United States


Securities
and Exchange Commission


Washington,
D.C. 20549








FORM
10-QSB/A


Amendment
No. 1








x QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period endedMarch
31, 2007








oTRANSITION 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
o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes o  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









EXPLANATORY NOTE







This
Amendment No. 1 to this Quarterly Report of Form 10-QSB for the three months
ended March, 2007 was filed in order to restate the consolidated financial
statements as of and for the three months ended March 31, 2007 to revise the
accounting treatment for the interest cost out of the convertible feature of the
debenture issued. The convertible debenture was issued in Nov 2006. As a result
of discussion within our management team, the Company determined that the
embedded conversion feature should be recorded based on the relative fair market
value of the liability and equity portions. Therefore, the debenture liabilities
should be presented at less than their eventual maturity values. The liability
and equity components are further reduced for issuance costs initially incurred.
The discount of the liability component, net of issuance costs, as compared to
maturity value is accreted by the effective interest method over the debenture
term.





Part 1
has been amended herein to reflect this change. This amendment does not
otherwise update information in the original filing to reflect facts or events
occurring subsequent to the date of the original filing.





All other
information is unchanged and this Amendment continues to speak as of the date of
the Original Filing and the Company has not updated the disclosure in this
Amendment to speak to any later date. All information contained in the Amendment
and the Original Filing is subject to updating and supplementing as provided in
the Registrant’s subsequent periodic reports filed with the Securities and
Exchange Commission.









- 2
-





CHINA
DIGITAL MEDIA CORPORATION


INDEX
TO FORM 10-QSB/A





Page
      No.PART
      IItem
      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
      - 15Item
      2. Management's Discussion and Analysis of Financial Condition And Results
      of Operations
            16Item
      3. Controls and Procedures
            19PART
      IIItem
      1. Legal Proceedings
            20Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            20Item
      3. Defaults Upon Senior Securities
            20Item
      4. Submission of Matters to a Vote of Security Holders
            20Item
      5. Other Information
            20Item
      6. Exhibits
            20Signatures
            21





- 3
-


ITEM 1. FINANCIAL
STATEMENTS





CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS
OF MARCH 31, 2007 (RESTATED)


(UNAUDITED)





ASSETSCURRENT
      ASSETSCash and cash equivalents
            
            $
            323,566Accounts receivable, net of allowances
            
            
            10,951,709Inventories, net
            
            
            380,175Other receivable and prepaid expenses
            
            
            299,700Value added taxes recoverable
            
            
            18,000Total
      Current Assets
            
            
            11,973,150INTANGIBLE ASSETS
            
            
            392,521INVESTMENTS IN TELEVISION SERIES, NET
            
            
            623,991INVESTMENTS IN AFFILIATES
            
            
            588,982PROPERTY AND EQUIPMENT, NET
            
            
            11,826,482OTHER ASSETS
            
            
            382,840TOTAL
      ASSETS
            
            $
            25,787,966CURRENT
      LIABILITIESAccounts 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
            
            
            28,468Total
      Current Liabilities
            
            
            10,125,823COMMITMENTS
      AND CONTINGENCIES
            
            
            --MINORITY
      INTERESTS
            
            
            (87,677
            )STOCKHOLDERS'
      EQUITYSeries 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
            
            
            10,812,806Deferred stock compensation
            
            
            (68,900
            )Retained earningsUnappropriated
            
            
            2,619,591Appropriated
            
            
            1,521,999Accumulated other comprehensive loss
            
            
            67,329Total
      Stockholders' Equity
            
            
            14,986,302TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            25,787,966







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


- 4
-


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)
            
            
            (Restated)NET
      SALESRevenue
      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
            
            
            
            311,8372,205,262
            
            
            
            3,696,721COST
      OF SALESCost
      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
            
            
            
            1,290,451OPERATING
      EXPENSESSelling,
      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
            )
            
            
            715,612OTHER
      INCOME (EXPENSES)Equity
      loss of affiliates
            
            
            (6,150
            )
            
            
            --Interest
      income
            
            
            473
            
            
            
            17,252Other
      income
            
            
            8,827
            
            
            
            77,947Amortization
      of convertible debt discount
            
            
            (516,666
            )
            
            
            --Interest
      expenses
            
            
            (31,510
            )
            
            
            --Interest
      paid to related companies and directors
            
            
            (2,730
            )
            
            
            (1,777
            )Other
      expenses
            
            
            (4,064
            )
            
            
            --Total
      Other (Expenses) Income, net
            
            
            (551,820
            )
            
            
            93,422NET
      (LOSS) INCOME BEFORE TAXES AND MINORITY INTERESTS
            
            
            (596,130
            )
            
            
            809,034Income
      tax expense
            
            
            7,718
            
            
            
            (313,494
            )Minority
      interests
            
            
            83,774
            
            
            
            5,727NET
      INCOME
            
            $
            (504,638
            )
            
            $
            501,267OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
            
            
            92,544
            
            
            
            43,300COMPREHENSIVE
      (LOSS) INCOME
            
            $
            (412,094
            )
            
            $
            544,567Net
      income per share-basic - two classes method
            
            $
            0.00
            
            
            $
            0.02Net
      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.


- 5
-




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)
            
            
            (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            (504,638
            )
            
            $
            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
            
            
            
            --Amortization
      of convertible debt discount
            
            
            516,666
            
            
            
            --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
            
            
            
            1,754,501CASH
      FLOWS FROM INVESTING ACTIVITIESInvestments
      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 ACTIVITIESDue
      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
            
            
            
            405,856EFFECT
      OF EXCHANGE RATE ON CASH
            
            
            82,131
            
            
            
            17,936NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (79,025
            )
            
            
            397,770CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            402,591
            
            
            
            1,123,912CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            323,566
            
            
            $
            1,521,682SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest
            
            $
            -
            
            
            $
            -Cash
      paid for income tax
            
            $
            -
            
            
            $
            -







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


- 6
-


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.





- 7
-


CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)


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”.


- 8
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)


(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.





(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.





Also as
stated in the Forms 8-K filed on March 27, 2008, the Company has also decided to
restate the financial statements previously reported as at March 31, 2007 to
record the interest cost out of the convertible feature for the convertible
debenture issued in Nov 2006, which was previously unrecorded. The accounting
treatment resulting in this restatement is in accordance with the US GAAP. The
amount of interest cost is recognized as an interest charge in the income
statement by way of a reduced convertible debenture balance and an increase in
additional paid-in capital.  The financial statements are restated in
note 10.


- 9
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)







(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:





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
            )


- 10
-


CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)


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
            )





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
            
            
            
            
            
            
            
            
            Investmentsof
      Television
            
            
            Television
            
            
            Software
            
            
            in
      TelevisionSignals
            
            
            Advertising
            
            
            Development
            
            
            Series
            
            
            Other
            
            
            Total2007
      (Restated)Revenues
            
            $
            1,723,053
            
            
            $
            472,949
            
            
            $
            9,260
            
            
            $
            0
            
            
            $
            0
            
            
            $
            2,205,262Gross
      profit
            
            
            814,687
            
            
            
            (66,676
            )
            
            
            9,260
            
            
            
            0
            
            
            
            0
            
            
            
            757,271Net
      Income
            
            
            464,272
            
            
            
            (193,659
            )
            
            
            (44,156
            )
            
            
            (2,992
            )
            
            
            (728,103
            )
            
            
            (504,638
            )Total
      assets
            
            
            20,501,649
            
            
            
            3,500,465
            
            
            
            590,483
            
            
            
            681,499
            
            
            
            513,871
            
            
            
            25,787,966Capital
      expenditure
            
            
            396,566
            
            
            
            59,436
            
            
            
            724
            
            
            
            0
            
            
            
            793
            
            
            
            457,519Depreciation
      and amortization
            
            
            725,821
            
            
            
            5,586
            
            
            
            1,806
            
            
            
            9,384
            
            
            
            2,301
            
            
            
            744,8982006
      (Restated)Revenues
            
            $
            1,767,208
            
            
            $
            1,732,033
            
            
            $
            22,851
            
            
            $
            174,629
            
            
            $
            0
            
            
            $
            3,696,721Gross
      profit
            
            
            1,077,019
            
            
            
            135,039
            
            
            
            22,851
            
            
            
            55,542
            
            
            
            0
            
            
            
            1,290,451Net
      Income
            
            
            632,841
            
            
            
            (30,248
            )
            
            
            (61,211
            )
            
            
            82,905
            
            
            
            (123,020
            )
            
            
            501,267Total
      assets
            
            
            14,552,150
            
            
            
            2,460,207
            
            
            
            92,823
            
            
            
            771,663
            
            
            
            408,705
            
            
            
            18,285,548Capital
      expenditure
            
            
            1,431,110
            
            
            
            5,211
            
            
            
            1,265
            
            
            
            310,590
            
            
            
            0
            
            
            
            1,748,176Depreciation
      and amortization
            
            
            480,573
            
            
            
            3,080
            
            
            
            3,140
            
            
            
            119,087
            
            
            
            10,919
            
            
            
            616,799


- 11
-


CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)







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.





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(Restated)EarningsNet Income
            
            
            (504,638)
            
            501,267Basic
      - 2 classes methodIncome available to common stockholders
            
            
            (504,638)
            
            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
            
            -Basic
      earnings per share - Common Stock
            
            
            0.00
            
            0.02Basic
      earnings per share - Preferred Stock
            
            
            0.00
            
            0.02Basic
      earnings per share - CD
            
            
            0.00
            
            -DilutedIncome available to common stockholders
            
            
            (504,638)
            
            501,267Income available to common stockholders & assumed CD
      converted
            
            
            42,603
            
            -Diluted
      weighted-average common stock outstanding
            
            
            47,866,247
            
            40,339,795Diluted
      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.


- 12
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)







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.





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.


- 13
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)







NOTE
10 - RESTATEMENT OF FINANCIAL STATEMENTS





The
changes to financial statements are as follows:





March
      31, 2007Previously
      reported
            
            
            RestatedTOTAL
      ASSETS
            
            
            25,787,966
            
            
            
            25,787,966CURRENT
      LIABILITIESConvertible
      debentures, net of discount
            
            
            3,100,000
            
            
            
            763,518Other
      current liabilities
            
            
            10,125,823
            
            
            
            10,125,823$
            13,225,823
            
            
            
            10,889,341MINORITY
      INTERESTS
            
            
            (87,677)
            
            
            
            (87,677)STOCKHOLDERS'
      EQUITYSeries
      A convertible preferred stock
            
            
            1,875
            
            
            
            1,875Common
      stock
            
            
            31,602
            
            
            
            31,602Additional
      paid-in capital
            
            
            5,663,917
            
            
            
            10,812,806Deferred
      stock compensation
            
            
            (68,900
            )
            
            
            (68,900
            )Retained
      earnings
            
            
            6,953,997
            
            
            
            4,141,590Accumulated
      other comprehensive loss
            
            
            67,329
            
            
            
            67,329Total
      Stockholders' Equity
            
            
            12,649,820
            
            
            
            14,986,302TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            25,787,966
            
            
            $
            25,787,966






- 14
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2007 (UNAUDITED)





Three
      months ended
              March
      31, 2007Previously
      reported
            
            
            RestatedNET
      SALES
            
            $
            2,205,262
            
            
            $
            2,205,262COST
      OF SALES
            
            
            1,447,991
            
            
            
            1,447,991GROSS
      PROFIT
            
            
            757,271
            
            
            
            757,271OPERATING
      EXPENSES
            
            
            (801,581
            )
            
            
            (801,581
            )INCOME
      FROM OPERATION
            
            
            (44,310
            )
            
            
            (44,310
            )OTHER
      INCOME (EXPENSES)
            
            
            (35,154
            )
            
            
            (551,820
            )NET
      INCOME BEFORE TAXES AND MINORITY INTERESTS
            
            
            (79,464
            )
            
            
            (596,130
            )Income
      tax expense
            
            
            7,718
            
            
            
            7,718Minority
      interests
            
            
            83,774
            
            
            
            83,774NET
      INCOME
            
            $
            12,028
            
            
            $
            (504,638
            )Foreign
      currency translation gain
            
            
            92,544
            
            
            
            92,544COMPREHENSIVE
      INCOME
            
            
            104,572
            
            
            
            (412,094
            )Net
      income per share-basic – two classes method
            
            $
            0.00
            
            
            $
            0.00Net
      income per share-diluted
            
            $
            0.00
            
            
            $
            0.00Weighted
      average number of shares outstanding during the year -
    basic
            
            
            31,602,365
            
            
            
            31,602,365Number
      of preferred shares outstanding during the year
            
            
            1,875,000
            
            
            
            1,875,000Weighted
      average number of shares outstanding during the year-
    diluted
            
            
            47,866,247
            
            
            
            47,866,247





- 15
-




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.








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.


- 16
-


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 and 100% 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.





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.




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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
Loss





Net loss
after tax was $504,638 (restated) 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 increase in net loss was because of the reduction in income from
operation (mainly on TV advertising business) and the increase in the
amortization of convertible debt discount of $0.5 million.





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 $1.5 million to $10.9 million
(restated) 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.




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-




Liquidity
and Capital Resources





On March
31, 2007, we had cash of $323,566 and a working capital surplus of $1,847,327
(restated). 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 increase in working capital was mainly due to the increase in
account payable for purchases of STB.





Operating
activities had a net generation of cash in the amount of $275,078 during the
three months ended March 31, 2007 (2006: $1,763,494) 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.





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.





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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.




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 EXHIBIT31.1
            
            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





- 20
-




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 6, 2008
              
              /s/
      Ng Chi Shing
              -----------------------------
              Ng
      Chi Shing
              Chief
      Executive Officer
              
              Date:
      May 6, 2008
              
              /s/
      Ng Chi Shingt
              -----------------------------
              Ng Chi Shing Chief
      Financial Officer










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