MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

Outline of Our Business

On November 12, 2008 China Digital Animation Development Inc. ("China Digital") acquired the outstanding capital stock of RDX Holdings Limited, a corporation organized under the laws of the British Virgin Islands ("RDX Holdings"). On June 27, 2008, RDX Holdings entered into five agreements with Heilongjiang Hairong Science and Technology Development Co Ltd., a joint stock company organized under the laws of The People's Republic of China ("Hairong"), and with the equity owners in Hairong. Collectively, the agreements provide RDX Holdings 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."

The accounting effect of the Entrusted Management Agreements is to cause the balance sheets and financial results of Hairong to be consolidated with those of RDX Holdings, with respect to which Hairong is now a variable interest entity.
As a wholly-owned subsidiary of China Digital, the consolidated financial statements of RDX Holdings are further consolidated with the financial statements of China Digital. For that reason, the discussion below concerns the financial condition and results of operations of Hairong.

Hairong was organized in 1999. For its first seven years, Hairong was an IT company exclusively. During that period we developed a reputation in the Chinese business community for our ability to provide efficient solutions to complex integration problems.

During 2007 and 2008, however, Hairong expanded its business, so that it now offers services in three distinct market segments:

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Business Networks and Software. Our team of 31 engineers and technicians offer business enterprises advanced network integration solutions.

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Financial Information Delivery. With our Trans World Financial Website as the foundation, we offer investors and issuers a wide variety of financial data and information useful to individuals concerned with the international capital markets. Our subsidiary, Fortune Global Investment Advisory Co., Ltd ("FGIA"), takes the process one step further by offering issuers seeking access to international markets a complete package of the necessary professional and consulting services. On January 1, 2009, the Company acquired an additional 30% interest in FGIA, giving us 100% of the shareholders' equity. We believe FGIA will benefit our overall business in the future because of its rich potential customer resources.

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Cultural Productions. Commencing with this year's Global Tour of Ice Sculpture, which is schedule to visit 10 cities worldwide, we intend to mine the rich cultural heritage of China to produce and distribute a wide variety of cultural entertainments.

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Results of Operations - Three and Nine Month Periods Ended March 31, 2009

Entering 2009, Hairong continued its growth. Our revenue during the nine months ended March 31, 2009 totaled $55,055,371, an increase of 109% from revenue of $2,423,640 during the nine months ended March 31, 2008. Likewise, we realized $1,229,906 in revenue during the quarter ended March 31, 2009, a 61% increase from the revenue of $763,912 realized during the same period of 2008. The primary reason for the increases was the expansion of operations of Hairong.
Whereas, at the beginning of fiscal 2008, most of our revenue arose from our systems and software business, by the time fiscal 2009 began on July 1, 2008, the systems and software business represented less than half of our revenue, being supplemented by revenue from our investor Website, Trans World Finance, from our Website design business, and from our management consulting subsidiary, FGIA. We expect that the transformation of our revenue components that commenced in fiscal 2008 will be fully realized in 2009, due to the rapid growth of the TWFW site and the initiation of our cultural development activities.

The addition of new business lines has produced a marked improvement in our profit margins. During the quarter ended March 31, 2008, when the systems and software business dominated our operations, we realized gross margin of only 47.4%. The primary reason for this was the level of competition in the Chinese IT industry. Chinese educational institutions have produced a plethora of graduates with training in network and software design. The result is intense competition, which leads to reduced margins. By contrast, during the quarter ended March 31, 2009, our gross margin reached 74.3%, reflecting the relative profitability of the new ventures we have undertaken. During the nine months ended March 31, 2009, our gross margin was 70.7%.

Hairong's expansion into new business areas resulted in almost a doubling of our operating expenses, which rose from $590,123 (24% of revenue) for the nine months ended March 31, 2008 to $1,172,561 (23% of revenue) for the nine months ended March 31, 2009. During the quarter ended March 31, 2009, the increase was not as great, rising from $226,155 in the quarter ended March 31, 2008 to $297,152 in the quarter ended March 31, 2009. The increase in expenses reflects the expenses that attend entry into new business ventures. In addition, during November 2008 we established ourselves as a U.S. public company and opened an office in New York City. The expenses of those initiatives also increased our operating costs. As we expand in these new areas, we expect our operating expenses to increase as well. However, the ratio of operating expenses to revenue should decrease as our new operations experience the efficiencies of size.

All of our operations take place in the People's Republic of China, and all of our business transactions occur in Chinese Renminbi. As a result, our business was unaffected by fluctuations in international currency rates. During the current year, however, we plan to initiate our Great Wall Ice Tour, and bring it to several countries. In that situation, our revenue will be achieved in the currency of the host country, although our expenses will be primarily incurred in Renminbi. As a result, fluctuations in currency rates may affect our financial results. In particular, if current global economic conditions result in a strengthening of the value of Chinese currency, the result could be a reduction in the potential profitability of our Ice Tour.

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Our revenue less expenses for the nine months ended March 31, 2009 yielded a net income before taxes of $2,415,106, more than tripling the net pre-tax income of $647,546 during the nine months ended March 31, 2008. The pre-tax income during the quarter ended March 31, 2009 ($617,833) more than quadrupled the net pre-tax income of $136,666 realized during the same period of 2008. For 2008 and subsequent years, moreover, the Government of China reduced the corporate tax rate from 33% to 25%. As a result, we recorded a lower effective tax rate during the nine months ended March 31, 2009 than during the earlier period.
This improvement resulted in net income of $1,802,743 during the nine months ended March 31, 2009 ($463,375 for the three months ended March 31, 2009), compared to net income of $ 556,730 during the nine months ended March 31, 2008 ($118,410 for the quarter ended March 31, 2008).

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 balance sheet 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, 2009, the unrealized gain on foreign currency translations added $176,997 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 March 31, 2009, included no debt, either short-term or long-term. It also left us with working capital of $6,322,104 at March 31, 2009, including $5,287,952 in cash. Since our cash resources as of March 2009 exceeded our revenue for the recent nine months, we expect to be able to finance near-term operations without additional capital investment.

We expect to fund a number of capital improvements during calendar year 2009, including:

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

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Completion of the Software Research & Development Center; and

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Purchase of new equipment for the networking systems business.

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 $4,828,418 on

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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 foreseeable future.

Our operations during the nine months ended March 31, 2009 yielded $1,916,824 in cash. During the nine months ended March 31, 2008 our operations yielded $311,821 in cash. In both periods, cash from operations was approximately equal to our net income. This occurred because the increase in our accounts receivable and inventories was offset by (a) our sizeable depreciation expense and (b) our ability to delay tax collections. Based on this experience, we expect that our capital resources will be adequate to fund our operations for the foreseeable future.

Risk Factors That May Affect Future Results

You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the trading price of our stock to fall.

We have recently undertaken a number of new business ventures, and cannot fully anticipate the problems they may encounter.

Within the past eighteen months, Hairong's business has expanded from its base in network engineering and software design to include management consulting, Website design, and cultural project management. Each of these new ventures carries with it the risks of the untested. Until we have more extensive experience in each of these areas, the problems that may arise and frustrate our business plan are not readily apparent. If these unforeseen problems become significant, the results could have a serious negative impact on our profitability.

We expect to issue a substantial portion of the Company's equity to our employees.

The growth of Hairong was funded by our management, but also by our employees, who contributed approximately 46% of the capital used to develop Hairong to its current condition. The terms of that contribution have never been made concrete; but there is an expectation that shares in the U.S. public company that now has beneficial ownership of Hairong will be issued to our employees in compensation. That issuance, when it occurs, will dilute the interest of our existing shareholders in China Digital Animation Development Inc.

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 always act in the best interests of China Digital Animation Development.

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Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.

Our future success depends on our ability to attract and retain highly skilled engineers, technical, marketing and customer service personnel, especially qualified personnel for our operations in China. Qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand. Therefore we may not be able to successfully attract or retain the personnel we need to succeed.

We may be subject to penalty if the content posted on our investor Website violates relevant laws.

The advertising laws and regulations promulgated by the Government of China require advertisers, advertising operators and advertising distributors, including online advertising publishers such as us, to insure that the content of the advertisements they prepare or distribute are fair and accurate and are in full compliance with applicable law. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator's license for advertising business operations.

Under the PRC advertising laws and regulations, we are obligated to monitor the advertising content posted on our website. In addition, where a special government review is required for specific categories of advertisements before posting, we are obligated to confirm that such review has been performed and approval has been obtained. Our reputation could be hurt and our results of operations could be adversely affected if advertisements shown on our websites are provided to us by our advertising clients in violation of relevant PRC advertising laws and regulations, or if the supporting documentation and government approvals provided to us by our advertising clients in connection with such advertising content are not complete.

We have limited business insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Our bank deposits are not insured.

There is no insurance program in the PRC that protects bank deposits, in the way that bank deposits in the U.S. are given limited protection by the FDIC. If the bank in which we maintain our cash assets were to fail, it is likely that we would lose most or all of our deposits.

We may have difficulty establishing adequate management and financial controls in China.

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The People's Republic of China has only recently begun to adopt the management and financial reporting concepts and practices with which investors in the United States are familiar. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.

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.

Our principal operating subsidiary, Hairong is required to comply with PRC laws and regulations. Unlike the common law system prevalent in the United States, decided legal cases have little value as precedent in China. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation.

Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.

The People's Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on

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currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.

Our business development would be hindered if we lost the services of our Chairman.

Fu Qiang is the Chief Executive Officer of China Digital Animation Development and of its operating subsidiary, Hairong. Mr. Fu is responsible for strategizing not only our business plan but also the means of financing it. If Mr. Fu were to leave Hairong or become unable to fulfill his responsibilities, our business would be imperiled. At the very least, there would be a delay in the development of Hairong until a suitable replacement for Mr. Fu could be retained.

China Digital Animation Development is not likely to hold annual shareholder meetings in the next few years.

Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. The current members of the Board of Directors were appointed to that position by the previous directors. If other directors are added to the Board in the future, it is likely that the current directors will appoint them. As a result, the shareholders of China Digital Animation Development will have no effective means of exercising control over the operations of the Company.

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.

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