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, 2008








o 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
o





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 o
            Accelerated
      filer o
            Non-accelerated
      filer o
            Smaller
      reporting company x





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 April 30, 2008: 42,645,653





Number of
shares of preferred stock outstanding as of April 30, 2008: 1,875,000





CHINA
DIGITAL MEDIA CORPORATION





INDEX
TO FORM 10-Q








Page
      No.PART
      IItem
      1. Financial StatementsCondensed
      Consolidated Balance Sheets
              -
      March 31, 2008 (unaudited) and December 31, 2007 (audited)
            3Condensed
      Consolidated Statements of Operations And Comprehensive Income
      (Loss)
              -
      Three Months Ended March 31, 2008 and 2007 (unaudited)
            4Condensed
      Consolidated Statements of Cash Flows
              -
      Three Months Ended March 31, 2008 and 2007 (unaudited)
            5Notes
      to Condensed Consolidated Financial Statements (unaudited)
            6
      - 11Item
      2. Management's Discussion and Analysis of Financial Condition And Results
      of Operations
            12Item
      4. Controls and Procedures
            15PART
      IIItem
      1. Legal Proceedings
            16Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            16Item
      3. Defaults Upon Senior Securities
            16Item
      4. Submission of Matters to a Vote of Security Holders
            16Item
      5. Other Information
            16Item
      6. Exhibits
            16Signatures
            17








- 2
-


PART
I – FINANCIAL INFORMATION





ITEM 1. FINANCIAL
STATEMENTS





CHINA
DIGITAL MEDIA CORPORATION


CONDENSED
CONSOLIDATED BALANCE SHEETS





March 31,
              2008
            
            
            December 31,
              2007(Unaudited)
            
            
            (Audited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            174,899
            
            
            $
            334,410Accounts
      receivable, net of allowances
            
            
            1,674,730
            
            
            
            1,851,193Inventories,
      net
            
            
            634,314
            
            
            
            781,561Other
      receivables and prepaid expenses
            
            
            447,281
            
            
            
            500,229Value
      added taxes recoverable
            
            
            -
            
            
            
            45,530Total
      Current Assets
            
            
            2,931,224
            
            
            
            3,512,923ACCOUNTS
      RECEIVABLE, long-term portion
            
            
            8,094,952
            
            
            
            7,781,997INTANGIBLE
      ASSETS
            
            
            4,321,276
            
            
            
            4,320,924INVESTMENTS
      IN TELEVISION SERIES, NET of impairment of $223,421
            
            
            -
            
            
            
            -PROPERTY
      AND EQUIPMENT, NET
            
            
            14,024,737
            
            
            
            13,193,066DEFERRED
      TAX ASSET
            
            
            -
            
            
            
            123,982OTHER
      ASSETS
            
            
            95,099
            
            
            
            124,471TOTAL
      ASSETS
            
            $
            29,467,288
            
            
            $
            29,057,363LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESConvertible
      debentures, net of discount
            
            $
            2,706,798
            
            
            $
            2,212,631Accounts
      payable
            
            
            4,698,299
            
            
            
            5,109,728Other
      payables and accrued liabilities
            
            
            789,514
            
            
            
            707,932Due
      to directors
            
            
            344,324
            
            
            
            241,239Due
      to a stockholder
            
            
            295,527
            
            
            
            384,581Due
      to related companies
            
            
            724,090
            
            
            
            730,831Business
      and other tax payable
            
            
            14,145
            
            
            
            157,646Value
      added taxes payable
            
            
            1,822
            
            
            
            -Income
      tax payable
            
            
            1,558,902
            
            
            
            2,082,349Total
      Current Liabilities
            
            
            11,133,421
            
            
            
            11,626,937LONG
      TERM LIABILITIESAccounts
      payable
            
            
            1,068,034
            
            
            
            619,100COMMITMENTS
      AND CONTINGENCIES
            
            
            -
            
            
            
            -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,
      2008 and December 31, 2007)
            
            
            1,875
            
            
            
            1,875Common
      stock ($0.001 par value, 500,000,000 shares authorized, 42,645,653
      shares issued and outstanding as of March 31, 2008 and 42,117,057
      shares issued and outstanding as of December 31, 2007,
      respectively)
            
            
            42,646
            
            
            
            42,117Additional
      paid-in capital
            
            
            14,931,257
            
            
            
            14,836,639Deferred
      stock compensation
            
            
            (5,300
            )
            
            
            (21,200
            )Retained
      earningsUnappropriated
            
            
            (1,217,612
            )
            
            
            (970,704
            )Appropriated
            
            
            1,521,997
            
            
            
            1,521,997Accumulated
      other comprehensive income
            
            
            1,990,970
            
            
            
            1,400,602Total
      Stockholders' Equity
            
            
            17,265,833
            
            
            
            16,811,326TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            29,467,288
            
            
            $
            29,057,363








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


- 3
-


CHINA
DIGITAL MEDIA CORPORATION


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)


FOR THE
THREE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





2008
            
            
            2007(Restated)NET
      SALESRevenue
      from digitalization of television signals
            
            $
            1,551,472
            
            
            $
            1,399,813Revenue
      from television advertising
            
            
            90,583
            
            
            
            246,080Revenue
      from software development
            
            
            10,316
            
            
            
            9,260Government
      grant received
            
            
            -
            
            
            
            323,2401,652,371
            
            
            
            1,978,393COST
      OF SALESCost
      of Sales - digitalization of television signals
            
            
            (146,965
            )
            
            
            (192,460
            )Depreciation
      - digitalization of television signals
            
            
            (950,163
            )
            
            
            (715,906
            )Cost
      of Sales - television advertising
            
            
            (70,581
            )
            
            
            (285,632
            )(1,167,709
            )
            
            
            (1,193,998
            )GROSS
      PROFIT
            
            
            484,662
            
            
            
            784,395OPERATING
      EXPENSESSelling,
      general and administrative expenses
            
            
            (691,025
            )
            
            
            (634,044
            )Depreciation
      and amortization
            
            
            (24,492
            )
            
            
            (23,406
            )Amortization
      of convertible debt discount
            
            
            (494,167
            )
            
            
            (516,666
            )Total
      Operating Expenses
            
            
            (1,209,684
            )
            
            
            (1,174,116
            )LOSS
      FROM OPERATION
            
            
            (725,022
            )
            
            
            (389,721
            )OTHER
      INCOME (EXPENSES)Interest
      income
            
            
            1,208
            
            
            
            341Other
      income
            
            
            58,905
            
            
            
            8,671Interest
      expenses
            
            
            (30,309
            )
            
            
            (31,510
            )Interest
      paid to related companies and directors
            
            
            (6,968
            )
            
            
            (2,730
            )Other
      expenses
            
            
            (23,443
            )
            
            
            (4,064
            )Total
      Other Expenses , net
            
            
            (607
            )
            
            
            (29,292
            )NET
      LOSS BEFORE TAX
            
            
            (725,629
            )
            
            
            (419,013
            )Income
      tax income
            
            
            478,721
            
            
            
            7,718NET
      LOSS FROM CONTINUING OPERATIONS
            
            $
            (246,908
            )
            
            $
            (411,295
            )DISCONTINUED
      OPERATIONSEquity
      loss of affiliates
            
            
            -
            
            
            
            (6,150
            )Net
      loss from subsidiary
            
            
            -
            
            
            
            (170,967
            )Minority interests
            
            
            -
            
            
            
            83,774LOSS
      FROM DISCONTINUED OPERATIONS
            
            
            -
            
            
            
            (93,343
            )NET
      LOSS
            
            
            (246,908
            )
            
            
            (504,638
            )OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
            
            
            590,368
            
            
            
            92,544COMPREHENSIVE
      INCOME (LOSS)
            
            $
            343,460
            
            
            $
            (412,094
            )




Net
      loss per share - basic - two classes method-
      From continuing operations
              
              $
              (0.00
              )
              
              $
              (0.01
              )-
      From discontinued operations
              
              
              0.00
              
              
              
              (0.00
              )Net
      loss per share - diluted-
      From continuing operations
              
              $
              (0.00
              )
              
              $
              (0.01
              )-
      From discontinued operations
              
              
              0.00
              
              
              
              (0.00
              )Weighted
      average number of shares outstanding during the period -
    basic
              
              
              42,279,701
              
              
              
              31,602,365Weighted
      average number of shares outstanding during the period -
      diluted
              
              
              42,279,701
              
              
              
              31,602,365




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


- 4
-


CHINA
DIGITAL MEDIA CORPORATION


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE
THREE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)




2008
              
              
              2007(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
              
              $
              (246,908
              )
              
              $
              (504,638
              )Adjusted
      to reconcile net income to cash provided by operating
      activities:Equity
      loss of affiliate
              
              
              -
              
              
              
              6,150Depreciation-cost
      of sales
              
              
              950,163
              
              
              
              715,906Depreciation
      and amortization
              
              
              24,492
              
              
              
              23,406Provision
      for doubtful debts
              
              
              -
              
              
              
              387,591Amortization
      of convertible debt discount
              
              
              494,167
              
              
              
              516,666Stock
      issued for debenture interest
              
              
              95,147
              
              
              
              -Amortization
      on stock compensation
              
              
              15,900
              
              
              
              15,900Minority
      interests
              
              
              -
              
              
              
              (83,774
              )Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivable
              
              
              (136,492
              )
              
              
              (1,511,622
              )Other
      receivables and prepaid expenses
              
              
              52,948
              
              
              
              (111,882
              )Inventories
              
              
              147,247
              
              
              
              95,306Deferred
      tax asset
              
              
              123,982
              
              
              
              -Other
      assets
              
              
              29,372
              
              
              
              83,898Increase
      (decrease) in:Accounts
      payable
              
              
              37,505
              
              
              
              700,559Other
      payables and accrued liabilities
              
              
              81,582
              
              
              
              (93,564
              )Business
      tax payable
              
              
              (143,501
              )
              
              
              (31,259
              )Value
      added taxes payable
              
              
              47,352
              
              
              
              45,210Income
      tax payable
              
              
              (523,447
              )
              
              
              21,048Other
      tax payable
              
              
              -
              
              
              
              (5,409
              )Net
      cash provided by operating activities
              
              
              1,049,509
              
              
              
              269,492CASH
      FLOWS FROM INVESTING ACTIVITIESInvestment
      in affiliate
              
              
              -
              
              
              
              (71,605
              )Purchase
      of property and equipment
              
              
              (1,272,568
              )
              
              
              (457,519
              )Net
      cash used in investing activities
              
              
              (1,272,568
              )
              
              
              (529,124
              )CASH
      FLOWS FROM FINANCING ACTIVITIESDue
      to related companies
              
              
              (6,741
              )
              
              
              144,359Due
      to a stockholder
              
              
              (89,054
              )
              
              
              -Due
      to directors
              
              
              103,085
              
              
              
              (51,468
              )Net
      cash provided by financing activities
              
              
              7,290
              
              
              
              92,891EFFECT
      OF EXCHANGE RATE ON CASH
              
              
              56,258
              
              
              
              87,716NET
      DECREASE IN CASH AND CASH EQUIVALENTS
              
              
              (159,511
              )
              
              
              (79,025
              )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              334,410
              
              
              
              402,591CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              174,899
              
              
              $
              323,566SUPPLEMENTAL
      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.


- 5
-


CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


AS
OF MARCH 31, 2008 (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, 2008, the consolidated results of operations for the three months
ended March 31, 2008 and 2007, and consolidated statements of cash flows for the
three months ended March 31, 2008 and 2007. The consolidated results for the
three months ended March 31, 2008 are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31, 2008. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes for the year ended December 31, 2007
appearing in the Company's annual report on Form 10-KSB as filed with the
Securities and Exchange Commission.









The
accompanying unaudited condensed consolidated financial statements for the three
months ended March 31, 2008 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”), Maxcomm Limited (“Maxcomm”), Arable
Media Limited (“Arable”), Arable (Guangzhou) Limited (“Arable GZ”), and its 100%
variable interest entity (“VIE”) in Guangdong HuaGuang DigiMedia Culture
Development Limited (“HuaGuang”), (collectively, “the
Company”).





The
accompanying unaudited condensed consolidated financial statements for the three
months ended March 31, 2007 include the financial statements of CDMC and its
wholly owned subsidiaries, CDHL, AGL, M-Rider, Digimedia Shenzhen, and its 100%
VIE in HuaGuang, the 51% owned subsidiary of HuaGuang in Guizhou Guizhi
Digimedia Advertising Company Limited (“Guishi Digimedia”), its 49% investment
held by HuaGuang in Guizhou Guishi Huaguang Media Company Limited (“Guishi
Huaguang”) and its 20% investment held by CDHL in Arable using the equity
method.  The minority interests represent the minority
shareholders’ 49% proportionate share of the results of Guishi
Digimedia.





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








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.





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.  Such grant is received through the Nanhai Network
Company.  Such grant is recognized as income once
received.


- 6
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2008 (UNAUDITED)


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.




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
property and equipment 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.








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)
Set Top Box ("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”.








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.


- 7
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2008 (UNAUDITED)


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.




Restatement
of Financial Statements




As stated
in the Form 8-K filed on March 27, 2008, the Company has decided to restate
certain financial statements previously reported to record the debenture
interest costs and discount of the convertible feature of the debentures issued
in November and December of 2006 and to reclassify the debentures as long-term
liabilities.  The accounting treatment and reclassification resulting
in this restatement is in accordance with SFAS No. 107 and 133.




Recent
Accounting Pronouncements


In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
objective of SFAS 157 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value
measurements.  SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements and
does not require any new fair value measurements. The provisions of SFAS No. 157
are effective for fair value measurements made in fiscal years beginning after
November 15, 2007. The adoption of this statement is not expected to have a
material effect on the Company's future reported financial position or results
of operations.


In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115”.  This statement permits entities to choose
to measure many financial instruments and certain other items at fair value.
Most of the provisions of SFAS No. 159 apply only to entities that elect the
fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments
in Debt and Equity Securities” applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provision of SFAS No. 157, “Fair Value Measurements”. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.
  In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51”.  This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS No. 160
affects those entities that have an outstanding noncontrolling interest in one
or more subsidiaries or that deconsolidate a subsidiary.  SFAS No. 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS161). This statement is intended
to improve transparency in financial reporting by requiring enhanced disclosures
of an entity’s derivative instruments and hedging activities and their effects
on the entity’s financial position, financial performance, and cash flows.SFAS161 applies to all derivative
instruments within the scope of SFAS 133, “Accounting for Derivative Instruments
and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated
derivatives, and nonderivative instruments that are designated and qualify as
hedging instruments. Entities with instruments subject toSFAS161 must provide more robust
qualitative disclosures and expanded quantitative disclosures.SFAS161 is effective prospectively for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application permitted. We are currently evaluating the
disclosure implications of this statement.
  - 8
-


CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2008 (UNAUDITED)





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, 2008 and 2007:





Digitalization
            
            
            
            
            
            
            
            
            Investmentsof
      Television
            
            
            Television
            
            
            Software
            
            
            in
      televisionSignals
            
            
            Advertising
            
            
            Development
            
            
            series
            
            
            Total2008Revenues
            
            $
            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
            
            
            
            974,6552007
      (Restated)Revenues
            
            $
            1,723,053
            
            
            $
            246,080
            
            
            $
            9,260
            
            
            $
            -
            
            
            $
            1,978,393Gross
      profit  (Loss)
            
            
            814,687
            
            
            
            (39,552
            )
            
            
            9,260
            
            
            
            -
            
            
            
            784,395Net
      Income (Loss)
            
            
            464,272
            
            
            
            (100,316
            )
            
            
            (44,016
            )
            
            
            (2,992
            )
            
            
            316,948Total
      assets
            
            
            20,501,649
            
            
            
            3,477,078
            
            
            
            1,127,741
            
            
            
            681,499
            
            
            
            25,787,966Capital
      expenditure
            
            
            396,566
            
            
            
            59,436
            
            
            
            1,517
            
            
            
            -
            
            
            
            457,519Depreciation
      and amortization
            
            
            725,821
            
            
            
            5,586
            
            
            
            4,107
            
            
            
            9,384
            
            
            
            744,898




A
reconciliation is provided for unallocated amounts relating to corporate
operations which is not included in the segment information.
 
 2008
              
              
              2007Total
      net income for reportable segments
              
              $
              406,305
              
              
              $
              316,948Unallocated
      amounts relating to corporate operationsInterest
      expenses
              
              
              (29,650
              )
              
              
              (14,376
              )Amortization
      of convertible debt discount
              
              
              (494,167
              )
              
              
              (516,666
              )Interest
      paid to related companies and directors
              
              
              (6,968
              )
              
              
              (2,730
              )Loss
      from discontinued operations
              
              
              -
              
              
              
              (93,343
              )Administration expenses
              
              
              (96,540
              )
              
              
              (174,416
              )Professional fees
              
              
              (19,066
              )
              
              
              (20,055
              )Others
              
              
              (6,822
              )
              
              
              -Total
      net loss
              
              $
              (246,908
              )
              
              $
              (504,638
              )


NOTE
3 - EARNINGS PER SHARE





As of
March 31, 2008, the Company has outstanding:




-
            42,645,653 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.




- 9
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2008 (UNAUDITED)




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, 2008 and 2007 are calculated as follows:




2008
                
                
                2007(Unaudited)
                
                
                (Restated)Net
      Loss
                
                $
                (246,908
                )
                
                $
                (504,638
                )Basic - 2 classes
      methodLoss
      available to common stockholders
                
                $
                (246,908
                )
                
                $
                (504,638
                )Weighted-average
      common stock outstanding
                
                
                42,279,701
                
                
                
                31,602,365Basic
      earnings per share - Common Stock-
      From continuing operations
                
                $
                (0.00
                )
                
                $
                (0.01
                )-
      From discontinued operations
                
                $
                (0.00
                )
                
                $
                (0.01
                )DilutedLoss
      available to common stockholders
                
                $
                (246,908
                )
                
                $
                (504,638
                )Diluted
      weighted-average common stock outstanding
                
                
                42,279,701
                
                
                
                31,602,365Diluted
      earnings per share-
      From continuing operations
                
                $
                (0.00
                )
                
                $
                (0.01
                )-
      From discontinued operations
                
                $
                (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, 2008 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





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 as
at March 31, 2008.


- 10
-
 CHINA
DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 AS
OF MARCH 31, 2008 (UNAUDITED)





NOTE
5 - COMMON STOCK





During
the quarter ended March 31, 2008, the Company issued 528,596 restricted shares
to one of the debenture holders as payment for the debenture interest.  The
shares were issued at a price of $0.18 per share, and the issuance is exempt
from registration pursuant to Regulation D under the Securities Act of 1933, as
amended.





NOTE
6 - CONVERTIBLE DEBENTURE





The
following is a summary of debenture as at March 31, 2008 and December 31,
2007.




March 31,
                2008
              
              
              December 31, 2007(Unaudited)
              
              
              (Audited)$2,150,000
      Convertible Debentures, net of $135,000 conversions as of March 31, 2008
      and December 31, 2007 and unamortized discount of $175,512 and $511,350 as
      of March 31, 2008 and December 31, 2007 respectively at 4% interest per
      annum due May 2008
              
              $
              1,839,483
              
              
              $
              1,503,650$500,000
      Convertible Debentures, net of unamortized discount of $43,519 and
      $126,852 as of March 31, 2008 and December 31, 2007 respectively at
      4% interest per annum due May 2008
              
              
              456,481
              
              
              
              373,148$200,000
      Convertible Debentures, net of unamortized discount of $17,407 and
      $50,741 as of March 31, 2008 and December 31, 2007 at 4% interest per
      annum due May 2008
              
              
              182,593
              
              
              
              142,259$150,000
      Convertible Debentures, net of unamortized discount of $13,056 and $38,056
      as of March 31, 2008 and December 31, 2007 respectively at 4% interest per
      annum due May 2008
              
              
              136,944
              
              
              
              111,944$100,000
      Convertible Debentures, net of unamortized discount of $8,704 and $24,370
      as of March 31, 2008 and December 31, 2007 respectively at 4% interest per
      annum due June 2008
              
              
              91,926
              
              
              
              74,630$
              2,706,798
              
              
              $
              2,212,631


For the
fiscal quarter ended March 31, 2008, 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 has recorded a cost of $3.1 million for the convertible feature granted
to the debenture holders.  The convertible feature is reflected as a
discount on the debenture and is being amortized as over the term of the
debenture.





Discount
amortized for the three months ended March 31, 2008 and March 31, 2007 was
$494,167 and $516,666 respectively.   Debenture interest accrued
for the three months ended March 31, 2008 and March 31, 2007 was $51,167 and
$45,578 respectively.





NOTE
8 - RELATED PARTY TRANSACTIONS





As of
March 31, 2008, the Company owed two directors $344,324 for short-term
advances.  Interest is charged at 5% per annum on the amount
owed.





As of
March 31, 2008, the Company owed to related companies $724,090 for short-term
unsecured advances made. Interest is charged at 5% per annum on the amount
owed.





As of
March 31, 2007, the Company owed to a stockholder $295,527 for short-term
advances made.  Interest is charged at 6% per annum on the amount
owed.


NOTE 9
- GOING CONCERN


As
reflected in the accompanying consolidated financial statements, the Company has
an accumulated deficit of $1,217,612 at March 31, 2008 that includes a net loss
of $246,908 for the period ended March 31, 2008.  The Company’s total
current liabilities exceed its total current assets by
$8,202,197.  These factors raise substantial doubt about its ability
to continue as a going concern.  In view of the matters described
above, recoverability of a major portion of the recorded asset amounts shown in
the accompanying consolidated balance sheet is dependent upon continued
operations of the company, which in turn is dependent upon the Company’s ability
to raise additional capital, obtain financing and succeed in its future
operations.  The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
  Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern.  The Company is actively
pursuing additional funding and potential merger or acquisition candidates and
strategic partners, which would enhance stockholders’
investment.  Management believes that the above actions will allow the
Company to continue operations through the next fiscal year.


- 11
-




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-KSB for the year ended December 31, 2007, 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
two 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.





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 form alliance with strong
strategic partners.





Cable TVoperational support servicesand digital broadcast
technology development





AGL, a
wholly owned foreign subsidiary of CDMC incorporated in China, is the sole
contractor for providing digital television (“DTV”) operational supporting
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. 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 2008. The Company entered
into two supplementary agreements with the Nanhai Network Company in May and
December 2007, pursuant to the Co-operative Agreements, for re-scheduling the
Migration completion date to the end of 2008. As of March 31, 2008, the
Company has migrated about 261,000 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.





- 12
-






Under the
Co-operative Agreement, the Company is a sole contractor for providing digital
TV operational support 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.





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 144
channels, including a 49-channel basic package , 95 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
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.





The
Company relied on two suppliers for approximately 99% of its purchases in the
first quarter of 2008 for the Nanhai digitalization of TV system in the
Nanhai project. As of March 31, 2008, accounts payable to these suppliers
amounted to $4,369,935 and $851,420 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.





RESULTS OF
OPERATIONS





Statements
of Operations Items:





Sales





Total net
sales for the three months ended March 31, 2008 decreased by $326,022 or
17% to $1,652,371 from $1,978,393 for the same period ended March 31, 2007. The
decrease in total net sales was due to the decrease in government grant
received, and reduction in TV advertising sales.  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
registered have been increased from about 455,000 as of March 31, 2007 to
499,962 as of March 31, 2008.





Gross
Profit





Gross
Profit for the three months ended March 31, 2008 decreased by $299,733 or
38% 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 was received from government grant during the first quarter
of 2008.





- 13
-






Expenses





Selling,
general, administrative and depreciation and amortization (not related directly
to generation of revenue) expenses for the three months ended March 31,
2008 increased by $58,067 or 9% to $715,517 in comparison with the three
month period ended March 31, 2007. The increase is mainly due to the expenses
incurred by the recently incorporated subsidiary, Arable GZ, which was not
consolidated in the 2007 results.




Net
Loss





Net loss
after tax was $246,908 for the three months period ended March 31, 2008,
compared to a net loss of $504,638 for the same period ended March 31,
2007. The decrease in net loss was because of the downward adjustment for income
tax provision resulting from change in tax rate from 33% to
25%.





Balance
Sheet Items:





Current
Assets





Current
Assets of the Company decreased by $0.6 million to $2.9 million during the first
quarter of 2008. 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 $0.8 million represented
increase in purchase of STB during the first quarter of 2008.





Other
Assets





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, 2008, such expenses amortized were
$74,343.





Current
Liabilities





Current
liabilities of the Company decreased by $0.5 million to $11.1 million during the
first quarter of 2008. The decrease was mainly attributable to the decrease in
account payables due to a STB supplier and the provision of income tax offset by
the increase in debenture, net of discount.





Liquidity
and Capital Resources





On March
31, 2008, we had cash of $174,899 and a working capital deficit of $8,202,197.
This compares with cash of $334,410 and a working capital deficit of $8,114,014
at March 31, 2007. 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.





Operating
activities had a net generation of cash in the amount of $1,049,509 during the
three months ended March 31, 2008 (2007: $275,078) reflecting an excess of
revenues over expenditure.





Net cash
used in investing activities for the three months ended March 31, 2008 was
$1,272,568 as compared with net cash used in investing activities of $529,124
for the three months ended March 31, 2007. The increase in net cash used in
investing activities was due to the increase in purchases of STBs in the first
quarter of this year.





Net cash
provided by financing activities for the three months ended March 31, 2008 was
$7,290 representing directors funding activities (2007: provided by financing
activities $92,891 of which $144,359 represented inter group funding activities
).





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, 2008. 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.




As
reflected in the accompanying financial statements, the Company has an
accumulated deficit of $1,217,612 at March 31, 2008. The Company’s current
liabilities also exceed its current assets by $8,202,197. These factors raise
substantial doubt about our ability to continue as a going concern. In view of
the matters described above, recoverability of a major portion of the recorded
asset amounts shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent up the Company’s
ability to raise additional capital, obtain financing and succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
  Management
is taking steps to revise its operating and financial requirements, which it
believes will be sufficient to provide the Company with the ability to continue
operations.





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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, which debentures amounted to $2.965 million will mature in May
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 may not have enough cash to repay the
debentures.  The Company intends to negotiate with the debenture
holders to refinance or otherwise satisfy the debentures.  However, as
of the date of this report, the Company does not have any agreements or
understandings in place with the debenture holders, and there is no assurance
that the Company will be able to refinance or otherwise satisfy the debentures
prior to May 2008.





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, 2008 was
$590,368.




Risk Factors




There
have not been any material changes in the risk factors previously disclosed in
our Form 10-KSB for the year ended December 31, 2007 filed with the SEC on April
16, 2008.





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.








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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 as
at March 31, 2008.





Item
2. Unregistered Sales of Equity Securities and Use of Proceeds





During
the quarter ended March 31, 2008, the Company issued 528,596 restricted
shares of common stock to a debenture holder for payment of debenture
interest. This transaction was exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) and Regulation D under the
Securities Act.





Item
3. Defaults Upon Senior Securities





Owing to
its tight financial situation, the Company did not pay the debenture interests
due on June 30, 2007 and December 31, 2007.  The Company offered to
issue common stock to the debenture holders in lieu of the payment of debenture
interests in the first quarter of 2008.  All the debenture holders
except for one have accepted such 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








- 16
-








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 19, 2008
              
              /s/
      Ng Chi Shing
              -----------------------------
              Ng
      Chi Shing
              Chief
      Executive Officer
              
              
              Date:
      May 19, 2008
              
              /s/
      Ng Chi Shing
              -----------------------------
              Ng Chi
Shing
              Chief
      Financial Officer








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