10-Q

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 ended June 30, 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 ¨     Accelerated filer ¨  Non-accelerated filer ¨  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 ¨     No o

Number of shares of common stock outstanding as of July 31, 2008: 42,706,363

Number of shares of preferred stock outstanding as of July 31, 2008: 1,875,000

CHINA DIGITAL MEDIA CORPORATION

INDEX TO FORM 10-Q

		Page No.
PART I
Item 1. Financial Statements
	Condensed Consolidated Balance Sheet - June 30, 2008 (unaudited) and December 31, 2007 (audited)	3
	Condensed Consolidated Statements of Operations And Comprehensive Income (Loss) - Six Months and Three Months Ended June 30, 2008 and 2007 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2008 and 2007 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6 - 12
Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations		13
Item 4. Controls and Procedures		16
PART II
	Item 1. Legal Proceedings	17
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
	Item 3. Defaults Upon Senior Securities	17
	Item 4. Submission of Matters to a Vote of Security Holders	17
	Item 5. Other Information	17
	Item 6. Exhibits	17
	Signatures	18

- 2 - -

ITEM 1. FINANCIAL STATEMENTS

CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2008			December 31, 2007
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	125,331		$	334,410
Accounts receivable, net of allowances		2,020,299			1,851,193
Inventories, net		1,659,948			781,561
Other receivables and prepaid expenses		288,454			500,229
Value added taxes recoverable		138,002			45,530
Total Current Assets		4,232,034			3,512,923
ACCOUNTS RECEIVABLE, long term portion		8,226,166			7,781,997
INTANGIBLE ASSETS		4,321,276			4,320,924
INVESTMENTS IN TELEVISION SERIES, NET of impairment of $223,421		-			-
PROPERTY AND EQUIPMENT, NET		14,409,565			13,193,066
DEFERRED TAX ASSET		-			123,982
OTHER ASSETS		-			124,471
TOTAL ASSETS	$	31,189,041		$	29,057,363
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Convertible debentures, net of discount	$	2,965,000		$	2,212,631
Accounts payable		5,122,676			5,109,728
Other payables and accrued liabilities		1,013,952			707,932
Due to directors		297,072			241,239
Due to a stockholder		422,876			384,581
Due to related companies		670,860			730,831
Business and other tax payable		2,598			157,646
Value added taxes payable		-			-
Income tax payable		1,658,777			2,082,349
Total Current Liabilities		12,153,811			11,626,937
LONG TERM LIABILITIES
Accounts payable		1,649,851			619,100
COMMITMENTS AND CONTINGENCIES		-			-
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 March 31, 2008 and December 31, 2007)		1,875			1,875
Common stock ($0.001 par value, 500,000,000 shares authorized, 42,706,363 shares  and 42,117,057 shares issued and outstanding as of March 31, 2008 and December 31, 2007 respectively)		42,706			42,117
Additional paid-in capital		14,984,022			14,836,639
Deferred stock compensation		-			(21,200	)
Retained earnings
Unappropriated		(1,494,721	)		(970,704	)
Appropriated		1,521,997			1,521,997
Accumulated other comprehensive income		2,329,500			1,400,602
Total Stockholders' Equity		17,385,379			16,811,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	31,189,041		$	29,057,363

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

- 3 - -

CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For the three months ended						For the six months ended
	June 30						June 30
	2008			2007			2008			2007
				(Restated)						(Restated)
NET SALES
Revenue from digitalization of television signals	$	1,710,504		$	1,357,890		$	3,261,976		$	2,757,703
Revenue from television advertising		54,341			51,218			144,924			297,298
Revenue from software development		8,341			12,760			18,657			22,020
Government grant received		-			333,316			-			656,556
		1,773,186			1,755,184			3,425,557			3,733,577
COST OF SALES
Cost of Sales - digitalization of television signals		(229,559	)		(155,919	)		(376,524	)		(348,379	)
Depreciation - digitalization of television signals		(853,030	)		(755,993	)		(1,803,193	)		(1,471,899	)
Cost of Sales - television advertising		(31,428	)		(24,194	)		(102,009	)		(309,826	)
		(1,114,017	)		(936,106	)		(2,281,726	)		(2,130,104	)
GROSS PROFIT		659,169			819,078			1,143,831			1,603,473
OPERATING EXPENSES
Selling, general and administrative expenses		(507,475	)		(625,963	)		(1,198,500	)		(1,260,007	)
Amortization of convertible debt discount		(258,202	)		(516,666	)		(752,369	)		(1,033,332	)
Depreciation and amortization		(18,375	)		(24,690	)		(42,867	)		(48,096	)
Total Operating Expenses		(784,052	)		(1,167,319	)		(1,993,736	)		(2,341,435	)
LOSS FROM OPERATION		(124,883	)		(348,241	)		(849,905	)		(737,962	)
OTHER INCOME (EXPENSES)
Interest income		737			529			1,945			870
Other income		21,600			14,387			80,505			23,058
Interest expenses		(79,402	)		(31,518	)		(109,711	)		(63,028	)
Interest paid to related companies and directors		(9,600	)		(3,014	)		(16,568	)		(5,744	)
Other expenses		(19,147	)		(27,251	)		(42,590	)		(31,315	)
Total Other Expenses , net		(85,812	)		(46,867	)		(86,419	)		(76,159	)
NET LOSS BEFORE TAXES		(210,695	)		(395,108	)		(936,324	)		(814,121	)
Income tax (expense) income		(66,414	)		(121,668	)		412,307			(113,950	)
NET LOSS FROM CONTINUING OPERATIONS		(277,109	)		(516,776	)		(524,017	)		(928,071	)
DISCONTINUED OPERATIONS
Equity loss of affiliates		-			(28,680	)		-			(34,830	)
Net loss from subsidiary		-			34,619			-			(136,348	)
Minority Interests		-			(16,964	)		-			66,810
LOSS FROM DISCONTINUED OPERATIONS		-			(11,025	)		-			(104,368	)
NET LOSS		(277,109	)		(527,801	)		(524,017	)		(1,032,439	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain		338,530			26,035			928,898			118,579
COMPREHENSIVE INCOME (LOSS)	$	61,421		$	(501,766	)	$	404,881		$	(913,860	)
Net loss per share - basic - two classes method
- From continuing operations	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.03	)
- From discontinued operations		0.00			(0.00	)		0.00			(0.00	)
Net loss per share - diluted
- From continuing operations	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.03	)
- From discontinued operations		0.00			(0.00	)		0.00			(0.00	)
Weighted average number of shares outstanding during the period - basic		42,681,678			35,772,551			42,480,690			33,519,804
Weighted average number of shares outstanding during the period - diluted		42,681,678			35,772,551			42,480,690			33,519,804

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

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(UNAUDITED)

	2008			2007
				(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(524,017	)	$	(928,071	)
Net (loss) income from discontinued operations		-			(104,368	)
Total net loss		(524,017	)		(1,032,439	)
Adjusted to reconcile net loss to cash provided by operating activities:
Amortization - cost of sales		-			-
Depreciation-cost of sales		1,803,193			1,471,899
Depreciation and amortization		42,867			48,096
Depreciation and amortization of discontinued operation		-			11,601
Amortization of convertible debt discount		752,369			1,033,332
Loss on disposal of affiliate		-			-
Amortization on stock compensation		21,200			31,800
Minority interests - discontinued operation		-			(66,810	)
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable		(613,275	)		(74,424	)
Other receivables and prepaid expenses		73,773			130,186
Inventories		(878,387	)		98,667
Deferred tax asset		123,982			(196,576	)
Other assets		124,471			147,033
Due to a related company		-			(192,283	)
Accounts payable		1,043,699			(1,466,889	)
Other payables and accrued liabilities		453,992			(812,734	)
Business tax payable		(155,048	)		(139,621	)
Value added taxes payable		45,530			63,210
Income tax payable		(423,572	)		375,562
Other tax payable		-			16,028
Discontinued operation, net		-			109,182
Net cash provided by operating activities		1,890,777			(46,841	)
Net cash inflow from business combination		-			61
Investment in affiliate		-			195,633
Purchase of property and equipment		(2,068,775	)		(579,394	)
Net cash used in investing activities		(2,068,775	)		(383,700	)
Due to a stockholder		38,295			24,802
Due to directors		55,833			(51,478	)
Net cash provided by financing activities		34,157			329,096
EFFECT OF EXCHANGE RATE ON CASH		(65,238	)		88,968
NET DECREASE IN CASH AND CASH EQUIVALENTS		(209,079	)		(12,476	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		334,410			402,591
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	125,331		$	390,115
Continuing operations	$	125,331		$	299,502
Discontinued operations	$	-		$	90,613
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	-		$	-
Cash paid for income tax	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

On March 4, 2008, the Company issued 528,596 shares of common stock in lieu of cash for debenture interest payable to a debenture holder.

On May 8, 2008, the Company issued 60,710 shares of common stock in lieu of cash for debenture interest payable to the debenture holders.

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

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 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 June 30, 2008, the consolidated results of operations for the three months and six months ended June 30, 2008 and 2007, and consolidated statements of cash flows for the six months ended June 30, 2008 and 2007. The consolidated results for the three months and six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2008. These consolidated financial statement 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.

(B) Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements for the three months and six months ended June 30, 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”), 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”).  Because the Company did not have any business in Shenzhen, Digimedia Service (Shenzhen) Limited was deregistered on July 7, 2008.

The accompanying unaudited condensed consolidated financial statements for the three months and six months ended June 30, 2007 include the unaudited financial statements of CDMC and its wholly owned or controlled subsidiaries, CDHL, AGL, M-Rider, Digimedia Services (Shenzhen) Limited (“Digimedia Shenzhen”), Maxcomm, Arable, its 100% variable interest entity (“VIE”) in HuaGuang, the 51% owned subsidiary of HuaGuang, Guizhou Guishi Digimedia Advertising Company Limited (“Guishi Digimedia”), and its 49% investment held by HuaGuang in Guizhou Guishi Huaguang Media Company Limited (“Guishi Huaguang”) 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.

(C) Revenue Recognition

Digitalization of Television Signals

The Company entered into an agreement with Nanhai Network Company to assist its subscribers on the conversion of television signals from analog into digital by providing set-top-box (“STB”) and smart cards to the subscribers in Nanhai City on a lease basis. The Company is entitled to a portion of fees payable by the existing subscribers under a subscription agreement entered into between the subscribers and the Nanhai Network Company. Revenue is recognized on a straight line basis in accordance with the terms of the subscription agreement. The Company also sells STB and smart cards to new subscribers. Revenue arising from these services is recognized when the subscriber is invoiced for the STB and smart cards upon the completion of installation works.

In addition, the Company is entitled to be reimbursed for its operating expenses from Network Company in accordance to the subscription agreement. Revenue arising from costs reimbursement is recognized when the amounts are duly agreed upon between the Company and Network Company.

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. Such grant is received through the Nanhai Network Company and is recognized as revenue on a straight line basis once received.  The Company has not received any of such grant for the six months ended June 30, 2008 as the Company is entitled to a higher income split of DTV subscription fee effective from June 1, 2008.  Since the local government may not be able to release government grant to the Nanhai Network Company starting from 2008, the Nanhai Network Company has agreed to pay a higher income split of DTV subscription fee to the Company once the upward price adjustment of DTV subscription fee is effective as a compensation to the loss of government grant.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 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 fixed assets of the Company and subject to deprecation in line with the depreciable life of the relevant products; or (c) a reduction of Inventories for products maintained in stock.

(D) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis, less estimated residual value over the assets’ estimated useful lives. The estimated useful lives are as follows: (a) STB and smart cards - 5 years; (b) Motor vehicles - 10 years; and (c) Furniture, fixtures and equipment - 5 and 8 years.

Depreciation of STB

As required by SAB11:B, depreciation and amortization for property and equipment directly attributed to the generation of revenue are classified under “Cost of Sales”. Accordingly, depreciation of STB and smart cards of the Company is included in “Cost of Sales”.

(E) Valuation of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. Fair value of financial instruments is made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

The carrying value of cash and cash equivalents, accounts receivables (trade and others), accounts payables (trade and related parties) and accrued liabilities approximate their fair value because of the short-term nature of these instruments. The Company places its cash and cash equivalents with what it believes to be high credit quality financial institutions. The Company controls credit risk related to accounts receivable through credit approvals, credit limit and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

The Company’s major operation is in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the United States dollars (“US$”) and the Chinese Renminbi (“RMB”). Nevertheless, the Company does not believe that its foreign currency exchange rate fluctuation risk is significant, especially if the PRC government allows only gradual currency fluctuation so as to maintain the relative stability of RMB.

The Company accounts for non-hedging contracts that are indexed to, and potentially settled in, its own common stock in accordance with the provisions of Emerging Issues Task Force 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). These non-hedging contracts are 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.

- 7 - -

CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2008 (UNAUDITED)

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.

(F) 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.

(I) 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” (SFAS 161). 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. SFAS 161 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 to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 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.

In May 2008, the FASB released SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that presented in conformity with generally accepted accounting principles in the United States of America. SFAS No. 162 will be effective 60 days following the SEC’s approval of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe SFAS 162 will have a significant impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts,” an interpretation of FASB Statement No. 60. The scope of this Statement is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly, this Statement does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). This Statement also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company does not believe SFAS 163 will have a significant impact on the Company’s consolidated financial statements.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 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 six months ended June 30, 2008 and 2007:

	Digitalization								Investments
	of Television		Television			Software			in Television
	Signals		Advertising			Development			Series			Total
2008
Revenues	$	3,261,976	$	144,924		$	18,657		$	-		$	3,425,557
Gross profit		1,082,258		42,916			18,657			-			1,143,831
Net Income (loss)		436,694		26,076			224,089			(12,260	)		674,599
Total assets		26,211,732		656,137			4,213,517			107,655			31,189,041
Capital expenditure		1,846,138		11,673			93,514			117,450			2,068,775
Depreciation and amortization	$	1,828,925	$	-		$	10,153		$	6,982		$	1,846,060
2007 (Restated)
Revenues	$	3,414,258	$	297,299		$	22,020		$	-		$	3,733,577
Gross profit (loss)		1,593,981		(12,528	)		22,020			-			1,603,473
Net Income (loss)		822,393		12,467			(92,420	)		(4,479	)		737,961
Total assets		21,389,751		2,910,193			802,744			685,278			25,787,966
Capital expenditure		488,365		82,839			8,190			-			579,394
Depreciation and amortization	$	1,497,079	$	11,601		$	3,856		$	19,061		$	1,531,597

A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.

	2008			2007
Total net income for reportable segments	$	674,599		$	737,961
Unallocated amounts relating to corporate operations
Interest expenses		108,744			28,576
Amortization of convertible debt discount		752,369			1,033,332
Interest paid to related companies and directors		16,568			5,744
Loss from discontinued operations		-			104,368
Administration expenses		287,171			575,715
Professional fees		17,092			21,150
Others		16,673			1,514
Total net loss	$	(524,017	)	$	(1,032,439	)

NOTE 3 - EARNINGS PER SHARE

As of June 30, 2008, the Company has outstanding:

- 42,706,363 shares of common stock;

- 1,875,000 shares of preferred stock;

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

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

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

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

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 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 six months ended June 30, 2008 and 2007 are calculated as follows:

	2008			2007
				(Restated)
Net Loss	$	(524,017	)	$	(1,032,439	)
Basic - 2 classes method
Loss available to common stockholders	$	(524,017	)	$	(1,032,439	)
Weighted-average common stock outstanding		42,480,690			33,519,804
Basic earnings per share - Common Stock
- From continuing operations	$	(0.01	)	$	(0.03	)
- From discontinuing operations	$	0.00		$	(0.00	)
Diluted
Loss available to common stockholders	$	(524,017	)	$	(1,032,439	)
Diluted weighted-average common stock outstanding		42,480,690			33,519,804
Diluted earnings per share
- From continuing operations	$	(0.01	)	$	(0.03	)
- From discontinuing operations	$	0.00		$	(0.00	)

Warrants to purchase 6,888,882 shares of common stock at $0.80 per share, 6,888,882 shares of common stock at $1.20 per share and 3,444,441 shares of common stock at $2.25 per share were outstanding as of June 30, 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. We are currently awaiting a decision from the Court on our motion to dismiss the case. The file number of the civil action is 05 CV 4960.

The Company contests the allegations of the Plaintiffs and has retained counsel admitted to practice in the U.S. District Court for the Southern District of New York to vigorously defend the action. The Company did not hire a stock promoter or a spammer to distribute the alleged e-mails, and the alleged emails themselves recite that they were not paid for by the Company or an affiliate. We also do not believe that United States District Court for the Southern District of New York has jurisdiction over us to even hear this case. We believe we have no liability in this matter.

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 June 30, 2008.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2008 (UNAUDITED)

NOTE 5 - COMMON STOCK

During the quarter ended June 30, 2008, the Company issued 60,710 restricted shares to two 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 the Company’s outstanding debentures as at June 30, 2008 and December 31, 2007.

	June 30,		December 31,
	2008		2007
	(Unaudited)		(Audited)
	(In default)
$2,150,000 Convertible Debentures, net of $135,000 conversions as of June 30, 2008 and December 31, 2007 and unamortized discount of $0 and $511,350 as of June 30, 2008 and December 31, 2007 respectively at 4% interest per annum due May 2008, in default	$	2,015,000	$	1,503,650
$500,000 Convertible Debentures, net of unamortized discount of $0 and $126,852 as of June 30, 2008 and December 31, 2007 respectively at 4% interest per annum due May 2008, in default		500,000		373,148
$200,000 Convertible Debentures, net of unamortized discount of $0 and $50,741 as of June 30, 2008 and December 31, 2007 respectively at 4% interest per annum due May 2008, in default		200,000		149,259
$150,000 Convertible Debentures, net of unamortized discount of $0 and $38,056 as of June 30, 2008 and December 31, 2007 respectively at 4% interest per annum due May 2008, in default		150,000		111,944
$100,000 Convertible Debentures, net of unamortized discount of $0 and $25,370 as of June 30, 2008 and December 31, 2007 respectively at 4% interest per annum due June 2008, in default		100,000		74,630
	$	2,965,000	$	2,212,631

For the fiscal quarter ended June 30, 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.

The debentures matured in May 2008, but due to the Company’s current financial situation with most of the Company’s cash being utilized to make upfront investments in connection with its DTV Migration, the Company did not have enough cash to repay the debentures. The Company is negotiating with the largest debenture holder 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.

Discount amortized for the six months ended June 30, 2008 and June 30, 2007 was $752,369 and $1,033,332 respectively. Debenture interest accrued for the six months ended June 30, 2008 and June 30, 2007 was $44,501 and $61,490 respectively.

The default interest expense on convertible debenture for the six months ended June 30, 2008 is $64,243.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2008 (UNAUDITED)

NOTE 7 - RELATED PARTY TRANSACTIONS

As of June 30, 2008, the Company owed two directors $297,072 for short-term advances. Interest is charged at 6% per annum on the amount owed.

As of June 30, 2008, the Company owed to related companies $670,860 for short-term unsecured advances made. Interest is charged at 6% per annum on the amount owed.

As of June 30, 2008, the Company owed to a stockholder $422,876 for short-term advances made. Interest is charged at 6% per annum on the amount owed.

NOTE 8 - GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $1,494,721 at June 30, 2008 that includes a net loss of $524,017 for the period ended June 30, 2008. The Company’s total current liabilities exceed its total current assets by $7,921,777. 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.

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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.

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.

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 alliance with strong strategic partners.

Cable TV operational support services and 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 June 30, 2008, the Company has migrated about 276,000 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.

- 13 - -

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, they 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 151 channels, including a 68-channel basic package , 80 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.

On June 1, 2008, there was an upward price adjustment on the basic monthly subscription fee of digital TV in effect which was approved by the Government. Although the monthly subscription fee for the additional STB was reduced, such change in pricing is expected to improve the profitability and cashflow of the Company in the coming periods.

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 a supplier for approximately 89% of its purchases in the second quarter of 2008 for the Nanhai digitalization of TV system in the Nanhai project. As of June 30, 2008, accounts payable to this supplier amounted to $5,681,809 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 June 30, 2008 decreased by $18,002 or 1% to $1,773,186 from $1,755,184  for the same period ended June 30, 2007. For the six months ended June 30, 2008, we recorded total revenue of $3,425,557, or 8% decrease compared to total revenue of $3,733,577 for the same period last year. The decrease in total net sales was due to the decrease in installation service income and government grant received, which was offset by the increase in sales of additional STBs. In addition, revenue generated from TV digitalization business has increased as compared with the same period of last year. The basic and additional STBs registered increased from about 460,391 as of June 30, 2007 to 510,346 as of June 30, 2008.

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Gross Profit

Gross Profit for the three months ended June 30, 2008 decreased by $159,909 or 20%, and for the six months ended June 30, 2008 decreased by $459,642 or 29% as compared with the same period last year because of the increase in depreciation of STBs purchased for the DTV migration, decrease in installation service income, reduction in TV advertising sales, and that no revenue was received from government grants during the first and second quarter of 2008.

Expenses

Selling, general, administrative and depreciation and amortization (not related directly to generation of revenue) expenses for the three months ended June 30, 2008 decreased by $383,267 or 33% to $784,052, and for the six months ended June 30, 2008 decreased by  $347,699 or 15% to $1,993,736 in comparison with the same periods ended June 30, 2007. The decrease is mainly due to the reduction in amortization of the convertible debt discount where the instrument ceased to be amortized in May and June this year.

Net Loss

Net loss after tax was $277,109 for the three months and $524,017 for the six months period ended June 30, 2008, compared to a net loss of $527,801 and $1,032,439 respectively for the same period ended June 30, 2007. The decrease in net loss was because of the downward adjustment for income tax provision, reduction in amortization of convertible debt discount and because the Company received payment on an account receivable where bad debt provision had been previously made.

Balance Sheet Items:

Current Assets

Current Assets of the Company increased by $0.7 million to $4.2 million during the first six months of 2008. As the Company utilized most of its cash on DTV migration, it has maintained a low level of cash balance of $0.1 million. The increase was due to the higher inventory level from the increased purchases of STBs for the DTV migration process at the end of June 2008 compared to the same period last year.

Property and Equipment, Net

The net increase in property and equipment of the Company of $1.2 million represented an increase in purchases of STBs during the first six months of 2008.

Other Asset

Other assets represent deferred finance costs related to commission, legal and financial advisory fees directly attributable to the issuance of the convertible debenture by the Company in 2006 totaling $620,480. Deferred finance costs are amortized over the life of the debenture of 18 months from November 2006. For the three months ended June 30, 2008, such expenses amortized were $31,555.

Current Liabilities

Current liabilities of the Company increased by $0.5 million to $12.1 million during the first six months of 2008. The increase was mainly attributable to the increase in debenture, net of discount.

Liquidity and Capital Resources

On June 30, 2008, we had cash of $125,331 and a working capital deficit of $7,921,777. This compares with cash of $334,410 and a working capital deficit of $8,114,014 at December 31, 2007. The decrease in cash was mainly due to the increase in purchases of STBs for the Nanhai project as compared with the same period of last year.

Operating activities had a net generation of cash in the amount of $1,890,777 during the six months ended June 30, 2008 (2007: used in operating activities $46,841) reflecting an excess of revenues over expenditure.

Net cash used in investing activities for the six months ended June 30, 2008 was $2,068,775 as compared with net cash used in investing activities of $383,700 for the six months ended June 30, 2007. The increase in net cash used in investing activities was due to the increase in purchases of STBs in the first six months of this year.

Net cash provided by financing activities for the six months ended June 30, 2008 was $34,157 representing directors funding activities (2007: provided by financing activities $329,096 of which $355,772 represented inter group funding activities ).

- 15 - -

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 June 30, 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.

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, and which debentures already matured 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 does not have enough cash to repay the debentures. The Company has been negotiating with the largest debenture holder 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.

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 six months ended June 30, 2008 was $928,898.

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. We are currently awaiting a decision from the Court on our motion to dismiss the case. The file number of the civil action is 05 CV 4960.

The Company contests the allegations of the Plaintiffs and has retained counsel admitted to practice in the U.S. District Court for the Southern District of New York to vigorously defend the action. The Company did not hire a stock promoter or a spammer to distribute the alleged e-mails, and the alleged emails themselves recite that they were not paid for by the Company or an affiliate. We also do not believe that United States District Court for the Southern District of New York has jurisdiction over us to even hear this case. We believe we have no liability in this matter.

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

During the quarter ended June 30, 2008, the Company issued 60,710 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

As discussed above, the Company did not pay the amounts due under its convertible debentures in the amount of $2.965 million plus accrued interest. The Company has been negotiating with the largest debenture holder 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. 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 EXHIBIT
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

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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: August 13, 2008

/s/ Ng Chi Shing

-----------------------------

Ng Chi Shing

Chief Executive Officer

Date: August 13, 2008

/s/ Ng Chi Shing

-----------------------------

Ng Chi Shing

Chief Financial Officer

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EX-31.1

EXHIBIT 31.1

Certification of Principal Executive Officer

I, Ng Chi Shing, Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of China Digital Media Corporation

2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 13, 2008

/s/ Ng Chi Shing

---------------------

Ng Chi Shing

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer

I, Ng Chi Shing, Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of China Digital Media Corporation

2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 13, 2008

/s/ Ng Chi Shing

-----------------------------

Ng Chi Shing

Chief Financial Officer

EX-32

EXHIBIT 32.1

STATEMENT REQUIRED BY 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of China Digital Media Corporation (the "Company") for the six months ended JUNE 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Ng, Chief Executive Officer and Chief Financial Officer, of the Company, certify that:

·   the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

·   information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company on the dates and for the periods presented.

/s/ Ng Chi Shing

---------------------

Ng Chi Shing

Director, President, Chief Executive Officer

/s/ Ng Chi Shing

---------------------

Ng Chi Shing

Chief Financial Officer

August 13, 2008

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.