848,568
    
    
    -
    
    
    848,581Preferred
      stock issued for services received
    
    
    1,400,000
    
    
    1,400
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    158,600
    
    
    -
    
    
    160,000Contributed
      capital - stock returned by officers
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (494
    )
    
    (1
    )
    
    49,311
    
    
    -
    
    
    49,310Return
      of common stock previously in escrow forequity
      placement
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,807
    )
    
    (3
    )
    
    95,350
    
    
    -
    
    
    95,347Issuance
      of common stock for asset acquisition
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    20,000
    
    
    20
    
    
    2,199,980
    
    
    -
    
    
    2,200,000Conversion
      of preferred shares into commonshares
      by officers
    
    
    (600,000
    )
    
    (600
    )
    
    -
    
    
    -
    
    
    60,000
    
    
    60
    
    
    540
    
    
    -
    
    
    -Net
      loss for the year
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,513,287
    )
    
    (3,513,287
    )-Balances,
      December 31, 2003
    
    
    1,550,000
    
    $
    1,550
    
    
    -
    
    
    -
    
    
    96,298
    
    $
    96
    
    $
    5,624,837
    
    $
    (5,685,408
    )
    $
    (58,925
    )Common
      stock issued for cash
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    17,658
    
    
    18
    
    
    25,957
    
    
    
    
    
    25,975Common
      stock issued for services received
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    99,407
    
    
    99
    
    
    983,492
    
    
    -
    
    
    983,591Preferred
      stock issued for services received
    
    
    300,000
    
    
    300
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    29,700
    
    
    -
    
    
    30,000Preferred
      stock issued to pay shareholder loan
    
    
    1,000,000
    
    
    1,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    70,474
    
    
    -
    
    
    71,474Issuance
      of common stock for note receivable
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    30,000
    
    
    30
    
    
    29,970
    
    
    -
    
    
    30,000Conversion
      of preferred shares into commonshares
      by officers
    
    
    (875,000
    )
    
    (875
    )
    
    -
    
    
    -
    
    
    1,750,000
    
    
    1,750
    
    
    (875
    )
    
    -
    
    
    -Net
      loss for the year
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,223,924
    )
    
    (1,223,924
    )-Balances,
      December 31, 2004
    
    
    1,975,000
    
    $
    1,975
    
    
    -
    
    
    -
    
    
    1,993,363
    
    $
    1,993
    
    $
    6,763,555
    
    $
    (6,909,332
    )
    $
    (141,809
    )The
      accompanying notes are an integral part of these consolidated financial
      statements.
  18
 ****
 **CHINA
      DIGITAL MEDIA CORPORATION & SUBSIDIARIES****F/K/A
      HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**Consolidate
      Statements of Cash Flows*For
      the years ended December 31, 2004 and 2003*2004
    
    2003CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
    
    $
    (1,223,925
    )
    $
    (3,513,287
    )Adjustments
      to reconcile net loss to net cash (used in) operating
      activities:Common
      stock issued for services
    
    
    983,591
    
    
    848,581Common
      stock issued for note receivable
    
    
    30,000
    
    
    -Preferred
      stock issued for services
    
    
    30,000
    
    
    160,000Loss
      from impairment of asset acquisition
    
    
    -
    
    
    2,200,000Interest
      accrued on shareholder loan payable
    
    
    2,318
    
    
    1,656Marketable
      securities
    
    
    5,416
    
    
    (5,416
    )Discontinued
      operations, net
    
    
    70,726
    
    
    104,125NET
      CASH USED IN OPERATING ACTIVITIES
    
    
    (101,874
    )
    
    (204,341
    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Discontinued
      operations, net
    
    
    71,905
    
    
    (53,349
    )NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    71,905
    
    
    (53,349
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from shareholder loan payable
    
    
    -
    
    
    67,500Proceeds
      from equity placement
    
    
    25,975
    
    
    95,347NET
      CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    25,975
    
    
    162,847NET
      DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,994
    )
    
    (94,843
    )CASH
      AND CASH EQUIVALENTS,BEGINNING
      OF THE YEAR
    
    
    3,994
    
    
    98,837END
      OF THE YEAR
    
    $
    -
    
    $
    3,994SUPPLEMENTARY
      CASH FLOW INFORMATION OF NON-CASH FINANCING:Common
      stock issued for services
    
    $
    983,591
    
    $
    848,581Preferred
      stock issued for services
    
    $
    30,000
    
    $
    160,000Preferred
      stock issued for repayment of shareholder loan
    
    $
    71,474
    
    $
    -Cash
      paid for interest expense
    
    $
    -
    
    $
    -Common
      stock issued for purchase of assets
    
    $
    -
    
    $
    2,200,000The
      accompanying notes are an integral part of these consolidated financial
      statements.
   19
 
 **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To the
Board of Directors and Shareholders of
 China
Digital Media Corporation & Subsidiaries
 f/k/a
HairMax International, Inc. & Subsidiaries
 
 We have
audited the accompanying consolidated balance sheet of China Digital Media
Corporation & Subsidiaries, f/k/a HairMax International, Inc. &
Subsidiaries, (a Nevada corporation) as of December 31, 2004 and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years ended December 31, 2004 and 2003. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
 We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 provide a reasonable basis for our
opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of China Digital
Media Corporation & Subsidiaries, f/k/a HairMax International, Inc. &
Subsidiaries (a Nevada corporation) as of December 31, 2004 and the results of
its operations and its cash flows for the years ended December 31, 2004 and 2003
in conformity with accounting principles generally accepted in the United States
of America.
 
 The
accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has suffered recurring
losses from operations, has negative working capital, has discontinued
operations and has a stockholders’ deficit as of December 31, 2004 which raises
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are described in Note D. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
  
 Perrella
& Associates, P. A.
 Pompano
Beach, Florida
 April 11,
2005
 
 20
 **CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

****
 **NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Organization - China
Digital Media Corporation & Subsidiaries (the “Company”) (formerly known as
HairMax International, Inc. & Subsidiaries) (a Nevada corporation) legally
changed its corporate name on March 31, 2005.
 
 The
consolidated financial statements include its wholly owned subsidiaries,
Cleaning Express USA, Hairmax of Florida, Inc. and Hairmax of Nevada, Inc.
Cleaning Express USA offered a full service cleaning company providing daily
residential cleaning services, carpet cleaning and other related services in the
South Florida region. Hairmax of Florida, Inc. and Hairmax of Nevada, Inc.
offered beauty salon services and products through its two retail beauty salons
in the South Florida and Las Vegas areas. On December 28, 2004, the Company
entered into a Plan of Exchange with, among others, Arcotect Digital Technology,
Ltd., a corporation organized and existing under the laws of the Hong Kong SAR
of the Peoples’ Republic of China (“Arcotect”). As a result of the Plan of
Exchange, on March 31, 2005, Arcotect became a wholly-owned subsidiary of the
Company. The operations of the Hairmax of Florida, Inc. and Cleaning Express,
Inc. subsidiaries were discontinued several months after the Plan of Exchange
was executed. See Note B.
 
 Cash
and Cash Equivalents - For
purposes of the Statement of Cash Flows, the Company considers highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
 
  Impairment
of Long-Lived Assets -The
Company evaluates the recoverability of its property and equipment and other
assets in accordance with Statement of Financial Accounting Standards No.144, *“Accounting
for the Impairment or Disposal of Long-Lived Assets”(“SFAS 144”).* SFAS 144
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets or the business to which such assets relate. SFAS
144 excludes goodwill and intangible assets. When an asset exceeds its expected
cash flows, it is considered to be impaired and is written down to fair value,
which is determined based on either discounted future cash flows or appraised
values. The Company adopted the statement on January 1, 2002. An impairment of
an acquired asset in 2003, for $2.2 million, was recorded in 2003, (see note F),
none in 2004.
   Revenue
Recognition - Revenue
for the residential cleaning operations is recognized when cleaning services are
performed. Revenues for beauty salon services are recognized when the services
are rendered. Revenues for beauty products are recognized when the retail
products are sold at the beauty salon locations.
 
 Management’s
Use of Estimates - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
 
 21
 ****
 ****


****CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

******


**NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)**





Advertising - The
Company charges the costs of advertising to expense when incurred. Advertising
expense for the years ended December 31, 2004 and 2003 was $40,682 and $52,256,
respectively.





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-carryforwards.





Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, some portion or all of the deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws and rates on the date of
enactment.





Net
Loss Per Share - In
accordance with accounting principles generally accepted in the United States,
basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the
respective periods (excluding shares that are not yet issued). The effect of
stock options, warrants and convertible preferred stock is antidilutive for all
periods presented.





Recent
Accounting Pronouncements - In
January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46, (“FIN 46’) “Consolidation of Variable Interest Entities”
which changes the criteria by which one company includes another entity in its
consolidated financial statements. FIN 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity’s activities or entitled to
receive a majority of the entity’s residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003, and apply in the first fiscal period beginning after
June 15, 2003, for variable interest entities created prior to February 1, 2003.
The implementation of the pronouncement did not have a material effect on our
financial condition and cash flows.





In May
2003, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No.
150, ‘Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity’. The SFAS No.150 improves the accounting for certain
financial instruments that, under previous guidance, issuers could account for
as equity and requires that those instruments be classified as liabilities in
statements of financial position. In addition to its requirements for the
classification and measurement of financial instruments in its scope, SFAS No.
150 also requires disclosures about alternative ways of settling the instruments
and the capital structure of entities,





22


****CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

******


**NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)**





*Recent
Accounting Pronouncements*  *(continued)*


all of
whose shares are mandatorily redeemable.





Most of
the guidance in SFAS No. 150 is effective for all financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after September 15, 2003. The
implementation of the pronouncement did not have a material effect on our
financial condition and cash flows.





In
December 2003, the issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue
Recognition,” rescinded the accounting guidance contained in SAB No. 101,
“Revenue Recognition in Financial Statements,” and incorporated the body of
previously issued guidance related to multiple-element revenue arrangements. The
Company’s adoption of SAB No. 104 did not have any impact on its consolidated
financial statements.





In March
2004, the FASB ratified EITF Issue No. 03-1, “The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments”
(“EITF 03-1”), but delayed the recognition and measurement provisions of EITF
03-1 in September 2004. For reporting periods beginning after June 15, 2004,
only the disclosure requirements for available-for-sale securities and cost
method investments are required. The Company’s adoption of the requirements did
not have a significant impact on the Company’s disclosures.





In July
2004, the FASB issued EITF Issue No. 02-14, “Whether an Investor Should Apply
the Equity Method of Accounting to Investments Other than Common Stock” (“EITF
02-14”). EITF 02-14 requires application of the equity method of accounting when
an investor is able to exert significant influence over operating and financial
policies of an investee through ownership of common stock or in-substance common
stock. EITF 02-14 is effective for reporting periods beginning after September
15, 2004. The adoption of EITF 02-14 will not have a significant impact on the
Company’s consolidated financial statements.





On
December 16, 2004, the FASB issued Statement No. 123R, “Share-Based Payment”
which requires companies to record compensation expense for stock options issued
to employees at an amount determined by the fair value of the options. SFAS No.
123R is effective for interim or annual periods beginning after June 15, 2005.
As such, effective with the Company’s first fiscal quarter of 2006, SFAS No.
123R will eliminate the Company’s ability to account for stock options using the
method permitted under APB 25 and instead require us to recognize compensation
expense should the Company issue options to its employees or non-employee
directors. The Company is in the process of evaluating the impact adoption of
SFAS No. 123R will have on the consolidated financial statements.





23


**CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

****


**NOTE
B - PLAN OF EXCHANGE, COMPANY ACQUISITION AND SUBSEQUENT
EVENT**





A Plan of
Exchange (“Plan”) was entered into on December 28, 2004, whereby Arcotect 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. The
Company has 1,975,000 shares of Series “A” preferred stock outstanding at
December 31, 2004. These shares are owned by the Company majority Shareholder.
In accordance with the Plan, the Arcotect Shareholders will receive 100% of
these shares, and 175,000,000 shares (pre-reverse stock split) shares of common
stock in exchange for all of the issued and outstanding registered capital of
Arcotect. In addition, it was agreed that 20,000,000 (post-reverse stock split)
new shares of the Company’s common stock were to be transferred to the Arcotect
Shareholders at closing. As a result of the increase in market price of the
shares of common stock of the Company, the Arcotect Shareholders accepted
1,500,000 shares of common stock of the Company at closing, in lieu of the
20,000,000 shares contemplated by the Plan. As additional consideration, the
Plan provided that Arcotect paid the Company’s major Shareholder $400,000, and
it did so in December 2004. In addition, the Company’s major Shareholder
indemnified the Company for liabilities, as defined in the Plan. After
consummation of the transactions, as defined in the Plan, Arcotect Shareholders
will own 90.62% of the issued and outstanding shares of the Company’s
common stock





**NOTE
C - DISCONTINUED OPERATIONS**







As
of March 31, 2005 , the
Company’s operating subsidiaries ceased operations due to recurring losses and
change in management, see note L. The subsidiaries represented 100% of the
Company’s revenues. Liabilities remain as of December 31, 2004 representing
accounts payable, payroll tax accruals and potential lease obligations. The
discontinued operations are reported in these financial statements
retroactively for the two reporting years, at December 31, 2004 and 2003
and for the years then ended as follows:








2004
    
    2003Revenues
    
    $
    561,699
    
    $
    476,581Expenses
    
    
    685,958
    
    
    769,817Stock issued for services
    
    
    102,399
    
    
    -Asset
      write-down
    
    
    79,600
    
    
    -Loss
      from discontinued operations
    
    $
    (306,258
    )
    $
    (293,236
    )




**NOTE
D - GOING CONCERN**





The
Company has suffered recurring losses from operations, has negative working
capital, has discontinued operations and has a stockholders’ deficit as of
December 31, 2004. In addition, the Company has yet to generate an internal cash
flow from its business operations. These factors raise substantial doubt as to
the ability of the Company to continue as a going concern.





24


**CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

****


**NOTE
D - GOING CONCERN (continued)**





New
management took over the operations of the Company as of January 10, 2005, and
proceeded to consummate a Regulation E offering under the Securities Act of
1933, as amended, pursuant to which six investors purchased 6,586,500 shares of
common stock by tendering their ninety-day promissory notes in the aggregate
amount of $2,290,025. Management’s plans with regard to our going concern
comment encompass the following actions: 1) obtain funding from new investors to
alleviate the Company’s capital deficiency, and 2) implement a plan focusing on
developing and expanding Arcotect through increased sales and marketing efforts.





The
Company’s continued existence is dependent upon its ability to resolve it
liquidity problems and increase profitability in its business operations.
However, the outcome of management’s plans cannot be ascertained with any degree
of certainty. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of these risks and
uncertainties.





**NOTE
E- CONVERTIBLE PREFERRED STOCK**





**Series
“A” Preferred Stock**





The
Company has 1,975,000 shares of Series “A” preferred stock outstanding at
December 31, 2004. These shares are owned by the majority Shareholder and will
be exchanged in accordance with the Plan of Exchange, see Note B.





During
2004, the Company’s majority shareholder converted 875,000 preferred shares into
1,750,000 restricted common shares (2 for 1 conversion), received 300,000
preferred shares for services rendered at a fair value of services
rendered of $30,000 and received 1,000,000 preferred shares to pay for a
shareholder loan, $71,474. During 2003, the Company’s majority shareholder
converted 600,000 preferred shares into 60,000 post conversion common shares
(see Note F). During 2003, the Company’s majority shareholder received 1,400,000
preferred shares for services rendered at a fair value of services
rendered  of $160,000.





**Series
“B” Preferred Stock**







The
Company has authorized 1,000 shares of Series “B” 2% convertible preferred
shares. The shares of Series “B” preferred stock is convertible at a redemption
price of 115% of the stated







25


****CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

******


**Series
“B” Preferred Stock (continued)**





value of
each share of Series “B” stock plus accrued and unpaid dividends. The shares of
the Series “B” stock have no voting power.





**NOTE
F - COMMON STOCK**





During
the year ended December 31, 2004, the Company enacted a 100 for 1 reverse stock
split on its common stock. All common stock amounts in the accompanying
financial statements have been retroactively restated to reflect this
capitalization change.





During
the year ended December 31, 2004, the Company issued 99,386 shares of its common
stock for services rendered by officers and outside consultants. The shares were
valued on the date of issuance for a fair value of $983,591, which was
expensed during the year.





During
the year ended December, 31 2003, the Company issued 12,539 shares of its common
stock for services rendered by officers and outside consultants. The shares were
valued on the date of issuance for a fair value of $848,581, which was
expensed during the year.





During
2004, 30,000 common shares were issued for a $30,000 note receivable. The note
was in default and deemed uncollectible and written off in 2004





During
2003, the Company issued 2,000,000 restricted common shares to an unrelated
entity, Revenge Games, Inc. (“RGI”) for the purchase of a movie. The value of
the asset was recorded in 2003 at the fair value of the common stock as of the
date of the agreement, $2,200,000. RGI did not deliver title or any other item
related to the movie. In 2003, the Company recorded 100% impairment of the
recorded asset due to the uncertainty of its value. The Company also filed legal
proceedings against RGI and its majority owner seeking compensatory and punitive
damages. The legal proceedings and matter was settled in 2004 (See Note K).





**NOTE
G - COMMITMENTS**





The
Company formerly leased its executive offices in Coral Springs, Florida and
beauty salons in Boca Raton, Florida, Coral Springs, Florida and Las Vegas,
Nevada under non-cancelable operating leases that expire from varying dates
through December 31, 2008. All of these leases are in the process of, or have
been cancelled by, negotiations with the respective lessor or are in
default due to the discontinuation of the Company’s operations on March 31,
2005. Approximately $45,000 is included in liabilities for lease settlements,
see Note K. Rent
expense for 2004 and 2003 is $159,400 and $94,322, respectively.





The
Company had been committed to three employment agreements through April 5, 2005
and April 1, 2007. Due to the discontinuation of operations on March 31,
2005, these agreements have been cancelled





26





**CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

****


**NOTE
H - INCOME TAXES**





The
Company has approximately $1,000,000 of federal and state net operating losses
available, as may be adjusted and defined by federal and state statute, that
expire in various years through the year 2019. This net operating loss is
generally available to on-going entities and due to change in control and change
in business industry classifications, the net operating loss is not expected to
be available to the Company post-merger.





Due to
operating losses, there is no provision for current federal or state income
taxes for the years ended December 31, 2004 and 2003.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.





The
Company’s deferred tax asset at December 31, 2004 consists of net operating loss
carry forwards calculated using federal and state effective tax rates a
valuation allowance. Because of the Company’s
lack of earnings history, the deferred tax asset has been fully offset by a
valuation allowance.





The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the years ended December 31, 2004 and 2003 is as
follows:




2004
    
    2003Income
      tax computed at the federalstatutory
      rate
    
    
    34%
    
    
    34%State
      income taxes, net of federal tax benefit
    
    
    5%
    
    
    5%Valuation
      allowance
    
    
    (39%)
    
    
    (39%)Total
      deferred tax asset
    
    
    0%
    
    
    0%








**NOTE
I - RELATED PARTY TRANSACTIONS**





During
the year ended December 31, 2003, the Company borrowed $67,500 from its majority
shareholder. The borrowings were not supported by a promissory note but bears
interest of 8% interest per annum. The shareholder loan payable and related
interest thereto was paid in 2004 by the conversion of the Company’s
preferred shares, see Note E.








**NOTE
J - EQUITY PLACEMENT**





On
October 24, 2002, the Company entered into an equity placement agreement
(“agreement”) pursuant to Rule 504 of Regulation D (formerly referred to as an
acquisition) whereby the Company acquired the assets of an unrelated Colorado
corporation consisting of $200,000 cash and a $550,000 promissory note
receivable due on or before February 20, 2003. All liabilities of





27


****CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
**F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
Notes to
the Consolidated Financial Statements
For the
Years Ended December 31, 2004 and 2003

******


**NOTE
J - EQUITY PLACEMENT (continued)**





the
corporation were discharged prior to the merger. As consideration, as stipulated
in the agreement, the Company issued 1,000 common shares and 750 shares of its
newly created Series B 2% convertible preferred stock in 2003 to the
corporation’s sole shareholder. There were no operations of the corporation
prior to the agreement and because the agreement does not meet the conditions of
a significant acquisition, pro forma information has not been provided.





On March
28, 2003, a Modification agreement to the promissory note was executed modifying
the payment terms on the note. HEM Mutual Assurance, LLC, the maker of the note,
agreed to make weekly $30,000 payments until the note was paid in full. The
modification agreement also stipulated a termination clause by either party upon
written notice. The Company received $95,628 in payments prior to termination in
May 2003 and the previously issued shares from the original agreement were
returned to the Company.







**NOTE
K - CONTINGENCIES AND LEGAL PROCEEDINGS**


As
disclosed in Note G, the Company has four existing lease obligations in Florida
and Nevada, one for its former executive offices and three for subsidiary
operations, whereby the initial lease terms expire in 2005 through 2008 with
minimum lease obligations of approximately $405,000. On March 17, 2005, the
board of directors met and decided to liquidate or sell the two subsidiary
operations, as further discussed in Note L. The subsidiary salon and cleaning
services were operating through March 31, 2005. However, the Florida salons were
abruptly closed, by the property manager without consent of the Board of
Directors. In April 2005, the Company entered into a settlement agreement for
non-payment of rents for the Coral Springs, Florida beauty salon ($89,000 of the
above minimum lease obligation). The Company agreed, and the lessor accepted, to
pay $15,000 in accordance with the terms and conditions as set forth in the
settlement agreement. The $15,000 is included in accounts payable at December
31, 2004.


If
management believes that a loss arising from these matters is probable and can
reasonably be estimated, the Company records the amount of the loss, or the
minimum estimated liability when the loss is estimated using a range, and no
point within the range is more probable than another. As additional information
becomes available, any potential liability related to these matters is assessed
and the estimates are revised, if necessary. Based on current available
information, including the above mentioned settlement, that these properties
have a high likelihood of being leased or sub-leased and recovery is available
from the former major shareholder, management believes that recording an
additional $30,000 on the other three unsettled lease obligations at December
31, 2004 is reasonable.
    However,
litigation is subject to inherent uncertainties, and unfavorable rulings could
occur. If an unfavorable ruling were to occur, there exists the possibility of a
material adverse impact on the Company’s financial position, cash flows or
overall results of operations of the period in which the ruling occurs, or
future periods.


On
December 1, 2003 a shareholder and former officer of the Company filed a
complaint against the Company seeking to be recognized as Chairman and Secretary
of the Company and to remove certain current directors from the Company. In
December, 2003 a U.S. District Judge denied the plaintiff’s allegations and
ruled in favor of the Company denying the plaintiff’s request for a preliminary
injunction. In addition, the Judge concluded that the former officer “has
unclean hands in this case, which weighs in favor of denying the injunction” and
that the former officer induced the Company to issue 2,000,000 shares of its
common stock (See Note F) to Revenge Games, Inc., (“RGI”) an allegedly
independent entity.





The
Company filed a counter claim in December 2003 that includes causes of action
for fraud, intentional and negligent misrepresentation, libel and related
matters. The Company’s complaint sought compensatory and punitive damages in an
amount equal to $5.0 million for the damage caused by the former officer’s
action. In 2004, the Company negotiated a settlement and dismissal of this
litigation without loss or benefit to the company.






28





**CHINA
DIGITAL MEDIA CORPORATION & SUBSIDIARIES**
 **F/K/A
HAIRMAX INTERNATIONAL, INC. & SUBSIDIARIES**
 **Notes
to the Consolidated Financial Statements**
 **For
the Years Ended December 31, 2004 and 2003**
 
 NOTE L  SUBSEQUENT
EVENTS


On
December 28, 2004, the Company entered into a Plan of Exchange (the “Plan of
Exchange”) with Arcotect Digital Technology, Inc., a corporation organized and
existing under the laws of the Hong Kong SAR of the Peoples’ Republic of China
(“Arcotect”), the Arcotect Shareholders and the Majority Shareholders of the
Company, pursuant to which Daniel Ng purchased 2,850,000 shares of the Company’s
Series A Convertible Preferred Stock from the Majority Shareholders in return
for the payment of $400,000 in cash. The shares of Series A Convertible
Preferred Stock are convertible into 200 shares of common stock, and vote
together with the common stock on an as converted basis on all matters presented
to shareholders. Mr. Ng immediately acquired control of the Company through his
share ownership of the Series A Convertible Preferred Stock, which gave him
control of over 99% of the common stock of the Company on a fully-converted
basis. The Plan of Exchange also contemplated that at some point in the future,
the Company would issue 20,000,000 shares of common stock in exchange for all of
the issued and outstanding registered capital of Arcotect. As a result of this
share exchange, Arcotect would become a wholly-owned subsidiary of the
Company.
 
 On
January 10, 2005, Mr. Ng replaced the Board of Directors of the Company with his
own nominees, including two directors who were “non-interested’ within the
meaning of the Investment Company Act of 1940, as amended.
 
 On
January 13, 2005, the Company filed a Form 1-E with the Commission to commence a
Regulation E offering of its common stock that was exempt from registration
under Rule 602 under the Securities Act of 1933, as amended. This offering was
undertaken with the express commitment of the Company’s management to run the
Hairmax of Florida, Inc. and Cleaning Express USA, Inc. subsidiaries as eligible
portfolio companies under its business development company mandate. The offering
was successful and resulted in the sale in late January of 6,586,500 shares of
common stock to six investors who tendered their ninety-day promissory notes in
the aggregate amount of $2,290,025. Such notes have not matured as of the date
hereof, so the proceeds have not been collected to date.
 
 On March
17, 2005, the Board of Directors took certain important actions for the future
of the Company. Based on the significant losses at the Hairmax of Florida, Inc.
and Cleaning Express USA, Inc. subsidiaries for the year ended December 31,
2004, and the negative prospects for the future, the advice of its financial
consultants, and in light of the Company’s newly adopted business plan, the
Board of Directors decided to sell or otherwise liquidate the operations of the
two subsidiaries of the Company. The Board also decided to terminate its status
as a business development company and to complete the reverse merger with
Arcotect. On March 31, 2005, such merger was completed, and, pursuant thereto,
1,500,000 shares of common stock of the Company were issued to the Arcotect
Shareholders in lieu of the 20,000,000 shares contemplated by the Plan of
Exchange. The reduction was consented to by the Arcotect Shareholders in light
of the significant increase in price of the shares of common stock of the
Company since the date of execution of the Plan of Exchange.
 
 During
March, the Company also changed its name to China Digital Media Corporation from
Hairmax International, Inc. In addition, as of March 31, 2005, the Company took
accounting steps to discontinue its operations in the haircare and cleaning
businesses. As a result, net assets of $79,600, as of December 31, 2004, have
been written-down and are included in discontinued
operations.
 
 The
Company will publish audited financial statements and pro forma financial
statements for the Arcotect acquisition no later than 71 calendar days from
April 12, 2005, the date which it reported the closing of the reverse merger
with Arcotect., in accordance with the requirements of Item 9.01 of Form
8-K.


29


****


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





None.





**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, Daniel Ng ("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.





30


**


*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, the Company's CEO and CFO have concluded that, subject to
the limitations noted above, our Disclosure Controls are effective 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 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.





31


****


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





(a)
    Identification
      of Directors





The
following information, as of April 15, 2005 is furnished with respect to each
Director and Executive Officer:





Date
      ofName
      of Director
    Age
    Service
    Position
      with CompanyDaniel
      Ng
    47
    2004
    President,
      Chief Executive Officer, DirectorLui
      Chi Keung
    52
    2004
    Chief
      Financial OfficerChen
      Juan
    28
    2005
    DirectorZhow
      Wei Yu
    32
    2005
    Director


Note: The
former directors resigned and the new directors above were appointed effective
January 10, 2005. Their biographies are set forth below along with our
officers.





All
Directors serve for one-year terms, which expire at the annual shareholders
meeting in 2005.





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,
age 47, is our President and Chief Executive Officer and Director Designee. Mr.
Ng is founder and CEO of Arcotect Digital Technology Limited. Arcotect Digital
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. Mr. Ng is currently Chief Executive Officer and Architect
of Arcotect Limited, one of the several pre-selected Hong Kong Government
vendors in supplying e-Government information systems. Mg. Ng has been the
Chairman & CEO of DCP Holdings Limited, a listed company in the Hong Kong
Stock Exchange (2000 - 2001) which specializes in personal computer
manufacturing and Internet related investment projects. In 1999, Mr. Ng was the
Director of Cable Multimedia Services of Hong Kong Cable TV Limited, the only
cable TV operator in Hong Kong. From 1995 to 1998, Mr. Ng was the founder and
President of Hong Kong Star Internet Limited, the first commercial ISP in Hong
Kong. Star Internet was the second largest ISP in Hong Kong and merged with HK
Telecom IMS (the largest ISP at that time) in 1998.





Mr. Ng
has a significant record of service in the information technology industry. Mr.
Ng was elected as one of Hong Kong’s “Ten Outstanding Young Digi Persons” by the
Hong Kong Productivity Council and Hong Kong Junior Chamber in 2000. Mr. Ng was
the secretary of the Hong Kong Information Technology Federation, a non-profit
trade association founded in 1980 with more than 300 corporate members. HKITF
provides a forum in which IT-related businesses in Hong Kong can work together
for the benefit of the industry and to maintain a high level of business
practice amongst the members. Mr. Ng was a committee member of the Electronics
& Communications Industry & Health Advisory Committee of the
Occupational Safety & Health Council. Mr. Ng was also the founding member of
Hong Kong Internet Service Providers Association and was elected as the first
chairman from 1996 to 1999.





Mr. Lui
Chi Keung, age 52 is a Chief Financial Officer and head of corporate affairs of
ADT.





32





Prior to
joining ADT, Lui was the founder and managing director of Beth Group for more
than 7 years. The group provided ERP system development and SI service to local
corporations. Through the activities of Information Technology consultants,
software development, sales and marketing, Lui has gained substantial knowledge
in Information Technology, new product development and sales force
management.





From 1989
to 1992, Lui was appointed as Director and General Manager of Tomson Pacific, a
Hong Kong listed company. In the capacity as a member of the senior management
team, Lui guided the company in various substantial investments including: the
equity participation in the Macau Jockey Club, Macau Golf Club, Far East Biscuit
Factory in China, several residential and commercial property developments in
Hong Kong, Macau and China, the acquisition of Bond Corporation in Hong Kong
with net assets of more than HK$2 billion. All of those experiences have given
Lui many skills in corporate acquisitions and investment
management.





In
addition, Lui has worked in the commercial and merchant banking fields for more
than 10 years. His experiences qualify him as an investment analyst and
corporate planner.





Lui
graduated from the Baptist University, majoring in Business Management, with a
minor in Accounting, and he completed a M.B.A. at the University of East Asia in
Macau.





Mr. Wei
Yu Zhow, age 32, is a Director Designee 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, age 28 is a Director Designee 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 four (4) 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.





33


****


**Code
of Ethics**





We are
presently working with our legal counsel to prepare and adopt a code of ethics
that applies to our principal chief executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions (the "Code of Ethics"). A draft of the Code of Ethics is
attached hereto as Exhibit 14.1. The Code of Ethics is being designed with the
intent to deter wrongdoing, and to promote the following:





·
    Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts if interest between personal and professional
      relationships




·
    Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that a small business issuer files with, or submits to, the
      Commission and in other public communications made by the small business
      issuer




·
    Compliance
      with applicable governmental laws, rules and
regulations




·
    The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code




·
    Accountability
      for adherence to the code





**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 2003. 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.





34


****


**ITEM
10. Executive Compensation**





Summary
Compensation Table





The
following table sets forth in summary form the compensation received during each
of the Company's last three completed fiscal years by the Chief Executive
Officer and President of the Company. No executive officer of the Company,
including the Chief Executive Officer and President, received total salary and
bonus exceeding $100,000 during any of the last three fiscal years.





Summary
Compensation Table





Name
      and Position
    Fiscal
      Year
    Annual
      Salary
    Bonuses
    Other
      Compen- sation
    Restricted
      Stock Awards
    LTIP
      Options
    Restricted
      Stock Bonuses(1)
    (2)
    (3)
    (4)Edward
      A. Roth, former CEO and President
    2004
      2003
      2002
    $250,000
      $250,000
      $197,000
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-Michael
      J. Bongiovanni, former CFO
    2004
      2003
      2002
    $50,000
      $50,000
      $25,000
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    25,000
      25,000
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-Alisha
      Roth, former Secretary, Treasurer
    2004
      2003
      2002
    $75,000
      $75,000
      $
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-
    -0-
      -0-
      -0-




(1)
    The
      dollar value of base salary (cash and non-cash)
  received.





(2)
    The
      dollar value of bonus (cash and non-cash) received.





(3)
    During
      the periods covered by the Summary Compensation Table, the Company did not
      pay any other annual compensation not properly categorized as salary or
      bonus, including perquisites and other personal benefits, securities or
      property.





(4)
    Issuances
      of restricted stock for services rendered. These shares were valued at the
      then average bid-ask price.


Compensation
of Directors





We
formerly paid our non-employee directors’ 1,000 shares of the Company’s
restricted common stock per year for Directors' Meetings attended. It is
anticipated that no more than twelve meetings will occur each year. Employee
directors are not compensated for services rendered as directors of the company.
We are currently evaluating a new policy for directors.





Employment
Contracts and Termination of Employment and Change-In Control Arrangements





35


****


**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 April 15, 2005, are listed below:





Title
      of Class
    Name
      and Address
    #
      Shares
    Nature
      of Ownership
    Current
      % OwnedCommon
      Stock, $.001 Par Value
    Daniel
      Ng
      2505-06,
      25F, 698 Prince Edward Road E., Hong Kong
    21,500,00
    Direct
    71.4%Preferred
      Stock, $.001 Par Value
      (z)
    Daniel
      Ng
      2505-06,
      25F, 698 Prince Edward Road E., Hong Kong
    1,975,000
    Direct
    100%





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






(b)
    Security
      Ownership of Management





The
following table sets forth the number of shares owned beneficially on April 15,
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.





Title
      of Class
    Name
      and Address
    #
      Shares
    Nature
      of Ownership
    Current
      % Owned (w)Common
      Stock, $.001 Par Value
    Daniel
      Ng
      2505-06,
      25F, 698 Prince Edward Road E., Hong Kong
    21,500,000
    Direct
    71.4%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
      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
    21,500,000
    Direct
    71.4%Preferred
      Stock, $.001 Par Value(z)
    Daniel
      Ng
      2505-06,
      25F, 698 Prince Edward Road E., Hong Kong
    1,875,000
    Direct
    100%





** Less
than .01%





36





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





(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 1,975,000 shares of Series “A” preferred stock outstanding at
      December 31, 2004. These shares are owned by our majority shareholder and
      will be exchanged in accordance with the Plan of
  Exchange.


(b)
    During
      2004, we enacted a 100 for 1 reverse split of our common
      stock.


(c)
    During
      2004, aPlan of Exchange was entered into, whereby Arcotect 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.


(d)
    During
      2004, our majority shareholder converted 875,000 preferred shares into
      1,750,000 restricted common shares (2 for 1 conversion due to 100 for 1
      reverse split), received 300,000 preferred shares for services rendered at
      a fair value of $30,000 and received 1,000,000 preferred shares to pay for
      a shareholder loan, $71,474.


(e)
    Duringthe year ended December 31, 2004, we issued 99,386 shares of our common
      stock for services rendered by officers and outside consultants.


(f)
    During
      2004, 30,000 common shares were issued for a $30,000 note
      receivable.








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





(a)
    Financial
      Statements





1. The
following financial statements of HairMax International, Inc. & Subsidiaries
are included in Part II, Item 7:





Independent
Auditors’ Report..........................................  14


Balance
Sheet-December 31, 2004.................................... 15-16


Statements
of Operations - years ended


December
31, 2004 and 2003.................................. 17-18


Statements
of Cash Flows - years ended


December
31, 2004 and 2003..................................  19-20


Statements
of Stockholders’ Equity - years ended


December
31, 2004 and 2003.................................  21


Notes to
Financial Statements..........................................  22-28





37
 
 
 2.
Exhibits
  Articles
of incorporation, bylaws and related amendments are incorporated by reference to
Exhibit No. 1 of Form 10-SB filed November 1999.
  14.1 Code of Ethics
 
 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


(b)
    Reports
      on Form 8-K





We issued
two reports on Form 8-K during the three months ended December 31, 2004. Key
components are as follows:





1. On
November 12, 2004, Alisha Roth and Michael J. Bongiovanni resigned as directors.
Jane Letwin and John Phelps were elected as new directors.





2. As of
December 28, 2004, we entered into a Plan of Exchange (the "Agreement"), between
and among the Registrant, Arcotect Digital Technology Limited, a corporation
organized and existing under the laws of the Hong Kong SAR of the Peoples'
Republic of China ("Arcotect"), the shareholders of Arcotect (the "Arcotect
Shareholders") and the Majority Shareholders of the Registrant.





Pursuant
to the terms of the Agreement, the parties have agreed that the closing will
occur in two stages, as follows: (i) the Majority Shareholders of the Registrant
will transfer to the Arcotect Shareholders an amount equal to 2,850,000 shares
of the Registrant's Series A Convertible Preferred Stock that is convertible, at
the option of the holder of each share, into 200 shares of common stock of the
Registrant, and the Majority Shareholders of the Registrant


will
agree to transfer to an investor designated by the Arcotect Shareholders an
amount equal to 1,750,000 shares of common stock of the Registrant, in return
for the total cash payment of $400,000 and (ii) the Registrant will issue to the
Arcotect Shareholders an amount equal to 20,000,000 shares of common stock of
the Registrant in exchange for all of their shares of capital stock of Arcotect.
Upon completion of the exchange, Arcotect will become a wholly-owned subsidiary
of the Registrant.





38


****


**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 2003, and all fees billed for other services
rendered by Perrella during those periods.





Year
      Ended December 31
    
    2004
    
    
    
    2003Perrella
    
    
    
    PerrellaAudit
      Fees(1)
    
    $
    24,000
    
    
    (2)
    
    $
    15,000
    
    
    (3)Audit-Related
      Fees(4)
    
    
    --
    
    
    
    
    
    --Tax
      Fees(5)
    
    
    --
    
    
    
    
    
    --All
      Other Fees(6)
    
    
    --
    
    
    
    
    
    --Total
      Accounting Fees and Services
    
    $
    24,000
    
    
    
    
    $
    15,000







(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)
    The
      amounts shown for Perrella in 2004 relate to (i) the audit of the
      Company's annual financial statements for the fiscal year ended December
      31, 2003, and (ii) the review of the financial statements included in the
      Company's filings on Form 10-QSB for the first, second and third quarters
      of 2004.


(3)
    The
      amounts shown for Perrella in 2003 relate to (i) the audit of the
      Company's annual financial statements for the fiscal year ended December
      31, 2002, and (ii) the review of the financial statements included in the
      Company's filings on Form 10-QSB for the first, second and third quarters
      of 2003.


(4)
    *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.




(5)
    *Tax
      Fees*.
      These are fees for professional services with respect to tax compliance,
      tax advice, and tax planning.




(6)
    *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.





**Pre-Approval
Policy For Audit and Non-Audit Services**





We do not
have a standing audit committee, and the full Board performs all functions of an
audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant. All of the services rendered to the Company by
Perrella were pre-approved by our Board of Directors.


We are
presently working with our legal counsel to establish formal pre-approval
policies and procedures for future engagements of our accountants. The new
policies and procedures will be detailed as to the particular service, will
require that the Board or an audit committee thereof be informed of each
service, and will prohibit the delegation of pre-approval responsibilities to
management. It is currently anticipated that our new policy will provide (i) for
an annual pre-approval, by the Board or audit committee, of all audit,
audit-related and non-audit services proposed to be rendered by the independent
auditor for the fiscal year, as specifically described in the auditor's
engagement letter, and (ii) that additional engagements of the auditor, which
were not approved in the annual pre-approval process, and engagements that are
anticipated to exceed previously approved thresholds, will be presented on a
case-by-case basis, by the President or Controller, for pre-approval by the
Board or audit committee, before management engages the auditors for any such
purposes. The new policy and procedures may authorize the Board or audit
committee to delegate, to one or more of its members, the authority to
pre-approve certain permitted services, *provided
that* the
estimated fee for any such service does not exceed a specified dollar amount (to
be determined). All pre-approvals shall be contingent on a finding, by the
Board, audit committee, or delegate, as the case may be, that the provision of
the proposed services is compatible with the maintenance of the auditor's
independence in the conduct of its auditing functions. In no event shall any
non-audit related service be approved that would result in the independent
auditor no longer being considered independent under the applicable rules and
regulations of the Securities and Exchange Commission.





39


****


**Hairmax
Subsequent Events.**





On
December 28, 2004, the Company entered into a Plan of Exchange (the “Plan of
Exchange”) with Arcotect Digital Technology, Inc., a corporation organized and
existing under the laws of the Hong Kong SAR of the Peoples’ Republic of China
(“Arcotect”), the Arcotect Shareholders and the Majority Shareholders of the
Company, pursuant to which Daniel Ng purchased 2,850,000 shares of the Company’s
Series A Convertible Preferred Stock from the Majority Shareholders in return
for the payment of $400,000 in cash. The shares of Series A Convertible
Preferred Stock are convertible into 200 shares of common stock, and vote
together with the common stock on an as converted basis on all matters presented
to shareholders. Mr. Ng immediately acquired control of the Company through his
share ownership of the Series A Convertible Preferred Stock, which gave him
control of over 99% of the common stock of the Company on a fully-converted
basis. The Plan of Exchange also contemplated that at some point in the future,
the Company would issue 20,000,000 shares of common stock in exchange for all of
the issued and outstanding registered capital of Arcotect. As a result of this
share exchange, Arcotect would become a wholly-owned subsidiary of the
Company.





On
January 10, 2005, Mr. Ng replaced the Board of Directors of the Company with his
own nominees, including two directors who were “non-interested’ within the
meaning of the Investment Company Act of 1940, as amended.





On
January 13, 2005, the Company filed a Form 1-E with the Commission to commence a
Regulation E offering of its common stock that was exempt from registration
under Rule 602 under the Securities Act of 1933, as amended. This offering was
undertaken with the express commitment of the Company’s management to run the
Hairmax of Florida, Inc. and Cleaning Express USA, Inc. subsidiaries as eligible
portfolio companies under its business development company mandate. The offering
was successful and resulted in the sale in late January of 6,586,500 shares of
common stock to six investors who tendered their ninety-day promissory notes in
the aggregate amount of $2,290,025. Such notes have not matured as of the date
hereof, so the proceeds have not been collected to date.





On March
17, 2005, the Board of Directors took certain important actions for the future
of the Company. Based on the significant losses at the Hairmax of Florida, Inc.
and Cleaning Express USA, Inc. subsidiaries for the year ended December 31,
2004, and the negative prospects for the future, the advice of its financial
consultants, and in light of the Company’s newly adopted business plan, the
Board of Directors decided to sell or otherwise liquidate the operations of the
two subsidiaries of the Company. The Board also decided to terminate its status
as a business development company and to complete the reverse merger with
Arcotect. On March 31, 2005, such merger was completed, and, pursuant thereto,
1,500,000 shares of common stock of the Company were issued to the Arcotect
Shareholders in lieu of the 20,000,000 shares contemplated by the Plan of
Exchange. The reduction was consented to by the Arcotect Shareholders in light
of the significant increase in price of the shares of common stock of the
Company since the date of execution of the Plan of Exchange.





During
March, the Company also changed its name to China Digital Media Corporation from
Hairmax International, Inc. In addition, as of March 31, 2005, the Company took
accounting steps to discontinue its operations in the hair care and cleaning
businesses.





The
Company will publish audited financial statements and pro forma financial
statements for the Arcotect acquisition no later than 71 calendar days from
April 12, 2005, the date which it reported the closing of the reverse merger
with Arcotect., in accordance with the requirements of Item 9.01 of Form
8-K.





40




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:
April 15, 2005




/s/
Daniel Ng


Daniel
Ng


President,
CEO and Director








/s/
Lui Chi Keung


Kui Chi
Keung


President,
CEO and Director








/s/
Chen Juan


Chen
Juan


Director








/s/
Zhow Wei Yu


Zhow Wei
Yu


Director





41