----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-QSB**

**June 30, 2007**

**CHINA      DIGITAL MEDIA      CORPORATION**

**HAIRMAX      INTERNATIONAL CORP.**

| **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**

**(011)      852-2390-8600**

**  Yes**
**x**

**No      **
**x**

----

**CHINA      DIGITAL MEDIA CORPORATION**

|                                                                                                                                   |                                                                                                                                                                                                                          | **Page**                             |
|----------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| **PART                I**                                                                                                              |                                                                                                                                                                                                                          |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                1.  Financial Statements                                                                                 | 3                                                                                                                                                                                                                             |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
|                                                                                                                                   | Condensed                Consolidated Balance Sheet  -  June 30, 2007                (unaudited)                                                                                                          | 3                                    |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
|                                                                                                                                   | Condensed                Consolidated  Statements of Operations And Comprehensive                Income  -  Six Months and Three Months Ended June 30,                2007 and 2006 (unaudited) | 4                                    |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
|                                                                                                                                   | Condensed                Consolidated Statements of Cash Flows  -  Six Months                Ended June 30, 2007 and 2006 (unaudited)                                                                     | 5                                    |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
|                                                                                                                                   | Notes                to Condensed Consolidated Financial Statements (unaudited)                                                                                                                                               | 6                -                11 |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                2.  Management's Discussion and Analysis of Financial Condition                And Results of Operations | 12                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                3.  Controls and Procedures                                                                              | 15                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| **PART                II**                                                                                                             |                                                                                                                                                                                                                          |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                1.  Legal  Proceedings                                                                         | 15                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                2.  Unregistered Sales of Equity Securities and Use of                Proceeds                           | 16                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                3.  Defaults Upon Senior Securities                                                                      | 16                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                4.  Submission of Matters to a Vote of Security                Holder                                    | 16                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                5.  Other Information                                                                                    | 16                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
| Item                6.  Exhibits and Reports                                                                                 | 16                                                                                                                                                                                                                            |
|                                                                                                                                   |                                                                                                                                                                                                                          |                                 |
|                                                                                                                                   | Signature                                                                                                                                                                                                                     | 16                                   |

----

**PART      I**

**ITEM      1. Financial Statements**

**CHINA      DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**

| **ASSETS**                                                                                                                                                                                                                             |   |   |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|
|                                                                                                                                                                                                                                   |   |   |       |
| **CURRENT                ASSETS**                                                                                                                                                                                                      |   |   |       |
| Cash                and cash equivalents                                                                                                                                                                                               |   | $      | 390,115    |   |
| Accounts                receivable, net of allowances                                                                                                                                                                                  |   |   | 9,509,860  |   |
| Inventories,                net                                                                                                                                                                                                        |   |   | 406,454    |   |
| Other                receivables and prepaid expenses                                                                                                                                                                                  |   |   | 448,681    |   |
| **Total                Current Assets**                                                                                                                                                                                                |   |   | 10,755,110 |   |
|                                                                                                                                                                                                                                   |   |   |       |   |
| Intangible                assets                                                                                                                                                                                                       |   |   | 4,317,572  |   |
| Investments                in television series, net                                                                                                                                                                                   |   |   | 633,717    |   |
| Investments                in affiliates                                                                                                                                                                                               |   |   | 157,520    |   |
| Property                and equipment, net                                                                                                                                                                                             |   |   | 11,309,249 |   |
|                Deferred tax asset                                                                                                                                                                                                 |   |   | 196,576    |   |
| Other                assets                                                                                                                                                                                                            |   |   | 912,461    |   |
| **TOTAL                ASSETS**                                                                                                                                                                                                        |   | $      | 28,282,205 |   |
|                                                                                                                                                                                                                                   |   |   |       |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                                                                                                                                                                |   |   |       |   |
|                                                                                                                                                                                                                                   |   |   |       |   |
| **CURRENT                LIABILITIES**                                                                                                                                                                                                 |   |   |       |   |
| Convertible                debentures                                                                                                                                                                                                  |   | $      | 3,100,000  |   |
| Accounts                payable                                                                                                                                                                                                        |   |   | 4,495,082  |   |
| Other                payables and accrued liabilities                                                                                                                                                                                  |   |   | 1,110,919  |   |
| Due                to a director                                                                                                                                                                                                       |   |   | 33,178     |   |
| Due                to related companies                                                                                                                                                                                                |   |   | 736,258    |   |
| Business                tax payable                                                                                                                                                                                                    |   |   | 128,187    |   |
| Value                added taxes payable                                                                                                                                                                                               |   |   | 22,369     |   |
| Income                tax payable                                                                                                                                                                                                      |   |   | 2,263,206  |   |
| Other                tax payable                                                                                                                                                                                                       |   |   | 23,099     |   |
| **Total                Current Liabilities**                                                                                                                                                                                           |   |   | 11,912,298 |   |
|                                                                                                                                                                                                                                   |   |   |       |   |
| **COMMITMENTS                AND CONTINGENCIES**                                                                                                                                                                                       |   |   | --         |   |
|                                                                                                                                                                                                                                   |   |   |       |   |
| **MINORITY                INTERESTS**                                                                                                                                                                                                  |   |   | (70,713    | ) |
|                                                                                                                                                                                                                                   |   |   |       |   |
| **STOCKHOLDERS'                EQUITY**                                                                                                                                                                                                |   |   |       |   |
| Series                A convertible preferred stock ($0.001 par value, 40,000,000 shares                authorized,                    1,875,000 shares issued and outstanding as of June 30,                2007) |   |   | 1,875      |   |
| Common                stock ($0.001 par value, 500,000,000 shares authorized,                    31,602,365 shares issued and outstanding as of June 30,                2007)                                      |   |   | 31,602     |   |
| Common                stock to be issued ($0.001 par value, 10,000,000 shares)                                                                                                                                                         |   |   | 10,000     |   |
| Additional                paid-in capital                                                                                                                                                                                              |   |   | 9,413,917  |   |
| Deferred                stock compensation                                                                                                                                                                                             |   |   | (53,000    | ) |
| Retained                earnings                                                                                                                                                                                                       |   |   |       |   |
|    Unappropriated                                                                                                                                                                                                       |   |   | 5,420,863  |   |
|    Appropriated                                                                                                                                                                                                         |   |   | 1,521,999  |   |
| Accumulated                other comprehensive loss                                                                                                                                                                                    |   |   | 93,364     |   |
| **Total                Stockholders' Equity**                                                                                                                                                                                          |   |   | 16,440,620 |   |
|                                                                                                                                                                                                                                   |   |   |       |   |
| **TOTAL                LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                                                                                          |   | $      | 28,282,205 |   |

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

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**CHINA      DIGITAL MEDIA CORPORATION AND      SUBSIDIARIES**

|                                                                                                   |   | **For                the three months ended** |        |   | **For                the six months ended** |       |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-------------|--------|---------------------------------------------|------------|
|                                                                                                   |   | **June                30,**                   |        |   | **June                30,**                 |       |
|                                                                                                   |   | **2007**                                      |        |   | 2006                                        |       |   | **2007** |   |   | 2006 |   |
|                                                                                                   |   |                                          |        |   | (Restated)                                  |       |   |   |   |   | (Restated) |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |
| **NET                SALES**                                                                           |   |                                          |        |   |                                        |       |   |   |   |   |   |   |
| Revenue                from digitalization of television signals                                       |   | $                                             | 1,357,890   |   |                                        | $          | 2,151,935 |   |   | $ | 2,757,703 |   |   | $ | 3,607,306 |   |
| Revenue                from television advertising                                                     |   |                                          | 372,257     |   |                                        |       | 1,994,673 |   |   |   | 845,206 |   |   |   | 3,726,706 |   |
| Revenue                from software development                                                       |   |                                          | 12,760      |   |                                        |       | 10,372 |   |   |   | 22,020 |   |   |   | 33,223 |   |
| Revenue                from investments in television series                                           |   |                                          | --          |   |                                        |       | 391 |   |   |   | -- |   |   |   | 175,020 |   |
| Government                grant received                                                               |   |                                          | 333,316     |   |                                        |       | 313,233 |   |   |   | 656,556 |   |   |   | 625,070 |   |
|                                                                                                   |   |                                          | 2,076,223   |   |                                        |       | 4,470,604 |   |   |   | 4,281,485 |   |   |   | 8,167,325 |   |
| **COST                OF SALES**                                                                       |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Cost                of Sales - digitalization of television signals                                    |   |                                          | (155,919    | )      |                                        |       | (353,585 | ) |   |   | (348,379 | ) |   |   | (569,052 | ) |
| Depreciation                - digitalization of television signals                                     |   |                                          | (755,993    | )      |                                        |       | (575,563 | ) |   |   | (1,471,899 | ) |   |   | (1,050,286 | ) |
| Cost                of Sales - television advertising                                                  |   |                                          | (251,784    | )      |                                        |       | (1,654,625 | ) |   |   | (791,409 | ) |   |   | (3,251,618 | ) |
| Cost                of Sales - software development                                                    |   |                                          | --          |   |                                        |       | (43 | ) |   |   | -- |   |   |   | (43 | ) |
| Cost                of Sales - investment in television series                                         |   |                                          | --          |   |                                        |       | (303 | ) |   |   | -- |   |   |   | (119,390 | ) |
| **GROSS                PROFIT**                                                                        |   | ** **                                    | **912,527** |   |                                        | ** ** | **1,886,485** |   |   | ** ** | **1,669,798** |   |   | ** ** | **3,176,936** |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                EXPENSES**                                                                  |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Selling,                general and administrative expenses                                            |   |                                          | (746,085    | )      |                                        |       | (652,092 | ) |   |   | (1,518,674 | ) |   |   | (1,203,941 | ) |
| Depreciation                and amortization                                                           |   |                                          | (30,705     | )      |                                        |       | (26,929 | ) |   |   | (59,697 | ) |   |   | (49,918 | ) |
| Total                Operating Expenses                                                                |   |                                          | (776,790    | )      |                                        |       | (679,021 | ) |   |   | (1,578,371 | ) |   |   | (1,253,859 | ) |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **INCOME                FROM OPERATION**                                                               |   |                                          | 135,736     |   |                                        |       | 1,207,464 |   |   |   | 91,427 |   |   |   | 1,923,077 |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **OTHER                INCOME (EXPENSES)**                                                             |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Equity                in loss of affiliates                                                            |   |                                          | (28,680     | )      |                                        |       | (1,402 | ) |   |   | (34,830 | ) |   |   | (1,402 | ) |
| Interest                income                                                                         |   |                                          | 627         |   |                                        |       | 8,266 |   |   |   | 1,100 |   |   |   | 25,518 |   |
| Other                income                                                                            |   |                                          | 14,441      |   |                                        |       | 174 |   |   |   | 23,268 |   |   |   | 78,121 |   |
| Interest                expenses                                                                       |   |                                          | (31,518     | )      |                                        |       | -- |   |   |   | (63,028 | ) |   |   | -- |   |
| Interest                paid to related companies and directors                                        |   |                                          | (3,014      | )      |                                        |       | (4,657 | ) |   |   | (5,744 | ) |   |   | (6,434 | ) |
| Other                expenses                                                                          |   |                                          | (27,252     | )      |                                        |       | -- |   |   |   | (31,316 | ) |   |   | -- |   |
| Total                Other (Expenses) Income , net                                                     |   |                                          | (75,396     | )      |                                        |       | 2,381 |   |   |   | (110,550 | ) |   |   | 95,803 |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **NET                (LOSS) INCOME BEFORE TAXES AND MINORITY INTERESTS**                               |   | ** **                                    | **60,340**  |   |                                        | ** ** | **1,209,845** |   |   | ** ** | **(19,123** | **)** |   | ** ** | **2,018,880** |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Income                tax expense                                                                      |   |                                          | (54,511     | )      |                                        |       | (382,608 | ) |   |   | (46,794 | ) |   |   | (696,102 | ) |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Minority                interests                                                                      |   |                                          | (16,964     | )      |                                        |       | 14,193 |   |   |   | 66,810 |   |   |   | 19,920 |   |
| **NET                INCOME (LOSS)**                                                                   |   | **$**                                         | **(11,135** | **)**  |                                        | **$**      | **841,430** |   |   | **$** | **893** |   |   | **$** | **1,342,698** |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **OTHER                COMPREHENSIVE LOSS**                                                            |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Foreign                currency translation gain                                                       |   |                                          | 26,035      |   |                                        |       | (42,940 | ) |   |   | 118,579 |   |   |   | 360 |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                                                |   | $                                             | 14,900      |   |                                        | $          | 798,490 |   |   | $ | 119,472 |   |   | $ | 1,343,058 |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Net                income per share-basic - two classes method**                                     |   | $                                             | 0.00        |   |                                        | $          | (0.03 | ) |   | $ | (0.00 | ) |   | $ | (0.04 | ) |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Net                income per share - diluted**                                                      |   | $                                             | 0.00        |   |                                        | $          | (0.02 | ) |   | $ | (0.00 | ) |   | $ | (0.03 | ) |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Weighted                average number of shares outstanding during the period -                basic  |   |                                          | 36,010,967  |   |                                        |       | 31,700,698 |   |   |   | 33,806,666 |   |   |   | 31,332,747 |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Number                of preferred shares outstanding during the period                                |   |                                          | 1,875,000   |   |                                        |       | 1,875,000 |   |   |   | 1,875,000 |   |   |   | 1,875,000 |   |
|                                                                                                   |   |                                          |        |   |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Weighted                average number of shares outstanding during the period-                diluted |   |                                          | 52,274,849  |   |                                        |       | 41,075,698 |   |   |   | 50,070,548 |   |   |   | 40,707,747 |   |

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

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**CHINA      DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**

|                                                                                                                    |   | **2007**   |         |    | **2006**   |       |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------|--------------|---------|------------|------------|
|                                                                                                                    |   |       |         |    | (Restated) |       |
|                                                                                                                    |   |       |         |    |       |       |
| **CASH                FLOWS FROM OPERATING ACTIVITIES**                                                                 |   |       |         |    |       |       |
| Net                income                                                                                               |   | $          | 893          |    |       | $          | 1,342,698 |   |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| Adjusted                to reconcile net income to cash provided by operating                activities:                |   |       |         |    |       |       |   |   |
| Equity                in loss of affiliate                                                                              |   |       | 34,830       |    |       |       | 1,402 |   |
| Amortization                - cost of sales                                                                             |   |       | --           |    |       |       | 108,244 |   |
| Depreciation-cost                of sales                                                                               |   |       | 1,471,899    |    |       |       | 1,050,286 |   |
| Depreciation                and amortization                                                                            |   |       | 59,697       |    |       |       | 49,918 |   |
| Provision                for doubtful debts                                                                             |   |       | 363,509      |    |       |       | -- |   |
| Stock                issued for services                                                                                |   |       | --           |    |       |       | 60,200 |   |
| Amortization                on stock compensation                                                                       |   |       | 31,800       |    |       |       | - |   |
| Minority                interests                                                                                       |   |       | (66,810      | )       |       |       | (19,920 | ) |
| Changes                in operating assets and liabilities                                                              |   |       |         |    |       |       |   |   |
| (Increase)                decrease in:                                                                                  |   |       |         |    |       |       |   |   |
|   Accounts                receivable                                                                          |   |       | (45,691      | )       |       |       | (2,991,892 | ) |
|   Other                receivables and prepaid expenses                                                       |   |       | 62,589       |    |       |       | (360,527 | ) |
|   Inventories                                                                                                 |   |       | 69,027       |    |       |       | (739,279 | ) |
|                Deferred tax asset                                                                                  |   |       | (196,576     | )  |       |       | -- |   |
|   Other                assets                                                                                 |   |       | 147,033      |    |       |       | (89,744 | ) |
| Increase                (decrease) in:                                                                                  |   |       |         |    |       |       |   |   |
|   Due                to a stockholder                                                                         |   |       | --           |    |       |       | 71,238 |   |
|   Due                to a related company                                                                     |   |       | --           |    |       |       | 20,332 |   |
|   Accounts                payable                                                                             |   |       | (1,473,696   | )       |       |       | 4,514,200 |   |
|   Other                payables and accrued liabilities                                                       |   |       | 751,084      |    |       |       | 2,340 |   |
|   Business                tax payable                                                                         |   |       | (137,468     | )       |       |       | -- |   |
|   Value                added taxes payable                                                                    |   |       | 63,210       |    |       |       | 62,020 |   |
|   Income                tax payable                                                                           |   |       | 308,406      |    |       |       | 723,105 |   |
|   Other                tax payable                                                                            |   |       | 11,591       |    |       |       | -- |   |
|                          Net cash used in provided by operating activities |   | ** ** | **(46,840**  | )  |       | ** ** | **3,804,621** |   |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **CASH                FLOWS FROM INVESTING ACTIVITIES**                                                                 |   |       |         |    |       |       |   |   |
| Net              cash inflow from business combination (see Note 2)                                                     |   |       | 61           |    |       |       | -- |   |
| Investments                in affiliates                                                                                |   |       | 195,633      |    |       |       | (179,350 | ) |
| Purchase                of property and equipment                                                                       |   |       | (579,394     | )       |       |       | (4,858,352 | ) |
|                          Net cash used in investing activities             |   | ** ** | **(383,700** | **)**   |       | ** ** | **(5,037,702** | **)** |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **CASH                FLOWS FROM FINANCING ACTIVITIES**                                                                 |   |       |         |    |       |       |   |   |
| Due                to related companies                                                                                 |   |       | 355,772      |    |       |       | 128,684 |   |
| Proceeds                from stock issuance in private placement                                                        |   |       | --           |    |       |       | 387,500 |   |
| Minority                interests                                                                                       |   |       | 24,802       |    |       |       | 122,514 |   |
| Due                to directors                                                                                         |   |       | (51,478      | )       |       |       | -- |   |
|                          Net cash provided by financing activities         |   | ** ** | **329,096**  |    |       | ** ** | **638,698** |   |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **EFFECT                OF EXCHANGE RATE ON CASH**                                                                      |   |       | 88,968       |    |       |       | (57,063 | ) |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **NET                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**                                                 |   |       | (12,476      | )       |       |       | (651,446 | ) |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **CASH                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**                                                     |   |       | 402,591      |    |       |       | 1,123,912 |   |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **CASH                AND CASH EQUIVALENTS AT END OF PERIOD**                                                           |   | $          | 390,115      |    |       | $          | 472,466 |   |
|                                                                                                                    |   |       |         |    |       |       |   |   |
| **SUPPLEMENTAL                DISCLOSURE OF CASH FLOW INFORMATION**                                                     |   |       |         |    |       |       |   |   |
|                        Cash paid for interest                                        |   | $          | --           |    |       | $          | -- |   |
|                        Cash paid for income tax                                      |   | $          | --           |    |       | $          | -- |   |

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

----

**CHINA      DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**

NOTES      TO CONDENSED CONSOLIDATED FINANCIAL      STATEMENTS

**NOTE      1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING      POLICIES**

**(A)       Basis of Presentation**

| **(B)  ** | **Principles                of Consolidation** |
|---------------------|------------------------------------------------|

| **(C)  ** | **Revenue                Recognition** |
|---------------------|----------------------------------------|

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**CHINA        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**

NOTES        TO CONDENSED CONSOLIDATED FINANCIAL        STATEMENTS

**(D)        **
**Restatement      of Financial Statements**

**(E)        **
**Recent      Accounting Pronouncements**

**NOTE      2 – BUSINESS COMBINATION**

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**CHINA        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES**

NOTES        TO CONDENSED CONSOLIDATED FINANCIAL        STATEMENTS

**)**

| Cash                and cash equivalent                                       |   | $      | 61         |   |
|-------------------------------------------------------------------------------|--------|--------|------------|--------|
| Other                receivables and prepaid expenses                         |   |   | 323,452    |   |
| Total                current assets                                           |   |   | 323,513    |   |
|                                                                          |   |   |       |   |
| Property                and equipment                                         |   |   | 701        |   |
| Capitalized                software development cost                          |   |   | 592,756    |   |
| Total                assets                                                   |   |   | 916,970    |   |
|                                                                          |   |   |       |   |
| Accounts                payable and accruals liabilities                      |   |   | (1,106,823 | )      |
| Net                liabilities acquired                                       |   |   | (189,853   | )      |
| Minority                interest                                              |   |   | (2,559     | )      |
| Share                of pre-acquisition losses prior to becoming a subsidiary |   |   | 27,361     |   |
|                                                                          |   | $      | (165,051   | )      |
| Consideration                for acquisition                                  |   |   | 3,760,000  |   |
| Goodwill                                                                      |   | $      | 3,925,051  |   |

| Cash                and cash equivalents acquired |   | $ | 61 |   |
|---------------------------------------------------|--------|---|----|--------|
| Net                cash inflow                    |   | $ | 61 |   |

| Revenue                                                                     | $ | 4,281,485 |   |
|-----------------------------------------------------------------------------|---|-----------|--------|
| Net                loss                                                     | $ | (105,563  | )      |
| Net                loss per share  -  basic and diluted | $ | 0.00      |   |

**NOTE      3 - INVESTMENT IN AFFILIATES**

| Current                assets                                   |   | $      | 521,911 |   |
|-----------------------------------------------------------------|--------|--------|---------|--------|
| Non-current                assets                               |   |   | 226,844 |   |
| Total                Assets                                     |   | $      | 748,755 |   |
|                                                            |   |   |    |   |
| Current                liabilities                              |   | $      | 374,237 |   |
| Stockholders’                equity                       |   |   | 374,518 |   |
| Total                Liabilities and Stockholders’ Equity |   | $      | 748,755 |   |
|                                                            |   |   |    |   |
| Revenues                                                        |   | $      | --      |   |
| Gross                Profit                                     |   | $      | --      |   |
| Net                loss                                         |   | $      | 16,768  |   |

| Company                share at 49%        |   | $ | 8,216 |   |
|--------------------------------------------|--------|---|-------|--------|
| Equity                in loss of affiliate |   | $ | 8,216 |   |

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**CHINA      DIGITAL MEDIA CORPORATION AND SUBSIDIARIES **

NOTES        TO CONDENSED CONSOLIDATED FINANCIAL        STATEMENTS

| Company                share at 20%        |   | $ | 26,614 |   |
|--------------------------------------------|--------|---|--------|--------|
| Equity                in loss of affiliate |   | $ | 26,614 |   |

**NOTE      4 - SEGMENT INFORMATION**

|                                             |   | **Digitalization**               |       |   |            |   |      |            |   |   | **Investments**                  |   |   |      |    |   |      |   |
|--------------------------------------------------|--------|----------------------------------|------------|--------|-----------------|--------|-----------|-----------------|--------|--------|----------------------------------|--------|--------|-----------|---------|--------|-----------|--------|
|                                             |   | **of                Television** |       |   | **Television**  |   |      | **Software**    |   |   | **in                Television** |   |   |      |    |   |      |   |
|                                             |   | **Signals**                      |       |   | **Advertising** |   |      | **Development** |   |   | **Series**                       |   |   | **Other** |    |   | **Total** |   |
| **2007**                                         |   |                             |       |   |            |   |      |            |   |   |                             |   |   |      |    |   |      |   |
| **Revenues**                                     |   | $                                | 3,414,259  |   |            | $      | 845,206   |            |   | $      | 22,020                           |   |   | $         | --      |   |      | $      | -- |   |   | $ | 4,281,485 |   |
| **Gross                profit**                  |   |                             | 1,593,981  |   |            |   | 53,797    |            |   |   | 22,020                           |   |   |      | --      |   |      |   | -- |   |   |   | 1,669,798 |   |
| **Net                Income**                    |   |                             | 822,393    |   |            |   | (258,193  | )               |   |   | (92,420                          | )      |   |      | (4,479  | )      |      |   | (466,408 | ) |   |   | 893 |   |
| **Total                assets**                  |   |                             | 19,648,932 |   |            |   | 2,517,673 |            |   |   | 802,744                          |   |   |      | 685,277 |   |      |   | 4,431,003 |   |   |   | 28,085,629 |   |
| **Capital                expenditure**           |   |                             | 650,568    |   |            |   | 82,839    |            |   |   | 8,190                            |   |   |      | --      |   |      |   | 3,549 |   |   |   | 745,146 |   |
| **Depreciation                and amortization** |   |                             | 1,492,365  |   |            |   | 11,601    |            |   |   | 3,856                            |   |   |      | 19,061  |   |      |   | 4,713 |   |   |   | 1,531,596 |   |
|                                             |   |                             |       |   |            |   |      |            |   |   |                             |   |   |      |    |   |      |   |   |   |   |   |   |   |
| **2006                (Restated)**               |   |                             |       |   |            |   |      |            |   |   |                             |   |   |      |    |   |      |   |   |   |   |   |   |   |
| **Revenues**                                     |   | $                                | 4,232,376  |   |            | $      | 3,726,706 |            |   | $      | 33,223                           |   |   | $         | 175,020 |   |      | $      | -- |   |   | $ | 8,167,325 |   |
| **Gross                profit**                  |   |                             | 2,613,038  |   |            |   | 475,088   |            |   |   | 33,180                           |   |   |      | 55,630  |   |      |   | -- |   |   |   | 3,176,936 |   |
| **Net                Income**                    |   |                             | 1,466,541  |   |            |   | 77,606    |            |   |   | (140,601                         | )      |   |      | 66,345  |   |      |   | (127,193 | ) |   |   | 1,342,698 |   |
| **Total                assets**                  |   |                             | 18,746,860 |   |            |   | 3,537,762 |            |   |   | 68,235                           |   |   |      | 929,611 |   |      |   | 553,016 |   |   |   | 23,835,484 |   |
| **Capital                expenditure**           |   |                             | 4,843,604  |   |            |   | 12,679    |            |   |   | 2,069                            |   |   |      | --      |   |      |   | -- |   |   |   | 4,858,352 |   |
| **Depreciation                and amortization** |   |                             | 1,171,910  |   |            |   | 8,120     |            |   |   | 6,371                            |   |   |      | 18,147  |   |      |   | 3,900 |   |   |   | 1,208,448 |   |

**NOTE      5 – EARNINGS PER SHARE**

| ·   | 31,602,365                shares of common stock; |
|--------------------|---------------------------------------------------|

| ·   | 1,875,000                shares of preferred stock; |
|--------------------|-----------------------------------------------------|

| ·   | 6,888,882                shares of common stock to be issued upon conversion of convertible                debenture; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   | warrants                to purchase 6,888,882 shares of common stock at an exercise price                of $0.80                per share, expire in November 2012; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | warrants                to purchase 6,888,882 shares of common stock at an exercise price                of $1.20                per share, expire in November 2012; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | warrants                to purchase 3,444,441 shares of common stock at an exercise price                of $2.25                per share, expire in November 2012;                and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 10,000,000                shares of common stock to be issued for the acquisition of                Maxcomm. |
|--------------------|--------------------------------------------------------------------------------------------------------------|

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**CHINA        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES **

NOTES          TO CONDENSED CONSOLIDATED FINANCIAL          STATEMENTS

|                                                                                             |   | **2007** |       |   | **2006**       |   |
|--------------------------------------------------------------------------------------------------|--------|----------|------------|--------|----------------|--------|
|                                                                                             |   |     |       |   | **(Restated)** |   |
| **Earnings**                                                                                     |   |     |       |   |           |   |
| Net                Income                                                                        |   |     | 893        |   |           |   | 1,342,698 |   |
|                                                                                             |   |     |       |   |           |   |   |   |
| **Basic                - 2 classes method**                                                      |   |     |       |   |           |   |   |   |
| Income                available to common stockholders                                           |   |     | 893        |   |           |   | 1,342,698 |   |
|                                                                                             |   |     |       |   |           |   |   |   |
| Weighted-average                common stock outstanding                                         |   |     | 33,806,666 |   |           |   | 31,332,747 |   |
| Number                of preferred stock                                                         |   |     | 1,875,000  |   |           |   | 1,875,000 |   |
| Weighted-average                common stock outstanding - assume CD converted                   |   |     | 6,888,882  |   |           | 0      |   |
|                                                                                             |   |     |       |   |           |   |   |   |
| Basic                earnings per share - Common Stock                                           |   |     | 0.00       |   |           |   | 0.04 |   |
| Basic                earnings per share - Preferred Stock                                        |   |     | 0.00       |   |           |   | 0.04 |   |
| Basic                earnings per share - CD                                                     |   |     | 0.00       |   |           |   | 0.00 |   |
|                                                                                             |   |     |       |   |           |   |   |   |
| **Diluted**                                                                                      |   |     |       |   |           |   |   |   |
| Income                available to common stockholders                                           |   |     | 893        |   |           |   | 1,342,698 |   |
| Income                available to common stockholders & assumed CD                converted |   |     | 62,384     |   |           |   | 0.00 |   |
|                                                                                             |   |     |       |   |           |   |   |   |
| **Diluted                weighted-average common stock outstanding**                             |   |     | 50,070,548 |   |           |   | 40,707,747 |   |
| **Diluted                earnings per share**                                                    |   |     | 0.00       |   |           |   | 0.03 |   |

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 June 30, 2007 but were not included        in        the computation of diluted earnings per share because the warrants’ exercise        price was greater than the market price of the common        shares.

**NOTE      6 - COMMITMENTS AND CONTINGENCIES**

**NOTE      7 - COMMON STOCK**

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**CHINA        DIGITAL MEDIA CORPORATION AND SUBSIDIARIES **

NOTES          TO CONDENSED CONSOLIDATED FINANCIAL          STATEMENTS

**NOTE      8 – CONVERTIBLE DEBENTURE**

**NOTE      9 – RELATED PARTY TRANSACTIONS**

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**ITEM      2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF      OPERATION**

**Overview**

| ·   | Through                a subsidiary, Arcotect (Guangzhou) Limited (“AGL”), converting digital                cable television subscribers to digital television and providing                various                value added and broadband services to the digital                subscribers; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Television                advertising sales; |
|--------------------|----------------------------------------------|

| ·   | Television                program production. |
|--------------------|-----------------------------------------------|

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**RESULTS      OF OPERATIONS**

*Statements      of Operations Items:*

**Sales**

**Gross      Profit**

----

**Expenses**

**Minority      Interests**

**Net      Income**

*Balance      Sheet Items:*

**Current      Assets**

**Intangible      Assets**

**Property      and Equipment, Net**

**Other      Assets**

**Current      Liabilities**

**Liquidity      and Capital Resources**

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**Foreign      Currency Translation Risk**

**ITEM      3.   CONTROLS AND      PROCEDURES**

**Evaluation      of Disclosure Controls and      Procedures**

**Changes      in Internal Control**

**PART      II.   OTHER INFORMATION**

**Item      1.   Legal      Proceedings**

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

**Item      3.   Defaults Upon Senior Securities**

**Item      4.   Submission of Matters to a      Vote of Security Holders**

**Item      5.   Other Information**

**Item      6.   Exhibits**

| **Number** |   | **Description**                                                                                                                                                                                                                           |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                      |
| 31.1       |   | Certification                of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities                Exchange Act of 1934, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002          |
|       |   |                                                                                                                                                                                                                                      |
| 31.2       |   | 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 2002          |
|       |   |                                                                                                                                                                                                                                      |
| 32         |   | 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 |

**SIGNATURES**

**CHINA      DIGITAL MEDIA CORPORATION**

| Date:                August 14, 2007 |   | **/s/                Ng Chi Shing**    |
|--------------------------------------|--------|----------------------------------------|
|                                 |   | Ng                Chi Shing            |
|                                 |   | Chief                Executive Officer |
|                                 |   |                                   |
|                                 |   |                                   |
| Date:                August 14, 2007 |   | **/s/                Ng Chi Shing**    |
|                                 |   | Ng                Chi Shing            |
|                                 |   | Chief                Financial Officer |

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