WASHINGTON, D.C. 20549
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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)
As of December 31, 2009 the aggregate market value of the common stock held by non-affiliates was $32,634,600, based upon the closing sale price on December 31, 2009 of $2.18 per share.
As of September 28, 2010, there were 20,020,000 shares of common stock outstanding.
In addition to historical information, this Annual 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 Section 1A of this Report, entitled “Risk Factors.” 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.
Heilongjiang Hairong Science and Technology Development Co., Ltd.
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. Since 2007, however, Hairong gradually transformed the nature of its business operations. Although 27% of Hairong’s revenue during the year ended June 30, 2009 came from its network installation business, Hairong terminated that business at the end of the fiscal year. Then during the year ended June 30, 2009 and into the year ended June 30, 2010 Hairong derived a significant portion of its revenue from the online delivery of financial information. However during fiscal 2010 Hairong terminated that business as well. Today, therefore, Hairong offers services in two distinct ma rket segments:
The unifying principle among our disparate businesses is our management style. We gather personnel with high levels of training and intelligence, and challenge them with complex problems, be it the production of a cutting edge video, the real-time delivery of data from around the world, or the on-time delivery of a cultural production. Fundamentally, in each case, the challenge is to find the efficient solution that resolves the inefficiencies of a multi-component situation. Our skill at finding those solutions will determine the success of our business.
The demand for skilled animation technicians in China is intense. To meet our needs, therefore, we opened a school for animation training at the beginning of 2009. During that year, the staff of our Animation Development Department trained a student body of 42 in animation technology and the production of special effects. Students paid from 6,000 to 15,000 Renminbi ($894 to $2235) for a course of instruction lasting 30 to 60 days. Upon completion of the course, qualified students were invited to join our own studio. During the past fiscal year, we closed the school to students so that we could complete its outfitting. We expect to enroll a new group of students in the coming year.
The government of China is actively supporting the development of the animation industry in China. Among the stimuli provided for development of the industry:
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 be 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 forseeable future.
In April 2008 we initiated our efforts in the business of producing and distributing cultural events. The mission of our Cultural Development Department is to mine the rich cultural heritage of The People’s Republic of China to produce marketable cultural events or adjuncts to the promotional programs of our business clients. The breadth of our plans include:
The first major undertaking by our Cultural Development Department draws on the ancient tradition in Heilongjiang Province of elaborate ice sculpture. The Great Wall Ice Tour is a monumental construction of snow and ice. It was designed as an introduction to the art of ice sculpture, as well as to the culture of northeastern China. Like a giant ice castle, the sculpture will boast a variety of entertainment options to attract a wide audience. There is the detailed carving itself, which shows the variety of local design. But in addition, there is an ice sliding board, ice labyrinth, and ice skating park to entertain the young. And there is an ice bar, to refresh the adults. To complete the visit, an ice cafeteria offers a full menu of f rozen delights, from ice porridge to frozen persimmons. The Ice Tour was exhibited in a public park in the City of Harbin from November 2009 to February 2010.
We currently have 255 employees. They are associated with our several departments as shown below.
Investing in our common stock involves risk. You should carefully consider the risks described below together with all of the other information contained in this Report, including the financial statements and the related notes, before deciding whether to purchase any shares of our common stock. If any of the following risks occurs, our business, financial condition or operating results could materially suffer. In that event, the trading price of our common stock could decline and you may lose all or part of your investment.
We rely on contractual arrangements with Hairong for our China operations, which may not be as effective in providing control over Hairong as direct ownership.
Because PRC regulations restrict our ability to provide Internet content and certain other services in China through a directly-owned subsidiary, our business is defined by a contractual relationship with Hairong, an entity in which China Digital Animation Development Inc. has no equity ownership interest. We will rely on contractual arrangements to control and operate this business. These contractual arrangements may not be as effective in providing control over Hairong as direct ownership. For example, if Hairong failed to perform under its agreements with us, we would have to rely on legal remedies under Chinese law, which we cannot be sure would be available. In addition, we cannot be certain that the individual equity owners of Hairong would a lways act in the best interests of China Digital Animation Development.
We are also subject to the rules and regulations of the United States, including the SEC. We expect to incur significant costs associated with our public company reporting requirements, costs associated with applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.
Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.
None.
On January 30, 2009 we implemented a 1-for-25 reverse split of our common stock. All references in this Report to a number of shares issued or outstanding prior to January 30, 2009 have been adjusted to retroactively reflect the effect of the reverse split.
Our common stock is listed for quotation on the OTC Bulletin Board system under the symbol “CHDA.” The following table sets forth for the respective periods indicated the prices of the common stock, as reported by the OTC Bulletin Board. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.
The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of June 30, 2010.
China Digital Animation did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the quarter ended June 30, 2010.
Not applicable.
Fiscal year 2010, which ended on June 30, 2010, was a year of transformation in our business. Although animation development provided 60% of our revenue in fiscal 2009, our original business of developing IT systems still produced 27% of our revenue in fiscal 2009, and our financial data services provided over 12% of our revenue. When fiscal year 2010 began, however, we had already terminated our IT systems business, and not long afterwards we closed our financial data services business. Animation development, therefore, provided 84% of our revenue in fiscal 2010, as revenue from animation development grew by 45%, from $3,589,051 to $5,133,890. The remainder of our revenue came from our cultural production department, supplemented by some revenue earned early in the year by our financial data operations. Overall, revenue increased by only 1% from fiscal 2009 to fiscal 2010. But the transformation of China Digital Animation Development into an animation development company was completed.
As revenue grew by 1%, so gross profit grew at the same rate. Our gross margin rate in each year was 73%, a high rate of profitability that reflects the fact that all of our dominant operations in both fiscal 2009 and fiscal 2010 were service businesses, which have a low cost of goods sold but higher overhead than manufacturing businesses. We expect that our gross margin rate will be relatively consistent in future periods, provided that our marketing personnel are successful in pricing our development contracts to our advantage.
The transformation of our business operations also resulted in additional income for the year ended June 30, 2009. We realized a gain of $239,746 when we sold the building and equipment associated with our network engineering business - this is recorded on our Statements of Income as “Gains on Disposal of Fixed Assets.” This was partially offset, however, by the loss of $104,005 that we incurred on the sale of the inventory we carried for the network engineering business, which is included in “Other Expense” on our Statements of Income. On the other hand, during the year we also sold our management consulting subsidiary, Fortune Global Investment Advisory Co., Ltd. (“FGIA”). FGIA had been contributed to Hairong by Fu Qiang, our Chairman, and was carried on our books at zero basis. For that reason, we recorded the entire sales price - $219,036 - as a “Gain from Investment.” In fiscal 2010, our only significant non-operating income or expense was the $275,006 gain that we realized from our investment of funds in an investment fund. We liquidated the investment in April 2010.
Our revenue less expenses for year ended June 30, 2010 yielded a net income before taxes of $3,360,001, only $85,244 more than in fiscal 2009. After accounting for China’s 25% tax on corporate income, we realized net income of $2,461,339 in the year ended June 30, 2010, a negligible improvement over the $2,451,614 that we earned in the year ended June 30, 2009.
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 year ended June 30, 2010, the unrealized gain on foreign currency translations added $111,955 to our accumulated other comprehensive income.
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.
This program of internal financing has left us with a balance sheet that, at June 30, 2010, included no debt, either short-term or long-term, other than a $286,000 loan payable to one of our shareholders. It also left us with working capital of $6,697,641 at June 30, 2010, an improvement of $1,750,248 during the year. Included in our working capital at June 30, 2010 was $6,219,438 in cash. Since our operations have been cash positive in each of the past three fiscal years - providing $5,277,646 in cash during the 2010 fiscal year, $819,226 in cash during the 2009 fiscal year, and $2,030,233 in cash during the 2008 fiscal year - we believe that our cash resources are adequate to fund our operations for the forseeable future.
We expect to fund additional upgrades to our film and animation production facilities during the next twelve months. We expect the overall cost of these capital improvements to be approximately 27 million RMB (approximately $4 million). 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 $8,331,630 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 for the fore seeable future.
Critical Accounting Policies and Estimates
In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for 2010, there was one estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results. These was the determination, explained in Note 3 to the Consolidated Financial Statements, to record no bad debt reserve as of June 30, 2010. This determination was based on application of our standard evaluation of accounts receivable, which resulted in a high level of confidence regarding the collectability of our receivables.
Impact of Accounting Pronouncements
There were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to the Consolidated Financial Statements
| Page | |
| F-1 | Report of Independent Registered Public Accounting Firm. |
| | |
| F-2 | Consolidated Balance Sheets as of June 30, 2010 and 2009. |
| | |
| F-4 | Consolidated Statements of Income for the Fiscal Years Ended June 30, 2010 and 2009. |
| | |
| F-5 | Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended June 30, 2010 and 2009. |
| | |
| F-6 | Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2010 and 2009. |
| | |
| F-8 to F-18 | Notes to Consolidated Financial Statements. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of China Digital Animation Development, Inc.
We have audited the accompanying consolidated balance sheets of China Digital Animation Development, Inc .and its subsidiaries as of June 30, 2010 and 2009 and the related consolidated statements of income, consolidated stockholders’ equity and consolidated comprehensive income, and consolidated cash flows for each of the years ended. China Digital Animation Development, Inc. management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, ev idence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Digital Animation Development, Inc and its subsidiaries as of June 30, 2010 and 2009, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year periods ended June 30, 2010 and 2009 in conformity with accounting principles generally accepted in the United States of America.
/s/ P.C.LIU, CPA, P.C.
Flushing, NY
September 20, 2010
CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2010 AND, 2009
| | | JUNE 30, | |
| ASSETS | | 2010 | | | 2009 | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 6,219,438 | | | $ | 2,282,786 | |
| Accounts receivable, net | | | 976,304 | | | | 1,388,599 | |
| Employee advances | | | 3,616 | | | | 2,234 | |
| Advanced to suppliers | | | - | | | | 1,443,440 | |
| Interest receivable | | | - | | | | 54,786 | |
| Prepaid expenses | | | - | | | | 84,202 | |
| Total Current Assets | | | 7,199,358 | | | | 5,256,047 | |
| | | | | | | | | |
| Non-current Assets | | | | | | | | |
| Property, plant & equipment, net | | | 5,575,027 | | | | 3,929,257 | |
| Land use right and other intangible assets, net | | | 2,756,604 | | | | 1,106,870 | |
| Long term investment | | | - | | | | 2,191,457 | |
| Total Non-current Assets | | | 8,331,630 | | | | 7,227,584 | |
| Total Assets | | $ | 15,530,988 | | | $ | 12,483,631 | |
" Continued on next page"
"The accompanying notes are an integral part of these financial statements"
CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2010 AND, 2009
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
| | | JUNE 30, | |
| | | 2010 | | | 2009 | |
| Current Liabilities: | | | | | | |
| Accounts payable | | $ | 34,338 | | | $ | 29,219 | |
| Payroll payable | | | 6,648 | | | | - | |
| Tax payable | | | 410,339 | | | | 214,471 | |
| Accrued expenses and other payable | | | 50,391 | | | | 64,964 | |
| | | | | | | | | |
| Total Current Liabilities | | | 501,717 | | | | 308,654 | |
| | | | | | | | | |
| Long-Term Liabilities: | | | | | | | | |
| Loan payable | | | 286,000 | | | | 5,000 | |
| Total Long-Term Liabilities | | | 286,000 | | | | 5,000 | |
| | | | | | | | | |
| Total Liabilities | | | 787,717 | | | | 313,654 | |
| | | | | | | | | |
| Stockholders' Equity: | | | | | | | | |
Common Stock, par value $0.001, 500,000,000 authorized 20,020,000 shares issued and outstanding | | | 20,020 | | | | 20,020 | |
| Additional Paid in Capital | | | 6,223,697 | | | | 6,223,697 | |
| Accumulated other comprehensive income | | | 1,873,933 | | | | 1,761,978 | |
| Reserved Fund | | | 705,738 | | | | 341,524 | |
| Retained Earnings | | | 5,919,884 | | | | 3,822,758 | |
| Total Stockholders' Equity | | | 14,743,271 | | | | 12,169,977 | |
| | | | | | | | | |
| Total Liabilities and Stockholders' Equity | | $ | 15,530,988 | | | $ | 12,483,631 | |
"The accompanying notes are an integral part of these financial statements"
CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2010 AND, 2009
| | | JUNE 30, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Revenues | | $ | 6,087,486 | | | $ | 6,014,045 | |
| | | | | | | | | |
| Cost of Goods Sold | | | 1,657,885 | | | | 1,638,764 | |
| | | | | | | | | |
| Gross Profit | | | 4,429,601 | | | | 4,375,281 | |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | |
| Sales Expenses | | | 322,859 | | | | 342,488 | |
| General and Administrative Expenses | | | 1,021,721 | | | | 1,186,617 | |
| | | | | | | | | |
| Total Operating Expenses | | | 1,344,581 | | | | 1,529,106 | |
| | | | | | | | | |
Income from Operations before other Income and (expenses) | | | 3,085,020 | | | | 2,846,175 | |
| | | | | | | | | |
| Other Income and (Expense): | | | | | | | | |
| Interest income | | | - | | | | 73,516 | |
| Gains from Disposal of Fixed Assets | | | - | | | | 239,745 | |
| Gain from Investment | | | 275,006 | | | | 219,036 | |
| Other expense | | | (26 | ) | | | (103,715 | ) |
| Total Other Income and (Expense) | | | 274,980 | | | | 428,581 | |
| | | | | | | | | |
| Income Before Income Taxes | | | 3,360,001 | | | | 3,274,757 | |
| | | | | | | | | |
| Provision For Income Taxes | | | 898,662 | | | | 823,142 | |
| | | | | | | | | |
| Net Income | | | 2,461,339 | | | | 2,451,614 | |
| | | | | | | | | |
| Other Comprehensive Items: | | | | | | | | |
| Unrealized Gain on Foreign Currency Translation | | | 111,955 | | | | 116,491 | |
| Net Comprehensive Income | | $ | 2,573,294 | | | $ | 2,568,105 | |
| | | | | | | | | |
| Earnings Per Common Share-Basic and Diluted | | $ | 0.13 | | | $ | 0.13 | |
| | | | | | | | | |
| Weighted Average Common Share - Basic and Diluted | | | 20,020,000 | | | | 20,002,000 | |
"The accompanying notes are an integral part of these financial statements"
CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | | | Additional | | Accumulated Other | | | | | | | | | | | | | Total | |
| | | Common Stock par value $.0001 | | | Paid in | | | Comprehensive | | | Retained | | | Reserved | | | Comprehensive | | | Minority | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Income | | | Earnings | | | Fund | | | Income | | | Interest | | | Equity | |
| Balance - June 30, 2008 | | | 20,020,000 | | | $ | 20,020 | | | $ | 6,223,697 | | | $ | 1,645,487 | | | $ | 1,600,427 | | | $ | 112,241 | | | | | | $ | 64,259 | | | $ | 9,666,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income for the twelve months | | | | | | | | | | | | | | | | | | | 2,451,614 | | | | | | | | 2,451,614 | | | | | | | | 2,451,614 | |
| Reserved Fund | | | | | | | | | | | | | | | | | | | (229,283 | ) | | | 229,283 | | | | | | | | | | | | - | |
| Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | | | | | | | 116,491 | | | | | | | | | | | | 116,491 | | | | | | | | 116,491 | |
| Decrease in Minority Interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (64,259 | ) | | | (64,259 | ) |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,568,105 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance - June 30, 2009 | | | 20,020,000 | | | | 20,020 | | | | 6,223,697 | | | | 1,761,978 | | | | 3,822,758 | | | | 341,524 | | | | | | | | 0 | | | | 12,169,977 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income for the twelve months | | | | | | | | | | | | | | | | | | | 2,461,339 | | | | | | | | 2,461,339 | | | | | | | | 2,461,339 | |
| Reserved Fund | | | | | | | | | | | | | | | | | | | (364,214 | ) | | | 364,214 | | | | | | | | | | | | - | |
| Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | | | | | | | | | | 111,955 | | | | | | | | | | | | 111,955 | | | | | | | | 111,955 | |
| Decrease in Minority Interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,573,294 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance - June 30, 2010 | | | 20,020,000 | | | $ | 20,020 | | | $ | 6,223,697 | | | $ | 1,873,933 | | | $ | 5,919,883 | | | $ | 705,738 | | | | | | | $ | - | | | $ | 14,743,271 | |
"The accompanying notes are an integral part of these financial statements"
CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JUNE 30, 2010 AND, 2009
| | | JUNE 30, | |
| Cash Flows From Operating Activities: | | 2010 | | | 2009 | |
| | | | | | | |
| Net Income | | $ | 2,461,339 | | | $ | 2,451,614 | |
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: | | | | | | | | |
| Depreciation and Amortization Expense | | | 629,904 | | | | 424,664 | |
| Gains from Disposal of Fixed Assets | | | | | | | (239,745 | ) |
| (Increase) or Decrease in Current Assets: | | | | | | | | |
| Accounts Receivable | | | 412,294 | | | | (572,666 | ) |
| Inventories | | | - | | | | 77,028 | |
| Prepaid Expenses | | | 84,202 | | | | (67,321 | ) |
| Advanced to Suppliers | | | 1,443,440 | | | | (762,918 | ) |
| Interest Receivable | | | 54,786 | | | | (54,786 | ) |
| Employee Advanced | | | (1,382 | ) | | | 234,716 | |
| Increase or (Decrease) in Current Liabilities: | | | | | | | | |
| Accounts Payable | | | 5,119 | | | | (59,061 | ) |
| Advanced from customers | | | - | | | | (27,606 | ) |
| Taxes Payable | | | 195,868 | | | | (271,022 | ) |
| Payroll payable | | | 6,648 | | | | (9,254 | ) |
| Accrued Expenses and Other Payables | | | (14,572 | ) | | | (304,418 | ) |
| | | | | | | | | |
| Net Cash Provided by Operating Activities | | | 5,277,646 | | | | 819,226 | |
| | | | | | | | | |
| Cash Flows From Investing Activities: | | | | | | | | |
| | | | | | | | | |
| Purchases of Property and Equipment | | | (2,251,235 | ) | | | (2,419,341 | ) |
| Proceeds from Sale of Fixed Assets | | | - | | | | 1,969,390 | |
| Purchases of Intangible Assets | | | (1,635,415 | ) | | | (757,198 | ) |
| Investment-Long Term | | | 2,191,457 | | | | (2,191,457 | ) |
| | | | | | | | | |
| Net Cash Used in Investing Activities | | | (1,695,193 | ) | | | (3,398,606 | ) |
"Continued on next page"
"The accompanying notes are an integral part of these financial statements"
CHINA DIGITAL ANIMATION DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED JUNE 30, 2010 AND, 2009
| | | JUNE 30, | |
| Cash Flows From Financing Activities: | | 2010 | | | 2009 | |
| | | | | | | |
| Proceeds from Borrowing | | | 281,000 | | | | 5,000 | |
| | | | | | | | | |
| Net Cash Used in Financing Activities | | | 281,000 | | | | 5,000 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 73,198 | | | | 116,491 | |
| | | | | | | | | |
| Increase (Decrease) in Cash and Cash Equivalents | | | 3,936,652 | | | | (2,457,889 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents -Beginning Balance | | | 2,282,786 | | | | 4,740,675 | |
| | | | | | | | | |
| Cash and Cash Equivalents - Ending Balance | | $ | 6,219,438 | | | $ | 2,282,786 | |
| | | | | | | | | |
| Supplemental Disclosures of Cash Flow Information: | | | | | | | | |
| | | | | | | | | |
| Cash Paid During The Years for: | | | | | | | | |
| | | | | | | | | |
| Interest Paid | | | - | | | | - | |
| | | | | | | | | |
| Income Taxes Paid | | $ | 801,955 | | | $ | 1,394,046 | |
"The accompanying notes are an integral part of these financial statements"
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
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. (“CHDA”) 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. 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."
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 June 30, 2010, 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.
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.
Advances to suppliers
Hairong made advance payments to certain suppliers which provide services to the company for animation design and making. The advances to suppliers were $0 and $1,443,440 as of June 30, 2010 and 2009.
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.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 years |
| Machinery, equipment and automobiles | 5-10 years |
Land use right
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.
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 asse t will not be realized. There are no deferred tax amounts at June 30, 2010 and 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.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
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.
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 are 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 June 30, 2010.
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 but the company still makes payments to the reserve fund for its future development.
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.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements
In January 2010, FASB issued ASU No. 2010-06 - Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as f ollows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on its financial statements.
In January 2010, FASB issued ASU No. 2010-02 - Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts ASC 810, "Non-controlling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51." If an entity has previously adopted ASC 810 as of the date the amendments in this update are included in the Accounting Standar ds Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The Company does not expect the adoption of this ASU to have a material impact on its financial statements.
In January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The Company does not expect the adoption of this ASU to have a material impact on its financial state ments.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements (continued)
In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU i s effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on its financial statements.
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. SFAS 167 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 disclosures 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.
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 June 30, 2010 and 2009, the net accounts receivable were $976,304 and $1,388,599, respectively. The bad debt reserve for the fiscal year 2010 and 2009 is $0 and $15,464.
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 June 30, 2010 and June 30, 2009, respectively.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
5. PROPERTY AND EQUIPMENT, NET
Property, Plant & Equipment consisted of the following:
| | | June 30, 2010 | | | June 30, 2009 | |
| Building and Improvement | | $ | 3,250,495 | | | $ | 1,785,983 | |
| Office Furniture & Equipment | | | 1,423,794 | | | | 612,105 | |
| Vehicles | | | 349,775 | | | | 352,099 | |
| Construction in progress | | | 1,471,996 | | | | 1,459,975 | |
| Total Property | | | 6,496,060 | | | | 4,210,162 | |
| | | | | | | | | |
| Accumulated depreciation | | | (921,033 | ) | | | (280,905 | ) |
| Total Property, net | | $ | 5,575,027 | | | $ | 3,929,257 | |
Depreciation expense for the years ended June 30, 2010 and 2009 was $635,087 and $443,698 respectively.
6. INTANGIBLE ASSETS AND LAND USE RIGHT
The changes in intangible assets for fiscal 2010 and the net book value of intangible assets at June 30, 2010 and 2009 were as follows:
| | | June 30, 2010 | | | June 30, 2009 | |
| Cost of intangible assets and land use right | | $ | 3,028,908 | | | $ | 1,382,114 | |
| Less: accumulated amortization | | | (272,304 | ) | | | (275,244 | ) |
| | | | | | | | | |
| Intangible assets and land use right, net | | $ | 2,756,604 | | | $ | 1,106,870 | |
Total amortization expense related to intangible assets was ($5,183) and ($19,034) in fiscal 2010 and 2009, respectively. The negative amortization expense during the 2010 and 2009 fiscal year was due to the disposal of the intangible asset and write off of the accumulated amortization.
7. LONG TERM INVESTMENT
On April 24, 2009, the Company deposited $ 2,191,457 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 interest income is $275,006 and $ 54,786 for the fiscal year 2010 and 2009 respectively.
The agreement expired on April 24, 2010, and the Company withdrew its total investment of $2,191,457.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
8. TAX PAYABLE
Tax payable consisted of business tax, income tax and other miscellaneous taxes. For the years ended June 30, 2010 and 2009, the total tax payable was $410,339 and $ 214,471, respectively.
9. ACCRUED EXPENSES AND OTHER PAYABLE
The accrued expenses mainly was auditing fee for both years June 30, 2010 and 2009 with other miscellaneous payables in the amount of $50,391 and $64, 964, respectively.
10. LOAN FROM SHAREHOLDER-Related Party transaction
A major shareholder loaned the Company $286, 000 in fiscal year 2010 and $5,000 in fiscal year 2009. This loan does not bear interest and is payable on demand.
11. INCOME TAXES
After January 1, 2008, a new Chinese Tax Law was enacted. The Company’s subsidiary, Hairong, has been subject to income tax at 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 12 months ended June 30, 2010 and 2009 as follows:
| PRC only: | | June 30, 2010 | | | June 30, 2009 | |
| | | | | | | |
| Current | | $ | 898,662 | | | $ | 823,142 | |
| Deferred | | | - | | | | - | |
| | | | | | | | | |
| Total | | $ | 898,662 | | | $ | 823,142 | |
12. STOCKHOLDERS’ EQUITY
As of June 30, 2010, 500,000,000 shares have been authorized and 20,020,000 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.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
13. SEGMENT INFORMATION
Segment revenue and operating income was as follows:
| | | June 30, 2010 | | | June 30, 2009 | |
| Revenue: | | | | | | |
| Internet Design and Development | | $ | - | | | $ | 25,934 | |
| IT Construction | | | - | | | | 1,598,032 | |
| Membership Fees | | | 244,593 | | | | 751,965 | |
| Animation Design and Development | | | 5,133,890 | | | | 3,589,051 | |
| Ice Culture Show | | | 709,003 | | | | - | |
| Other | | | - | | | | 49,064 | |
| Consolidated | | $ | 6,087,486 | | | $ | 6,014,045 | |
| | | June 30, 2010 | | | June 30, 2009 | |
| Operating Income: | | | | | | |
| Internet Design and Development | | $ | - | | | $ | 12,273 | |
| IT Construction | | | - | | | | 756,276 | |
| Membership Fees | | | 172,598 | | | | 355,871 | |
| Animation Design and Development | | | 2,062,665 | | | | 1,698,536 | |
| Ice Culture Show | | | 309,757 | | | | - | |
| Other | | | - | | | | 23,220 | |
| Consolidated | | $ | 3,085,020 | | | $ | 2,846,175 | |
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.
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
14. 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.
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 June 30, 2010 and 2009, substantially 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 major customers which represented more than 5% of Accounts Receivable as follows:
| | | 2010 | | | 2009 | |
| Customer Name | | Amount | | | % | | | Amount | | | % | |
| Jiangyin Deyang Biotechnology Development Co., Ltd | | | 65,254 | | | | 6.68 | % | | | - | | | | 0.00 | % |
| Heilongjiang Flood & Drought Control Centre | | | - | | | | 0.00 | % | | | 131,487 | | | | 9.36 | % |
| Beijing Wanfang Xingxing Digital Technology Co., Ltd, | | | - | | | | 0.00 | % | | | 721,716 | | | | 51.40 | % |
| Harbin Shengwen Animation Co., Ltd | | | 162,030 | | | | 16.60 | % | | | - | | | | 0.00 | % |
| Benxi Yige Animation Co., Ltd | | | 270,296 | | | | 27.69 | % | | | - | | | | 0.00 | % |
| Shenzhen Global Digital Technology Co., Ltd | | | 250,410 | | | | 25.65 | % | | | - | | | | 0.00 | % |
| Shanghai Animation Production Co, Ltd | | | 228,315 | | | | 23.39 | % | | | - | | | | 0.00 | % |
The major clients who represented 5% and more of the total sales for the year end June 30, 2010 and 2009 are as follows:
| | | 2010 | | | 2009 | |
| Customer Name | | Amount | | | % | | | Amount | | | % | |
| Benxi Yige Animation Co., Ltd | | | 1,393,650 | | | | 22.89 | % | | | - | | | | 0.00 | % |
| Guoji Trading Co., Ltd | | | 709,148 | | | | 11.65 | % | | | - | | | | 0.00 | % |
| Harbin Shengwen Animation Co., Ltd | | | 645,480 | | | | 10.60 | % | | | - | | | | 0.00 | % |
| Shanghai Animation Production Co., Ltd | | | 1,129,590 | | | | 18.55 | % | | | - | | | | 0.00 | % |
| Shenzhen Global Digital Co., Ltd | | | 1,321,767 | | | | 21.71 | % | | | - | | | | 0.00 | % |
| Beijing Wanfangxingxing Co., Ltd | | | 421,029 | | | | 6.91 | % | | | 2,983,270 | | | | 49.61 | % |
CHINA DIGITAL ANIMATION DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 & JUNE 30, 2009
16. SUBSEQUENT EVENTS
The Company has evaluated subsequent events that have occurred through the date of issuance of these financial statements and has determined that there were no material events that occurred after the date of the balance sheets included in this report.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| ITEM 9A. | CONTROLS AND PROCEDURES |
(a) Evaluation of Disclosure Controls and Procedures.
The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial offi cers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.
(b) Changes in Internal Controls.
The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fourth quarter of the year covered by this annual report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
(c) Management’s Report on Internal Control over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of June 30, 2010, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified one material weaknesses in our internal control over financial reporting. This material weakness consisted of:
a. Lack of expertise in U.S accounting principles among the personnel in our Chinese headquarters. Our books are maintained and our financial statements are prepared by the personnel employed at our executive offices in the City of Jiamusi. Few of our employees have experience or familiarity with U.S accounting principles. The lack of personnel in our Jiamusi office who are trained in U.S. accounting principles is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP.
Management is currently reviewing its staffing and their training in order to remedy the weaknesses identified in this assessment. To date, we are not aware of significant accounting problems resulting from these weaknesses; so we have to weigh the cost of improvement against the benefit of strengthened controls. However, because of the above conditions, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of June 30, 2010.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
| ITEM 9B. | OTHER INFORMATION |
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The officers and directors of the Company are:
| | Position/Title | Age | Director Since |
| Fu Qiang | Chairman, Chief Executive Officer, Director | 34 | 2008 |
| Sheng Zhai | Director, President | 30 | 2010 |
| Andrew Mininger | Director | 44 | 2010 |
| John McFadden | Director | 66 | 2010 |
| Shaoqiu Xia | Director | 64 | 2010 |
| Hu Yumei | Chief Financial Officer | 42 | -- |
| Huo Hong | Vice President - Operations | 37 | -- |
The following sets forth biographical information regarding the Company’s directors.
Fu Qiang. Mr. Fu has been employed since 2003 as the President of our subsidiary, Heilongjiang Hairong Science and Technology Development Co Ltd. (“Hairong”). Previously Fu Qiang was employed as Vice General Manager by Heilongjiang Guangsha Group, a construction company, where he was responsible for business development and new construction management. In 1998 Fu Qiang earned a Bachelor’s Degree in Business Administration from Beijing Union University. In 1996 he earned a Bachelor’s Degree in Law from Heilongjiang Political Management and Law College.
Sheng Zhai. Since 2007 Mr. Zhai has been employed as General Manager of Heilongjiang Hairong Science & Technology Development Co., Ltd. which is the operating subsidiary of China Digital Animation Development, Inc. From 2002 to 2007 Mr. Zhai was employed as Sales Director of BSI China, the China Branch of the British Standards Institute. In 2002 Mr. Zhai was awarded a Bachelor’s Degree with a concentration in enterprise management by the Central University of Finance and Economics. In 2004 he received a master’s degree in finance from the same institution.
Andrew Mininger. Mr. Mininger brings to the board his expertise in the operation and marketing of an animation design business. Mr. Mininger has been employed since 2005 as Chief Executive Officer of The Madison Park Company, a full service marketing firm focused on the technology, media, consumer goods and health/wellness sectors. Since 2007 Mr. Mininger has also been employed as Chief Executive Officer of Mada Design, a New York based graphic design firm with packaging, publishing, illustration, 2D animation and licensing expertise. In 1988 Mr. Mininger was awarded a B.A. degree with a concentration in organizational communications by Cedarville Univer sity. He earned an Executive Education Certificate from the University of Pennsylvania Wharton School in 1999.
John J. McFadden. Mr. McFadden contributes to the Board his 40 years of experience in public and corporate finance as well as his insights into corporate management. Mr. McFadden has been self-employed since 1999 as a consultant, providing consultation to his clients regarding both investment banking and energy matters. From 1996 until 1998 Mr. McFadden was employed as the Senior Managing Director of Cambridge Holding and Cambridge Partners, LLC, a private investment company. From 1968 until 1996 Mr. McFadden was employed by The First Boston Corporation with a variety of responsibilities in corporate finance and public finance, including service as Vice President and Treasurer. In 1967 Mr. McFadden was awar ded a B.A. degree by St. Bonaventure University. Mr. McFadden serves as a member of the board and Chairman of the Audit Committee for Advanced Battery Technologies, Inc. (NASDAQ: ABAT).
Shaoqiu Xia. Since 1993 Mr. Xia has been employed as Deputy Secretary in the Government of the City of Harbin, China. During the eight years immediately preceding his entry into government service, Mr. Xia was employed as President of Harbin Electrical and Mechanical Production Company. Mr. Xia contributes to the Board his familiarity with business practices in China, in particular government regulation of business practices in China, as well as his familiarity with electronic manufacturing processes. Mr. Xia currently also serves as a member of the Board of Directors of Advanced Battery Technologies, Inc. (NASDAQ: ABAT). Mr. Xia was awarded a Bachel ors Degree in Science in 1967 by the Shenyang Industrial University.
Hu Yumei. Ms. Hu has been employed as Chief Financial Officer of Hairong and its predecessor since 2006, with responsibilities for both the accounting and the finance departments. From 1986 to 2003 Ms. Hu served as Chief Financial Officer of Harbin XinYang Group, which was engaged in the construction industry. In 1986 Ms. Hu was awarded a Bachelor’s Degree with a concentration in Economics by the Heilongjiang Province Economy Institute of Cadres Management.
Huo Hong. Ms. Huo has been employed by Hairong as its U.S. agent since 2008. Since 2006 Ms. Huo has also been employed as Producer, Financial Reporter, and Marketing Director by Wall Street Multimedia, which provides financial news content in the U.S. and China. Since 2004 Ms. Huo has also been employed as a Correspondent by The Global Times. From 2004 to 2006 Ms. Huo was employed as a Marketing Executive by Jam-Aimee Jewelry, and from 2002 to 2004 Ms. Huo was employed as Assistant to the President of American Jewelry Design, Inc. In 2006 Ms. Huo was awarded a Masters Degree in Marketing by Baruch University; in 2002 she was awarded a B.A. with a concentration in Business Administration by the University of Colorado.
All of our directors hold offices until the next annual meeting of the shareholders of the Company, and until their successors have been qualified after being elected or appointed. Officers serve at the discretion of the board of directors.
Audit Committee; Compensation Committee; Nominating Committee
We have certain standing committees of the Board, each of which is described below.
The Audit Committee consists of John J. McFadden, Andrew Mininger and Shaoqiu Xia. Mr. McFadden serves as the chairman of the Audit Committee. The Board has determined that each of the members of the Audit Committee satisfies the independence requirements of the NASDAQ Stock Market. The Audit Committee oversees our accounting and financial reporting processes and procedures, reviews the scope and procedures of the internal audit function, appoints our independent registered public accounting firm and is responsible for the oversight of its work and the review of the results of its independent audits. The Audit Committee was only recently constituted and did not meet during fiscal 2010.
The Board of Directors has determined that John J. McFadden, who serves as Chairman of the Audit Committee, is an audit committee financial expert by reason of his experience in corporate finance and investment banking. Mr. McFadden is an independent director, within the definition of that term applicable to issuers listed on the NASDAQ Stock Market.
The Compensation Committee consists of John J. McFadden, Andrew Mininger and Shaoqiu Xia. Mr. Xia serves as chairman of the Compensation Committee. The Board has determined that each of the members of the Compensation Committee satisfies the independence requirements of the NASDAQ Stock Market. The Compensation Committee oversees the Company’s policies regarding compensation and benefits, evaluates the performance of the Company’s executive officers, reviews and approves the compensation of the Company’s executive officers, and sets the compensation for members of the Board of Directors. The Compensation Committee was only recently constituted and did not meet during fiscal 2010.
The Nominating and Corporate Governance Committee consists of John J. McFadden, Andrew Mininger and Shaoqiu Xia. Mr. McFadden serves as chairman of the Nominating and Corporate Governance Committee. The Board has determined that each of the members of the Nominating and Corporate Governance Committee satisfies the independence requirements of the NASDAQ Stock Market. The Nominating and Corporate Governance Committee makes recommendations to the Board regarding nominees to be submitted to our shareholders for election at each annual meeting of shareholders, selects candidates for consideration by the full Board to fill any vacancies on the Board, and oversees all of our corporate governance matters. The Nominating and Corporate Governance Committee was only recently constituted and did not meet during fiscal 2010.
Procedure for Nominating or Recommending for Nomination Candidates for Director
The Nominating and Corporate Governance Committee will consider candidates recommended by shareholders. Any shareholder who intends to present a director nomination proposal for consideration at the 2011 Annual Meeting of shareholders and intends to have that proposal included in the proxy statement and related materials for the 2011 Annual Meeting, must deliver a written copy of the proposal to our Company’s principal executive offices no later than the deadline, and in accordance with the notice procedures specified in the applicable requirements of SEC Rule 14a-8.
If a shareholder does not comply with the Rule 14a-8 procedures, the Company would not be required to include the nomination proposal as a proposal in the proxy statement and proxy card mailed to shareholders. For a shareholder’s nominee to be considered for nomination as a Director, the shareholder should give timely notice of their nomination in writing to the Secretary of our Company. To be timely, written suggestions for candidates, accompanied by a written consent of the proposed candidate to serve as a director if nominated and elected, a description of his or her qualifications and other relevant biographical information, should be delivered for consideration by the Nominating and Corporate Governance Committee prior to the next Annual Meeting to the Secretary of the Company, 15 West 39th Street, Suite 14B, New York, NY 10018 not less the 10th day following the day on which public announcement of the date of such meeting is first made. The Nominating and Corporate Governance Committee may request that the shareholder submitting the proposed nominee furnish additional information to determine the eligibility and qualifications of such candidate.
Code of Ethics
The Company has adopted a Code of Ethics that applies to its executive officers. A copy of the Code of Ethics was filed as exhibit 14 to the Current Report on Form 8-K filed on May 4, 2010.
Section 16(a) Beneficial Ownership Reporting Compliance
None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended June 30, 2010, except that Messrs. Zhai, Mininger, McFaddden and Xia failed to file a Form 3.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or paid by the companies that are currently subsidiaries of China Digital Animation to Fu Qiang, the Company’s Chief Executive Officer, and to Hu Yumei, its Chief Financial Officer, for services rendered in all capacities to the Company during the years ended June 30, 2010, 2009 and 2008. There were no other executive officers whose total salary and bonus for the fiscal year ended June 30, 2010 exceeded $100,000.
| | Year | Salary | Bonus | Stock Awards | Option Awards | Other Compensation |
| Fu Qiang | 2010 | $8,772 | -- | -- | -- | (1) |
| | 2009 | $8,772 | -- | -- | -- | (1) |
| | 2008 | $8,772 | -- | -- | -- | (1) |
| | | | | | | |
| Hu Yumei | 2010 | $6,100 | -- | -- | -- | -- |
| | 2009 | $5,263 | -- | -- | -- | -- |
| | 2008 | $4,386 | | | | |
______________________________
| (1) | Hairong has permitted Fu Qiang to use for personal business an automobile purchased by Hairong for $168,621. |
Employment Agreements
All of our officers and directors serve on an at-will basis.
Compensation of Directors
China Digital entered into a Service Agreement with Andrew Mininger. The agreement provides that during his tenure on the Board, the Company will pay Mr. Mininger $3,000 per month plus $1,000 per meeting ($4,000 if in China), and issue him 10,000 shares of common stock per year.
China Digital entered into a Service Agreement with John McFadden. The agreement provides that during his tenure on the Board, the Company will pay Mr. McFadden $2,000 per month plus $1,000 per meeting, and issue him 10,000 shares of common stock per year.
China Digital entered into a Service Agreement with Shaoqiu Xia. The agreement provides that during his tenure on the Board, the Company will pay Mr. Xia 10,000 RMB per year and issue him 10,000 shares of common stock per year.
The following table summarizes the total compensation earned by all non-employee Directors during the year ended June 30, 2010:
Director Summary Compensation for Fiscal 2010 Name | Fee Earned or Paid in Cash($) | All Other Compensation ($)(1) | Total ($) |
| Andrew Mininger | $12,000 | $20,000 | $32,000 |
| John McFadden | $6,000 | $29,810 | $35,810 |
| Shaoqiu Xia | -- | -- | -- |
| |
(1) Represents the market value on date of grant of common stock issued to the director |
Equity Grants
The following tables set forth certain information regarding the stock options acquired by the Company’s Chief Executive Officer and Chief Financial Officer during the year ended June 30, 2010 and those options held by him and her on June 30, 2010.
Option Grants in the Last Fiscal Year
| | Number of securities underlying option | Percent of total options granted to employees in fiscal | Exercise Price | Expiration | Potential realizable value at assumed annual rates of appreciation for option term |
| | granted | year | ($/share) | Date | 5% | |
| Fu Qiang | -- | -- | -- | -- | -- | -- |
| Hu Yumei | -- | -- | -- | -- | -- | -- |
The following tables set forth certain information regarding the stock grants received by the executive officers named in the table above during the year ended June 30, 2010 and held by them unvested at June 30, 2010.
Unvested Stock Awards in the Last Fiscal Year
| | Number of Shares That Have Not Vested | Market Value of Shares That Have Not Vested |
| Fu Qiang | -- | -- |
| Hu Yumei | -- | -- |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of the date of this prospectus by the following:
| | · | each shareholder known by us to own beneficially more than 5% of our common stock; |
| | · | Fu Qiang, our Chief Executive Officer |
| | · | each of our directors; and |
| | · | all directors and executive officers as a group. |
There are 20,020,000 shares of our common stock outstanding on the date of this report. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.
In computing the number of shares beneficially owned by a person and the percent ownership of that person, we include shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days. We do not, however, include these “issuable” shares in the outstanding shares when we compute the percent ownership of any other person.
Name of Beneficial Owner | Amount and Nature of Beneficial Owner(2) | Percentage of Class |
| Fu Qiang | 5,000,000 | 25.0% |
| Shang Zhai | 500,000 | 2.5% |
| Andrew Mininger | 10,000 | 0.1% |
| John McFadden | 10,000 | 0.1% |
| Shaoqiu Xia | 10,000 | |
| All officers and directors as a group (7 persons) | 5,530,000 | 27.6% |
Fu Zhiguo(1) | 1,300,000 | 6.5% |
| | ________________________________ |
| | (1) | The address for Fu Zhiguo is 15 West 39th Street, Suite 14A, New York, NY 10018. |
| | (2) | All shares are owned both of record and beneficially. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Transactions
None of the officers or directors of China Digital Animation has engaged in any transaction with China Digital Animation or its subsidiaries during the past two fiscal years or the current fiscal year that had a transaction value in excess of $120,000.
Director Independence
The following members of our Board of Directors are independent, as “independent” is defined in the rules of the NASDAQ National Market System: John McFadden, Shaoqiu Xia, and Andrew Mininger.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
P.C. Liu, CPA P.C. has been the independent accountant for Hairong since 2007. In November 2008, when China Digital Animation acquired Hairong, P.C. Liu, CPA P.C. became the independent accountant for China Digital Animation.
Audit Fees
P.C. Liu, CPA P.C. billed $45,000 to the Company for professional services rendered for the audit of financial statements for the fiscal year ended June 30, 2010. P.C. Liu, CPA P.C. billed $45,000 to the Company for professional services rendered for the audit of financial statements for the fiscal year ended June 30, 2009.
Audit-Related Fees
P.C. Liu, CPA P.C. billed $0 to the Company during 2010 for assurance and related services that are reasonably related to the performance of the 2010 audit or review of the quarterly financial statements. P.C. Liu, CPA P.C. billed $0 to the Company during 2009 for assurance and related services that are reasonably related to the performance of the 2009 audit or review of the quarterly financial statements.
Tax Fees
P.C. Liu, CPA P.C. billed $0 to the Company during fiscal 2010 and fiscal 2009 for professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees
P.C. Liu, CPA P.C. billed $0 to the Company in fiscal 2010 and fiscal 2009 for services not described above.
It is the policy of the Company that all services other than audit, review or attest services must be pre-approved by the Board of Directors. No such services have been performed by P.C. Liu, CPA P.C.
Subcontracted Services
The hours expended on P.C. Liu, CPA P.C.’s engagement to audit the Company’s financial statements for the year ended June 30, 2010 that were attributed to work performed by persons other than full-time permanent employees of P.C. Liu, CPA P.C. was not greater than 50% of the total hours expended.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | (a) Exhibit List |
| | |
| 3-a | Certificate of Incorporation, as amended through 2003 - Filed as an exhibit to the Company’s Registration Statement on Form 10-SB (File No. 000-50441) and incorporated herein by reference. |
| | |
| 3-a(1) | Certificate of Amendment of Certificate of Incorporation, filed on January 30, 2009 - filed as an exhibit to the Current Report on Form 8-K dated January 30, 2009 and filed on February 4, 2009 and incorporated herein by reference. |
| | |
| 3-b | Bylaws - Filed as an exhibit to the Company’s Registration Statement on Form 10-SB (File No. 000-50441) and incorporated herein by reference. |
| | |
| 10-a | Consulting Services Agreement dated June 27, 2008 between RDX Holdings Limited and Heilongjiang Hairong Science and Technology Development Co., Ltd. (1) |
| | |
| 10-b | Operating Agreement dated June 27, 2008 among RDX Holdings Limited, Heilongjiang Hairong Science and Technology Development Co., Ltd., and the shareholders of Heilongjiang Hairong Science and Technology Development Co., Ltd.(1) |
| | |
| 10-c | Equity Pledge Agreement dated June 27, 2008 between RDX Holdings Limited and the shareholders of Heilongjiang Hairong Science and Technology Development Co., Ltd.(1) |
| | |
| 10-d | Option Agreement dated June 27, 2008 among RDX Holdings Limited, Heilongjiang Hairong Science and Technology Development Co., Ltd., and the shareholders of Heilongjiang Hairong Science and Technology Development Co., Ltd.(1) |
| | |
| 10-e | Proxy Agreement dated June 27, 2008 among RDX Holdings Limited, Heilongjiang Hairong Science and Technology Development Co., Ltd., and the shareholders of Heilongjiang Hairong Science and Technology Development Co., Ltd.(1) |
| | |
| 14. | Employee Code of Business Conduct and Ethics - filed as an exhibit to the Current Report on Form 8-K filed on May 4, 2010 and incorporated herein by reference. |
| | |
| 21 | Subsidiaries – RDX Holdings Limited , British Virgin Islands corporation |
| | |
| 31.1 | Rule 13a-14(a) Certification – CEO |
| | |
| 31.2 | Rule 13a-14(a) Certification - CFO |
| | |
| 32 | Rule 13a-14(b) Certifications |
_____________________________________
| | (1) | Filed as an Exhibit to the Current Report on Form 8-K dated November 12, 2008 and filed on November 12, 2008, and incorporated herein by reference. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: September 28, 2010 | By: /s/ Fu Qiang |
| | Fu Qiang, Chief Executive Officer |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | |
| /s/ Fu Qiang | September 28, 2010 |
| Fu Qiang | |
| Director, Chief Executive Officer | |
| | |
| | |
| /s/ Hu Yumei | September 28, 2010 |
| Hu Yumei | |
| Chief Financial and Accounting Officer | |
| | |
| | |
| /s/ Sheng Zhai | September 28, 2010 |
| Sheng Zhai, Director | |
| | |
| | |
| /s/ Andrew Mininger | September 28, 2010 |
| Andrew Mininger, Director | |
| | |
| | |
| John McFadden | September 28, 2010 |
| John McFadden, Director | |
| | |
| | |
| /s/ Shaoqiu Xia | September 28, 2010 |
| Shaoqiu Xia, Director | |
