UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934

For the quarterly period ended ~~December~~March 31, ~~2011~~2012

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934

For the transition period from _______ to _________

Commission file number: 0-50441

CHINA DIGITAL ANIMATION DEVELOPMENT INC.

(Exact name of registrant as specified in its charter)

New York	84-1275578
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
15 West 39th Street, Suite 14B, New York, NY	10018
(Address of principal executive offices)	(Zip Code)

~~(212)~~30 ~~391-2688~~Ganshui Road, Diwang Dasha, Room 605

Xiangfang District, Harbin, China 150090

86-3982966108

(Registrant's telephone number, including area code)

~~N/A~~15 West 39th Street, Suite 14B, New York, NY 10018

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 o

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 (or for such shorter period that the registrant was required to submit and post such files). 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:

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[√]

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

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 20, 290,000 shares at ~~February~~May 21, 2012.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

FORM 10-Q

QUARTERLY PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2011~~2012

TABLE OF CONTENTS

~~Page~~		Page
PART I - FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Financial Statements.
	Condensed Consolidated Balance Sheets:
	As of December 31, 2011 and June 30, 2011	3
	As of March 31, 2012 and June 30, 2011	2
	Condensed Consolidated Statements of Operations and Comprehensive Income
	Condensed Consolidated Statements of Income and Comprehensive Income
	For the Three and Six Months Ended December 31, 2011 and 2010	4
	For the Three and Nine Months Ended March 31, 2012 and 2011	3
	Condensed Consolidated Statements of Cash Flows
	For the Six Months Ended December 31, 2011 and 2010	5
	For the Nine Months Ended March 31, 2012 and 2011	4
	Notes to Unaudited Condensed Consolidated Financial Statements ..	6
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
Item 4.	Controls and Procedures	19
PART II - OTHER INFORMATION
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	19
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 4.	(Removed and Reserved)	20
Item 5.	Other Information	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
Item 6.	Exhibits	20

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	December 31,		June 30,
	2011		2011
	(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents	$	7,874	$	17,903
Accounts receivable		375,140		434,749
Other receivables		2,605		4,108
Advance to suppliers		-		25,992
Short term investments		6,296,932		6,188,598
Deferred production costs		953,749		669,529
Tax refund receivable		334,046		333,421
Prepaid expenses		-		43,900
Total Current Assets		7,970,346		7,718,200
Property, plant and equipment, net		1,205,049		1,274,527
Intangible assets, net		2,229,571		2,332,316
Total Assets	$	11,404,966	$	11,325,043
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	86,991	$	-
Loans payable		452,855		345,975
Accrued expenses and other payables		37,557		91,337
Total Current Liabilities		577,403		437,312
Total Liabilities		577,403		437,312
Stockholders' Equity:
Preferred stock ($0.001 par value; 5,000,000 shares authorized;
none issued and outstanding)		-		-
Common stock ($0.001 par value; 100,000,000 shares authorized;
20,290,000 and 20,270,000 shares issued and outstanding
at December 31, 2011 and June 30, 2011, respectively)		20,290		20,270
Additional paid-in capital		6,781,827		6,723,447
Accumulated other comprehensive income		2,693,557		2,501,344
Statutory reserve		1,156,476		1,156,476
Retained earnings		175,413		486,194
Total Stockholders' Equity		10,827,563		10,887,731
Total Liabilities and Stockholders' Equity	$	11,404,966	$	11,325,043

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	March 31,			June 30,
	2012			2011

ASSETS
Current assets:
Cash and cash equivalents	$	432,630		$	17,903
Accounts receivable		395,664			434,749
Other receivables		2,619			4,108
Advance to suppliers		-			25,992
Short term investments		-			6,188,598
Deferred production costs		-			669,529
Tax refund receivable		242,098			333,421
Prepaid expenses		20,000			43,900
Total Current Assets		1,093,011			7,718,200

Property, plant and equipment, net		1,188,585			1,274,527
Intangible assets, net		2,169,327			2,332,316
Total Assets	$	4,450,923		$	11,325,043

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	119,128		$	-
Loans payable to related parties		484,475			345,975
Accrued expenses and other payables		39,266			91,337
Total Current Liabilities		642,869			437,312

Total Liabilities		642,869			437,312

Stockholders' Equity:
Preferred stock ($0.001 par value; 5,000,000 shares authorized; none issued and outstanding)		-			-
Common stock ($0.001 par value; 100,000,000 shares authorized;20,290,000 and 20,270,000 shares issued and outstanding at March 31, 2012 and June 30, 2011, respectively)		20,290			20,270
Additional paid-in capital		6,781,827			6,723,447
Accumulated other comprehensive income		2,704,024			2,501,344
Statutory reserve		1,156,476			1,156,476
Retained earnings (deficit)		(6,854,563	)		486,194
Total Stockholders' Equity		3,808,054			10,887,731

Total Liabilities and Stockholders' Equity	$	4,450,923		$	11,325,043

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

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	March 31,						March 31,
	2012			2011			2012			2011
				(Restated)						(Restated)

REVENUE	$	555,149		$	2,169,443		$	1,326,502		$	5,989,431

COST OF REVENUE		156,701			2,534,916			812,175			6,749,326

GROSS PROFIT (LOSS)		398,448			(365,473	)		514,327			(759,895	)

OPERATING EXPENSES:

Selling, general and administrative		98,364			17,800			525,276			712,254
Impairment of deferred production cost and short term investments		7,238,943			-			7,238,943			-

Total Operating Expenses		7,337,307			17,800			7,764,219			712,254

LOSS FROM OPERATIONS		(6,938,859	)		(383,273	)		(7,249,892	)		(1,472,149	)

OTHER INCOME:
Interest income		84			8,784			587			17,920
Other income		1,898			1,587			6,837			1,587

Total Other Income		1,982			10,371			7,424			19,507

LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(6,936,877	)		(372,902	)		(7,242,468	)		(1,452,642	)

PROVISION FOR INCOME TAXES		93,099			362,667			98,289			978,454

NET LOSS	$	(7,029,976	)	$	(735,569	)	$	(7,340,757	)	$	(2,431,096	)

COMPREHENSIVE INCOME:
OTHER COMPREHENSIVE INCOME:
Unrealized foreign currency translation gain		10,467			39,649			202,680			445,967

COMPREHENSIVE LOSS	$	(7,019,509	)	$	(695,920	)	$	(7,138,077	)	$	(1,985,129	)

NET LOSS PER COMMON SHARE:
Basic and diluted	$	(0.35	)	$	(0.04	)	$	(0.36	)	$	(0.12	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted		20,290,000			20,270,000			20,288,255			20,137,701

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

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	For the Three Months Ended						For the Six Months Ended
	For the Nine Months Ended
	December 31,						December 31,
	March 31,
	2011			2010			2011			2010
	2012			2011
				(Restated)						~~(Restated)~~
REVENUE	$	312,924		$	2,014,129		$	771,353		$	3,819,988
CASH FLOWS FROM OPERATING ACTIVITIES:
COST OF REVENUE		144,962			2,395,229			655,474			4,214,410
Net loss	$	(7,340,757	)	$	(2,431,096	)
GROSS PROFIT (LOSS)		167,962			(381,100	)		115,879			(394,422	)
Adjustments to reconcile net loss to net cash provided by operating activities:
OPERATING EXPENSES:
Depreciation		114,393			465,337
Selling, general and administrative		223,730			156,578			426,912			694,454
Amortization		215,011			235,272
Total Operating Expenses		223,730			156,578			426,912			694,454
Stock-based compensation		58,400			-
LOSS FROM OPERATIONS		(55,768	)		(537,678	)		(311,033	)		(1,088,876	)
Impairment on deferred production cost and short term investments		7,238,943			-
OTHER INCOME:
Foreign currency exchange gain		-			(1,343	)
Interest income		6			7,121			503			9,136
Changes in assets and liabilities:
Other income		1,744			-			4,939			-
Accounts receivable		48,722			276,663
Total Other Income		1,750			7,121			5,442			9,136
Other receivables		-			(7,978	)
LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES		(54,018	)		(530,557	)		(305,591	)		(1,079,740	)
Prepaid expenses		52,585			382,321
PROVISION FOR INCOME TAXES		5,190			339,616			5,190			615,787
Deferred production costs		(272,059	)		-
NET LOSS	$	(59,208	)	$	(870,173	)	$	(310,781	)	$	(1,695,527	)
Accounts payable and other payables		66,507			4,814,338
COMPREHENSIVE INCOME:
Taxes receivable and payable		98,289			(28,008	)
OTHER COMPREHENSIVE INCOME:
NET CASH PROVIDED BY OPERATING ACTIVITIES		280,034			3,705,506
Unrealized foreign currency translation gain		75,375			288,924			192,213			406,318
CASH FLOWS FROM FINANCING ACTIVITIES:
COMPREHENSIVE INCOME (LOSS)	$	16,167		$	(581,249	)	$	(118,568	)	$	(1,289,209	)
Proceeds from borrowing		138,500			49,975
NET LOSS PER COMMON SHARE:
Proceeds from sale of stock		-			500,000
Basic and diluted	$	(0.00	)	$	(0.04	)	$	(0.02	)	$	(0.08	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		138,500			549,975
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
EFFECT OF EXCHANGE RATE ON CASH		(3,807	)		271,763
Basic and diluted		20,290,000			20,125,978			20,287,391			20,072,989
NET INCREASE IN CASH AND CASH EQUIVALENTS		414,727			4,527,244
CASH AND CASH EQUIVALENTS - beginning of period		17,903			6,219,438
CASH AND CASH EQUIVALENTS - end of period	$	432,630		$	10,746,682
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	1,033,306

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

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	For the Six Months Ended
	December 31,
	2011			2010
				(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(310,781	)	$	(1,695,527	)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation		91,790			343,248
Amortization		143,573			164,399
Stock-based compensation		58,400			-
Changes in assets and liabilities:
Accounts receivable		67,220			63,840
Other receivables					(10,196	)
Prepaid expenses		72,393			253,945
Deferred production costs		(272,500	)		-
Accounts payable and other payables		32,824			3,255,353
Taxes receivable and payable		5,212			(70,949	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(111,869	)		2,304,113
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing		106,880			49,975
Proceeds from sale of stock		-			500,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		106,880			549,975
EFFECT OF EXCHANGE RATE ON CASH		(5,040	)		225,513
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(10,029	)		3,079,601
CASH AND CASH EQUIVALENTS - beginning of period		17,903			6,219,438
CASH AND CASH EQUIVALENTS - end of period	$	7,874		$	9,299,039
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	686,283

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

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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 Heilongjiang Hairong Science and Technology Development Co., Ltd. (“Hairong”), a corporation organized under the laws of The People's Republic of China. Hairong is primarily engaged in animation design and development. Hairong operates its business primarily in the PRC with its headquarters in Harbin city, Heilongjiang province.

Variable Interest Entity

The accounts of Hairong have been consolidated with the accounts of the Company because Hairong is a variable interest entity with respect to RDX, which is a wholly-owned subsidiary of the Company. RDX is party to five agreements dated June 27, 2008 with the owners of the registered equity of Hairong and with Hairong. In summary, the five agreements contain the following terms:

·l Consulting Services Agreement and Operating Agreement. These two agreements provide that RDX will be fully responsible for the management of Hairong, both financial and operational. RDX has assumed responsibility for the debts incurred by Hairong and for any shortfall in its registered capital. In exchange for these services and undertakings, Hairong pays a fee to RDX equal to the net profits of Hairong. In addition, Hairong pledges all of its assets, including accounts receivable, to RDX. Meanwhile, Hairong's shareholders pledged the equity interests of Hairong to RDX to secure the payment of the Fee. l Proxy Agreement. In this agreement, the shareholders of Hairong granted an irrevocable proxy to the person designated by RDX to exercise the voting rights and other rights of shareholder. l Option Agreement. In this agreement, the shareholders of Hairong granted to RDX the right to purchase all of their equity interest in the registered capital of Hairong or the assets of Hairong. The option may be exercised whenever the transfer is permitted under the laws of the PRC. The purchase price shall be equal to the original paid-in price of the Purchased Equity Interest by the Transferor, unless the applicable PRC laws and regulations require appraisal of the equity interests or stipulate other restrictions on the purchase price of equity interests. The agreement also contains covenants designed to prevent any material change occurring in the legal or financial condition of Hairong without the consent of RDX. l Equity Pledge Agreement. In this agreement, Hairong shareholders agree to pledge all the equity interest in Hairong to RDX as security for the performance of the obligation under the Consulting Services Agreement and the payment of Consulting Services Fees under each agreement.

· Proxy Agreement. In this agreement, the shareholders of Hairong granted an irrevocable proxy to the person designated by RDX to exercise the voting rights and other rights of shareholder.

· Option Agreement. In this agreement, the shareholders of Hairong granted to RDX the right to purchase all of their equity interest in the registered capital of Hairong or the assets of Hairong. The option may be exercised whenever the transfer is permitted under the laws of the PRC. The purchase price shall be equal to the original paid-in price of the Purchased Equity Interest by the Transferor, unless the applicable PRC laws and regulations require appraisal of the equity interests or stipulate other restrictions on the purchase price of equity interests. The agreement also contains covenants designed to prevent any material change occurring in the legal or financial condition of Hairong without the consent of RDX.

· Equity Pledge Agreement. In this agreement, Hairong shareholders agree to pledge all the equity interest in Hairong to RDX as security for the performance of the obligation under the Consulting Services Agreement and the payment of Consulting Services Fees under each agreement.

RDX may terminate the agreements at will. Hairong may only terminate the agreements if (a) there is an unremedied breach by RDX, (b) the operations of RDX are terminated, (c) Hairong loses its business license, or (d) circumstances arise that materially and adversely affect the performance or objectives of the Agreement. The Consulting Services Agreement, under which all revenues are assigned from Hairong to RDX, and the Equity Pledge Agreement have no expiration date. The other three agreements terminate on June 27, 2018 unless extended by the parties.

In sum, the agreements transfer to RDX all of the benefits and all of the risk arising from the operations of Hairong, as well as complete managerial authority over the operations of Hairong. RDX is the guarantor of all of the obligations of Hairong. By reason of the relationship described in these agreements, Hairong is a variable interest entity with respect to RDX because the following characteristics identified in ASC 810-10-15-14 are present:

· The holders of the equity investment in Hairong lack the direct or indirect ability to make decisions about the entity’s activities that have a significant effect on the success of Hairong, having assigned their voting rights and all managerial authority to RDX. (ASC 810-10-15-14(b)(1)).5

· The holders of the equity investment in Hairong lack the obligation to absorb the expected losses of Hairong, having assigned to RDX all revenue and responsibility for all payables. (ASC 810-10-15-14(b)(2).

· The holders of the equity investment in Hairong lack the right to receive the expected residual returns of Hairong, having granted to RDX all revenue as well as an option to purchase the equity interests at a fixed price. (ASC 810-10-15-14(b)(3)).

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

l	The holders of the equity investment in Hairong lack the direct or indirect ability to make decisions about the entity’s activities that have a significant effect on the success of Hairong, having assigned their voting rights and all managerial authority to RDX. (ASC 810-10-15-14(b)(1)).

l	The holders of the equity investment in Hairong lack the obligation to absorb the expected losses of Hairong, having assigned to RDX all revenue and responsibility for all payables. (ASC 810-10-15-14(b)(2).

l	The holders of the equity investment in Hairong lack the right to receive the expected residual returns of Hairong, having granted to RDX all revenue as well as an option to purchase the equity interests at a fixed price. (ASC 810-10-15-14(b)(3)).

Because the relationship between Hairong and RDX is entirely contractual, the Company’s interest in Hairong depends on the enforceability of those agreements under the laws of the PRC. We are not aware of any judicial decision as to the enforceability of similar agreements under PRC law. However, as the owners of the registered equity of Hairong are close business associates of our management, we do not believe that there is a significant risk that Hairong will seek to terminate the relationship or otherwise breach the agreements. Accordingly, we believe that consolidation of the financial statements of Hairong with those of the Company is appropriate.

The carrying amount and classification of Hairong’s assets and liabilities included in the Consolidated Balance Sheets are as follows:

	December 31, 2011		June 30, 2011
	March 31, 2012		June 30, 2011
	(unaudited)
Total current assets	$	1,072,172	$	7,702,677
Total current assets	$	7,965,875	$	7,702,677
Total assets	$	4,430,084	$	11,309,520
Total assets		11,400,495		11,309,520
Total current liabilities*	$	327,013	$	322,120
Total current liabilities*		322,853		322,120
Total liabilities*	$	327,013	$	322,120
Total liabilities*	$	322,853	$	322,120

* Including intercompany accounts of $300,000 and $0 as of ~~December~~March 31, 2012 and June 30, 2011 which ~~were~~have been eliminated in consolidation.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments (consisting only orof normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the periods presented. The results of operations for any interim periods are not necessarily indicative of operating results expected for the full year or future interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report of Form 10-K for the year ended June 30, 2011, filed on October 13, 2011 (the “Annual Report”).

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

b. Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary RDX, and Hairong, which is deemed to be a variable interest entity of which RDX is the primary beneficiary as defined by ASC 810 “Consolidation of Variable Interest Entities.” All significant inter-company accounts and transactions have been eliminated in consolidation.

c. 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 ~~period~~year. Significant estimates, required by management, include the recoverability of long-lived assets, useful lives of property, plant and equipment and intangible assets, allowance for doubtful accounts and inventory obsolescence. Actual results could differ from those estimates.

d. Reclassification

Depreciation and amortization expenses of $214,762 and $203,815 for the nine months ended March 31, 2012 and 2011, and depreciation and amortization expenses of $72,113 and $68,437 for the three months ended March 31, 2012 and 2011 have been reclassified from general and administrative expenses to cost of goods sold to conform to the current period presentation. Such reclassifications had no impact on previously reported total assets, liabilities, stockholders’ equity, total operating expenses or net income.

e. Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.

The company maintains cash and cash equivalents at several financial institutions. Only accounts at United States financial institutions are insured by the Federal Deposit Insurance Corporation (FDIC). At March 31, 2012 and June 30, 2011, the Company’s bank deposits by geographic area were as follows:

	March 31, 2012				June 30, 2011
United States	$	838	0.2	%	$	941	5.3	%
China		431,792	99.8	%		16,962	94.7	%
	$	432,630	100.0	%	$	17,903	100.0	%

f. 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 March 31, 2012, the majority of the Company’s cash and cash equivalents are deposited at major banks located in the PRC. The Company’s management believes they are all of high credit quality. With respect to accounts receivable, management extends credit based on an evaluation of the customer’s financial condition and customer payment practices to minimize collection risk on accounts receivable.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

dg. ~~Reclassification~~Short-term investments and deferred production costs

~~Depreciation~~In ~~and~~June ~~amortization~~2011, ~~expense~~we ofentered ~~$142,649~~into ~~and~~three ~~$135,378~~collaborative arrangements for ~~the~~total ~~six~~of ~~months~~RMB ~~ended December 31~~77, ~~2010~~210,000 (approximately $~~71,925~~12.1 ~~and~~million) ~~$68,262~~investment ~~for~~in ~~the~~television ~~three~~programs ~~months~~production. As ~~ended~~of ~~December~~March 31, ~~2010~~2012, we have ~~been~~paid ~~reclassified~~RMB ~~from general and administrative expense to cost of revenue to conform to the current period presentation. Such reclassifications had no impact on previously reported total assets~~46, ~~liabilities~~058,500 ~~stockholders’~~(approximately ~~equity~~$7.2 ~~or net income~~million).

eThe Company’s accounting policy is to evaluate the income statement classification for amounts due from or owed to other participants of the collaborative arrangements based on the nature of each activity. ~~Cash~~ For arrangements where the Company is responsible for the initial investment and ~~cash~~entitle ~~equivalents~~to a fixed return on investment and the other participants manage the day-to-day production and distribution activities as well as bear and additional cost overrun, the Company determines that it is not the principal in the transaction and therefore records the fixed return on investment as investment income. The initial investment is recorded as short-term investment. For two of the arrangements, the Company will recoup its investment cost plus 20% of return on investment before the other participant at the end of the contract period.

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.

f. 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, 2011, more than half of the Company’s cash and cash equivalents are deposited at major banks located in the PRC. The Company’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.

g. Short-term Investments and Deferred Production Costs

In June 2011, we entered into three collaborative arrangements for total of RMB 77,210,000 (approximately $12.1 million) investment in television programs production. As of December 31, 2011, we have paid RMB 46,058,500 (approximately $7.2 million). The production for all three arrangements ends within one year.

The Company’s accounting policy is to evaluate the income statement classification for amounts due from or owed to other participants of the collaborative arrangements based on the nature of each activity. For arrangements where the Company is responsible for the initial investment and entitle to a fixed return on investment and the other participants manage the day-to-day production and distribution activities as well as bear any additional cost overrun, the Company determines that it is not the principal in the transaction and therefore records the fixed return on investment as investment income. The initial investment is recorded as short-term investment. For two of the arrangements, the Company will recoup its investment cost plus 20% of return on investment before the other participant at the end of the contract period.

For arrangements where we jointly participate in production and distribution, as well as sharing the profit and loss in the arrangements, the Company records its pro-rata share of the distribution revenue as gross revenue and associated production and distribution costs in cost of revenue. The initial investment in the production of the TV program is recorded as deferred production costs on the consolidated balance sheets.

As of March 31, 2012, the three collaborative arrangements in which the Company invested expired in accordance with their constitutive agreements. The Company has a contractual obligation to contribute an additional $4.9 million in cash, but has no capability of doing so. In addition, the members of management who initiated those arrangements have resigned, and current management lacks adequate information to determine the progresses of the arrangements and whether the arrangements can be completed despite their current cash deficit condition. Taking these circumstances into consideration, management has determined it is more likely than not that the Company will not be able to recoup its investment in these collaborative arrangements. Therefore, the Company has recorded a full impairment on the short-term investments and deferred production costs totaling $7,238,943 for the three and nine months ended March 31, 2012.

h. Revenue recognition

The Company’s revenue recognition policies are in compliance with FASB ASC 605, “Revenue Recognition.” ~~Revenue~~Sales revenue is recognized when the services are provided and the contracts are performed. The Company considers revenue realized or realizable and earned when (1) it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured.

Our animation design and development contracts are unit-price contracts which set forth a price per minute of labor, an estimate of total labor, and the resulting sales price. Revenue is recognized when the outcome of a contract can be estimated reliably and the stage of completion at the balance sheet date can be measured reliably. Revenue is recognized on the percentage of completion method, measured on units of delivery basis by reference to the contractual unit price (RMB per minute) of work carried out during the period. When the outcome of a contract cannot be estimated reliably, revenue is recognized only when the contract is completed or substantially completed, and pending completion billings are accumulated on our balance sheets.

Cost of goods sold with reference to animation design and development includes direct labor costs and costs associated with any outsourcing of services. Since our animation design department is dedicated to that business, department overhead, including depreciation and amortization of assets, is also recorded as cost of goods sold. When the outcome of a contract can be estimated reliably and the stage of contract completion at the balance sheet date can be measured reliably, costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date on the same basis as revenue from the contract is recognized. When the outcome of a contract cannot be estimated reliably, costs are recognized only when the contract is completed or substantially completed, and pending completion costs are accumulated on our balance sheet, except that provision is made for expected losses. The normal period of a contract is approximately one to six months.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

h. Revenue recognition (continued)

Cost of revenue with reference to animation design and development includes direct labor costs and costs associated with any outsourcing of services. Since our animation design department is dedicated to that business, department overhead, including depreciation and amortization of assets, is also recorded as cost of revenue. When the outcome of a contract can be estimated reliably and the stage of contract completion at the balance sheet date can be measured reliably, costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date on the same basis as revenue from the contract is recognized. When the outcome of a contract cannot be estimated reliably, costs are recognized only when the contract is completed or substantially completed, and pending completion costs are accumulated on our balance sheet, except that provision is made for expected losses. The normal period of a contract is approximately one to six months.

i. Foreign currency translation

The Company’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.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into US dollar has been made at the following exchange rates for the respective years:

~~December~~March 31, ~~2011~~2012

Balance sheet	RMB 6.~~3523~~3185 to US $1.00
Statement of operations and other comprehensive income	RMB 6.~~3784~~3626 to US $1.00

June 30, 2011

Balance sheet	RMB 6.4635 to US $1.00
Statement of operations and other comprehensive income	RMB 6.6278 to US $1.00

j. Statement of cash flows

FASB issued ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations is 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.

k. ~~Earnings (~~Loss) per share

Basic ~~earnings (~~loss) per share is computed by dividing ~~income~~loss available to common shareholders by the weighted-average number of common shares outstanding during the period.

Diluted ~~earnings (~~loss) 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. ~~For~~There ~~the~~are ~~six~~no ~~months~~common ~~ended~~stock ~~December~~equivalents ~~31,~~available ~~2011~~in ~~and~~the ~~2010,~~computation of loss per share for the ~~Company~~nine ~~had~~and nothree ~~potential~~months ~~dilutive~~ended ~~common~~March ~~stock~~31, ~~equivalents~~2012 ~~outstanding~~and 2011.

l. Statutory reserve fund

Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the generally accepted accounting principles in PRC, after offsetting any prior years ’ losses. Before June 20, 2006, Hairong appropriated 15% of its profit after taxation. Subject to certain restrictions set out in the Chinese Companies Law, the statutory reserve fund may be distributed to stockholders in the form of share bonus issues and/or cash dividends.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

lm. ~~Reserve~~ Comprehensive ~~Fund~~loss

~~Before~~Comprehensive ~~June~~income ~~20,~~is ~~2006,~~defined ~~Hairong~~to ~~was~~include ~~required~~changes toin ~~transfer~~equity ~~15%~~except ofthose ~~its~~resulting ~~profit~~from ~~after~~investments ~~taxation~~by owners and distributions to owners. Among other disclosures, asitems ~~determined~~that inare ~~accordance~~required ~~with~~to ~~Chinese~~be recognized under current accounting standards ~~and~~as ~~regulations,~~components toof ~~the~~comprehensive ~~surplus~~income ~~reserve~~are ~~fund.~~required ~~Subject~~ to ~~certain~~be ~~restrictions~~reported ~~set~~in ~~out~~a infinancial ~~the~~statement ~~Chinese~~that ~~Companies~~is ~~Law,~~presented with the ~~surplus~~same ~~reserve~~prominence ~~fund~~as ~~may~~other befinancial ~~distributed~~statements. toComprehensive ~~stockholders~~income inincludes ~~the~~net ~~form~~income ofand ~~share~~the ~~bonus~~foreign ~~issues~~currency ~~and/or~~translation ~~cash~~gain, ~~dividends~~net of tax.

mn. ~~Comprehensive~~Recently ~~Income~~adopted accounting pronouncements

~~The~~Other ~~Company~~accounting ~~reports~~standards ~~comprehensive~~that ~~income~~have inbeen ~~accordance~~issued ~~with~~or ~~FASB~~proposed ~~ASC~~by ~~Topic~~the ~~220~~FASB ~~“Comprehensive~~or ~~Income,"~~other ~~which~~standards-setting ~~established~~bodies ~~standards~~that ~~for~~do ~~reporting~~not ~~and~~require ~~displaying~~adoption ~~comprehensive~~until ~~income~~a ~~and~~future ~~its~~date ~~components~~are innot aexpected ~~financial~~to ~~statement~~have ~~that~~a ismaterial ~~displayed~~impact ~~with~~on the ~~same~~Company’s ~~prominence~~consolidated ~~as other~~ financial statements upon adoption.

Total comprehensive income is defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company, total comprehensive income equals net income plus or minus adjustments for currency translation. Total comprehensive income represents the activity for a period net of related tax and was a gain of $75,375 and a loss of $288,924 for the three months ended December 31, 2011 and 2010, respectively and was a gain of $192,213 and $406,318 for the six months ended December 31, 2011 and 2010, respectively.

While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income as of the balance sheet date. For the Company, AOCI is primarily the cumulative balance related to adjustments for currency translation and increased overall equity by $2,693,557 and $2,501,344 as of December 31, 2011 and June 30, 2011, respectively.

n. Recently Adopted Accounting Pronouncements

In September 2011, the FASB issued ASU No. 2011-08 —Intangibles —Goodwill and Other (Topic 350). The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the adoption of the provisions in this update will have a significant impact on its consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-10—Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The adoption of the provisions in ASU 2011-05 will have no material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11—Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The adoption of the provisions in ASU 2011-05 will have no material impact on the Company’s consolidated financial statements.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

3. GOING CONCERN

The Company has incurred significant continuing losses during the ~~six~~nine months ended ~~December~~March 31, ~~2011~~2012 and the year ended June 30, 2011 and has relied on the Company’s registered capital as well as proceeds from borrowings to fund operations. As of ~~December~~March 31, ~~2011~~2012, we had cash and equivalents onof ~~hand~~$432,630 and an accumulated loss of $76,~~874~~854,564. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. As of ~~December~~March 31, ~~2011~~2012, our working capital of $~~7.4~~450,142 ~~million~~ is mostly attributable to ~~the~~cash ~~three TV series production collaborative arrangements, which are recorded in short term investments~~ and ~~deferred~~accounts ~~production costs totaling $7~~receivable.2 million. In addition, as of December 31, 2011, we have contractual commitment to invest an additional $4.5 million in these arrangements. There is a possibility that we might not be able to recoup our investment cost or the return on investments on these collaborative arrangements may not materialize. As of December 31, 2011, management reached a conclusion after discussing with the other parties in the collaborative arrangements that the three TV series production will run in a decreased scale and the other parties will fund any deficit of the arrangements. The Company may make further investment if the additional funds are available to the Company.

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:

	December 31, 2011			June 30, 2011
	March 31, 2012			June 30, 2011
Buildings and improvements	$	1,~~524~~533,~~979~~137		$	1,741,653
Office furniture and equipment		~~466~~469,~~614~~110			221,208
Vehicles		136,~~152~~880			128,277
		2,127,745			2,091,138
		2,139,127			2,091,138
Less: Accumulated depreciation		(~~922~~950,~~696~~542	)		(816,611	)
Property, plant and equipment, net	$	1,~~205~~188,~~049~~585		$	1,274,527

Depreciation expense for the ~~six~~nine months ended ~~December~~March 31, ~~2011~~2012 and ~~2010~~2011 was $91114,~~790~~393 and $~~343~~465,~~248~~337, respectively.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

5. INTANGIBLE ASSETS, NET

Intangible assets consist of the following:

	December 31, 2011			June 30, 2011
	March 31, 2012			June 30, 2011
Animation software	$	2,~~857~~872,~~554~~840		$	2,808,391
Other software		13,~~910~~984			13,671
		2,871,464			2,822,062
		2,886,824			2,822,062
Less: Accumulated amortization		(~~641~~717,~~893~~497	)		(489,746	)
Intangible Assets, net	$	2,~~229~~169,~~571~~327		$	2,332,316

~~Amortization~~Total amortization expense related to intangible assets for the ~~six~~nine months ended ~~December~~March 31, ~~2011~~2012 and ~~2010~~2011 was $~~143~~215,~~573~~011 and $~~164~~235,~~399~~272, respectively.

The following schedule sets forth the estimated amortization expense for the periods presented:

For the 12-month periods ending March 31,
2012			288,682
2013			288,682
2014			288,682
2015			288,682
2016			288,682
Thereafter			726,163
			2,169,327

6. LOANS PAYABLE TO RELATED PARTIES

	March 31,		June 30,
	2012		2011
Loans payable to
shareholder, Fu Zhiguo		282,080		260,000
shareholder, Xia Shaoqiu		116,420		-
former shareholder, Fu Qiang		85,975		85,975
	$	484,475	$	345,975

The loans are unsecured, bear no interest, and are due on demand.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

6. LOANS PAYABLE

Loans payable consist of the following:

	December 31,		June 30,
	2011		2011
Loan payable to shareholder, Fu Zhiguo	$	281,080	$	260,000
Loan payable to shareholder, Xia Shaoqiu		85,800		-
Loan payable to former shareholder, Fu Qiang		85,975		85,975
	$	452,855	$	345,975

The loans are unsecured, bear no interest, and due on demand.

7. STOCKHOLDERS’ EQUITY

In May 2011, Fu Qiang, the Company’s former Chairman and Chief Executive Officer, entered into a Resignation and Stock Transfer Agreement with Ieong Waifong and the Company. Pursuant to the Agreement, Fu Qiang transferred to Ieong Waifong five million shares of the Company’s common stock, representing 24.7% of the outstanding shares. Fu Qiang transferred the shares to Ieong Waifong without compensation. However, in the same Agreement Ieong Waifang granted to the Company an option to purchase the shares for a price of $.001 per share. The Company may exercise the option at any time prior to December 31, 2020. Ieong Waifong is not an employee or agent of the Company, nor does he have any other relationship with the Company other than ownership of the shares transferred to him by Fu Qiang.

The option can be settled only in shares and there are no circumstances under which any other settlement arrangement would arise. Accordingly, pursuant to ASC 815-15-25-20, the “purchased call option that enables the issuer of an equity instrument (such as common stock) to reacquire the equity instrument would not be considered to be a derivative instrument by the issuer of the equity instrument.”

On July 25, 2011, the Company issued 20,000 shares of common stock to two independent directors for their past and future services as independent directors. Fair value of the common stock issued totaled $58,400. For the ~~six~~nine months ended ~~December~~March 31, ~~2011~~2012, the Company recognized $58,400 as stock based compensation expense. ~~As of December 31, 2011, the Company has 20,290,000 shares issued and outstanding.~~

8. SEGMENT INFORMATION

FASB 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.

The Company has two segments, Animation Design and Development (“Animation”) and TV Programs Production (“TV”). The TV Programs Production segment was started in June 2011 when the Company entered into a collaborative arrangement to produce and distribute TV program, asand ~~discussed~~was terminated in ~~Note~~March ~~2g.~~2012 Aswhen ofthe ~~December~~Company 31provides ~~and~~a ~~June~~full ~~30,~~impairment ~~2011,~~on the assets related to the TV Programs Production segment, ~~was~~as discussed in ~~production~~Note ~~stage and has not begun to generate revenue~~2g.

~~Information~~Condensed information with respect to the reportable business segments for the three and ~~six~~nine months ended ~~December~~March 31, ~~2011~~2012 and ~~2010~~2011 is as follows:

	For the three months ended March 31,							For the nine months ended March 31,
	2012 (Unaudited)				2011 (Restated)			2012 (Unaudited)			2011 (Restated)
Revenues:
Animation		$	555,149		$	2,169,443		$	1,326,502		$	5,989,431
TV			-			-			-			-
			555,149			2,169,443			1,326,502			5,989,431
Segment income (loss):
Animation			253,904			(641,783	)		151,934			(2,172,267	)
TV			(952,205	)		-			(952,205	)		-
Corporate			(6,331,676	)		(93,786	)		(6,540,487	)		(258,829	)
		$	(7,029,977	)	$	(735,569	)	$	(7,340,758	)	$	(2,431,096	)

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

8. SEGMENT INFORMATION (~~CONTINUED~~Continued)

Segment revenue was as follows:

	For the three months ended December 31,						For the six months ended December 31,
	2011 (Unaudited)			2010 (Restated)			2011 (Unaudited)			2010 (Restated)
Revenues:
Animation		$	312,924		$	2,014,129		$	771,353		$	3,819,988
TV			-			-			-			-
Consolidated revenue			312,924			2,014,129			771,353			3,819,988

Segment profit was as follows:

	For the three months ended December 31,					For the six months ended December 31,
	2011 (Unaudited)			2010 (Restated)		2011 (Unaudited)		2010 (Restated)
Animation		(19,098	)		769,881		161,380		1,530,484
TV		-			-		-		-
Corporate		137,716			100,292		208,811		165,043
Consolidated segment profit	$	118,618		$	870,173	$	370,191	$	1,695,527

Segment assets were as follows:

	December 31, 2011		June 30, 2011
	March 31, 2012		June 30, 2011
Assets:
Animation		4,~~146~~430,~~411~~085		4,451,394
TV		~~953,749~~-		669,529
Corporate		620,~~304,806~~838		6,204,120
Consolidated assets	$	11,404,966	$	11,325,043
	$	4,450,923	$	11,325,043

9. RISKS AND UNCERTAINTIES

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.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. As of ~~December~~March 31, 2012 and June 30, 2011, ~~substantially~~more than all of the Company’s cash and cash equivalents were held by major banks located in the PRC of which the Company’s management believes are of high credit quality. With respect to accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition and customer payment practices to minimize collection risk on account receivable.

The Company has the following concentrations of business with customers constituting 10% or greater of the Company’s sales value:

	For the three months ended March 31,			For the nine months ended March 31,
	2012 (Unaudited)		2011 (Restated)	2012 (Unaudited)		2011 (Restated)

Beijing Wanfang Xingxing Digital Tech.		100%	*		93%	11%
Shenzhen Global Digital Tech Co., Ltd.		-	40%		4%	37%
Shanghai Animation Production Co., Ltd.		-	40%		4%	37%
Harbin Sinwen Animation Co., Ltd.		-	*		-	14%
		100%	80%		100%	99%

*Constitute less than 10% of the Company's sales value

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

9. RISKS AND UNCERTAINTIES (~~CONTINUED~~Continued)

The Company has not experienced any significant difficulty in collecting its accounts receivable in the ~~following~~past ~~concentrations~~and is not aware of ~~business~~any ~~with~~financial difficulties of its major customers. The Company’s accounts receivable value for the customers constituting 10% or greater of the Company’s sales value as of March 31, 2012:

	For the three months ended December 31,				For the six months ended December 31,
	Amount			Percentage
	2011 (Unaudited)		2010 (Restated)		2011 (Unaudited)		2010 (Restated)
Beijing Wanfang Xingxing Digital Tech.	$	395,664			100	%
Beijing Wanfang Xingxing Digital Tech.		100%	14%			88%	12%
Shenzhen Global Digital Tech Co., Ltd.		-	31%			6%	36%
Shanghai Animation Production Co., Ltd.		-	39%			6%	35%
Harbin Sinwen Animation Co., Ltd.		-	16%			-	17%
		100%	100%			100%	100%

The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties of its major customers. The Company’s accounts receivable value for the customers constituting 10% or greater of the Company’s sales value as of December 31, 2011:

		Amount				Percentage
Beijing Wanfang Xingxing Digital Tech.		$	375,140				100	%

The Company has the following concentrations of business with suppliers constituting 10% or greater of net purchases:

	For the three months ended December 31,			For the six months ended December 31,
	For the three months ended March 31,			For the nine months ended March 31,
	2011 (Unaudited)		2010 (Restated)	2011 (Unaudited)		2010 (Restated)
	2012 (Unaudited)		2011 (Restated)	2012 (Unaudited)		2011 (Restated)
Beijing Chenyang Animation Technologies Ltd.		-	4342%		4988%	4150%
Beijing Star Animation Studio		-	3054%		-	3548%

~~The~~As ~~amount~~ of March 31, 2012, the Company has a consolidated accounts payable of $119,128; and $12,978 of these accounts payable is Hairong’s ~~accounts~~account payable ~~for~~that related to the suppliers isas noted above, $12106,~~909~~150 asis ofrelated ~~December~~to ~~31,~~professional ~~2011~~fees.

10. ~~COMMITMENTS AND CONTINGENCIES~~ RESTATEMENT

~~Collaborative~~The ~~Arrangements~~financial statements of the Company for the three and nine months ended March 31, 2011 that are included in this Report have been restated to effectuate changes from the statements filed in the Company’s Quarterly Report on Form 10-Q for the three and nine months ended March 31, 2011. The restatements were:

Asl ~~discussed~~To inadjust ~~Note~~prepaid 2grent of $172,752 inincorrectly ~~June~~recorded ~~2011~~as leasehold improvements, ~~the~~resulted ~~Company~~in ~~entered~~reclassification ~~into~~from ~~three~~property, ~~collaborative~~plant ~~arrangements~~and equipment to ~~invest~~prepaid inexpenses and ~~participate~~$382,231 inwas ~~television~~amortized ~~programs~~as ~~production~~rent expense. ~~Total~~ ~~commitment~~The inrelated ~~the~~accumulated ~~three~~depreciation ~~arrangements~~totaling ~~is RMB 77~~$152,~~210,000~~928 ~~(approximately~~was ~~$12~~reversed.1 ~~million). As~~l ofTo ~~December~~reclassify ~~31,~~amortization ~~2011,~~and ~~the~~depreciation ~~Company~~expense ~~has~~related ~~paid~~to ~~RMB~~animation ~~46,058,500~~design ~~(approximately $7.2 million)~~ and ~~management~~development ~~reached~~revenue atotaling ~~conclusion~~$418,577 ~~after~~from ~~discussing~~selling, ~~with~~general ~~the~~and ~~other~~administrative ~~parties~~expenses into ~~the~~cost ~~collaborative~~of ~~arrangements~~revenues. ~~that~~l ~~production~~To ofrecord the ~~three~~previously TVomitted ~~series~~cost ~~will~~of ~~run~~goods insold atotaled ~~decreased~~$4,743,098 ~~scale~~incurred and ~~the~~payable ~~other~~during ~~parties will fund any deficit of~~ the ~~arrangements.~~nine ~~The~~months ~~Company~~ended ~~may~~March ~~invest~~31, ~~the~~2011 ~~remaining~~and ~~RMB~~totaled 28$1,~~751~~517,~~500~~619 ~~(approximately~~incurred ~~$4.5~~and ~~million)~~payable ifduring the ~~additional~~ ~~funds~~three ~~are~~months ~~available~~ended toMarch ~~the~~31, ~~Company~~2011.

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

1110. RESTATEMENT (Continued)

The ~~financial~~effect ~~statements~~ of the ~~Company~~restatement ~~for~~on ~~the~~specific ~~three~~line ~~and~~items ~~six months ended December 31, 2010 that are included~~ in ~~this~~our ~~Report~~Condensed ~~have~~Consolidated ~~been~~Statements ~~restated~~of toIncome ~~effectuate~~and ~~changes~~Comprehensive ~~from~~Income ~~the statements filed in the Company’s Quarterly Report on Form 10-Q~~ for the ~~three~~nine ~~and six~~ months ended ~~December~~March 31, ~~2010. The~~2011 ~~restatements were~~was:

l To adjust prepaid rent for $301,312 incorrectly recorded as leasehold improvements, resulted in reclassification from property, plant and equipment to prepaid expenses and $253,945 was amortized as rent expense. The related accumulated depreciation totaling $101,578 was reversed. l To reclassify amortization and depreciation of $278,027 from selling, general and administrative expenses to cost of revenue. l To record the previously omitted cost of revenue totaled $3,225,479 incurred and payable during the six months ended December 31, 2010 and totaled $1,780,786 incurred and payable during the three months ended December 31, 2010.

Condensed Consolidated Statements of Operations and Comprehensive Income	As Reported		As Restated

Revenue	$	5,989,431	$	5,989,431
Cost of revenue		1,587,651		6,749,326
Gross profit (loss)		4,401,780		(759,895	)
Operating expenses
Selling, general and administrative		901,438		712,254
Total operating expenses		901,438		712,254
Income (loss) from operations		3,500,342		(1,472,149	)
Other income
Interest income		17,920		17,920
Other income		1,587		1,587
Total other income		19,507		19,507
Income (loss) before provision for income taxes		3,519,849		(1,452,642	)
Provision for income taxes		978,454		978,454
Net income (loss)	$	2,541,395	$	(2,431,096	)
Unrealized foreign currency translation gain		546,114		445,967
Comprehensive income (loss)	$	3,087,509	$	(1,985,129	)

Earnings (loss) per common share
- Basic and diluted	$	0.13	$	(0.12	)

The effect of the restatement on specific line items in our Condensed Consolidated ~~Statement~~Statements of ~~Operations~~Cash ~~and~~Flows ~~Comprehensive Income~~ for the ~~six~~nine months ended ~~December~~March 31, ~~2010~~2011 was:

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss)	As Reported		As Restated
Condensed Consolidated Statements of Cash Flows	As Reported		As Restated
Cost of Revenue	$	710,904	$	4,214,410
Net income (loss)	$	2,541,395	$	(2,431,096	)
Gross Profit (Loss)		3,109,084		(394,422	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Selling, General and Administrative		820,114		694,454
Depreciation	$	618,265	$	465,337
Income (Loss) from Operations		2,228,970		(1,088,876	)
Changes in assets and liabilities:
Income (Loss) before Provision for Income Taxes		2,298,106		(1,079,740	)
Prepaid expenses	$	-	$	382,321
Net Income (Loss)		1,682,319		(1,695,527	)
Accounts payable	$	71,240	$	4,814,338
Unrealized Foreign Currency Translation Gain		479,506		406,318
Comprehensive Income (Loss)		2,161,825		(1,289,209	)
Earnings (Loss) Per Common Share
- Basic and Diluted	$	0.08	$	(0.08	)

The effect of the restatement on specific line items in our Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 2010 was:

Condensed Consolidated Statement of Cash Flows	As Reported		As Restated
Net Income (Loss)	$	1,682,319	$	(1,695,527	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		444,826		343,248
Changes in assets and liabilities:
Prepaid expenses		-		253,945
Accounts payable		29,874		3,255,353

CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2011~~2012

1110. RESTATEMENT (CONTINUED)

The effect of the restatement on specific line items in our Condensed Consolidated ~~Statement~~Statements of ~~Operations~~Income and Comprehensive Income for the three months ended ~~December~~March 31, ~~2010~~2011 was:

Condensed Consolidated Statement of Operations and Comprehensive Income (Loss)	As Reported		As Restated
Condensed Consolidated Statements of Operations and Comprehensive Income	As Reported		As Restated
Cost of Revenue	$	360,299	$	2,395,229
Revenue	$	2,169,443	$	2,169,443
Gross Profit (Loss)		1,653,830		(381,100	)
Cost of revenue		661,193		2,534,916
Selling, General and Administrative		470,778		156,578
Gross profit (loss)		1,508,250		(365,473	)
Income (Loss) from Operations		1,251,052		(537,678	)
Operating expenses
Income (Loss) before Provision for Income Taxes		1,258,173		(530,557	)
Selling, general and administrative		296,877		17,800
Net Income (Loss)		918,557		(870,173	)
Total operating expenses		296,877		17,800
Unrealized Foreign Currency Translation Gain		225,030		288,924
Income (loss) from operations		1,211,373		(383,273	)
Comprehensive Income (Loss)		1,143,587		(581,249	)
Other income
Earnings (Loss) Per Common Share
Interest income		8,784		8,784
- Basic and Diluted	$	0.05	$	(0.04	)
Other income		1,587		1,587
Total other income		10,371		10,371
Income (loss) before provision for income taxes	$	1,221,744	$	(372,902	)
Provision for income taxes		362,667		362,667
Net income (loss)	$	859,077	$	(735,569	)
Unrealized foreign currency translation gain		66,608		39,649
Comprehensive income (loss)	$	925,685	$	(695,920	)
Earnings (loss) per common share
- Basic and diluted	$	0.04	$	(0.04	)

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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, 2011. 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”), has, for the past three years, engaged primarily in the business of digital animation production.

We have re-assessed our position in the animation development marketplace. Our perception is that the animation industry in China has grown to a point at which we will soon be no longer able to compete effectively. In recent years, the market has become thick with competition due to the emphasis that the Chinese government has placed on the development of the animation industry. Management’s decision, therefore, was to gradually re-orient our business model from one based on utilization of a state-of-the-art in-house capacity to one in which we utilize our long-standing customer contacts and project management skills to obtain and manage project contracts while outsourcing most of the actual development work. To re-orient our business model in this manner, during fiscal year 2011 we liquidated a large portion of our animation development property and equipment, and reduced our animation development staff to a modest crew. ~~As a result, in the first half of fiscal year 2012, we had much lower selling, general and administrative expenses than in the first half of the prior fiscal year.~~

AsDuring the nine months ended March 31, 2012, our outsourced development suppliers have, in some cases, been using the Company’s animation software for the projects subcontracted to them by the Company, which has reduced the cost of ~~December~~the outsourcing. Additionally, the Company has reduced its selling and administration expenses, such as salary expense and office expenses, in fiscal year 2012. As a result, for the nine months ended March 31, ~~2011~~2012, we ~~have~~had ~~invested~~lower cost of revenue and selling, general and administrative expenses (“SG&A”) compared to the nine months ended March 31, 2011. That reduction is more indicative of our ongoing trend than the fact that SG&A expenses were higher in the ~~following~~three months ended March 31, 2012 than in the three ~~media~~months ~~projects:~~ended March 31, 2011, as unique events such as a salary waiver and a tax offset artificially reduced SG&A expenses during the three months ended March 31, 2011.

·During Onthe ~~June~~three ~~15,~~and ~~2011~~nine wemonths ~~agreed~~ended toMarch ~~invest~~31, 192012,~~710,000~~ ~~RMB~~the ~~($3,092,000)~~Company’s inanimation ~~production~~development ofsegment ahas ~~made-for-television~~increased ~~movie~~its ~~titled~~sales ~~“Yuan~~and Damaintained ~~Qian~~a ~~Cheng~~profit.” WeThe ~~were~~consolidated atnet loss of the ~~same~~Company ~~time~~in ~~engaged~~these periods was mainly due to ~~provide~~our ~~animation~~decision to record an impairment on deferred production ~~services~~costs ~~for~~and short term investments related to the ~~movie~~TV program production segment.

·As Onof ~~June~~March 2031, ~~2011~~2012, we ~~agreed~~have toinvested ~~invest 19,000,000 RMB ($2,980,000)~~ in ~~production~~the offollowing athree ~~made-for-television~~media ~~movie titled “Xu’s Legal Marriage.”~~projects:

·l On June 15, 2011 we agreed to invest 19,710,000 RMB ($3,092,000) in production of a made-for-television movie titled“Yuan Da Qian Cheng.” We were at the same time engaged to provide animation production services for the movie. l On June 20, 2011 we agreed to invest 19,000,000 RMB ($2,980,000) in production of a made-for-television movie titled “Xu’s Legal Marriage.” l On June 23, 2011 we agreed to invest 38,500,000 RMB ($6,040,000) in production of a general circulation movie titled “Xiao Naao Tian Gong.”

To date, we have paid 46,058,500 RMB (approximately $7.2 million) on account of these investments. The production of all three is scheduled to be completed within one year. At that time, on the two projects in which we are non-participating investors, we are entitled to recoup our investment plus a 20% profit from the income earned by the properties before other participants share in income. In the “Yuan Da Qian Cheng” project, for which we are providing both cash and development services, we are entitled to a share in the profits from distribution.

Results of Operations

All of our revenue in the three and six months periods ended December 31, 2011 and 2010 was earned by our animation developers. Our investments in media projects will not produce revenue until calendar year 2012. The 80% reduction in our revenue from the first half of fiscal 2011 to the first quarter of fiscal 2012 and the 84% reduction in our revenue from the second quarter of fiscal 2011 to the second quarter of fiscal 2012, however, reflect our decision to significantly reduce our involvement in the animation development industry. With decrease of the costs of outsourcing most of the production, gross profit of $115,879 and $167,962 was earned for the six and three months periods ended December 31, 2011, respectively. Compared with those, gross loss of $394,422 and $381,100 was incurred for the six and three months periods ended December 31, 2010, respectively.

~~During~~As ~~the~~of ~~first~~March ~~half~~31, of2012, ~~fiscal~~we ~~2011~~have paid 46,058,500 ~~before~~RMB we(approximately ~~liquidated~~$7.2 amillion) ~~large~~on ~~portion~~account of ~~our~~these ~~animation~~investments. The ~~development~~Company ~~operation~~has no capability, wehowever, ~~needed~~of tocontributing ~~keep~~the ~~our~~additional ~~facilities~~$4.9 ~~occupied~~million ~~and~~in ~~our~~cash ~~large~~that ~~staff~~it ofcommitted ~~animation~~to ~~developers~~these ~~busy~~arrangements. In addition, ~~which~~the ~~necessitated~~members ~~that~~of weour ~~obtain~~management awho ~~steady~~initiated ~~flow~~these ofarrangements ~~contracts. Toward~~have ~~that~~left ~~end~~the Company, weand ~~devoted~~current amanagement ~~large~~lacks ~~allocation~~adequate information to determine the progress of ~~resources~~the toarrangements ~~marketing. Currently,~~or ~~with~~their ~~our~~ability ~~reduced~~to ~~facilities~~reach ~~and~~completion ~~reduced~~without ~~staff~~additional funding. For these reasons, we ~~can~~determined ~~rely~~that ~~primarily~~it onis ~~our~~more ~~business~~likely ~~contacts~~than ~~for~~not ~~marketing. The~~that ~~change~~we iswill ~~reflected~~not inbe ~~the~~able ~~reduction~~to ofrecoup ~~selling,~~our ~~general~~investment ~~and~~in ~~administrative~~these ~~expenses~~collaborative ~~from~~arrangements. ~~$694~~Therefore at March 31,~~454~~ in2012 ~~the~~we ~~first~~have ~~half~~recorded ofa ~~fiscal~~full ~~2011~~impairment toof $~~426~~7,~~912~~238,943 inon the ~~first~~short-term ~~half~~investments ofand ~~fiscal~~deferred ~~2012~~production costs.

~~After~~Results ~~adding our operating expenses to our gross loss, we realized a net loss~~ of $311,033 and $1,088,876 for the six months ended December 31, 2011 and 2010, respectively. During the three months ended December 31, 2011 and 2010, we realized a net loss of $55,768 and $537,678, respectively. The decrease is mainly attributable to the decreased operations of our Company.Operations

~~For~~All ~~the coming year, the greater portion~~ of our ~~assets~~revenue ~~will be invested~~ in ~~film~~the three and ~~television~~nine ~~program~~month ~~production. The~~periods ~~value~~ended ofMarch ~~broadcasting~~31, ~~rights~~2012 and ~~license~~2011 ofwas ~~films~~earned ~~and~~by TVour ~~programs~~animation ~~has~~developers. The ~~increased,~~78% ~~and~~reduction ~~the~~in ~~sales~~our ~~from~~revenue ~~distribution~~for ofthe ~~copies~~nine ofmonths ~~films~~ended ~~and~~March TV31, ~~series~~2011 ~~over~~to the ~~internet~~nine ~~have~~months ~~also~~ended ~~jumped~~March ~~in the past few years. In June 2011~~31, we2012 ~~entered~~and ~~into~~the ~~three~~74% ~~collaborative~~reduction ~~arrangements~~in ~~requiring~~our usrevenue tofrom ~~invest~~the athird ~~total~~quarter of ~~RMB~~fiscal ~~77,210,000~~2011 ~~(approximately~~to ~~$12.19~~the ~~million)~~third inquarter ~~television program production. As~~ of ~~December~~fiscal 312012, ~~2011~~however, wereflected ~~have~~our ~~paid~~decision ~~RMB~~to ~~46,058,500~~significantly ~~(approximately~~reduce ~~$7.2~~our ~~million). The~~involvement ~~production~~in ~~for~~the ~~all~~animation ~~three~~development ~~arrangements~~industry. With ~~ends~~the ~~within~~decrease ~~one~~in ~~year, at which time~~ the ~~Company~~costs ~~will~~of ~~obtain~~outsourcing ~~back~~most ~~its investment cost plus 20%~~ of ~~return~~our onproduction, ~~investment~~gross ~~for~~profit ~~two~~ of ~~the~~$514,327 ~~arrangements. For~~and ~~one~~$398,448 ofwas ~~the~~earned ~~arrangements,~~for the ~~Company~~nine isand ~~entitled~~three tomonth ~~its~~periods ~~pro-rata~~ended ~~share~~March of31, ~~the~~2012, ~~profits from distribution of the TV series~~respectively. ~~Our~~In ~~current~~comparison, ~~plan~~gross isloss ~~to re-dedicate the proceeds~~ of ~~the~~$759,895 ~~investments~~and to$365,473 ~~our~~was ~~animation~~incurred ~~development~~for ~~business. Management will spend~~ the ~~interim~~nine ~~period, however, reviewing the Company’s prospects in that industry~~ and ~~determining~~three ~~the~~month ~~appropriate~~periods ~~future~~ended ~~course~~March ~~for~~31, ~~our~~2011, ~~business~~respectively.

~~Our~~During ~~business~~the ~~operates~~first inhalf ~~Chinese~~of ~~Renminbi~~fiscal 2011, ~~but~~before we ~~report~~liquidated ~~our~~a ~~results~~large inportion ~~our SEC filings in U.S. Dollars. The conversion~~ of our ~~accounts~~animation ~~from~~development ~~RMB to Dollars results in translation adjustments~~operation, ~~which~~we ~~are~~needed ~~reported~~to askeep aour ~~middle~~facilities ~~step~~occupied ~~between net income~~ and ~~comprehensive~~our ~~income. The~~large ~~net~~staff ~~income~~of isanimation ~~added~~developers tobusy, ~~retained~~which ~~earnings~~necessitated onthat ~~our~~we ~~balance~~obtain ~~sheet; while the translation adjustment is added to~~ a ~~line~~steady ~~item~~flow ~~on our statement~~ of ~~stockholders~~contracts. Toward ~~equity~~that ~~labeled “accumulated other comprehensive income~~end,” ~~since~~we itdevoted isa ~~more~~large ~~reflective~~allocation of ~~changes~~resources into ~~the~~marketing. Currently, ~~relative~~with ~~values~~our ofreduced ~~U.S.~~facilities and ~~Chinese~~reduced ~~currencies~~staff, ~~than~~we ofcan ~~the~~rely ~~success~~primarily ofon our business~~. During~~ ~~the~~contacts ~~six~~for ~~months~~marketing. The ~~ended~~change ~~December~~is ~~31, 2011~~reflected ~~and~~in ~~2010,~~ the ~~unrealized~~reduction ~~gain~~of onselling, ~~foreign~~general ~~currency~~and ~~translations~~administrative ~~added~~expenses ~~$192,213~~from ~~and~~ $~~406~~712,~~318~~254 tofor ~~our accumulated other comprehensive income, respectively. During~~ the ~~three~~nine ~~months~~month period ended ~~December~~March 31, 2011 ~~and~~to ~~2010, the unrealized gain on foreign currency translations added~~ $75525,~~375~~277 ~~and~~for ~~$288,924~~the tonine ~~our~~month ~~accumulated~~period ~~other~~ended ~~comprehensive~~March ~~income~~31, ~~respectively~~2012.

As result of impairment loss of $7,238,943 provided in March 2012, we incurred a net loss of $7,340,758 for the nine months ended March 31, 2012 compared with a net loss of $2,431,096 for the nine months ended March 31, 2011. During the three months ended March 31, 2012 and 2011, we incurred net losses of $7,029,977 and $735,569, respectively.

Our business operates in Chinese Renminbi, but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income. The net income is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our statement of stockholders equity labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the nine months ended March 31, 2012 and 2011, the unrealized gain on foreign currency translations added $202,680 and $445,967 to our accumulated other comprehensive income, respectively. During the three months ended March 31, 2012 and 2011, the unrealized gain on foreign currency translations added $10,467 and $39,649 to our accumulated other comprehensive income, respectively.

Liquidity and Capital Resources

To date, our operations have been funded primarily 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.

In addition, the operations of our New York office, including the legal and accounting expenses attendant to our status as a public company, had, until June 2011, been funded by a $500,000 private placement of common stock in November 2010 and in part by loans from Fu Qiang, who was our Chief Executive Officer until early in June 2011, and Fu Zhiguo and Xia Shaoqiu, who isare ~~a shareholder~~shareholders. These loans were payable on demand and do not bear any interest. The Messrs. Fu and Xia Shaoqiu made the loans to cover the costs of the New York office because the process of obtaining approval from the Chinese government for transfer of funds from China to the U.S. would be burdensome and delay our ability to pay our U.S. expenses. We will continue to rely on loans from affiliates to pay our U.S. expenses until we can fund those expenses from Dollars obtained by a financing in the U.S. or after government approval of a conversion of a portion of our Renminbi balances into Dollars.

This program of internal financing has left us with a balance sheet that, at December 31, 2011, included no debt, either short-term or long-term, other than the $452,855 in loans payable to present or prior members of management: Fu Qiang, Fu Zhiguo and Xia Shaoqiu. It also left us with working capital of $7,392,943 at December 31, 2011, an increase of $112,055 during the six months then ended. Included in our working capital at December 31, 2011 was $6,296,932 in short-term investments, specifically investments in two media production projects, and $953,749 in deferred production costs that represent our cash contribution to a media project in which we are both participating and investing. These investments represent our efforts to achieve a reasonable return on our cash resources, better at least than the 0.6% interest offered by China’s banks, while we determine the future direction of our Company.

Despite the loss of $310,781 that we incurred in the six months ended December 31, 2011, our operations used $111,869 in cash for operating activities. The disparity occurred primarily because we made an additional investment of $272,500 in one of the arrangements discussed above.

WeThis ~~have~~program aof ~~contractual~~internal ~~obligation~~financing tohas ~~provide~~left anus ~~additional~~with ~~RMB~~a ~~28,751,500~~balance ~~($4~~sheet that,~~521,743)~~ toat ~~fund~~March ~~the~~31, ~~three~~2012, TVincluded ~~series~~no ~~productions~~debt, ~~arrangements~~either inshort-term ~~which~~or welong-term, ~~have~~other ~~invested. As~~than wethe ~~are~~$484,475 in ~~lack~~loans ofpayable ~~cash~~to ~~now,~~present ~~the~~or ~~other~~prior ~~parties~~members toof TVmanagement: Fu ~~series~~Qiang, ~~productions~~Fu ~~will~~Zhiguo ~~run~~and ~~the~~Xia ~~productions~~Shaoqiu. It inalso aleft ~~decreased~~us ~~scale~~with ~~and~~working ~~fund~~capital ~~any deficit~~ of ~~the~~$450,143 ~~arrangements.~~at WeMarch ~~may~~31, ~~continue~~2012, toa ~~provide~~decrease ~~additional~~of ~~funds~~$6,830,745 ifduring itthe isnine ~~available~~months tothen usended.

Despite a heavy loss incurred for the nine months ended March 31, 2012, our operations provided $280,033 in cash. The disparity occurred because the net loss was attributable to our decision to record an impairment of $7,238,943 on our investments. Our actual operations, the animation development business, generated cash flow during the nine months ended March 31, 2012. For this reason, we believe that our current capital resources are adequate to fund our operations as currently constituted for the forseeable 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 to a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

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~~March 31, ~~2011~~2012 (the “Evaluation Date”). 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. That evaluation revealed that management of the Company on a number of occasions failed to apply appropriate accounting principles when preparing the Company’s financial statements, which resulted in the restatement described in Note 1113 to the financial statements as well as errors in the presentation of the Company’s financial results for the interim quarters of fiscal 2011. Accordingly, based on ~~their~~her evaluation, the Company’s Chief Executive Officer and Chief Financial Officer ~~have~~ concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective.

Changes in Internal Control over Financial Reporting

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~~third 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 1.	LEGAL PROCEEDINGS.
	None.
ITEM 1A.	RISK FACTORS.
	Not applicable to a smaller reporting company.
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
	(a) Unregistered sales of equity securities
	The Company did not make any unregistered sales of equity securities during the second quarter of fiscal 2012.
	(b) Purchases of equity securities
	The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the second quarter of fiscal 2012.
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.
	None.
ITEM 4.	(REMOVED AND RESERVED).
ITEM 5.	OTHER INFORMATION.
	None.
ITEM 6.	EXHIBITS

ITEM 1.

LEGAL PROCEEDINGS.

31.1	Rule 13a-14(a)/15d-14(a) certification
32.1	Section 1350 certification
101	Interactive Data Files
101.INS	XBRL Instance Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase
101.LAE	XBRL Taxonomy Extension Label Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.SCH	XBRL Taxonomy Extension Schema

None.

ITEM 1A. RISK FACTORS.

Not applicable to a smaller reporting company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a) Unregistered sales of equity securities

The Company did not make any unregistered sale of securities during the quarter ended March 31, 2012.

(b) Purchases of equity securities

The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the quarter ended March 31, 2012.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

31.1	Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer and Chief Financial Officer

32.1	Section 1350 certification of Chief Executive Officer and Chief Financial Officer

101.INS	XBRL Instance Document*

101.SCH	XBRL Schema Document*

101.CAL	XBRL Calculation Linkbase Document*

101.LAE	XBRL Definition Linkbase Document*

101.DEF	XBRL Labels Linkbase Document*

101.PRE	XBRL Presentation Linkbase Document*

* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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 21, 2012	By: /s/ Yumei Hu
Date: May 21, 2012	By: /s/ Hu Yumei
	Yumei Hu
	Hu Yumei
	Chief Financial Officer (principal executive, financial and accounting officer)

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Filing Compare · China Digital Animation Development, Inc.