U. S.
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 December
31, 2009





[
        ]    TRANSITION REPORT UNDER SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the transition period from _____ to
_____





Commission
File No. 0-50441




CHINA DIGITAL
      ANIMATION DEVELOPMENT INC.
              (Name
      of Registrant in its Charter)New
      York
            84-1275578(State
      of Other Jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer I.D. No.)15 West 39thStreet, Suite 14B,
      New York, NY  10018(Address
      of Principal Executive Offices)





Issuer's
Telephone Number: (212) 391-2688





Indicate
 by check mark  whether the  Registrant  (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the  Securities
Exchange Act of 1934  during  the  preceding  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 [    ]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.)  Yes
____    No ____




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




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 the definitions of “large accelerated filer,” “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]




APPLICABLE
ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of
each of the Registrant's classes of common stock, as of the latest practicable
date:




February
22, 2010


Common
Voting Stock: 20,000,000





CHINA
      DIGITAL ANIMATION DEVELOPMENT, INC.CONSOLIDATED
      FINANCIAL STATEMENTSFOR
      THE SIX MONTH ENDED DECEMBER 31, 2009 AND YEAR ENDED JUNE
      30,  2009





PAGEFINANCIAL
      STATEMENTS:CONSOLIDATED
      BALANCE SHEETS
              2-3CONSOLIDATED
      STATEMENTS OF INCOME
              4CONSOLIDATED
      STATEMENTS OF CHANGE IN STOCKHOLDERS'
      EQUITY
              5CONSOLIDATED
      STATEMENTS OF CASH FLOWS
              6
      & 7NOTES
      TO FINANCIAL STATEMENTS
              8
      - 19








1










2009DECEMBER
      31
              
              
              JUNE
      30(Unaudited)
              
              
              (Audited)ASSETSCurrent
      Assets:Cash
      and Cash Equivalents
              
              $
              1,069,023
              
              
              $
              2,282,786Accounts
      Receivable, net
              
              
              1,113,182
              
              
              
              1,388,599Employee
      Advances
              
              
              4,287
              
              
              
              2,234Advanced
      to Suppliers
              
              
              -
              
              
              
              1,443,440Interest
      Receivable
              
              
              55,013
              
              
              
              54,786Prepaid
      Expenses
              
              
              1,426,838
              
              
              
              84,202Total
      Current Assets
              
              
              3,668,343
              
              
              
              5,256,047Non-current
      AssetsProperty,
      Plant & Equipment, net
              
              
              4,566,790
              
              
              
              3,929,257Land
      Use Right and Other Intangible Assets, net
              
              
              2,960,290
              
              
              
              1,106,870Long
      Term Investment
              
              
              2,200,500
              
              
              
              2,191,457Total
      Non-current Assets
              
              
              9,727,580
              
              
              
              7,227,584Total
      Assets
              
              $
              13,395,923
              
              
              $
              12,483,631


"
Continued on next page"
  "The
accompanying notes are an integral part of these financial
statements"
  2
  
  DECEMBER
      31
                
                
                JUNE
      302009
                
                
                2009(Unaudited)
                
                
                (Audited)LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      Payable
                
                $
                71,255
                
                
                $
                29,219Advance
      from Customers
                
                
                -
                
                
                
                -Payroll  Payable
                
                
                1,817
                
                
                
                -Tax
      Payable
                
                
                138,737
                
                
                
                214,471Accrued
      Expenses and Other Payable
                
                
                67,509
                
                
                
                64,964Total
      Current Liabilities
                
                
                279,318
                
                
                
                308,654Long-Term
      Liabilities:Loan
      Payable
                
                
                66,000
                
                
                
                5,000Total
      Long-Term Liabilities
                
                
                66,000
                
                
                
                5,000Total
      Liabilities
                
                
                345,318
                
                
                
                313,654Stockholders'
      Equity:Common
      Stock, par value $0.001, 500,000,000 authorized20,000,000
      shares issued and outstanding
                
                
                20,000
                
                
                
                20,000Additional
      Paid in Capital
                
                
                6,223,717
                
                
                
                6,223,717Accumulated
      Other Comprehensive Income
                
                
                1,814,442
                
                
                
                1,761,978Reserved
      Fund
                
                
                705,738
                
                
                
                341,524Retained
      Earnings
                
                
                4,286,708
                
                
                
                3,822,758Total
      Stockholders' Equity
                
                
                13,050,605
                
                
                
                12,169,977Total
      Liabilities and Stockholders' Equity
                
                $
                13,395,923
                
                
                $
                12,483,631







3








Three
      Months Ended
              
              
              Six
      Months EndedDecember
      31,
              
              
              December
      31,2009
              
              
              2008
              
              
              2009
              
              
              2008Revenues
              
              $
              1,234,375
              
              
              $
              1,371,034
              
              
              $
              2,378,290
              
              
              $
              2,504,968Cost
      of Goods Sold
              
              
              697,413
              
              
              
              139,670
              
              
              
              918,764
              
              
              
              313,135Gross
      Profit
              
              
              536,962
              
              
              
              1,231,364
              
              
              
              1,459,526
              
              
              
              2,191,833Operating
      Expenses:Sales
      Expenses
              
              
              69,742
              
              
              
              100,503
              
              
              
              134,373
              
              
              
              154,713General
      and Administrative Expenses
              
              
              196,367
              
              
              
              187,729
              
              
              
              365,979
              
              
              
              285,657Total
      Operating Expenses
              
              
              266,109
              
              
              
              288,232
              
              
              
              500,352
              
              
              
              440,370Income
      from Operations before other Incomeand (expenses)
              
              
              270,853
              
              
              
              943,132
              
              
              
              959,174
              
              
              
              1,751,463Other
      Income and (Expense):Interest
      income
              
              
              83,952
              
              
              
              5,960
              
              
              
              168,548
              
              
              
              13,045Gains
      from Disposal of Fixed Assets
              
              
              -
              
              
              
              -
              
              
              
              (26
              )Gain
      from Investment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      expense
              
              
              -
              
              
              
              (50
              )
              
              
              
              
              
              
              (50
              )Total
      Other Income and (Expense)
              
              
              83,952
              
              
              
              5,910
              
              
              
              168,522
              
              
              
              12,995Income
      Before Income Taxes
              
              
              354,805
              
              
              
              949,042
              
              
              
              1,127,696
              
              
              
              1,764,458Provision
      for Income Taxes
              
              
              103,653
              
              
              
              242,728
              
              
              
              299,532
              
              
              
              457,905Income
      After Provision for Income Taxes
              
              
              251,152
              
              
              
              706,314
              
              
              
              828,164
              
              
              
              1,306,553Gain
      from Operations of Discontinued Component (Net of Taxes)
              
              
              -
              
              
              
              33,477
              
              
              
              -
              
              
              
              32,816Net
      Income before Minority Interest
              
              
              251,152
              
              
              
              739,791
              
              
              
              828,164
              
              
              
              1,339,369Minority
      Interest
              
              
              -
              
              
              
              3,482
              
              
              
              -
              
              
              
              17,268Net
      Income
              
              $
              251,152
              
              
              $
              736,309
              
              
              $
              828,164
              
              
              $
              1,322,101Basic
      and diluted income per share
              
              
              0.01
              
              
              
              0.04
              
              
              
              0.04
              
              
              
              0.07Weighted
      average common shares outstanding
              
              
              20,000,000
              
              
              
              20,000,000
              
              
              
              20,000,000
              
              
              
              20,000,000





4













AccumulatedCommon
      Stock
              
              
              Additional
              
              
              Other
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Totalpar
      value $.0001
              
              
              Paid
      in
              
              
              Comprehensive
              
              
              Retained
              
              
              Reserved
              
              
              Comprehensive
              
              
              Minority
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Capital
              
              
              Income
              
              
              Earnings
              
              
              Fund
              
              
              Income
              
              
              Interest
              
              
              EquityBalance
      - June 30, 2008
              
              
              20,000,000
              
              
              
              20,000
              
              
              
              6,223,717
              
              
              
              1,645,487
              
              
              
              1,600,427
              
              
              
              112,241
              
              
              
              
              
              
              64,259
              
              
              
              9,666,131Comprehensive
      incomeNet
      income for the twelve months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,451,614
              
              
              
              
              
              
              
              2,451,614
              
              
              
              
              
              
              
              2,451,614Reserved
      Fund
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (229,283
              )
              
              
              229,283
              
              
              
              
              
              
              
              
              
              
              
              -Other
      comprehensive income, net of taxForeign
      currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              116,491
              
              
              
              
              
              
              
              
              
              
              
              116,491
              
              
              
              
              
              
              
              116,491Decrease
      in Minority Interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (64,259
              )
              
              
              (64,259
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,568,105Balance
      - June 30, 2009
              
              
              20,000,000
              
              
              
              20,000
              
              
              
              6,223,717
              
              
              
              1,761,978
              
              
              
              3,822,758
              
              
              
              341,524
              
              
              
              
              
              
              
              -
              
              
              
              12,169,977Comprehensive
      incomeNet
      income for the 6 months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              828,164
              
              
              
              
              
              
              
              828,164
              
              
              
              
              
              
              
              828,164Reserved
      Fund
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (364,214
              )
              
              
              364,214
              
              
              
              
              
              
              
              
              
              
              
              -Other
      comprehensive income, net of taxForeign
      currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              52,464
              
              
              
              
              
              
              
              
              
              
              
              52,464
              
              
              
              
              
              
              
              52,464Decrease
      in Minority Interest
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              880,628Balance
      - December 31, 2009
              
              
              20,000,000
              
              
              $
              20,000
              
              
              $
              6,223,717
              
              
              $
              1,814,442
              
              
              $
              4,286,708
              
              
              $
              705,738
              
              
              
              
              
              
              $
              -
              
              
              
              13,050,605








5










DECEMBER
      312009
              
              
              2008Cash
      Flows From Operating Activities:Net
      Income
              
              $
              828,164
              
              
              $
              1,342,100Adjustments
      To Reconcile Net Income To Net Cash Provided By Operating
      Activities:Depreciation
      and Amortization Expense
              
              
              242,582
              
              
              
              177,039(Increase)
      or Decrease in Current Assets:Accounts
      Receivable
              
              
              275,417
              
              
              
              (554,203
              )Inventories
              
              
              -
              
              
              
              (426,103
              )Prepaid
      Expenses
              
              
              (1,342,636
              )
              
              
              9,211Advanced
      to Suppliers
              
              
              1,443,440
              
              
              
              291,613Interest
      Receivable
              
              
              (227
              )
              
              
              -Employee
      Advanced
              
              
              (2,053
              )
              
              
              143,100Increase
      or (Decrease) in Current Liabilities:Accounts
      Payable
              
              
              42,036
              
              
              
              4,312Advanced
      from Customers
              
              
              -
              
              
              
              80,313Taxes
      Payable
              
              
              (75,735
              )
              
              
              364,799Payroll  payable
              
              
              1,817
              
              
              
              (510
              )Accrued
      Expenses and Other Payables
              
              
              2,545
              
              
              
              (117,455
              )Net
      Cash Provided by Operating Activities
              
              
              1,415,350
              
              
              
              1,314,216Cash
      Flows From Investing Activities:Purchases
      of Property and Equipment
              
              
              (820,723
              )
              
              
              (1,328,064
              )Proceeds
      from Sale of Fixed Assets
              
              
              -
              
              
              
              -Purchases
      of Intangible Assets
              
              
              (1,912,803
              )
              
              
              -Investment-Long
      Term
              
              
              (9,043
              )
              
              
              -Net
      Cash Used in Investing Activities
              
              
              (2,742,569
              )
              
              
              (1,328,064
              )


"Continued
on next page"





6







DECEMBER
      31Cash
      Flows From Financing Activities:
              
              2009
              
              
              2008Proceeds
      from Borrowing
              
              
              61,000
              
              
              
              -Net
      Cash Used in Financing Activities
              
              
              61,000
              
              
              
              -Effect
      of exchange rate changes on cash and cash equivalents
              
              
              52,456
              
              
              
              16,959Increase
      (Decrease) in Cash and Cash Equivalents
              
              
              (1,213,763
              )
              
              
              3,111Cash
      and Cash Equivalents -Beginning Balance
              
              
              2,282,786
              
              
              
              4,740,675Cash
      and Cash Equivalents - Ending Balance
              
              $
              1,069,023
              
              
              $
              4,743,786Supplemental
      Disclosures of Cash Flow Information:Cash
      Paid During The Years for:Interest
      Paid
              
              
              -
              
              
              
              -Income
      Taxes Paid
              
              $
              175,263
              
              
              $
              285,834








7




CHINA
DIGITAL ANIMATION DEVELOPMENT, INC.


NOTES TO
CONDENSED FINANCIAL STATEMENTS


FOR THE
PERIOD ENDED SEPTEMBER 30, 2009


UNAUDITED





1.
            ORGANIZATION AND BASIS OF
      PRESENTATION




On
January 30, 2009, Maui General Store, Inc. (the “Company”) changed its name to
“China Digital Animation Development, Inc.” to reflect the reverse merger of
Heilongjiang Hairong Science and Technology Development Co., Ltd. (“Hairong”)
into the Company.




On
November 12, 2008 the Company acquired the outstanding capital stock of RDX
Holdings Limited ("RDX"), a corporation organized under the laws of the British
Virgin Islands. The acquisition was effected by a share exchange between Fu
Qiang and Su Jianping, the shareholders of RDX, and the Company (the "Share
Exchange"). In exchange for the capital stock of RDX, the Company issued
14,400,000 shares of its common stock to the Messrs. Fu and Su, the issued
shares represented 72% of the outstanding shares of the Company.




RDX is
engaged in the business of managing the assets and operations of Hairong, a
joint stock company organized under the laws of The People's Republic of China.
Hairong is primarily engaged in animation design and development and in
the  production and presentation of cultural events. During the
quarter ended September 30, 2008, Hairong was also engaged in the IT
construction business. Hairong operates its business primarily in the PRC with
its headquarters in Harbin city, Heilongjiang province.




On
October 1, 2007, Hairong purchased 70% of the shareholders’ equity of an
advisory consulting firm, Fortune Global Investment Advisory Co., Ltd (the
“FGIA”). On January 1, 2009 the Company purchased the remaining 30% of the
shareholders’ equity of FGIA without any consideration or currency equivalents
under a transfer agreement.  On May 13, 2009, Hairong sold 100% of
FGIA for the cash amount of $219,036. Hairong is responsible for all the debt
and liabilities incurred up to the transferring date, May 13, 2009.




On June
27, 2008, RDX Holdings entered into five agreements with Hairong and with the
equity owners in Hairong. Collectively, the agreements provide RDX exclusive
control over the business of Hairong, the right to all revenues obtained by
Hairong, and responsibility for all of the expenses incurred by Hairong. The
relationship is one that is generally identified as "entrusted
management."




8




2.   
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Reclassification




Certain
prior period amounts have been reclassified to conform to the current period
presentation. These reclassifications had no effect on reported total assets,
liabilities, stockholders’ equity or net income.




Use
of estimates




In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting year. Significant estimates, required by management, include the
recoverability of long-lived assets and the valuation of
inventories.  Actual results could differ from those
estimates.




Cash
and cash equivalents




For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents. The Company maintains cash and cash equivalents with financial
institutions in the PRC. The Company performs periodic evaluation of the
relative credit standing of financial institutions that are considered in the
Company’s investment strategy.




Bad
debt reserves




The
carrying amount of accounts receivable is reduced by a valuation allowance. The
Company's policy is that for accounts receivable amounts that are aged between 6
months and 12 months, the Company records a 3% bad debt reserve.  If
the receivable is aged over 12 months, the Company reserves 5% of the account as
a bad debt allowance. In addition, the Company reviews balances in excess of
payment terms.  Based on this review, which includes customer credit
worthiness and history, general economic conditions and changes in customer
payment patterns, the Company estimates the portion, if any, of the balance that
will not be collected and records that amount as an additional reserve.
Management reviews its valuation allowance on a semi-annual basis.




9




2.  
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Concentration
of credit risk




Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist of cash and cash equivalents and accounts and other
receivables. As of September 30, 2009, major banks located in the PRC held
substantially all the Company’s cash and cash equivalents. Hairong’s management
believes they are all of high credit quality. With respect to accounts
receivable, the management extends credit based on an evaluation of the
customer’s financial condition and customer payment practices to minimize
collection risk on accounts receivable.




Inventories




Inventories
are stated at lower of cost, as determined on a weighted average basis, or
market value. As the company changed its business to animation, it will not hold
any inventories anymore.




Construction
in progress




Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
The useful life is 20 years.




Property
and equipment




Property
and equipment are stated at cost, net of accumulated
depreciation.  Maintenance, repairs and betterments, including
replacement of minor items, are charged to expense; major additions to physical
properties are capitalized. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives:




Buildings
      and improvements
            40
      yearsMachinery,
      equipment and automobiles
            5-10
      years




Intangible
assets




Intangible
assets consist of “rights to use land” and “animation software.” According to
the law of China, the government owns all the land in China. Companies or
individuals are authorized to possess and use the land only through land use
rights granted by the Chinese government. Land use rights are being amortized
using the straight-line method over the lease term of 50 years.


10




2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
  (continued)




Intangible
assets




The
Company also evaluates intangible assets for impairment, at least on an annual
basis and whenever events or changes in circumstances indicate that the carrying
value may not be recoverable from its estimated future cash
flows.  Recoverability of intangible assets, other long-lived assets
and goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment
loss.




Income
taxes




Hairong
accounted for income tax under the provisions of ASC 740 "Accounting for Income
Taxes", which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
financial statements or tax returns.  Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, whenever necessary,
against net deferred tax assets when it is more likely than not that some
portion or the entire deferred tax asset will not be realized. There are no
deferred tax amounts at December 31, 2009.




Revenue
recognition




The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104.  Sales revenue is recognized when the services
are provided and the contracts are performed.




Fair
value of financial instruments




The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, advances to suppliers, other receivables, accounts payable, accrued
expenses, taxes payable, notes payable and other loans payable. Management has
estimated that the carrying amounts approximate their fair value due to the
short-term nature.




11




2.
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(continued)





Foreign
currency translation




Hairong’s
functional currency is the Renminbi (“RMB”). Foreign currency transactions are
translated at the applicable rates of exchange in effect at the transaction
dates. Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are translated at the applicable rates of exchange in effect
at that date. Revenues and expenses are translated at the average exchange rates
in effect during the reporting period. Translation adjustments arising from the
use of different exchange rates from period to period are included as a
component of stockholders' equity as "Accumulated Other Comprehensive
Income".  Gains and losses resulting from foreign currency
translations are included in Accumulated Other Comprehensive
Income.




Concentration
of credit risk





Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist of cash and cash equivalents and accounts and other
receivables. As of December 31, 2009, major banks located in the PRC held
substantially all the Company’s cash and cash equivalents. Hairong’s management
believes they are all of high credit quality. With respect to accounts
receivable, the management extends credit based on an evaluation of the
customer’s financial condition and customer payment practices to minimize
collection risk on accounts receivable.




Statement
of cash flows




In
accordance with Accounting Standards Codification ASC 230, “Statement of Cash
Flows,” cash flows from the Company’s operations are calculated based upon the
local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheet.




Earnings
(Loss) per share




Basic
earnings (loss) per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There are no common stock equivalents available in the computation of earnings
(loss) per share at December 31, 2009.




12




2.    SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Reserve
fund




Before
June 20, 2006, Hairong was required to transfer 15% of its profit after
taxation, as determined in accordance with Chinese accounting standards and
regulations, to the surplus reserve fund. Subject to certain restrictions set
out in the Chinese Companies Law, the surplus reserve fund may be distributed to
stockholders in the form of share bonus issues and/or cash dividends. After June
30, 2006, such reserve is no longer mandatory under the Chinese
Law.




Comprehensive
income




Comprehensive
income is defined to include changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
items that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements.




Comprehensive
income includes net income and the foreign currency translation gain, net of
tax.




New
accounting pronouncements




In June
2009, the FASB issued ASC 810, “Amendments to FASB Interpretation No. 46(R),”
which changes the approach to determining the primary beneficiary of a variable
interest entity (“VIE”) and requires companies to more frequently assess whether
they must consolidate VIEs. ASC 810 is effective for annual periods beginning
after November 15, 2009. The Company does not expect the adoption of ASC 810
will have a material effect on the Company’s financial condition, results of
operations or cash flows.




In May
2009, the FASB issued ASC 855, “Subsequent Events,” which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. ASC 855 is effective for interim reporting periods ending after
June 15, 2009. The adoption of ASC 855 did not have a material effect on the
Company’s financial condition, result of operations or cash flows.




In April
2009, the FASB issued ASC 270, “Interim Disclosures about Fair Value of
Financial Instruments,” which requires quarterly disclosures of the fair value
of all financial instruments that are not reflected at fair value in the
financial statements, as well as additional disclosures about the method(s) and
significant assumptions used to estimate the fair value. Prior to the issuance
of this FSP, such disclosures, including quantitative and qualitative
information about fair value estimates, were only required on an annual basis.
ASC 270 is effective for interim reporting periods ending after June 15, 2009.
The adoption of ASC 270 did not have a material effect on the Company’s
disclosures.


13




2.
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
(continued)




New accounting
pronouncements




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” The current GAAP hierarchy, as set forth in the American
Institute of Certified Public Accountants (AICPA) Statement on Auditing
Standards No. 69, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles, has been criticized because (1) it is directed
to the auditor rather than the entity, (2) it is complex, and (3) it ranks FASB
Statements of Financial Accounting Concepts. The FASB believes that the GAAP
hierarchy should be directed to entities because it is the entity (not its
auditor) that is responsible for selecting accounting principles for financial
statements that are presented in conformity with GAAP. Accordingly, the FASB
concluded that the GAAP hierarchy should reside in the accounting literature
established by the FASB and is issuing this Statement to achieve that result.
This Statement is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. The
adoption of FASB 162 is not expected to have a material impact on the Company’s
financial position.




In April
2008, the FASB issued ASC 350-3, “Determination of the Useful Life of Intangible
Assets,” which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350-3, “Goodwill and Other Intangible
Assets.” The intent of this FSP is to improve the consistency between the useful
life of a recognized intangible asset under ASC 350-3 and the period of expected
cash flows used to measure the fair value of the asset under ASC 805. ASC 350-3
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption of ASC 350-3 did not have
an effect on the Company’s financial condition, results of operations or cash
flows.




3.   
ACCOUNTS RECEIVABLE




Accounts
receivable are uncollateralized, non-interest bearing customer obligations
typically due under terms requiring payment from the invoice
date.  Payments of accounts receivable are allocated to the specific
invoices identified on the customer’s remittance advice or, if unspecified, are
applied to the oldest unpaid invoices. As of December 31, 2009 and June 30,
2009, the net accounts receivable was $1,113,182 and $1,388,599,
respectively.  The allowance for bad debts was $15,528 and $15,646 as
December 31, 2009 and June 30, 2009, respectively.




14




4. 
  ADVANCED TO SUPPLIERS




Hairong
makes advance payments to certain suppliers which provide services to the
company for animation design and development. The advances to suppliers were $0
and $1,443,440 as of December 31, 2009, and June 30, 2009,
respectively.




5.  
 PREPAID EXPENSE





As of
December 31, 2009, the Company makes advance payments approximately $1,400,000
to contactors for cost associated with setting up the school.





6.   
PROPERTY, PLANT & EQUIPMENT, NET




Property,
Plant & Equipment consisted of the following:




December
      31, 2009
            
            
            June
      30, 2009Building
      and Improvement
            
            $
            1,793,352
            
            
            $
            1,785,983Machinery
      & Equipment
            
            
            -
            
            
            
            831,180Office
      Furniture & Equipment
            
            
            1,417,991
            
            
            
            612,105Vehicles
            
            
            355,552
            
            
            
            352,099Construction
      in progress
            
            
            1,465,999
            
            
            
            1,459,975Total
      Property
            
            
            5,030,894
            
            
            
            4,210,162Accumulated
      depreciation
            
            
            (464,104
            )
            
            
            (280,905
            )Total
      Property, net
            
            $
            4,566,790
            
            
            $
            3,929,257




Depreciation
expense for the six months ended December 31, 2009 was $183,199.




7.   
LAND USE RIGHT AND OTHER INTANGIBLES




The net
book value of intangible assets as of December 31, 2009 and June 30, 2009
comprised of the following:




December
      30, 2009
            
            
            June
      30, 2008Cost
      of land use right and other intangibles
            
            $
            3,294,917
            
            
            $
            1,382,114Less:
      accumulated amortization
            
            
            (334,627
            )
            
            
            (275,244
            )Land
      use right and other intangibles, net
            
            $
            2,960,290
            
            
            $
            1,106,870





As of
December 31, 2009, total amortization expense related to intangible assets was
$59,383.


15





8.  
 LONG TERM INVESTMENT




On April
24, 2009, the Company deposited $ 2,200,500 with an investment management
company and signed an agreement for a rate of 15% annual interest on this
deposit. The interest is payable semiannually, and the Company accrued interest
in the amount of $ 27,501 as December 31, 2009.




9.   
INCOME TAXES




Effective
on January 1, 2007 a new Chinese Tax Law was enacted. Hairong has been subject
to income tax at an effective rate of 25% on income reported in the statutory
financial statements after appropriate tax adjustments.




The
Company’s provisions for income taxes for the three months ended December 31,
2009 and fiscal year ended June 30, 2008 as follows:




PRC
      only:
            
            December
      31, 2009
            
            
            June
      30, 2009Current
            
            $
            89,902
            
            
            $
            823,142Deferred
            
            
            -
            
            
            
            -Total
            
            $
            89,902
            
            
            $
            823,142




10.
STOCKHOLDERS’
EQUITY




Asof December 31, 2009, 500,000,000 shares have been authorized and
20,000,000 shares are outstanding.




The
Company implemented a 1-for-25 reverse split on January 30, 2009. Retroactive
effect is being given to the reverse split in these financial
statements.  Income statements have retroactively used the new
outstanding shares to calculate the EPS. Stated par value in the stockholders’
equity section has been reduced accordingly.




16




11.  SEGMENT
INFORMATION




Segment
revenue for the six months ended December 31, 2009 was as follows:




Six
      Months EndedDecember
      31,2009
            
            
            2008Revenue:Membership
      Fees
            
            $
            244,162
            
            
            $
            657,622Animation
      Design and Development
            
            
            1,894,469
            
            
            
            1,608,032Other
            
            
            239,659
            
            
            
            239,314Total
      Revenue
            
            $
            2,378,290
            
            
            $
            2,504,968




Segment
operating income for the six months ended December 31, 2009 was as
follows:




Six
      Months EndedDecember
      31,2009
            
            
            2008Net
      Operating Income:Membership
      Fees
            
            $
            188,966
            
            
            $
            580,057Animation
      Design and Development
            
            
            735,590
            
            
            
            1,136,728Snow
      and Ice Show
            
            
            34,618
            
            
            
            -Other
            
            
            -
            
            
            
            34,678Total
      Operating Income
            
            $
            959,174
            
            
            $
            1,751,463




ASC 280,
Disclosures about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments. This standard
requires segmentation based on our internal organization and reporting of
revenue and operating income based upon internal accounting methods. Our
financial reporting systems present various data for management to operate the
business, including internal profit and loss statements prepared on a basis not
consistent with U.S. GAAP. The segments are designed to allocate resources
internally and provide a framework to determine management responsibility.
Amounts for prior periods have been recast to conform to the current management
view. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Our chief operating decision
maker is our Chief Executive Officer.




17




12.  CURRENT
VULNERABILITY DUE TO CERTAIN CONCENTRATIONS




The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy.




The
Company's operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company's results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.




The
major customers which represented more than 5% of Accounts
Receivable




Customer
      Name
            
            Amount(USD)
            
            
            PercentageHeilongjiang
      Drought situation Control
            
            
            132,030
            
            
            
            11.70
            %Beijing
      Wanfang Xingxing Digital Tech
            
            
            396,090
            
            
            
            35.09
            %Harbin
      Shengwen Animation Ltd
            
            
            69,683
            
            
            
            6.17
            %Benxi
      Yige Animation Design Ltd
            
            
            364,549
            
            
            
            32.30
            %Jilin
      Guoji Industrial Trading Ltd
            
            
            166,358
            
            
            
            14.74
            %1,128,710
            
            
            
            100.00
            %







The
major suppliers which represented more than 5% of Accounts Payable




Vendor
      Name
            
            Amount(USD)
            
            
            PercentageHarbin
      Hengshui Road & Bridge Construction Ltd
            
            
            29,340.00
            
            
            
            41.18
            %







The major clients which represented
more than 5% of the
total sales




Customer
      Name
            
            Sales
      Amount(USD)
            
            
            PercentageJilin
      Guoji Industrial Trading Ltd
            
            
            239,658.78
            
            
            
            19.42
            %Benxi
      Yige Animation Design Ltd
            
            
            782,484.45
            
            
            
            63.39
            %Beijing
      Wanfang Xingxing Digital Tech
            
            
            95,335.50
            
            
            
            7.72
            %1,117,478.73
            
            
            
            90.53
            %




18





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
      OPERATIONS





Forward-Looking
Statements: No Assurances Intended




In
addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use of the words
“believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,”
“projects,” or similar expressions. These forward-looking statements represent
Management’s belief as to the future of China Digital Animation Development,
Inc.  Whether those beliefs become reality will depend on many factors
that are not under Management’s control.  Many risks and uncertainties
exist that could cause actual results to differ materially from those reflected
in these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in Item 1A - “Risk Factors” in
the Company’s Annual Report on Form 10-K for the year ended June 30,
2009.  Readers are cautioned not to place undue reliance on these
forward-looking statements. We undertake no obligation to revise or publicly
release the results of any revision to these forward-looking
statements.




Outline
of Our Business





China
Digital Animation Development Inc. (“China Digital”), through its operating
company, Heilongjiang Hairong Science and Technology Development Co Ltd., a
joint stock company organized under the laws of The People’s Republic of China
(“Hairong”), engages in the business of digital animation production, financial
information services, and cultural productions in China.





Hairong
was organized in 1999.  From 1999 until 2006 Hairong was engaged
exclusively in the business of developing and installing business networks and
related software.  During that period we developed a reputation in the
Chinese business community for our ability to provide efficient solutions to
complex integration problems.





Since
2007, however, Hairong has evolved from the network engineering business into
other businesses that utilize our managerial skills, in particular the animation
development business. The primary reason for the entry into this industry is
because animation development is now more profitable in China than network
engineering. Due to the intense competition in the IT industry as a result of
influx of college graduates with training in network and software design in
China, competition in the network engineering business forces us to reduce
margins. In contrast, the animation industry is facing great opportunities in
China, with the increasing customer demand and especially favorable treatment by
the government of China.




19




The
government of China is actively supporting the development of the animation
industry in China.  Among the stimuli provided for development of the
industry:




·
            Heilongjiang
      Province has developed an Animation Development Area, in which
      participants in the industry are provided subsidized
      property.  We are currently the beneficiaries of 2,000 square
      meters in the Animation Development Area, which we occupy rent-free until
      February 2011.




·
            The
      local government provides subsidies for animation productions broadcast in
      China, from 300 RMB per minute for broadcasts on provincial television
      stations up to 50 million RMB for productions in prime time on China
      Central Television or overseas mainstream
media.




·
            Animation
      companies receive reductions in value-added tax, income tax, sales tax,
      and import duties.




For this
reason, when our fiscal year ended on June 30, 2009, we terminated all of our
network engineering activities, and sold the related property and
equipment.  The results of this business during the 2009 fiscal year
are now classified on our statement of operations as “gain from operations of
discontinued component.”





Hairong
now offers services in three distinct market segments:




§
            Animation.  Our
      team of 30 animation technicians offers digital animation services to the
      movie, television and Internet industries, specializing in high end
      special effects, including 3-D animation.  We also offer
      non-media businesses animated products for advertising, branding and
      education purposes.




The
animation industry is growing rapidly in China.  Because we have
developed a state-of-the-art facility with personnel recognized in the industry,
we expect to participate in that growth in a leadership position.  For
that reason, we expect that animation development will be the primary source of
our revenues for the foreseeable future.




§
            Financial Information
      Delivery.  With our Trans World Financial Website as the
      foundation, we offer investors and issuers a wide variety of financial
      data and information useful to individuals concerned with the
      international capital markets.




§
            Cultural
      Productions.  Commencing with the Great Wall Ice Tour, a
      travelling multimedia entertainment facility constructed of snow and ice,
      we intend to mine the rich cultural heritage of China to produce and
      distribute a wide variety of cultural
  entertainments.




Results
of Operations




During
the six months ended December 31, 2009, animation design and development
accounted for $1,894,469 of our revenues (79.6% of our total revenues) and
generated $735,590 in operating income (76.6% of our operating income).
Membership fees relating to our Trans World Financial Website accounted for the
$244,162 in revenue and generated $188,966 in operating income, which was a
significant reduction from the $657,622 in revenue and $580,057 in operating
income that the Website produced in the six months ended December 31,
2008.  The remaining $239,659 in revenue was primarily attributable to
the Great Wall Ice Tour, which yielded $34,618 in operating income, all in the
second quarter.  In comparison, during the six months ended December
31, 2008, animation development, which we initiated in that period, accounted
for 64% of our revenue from continuing operations and 65% of our income from
continuing operations.  We expect that animation development will
continue to provide the largest portion of our financial results, particularly
as we are experiencing a decline in utilization of our financial information
website.


20




Because
our current operations are focused on service industries, we record a low cost
of goods sold, compared to the cost of goods sold recorded by our
now-discontinued network engineering business.  During the three
months ended December 31, 2009, however, we completed some relatively low-profit
animation projects, with the result that our operating income from animation
development in that quarter was only 16% of animation revenues.  This
brought overall gross margin for the quarter down to 44%, compared to 90% in the
three months ended December 31, 2008, when our animation development revenues
yielded 67% in operating income.  Our gross margin will vary from one
period to another, depending on our success in pricing the animation contracts
we perform.  In general, however, we expect our gross margin ratio to
remain high.





On the
other hand, the overhead required to maintain an animation development business
is greater than that required by the network engineering business.  We
currently have a staff of 129 employees dedicated to the animation development
business, and their salaries are accounted for as general and administrative
expense.  For that reason, our general and administrative expenses
during the six months ended December 31, 2009 increased by 28%, from $285,657 in
the first six months of fiscal year 2009 to $365,979 in the first six months of
fiscal year 2010.  G&A expenses grew in the second quarter by
5%.





In April
2009 we determined that our cash assets exceeded our immediate
needs.  Therefore we invested $2.1 million of our cash with an
investment management company that contracted to provide us a 15% annual
return.  Primarily as a result of this investment, we accrued interest
income of $168,548 in the six months ended December 31, 2009.  In the
six months ended December 31, 2008, when our cash was deposited in bank accounts
only, our interest income was only $13,045.





Our
revenue less expenses for the six months ended December 31, 2009 yielded a net
income before taxes of $1,127,696, a decrease from the $1,764,458 net pre-tax
income realized during the six months ended December 31, 2008. The decrease was
primarily attributable to the 63% reduction in revenue from our Trans World
Financial Website and to the poor margins that our animation business generated
in the second quarter of this year.   After accruing income taxes
at the national rate of 25%, we recorded net income of $828,164 ($.04 per
share), a 37% decline from the first six months of our last fiscal
year.  The second quarter, moreover, produced a 66% decline in net
income, from $736,309 to $251,152.  We do not expect the decline to
continue, since we expect our animation business to produce better revenue in
coming months.  We will, however, need to build up animation revenues
to replace our financial website revenues, if we are to surpass prior revenue
levels.


21





Liquidity
and Capital Resources





To date,
our operations have been funded by capital contributions from Hairong’s
management and employees.  Approximately 54% of the capital
contribution has been made by members of management and their business
associates.  The remaining 46% was contributed by the employees,
acting through a trustee.  The Company expects that in the future it
will issue equity to the employees to compensate them for their financial
contributions to the growth of Hairong, and to incentivize them for future
loyalty to Hairong.




At
December 31, 2009, our working capital was $3,389,025, including $1,069,023 in
cash.  Working capital was reduced by $1,558,368 during the first six
months of fiscal 2010, primarily use of funds to purchase new technology for our
animation department and to construct a school for training animations
designers.  Our operations during the six months of 2009 produced
$1,415,350 in cash.  Our operations were also cash-positive in each of
the past two fiscal years -providing $819,226 in cash during the 2009 fiscal year and $2,030,233 in
cash during the 2008 fiscal year.  For this reason, we believe that
our cash resources are adequate to fund our operations for the foreseeable
future.




We expect
to fund several significant capital improvements during the next twelve
months:




·
            An
      acquisition of the assets of a film company in
  China


·
            a
      significant upgrade to our Website’s infrastructure, in order to
      facilitate a rapid expansion of the user
base;


·
            acquisition
      of specialized equipment for our Ice
Tour;


·
            additional
      animation equipment; and


·
            a
      dedicated education facility for the training center associated with our
      animation department.





At present, we anticipate that we will
finance these projects from our capital resources.  However, if we are
able to obtain financing on favorable terms, we may use external financing for
one or more of the projects.  Currently we have fixed assets with a
book value of $7,527,080, on which there is no lien.  This provides us
the ability to obtain secured debt financing, if we decided to preserve our
working capital. Based on this experience, we anticipate that our capital
resources will be adequate to fund our operations and our anticipated growth for
the foreseeable future.




Off-Balance Sheet
Arrangements





We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition or results of
operations.








ITEM
      3
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.


22





ITEM
4.                 CONTROLS
AND PROCEDURES





Evaluation of Disclosure Controls
and Procedures.  Our Chief Executive Officer and Chief Financial
Officer carried out an evaluation of the effectiveness of the Company’s
disclosure controls and procedures as of December 31, 2009.  Pursuant to
Rule13a-15(e) promulgated by the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, “disclosure controls and procedures” means
controls and other procedures that are designed to insure that information
required to be disclosed by the Company in the reports that it files with the
Securities and Exchange Commission is recorded, processed, summarized and
reported within the time limits specified in the Commission’s rules.
 “Disclosure controls and procedures” include, without limitation, controls
and procedures designed to insure that information the Company is required to
disclose in the reports it files with the Commission is accumulated and
communicated to our Chief Executive Officer and Chief Financial Officer as
appropriate to allow timely decisions regarding required disclosure.  Based
on their evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that the Company’s system of disclosure controls and procedures was
effective as of December 31, 2009 for the purposes described in this
paragraph.





Changes in Internal Controls.
 There was no change in internal controls over financial reporting (as
defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934)
identified in connection with the evaluation described in the preceding
paragraph that occurred during the Company’s second fiscal quarter that has
materially affected or is reasonably likely to materially affect the Company’s
internal control over financial reporting.





PART II   -
  OTHER INFORMATION




Item
1A                   Risk
Factors




There
have been no material changes from the risk factors included in the Annual
Report on Form 10-K for the year ended June 30, 2009.




Item
6.                    Exhibits




31.1
            Rule
      13a-14(a) Certification – CEO31.2
            Rule
      13a-14(a) Certification – CFO32
            Rule
      13a-14(b) Certification








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 ANIMATION DEVELOPMENT INC.Date:
      February 25, 2010
            By:
      /s/ Fu
      QiangFu
      Qiang, Chief Executive OfficerBy:
      /s/ Hu
      YumeiHu
      Yumei, Chief Executive Officer






23