-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O9zjnYp/GzARv7CSz666fEG75b6qjQumj0DCDdaQLHNltcUIkjo2fLJUj/stiskZ H5Q2vJRTLwcgQVHfUHivxg== 0001264931-09-000270.txt : 20091105 0001264931-09-000270.hdr.sgml : 20091105 20090915155328 ACCESSION NUMBER: 0001264931-09-000270 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20090915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA DIGITAL MEDIA CORP CENTRAL INDEX KEY: 0000821524 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 133422912 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: CORRESP BUSINESS ADDRESS: STREET 1: 2505-06, 25/F, STELUX HOUSE, STREET 2: 698 PRINCE EDWARD ROAD EAST, KOWLOON CITY: HONG KONG STATE: F4 ZIP: 510000 BUSINESS PHONE: 852-2390-8688 MAIL ADDRESS: STREET 1: 2505-06, 25/F, STELUX HOUSE, STREET 2: 698 PRINCE EDWARD ROAD EAST, KOWLOON CITY: HONG KONG STATE: F4 ZIP: 510000 FORMER COMPANY: FORMER CONFORMED NAME: HAIRMAX INTERNATIONAL INC DATE OF NAME CHANGE: 20030807 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL BEAUTY CORP DATE OF NAME CHANGE: 20011010 FORMER COMPANY: FORMER CONFORMED NAME: BEAUTYMERCHANT COM INC DATE OF NAME CHANGE: 19991029 CORRESP 1 filename1.htm corresp.htm
 
CHINA DIGITAL MEDIA CORPORATION
2505-06, 25/F, Stelux House, 698 Prince Edward Road East,
Kowloon, Hong Kong
******

September 14, 2009

Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C.  20549

Attn:       Larry Spirgel Esq.
Assistant Director

Re:         China Digital Media Corporation
Form 10-K for Year Ended December 31, 2008
Filed on March 31, 2009 and amended on April 6, 2009
File Number:  0-30212

Dear Larry:

The following are the responses to your comment letter dated August 21, 2009 with respect to the above-captioned annual report.

Report of independent registered public accounting firm, page 20
1. The audit of our operations in China, including the associated assets and liabilities, was conducted by the staff of their Guangzhou office of the auditor.  They came to our offices in China and carried out the audit procedures on site.

We did not notice there was another auditor involved in the audit of the Chinese operations.

The majority of audit procedures were conducted on-site in China by their audit personnel and by their audit partner with some procedures also being performed in the USA.


Condensed consolidated statements of operations and comprehensive loss for the year ended December 31, 2008 and 2007
2. The line item “impairment of goodwill” is reclassified from Other Expenses to Operating Expenses which is shown in the revised Income Statement as follows.

3. The line item “amortization of convertible debt discount” is to be reclassified from Operating Expenses to Other Expenes which is shown in the revised Income Statement as follows.
 

CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
  
COMPREHENSIVE LOSS (AUDITED)
  
FOR THE YEAR ENDED DECEMBER 31, 2008 AND 2007
  
             
   
2008
    
2007
  
             
NET SALES
            
Revenue from digitalization of television signals
   $ 6,855,420     $ 5,714,471  
Revenue from television advertising
     392,296       384,423  
Revenue from software development
     42,628       63,567  
Government grant received
     -       1,317,992  
      7,290,344       7,480,453  
COST OF SALES
                
   Cost of Sales - digitalization of television signals
     (891,836 )     (560,085 )
Depreciation - digitalization of television signals
     (3,952,496 )     (3,023,468 )
   Cost of Sales - television advertising
     (271,419 )     (428,234 )
      (5,115,751 )     (4,011,787 )
GROSS PROFIT
     2,174,593       3,468,666  
                 
OPERATING EXPENSES
                
Selling, general and administrative expenses
     (2,199,254 )     (3,509,482 )
Provision for doubtful debts
     (7,847,084 )     (1,215,704 )
Impairment of goodwill
     (3,996,946 )     -  
Depreciation and amortization
     (82,959 )     (99,920 )
Total Operating Expenses
     (14,126,243 )     (4,825,106 )
                 
LOSS FROM OPERATION
     (11,951,650 )     (1,356,440 )
                 
OTHER INCOME (EXPENSES)
                
Loss on disposal of investment in television series
     -       (261,187 )
Amortization of convertible debt discount
     (752,369 )     (2,100,779 )
Interest income
     2,808       2,629  
Other income
     207,863       142,370  
Interest expenses
     (279,000 )     (125,049 )
Interest paid to related companies and directors
     (30,091 )     (17,400 )
Other expenses
     (52,095 )     (35,009 )
Total Other Expenses , net
     (902,884 )     (2,394,425 )
                 
NET LOSS BEFORE TAX
     (12,854,534 )     (3,750,865 )
                 
Income tax (expense) income
     (521,041 )     119,362  
                 
NET LOSS FROM CONTINUING OPERATIONS
   $ (13,375,575 )   $ (3,631,503 )
                 
DISCONTINUED OPERATIONS
                
Equity gain (loss) of affiliate
     -       (14,391 )
Gain on disposal of subsidiary
     -       255,415  
Gain on disposal of affiliate
     -       86,059  
GAIN FROM DISCONTINUED OPERATIONS
     -       327,083  
                 
NET LOSS
     (13,375,575 )     (3,304,420 )
                 
OTHER COMPREHENSIVE INCOME
                
Foreign currency translation gain
     767,458       1,425,817  
                 
COMPREHENSIVE LOSS
   $ (12,608,117 )   $ (1,878,603 )
                 

Note 13 – Convertible debentures, page 36
4 & 5.  The accounting treatments for the beneficial conversion feature and the discount in conjunction with the issuance of the convertible debentures were discussed with Mr. Joseph Kemp before and restated in 10KA 2006 and 10QA 2007 for the first three quarters.  The detailed calculations and accounting treatments (sent to Mr. Joseph Kemp before) are as follows.
 
CDGT-Proposed restatement
            
                       
Convertible Debenture
           3,100,000  
                         
  (1 )  
Preferential
              
          A  
On November 17, 2006, the company issued 6,666,666 shares convertible debentures for $3,000,000
             
Market price:  0.75
              
             
Exercise price: 0.45 (the holders have the option to convert at any time)
  
             
Maturity Date: 18 months from November 17, 2006
          
             
Beneficial convertible feature: ($0.75-$0.45) x 6,666,666 shares = $2,000,000
  
          B  
On December 13, 2006, the company issued 222,222 shares conbentures for $100,000
             
Market price:  0.67
              
             
Exercise price: 0.45 (the holders have the option to convert at any time)
  
             
Maturity Date: 18 months from December 13, 2006
          
             
Beneficial convertible feature: ($0.67-$0.45) x 222,222 shares = $48,889
  
       
Total Beneficial Convertible feature of the Convertible note was $2,048,889
  
             
One time journal entry:
              
             
Dr Interest
     2,048,889.00          
             
Cr Additional paid-in capital
     2,048,889.00          
  (1 )  
Value of warrants
                
             
Black Sholes Calculation-attached
                
             
Class A:
     2,648,040          
             
Class B:
     2,080,226          
             
Class C:
     631,845          
                    5,360,111          
 
 
 
             
PROPOSED RESTATEMENT
       
Dr
Cr
Effect on I/S
per 10K 2006
per Q1 2007
per Q2 2007
per Q3 2007
per Q4 2007
   
Net income (loss) As reported
      
2,136,990
12,028
(11,135.00)
(210,897.00)
  
Q4 2006 1  Cash
3,100,000
              
     
Convertible debentures
  
3,100,000
            
                       
   
Convertible debentures start date: Nov 17, 2006
                
                       
 
2 Interest on convertible debentures
2,000,000
  
(2,000,000.00)
(2,000,000.00)
        
     
Additional paid-in capital
  
2,000,000
            
                       
   
Convertible feature is calculated
                
     
Convertible feature: ($0.75-$0.45) x 6,666,666 shares = $2,000,000
            
                       
                       
 
3
 Interest on convertible debentures
48,889
  
(48,889.00)
(48,889.00)
        
     
Additional paid-in capital
  
48,889
            
                       
   
Convertible feature is calculated
                
     
Convertible feature: ($0.67-$0.45) x 222,222 shares = $48,889
              
                       
                       
 
4
 Discount on convertible debentures
3,100,000
              
     
Additional paid-in capital
  
3,100,000
            
                       
   
Call Option Value is over $6M and limited to $3.1M
              
                       
 
5
 Amortisation of debt discount
246,852
  
(246,852.00)
(246,852.00)
        
     
Discount on convertible debentures
  
246,852
            
                       
   
Interest is calculated on 43 days from Nov 17, 2006 to Dec 31, 2006
              
     
besed on 18 months for convertible debentures.
              
     
($3,100,000/18 + $3100,000/18x13/30)
          
                       
Q1 20076Amortisation of debt discount
516,666
  
(516,666.00)
  
(516,666.00)
      
     
Discount on convertible debentures
  
516,666
            
                       
   
Interest is calculated on 3 months ($3100000/18 x 3 months)
              
                       
Q2 20077 Amortisation of debt discount
516,666
  
(516,666.00)
    
(516,666.00)
    
     
Discount on convertible debentures
  
516,666
            
                       
   
Interest is calculated on 3 months ($3100000/18 x 3 months)
              
                       
Q3 2007 8 Amortisation of debt discount
516,667
  
(516,667.00)
      
(516,667.00)
  
     
Discount on convertible debentures
  
516,667
            
                       
   
Interest is calculated on 3 months ($3100000/18 x 3 months)
              
                       
Q4 2007 9 Amortisation of debt discount
550,780
  
(550,780.00)
        
(550,780.00)
     
Discount on convertible debentures
  
550,780
            
   
Note: $135,000 debenture was converted to shares on 26 Dec 07
              
   
Interest is calculated on 3 months ($3100000/18 x 3 months + 135,000/18 x 4  + 135,000/18 x 17/31)
            
                       
                       
   
Net income (loss) As restated
    
(4,396,520.00)
(158,751.00)
(504,638.00)
(527,801.00)
(727,564.00)
  
                       
                       
 
Should you have any other comments to our responses above, please feel free to contact me again.

Sincerely,


/s/ Daniel Ng
Daniel Ng
President and CEO

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