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 endedSeptember 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 o	Accelerated filer o
Non-accelerated filer o    (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o     No x

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

Number of shares of preferred stock outstanding as of October 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 - September 30, 2008 (unaudited) and December 31, 2007 (audited)	3
	Condensed Consolidated Statements of Operations And Comprehensive Income (Loss) - Nine months and Three Months Ended September 30, 2008 and 2007 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows - Nine months Ended September 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 3. 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

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ITEM 1. FINANCIAL STATEMENTS

CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2008			December 31, 2007
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	171,595		$	334,410
Accounts receivable, net of allowances		2,098,987			1,851,193
Inventories, net		1,361,524			781,561
Other receivables and prepaid expenses		171,345			500,229
Value added taxes recoverable		74,795			45,530
Total Current Assets		3,878,246			3,512,923
ACCOUNTS RECEIVABLE, long-term portion, net of allowances		1,626,702			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		13,947,201			13,193,066
DEFERRED TAX ASSET		-			123,982
OTHER ASSETS		-			124,471
TOTAL ASSETS	$	23,773,425		$	29,057,363
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Convertible debentures, net of discount	$	2,965,000		$	2,212,631
Accounts payable		4,822,202			5,109,728
Other payables and accrued liabilities		1,077,161			707,932
Due to directors		285,633			241,239
Due to a stockholder		395,291			384,581
Due to related companies		751,137			730,831
Business and other tax payable		21,674			157,646
Income tax payable		1,692,350			2,082,349
Total Current Liabilities		12,010,448			11,626,937
LONG-TERM LIABILITIES
Accounts payable		1,100,563			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 September 30, 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 September 30, 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		(8,104,886	)		(970,704	)
Appropriated		1,521,997			1,521,997
Accumulated other comprehensive income		2,216,700			1,400,602
Total Stockholders' Equity		10,662,414			16,811,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	23,773,425		$	29,057,363

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 OPERATIONS AND

COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	For the three months ended						For the nine months ended
	September 30						September 30
	2008			2007			2008			2007
				(Restated)						(Restated)
NET SALES
Revenue from digitalization of television signals	$	1,698,059		$	1,361,511		$	4,960,035		$	4,119,214
Revenue from television advertising		143,430			33,493			288,354			330,791
Revenue from software development		78			168			18,735			22,188
Government grant received		-			320,546			-			977,102
		1,841,567			1,715,718			5,267,124			5,449,295
COST OF SALES
Cost of Sales - digitalization of television signals		(198,422	)		(189,611	)		(574,946	)		(537,990	)
Depreciation - digitalization of television signals		(1,061,699	)		(817,728	)		(2,864,892	)		(2,289,627	)
Cost of Sales - television advertising		(83,685	)		2,432			(185,694	)		(307,394	)
		(1,343,806	)		(1,004,907	)		(3,625,532	)		(3,135,011	)
GROSS PROFIT		497,761			710,811			1,641,592			2,314,284
OPERATING EXPENSES
Selling, general and administrative expenses		(708,698	)		(665,198	)		(1,907,198	)		(1,561,696	)
Provision for doubtful debts		(6,351,225	)		(614,463	)		(6,351,225	)		(977,972	)
Amortization of convertible debt discount		-			(516,666	)		(752,369	)		(1,549,998	)
Depreciation and amortization		(18,619	)		(24,679	)		(61,486	)		(72,775	)
Total Operating Expenses		(7,078,542	)		(1,821,006	)		(9,072,278	)		(4,162,441	)
LOSS FROM OPERATION		(6,580,781	)		(1,110,195	)		(7,430,686	)		(1,848,157	)
OTHER INCOME (EXPENSES)
Interest income		297			796			2,242			1,666
Other income		129,814			40,773			210,319			63,831
Interest expenses		(132,030	)		(32,087	)		(241,741	)		(95,115	)
Interest paid to related companies and directors		(6,537	)		(4,293	)		(23,105	)		(10,037	)
Other expenses		(1,191	)		(19,986	)		(43,781	)		(51,301	)
Total Other Expenses, net		(9,647	)		(14,797	)		(96,066	)		(90,956	)
NET LOSS BEFORE TAXES		(6,590,428	)		(1,124,992	)		(7,526,752	)		(1,939,113	)
Income tax (expense) income		(19,737	)		(15,178	)		392,570			(129,128	)
NET LOSS FROM CONTINUING OPERATIONS		(6,610,165	)		(1,140,170	)		(7,134,182	)		(2,068,241	)
DISCONTINUED OPERATIONS
Equity gain (loss) of affiliate		-			20,292			-			(14,538	)
Net gain from subsidiary		-			361,763			-			225,415
Gain on disposal of affliate		-			19,249			-			86,059
GAIN FROM DISCONTINUED OPERATIONS		-			401,304			-			296,936
NET LOSS		(6,610,165	)		(738,866	)		(7,134,182	)		(1,771,305	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain		(112,800	)		(156,180	)		816,098			(37,601	)
COMPREHENSIVE INCOME (LOSS)	$	(6,722,965	)	$	(895,046	)	$	(6,318,084	)	$	(1,808,906	)
Net loss per share - basic - two classes method
- From continuing operations	$	(0.15	)	$	(0.04	)	$	(0.17	)	$	(0.07	)
- From discontinued operations		0.00			0.01			0.00			0.01
Net loss per share - diluted
- From continuing operations	$	(0.15	)	$	(0.04	)	$	(0.17	)	$	(0.07	)
- From discontinued operations		0.00			0.01			0.00			0.01
Weighted average number of shares outstanding during the period - basic		42,706,363			31,602,365			42,556,463			31,602,365
Weighted average number of shares outstanding during the period - diluted		42,706,363			31,602,365			42,556,463			31,602,365

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 NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007

(UNAUDITED)

	2008			2007
				(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income from continuing operations	$	(7,134,182	)	$	(2,068,241	)
Net (loss) income from discontinued operations		-			296,936
Total net loss		(7,134,182	)		(1,771,305	)
Adjusted to reconcile net loss to cash provided by operating activities:
Equity loss of affiliate - discontinued operation		-			36,934
Depreciation-cost of sales		2,864,892			2,289,627
Depreciation and amortization		61,486			59,373
Depreciation and amortization of discontinued operation		-			13,402
Provision for doubtful debts		6,351,225			977,972
Amortization of convertible debt discount		752,369			1,549,998
Loss on disposal of affiliate		-			(86,059	)
Amortization on stock compensation		21,200			47,700
Gain on disposal of interest in subsidiary		-			(255,415	)
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable		(443,724	)		(890,135	)
Other receivables and prepaid expenses		254,089			(650,165	)
Inventories		(579,963	)		(181,911	)
Deferred tax asset		123,982			(152,224	)
Other assets		124,471			156,504
Increase (decrease) in:
Due to a related company		-			-
Accounts payable		193,937			(1,147,515	)
Other payables and accrued liabilities		517,201			(161,599	)
Business tax payable		(135,972	)		(153,503	)
Value added taxes payable		45,530			38,133
Income tax payable		(389,999	)		378,758
Other tax payable		-			(23,937	)
Net cash provided by operating activities		2,626,542			74,633
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash inflow from business combination		-			61
Disposal of affiliates		-			265,924
Investment in affiliate		-			360,684
Disposal of subsidiary (Note 4)		-			87,333
Purchase of property and equipment		(2,706,013	)		(1,470,751	)
Net cash used in investing activities		(2,706,013	)		(756,749	)
CASH FLOWS FROM FINANCING ACTIVITIES
Due to related companies		20,306			(3,539	)
Minority interests		-			92,918
Due to a stockholder		10,710			779,101
Due to directors		44,394			82,511
Net cash provided by financing activities		75,410			950,991
EFFECT OF EXCHANGE RATE ON CASH		(158,754	)		(264,787	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(162,815	)		4,088
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		334,410			402,591
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	171,595		$	406,679

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 SEPTEMBER 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 September 30, 2008, the consolidated results of operations for the three months and nine months ended September 30, 2008 and 2007, and consolidated statements of cash flows for the nine months ended September 30, 2008 and 2007. The consolidated results for the three months and nine months ended September 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 nine months ended September 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 Limited (“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 nine months ended September 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.

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 additional STB and smart cards to 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.

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 nine months ended September 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.

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.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2008 (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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)            Accounts receivable

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.    An allowance for doubtful accounts is established and recorded based on managements’ assessment of the credit history with the customer and current relationships with them.

As of September 30, 2008 and 2007, the Company considered all accounts receivable collectable after $6,351,225 and $977,972 were provided for doubtful accounts for the nine months ended September 30, 2008, respectively.

(F)   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.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2008 (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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.

(G)   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.

(H)   Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement is effective for us beginning January 1, 2009. We do not expect the adoption of SFAS 141R to have a material impact on our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling 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 non-controlling 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 non-controlling 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 non-controlling owners.  SFAS No. 160 affects those entities that have an outstanding non-controlling 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 non-derivative 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. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

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.

In October 2008, FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Actibe”, to clarify guidance on determining the fair value of a financial asset under SFAS No. 157 in a market that is not active. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of this statement effective September 30, 2008 did not have a material impact on our financial position or results of operations.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 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 nine months ended September 30, 2008 and 2007:

	Digitalization									Investments
	of Television			Television			Software			in Television
	Signals			Advertising			Development			Series			Total
2008
Revenues	$	4,960,035		$	288,354		$	18,735		$	-		$	5,267,124
Gross profit		1,520,196			102,661			18,735			-			1,641,592
Net Income (loss)		(5,762,569	)		28,554			64,511			(14,922	)		(5,684,426	)
Total assets		18,811,375			583,467			4,271,394			107,189			23,773,425
Capital expenditure		2,416,927			12,429			154,316			122,341			2,706,013
Depreciation and amortization	$	2,903,993		$	-		$	15,313		$	7,072		$	2,926,378
2007 (Restated)
Revenues	$	5,096,316		$	330,791		$	22,188		$	-		$	5,449,295
Gross profit (loss)		2,268,699			23,397			22,188			-			2,314,284
Net Income (loss)		934,754			(512,663	)		(144,672	)		(101,358	)		176,061
Total assets		25,872,201			265,417			1,453,152			954,703			28,545,473
Capital expenditure		1,146,241			(584,613	)		17,376			390			579,394
Depreciation and amortization	$	1,485,471			-			6,151			28,373		$	1,519,995

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

	2008			2007
Total net (loss) income for reportable segments	$	(5,684,426	)	$	176,061
Unallocated amounts relating to corporate operations
Interest expenses		240,473			96,129
Amortization of convertible debt discount		752,369			1,549,998
Interest paid to related companies and directors		23,105			10,037
Gain from discontinued operations		-			(296,936	)
Administration expenses		365,685			571,624
Professional fees		51,382			15,000
Others		16,743			1,514
Total net loss	$	(7,134,182	)	$	(1,771,305	)

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2008 (UNAUDITED)

NOTE 3 - EARNINGS PER SHARE

As of September 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.

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 nine months ended September 30, 2008 and 2007 are calculated as follows:

	2008			2007
				(Restated)
Net Loss		(7,134,182	)		(1,771,305	)
Basic - 2 classes method
Loss available to common stockholders	$	(7,134,182	)	$	(1,771,305	)
Weighted-average common stock outstanding		42,556,463			31,602,365
Basic earnings per share - Common Stock
-From continuing operations		(0.17	)		(0.07	)
-From discontinuing operations		(0.00	)		0.01
Diluted
Loss available to common stockholders	$	(7,134,182	)	$	(1,771,305	)
Diluted weighted-average common stock outstanding		42,556,463			31,602,365
Diluted earnings per share
-From continuing operations		(0.17	)		(0.07	)
-From discontinuing operations		0.00			0.01

Warrants to purchase 6,888,882 shares of common stock at $0.80 per share, 6,888,882 shares of common stock at $1.20 per share and 3,444,441 shares of common stock at $2.25 per share were outstanding as of September 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.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2008 (UNAUDITED)

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.  The Company is currently awaiting a decision from the Court on its motion to dismiss the case.

The Company contested the allegations of the Plaintiffs and has vigorously defended 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.  The Company also does not believe that United States District Court for the Southern District of New York has jurisdiction over us to even hear this case.  The Company believes it has 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 September 30, 2008.

NOTE 5 - COMMON STOCK

During the quarter ended September 30, 2008, the Company did not issue any shares.

NOTE 6 - CONVERTIBLE DEBENTURE

The following is a summary of the Company’s outstanding debentures as at September 30, 2008 and December 31, 2007.

	September 30, 2008		December 31, 2007
	(Unaudited) (In default)		(Audited)
$2,150,000 Convertible Debentures, net of $135,000 conversions as of September 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 September 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 September 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 September 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 September 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 September 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.

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CHINA DIGITAL MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2008 (UNAUDITED)

NOTE 6 - CONVERTIBLE DEBENTURE (CONT.)

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.

Convertible debt discount amortized for the nine months ended September 30, 2008 and September 30, 2007 was $752,369 and $1,549,998 respectively.   Debenture interest accrued for the nine months ended September 30, 2008 and September 30, 2007 was $44,501 and $92,745 respectively.

The default interest expense on convertible debenture for the nine months ended September 30, 2008 was $195,973.

NOTE 7 - RELATED PARTY TRANSACTIONS

As of September 30, 2008, the Company owed two directors $285,633 for short-term advances.  Interest is charged at 6% per annum on the amount owed.

As of September 30, 2008, the Company owed to related companies $751,137 for short-term unsecured advances made. Interest is charged at 6% per annum on the amount owed.

As of September 30, 2008, the Company owed to a stockholder $395,291 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 $8,104,886 at September 30, 2008 that includes a net loss of $7,134,182 for the period ended September 30, 2008.  The Company’s total current liabilities exceed its total current assets by $8,132,202.  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.  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 420,000 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 September 30, 2008, the Company has migrated about 280,000 subscribers into the digital system.

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.

Under the Co-operative Agreement, the Company is the 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.

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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 , 89 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 was 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 additional STBs was reduced, such change in pricing is expected to improve the profitability and cash flow 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 effectively to enhance the value of the advertising space.

In February, 2007, M-Rider signed a five year sole agent service agreement (the “Sole Agent Agreement”) to provide consultation services and manage advertising time slots exclusively with China Yellow River TV Station (“CYR Station”), a television station located in Shanxi Province in China which has a population of over 30 million, starting from January 1, 2007. In addition, M-Rider has a priority to renew the Agreement for an additional five years upon expiration of the Sole Agent Agreement on December 31, 2011.

According to the Sole Agent Agreement, M-Rider shall act as the sole agent and provide consultation services for media planning advisory, sales analysis and strategic planning to CYR Station. In return, M-Rider will get a media services fee based on the revenue generated and a performance bonus at the end of each fiscal year.

The Company relied on a supplier for approximately 100% of its purchases in the third quarter of 2008 for the Nanhai digitalization of TV system in the Nanhai project. As of September 30, 2008, accounts payable to this supplier amounted to $4,825,949 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 September 30, 2008 increased by $125,849 or 7% to $1,841,567 from $1,715,718  for the same period ended September 30, 2007. The increase in total net sales was due to the increase in cable TV basic subscription fee income and the television advertising income which was offset by the loss of government grant. For the nine months ended September 30, 2008, we recorded total revenue of $5,267,124, or 3% decrease compared to total revenue of  $5,449,295 for the same period last year. The decrease in total net sales was due to the loss of government grant.  The basic and additional STBs registered increased from about 470,604 as of September 30, 2007 to 518,937 as of September 30, 2008.

Gross Profit

Gross profit for the three months ended September 30, 2008 decreased by $213,050 or 30%, and for the nine months ended September 30, 2008 decreased by  $672,692 or 29% as compared with the same period last year because of the increase in depreciation of STBs purchased for the DTV migration and the loss in government grant income.

Expenses

Selling, general, administrative and depreciation and amortization (not related directly to generation of revenue) expenses for the three months ended September 30, 2008 increased by $5,257,536 or 289% to $7,078,542, and for the nine months ended September 30, 2008 increased by  $4,909,837 or 118% to $9,072,278 in comparison with the same periods ended September 30, 2007. The increase is mainly due to the increase in provision of doubtful debt on the long-term portion of accounts receivable.

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Net Loss

Net loss after tax was $6,610,165 for the three months and $7,134,182 for the nine months period ended September 30, 2008, compared to a net loss of $738,866 and $1,771,305 respectively for the same period ended September 30, 2007. The increase in net loss was because of the increase in provision of doubtful debt on the long-term portion of account receivable over the increased uncertainty on the future financial strength of Nanhai Network Company under the current global financial crisis.

Balance Sheet Items:

Current Assets

Current Assets of the Company increased by $0.4 million to $3.8 million during the first nine months of 2008. As the Company utilized most of its cash on DTV migration, it has maintained a low level of cash balance of $0.2 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 September 2008 compared to the same period last year.

Accounts Receivable, long-term portion

Accounts Receivable, long-term portion represents the amount of outstanding debt owed by Nanhai Network Company which is to be repaid evenly on a monthly basis over the next 15 years (up to 2013) starting from June 1, 2008.   An agreement was entered into in the year 2007 for repaying this amount with the increased cable TV subscription monthly fee effective from June 2008.  The management believes that the current global financial crisis may have an adverse impact on the business of Nanhai Network Company.  The uncertainty on its ability to repay such debt in the long run has increased.  Accordingly, a one-off provision of doubtful debt is considered necessary in this financial period.  The amount of doubtful debt provided for this customer for the three months ended September 30, 2008 is $6,351,225.

Property and Equipment, Net

The net increase in property and equipment of the Company of $0.8 million represented an increase in purchases of STBs during the first nine months of 2008.

Other Assets

Other assets represent deferred finance costs related to commission, legal and financial advisory fees directly attributable to the issuance of the convertible debenture by the Company in 2006 totaling $620,480. Deferred finance costs are amortized over the life of the debenture of 18 months from November 2006. For the three months ended September 30, 2008, such expense amortized was $0.

Current Liabilities

Current liabilities of the Company increased by $0.4 million to $12.0 million during the first nine months of 2008. The increase was mainly attributable to the amount of discount being amortized during the year for the convertible debenture.

Liquidity and Capital Resources

On September 30, 2008, we had cash of $171,595 and a working capital deficit of $8,132,202. 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 $2,626,542 during the nine months ended September 30, 2008 (2007: cash provided by operating activities was $74,633) reflecting an excess of revenues over expenditure.

Net cash used in investing activities for the nine months ended September 30, 2008 was $2,706,013 as compared with net cash used in investing activities of $756,749 for the nine months ended September 30, 2007. The increase in net cash used in investing activities was due to the increase in purchases of STBs in the first nine months of this year.

Net cash provided by financing activities for the nine months ended September 30, 2008 was $75,410 funding activities of related companies, directors and shareholders (2007: cash provided by financing activities was $950,991 of which $779,101 represented shareholder’s funding activities ).

We continued to receive cash from the 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 September 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.

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On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, additional infusions of capital and debt financing. Our current capital and revenues are not sufficient to fund further acquisition and business expansion.  The Company is planning to raise capital through debt financing and equity raising from banks, potential investors and partners. However, if the Company is unable to raise additional capital, its growth potential is more likely to be affected.

The Company issued a total of $3.1 million in convertible debentures in November and December 2006, of which $2.965 million is currently outstanding, 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 Company’s 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 nine months ended September 30, 2008 was $816,098.

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 3. 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 September 30, 2008, the Company did not issue any shares.

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: November 11, 2008

/s/ Ng Chi Shing

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

Ng Chi Shing

Chief Executive Officer

Date: November 11, 2008

/s/ Ng Chi Shing

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

Ng Chi Shing

Chief Financial Officer

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