ORGANIZATION AND DESCRIPTION OF BUSINESS

3 Months Ended

Dec. 31, 2011

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

Variable Interest Entity

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

Consulting Services Agreement and Operating Agreement. These two agreements provide that RDX will be fully responsible for the management of Hairong, both financial and operational. RDX has assumed responsibility for the debts incurred by Hairong and for any shortfall in its registered capital. In exchange for these services and undertakings, Hairong pays a fee to RDX equal to the net profits of Hairong. In addition, Hairong pledges all of its assets, including accounts receivable, to RDX. Meanwhile, Hairong's shareholders pledged the equity interests of Hairong to RDX to secure the payment of the Fee.

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

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

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

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

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

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

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

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

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

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

	December 31, 2011		June 30, 2011
	(unaudited)
Total current assets	$	7,965,875	$	7,702,677
Total assets		11,400,495		11,309,520
Total current liabilities*		322,853		322,120
Total liabilities*	$	322,853	$	322,120

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