United
States


Securities
and Exchange Commission
 Washington,
D.C. 20549
  FORM
10-Q
  [X]  QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
quarterly period endedMarch
31,2009
  [   ]   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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).     Yes [  ]   No  [ 
]
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large accelerated filer
[  ]                                                                                     Accelerated
filer [ ]
 
 Non-accelerated filer
[  ]                                                                Smaller
reporting company [X]
 (Do not check if a smaller reporting
company)
 
 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 April 30, 2009: 42,706,363
 
 Number of
shares of preferred stock outstanding as of April 30, 2009: 1,875,000
 
 
 
 
  CHINA
DIGITAL MEDIA CORPORATION
 INDEX
TO FORM 10-Q
 
 Page
      No.PART
      IItem
      1. Financial Statements
                                            3Condensed
      Consolidated Balance Sheet-
      March 31, 2009 (unaudited)
                                            3Condensed
      Consolidated Statements of Operations And Comprehensive Income -
      Three Months Ended March 31, 2009 and 2008 (unaudited)
                                            4Condensed
      Consolidated Statements of Cash Flows-
      Three Months Ended March 31, 2009 and 2008 (unaudited)
                                            5Notes
      to Condensed Consolidated Financial Statements (unaudited)
                                            6
      - 8Item
      2. Management's Discussion and Analysis of Financial Condition And Results
      of Operations
                                            8Item
      4. Controls and Procedures
                                            10PART
      IIItem
      1. Legal Proceedings
                                            10Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds
                                            10Item
      3. Defaults Upon Senior Securities
                                            10Item
      4. Submission of Matters to a Vote of Security Holders
                                            10Item
      5. Other Information
                                            10Item
      6. Exhibits
                                            10Signatures
                                            11
 
 2
 
 ITEM 1. FINANCIAL
STATEMENTS
 
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 AS
OF MARCH 31, 2009 (UNAUDITED)
  ASSETSMarch
      31, 2009
                                    
                                    
                                    December
      31, 2008(Unaudited)
                                    
                                    
                                    (Audited)CURRENT
      ASSETSCash
      and cash equivalents
                                    
                                    $
                                    312,119
                                    
                                    
                                    $
                                    436,062Accounts
      receivable, net of allowances
                                    
                                    
                                    2,111,317
                                    
                                    
                                    
                                    1,078,228Inventories,
      net
                                    
                                    
                                    458,859
                                    
                                    
                                    
                                    1,247,781Other
      receivables and prepaid expenses
                                    
                                    
                                    175,281
                                    
                                    
                                    
                                    194,386Value
      added taxes recoverable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    52,820Total
      Current Assets
                                    
                                    
                                    3,057,576
                                    
                                    
                                    
                                    3,009,277INTANGIBLE
      ASSETS, NET of impairment of $3,996,595
                                    
                                    
                                    324,330
                                    
                                    
                                    
                                    324,329PROPERTY
      AND EQUIPMENT, NET
                                    
                                    
                                    13,920,252
                                    
                                    
                                    
                                    14,202,241TOTAL
      ASSETS
                                    
                                    $
                                    17,163,762
                                    
                                    
                                    $
                                    17,535,847LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESConvertible
      debentures, net of discount
                                    
                                    $
                                    450,000
                                    
                                    
                                    $
                                    950,000Accounts
      payable
                                    
                                    
                                    4,338,357
                                    
                                    
                                    
                                    5,178,216Other
      payables and accrued liabilities
                                    
                                    
                                    1,196,039
                                    
                                    
                                    
                                    923,980Due
      to directors
                                    
                                    
                                    285,811
                                    
                                    
                                    
                                    285,642Due
      to a stockholder
                                    
                                    
                                    9,270
                                    
                                    
                                    
                                    396,331Due
      to related companies
                                    
                                    
                                    489,662
                                    
                                    
                                    
                                    454,555Business
      and other tax payable
                                    
                                    
                                    21,802
                                    
                                    
                                    
                                    23,099Value
      added taxes payable
                                    
                                    
                                    98,986
                                    
                                    
                                    
                                    -Income
      tax payable
                                    
                                    
                                    2,630,268
                                    
                                    
                                    
                                    2,603,012Total
      Current Liabilities
                                    
                                    
                                    9,520,195
                                    
                                    
                                    
                                    10,814,835LONG
      TERM LIABILITIESConvertible
      debentures, net of discount
                                    
                                    
                                    2,515,000
                                    
                                    
                                    
                                    2,015,000Accounts
      payable
                                    
                                    
                                    863,121
                                    
                                    
                                    
                                    333,632Total
      Long Term Liabilities
                                    
                                    
                                    3,378,121
                                    
                                    
                                    
                                    2,348,632COMMITMENTS
      AND CONTINGENCIES
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -STOCKHOLDERS'
      EQUITYSeries
      A convertible preferred stock ($0.001 par value, 40,000,000
      sharesauthorized,1,875,000
      shares issued and outstanding as ofMarch
      31, 2009 and December 31, 2008)
                                    
                                    
                                    1,875
                                    
                                    
                                    
                                    1,875Common
      stock ($0.001 par value, 500,000,000 shares authorized,42,706,363
      shares issued and outstanding as of March 31, 2009and
      December 31, 2008)
                                    
                                    
                                    42,706
                                    
                                    
                                    
                                    42,706Additional
      paid-in capital
                                    
                                    
                                    14,984,021
                                    
                                    
                                    
                                    14,984,021Deferred
      stock compensation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Retained
      earningsUnappropriated
                                    
                                    
                                    (14,462,414
                                    )
                                    
                                    
                                    (14,346,279
                                    )Appropriated
                                    
                                    
                                    1,521,997
                                    
                                    
                                    
                                    1,521,997Accumulated
      other comprehensive income
                                    
                                    
                                    2,177,261
                                    
                                    
                                    
                                    2,168,060Total
      Stockholders' Equity
                                    
                                    
                                    4,265,446
                                    
                                    
                                    
                                    4,372,380TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                    
                                    $
                                    17,163,762
                                    
                                    
                                    $
                                    17,535,847The
      accompanying notes are an integral part of these consolidated financial
      statements
  3
  CHINA
      DIGITAL MEDIA CORPORATION AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE
      LOSS (UNAUDITED)FOR
      THE THREE MONTHS ENDED MARCH 31, 2009 AND 20082009
                                
                                
                                2008NET
      SALESRevenue
      from digitalization of television signals
                                
                                $
                                1,742,520
                                
                                
                                $
                                1,551,472Revenue
      from television advertising
                                
                                
                                67,551
                                
                                
                                
                                90,583Revenue
      from software development
                                
                                
                                -
                                
                                
                                
                                10,3161,810,071
                                
                                
                                
                                1,652,371COST
      OF SALESCost
      of Sales - digitalization of television signals
                                
                                
                                (182,711
                                )
                                
                                
                                (146,965
                                )Depreciation
      - digitalization of television signals
                                
                                
                                (1,144,556
                                )
                                
                                
                                (950,163
                                )Cost
      of Sales - television advertising
                                
                                
                                (28,327
                                )
                                
                                
                                (70,581
                                )(1,355,594
                                )
                                
                                
                                (1,167,709
                                )GROSS
      PROFIT
                                
                                
                                454,477
                                
                                
                                
                                484,662OPERATING
      EXPENSESSelling,
      general and administrative expenses
                                
                                
                                (580,941
                                )
                                
                                
                                (691,025
                                )Amortization
      of convertible debt discount
                                
                                
                                -
                                
                                
                                
                                (494,167
                                )Depreciation
      and amortization
                                
                                
                                (21,671
                                )
                                
                                
                                (24,492
                                )Total
      Operating Expenses
                                
                                
                                (602,612
                                )
                                
                                
                                (1,209,684
                                )LOSS
      FROM OPERATION
                                
                                
                                (148,135
                                )
                                
                                
                                (725,022
                                )OTHER
      INCOME (EXPENSES)Interest
      income
                                
                                
                                318
                                
                                
                                
                                1,208Other
      income
                                
                                
                                140,129
                                
                                
                                
                                58,905Interest
      expenses
                                
                                
                                (77,448
                                )
                                
                                
                                (30,309
                                )Interest
      paid to related companies and directors
                                
                                
                                (6,025
                                )
                                
                                
                                (6,968
                                )Other
      expenses
                                
                                
                                (992
                                )
                                
                                
                                (23,443
                                )Total
      Other Expenses , net
                                
                                
                                55,982
                                
                                
                                
                                (607
                                )NET
      LOSS BEFORE TAX
                                
                                
                                (92,153
                                )
                                
                                
                                (725,629
                                )Income
      tax (expense) income
                                
                                
                                (23,982
                                )
                                
                                
                                478,721NET
      LOSS
                                
                                
                                (116,135
                                )
                                
                                
                                (246,908
                                )OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
                                
                                
                                9,201
                                
                                
                                
                                590,368COMPREHENSIVE
      (LOSS) GAIN
                                
                                $
                                (106,934
                                )
                                
                                $
                                343,460Net
      loss per share - basic - two classes method
                                
                                $
                                (0.00
                                )
                                
                                $
                                (0.00
                                )Net
      loss per share - diluted
                                
                                $
                                (0.00
                                )
                                
                                $
                                (0.00
                                )Weighted
      average number of shares outstanding during the period -
    basic
                                
                                
                                42,595,450
                                
                                
                                
                                42,279,701Weighted
      average number of shares outstanding during the period -
      diluted
                                
                                
                                42,595,450
                                
                                
                                
                                42,279,701The
      accompanying notes are in integral part of these consolidated financial
      statements.
  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, 2009 and 2008
 (UNAUDITED)
  2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIESTotal
      net loss
                        
                        
                        (116,135
                        )
                        
                        
                        (246,908
                        )Adjusted
      to reconcile net loss to cash provided by operating
      activities:Depreciation-cost
      of sales
                        
                        
                        1,144,556
                        
                        
                        
                        950,163Depreciation
      and amortization
                        
                        
                        21,671
                        
                        
                        
                        24,492Amortization
      of convertible debt discount
                        
                        
                        -
                        
                        
                        
                        494,167Stock
      issued for debenture interest
                        
                        
                        -
                        
                        
                        
                        95,147Amortization
      on stock compensation
                        
                        
                        -
                        
                        
                        
                        15,900Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivable
                        
                        
                        (894,693
                        )
                        
                        
                        (136,492
                        )Other
      receivables and prepaid expenses
                        
                        
                        71,925
                        
                        
                        
                        52,948Inventories
                        
                        
                        788,922
                        
                        
                        
                        147,247Deferred
      tax asset
                        
                        
                        -
                        
                        
                        
                        123,982Other
      assets
                        
                        
                        -
                        
                        
                        
                        29,372Increase
      (decrease) in:Accounts
      payable
                        
                        
                        (310,370
                        )
                        
                        
                        37,505Other
      payables and accrued liabilities
                        
                        
                        272,059
                        
                        
                        
                        81,582Business
      tax payable
                        
                        
                        (1,297
                        )
                        
                        
                        (143,501
                        )Value
      added taxes payable
                        
                        
                        98,986
                        
                        
                        
                        47,352Income
      tax payable
                        
                        
                        27,256
                        
                        
                        
                        (523,447
                        )Net
      cash provided by operating activities
                        
                        
                        1,102,880
                        
                        
                        
                        1,049,509CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                        
                        
                        (874,246
                        )
                        
                        
                        (1,272,568
                        )Net
      cash used in investing activities
                        
                        
                        (874,246
                        )
                        
                        
                        (1,272,568
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESDue
      to related companies
                        
                        
                        35,107
                        
                        
                        
                        (6,741
                        )Due
      to a stockholder
                        
                        
                        (387,061
                        )
                        
                        
                        (89,054
                        )Due
      to directors
                        
                        
                        169
                        
                        
                        
                        103,085Net
      cash (used in) provided by financing activities
                        
                        
                        (351,785
                        )
                        
                        
                        7,290EFFECT
      OF EXCHANGE RATE ON CASH
                        
                        
                        (792
                        )
                        
                        
                        56,258NET
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        (123,943
                        )
                        
                        
                        (159,511
                        )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                        
                        
                        436,062
                        
                        
                        
                        334,410CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                        
                        $
                        312,119
                        
                        
                        $
                        174,899SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest
                        
                        $
                        62,934
                        
                        
                        $
                        -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, 2009 (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, 2009, the consolidated results of operations for the three months
ended March 31, 2009 and 2008, and consolidated statements of cash flows for the
three months ended March 31, 2009 and 2008. The consolidated results for the
three months ended March 31, 2009 are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31, 2009. These
consolidated financial statement should be read in conjunction with the
consolidated financial statements and notes for the year ended December 31, 2008
appearing in the Company's annual report on Form 10-K 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, 2009 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”), its 100% variable
interest entity (“VIE”) in Guangdong HuaGuang DigiMedia Culture Development
Limited (“HuaGuang”), and Arable Media Limited (“Arable”) and Arable (Guangzhou)
Limited (“Arable GZ”) (collectively, “the Company”).
 
 The
accompanying unaudited condensed consolidated financial statements for the three
months ended March 31, 2008 include the financial statements of CDMC and its
wholly owned subsidiaries, CDHL, AGL, M-Rider, Arable, Arable GZ, Digimedia
Services (Shenzhen) Limited, and its 100% VIE in 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 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.
  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.
 
 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.
 
 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.
  (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”.
  (E)
              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.
  6
  (F)
              Recent
      Accounting Pronouncements
 
 In
October 2008, the Financial Accounting Standards Board ("FASB") issued FSP SFAS
No. 157-3, "Determining the Fair Value of a Financial Asset When the Market
for That Asset is Not Active" (FSP SFAS 157-3), which clarifies the application
of SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), in an inactive market
and provides an example to demonstrate how the fair value of a financial asset
is determined when the market for that financial asset is
inactive.  FSP FAS 157-3 was effective upon issuance, including prior
periods for which financial statements had not been issued.  The
adoption of this standard did not have any impact on the Company's results of
operations, cash flows or financial positions for the year ended December 31,
2008.
 
 In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162").  SFAS 162 identifies the sources
of accounting principles and the framework for selecting principles to be used
in the preparation and presentation of financial statements in accordance with
generally accepted accounting principles.  This statement became
effective in November 2008.  Adoption of SFAS 162 did not have a
material impact on the Consolidated Financial Statements.
 
 In
February 2008, the FASB issued FSP SFAS No. 157-2, "Effective Date of FASB
Statement No. 157" ("FSP SFAS 157-2").  FSP SFAS 157-2 delays the
effective date of SFAS 157 for non-financial assets and non-financial
liabilities that are not remeasured at fair value on a recurring basis (at least
annually) until January 2009.  The implementation of FSP SFAS 157-2
did not have a material impact on the Consolidated Financial
Statements.
  NOTE
2 - SEGMENT INFORMATION
 
 The
Company operates in four reportable segments; digitalization of television
signals, television advertising sales, software development, and investment in
television series. 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, 2009 and 2008:
  Digitalization
                    
                    
                    
                    
                    
                    
                    
                    
                    Investmentsof
      Television
                    
                    
                    Television
                    
                    
                    Software
                    
                    
                    in
      TelevisionSignals
                    
                    
                    Advertising
                    
                    
                    Development
                    
                    
                    Series
                    
                    
                    Total2009Revenues
                    
                    $
                    1,742,520
                    
                    
                    $
                    67,551
                    
                    
                    $
                    0
                    
                    
                    $
                    -
                    
                    
                    $
                    1,810,071Gross
      profit
                    
                    
                    415,253
                    
                    
                    
                    39,224
                    
                    
                    
                    0
                    
                    
                    
                    -
                    
                    
                    
                    454,477Net
      Income (loss)
                    
                    
                    101,644
                    
                    
                    
                    30,499
                    
                    
                    
                    (58,238
                    )
                    
                    
                    (2,710
                    )
                    
                    
                    71,195Total
      assets
                    
                    
                    16,341,973
                    
                    
                    
                    407,675
                    
                    
                    
                    308,150
                    
                    
                    
                    105,964
                    
                    
                    
                    17,163,762Capital
      expenditure
                    
                    
                    871,400
                    
                    
                    
                    1,061
                    
                    
                    
                    1,371
                    
                    
                    
                    414
                    
                    
                    
                    874,246Depreciation
      and amortization
                    
                    $
                    1,158,190
                    
                    
                    $
                    -
                    
                    
                    $
                    8,018
                    
                    
                    $
                    19
                    
                    
                    $
                    1,166,2272008Revenues
                    
                    $
                    1,551,472
                    
                    
                    $
                    90,583
                    
                    
                    $
                    10,316
                    
                    
                    $
                    -
                    
                    
                    $
                    1,652,371Gross
      profit
                    
                    
                    454,344
                    
                    
                    
                    20,002
                    
                    
                    
                    10,316
                    
                    
                    
                    -
                    
                    
                    
                    484,662Net
      Income (loss)
                    
                    
                    160,699
                    
                    
                    
                    (56,029
                    )
                    
                    
                    310,887
                    
                    
                    
                    (9,252
                    )
                    
                    
                    406,305Total
      assets
                    
                    
                    24,412,179
                    
                    
                    
                    650,845
                    
                    
                    
                    4,299,583
                    
                    
                    
                    104,681
                    
                    
                    
                    29,467,288Capital
      expenditure
                    
                    
                    1,253,085
                    
                    
                    
                    6,689
                    
                    
                    
                    4,365
                    
                    
                    
                    8,429
                    
                    
                    
                    1,272,568Depreciation
      and amortization
                    
                    $
                    962,824
                    
                    
                    $
                    -
                    
                    
                    $
                    4,968
                    
                    
                    $
                    6,863
                    
                    
                    $
                    974,655
  A
      reconciliation is provided for unallocated amounts relating to corporate
      operations which is not included in the segment
    information.2009
                  
                  
                  2008Total
      net income for reportable segments
                  
                  $
                  71,195
                  
                  
                  $
                  406,305Unallocated
      amounts relating to corporate operationsInterest
      expenses
                  
                  
                  76,573
                  
                  
                  
                  29,650Amortization
      of convertible debt discount
                  
                  
                  -
                  
                  
                  
                  494,167Interest
      paid to related companies and directors
                  
                  
                  6,025
                  
                  
                  
                  6,968Administration
      expenses
                  
                  
                  83,486
                  
                  
                  
                  96,540Professional
      fees
                  
                  
                  20,254
                  
                  
                  
                  19,066Others
                  
                  
                  992
                  
                  
                  
                  6,822Total
      net loss
                  
                  $
                  (116,135
                  )
                  
                  $
                  (246,908
                  )
  NOTE
3 - EARNINGS PER SHARE
 
 As of
March 31, 2009, the Company has outstanding:
  -
                
                42,706,363 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, 2009 and 2008 are calculated as follows:
 
 2009
                      
                      
                      2008Net
      Loss
                      
                      $
                      (116,135
                      )
                      
                      $
                      (246,908
                      )Basic - 2 classes methodLoss
      available to common stockholders
                      
                      $
                      (116,135
                      )
                      
                      $
                      (246,908
                      )Weighted-average
      common stock outstanding
                      
                      
                      42,706,363
                      
                      
                      
                      37,764,259Basic
      earnings per share - Common Stock
                      
                      
                      (0.00
                      )
                      
                      
                      (0.00
                      )DilutedLoss
      available to common stockholders
                      
                      $
                      (116,135
                      )
                      
                      $
                      (246,908
                      )Diluted
      weighted-average common stock outstanding
                      
                      
                      42,706,363
                      
                      
                      
                      37,764,259Diluted
      earnings per share
                      
                      
                      (0.00
                      )
                      
                      
                      (0.00
                      )
 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, 2009 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
4 - 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 December 31, 2005 and
management’s opinion as to the likelihood of loss in respect of each loss
contingency.
 
 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.
  NOTE
5 - COMMON STOCK
 
 During
the quarter ended March 31, 2009, the Company did not issue any
shares.
 
 7
  NOTE
6 - CONVERTIBLE DEBENTURE
 
 The
following is a summary of debenture as at March 31, 2009 and December 31,
2008.
  March
      31
                  
                  
                  December
      312009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Audited)$2,150,000
      Convertible Debentures, net of $135,000 conversions and unamortized
      discount of $0 as of March 31, 2009 and December 31, 2008 at 13% interest
      per annum due each quarter end in 2009 and at 14% interest per annum due
      each quarter end in 2010 and expired at June 30, 2010.$
                  2,015,000
                  
                  
                  $
                  2,015,000$500,000
      Convertible Debentures, net of unamortized discount of $0 as of March 31,
      2009 and December 31, 2008 at 4% interest per annum for the period of
      January 1 to May 17, 2008 due April 30, 2009, and 10% interest per annum
      for the period of May 18 to December 31, 2008 due October 31, 2009, and at
      13% interest per annum for the year 2009 due at the end of 2009, and at
      14% interest per annum for the year 2010 due at the end of 2010 upon
      expiry.500,000
                  
                  
                  
                  500,000$200,000
      Convertible Debentures, net of unamortized discount of $0 as of March 31,
      2009 and December 31, 2008 respecitively at 4% interest per annum due May
      2008, in default200,000
                  
                  
                  
                  200,000$150,000
      Convertible Debentures, net of unamortized discount of $0 as of March 31,
      2009 and December 31, 2008 respecitively at 4% interest per annum due May
      2008, in default150,000
                  
                  
                  
                  150,000$100,000
      Convertible Debentures, net of unamortized discount of $0 as of March 31,
      2009 and December 31, 2008 at 4% interest per annum due June 2008, in
      default100,000
                  
                  
                  
                  100,000$
                  2,965,000
                  
                  
                  $
                  2,965,000
  For the
fiscal quarter ended March 31, 2009, the Company has convertible debentures with
total value of $2.965 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.
 
 The
Company entered into an agreement with one of the debenture holders in December
2008 for extending the $2,015,000 debenture to June 30, 2010.  The
debenture interest rate was increased to 10% for the period from May 18, 2008 to
December 31, 2008, and 13% for the period from January 1, 2009 to December 31,
2009, and 14% for the period from January 1, 2010 to June 30,
2010.  The conversion price was reduced to $0.25 per
share.
 
 The
Company entered into an agreement with one of the debenture holders in March
2009 for extending the $500,000 debenture to December 31, 2010.  The
debenture interest rate was increased to 10% for the period from May 18, 2008 to
December 31, 2008, and 13% for the period from January 1, 2009 to December 31,
2009, and 14% for the period from January 1, 2010 to December 31,
2010.  The conversion price was reduced to $0.25 per
share.
  NOTE
8 - RELATED PARTY TRANSACTIONS
 
 As of
March 31, 2009, the Company owed two directors $285,811 for short-term
advances.  Interest is charged at 6% per annum on the amount
owed.
 
 As of
March 31, 2009, the Company owed to related companies $489,662 for short-term
unsecured advances made. Interest is charged at 6% per annum on the amount
owed.
 
 As of
March 31, 2008, the Company owed to a stockholder $9,270 for short-term advances
made.  Interest is charged at 6% per annum on the amount
owed.
 
 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-Q. 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-K for the year ended December 31, 2008, and
specifically the factors described in such Form 10-K 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
two main businesses of CDMC are:
  -
                Through
      a subsidiary, Arcotect (Guangzhou) Limited (“AGL”), converting analog
      cable television subscribers to digital television and providing various
      value added and broadband services to the digital subscribers;
      and-
                Television
      advertising sales.
 
 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 430,000 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 was responsible
for migrating all cable television subscribers in Nanhai from an analog to a
digital system (“Migration”) by the end of 2008. Owing to certain technical
issues of the local network upgrade of the Nanhai Network Company, the Migration
completion date has been re-scheduled to the end of 2009. The Company entered
into three supplementary agreements with the Nanhai Network Company in May and
December 2007, and in February 2009 pursuant to the Co-operative Agreements, for
re-scheduling the Migration completion date to the end of 2008 and then end of
2009.  As of March 31, 2009, the Company has migrated about 300,000
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 by DTV subscribers for basic
and additional services, including pay-TV services, VAS, 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. Subscribers must pay
for an additional set-top-box  by purchasing it from the Company.
The Company is also responsible for providing operational support services
including migration planning, marketing and sales, software development,
customer service, repair and maintenance and logistics administration. The
Company’s proprietary operating 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.
  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 152
channels, including a 46-channel basic package , 106 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 subsidiary, Arable Media Limited, a software developer
specialized 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, 2008, 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, 2008. 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.
  The
Company relied on two suppliers for approximately 99% of its purchases in the
first quarter of 2009 for the Nanhai digitalization of TV system in the
Nanhai project. As of March 31, 2009, accounts payable to these suppliers
amounted to $4,462,756 and $262,943 for the Nanhai project.
  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.
  8
  RESULTS OF
OPERATIONS
 
 Statements
of Operations Items:
 
 Sales
 
 Total net
sales for the three months ended March 31, 2009 increased by $157,700 or
10% to $1,810,071 from $1,652,371 for the same period ended March 31, 2008. The
increase in total net sales was due to the increase in cable TV subscription
income owing to the upward adjustment of basic cable TV subscription fee in
Nanhai starting June 2008.  The basic and additional STB registered
increased from about 500,000 as of March 31, 2008 to 530,127 as of March
31, 2009.
 
 Gross
Profit
 
 Gross
Profit for the three months ended March 31, 2009 decreased by $30,185 or 6%
as compared with the same period last year because of the increase in
depreciation charge for the STB migrated.
 
 Expenses
 
 Selling,
general, administrative and depreciation and amortization (not related directly
to generation of revenue) expenses for the three months ended March 31,
2009 decreased by $110,084 or 16% to $580,941 in comparison with the three
month period ended March 31, 2008.  The decrease in these expenses was
due to the tightened control on overheads and drop in headcounts.
  Net
Loss
 
 Net loss
after tax was $116,135 for the three months period ended March 31, 2009,
compared to a net loss of $246,908 for the same period ended March 31, 2008. The
decrease in net loss was because of the upward adjustment of the cable TV
subscription fee in Nanhai and the decrease in selling, general and
administrative expenses.
  Balance
Sheet Items:
 
 Current
Assets
 
 Current
Assets of the Company  increased by $48,299 to $3.1 million during the
first quarter of 2009. As the Company utilized most of its cash on DTV
migration, it has maintained a low level of cash balance of $0.2
million.
 
 Property
and Equipment, Net
 
 The net
increase in property and equipment of the Company of $0.3 million represented an
increase in purchases of STB during the first quarter of 2009.
 
 Other
Asset
 
 Other
assets represent utility deposits, cash advance to staff and prepayment for
general expenses.
 
 Current
Liabilities
 
 Current
liabilities of the Company decreased by $1.3 million to $9.5 million during the
first quarter of 2009. The decrease was mainly attributable to the
classification of certain portion of debenture from current to long term
liabilities.
 
 Liquidity
and Capital Resources
 
 On March
31, 2009, we had cash of $312,119 and a working capital deficit of $6,462,619.
This compares with cash of $436,062 and a working capital deficit of $7,805,558
at December 31, 2008. The decrease in cash was mainly due to the delay of
settlement from the Network Company in March 2009.
 
 Operating
activities had a net generation of cash in the amount of $1,085,254 during the
three months ended March 31, 2009 (2008: $1,049,509) reflecting an excess of
revenues over expenditure.
 
 Net cash
used in investing activities for the three months ended March 31, 2009 was
$874,246 as compared with net cash used in investing activities of $1,272,568
for the three months ended March 31, 2008. 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
used in financing activities for the three months ended March 31, 2009 was
$351,785 representing the repayment to a major shareholder for a unsecured loan
which was financed by another unsecured loan provided by an individual third
party (2008: provided by financing activities $7,290 ).
 
 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, 2009. 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.
 
 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 equity raising from banks, potential
investors and partners. However, if the Company is unable to raise additional
capital, its growth potential is more likely to be affected.
 
 The
Company issued a total of $3.1 million in convertible debentures in November and
December 2006, amounted to $2,965,000 which matured in May and
June 2008.  Due to the Company’s current financial situation with
most of the Company’s cash being utilized to make the upfront investment for the
Migration, the Company did not have enough cash to repay the
debentures.  The Company had negotiated with the debenture holders to
extend the debentures.  As of the date of this report, the Company
has entered into agreement with two major debenture holders holding
$2,515,000 in debentures that provided for the extension of their
debentures to June 2010 and December 2010,.
  Off-Balance
Sheet Transactions
 
 The
Company does not engage in material off-balance sheet transactions.
 
 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, 2009 was
$9,201.
 
 9
  ITEM
4. 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-Q 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. We are currently awaiting a decision from
the Court on our motion to dismiss the case. The file number of the civil action
is 05 CV 4960.
  The
Company contests 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 the alleged e-mails, and the alleged emails
themselves recite that they were not paid for by the Company or an affiliate. We
also do not believe that United States District Court for the Southern
District of New York has jurisdiction over us to even hear this case. We
believe we have no liability in this matter.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 During
the quarter ended March 31, 2009, the Company did not issue any
securities.
 
 Item
3. Defaults Upon Senior Securities
 
 Owing to
its tight financial situation, the Company did not redeem the debentures that
matured in May and June 2008 but offered extension terms to all the debenture
holders.  The Company paid the debenture interests due on May 17, 2008
and December 31, 2008 during the first quarter to the debenture holders who
agreed to the extension of debenture.  As of date of this report, two
out of five debenture holders have accepted the extension offer.
 
 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
  10
 
 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 12, 2009
                
                /s/
      Ng Chi Shing
                Ng
      Chi Shing
                Chief
      Executive Officer
                
                Date:
      May 12, 2009
                
                /s/
      Ng Chi Shing
                Ng Chi
Shing
                Chief
      Financial Officer