**United
        States**
 **Securities
        and Exchange Commission**
 Washington,
        D.C. 20549
 
 
 **FORM
        10-QSB**
 
 
 **x** **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF
        1934**
 For
        the
        quarterly period ended **March 31, 2007**
 
 
 ** ̈** **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE**
 ACT
        OF
        1934 for the transition period from _______ to _______
 
 
 **CHINA
        DIGITAL MEDIA CORPORATION**
 (Exact
        name of small business issuer as specified in its charter)
 
 
 **HAIRMAX
        INTERNATIONAL CORP.**
 (Former
        name of registrant, if applicable)
 
 
 **Nevada**
              
              **13-3422912**(State
                  or other jurisdiction of incorporation or organization)
              
              (IRS
                  Employer Identification No.)
 
 
 **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)
 
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.   Yes x No  ̈
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No x
 
 Number
        of
        shares of common stock outstanding as of May 7, 2007: 31,602,365
 
 Number
        of
        shares of preferred stock outstanding as of May 7, 2007:
        1,875,000
  
  **CHINA
        DIGITAL MEDIA CORPORATION**
 **INDEX
        TO FORM 10-QSB**
 
 **Page
                  No.****PART
                  I**Item
                  1. Financial StatementsCondensed
                  Consolidated Balance Sheet
                -
                  March 31, 2007 (unaudited)
              3Condensed
                  Consolidated Statements of Operations And Comprehensive Income
                -
                  Three Months Ended March 31, 2007 and 2006 (unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows
                -
                  Three Months Ended March 31, 2007 and 2006 (unaudited)
              5Notes
                  to Condensed Consolidated Financial Statements (unaudited)
              6
                  - 13Item
                  2. Management's Discussion and Analysis of Financial Condition
                  And Results
                  of Operations
              13Item
                  3. Controls and Procedures
              18**PART
                  II**Item
                  1. Legal Proceedings
              18Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              19Item
                  3. Defaults Upon Senior Securities
              19Item
                  4. Submission of Matters to a Vote of Security Holders
              19Item
                  5. Other Information
              19Item
                  6. Exhibits
              19Signatures
              20
 
  -
            2
            -
  **ITEM
        1. FINANCIAL STATEMENTS**
 
 **CHINA
        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **AS
        OF MARCH 31, 2007 (UNAUDITED)**
 
 **ASSETS****CURRENT
                  ASSETS**Cash and cash equivalents
              
              $
              323,566Accounts receivable, net of allowances
              
              
              10,951,709Inventories, net
              
              
              380,175Other receivable and prepaid expenses
              
              
              299,700Value added taxes recoverable
              
              
              18,000**Total
                  Current Assets**
              
              
              11,973,150**INTANGIBLE ASSETS**
              
              
              392,521**INVESTMENTS IN TELEVISION SERIES, NET**
              
              
              623,991**INVESTMENTS IN AFFILIATES**
              
              
              588,982**PROPERTY AND EQUIPMENT, NET**
              
              
              11,826,482**OTHER ASSETS**
              
              
              382,840**TOTAL
                  ASSETS**
              
              $
              25,787,966**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Convertible debentures
              
              $
              3,100,000Accounts payable
              
              
              6,669,337Other payables and accrued liabilities
              
              
              659,741Due to a director
              
              
              33,188Due to related companies
              
              
              524,845Business tax payable
              
              
              234,396Income tax payable
              
              
              1,975,848Other tax payable
              
              
              28,468**Total
                  Current Liabilities**
              
              
              13,225,823**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              --**MINORITY
                  INTERESTS**
              
              
              (87,677
              )**STOCKHOLDERS'
                  EQUITY**Series A convertible preferred stock ($0.001 par value, 40,000,000
                  shares
                  authorized,
                1,875,000 shares issued and outstanding as of March 31, 2007
                  )
              
              
              1,875Common stock ($0.001 par value, 500,000,000 shares authorized,
                31,602,365
                  shares issued and outstanding as of March 31, 2007)
              
              
              31,602Additional paid-in capital
              
              
              5,663,917Deferred stock compensation
              
              
              (68,900
              )Retained earningsUnappropriated
              
              
              5,431,998Appropriated
              
              
              1,521,999Accumulated other comprehensive loss
              
              
              67,329**Total
                  Stockholders' Equity**
              
              
              12,649,820**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              **$**
              25,787,966
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 -
              3
              -
 **CHINA
        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
        INCOME**
 **(UNAUDITED)**
 
 **For
                  the three months Ended March 31,****2007**
              
              **2006****(Restated)****NET
                  SALES**Revenue
                  from digitalization of television signals
              
              $
              1,399,813
              
              $
              1,455,371Revenue
                  from television advertising
              
              
              472,949
              
              
              1,732,033Revenue
                  from software development
              
              
              9,260
              
              
              22,851Revenue
                  from investments in television series
              
              
              --
              
              
              174,629Government
                  grant received
              
              
              323,240
              
              
              311,837**2,205,262**
              
              
              **3,696,721****COST
                  OF SALES**Cost
                  of Sales - digitalization of television signals
              
              
              (192,460
              )
              
              (215,466
              )Depreciation
                  - digitalization of television signals
              
              
              (715,906
              )
              
              (474,723
              )Cost
                  of Sales - television advertising
              
              
              (539,625
              )
              
              (1,596,994
              )Cost
                  of Sales - investment in television series
              
              
              --
              
              
              (119,087
              )**GROSS
                  PROFIT**
              
              
              **757,271**
              
              
              **1,290,451****OPERATING
                  EXPENSES**Selling,
                  general and administrative expenses
              
              
              (772,589
              )
              
              (551,850
              )Depreciation
                  and amortization
              
              
              (28,992
              )
              
              (22,989
              )Total
                  Operating Expenses
              
              
              **(801,581**
              **)**
              
              **(574,839**
              **)****(LOSS)
                  INCOME FROM OPERATION**
              
              
              (44,310
              )
              
              715,612**OTHER
                  INCOME (EXPENSES)**Equity
                  loss of affiliates
              
              
              (6,150
              )
              
              --Interest
                  income
              
              
              473
              
              
              17,252Other
                  income
              
              
              8,827
              
              
              77,947Interest
                  expenses
              
              
              (31,510
              )
              
              --Interest
                  paid to related companies and directors
              
              
              (2,730
              )
              
              (1,777
              )Other
                  expenses
              
              
              (4,064
              )
              
              --Total
                  Other (Expenses) Income, net
              
              
              **(35,154**
              **)**
              
              **93,422****NET
                  (LOSS) INCOME BEFORE TAXES AND MINORITY INTERESTS**
              
              
              **(79,464**
              **)**
              
              **809,034**Income
                  tax expense
              
              
              7,718
              
              
              (313,494
              )Minority
                  interests
              
              
              83,774
              
              
              5,727**NET
                  INCOME**
              
              $
              12,028
              
              $
              501,267**OTHER
                  COMPREHENSIVE LOSS**Foreign
                  currency translation gain
              
              
              92,544
              
              
              43,300**COMPREHENSIVE
                  INCOME**
              
              $
              104,572
              
              $
              544,567**Net
                  income per share-basic - two classes method**
              
              $
              0.00
              
              $
              0.02**Net
                  income per share-diluted**
              
              $
              0.00
              
              $
              0.01Weighted
                  average number of shares outstanding during the period -
                  basic
              
              
              31,602,365
              
              
              30,906,343Number
                  of preferred shares outstanding during the period
              
              
              1,875,000
              
              
              1,875,000Weighted
                  average number of shares outstanding during the period-
                  diluted
              
              
              47,866,247
              
              
              40,339,795
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 -
              4
              -
  **CHINA
        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2007 and 2006**
 **(UNAUDITED)**
 
 **2007**
              
              **2006****(Restated)****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              12,028
              
              $
              501,267Adjusted to reconcile net income to cash provided by operating
                  activities:Equity
                  loss of affiliate
              
              
              6,150
              
              
              --Amortization
                  - cost of sales
              
              
              --
              
              
              119,087Depreciation-cost
                  of sales
              
              
              715,906
              
              
              474,723Depreciation
              
              
              28,992
              
              
              22,989Provision
                  for doubtful debts
              
              
              387,591
              
              
              --Stock
                  issued for services
              
              
              --
              
              
              17,000Amortization
                  on stock compensation
              
              
              15,900
              
              
              --Minority
                  interests
              
              
              (83,774
              )
              
              (5,727
              )**Changes
                  in operating assets and liabilities****(Increase)
                  decrease in:**Accounts
                  receivable
              
              
              (1,511,622
              )
              
              (363,671
              )Other
                  receivables and prepaid expenses
              
              
              (111,882
              )
              
              (55,859
              )Inventories
              
              
              95,306
              
              
              124,052Other
                  assets
              
              
              83,898
              
              
              -**Increase
                  (decrease) in:**Accounts
                  payable
              
              
              700,559
              
              
              771,813Other
                  payables and accrued liabilities
              
              
              (93,564
              )
              
              (210,220
              )Business
                  tax payable
              
              
              (31,259
              )
              
              --Value
                  added taxes payable
              
              
              45,210
              
              
              --Income
                  tax payable
              
              
              21,048
              
              
              359,047Other
                  tax payable
              
              
              (5,409
              )
              
              --**Net
                  cash provided by operating activities**
              
              
              **275,078**
              
              
              **1,754,501****CASH
                  FLOWS FROM INVESTING ACTIVITIES**Investments
                  in affiliates
              
              
              (71,605
              )
              
              (323,064
              )Purchase
                  of property and equipment
              
              
              (457,519
              )
              
              (1,457,460
              )**Net
                  cash used in investing activities**
              
              
              **(529,124**
              **)**
              
              **(1,780,523**
              **)****CASH
                  FLOWS FROM FINANCING ACTIVITIES**Due
                  to related companies
              
              
              144,359
              
              
              18,356Proceeds
                  from stock issuance in private placement
              
              
              --
              
              
              387,500Due
                  to a director
              
              
              (51,468
              )
              
              --**Net
                  cash provided by financing activities**
              
              
              **92,891**
              
              
              **405,856****EFFECT
                  OF EXCHANGE RATE ON CASH**
              
              
              82,131
              
              
              17,936**NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              (79,025
              )
              
              397,770**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
              
              
              402,591
              
              
              1,123,912**CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD**
              
              **$**
              **323,566**
              ****
              **$**
              **1,521,682****SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION**Cash
                  paid for interest
              
              $
              -
              
              $
              -Cash
                  paid for income tax
              
              $
              -
              
              $
              -
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 -
              5
              -
  **CHINA
        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF** **MARCH
        31** **,
        2007 (UNAUDITED)**
 
 
 **NOTE
        1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
        POLICIES**
 
 (A)
        Basis
        of Presentation
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information and pursuant to
        the
        rules and regulations of the Securities and Exchange Commission. Accordingly,
        they do not include all of the information and footnotes required by generally
        accepted accounting principles for complete financial statements.
 
 In
        the
        opinion of management, the unaudited condensed consolidated financial statements
        contain all adjustments consisting only of normal recurring accruals considered
        necessary to present fairly the Company's consolidated financial position
        at
        March 31, 2007, the consolidated results of operations for the three months
        ended March 31, 2007 and 2006, and consolidated statements of cash flows
        for the
        three months ended March 31, 2007 and 2006. The consolidated results for
        the
        three months ended March 31, 2007 are not necessarily indicative of the results
        to be expected for the entire fiscal year ending December 31, 2007. These
        consolidated financial statement should be read in conjunction with the
        consolidated financial statements and notes for the year ended December 31,
        2006
        appearing in the Company's annual report on Form 10-KSB as filed with the
        Securities and Exchange Commission.
 
 (B)
            Principles
                of Consolidation 
 The
        accompanying unaudited condensed consolidated financial statements for the
        three
        months ended March 31. 2007 include the unaudited financial statements of
        China
        Digital Media Corporation (“CDMC”) and its wholly owned or controlled
        subsidiaries, China Digimedia Holding Limited (“CDHL”), Arcotect (Guangzhou)
        Limited (“AGL”), Guangdong M-Rider Media Company (“M-Rider”), Digimedia Services
        (Shenzhen) Limited (“Digimedia Shenzhen”), its 100% variable interest entity
        (“VIE”) in Guangdong HuaGuang DigiMedia Culture Development Limited
        (“HuaGuang”,) and the 51% owned subsidiary of HuaGuang in Guizhou Guishi
        Digimedia Advertising Company Limited (“Guishi Digimedia”) (collectively, “the
        Company”). The Company accounts for its 49% investment held by HuaGuang in
        Guizhou Guishi Huaguang Media Company Limited (“Guishi Huaguang”) and its 20%
        investment held by CDHL in Arable Media Limited (“Arable”) using the equity
        method. The minority interests represent the minority shareholders’ 49%
        proportionate share of the results of Guishi Digimedia.
 
 The
        accompanying unaudited condensed consolidated financial statements for the
        three
        months ended March 31, 2006 include the financial statements of CDMC and
        its
        wholly owned subsidiaries, CDHL, AGL, M-Rider, Digimedia Shenzhen, and its
        90%
        VIE in HuaGuang. The minority interests represent the minority shareholders’ 10%
        proportionate share of the results of HuaGuang.
 
 All
        significant inter-company balances and transactions have been eliminated
        in
        consolidation.
 
 (C)
            Revenue
                Recognition 
 Digitalization
        of Television Signals
 
 The
        Company entered into an agreement with Nanhai Network Company to assist its
        subscribers on the conversion of television signals from analog into digital
        by
        providing set-top-box (“STB”) and smart cards to the subscribers in Nanhai City
        on a lease basis. The Company is entitled to a portion of fees payable by
        the
        existing subscribers under a subscription agreement entered into between
        the
        subscribers and the Nanhai Network Company. Revenue is recognized on a straight
        line basis in accordance with the terms of the subscription agreement. The
        Company also charges installation fees and sells STB and smart cards to new
        subscribers. Revenue arising from these services is recognized when the
        subscriber is invoiced for the STB and smart cards upon the completion of
        installation works.
 -
              6
              -
 
 In
        addition, the Company is entitled to be reimbursed for its operating expenses
        from Network Company in accordance to the subscription agreement. Revenue
        arising from costs reimbursement is recognized when the amounts are duly
        agreed
        upon between the Company and Network Company.
 
 Government
        Grant
 
 The
        local
        government of Nanhai City also approved a grant of Rmb10,000,000 each year
        for
        five years from 2004 to finance the purchase of STB and smart cards for sale
        and
        lease to subscribers. The grant is recognized as revenue on a straight line
        basis.
 
 Television
        Advertising Sales
 
 The
        Company acts as an advertising agent for certain television channels by selling
        advertising air time spaces and television program backdrops to customers.
        The
        Company's advertising services revenue is derived from billings that are
        earned
        when the advertisements are placed and revenue is recognized as the media
        placements appear. During 2007, the Company purchase blocks of advertising
        slots
        and was the primary obligor and carried all of the credit risk for the
        advertisement placements and accordingly, recorded the full amount of such
        billings from the advertisement placements as revenue. Deferred revenues
        are
        recognized as a liability when billings are received in advance of the date
        before revenues are earned.
 
 Software
        Development
 
 The
        Company provides various information technology professional services to
        its
        customers based on a negotiated fixed-price time and materials contract.
        The
        Company recognizes services-based revenue from all of its contracts when
        the
        services have been performed, the customers have approved the completion
        of the
        services and invoices have been issued and collectibility is reasonably assured.
 
 Television
        Series
 
 The
        Company invested in the production of two television series. Revenue from
        investments in television series is recognized upon receipt from the production
        company.
 
 Supplier
        rebate
 
 Rebate
        or
        refund received by the Company from its supplier, either in cash or trade
        discount, will be considered as an adjustment of the prices of the supplier’s
        products purchased by the Company. Therefore, it will be characterized as
        (a) a
        reduction of cost of sales for subsequent selling of the products by the
        Company; or (b) a reduction of Property and Equipment for products booked
        as
        fixed assets of the Company and subject to deprecation in line with the
        depreciable life of the relevant products; or (c) a reduction of Inventories
        for
        products maintained in stock.
 
 (D)
            Property
                and Equipment 
 Property
        and equipment are stated at cost, less accumulated depreciation. Expenditures
        for additions, major renewals and betterments are capitalized and expenditures
        for maintenance and repairs are charged to expense as incurred. Depreciation
        is
        provided on a straight-line basis, less estimated residual value over the
        assets’ estimated useful lives. The estimated useful lives are as follows: (a)
        STB and smart cards - 5 years; (b) Motor vehicles - 10 years; and (c) Furniture,
        fixtures and equipment - 5 and 8 years.
 
 Depreciation
        of STB
 
 As
        required by SAB11:B, depreciation and amortization for property and equipment
        directly attributed to the generation of revenue are classified under “Cost of
        Sales”. Accordingly, depreciation of STB and smart cards of the Company is
        included in “Cost of Sales”. To conform with the current account presentation,
        the depreciation of STB in 2006 previously classified as “Selling, General and
        Administrative expenses” is now included in “Cost of Sales”.
  -
            7
            -
  (E)
            Investments
                in Television Series 
 Investments
        in television series represent the unamortized costs of acquired television
        series production and participation costs. The investments are stated at
        the
        lower of cost less accumulated amortization or fair values. The investments
        are
        amortized, using the individual television series forecast method, in the
        proportion that current revenue bears to management’s estimate of ultimate
        revenue expected to be recognized from the exploitation and exhibition of
        the
        television series. The ultimate revenue which includes estimates over a period
        not to exceed 10 years following the date of initial release are prepared
        on a
        title-by-title basis and reviewed periodically based on current market
        conditions. Estimate of future revenue involve measurement uncertainty and
        it is
        therefore possible that reduction in the carrying value of investments in
        television series may be required as a consequence of changes in management’s
        future revenue estimates.
 
 (F)
            Valuation
                of Financial Instruments 
 Statement
        of Financial Accounting Standards No. 107, "Disclosure About Fair Value of
        Financial Instruments," requires certain disclosures regarding the fair value
        of
        financial instruments. Fair value of financial instruments is made at a specific
        point in time, based on relevant information about financial markets and
        specific financial instruments. As these estimates are subjective in nature,
        involving uncertainties and matters of significant judgment, they cannot
        be
        determined with precision. Changes in assumptions can significantly affect
        estimated fair values.
 
 The
        carrying value of cash and cash equivalents, accounts receivables (trade
        and
        others), accounts payables (trade and related parties) and accrued liabilities
        approximate their fair value because of the short-term nature of these
        instruments. The Company places its cash and cash equivalents with what it
        believes to be high credit quality financial institutions. The Company controls
        credit risk related to accounts receivable through credit approvals, credit
        limit and monitoring procedures. The Company routinely assesses the financial
        strength of its customers and, based upon factors surrounding the credit
        risk,
        establishes an allowance, if required, for uncollectible accounts and, as
        a
        consequence, believes that its accounts receivable credit risk exposure beyond
        such allowance is limited.
  The
        Company’s major operation is in the PRC, which may give rise to significant
        foreign currency risks from fluctuations and the degree of volatility of
        foreign
        exchange rates between the United States dollars (“US$”) and the Chinese
        Renminbi (“RMB”). Nevertheless, the Company does not believe that its foreign
        currency exchange rate fluctuation risk is significant, especially if the
        PRC
        government allows only gradual currency fluctuation so as to maintain the
        relative stability of RMB.
  The
        Company accounts for non-hedging contracts that are indexed to, and potentially
        settled in, its own common stock in accordance with the provisions of Emerging
        Issues Task Force 00-19, “Accounting for Derivative Financial Instruments
        Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).
        These non-hedging contracts accounted for in accordance with EITF 00-19 include
        freestanding warrants to purchase the Company’s common stock as well as embedded
        conversation features that have been bifurcated from the host contract in
        accordance with the requirements of SFAS 133, “Accounting for Derivative
        Instruments and Hedging Activities” (“SFAS 133”). Under certain circumstances
        that could require the Company to settle these equity items in cash or stock,
        and without regard to probability, EITF 00-19 could require the classification
        of all or part of the item as a liability and the adjustment of that
        reclassified amount to fair value at each reporting period, with such
        adjustments reflected in the line item of change in valuation of derivative
        as
        other income (expenses) in the statements of operations.
 
 The
        Company has issued 4% secured convertible debentures in a face amount of
        US$3,100,000 which are due and payable in full in 18 months from their issuance.
        As fixed prices are set for the conversion prices of such convertible debentures
        and the attached warrants, the Company is in a position to be sure it had
        adequate authorized shares for the future conversion of convertible debentures
        and warrants. Therefore, no embedded derivatives and warrants are required
        to be
        recorded at fair value and marked-to-market at each reporting
        period.
  -
            8
            -
  (G)
            Restatement
                of Financial Statements 
 As
        stated
        in the forms 8-K filed on March 20, 2007 and April 4, 2007 respectively,
        the
        Company has decided to restate certain financial statements previously reported
        to reclassify a volume discount (“consideration”) agreed with its STB supplier
        previously recorded as other income to be applied as a reduction against
        inventory, cost of goods sold or as a reduction of the balance of Property
        and
        Equipment for STB that have been leased to customers. The change in accounting
        treatment resulting in this restatement is in accordance with the Company’s
        accounting policy on supplier rebate shown in note 1 (C). The portion of
        consideration credited to Property and Equipment is recognized as income
        over
        the depreciable life of STB of five years by way of a reduced depreciation
        charge.
 
 (H)
            Recent
                Accounting Pronouncements 
 In
        July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
        Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”),
        which clarifies the accounting for uncertainty in tax positions. This
        Interpretation provides that the tax effects from an uncertain tax position
        can
        be recognized in the Company’s financial statements, only if the position is
        more likely than not of being sustained on audit, based on the technical
        merits
        of the position. The provisions of FIN 48 are effective as of the beginning
        of
        fiscal 2007, with the cumulative effect of the change in accounting principle
        recorded as an adjustment to opening retained earnings. The Company is currently
        evaluating the impact this new Standard, but believes that it will not have
        a
        material impact on the Company’s financial position.
 
 In
        September 2006, FASB issued Statement 157, Fair Value Measurements. This
        statement defines fair value and establishes a framework for measuring fair
        value in generally accepted accounting principles (GAAP). More precisely,
        this
        statement sets forth a standard definition of fair value as it applies to
        assets
        or liabilities, the principal market (or most advantageous market) for
        determining fair value (price), the market participants, inputs and the
        application of the derived fair value to those assets and liabilities. The
        effective date of this pronouncement is for all full fiscal and interim periods
        beginning after November 15, 2007. The Company is currently evaluating the
        impact this new Standard, but believes that it will not have a material impact
        on the Company’s financial position.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
        choose to measure many financial instruments and certain other items at fair
        value that are not currently required to be measured at fair value. SFAS
        159
        will become effective for us on January 1, 2008. The Company is currently
        evaluating the impact this new Standard, but believes that it will not have
        that
        it will not have a material impact on the Company’s financial position.
 
 **NOTE
        2 - ACQUISITION**
 
 On
        January 24, 2007, CDHL exercised its option to request the former shareholders
        of HuaGuang to transfer, in effect, the remaining 10% of their equity interest
        in HuaGuang to the company for approximately US$10 in accordance with the
        Strategic Alliance Agreement dated June 15, 2006 between CDHL and Guangdong
        Pukonyi Culture Development Limited (later renamed as HuaGuang). Accordingly,
        the Company’s variable interest in HuaGuang has been increased from 90% to 100%.
        The acquisition was accounted for under the purchase method of accounting
        in
        accordance with step acquisition rules. A
        negative goodwill of $23,388 was recorded with respect to the transaction
        and
        was allocated in its entirety as reductions to investments in affiliates
        held by
        HuaGuang pursuant to paragraph 44 of Statement of Financial Accounting
        Statements No. 141, “Business Combinations”.
  **NOTE
        3 - INVESTMENT IN AFFILIATES**
 
 The
        Company’s effective interest of 49% in Guishi Huaguang is accounted for using
        the equity method of accounting and is stated at cost plus equity in
        undistributed earnings or losses since acquisition. The Company’s share of the
        net (loss) income for the three months ended March 31, 2007 is as
        follows:
  -
            9
            -
  A
        summary
        of the unaudited condensed financial statements of the affiliate as of March
        31,
        2007 is as follows:
 
 Current assets
              
              $
              448,288Non-current assets
              
              
              235,773Total
                  Assets
              
              $
              684,061Current liabilities
              
              $
              311,090Stockholders’ equity
              
              
              372,971Total
                  Liabilities and Stockholders’ Equity
              
              $
              684,061Revenues
              
              $
              -Gross Profit
              
              $
              -Net
                  Loss
              
              $
              (12,310
              )
 
 The
        Company’s share of the loss for the three months ended March 31, 2007 is as
        follows:
 
 Company
                  share at 49%
              
              $
              (6,032
              )Equity
                  in loss of affiliate
              
              $
              (6,032
              )
 
 The
        Company’s effective interest of 20% in Arable is accounted for using the equity
        method of accounting and is stated at cost plus equity in undistributed earnings
        since subscription. The Company’s share of the net loss for the three months
        ended March 31, 2007 is as follows:
 
 A
        summary
        of the unaudited condensed financial statements of the affiliate as of March
        31,
        2007 is as follows:
 
 Current assets
              
              $
              60Non-current assets
              
              
              592,979Total
                  Assets
              
              $
              593,039Non-current liabilities
              
              $
              640,196Stockholders’ equity
              
              
              (47,157
              )Total
                  Liabilities and Stockholders’ Equity
              
              $
              593,039Revenues
              
              $
              -Gross Profit
              
              $
              -Net
                  loss
              
              $
              (592
              )
 
 The
        Company’s share of the loss for the three months ended March 31, 2007 is as
        follows:
 
 Company
                  share at 20%
              
              $
              (118
              )Equity
                  in loss of affiliate
              
              $
              (118
              )
 -
              10
              -
  **NOTE
        4 - SEGMENT INFORMATION**
 
 The
        Company operates in five reportable segments; digitalization of television
        signals, television advertising sales, software development, investment in
        television series and others. The accounting policies of the segments are
        the
        same as described in the summary of significant accounting policies. The
        Company
        evaluates segment performance based on income from operations. All inter-company
        transactions between segments have been eliminated on consolidation. As a
        result, the components of operating income for one segment may not be comparable
        to another segment. The following is an unaudited summary of our segment
        information for the three months ended March 31, 2007 and 2006:
 
 **Digitalization**
              
              
              
              
              
              **Investments****of
                  Television**
              
              **Television**
              
              **Software**
              
              **in
                  Television****Signals**
              
              **Advertising**
              
              **Development**
              
              **Series**
              
              **Other**
              
              **Total****2007****Revenues**
              
              $
              1,723,053
              
              $
              472,949
              
              $
              9,260
              
              $
              0
              
              $
              0
              
              $
              2,205,262**Gross
                  profit**
              
              
              814,687
              
              
              (66,676
              )
              
              9,260
              
              
              0
              
              
              0
              
              
              757,271**Net
                  Income**
              
              
              464,272
              
              
              (193,659
              )
              
              (44,156
              )
              
              (2,992
              )
              
              (211,437
              )
              
              12,028**Total
                  assets**
              
              
              20,501,649
              
              
              3,500,465
              
              
              590,483
              
              
              681,499
              
              
              513,871
              
              
              25,787,966**Capital
                  expenditure**
              
              
              396,566
              
              
              59,436
              
              
              724
              
              
              0
              
              
              793
              
              
              457,519**Depreciation
                  and amortization**
              
              
              725,821
              
              
              5,586
              
              
              1,806
              
              
              9,384
              
              
              2,301
              
              
              744,898**2006
                  (Restated)****Revenues**
              
              $
              1,767,208
              
              $
              1,732,033
              
              $
              22,851
              
              $
              174,629
              
              $
              0
              
              $
              3,696,721**Gross
                  profit**
              
              
              1,077,019
              
              
              135,039
              
              
              22,851
              
              
              55,542
              
              
              0
              
              
              1,290,451**Net
                  Income**
              
              
              632,841
              
              
              (30,248
              )
              
              (61,211
              )
              
              82,905
              
              
              (123,020
              )
              
              501,267**Total
                  assets**
              
              
              14,552,150
              
              
              2,460,207
              
              
              92,823
              
              
              771,663
              
              
              408,705
              
              
              18,285,548**Capital
                  expenditure**
              
              
              1,431,110
              
              
              5,211
              
              
              1,265
              
              
              310,590
              
              
              0
              
              
              1,748,176**Depreciation
                  and amortization**
              
              
              480,573
              
              
              3,080
              
              
              3,140
              
              
              119,087
              
              
              10,919
              
              
              616,799
 
 **NOTE
        5 -** **EARNINGS
        PER SHARE**
 
 As
        of
        March 31, 2007, the Company has outstanding:
  -
            31,602,365
                shares of common stock; -
            1,875,000
                shares of preferred stock; -
            6,888,882
                shares of common stock to be issued upon conversion of convertible
                debenture; -
            warrants
                to purchase 6,888,882 shares of common stock at an exercise price
                of $0.80
                per share, expire in November 2012; -
            warrants
                to purchase 6,888,882 shares of common stock at an exercise price
                of $1.20
                per share, expire in November 2012; and -
            warrants
                to purchase 3,444,441 shares of common stock at an exercise price
                of $2.25
                per share, expire in November 2012.   -
            11
            -
  In
        accordance with paragraph 40 and 41 of  SFAS
        128
        and EITF 03-6,  basic
        and
        diluted earnings per share on a two classes method for the three months ended
        March 31, 2007 and 2006 are calculated as follows:
 
 **2007**
              
              **2006****Earnings**Net Income
              
              
              12,028
              
              
              501,267**Basic
                  - 2 classes method**Income available to common stockholders
              
              
              12,028
              
              
              501,267Weighted-average
                  common stock outstanding
              
              
              31,602,365
              
              
              30,906,343Number
                  of preferred stock
              
              
              1,875,000
              
              
              1,875,000Weighted-average
                  common stock outstanding - assume CD converted
              
              
              6,888,882
              
              
              0Basic
                  earnings per share - Common Stock
              
              
              0.00
              
              
              0.02Basic
                  earnings per share - Preferred Stock
              
              
              0.00
              
              
              0.02Basic
                  earnings per share - CD
              
              
              0.00
              
              
              -**Diluted**Income available to common stockholders
              
              
              12,028
              
              
              501,267Income available to common stockholders & assumed CD
                  converted
              
              
              42,603
              
              
              -**Diluted
                  weighted-average common stock outstanding**
              
              
              47,866,247
              
              
              40,339,795**Diluted
                  earnings per share**
              
              
              0.00
              
              
              0.01
 
 Warrants
        to purchase 6,888,882 shares of common stock at $0.80 per share, 6,888,882
        shares of common stock at $1.20 per share and 3,444,441 shares of common
        stock
        at $2.25 per share were outstanding as of March 31, 2007 but were not included
        in the computation of diluted earnings per share because the warrants’ exercise
        price was greater than the market price of the common shares.
 
 **NOTE
        6 - COMMITMENTS AND CONTINGENCIES**
 
 Contingencies
 
 The
        Company accounts for loss contingencies in accordance with SFAS 5 “Accounting
        for Loss Contingencies”, and other related guidance. Set forth below is a
        description of certain loss contingencies as of March 31, 2007 and management’s
        opinion as to the likelihood of loss in respect of each loss
        contingency.
 
 On
        May
        24, 2005, Ziegler, Ziegler & Associates LLP and Scott Ziegler filed a
        Complaint against the Company in the United States District Court for the
        Southern District of New York for using their internet domain name to distribute
        the Company’s promotional information over the internet. The Plaintiffs seek
        several types of damages in an amount not less than $1,250,000. The Company’s
        counsel was instructed to vigorously defend the action as the emails in question
        were distributed by a party not hired nor associated with the Company.
        Accordingly, no provision has been made.
 
 On
        January 18, 2006, counsel for the plaintiff threatened to file a complaint
        in
        the County Court in and for Miami-Dade County, Florida against the Company
        in an
        action for damages that does not exceed $15,000, exclusive of court costs,
        attorney’s fees and interest. The plaintiff alleged that the Company was a
        guarantor of a lease entered into by its Hairmax of Florida, Inc. subsidiary,
        which abandoned the lease and failed to pay the full rental due under the
        lease.
  -
            12
            -
  The
        Company has made a settlement offer to the plaintiff of an amount equal to
        $9,000, and is awaiting the plaintiff’s response. As part of any settlement, the
        Company will insist upon the execution and delivery of a binding release
        of all
        claims in favor of the Company. The Company has accrued $9,000 in the past
        financial statements.
 
 **NOTE
        7 - COMMON STOCK**
 
 No
        change
        in the Company’s common stock for the three months ended March 31,
        2007.
 
 **NOTE
        8 - CONVERTIBLE DEBENTURE**
 
 For
        the
        fiscal quarter ended March 31, 2007, the Company has convertible debentures
        with
        total value of $3.1 million outstanding. The aforesaid convertible debentures
        were issued pursuant to the private equity financing where the Company sold
        a
        total 31 units of securities. Each unit consists of (i) an eighteen-month
        4%
        interest bearing convertible debenture in the principal amount of $100,000,
        convertible at $0.45 per share, (ii) a six-year Class A warrant to purchase
        222,222 shares of the Company’s common stock, par value $0.001 per share at an
        exercise price of $0.80 per share, a (iii) six-year Class B warrant to purchase
        222,222 shares of the Company’s common stock at an exercise price of $1.20 per
        share, and (iv) a six-year Class C warrant to purchase 111,111 shares of
        the
        Company’s common stock at an exercise price of $2.25 per share. The securities
        issuable upon conversion of the debenture and exercise of the warrants are
        eligible for certain registration rights.
 
 **NOTE
        9 -** **RELATED
        PARTY TRANSACTIONS**
 
 As
        of
        March 31, 2007, the Company owed a director $33,188 for short-term advances.
        Interest is charged at 6% per annum on the amount owed.
 
 As
        of
        March 31, 2007, the Company owed to a related company $100,005 for short-term
        unsecured advances made. Interest is charged at 6% per annum on the amount
        owed.
 
 As
        of
        March 31, 2007, the Company owed to an affiliate, Guishi HuaGuang, $424,840
        for
        short-term unsecured interest free advances made.
 
 As
        of
        March 31, 2007, the Company has advanced $433,094 to an affiliate to support
        its
        research and development on the middleware applications for digital television
        STB. The advances will be used to pay for license fees in the future and
        other
        expenses or refunded to the Company if the applications cannot be applied
        to the
        Company’s STB. The advance is interest free for a period of five years and
        thereafter interest is charged at the rate of LIBOR plus 2% on the outstanding
        balance.
 
 **ITEM
        2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
 
 We
        are
        hereby providing cautionary statements identifying important factors that
        could
        cause our actual results to differ materially from those projected in forward
        looking statements made in this quarterly report on Form 10-QSB. Any statements
        that express, or involve discussions as to, expectations, beliefs, plans,
        objectives, assumptions or future events or performance (often, but not always,
        through the use of words or phrases such as "likely will result", "are expected
        to", "will continue", "is anticipated", "estimated", "intends", "plans" and
        "projection") are not historical facts and may be forward-looking statements
        and
        involve estimates and uncertainties which could cause actual results to differ
        materially from those expressed in the forward-looking statements.
 
 We
        caution that the factors described herein, as well as the factors described
        generally in our Form 10-KSB for the year ended December 31, 2006, and
        specifically the factors described in such Form 10-KSB in the section entitled
        “Item 1. Business - Risk Factors”-, could cause actual results to differ
        materially from those expressed in any forward-looking statements and that
        the
        investors should not place undue reliance on any such forward-looking
        statements. Further, any forward-looking statement speaks only as of the
        date on
        which such statement is made, and we undertake no obligation to update any
        forward-looking statement to reflect events or circumstances after the date
        on
        which such statement is made or to reflect the occurrence of unanticipated
        events or circumstances. Consequently, no forward-looking statement can be
        guaranteed.
 
  -
            13
            -
  New
        factors emerge from time to time, and it is not possible for us to predict
        all
        such factors. Further, we cannot assess the impact of each such factor on
        our
        results of operations or the extent to which any factor, or combination of
        factors, may cause actual results to differ materially from those contained
        in
        any forward-looking statements.
 
 **Overview**
 
 China
        Digital Media Corporation (”CDMC”) was previously known as HairMax
        International, Inc. (“Hairmax”), a Nevada corporation incorporated in 1987.
        Arcotect Digital Technology Limited, a corporation organized under the laws
        of
        Hong Kong, consummated a reverse merger with Hairmax in March, 2005, and
        Hairmax
        subsequently changed its name to China Digital Media Corporation. With the
        termination of the original businesses of Hairmax, all of China Digital Media
        Corporation’s businesses are now located in the People’s Republic of China (the
“PRC” or ‘China”). Arcotect Digital Technology Limited has changed its name to
        China Digimedia Holdings Limited (“CDHL”), and is a wholly-owned subsidiary of
        CDMC.
 
 We
        are
        engaged in the business of providing services to the television broadcasting
        and
        media industry in China through operations, partnerships and investments.
        The
        three main businesses of CDMC are:
 
 -
            Through
                a subsidiary, Arcotect (Guangzhou) Limited (“AGL”), converting digital
                cable television subscribers to digital television and providing
                various
                value added and broadband services to the digital
                subscribers; -
            Television
                advertising sales; -
            Television
                program production. 
 The
        Company’s business plan is to strengthen its branding and to enlarge its
        presence and involvement in the media industry. The Company will continue
        to
        focus its resources toward replicating its successful migration model to
        other
        cities of China, while seeking opportunities to alliance with strong strategic
        partners.
 
 Cable
        TV operations and digital broadcast technology development
 
 AGL,
        a
        wholly owned foreign subsidiary of CDMC incorporated in China, is the sole
        contractor and operator of digital television (“DTV”) services in Nanhai,
        Guangdong Province, a city with over 410,000 residential and commercial cable
        television subscribers.
 
 On
        February 6, 2004, we signed a 20-year Co-operative Agreement for Total Migration
        into DTV System for the Nanhai District and subsequently signed a supplementary
        agreement on July 8, 2005 (collectively, the “Co-operative Agreements”) with
        Nanhai Network Company, a city-owned cable network operator in Guangdong
        Province. Pursuant to the Co-operative Agreements, the Company is responsible
        for migrating all cable television subscribers in Nanhai from an analog to
        a
        digital system (“Migration”) by the end of 2007. As of March 31, 2007, the
        Company has migrated about 226,000 subscribers into the digital system and
        the
        migration program is on schedule.
 
 According
        to the Co-operative Agreements, AGL is entitled to share the subscription
        fees
        paid by all cable television subscribers as well as paid by DTV subscribers
        for
        additional services, including pay-TV services, and to receive the subscription
        fee for any additional STBs.
 
 Under
        the
        Co-operative Agreement, the Company is a sole contractor and operator of
        digital
        TV in Nanhai. The Company is responsible for supplying all subscribers with
        a
        digital set-top-box on a lease basis to subscribers. If subscribers want
        an
        additional set-top-box, the subscriber must purchase the set-top-box from
        the
        Company. The Company is also responsible for providing operational support
        services including migration planning, marketing and sales, software
        development, customer service and logistics administration. The Company’s
        proprietary operating support system automates many of the processes, such
        as
        database management, billing, work orders and inventory control, and assists
        in
        the operation of a 24/7 call center for technical support and customer care.
        The
        city-owned cable company retains management of the broadcasting system and
        the
        fiber-optic network and is responsible for compliance with national broadcasting
        policies.
 
  -
            14
            -
  The
        broadcast system that decrypts the signal with the Company’s set-top-box and
        appropriate smart cards can carry up to 800 digital channels of pay-TV programs
        and value added multimedia services. Currently, the services consist of 126
        channels, including a 51-channel basic package , 72 pay channels and 3 high
        definition TV channels bundled into various value added packages, such as
        Life
& Leisure, World Sports, News, Drama and Family.
 
 The
        Company has deployed an IP (Internet Protocol) based set-top-box which is
        developed by its affiliate, Arable Media Limited, a software developer
        specialised in middleware products and applications for digital TV set-top
        box
        and broadcasting technologies. The Company believes the advanced set-top-box
        will enable the Company to provide additional value added services which
        can be
        deployed in the future; such as targeted advertising, interactive TV programs,
        online shopping and console games, as well as interactive education
        services.
 
 TV
        advertising sales
 
 M-Rider,
        a company incorporated in China and100% owned by the Company under a trust
        arrangement, is an advertising sales company engaged in the distribution
        of
        television commercials. The Company is responsible for reselling commercial
        airtime to international and local advertising customers, either directly
        or
        through agents and receiving agency fees and services fee. The Company has
        many
        years of experience in providing consultancy and media planning services
        to
        clients, and assisting them to deliver their messages precisely and
        professionally to their targeted audiences efficiently. In addition, the
        Company
        believes that it can manage advertising resources more effectively to enhance
        value of the advertising space.
 
 In
        February, 2007, M-Rider signed a five year sole agent service agreement (the
        “Sole Agent Agreement”) to provide consultation services and manage advertising
        time slots exclusively with China Yellow River TV Station (“CYR Station”), a
        television station located in Shanxi Province in China which has a population
        of
        over 30 million, starting from January 1, 2007. In
        addition, M-Rider has a priority to renew the Agreement for an additional
        five
        years upon expiration of the Sole Agent Agreement on December 31,
        2011.
 
 According
        to the Sole Agent Agreement, M-Rider shall act as the sole agent and provide
        consultation services for media planning advisory, sales analysis and strategic
        planning to CYR Station. In return, M-Rider will get a media services fee
        based
        on the revenue generated and a performance bonus at the end of each fiscal
        year.
  TV
        channel management and program production
 
 On
        February 2006, HuaGuang, entered into two joint venture agreements with the
        provincial television station, Guizhou Television Station, for a term of
        20
        years. Pursuant to the joint venture contracts, the provincial television
        station will provide the exclusive use of a television channel, including
        production resources and equipment, while outsourcing its entire advertising
        air
        time slots to the two joint ventures for an initial term of five years and
        the
        term is extendable by mutual agreement. Guishi Digimedia, a 51% subsidiary
        of
        HuaGuang, will serve as the exclusive advertising agent to manage the television
        commercials. Guishi Huaguang, a 49% owned interest of HuaGuang, will be
        responsible for sourcing and production content, as well as schedule planning.
        Currently, over 100 professionals and experienced staff are working on the
        production, planning and scheduling, and contents sourcing. The channel is
        focusing on fashion, entertainment, lifestyle and sports, 24 hours a
        day.
 
 Besides,
        HuaGuang has made a minority investment in two television series, XiGuan
        Affairs, with 40 episodes, and The Story of a Small Town, with 24
        episodes.
 
 The
        Company relied on two suppliers for approximately 99% of its purchases in
        the
        first quarter of 2007 for the Nanhai digitalization of TV system in the Nanhai
        project and relied on one TV channel for approximately 95% of its purchase
        of TV
        advertising time slots during the quarter for the advertising agency sales
        of
        M-Rider. As of March 31, 2007, accounts payable to these suppliers amounted
        to
        $3,952,598 and $413,747 for the Nanhai project, and $271,431 for M-Rider’s
        operations, respectively.
 
  -
            15
            -
  At
        present, some of our targeted businesses are subject to certain governmental
        restrictions in the PRC. In order to enable us to invest in certain media
        sectors such as TV advertising and content productions before government
        regulations and policies in this field are opened to foreign investors, one
        of
        our directors holds the equity interest of HuaGuang while HuaGuang holds
        the
        equity interest of M-Rider on behalf of the Company. We are therefore not
        the
        direct owner of the programming and advertising operations. We anticipate
        that
        this arrangement will be continued until further relaxation of the broadcasting
        policy in China.
  **RESULTS
        OF OPERATIONS**
 
 *Statements
        of Operations Items:*
 
 **Sales**
 
 Total
        net
        sales for the three months ended March 31, 2007 decreased by $1,491,459 or
        40%
        to $2,205,262 from $3,696,721 for the same period ended March 31, 2006. The
        decrease in total net sales was due to the reduction in TV advertising sales
        after the Company decided to discontinue its agreement to act as the sole
        advertising agent of a TV channel in Guangzhou during 2007 as such operations
        had shown during 2006 not to be profitable. Nevertheless, revenue generated
        from
        TV digitalization business maintained at the same level as compared with
        the
        same period of last year. The basic and additional STB subscribers have been
        increased from about 431,000 as of March 31, 2006 to 455,000 as of March
        31,
        2007.
 
 **Gross
        Profit**
 
 Gross
        Profit for the three months ended March 31, 2007 decreased by $533,180 or
        41% as
        compared with the same period last year because of the reduction in TV
        advertising sales, an increase in depreciation of STBs purchased for migration,
        and that no revenue were received from investments in TV series during the
        first
        quarter of 2007.
 
 **Expenses**
 
 Selling,
        general, administrative and depreciation and amortization (not related directly
        to generation of revenue) expenses for the three months ended March 31, 2007
        increased by $226,742 or 39% to $801,581 in comparison with the three month
        period ended March 31, 2006. The increase was mainly due to the consolidation
        of
        the joint venture company, Guishi Digimedia, which was not yet acquired during
        the first quarter of 2006, and the increase in finance costs.
 
 **Minority
        Interests**
 
 Minority
        interests in the statement of operation represent the minority shareholders’
share of the profits in the Company’s 49% subsidiary. For the three months ended
        March 31, 2007, we recognized minority’s share of loss of $83,774.
 
 **Net
        Income**
 
 Net
        income after tax were $12,028 for the three months period ended March 31,
        2007,
        compared to the net income of $501,267 for the same period ended March 31,
        2006.
        The decrease in net income was because of the reduction in income from operation
        (mainly on TV advertising business) though offset partially by reduction
        in
        provision made for income tax.
 
  -
            16
            -
  *Balance
        Sheet Items:*
 
 **Current
        Assets**
 
 Current
        Assets of the Company had increased by $1 million to $12 million during the
        first quarter of 2007. As the Company utilized most of its cash on DTV
        migration, it has maintained a low level of cash balance of $0.3 million.
        Accounts Receivable had increased by $1.1 million, mainly attributable to
        the
        increase in Accounts Receivable from Nanhai Network Company. Further effort
        is
        expected to follow up with the Network Company in order to reduce the receivable
        amount.
 
 **Property
        and Equipment, Net**
 
 The
        net
        decrease in property and equipment of the Company of $0.3 million represented
        depreciation of STB offset by purchase of STB during the first quarter of
        2007.
 
 **Other
        Asset**
 
 Other
        assets represent deferred finance costs related to commission, legal and
        financial advisory fees directly attributable to the issuance of the convertible
        debenture by the Company in 2006 totaling $620,480. Deferred finance costs
        are
        amortized over the life of the debenture of 18 months from November 2006.
        For
        the three months ended March 31, 2007, such expenses amortized were
        $99,798.
 
 **Current
        Liabilities**
 
 Current
        Liabilities of the Company had increased by $0.7 million to $13.2 million
        during
        the first quarter of 2007. The increase was mainly attributable to the increase
        in account payables due to a STB supplier and an advertising
        contractor.
 
 **Liquidity
        and Capital Resources**
 
 On
        March
        31, 2007, we had cash of $323,566 and a working capital deficit of $1,252,673.
        This compares with cash of $1,521,682 and a working capital surplus of $635,073
        at March 31, 2006. The decrease in cash was mainly due to the increase in
        purchases of STBs in Nanhai project as compared with the same period of last
        year. The decrease in working capital was mainly attributable to the fundraising
        from issuance of debenture to finance the Nanhai migration process.
 
 Operating
        activities had a net generation of cash in the amount of $275,078 during
        the
        three months ended March 31, 2007 (2006: $1,754,501) reflecting an excess
        of
        revenues over expenditure.
 
 Net
        cash
        used in investing activities for the three months ended March 31, 2007 was
        $529,124 as compared with net cash used in investing activities of $1,780,523
        for the three months ended March 31, 2006. The decrease in net cash used
        in
        investing activities was due to the decrease in purchases of STBs in the
        first
        quarter of this year.
 
 Net
        cash
        provided by financing activities for the three months ended March 31, 2007
        was
        $92,891 representing inter-group funding activities (2006: $405,856, of which
        $387,500 represented fund from private placement).
 
 We
        continued to receive cash from Nanhai Network Company according to the project
        schedule and plan of television digitalization migration. The Company's
        investment in STBs and smart cards remained the substantial accounts payable
        at
        March 31, 2007. For further business expansion and acquisition, the Company
        is
        considering various financing methods for funding, although there is no
        assurance that the Company will be able to raise additional funding on favorable
        terms, if at all. Without considering further expansion, the Company is expected
        to have sufficient cash generated from operating activities to get through
        its
        business in the next 12 months, but, the digital TV migration process might
        be
        slowed down.
 
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            17
            -
  On
        a
        long-term basis, liquidity is dependent on continuation and expansion of
        operations, receipt of revenues, additional infusions of capital and debt
        financing. Our current capital and revenues are not sufficient to fund further
        acquisition and business expansion. The Company is planning to raise capital
        through debt financing and from bank borrowings and equity financing from
        potential investors and partners. However, if the Company is unable to raise
        additional capital, its growth potential is likely to be affected.
 
 **Foreign
        Currency Translation Risk**
 
 The
        Company’s major operation is in the PRC, which may give rise to significant
        foreign currency risks from fluctuations and the degree of volatility of
        foreign
        exchange rates between the United States dollars (“US$”) and the Chinese
        Renminbi (“RMB”). Provided that the RMB exchange rate against the US$ maintains
        at a low degree of volatility, the Company does not believe that its foreign
        currency exchange rate fluctuation risk is significant.
 
 The
        financial statements of the subsidiaries (whose functional currency is HK$
        or
        RMB) are translated into US$ using the closing rate method. The balance sheet
        items are translated into US$ using the exchange rates at the respective
        balance
        sheet dates. The capital and various reserves are translated at historical
        exchange rates prevailing at the time of the transactions while income and
        expenses items are translated at the average exchange rate for the year.
        All
        exchange differences on currency translations are recorded within equity.
        Translation gain for the three months ended March 31, 2007 was
        $92,545.
 
 **ITEM
        3. CONTROLS AND PROCEDURES**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 The
        Company’s chief executive officer and chief financial officer have reviewed and
        evaluated the effectiveness of the Company’s disclosure controls and procedures
        (as defined in Exchange Act Rules a13d-15(e) and 15d-15(e)) as of the end
        of the
        period covered by this quarterly report. Based on that evaluation, the chief
        executive officer and chief financial officer have concluded that the Company’s
        current disclosure controls and procedures are adequate and effective to
        ensure
        that material information relating to the Company was made known to them
        by
        others, particularly during the period in which this Quarterly Report on
        Form
        10-QSB was being prepared.
 
 **Changes
        in Internal Control**
 
 There
        were no changes in our internal control over financial reporting, identified
        in
        connection with the evaluation of such internal control that occurred during
        our
        last fiscal quarter that have materially affected, or are reasonably likely
        to
        materially affect, our internal control over financial reporting.
 
 **PART
        II. OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 On
        May
        24, 2005, a Complaint was filed against us, among others, in the United States
        District Court for the Southern District of New York, in a matter captioned
        as
“Ziegler, Ziegler & Associates LLP and Scott Ziegler, Plaintiffs, v. China
        Digital Media Corporation and John Does 1-10, Defendants.” In the Complaint, the
        Plaintiffs allege, among other things, that we and John Does 1-10 used Plaintiff
        Scott Zeigler’s e-mail address and Plaintiff Ziegler, Ziegler & Associates,
        LLP’s internet domain name to distribute promotional information about us over
        the internet. The Plaintiffs seek a several types of relief, including damages
        in an amount not less than $1,250,000. Pre-trial discovery has commenced
        in the
        matter. The file number of the civil action is 05 CV 4960.
 
 The
        Company contested the allegations of the Plaintiffs and has retained counsel
        admitted to practice in the U.S. District Court for the Southern District
        of New
        York to vigorously defend the action. The Company did not hire a stock promoter
        or a spammer to distribute promotional e-mails, and the emails themselves
        recite
        that they were paid for by a shareholder of our Company, and not by the Company
        or an affiliate. We believe that the shareholder referred to in the emails
        was
        promoting its own interest and we had nothing to do with such activity. We
        believe we have no liability in this matter.
 
  -
            18
            -
  On
        January 18, 2006, counsel for the plaintiff threatened to file a complaint
        in
        the County Court in and for Miami-Dade County, Florida against the Company
        in an
        action for damages that does not exceed $15,000, exclusive of court costs,
        attorney’s fees and interest. The plaintiff alleged that the Company was a
        guarantor of a lease entered into by its Hairmax of Florida, Inc. subsidiary,
        which abandoned the lease and failed to pay the full rental due under the
        lease.
 
 The
        Company has made a settlement offer to the plaintiff of an amount equal to
        $9,000, and is awaiting the plaintiff’s response. As part of any settlement, the
        Company will insist upon the execution and delivery of a binding release
        of all
        claims in favor of the Company. The Company has accrued $9,000 in the past
        financial statements.
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 During
        the quarter ended March 31, 2007, no unregistered securities were
        issued.
 
 **Item
        3. Defaults Upon Senior Securities**
 
 None.
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 None.
 **Item
        5. Other Information**
 
 None.
 
 **Item
        6. Exhibits**
 
 **EXHIBIT
                  NO**
              
              **DESCRIPTION
                  OF EXHIBIT**31.1
              
              Certification
                  of Chief Executive Officer pursuant to Rule 13a-14(a) under the
                  Securities
                  Exchange Act of 1934, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              
              Certification
                  of Chief Financial Officer pursuant to Rule 13a-14(a) under the
                  Securities
                  Exchange Act of 1934, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
 
 
  -
            19
            -
  **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:
                  May 15, 2007*
                
                ***/s/
                  Ng Chi Shing***
                *-----------------------------*
                *Ng
                  Chi Shing*
                *Chief
                  Executive Officer*
                
                *Date:
                  May 15, 2007*
                
                ***/s/
                  Li Wa Tat Benedict***
                *-----------------------------*
                *Li
                  Wa Tat Benedict*
                *Chief
                  Financial Officer*
 
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            20
            -