**U.S. SECURITIES AND EXCHANGE COMMISSION					Washington, D.C.  20549**

**FORM 10-QSB					QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)					OF THE SECURITIES EXCHANGE ACT OF 1934**

| For Quarter Ended December 31, 2005 | Commission File Number 000-33195 |
|-------------------------------------|----------------------------------|

**XINHUA CHINA LTD.**(Exact name of small business issuer as specified in its charter)

| **Nevada**(State or other jurisdiction of								incorporation or organization)                                                         | **       **       | **88-0437644**(IRS Employer Identification No.) |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|-------------------------------------------------|
| **       **                                                                                          | **        ** | **       **  |
| **B 26F Oriental Kenzo, No. 48 Dongzhimenwai, Dongcheng District, Beijing, P.R. China**								(Address of Principal Executive Offices) | **        ** | **100027**(Zip Code)                            |
| **       **                                                                                          |
| **86-10-84477275**(Issuer’s telephone number)                                                                                     |
|                                                                                                      |
| **N/A**(Former name, former address and former fiscal year, if changed since last report)                                               |
|                                                                                                                                         |

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X    No       

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes   _   No   X 

**Applicable only to issuers involved in bankruptcy proceedings during the preceding five years**

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes        No       

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2

**Applicable only to corporate issuers**

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. **81,779,765 shares as of February 20, 2006.					Transitional Small Business Disclosure Format:**

Yes        No   X   

----

3

**Table of Contents**

| **PART I     FINANCIAL INFORMATION** |                                                                                                                                |
|---------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|
|                                                               | Forward Looking Statements.......................................................................................              | 4 |
|                                                               |                                                                                                                      |  |
| Item 1                                                        | Financial Statements.....................................................................................................      | 4 |
|                                                               |                                                                                                                      |  |
| Item 2.                                                       | Management's Discussion and Analysis or Plan of Operation........................................                              | 5 |
|                                                               |                                                                                                                      |  |
| Item 3.                                                       | Controls and Procedures............................................................................................            | 14 |
|                                                               |                                                                                                                      |  |
| **Part II   OTHER INFORMATION**                     |                                                                                                                                |
|                                                     |                                                                                                                                |  |
| Item 1.                                                       | Legal Proceedings......................................................................................................        | 15 |
|                                                     |                                                                                                                                |  |
| Item 2.                                                       | Unregistered Sales of Equity Securities and Use of Proceeds.......................................                             | 15 |
|                                                     |                                                                                                                                |  |
| Item 3.                                                       | Defaults Upon Senior Securities..................................................................................              | 15 |
|                                                     |                                                                                                                                |  |
| Item 4.                                                       | Submission of Matters to a Vote of Security Holders...................................................                         | 15 |
|                                                     |                                                                                                                                |  |
| Item 5.                                                       | Other Information.......................................................................................................       | 15 |
|                                           |                                                                                                                                |  |
| Item 6.                                                       | Exhibits...................................................................................................................... | 15 |
|                                                     |                                                                                                                                |  |
|                                                     | Signatures..................................................................................................................   | 16 |

----

4

**FORWARD LOOKING STATEMENTS**

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instruction for Form 10-QSB pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and notes normally provided in audited financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2005 included in the annual report previously filed on Form 10-KSB.  In the opinion of management all adjustments consisting of normal recurring accruals considered necessary for fair presentation have been included.

Xinhua China Ltd. (the “Company”) cautions readers that certain important factors (including, without limitation, those set forth in this Form 10-QSB) may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this quarterly report or that are otherwise made by or on behalf of the Company.  For this purpose any statements contained in this quarterly report that are not statements of historical fact may be deemed to be forward-looking statements.  Without limiting the generality of the foregoing, words  such  as  "may," "except,"  believe,"  anticipate," "intend,"  "could," estimate" or "continue," or the negative or other variations of comparable terminology, are intended to identify forward-looking statements.  In assessing forward-looking statements contained in this quarterly report on form 10-QSB, readers are urged to read carefully all cautionary statements.  Among risks and uncertainties are the possibilities that the Company will not: successfully execute its business plan, that its management may not be able to carry out the business plan and that there may not be adequate capital or there may be lack of success for technical, economic or other reasons related to the Company’s distribution business.

**PART I—FINANCIAL INFORMATION**

**Item 1. Financial Statements****Consolidated Financial StatementsXinhua China Ltd.(formerly Camden Mines Limited)						(Expressed in United States dollars)						December 31, 2005						(Unaudited)**

----

**CONSOLIDATED BALANCE SHEETS**[Basis of presentation and going concern uncertainty – See Note 1]					(Expressed in U.S. dollars)**(Unaudited)**
|                                                                                                                                                                                                         |       | **Dec. 31, 2005** | **Jun. 30, 2005**           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|-------------------|-----------------------------|
|                                                                                                                                                                                                         |       |                   |                             |
| **Assets**                                                                                                                                                                                              | ****  |                   |                             |
| **Current Assets**                                                                                                                                                                                      | ****  |                   |                             |
| Cash                                                                                                                                                                                                    | $     | 3,367,004         | $   1,336,269     |
| Restricted Cash                                                                                                                                                                                         |       | -                 | 362,516                     |
| Account Receivable, including related party receivables								     of $4,282,010 (June 30, 2005 - $5,926,629)								     *[notes 3, 8(e) and 8(i)]* |       | 38,696,463        | 39,166,242                  |
| VAT receivable                                                                                                                                                                                          |       | 4,500,038         | 5,964,445                   |
| Inventories *[note 4]*                                                                                                                                                                                  |       | 18,333,924        | 17,445,410                  |
| Prepayments                                                                                                                                                                                             |       | 387,910           | 126,917                     |
|                                                                                                                                                                                                         |       |                   |                             |
| **Total Current Assets**                                                                                                                                                                                | ****  | 65,285,339        | 64,401,799                  |
|                                                                                                                                                                                               |       |                   |                             |
| Property, plant and equipment*[note 5]*                                                                                                                                                                 |       | 26,808,050        | 26,000,804                  |
| National distribution right                                                                                                                                                                             |       | 6,325,258         | 6,167,000                   |
| Goodwill                                                                                                                                                                                                |       | 6,332,347         | 6,173,992                   |
|                                                                                                                                                                                                         |       |                   |                             |
| **Total Assets**                                                                                                                                                                                        | $     | **104,750,994**   | ** **$ **102,743,595** |
| ===================================================                                                                                                                                                     | ====  | =============     | =============               |
|                                                                                                                                                                                               |       |                   |                             |
| **Liabilities and Shareholder Equity**                                                                                                                                                                  | ****  |                   |                             |
| **Current Liabilities**                                                                                                                                                                                 | ****  |                   |                             |
| Account payable and accrued liabilities *[notes 6, 8(d) and 8(f)]*                                                                                                                                      | $     | 78,828,539        | $  76,231,392          |
| Due to related parties *[notes 8(a), 8(b) and, 8(c)]*                                                                                                                                                   |       | 20,853,033        | 1,819,965                   |
|                                                                                                                                                                                                         |       |                   |                             |
| **Total Current Liabilities**                                                                                                                                                                           | ****  | 99,681,572        | 78,051,357                  |
| Convertible debenture net of discount of $1,069,948 *[note 7]*                                                                                                                                          | ****  | 180,052           | -                           |
| Warrants and beneficial conversion *[note 7]*                                                                                                                                                           | ****  | 1,013,460         | -                           |
| Loans from related parties *[note 8]*                                                                                                                                                                   |       | -                 | 19,514,229                  |
|                                                                                                                                                                                                         |       |                   |                             |
| **Total Liabilities**                                                                                                                                                                                   | ****  | 100,875,084       | 97,565,586                  |
|                                                                                                                                                                                                         |       |                   |                             |
| Non-controlling interest                                                                                                                                                                                | ****  | 5,450,880         | 4,973,683                   |
|                                                                                                                                                                                                         |       |                   |                             |
| *Commitments**[note 13]*                                                                                                                                                                                | ****  |                   |                             |
| **Shareholders’ Equity (Deficiency)**                                                                                                                                                             | ****  |                   |                             |
| Common stock, $0.00001 par value, authorized 500,000,000,								outstanding 61,779,765 *[note 11]*                                                                                                     | ****  | 618               | 618                         |
| Additional paid-in capital  *[note 9]*                                                                                                                                                             | ****  | 7,895,697         | 5,855,525                   |
| Accumulated other comprehensive Income                                                                                                                                                                  | ****  | 22,185            | 53                          |
| Accumulated deficit *[note 14]*                                                                                                                                                                         | ****  | (9,493,470)       | (5,651,870)                 |
|                                                                                                                                                                                                         |       |                   |                             |
| **Total Shareholders’ Equity (Deficiency)**                                                                                                                                                       | ****  | (1,574,970)       | 204,326                     |
|                                                                                                                                                                                                         |       |                   |                             |
| **Total Liabilities and Shareholders’ Equity**                                                                                                                                                    | **$** | **104,750,994**   | **$ 102,743,595**           |
| ===================================================                                                                                                                                                     | ====  | =============     | =============               |
> 
*See accompanying notes*

F-1

----

**CONSOLIDATED STATEMENT OF OPERATIONS**(Expressed in U.S. dollars)**(Unaudited)**

|                                                                              |         | 3 months Ended									Dec. 31, 2005             | 6 months Ended									Dec. 31, 2005 | 12 months Ended									June 30, 2005                                            |
|------------------------------------------------------------------------------|---------|--------------------------------------------------|--------------------------------------|----------------------------------------------------------------------------------|
|                                                                              |         |                                                  |                                      |                                                                                  |
| **Revenue**                                                                  |         |                                                  |                                      |                                                                                  |
| Sales revenue *[note 8]*                                                     | $       | 9,146,838                                        | 25,215,829                           | $      15,496,537                                       |
| Cost of sales *[note 8]*                                                     |         | 8,102,395                                        | 22,504,822                           | 13,584,466                                                                       |
|                                                                              |         |                                                  |                                      |                                                                                  |
| Gross profit                                                                 |         |     1,044,443                     | 2,711,007                            | 1,912,071                                                                        |
| **Expenses**                                                                 |         |                                                  |                                      |                                                                                  |
| Selling, general and administrative *[note 8]*                               |         | 2,110,829                                        | 4,402,245                            | 4,211,480                                                                        |
|                                                                    |         |                                                  | ****                                 |                                                                                  |
| Stock-based compensation *[note 9]*                                          |         | 918,550                                          | 1,873,763                            | 3,534,507                                                                        |
|                                                                              |         |                                                  |                                      |                                                                                  |
| Total operating expenses                                                     |         | 3,029,379                                        | 6,276,008                            | 7,745,987                                                                        |
|                                                                              |         |                                                  |                                      |                                                                                  |
|                                                                    |         |                                                  |                                      |                                                                                  |
| Operating loss before interest, other income (expense) and								income tax |         |        (1,984,936) | (3,565,001)                          | (5,833,916)                                                                      |
| Interest and other income                                                    |         | 186,591                                          | 252,274                              | 66,430                                                                           |
| Interest expense *[notes 7 and 8]*****                                       |         | (495,743)                                        | (785,467)                            | (520,875)                                                                        |
| Income tax                                                                   |         | -                                                | -                                    | -                                                                                |
|                                                                              |         |                                                  |                                      |                                                                                  |
| Loss before non-controlling interest                                         |         | (2,294,088)                                      | (4,098,194)                          | (6,288,361)                                                                      |
| Non-controlling interests share of loss                                      |         | 168,383                                          | 256,594                              | 636,491                                                                          |
|                                                                              |         |                                                  |                                      |                                                                                  |
| Net loss for the period                                                      | $       | (2,125,705)                                      | (3,841,600)                          | $    (5,651,870)                                                  |
| ========================================                                     | ====    | =============                                    | =============                        | =============                                                                    |
| Loss per share - basic and diluted                                           |  $ | (0.03)                                           | (0.06)                               | $             (0.10) |
| ========================================                                     | ====    | =============                                    | =============                        | =============                                                                    |
|                                                                    |         |                                                  |                                      |                                                                                  |
| Weighted average number of shares outstanding                                |         |                                                  |                                      |                                                                                  |
|    - Basic and diluted                                        |         | 61,779,765                                       | 61,779,765                           | 55,733,786                                                                       |
| ========================================                                     | ====    | =============                                    | =============                        | =============                                                                    |
> 
*See accompanying notes*

F-2

----

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)**(Expressed in U.S. dollars)**(Unaudited)**
| ****                                                                                                      | **      Common Stock      ** | **Additional Paid-in** | **Comprehen-sive income** | **Other Comp-rehensive income** | **Accumulated Deficit** | **Total Shareholders'** |
|-----------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|------------------------|---------------------------|---------------------------------|-------------------------|-------------------------|
|                                                                                                           | **# Shares**                                                                             | **Amount**             | **Capital**               | **(loss)**                      | **(loss)**              | ****                    | **Equity (Deficit)** |
|                                                                                                           |                                                                                          | **$**                  | **$**                     | **$**                           | **$**                   | **$**                   | **$** |
|                                                                                                           |                                                                                          |                        |                           |                                 |                         |                         |  |
|                                                                                            |                                                                                          |                        |                           |                                 |                         |                         |  |
| Recapitalization as a result of reverse acquisition								     [note 1]         | 35,000,000                                                                               | 350                    | (350)                     |                                 |                         |                         |  |
| Recapitalization to effect the acquisition of								     Camden [note 1]        | 61,056,375                                                                               | 611                    | (16,982)                  |                                 |                         |                         | (16,371) |
| Cancellation of common stock as part of reverse								     acquisition [note 1) | (35,000,000)                                                                             | (350)                  | 350                       |                                 |                         |                         |  |
| Issuance of common stocks due to option exercise                                                          | 100,700                                                                                  | 1                      | 243,373                   |                                 |                         |                         | 243,374 |
| Issuance of common stocks and warrants from a								     private placement      | 622,690                                                                                  | 6                      | 2,023,794                 |                                 |                         |                         | 2,023,800 |
| Stock-based compensation                                                                                  |                                                                                          |                        | 3,534,507                 |                                 |                         |                         | 3,534,507 |
| Imputed interest on interest free advances from								     related parties      |                                                                                          |                        | 70,833                    |                                 |                         |                         | 70,833 |
| Components of comprehensive income (loss)                                                                 |                                                                                          |                        |                           |                                 |                         |                         |  |
|    - Foreign currency translation                                                          |                                                                                          |                        |                           | 53                              | 53                      |                         | 53 |
|    - Net loss for year ended June 30, 2005                                                 |                                                                                          |                        |                           | (5,651,870)                     |                         |  (5,651,870)       | (5,651,870) |
|                                                                                                           |                                                                                          |                        |                           |                                 |                         |                         |  |
|                                                                                                 |                                                                                          |                        |                           | (5,651,817)                     |                         |                         |  |
|                                                                                                           |                                                                                          |                        |                           |                                 |                         |                         |  |
| **Balance, June 30, 2005**                                                                                | 61,779,765                                                                               | 618                    | 5,855,525                 |                                 | 53                      | (5,651,870)             | 204,326 |
| Stock-based compensation                                                                                  |                                                                                          |                        | 1,873,763                 |                                 |                         |                         | 1,873,763 |
| Imputed interest on interest free advances from								     related parties      |                                                                                          |                        | 166,409                   |                                 |                         |                         |                166,409 |
|                                                                                                 |                                                                                          |                        |                           |                                 |                         |                         |  |
| Components of comprehensive income (loss)                                                                 |                                                                                          |                        |                           |                                 |                         |                         |  |
|    - Foreign currency translation                                                          |                                                                                          |                        |                           | 22,185                          | 22,132                  |                         | 22,132 |
|    - Net loss for period ended December 31, 2005                                           |                                                                                          |                        |                           | (3,841,600)                     |                         | (3,841,600)             | (3,841,600) |
|                                                                                                           |                                                                                          |                        |                           |                                 |                         |                         |  |
| Comprehensive loss                                                                                        |                                                                                          |                        |                           | **(3,819,415)**                 | ****                    |                         |  |
|                                                                                                           |                                                                                          |                        |                           |                                 |                         |                         |  |
| **Balance, December 31, 2005**                                                                            | **61,779,765**                                                                           | **618**                | 7,895,697                 | ****                            | **22,185**              | **(9,493,470)**         | **(1,574,970)** |
|                                                                                                           |                                                                                          |                        |                           |                                 |                         |                         |  |

> 
*See accompanying notes*

F-3

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**CONSOLIDATED STATEMENTS OF CASH FLOWS**(Expressed in U.S. dollars)**(Unaudited)**
|                                                                        |   | **3 months Ended										Dec. 31, 2005** | **6 months Ended										Dec. 31, 2005**                                                          | **12 months ended										Jun. 30, 2005**                                             |
|------------------------------------------------------------------------|---|-------------------------------------------|----------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
| **OPERATING ACTIVITIES**                                               |   |                                           |                                                                                                    |                                                                                        |
| Net loss for the period                                                | $ | (2,125,705)                               | (3,841,600)                                                                                        | $       (5,651,870)                                      |
| Items not involving cash:                                              |   |                                           |                                                                                                    |                                                                                        |
|      Depreciation of property and equipment   |   | 345,924                                   | 417,049                                                                                            | 116,061                                                                                |
|      Stock-based compensation                 |   | 918,550                                   | 1,873,763                                                                                          | 3,534,507                                                                              |
|      Non-controlling interests share of loss  |   | (168,383)                                 | (256,594)                                                                                          | (636,491)                                                                              |
|      Imputed interest expenses                |   | 115,892                                   | 166,409                                                                                            | 70,833                                                                                 |
|      Amortization of deferred financing costs |   | 180,052                                   | 180,052                                                                                            | -                                                                                      |
| Other assets and liabilities, net of effect of acquisitions:           |   |                                           |                                                                                                    |                                                                                        |
|      Accounts receivable                      |   | 14,234,295                                | 3,078,670                                                                                          | (4,863,919)                                                                            |
|      Inventories                              |   | (797,789)                                 | (439,047)                                                                                          | 412,080                                                                                |
|      Prepayments                              |   | (253,094)                                 | (257,328)                                                                                          | 556,439                                                                                |
|      Accounts payable and accrued liabilities |   | (11,485,147)                              | 191,858                                                                                            | 3,876,497                                                                              |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
| **Cash provided by (used in) operating activities**                    |   | 964,595                                   | 1,113,232                                                                                          | (2,585,863)                                                                            |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
|                                                              |   |                                           |                                                                                                    |                                                                                        |
| **INVESTING ACTIVITIES**                                               |   |                                           |                                                                                                    |                                                                                        |
| Cash acquired in connection with acquisition of Xinhua C&D         |   | -                                         | -                                                                                                  | 353,249                                                                                |
| Acquisition of buildings and equipment                                 |   | (195,873)                                 | (504,214)                                                                                          | (153,153)                                                                              |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
| **Cash provided by (used in) investing activities**                    |   | (195,873)                                 | (504,214)                                                                                          | 200,096                                                                                |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
|                                                              |   |                                           |                                                                                                    |                                                                                        |
| **FINANCING ACTIVITIES**                                               |   |                                           |                                                                                                    |                                                                                        |
| Loans from shareholders                                                |   | 67,945                                    | (542,461)                                                                                          | 2,833,318                                                                              |
| Contribution from non-controlling interests of Xinhua C&D          |   | 134,975                                   | 604,684                                                                                            | 169,174                                                                                |
| Repayment on advances from related parties                             |   | -                                         | -                                                                                                  | (1,185,114)                                                                            |
| Proceeds from Convertible Debenture                                    |   | 1,013,460                                 | 1,013,460                                                                                          | -                                                                                      |
| Restricted cash                                                        |   | 185,773                                   | 370,214                                                                                            | (362,516)                                                                              |
| Share issued for cash                                                  |   | -                                         | -                                                                                                  | 2,267,174                                                                              |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
| **Cash provided by financing activities**                              |   | 1,402,153                                 | 1,445,897                                                                                          | 3,722,036                                                                              |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
|   							
****                                               |   |                                           |                                                                                                    |                                                                                        |
| **Increase (decrease) in cash**                                        |   | 2,170,875                                 | 2,054,915                                                                                          | 1,336,269                                                                              |
| **Loss in translation of foreign currency**                            |   | (54,370)                                  | (24,180)                                                                                           | -                                                                                      |
| **Cash, beginning of period**                                          |   | 1,250,499                                 | 1,336,269                                                                                          | -                                                                                      |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
| **Cash, end of period**                                                | $ | 3,367,004                                 | 3,367,004                                                                                          | $        1,336,269                                  |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |
|                                                              |   |                                           |                                                                                                    |                                                                                        |
| **Supplemental disclosure of cash flow information:**                  |   |                                           |                                                                                                    |                                                                                        |
| Cash paid for interest                                                 | $ | 199,789                                   | 439,006                                                                                            | $          450,042                        |
| Cash paid for income taxes                                             | $ | -                                         |                -   |              -   |
|                                                                        |   |                                           |                                                                                                    |                                                                                        |

> 
*See accompanying notes*

F-4

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**1. BASIS OF PRESENTATION, NATURE OF BUSINESS AND GOING CONCERN UNCERTAINTY						Basis of presentation**

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instruction for Form 10-QSB pursuant to the rules and regulations of The United States Securities and Exchange Commission and, therefore, do not include all information and notes normally provided in audited financial statements and should be read in conjunction with the Company’s consolidated financial statements for the year ended June 30, 2005 included in the annual report previously filed on Form 10-KSB.  In the opinion of management all adjustments consisting of normal recurring accruals considered necessary for fair presentation have been included.

The results of operations for the interim period presented are not necessarily indicative of the results to be expected for the full year.

These consolidated financial statements are those of the Parent Company, Xinhua China Ltd., its 100% owned subsidiary Pac-Poly Investments Limited (“Pac-Poly”), its 95% owned subsidiary Beijing Boheng Investment and Management Co., Ltd. (“Boheng”), and its 56.13% owned subsidiary Xinhua Publications Circulation & Distribution Co., Ltd. (“Xinhua C&D”). Collectively, they are referred to herein as the “Company”. Pac-Poly and Boheng jointly own a 57.67% interest in Xinhua C&D, an entity incorporated under the laws of the People’s Republic of China (“China”) on December 31, 2004.

**Nature of business**

The Parent Company, through its subsidiaries Pac-Poly and Boheng, primarily operates in China. Both Pac-Poly and Boheng are investment holding companies. Xinhua C&D is authorized to distribute books, periodicals, human figure and representation art pictorials, audio video products, wholesale, retail and mail order of publicly distributed electronic publications, advertisement by domestic and foreign firms in certain categories of books, and classified advertisements in China. For the year ended June 30, 2005 and the six months ended December 31, 2005, the Parent Company and its subsidiaries had focused only on the book distribution business.

Xinhua C&D distributes both general books and colleges and universities textbooks. In the six months ended December 31, 2005, Xinhua C&D experienced an increase in sales due to seasonality.  Chinese colleges and universities start fall and spring terms in September and February each year. The educational institutions will stock up textbooks usually one or two months prior to the start of each term. The seasonality pattern of Xinhua C&D results in sales revenue in the months of July, August, September, October and November being higher than those of the remaining months in the year. 

F-5

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**1. BASIS OF PRESENTATION, NATURE OF BUSINESS AND GOING CONCERN UNCERTAINTY (cont’d)**

**Going concern uncertainty**

The Company has incurred a net loss of $5,651,870 and $3,841,600 for the year ended June 30, 2005 and the six months ended December 31, 2005 respectively. It has a working capital deficiency of $34,396,233 and a shareholders’ deficiency of $1,574,970 as of December 31, 2005. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon the Company maintaining profitable operations, the completion of the issuance of the convertible debentures and continued financial support from the major shareholders. There are no assurances that the Company will be successful in archiving these goals.

The company has a contractual commitment to invest into Xinhua C&D by July 31, 2006. The Company not yet have funding arranged at this time.

These financial statements do not give effect to adjustments to the amounts and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.**2. SIGNIFICANT ACCOUNTING POLICIES**

**[a] Principles of consolidation**

These consolidated financial statements include the financial statements of the parent company, its 56.13% owned subsidiary, Xinhua C&D, its 100% owned subsidiary, Pac-Poly Investments Limited, and its 95% owned subsidiary, Boheng. All significant inter-company transactions have been eliminated.

**[b] Comparative numbers**

Consolidated statements of operations and cash flows for the corresponding period are not presented as the Company had only nominal capital and operations prior to the reverse capitalization effective February 1, 2005.

F-6

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)**

**[c] Accounting for Derivative Instruments and Hedging Activities**

The Company has adopted the Statement of Financial Accounting Standards No. 133 (SFAS 133), *Accounting for Derivative Instruments and Hedging Activities,* which requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value.  If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction.  For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

**[d] Loss per share**

Basic and diluted loss per share is calculated based on the weighted average number of common shares outstanding during the periods.  Excluded from the weighted average number of common shares are 20,000,000 common shares held in escrow that are to be released in the event of default in connection to the convertible debenture issued (note 7).**3. ACCOUNTS RECEIVABLE**                                                                                                     Dec.31, 2005                  Jun. 30, 2005

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F-7

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**5. PROPERTY, PLANT AND EQUIPMENT						                                                                                                                 Dec. 31, 2005                                                                                                                                               Accumulated                Net book						                                                                                  Cost                      Amortization                   Value**                                                                                     $                                   $                                $        					Land use right                                                      5,596,067                          27,980                     5,568,087					Buildings                                                            20,508,682                        102,544                   20,406,138					Equipment and machinery                                        922,980                        215,611                        707,369Motor vehicles                                                        166,873                          40,417                        126,456					Total                                                                  27,194,602                        386,552                   26,808,050

----

**                                                                                                                Jun. 30, 2005                                                                                                                                                 Accumulated                Net book						                                                                                  Cost                       Amortization                  Value**                                                                                     $                                  $                                 $         					Land use right                                                      5,456,089                                   -                      5,456,089					Buildings                                                            20,091,753                                   -                    20,091,753					Equipment and machinery                                        420,583                         99,374                         321,209Motor vehicles                                                        148,440                         16,687                         131,753					Total                                                                  26,116,865                       116,061                    26,000,804

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F-8

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**7.  LONG TERM DEBT**

On November 23, 2005, the Company entered a debt financing agreement (the “Agreement”) with an institutional investor. The investor will purchase up to $4,000,000 of secured convertible debentures that shall be convertible into shares of the Company’s common stock. Of such total principal amount, $1,250,000, net of estimated discount of $231,000, will be funded on the fifth business day after all the closing conditions have been satisfied and the Company has filed its quarterly report for the period ended September 30, 2005 (the “First Closing”); $2,000,000, net of estimated expenses of $29,000, will be funded upon the filing of the registration statement pursuant to the Investor Registration Rights Agreement dated November 23, 2005 with the SEC (the “Second Closing”); and $750,000 will be funded upon the effectiveness of the Registration Statement (the “Third Closing”). The maturity dates of the three principal amounts are five years from the respective funding dates.

Interest is payable on principal amounts outstanding at 2% per annum, compounded monthly.  The entire principal amount and all accrued interest hereof shall be either (a) paid to the investor on the maturity date or (b) converted in accordance with the terms of the secured convertible debentures.				The debenture is secured by all of the tangible and intangible assets and property of the Company.

The Company has the right to redeem, at its option, a portion or all outstanding convertible debentures at a redemption price of 135% of the face amount redeemed plus accrued interest.

In accordance with the Agreement, the Company is required to issue to the investor at the First Closing warrants to purchase 1,035,000 shares of the Company’s common stock for a period of five years at an exercise price of $.00001 per share. 

The convertible debentures and warrants contained registration rights whereby certain liquidated damages are required to be paid to the debenture holder in the event that the Company fails to register the shares under a preset timeframe.  The Company placed 20,000,000 shares in escrow in favor of the debenture holder.  The escrow shares will be released to the debenture holder upon an event of default described in the financing agreement.

F-9

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**7.  LONG TERM DEBT (cont’d.)**The debenture holder is entitled to convert, at its option, at any time until payment in full of the debentures, all or any part of the principal amount of the debenture, plus accrued interest, into shares of the Company’s common stock of par value $.00001 per share, at the lesser of: (i) $3.50; or (ii) 100% of the average of the three lowest closing bid prices per share of the common stock during the forty trading days immediately preceding the date of conversion. The aggregate maximum number of shares of common stock that this convertible debenture may be converted into shall be 10,000,000 shares of common stock. Upon the maximum conversion, the Company shall, at its option (a) increase the maximum conversion or (b) redeem the unconverted amount of all of the convertible debentures in whole at 135% of the unconverted amount of such convertible debentures being redeemed plus accrued interest thereon. In the event of default, the debenture holder is entitled, at its option, to convert, and sell on the same day, at any time from time to time, until payment in full of the debenture, all or any part of the principal amount of the debenture, plus accrued interest, into common shares at a price per share equal to 20% of the fixed price of $3.50.					The first closing of $1,250,000 was completed on December 13, 2005, with net proceeds of $1,013,460.  The discount to the debt is amortized using the interest rate method over the term of the debt.					The net proceeds have been allocated to the debenture and warrants on based on the relative fair value of each security at the time of issuance.  Accordingly, $836,846 was allocated to the detached warrants.  The fair value of warrants was estimated using the Black-Scholes option-pricing model with the assumptions used as follows: risk free interest rate of 4.44%, dividend yield of 0%, stock price volatility of 80% and an expected life of the warrants 0.8 years.  The discount on the debenture as a result of the warrants is subject to accretion over the five-year term to maturity of the debenture and recorded as interest expense.  The warrants was presented as a liability in the financial statements in accordance with EITF No. 00-19 “ Accounting for derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”.

The convertible debenture contains an embedded beneficial conversion feature amounting to $176,614 calculated in accordance with EITF No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”.  The $176,614 was expensed immediately since the debenture is convertible immediately.

The conversion feature was accounted for as a derivative liability, with changes in fair value recorded in earnings each period, by applying EITF No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, as there is no explicit limit on the number of shares that are to delivered upon exercise of the conversion feature.

F-10

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**8. RELATED PARTY TRANSACTIONS**

Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:

[a]     As of December 31, 2005, the Company had interest free loans totaling $4,532,645 [June 30, 2005 - $2,833,319]
|                                                                                                                                                                                     | Dec. 31, 2005 | June 30, 2005 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------|
|                                                                                                                                                                                     | $             | $             |
|                                                                                                                                                                                     |               |               |
| Loan from two shareholders including amounts in RMB 4,781,400 (June 30, 2005: RMB 20,890,900) payable on July 31,2006                                                               | 2,592,602     | 2,524,319     |
| Loan from two shareholders payable on demand                                                                                                                                        | 1,624,161     | 309,000       |
| Loan from a corporation controlled by a director, who is also the president of the Company, in the amount of RMB 1,500,000 (June 30, 2005: Nil) payable on November 27, 2006.  | 185,908       | -             |
| Loan from a corporation controlled by a shareholder of the Company in the amount of RMB 1,048,699 (June 30, 2005: Nil) payable on May 6, 2006                                       | 129,974       | -             |
|                                                                                                                                                                                     |               |               |
| Total                                                                                                                                                                               | 4,532,645     | 2,833,319     |
|                                                                                                                                                                                     |               |               |

These loans are non-interest bearing, a total interest expense of $166,409 [June 30, 2005 – 70,833] is imputed at 6% per annum, being the current borrowing rate available to the Company and credited to additional paid-in capital.

[b]     As of December 31, 2005, the Company had the following outstanding loan from Xinhua Bookstore, the non-controlling interest shareholder owning a 40% interest in Xinhua C&D, as set out below. The loans are unsecured and repayable on July 31, 2006. Interest is payable quarterly based on the cost of funding of the loans to Xinhua Bookstore. Total interest paid for the six months was $512,737 (RMB4,154,911) [June 30, 2005 - $446,061 (RMB3,691,3820).				                                                                                                                                               $

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F-11

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**8. RELATED PARTY TRANSACTIONS (cont’d.)**Xinhua Bookstore has an option to require the Company to provide the buildings owned by Xinhua C&D as security to the loans. As of December 31, 2005, Xinhua Bookstore has not executed this option.  Pursuant to a letter of confirmation dated October 7, 2005, Xinhua Bookstore has agreed to reduce the loan extended to Xinhua C&D should any receivables acquired by Xinhua C&D become uncollectible.

[c]     During the six months ended December 31, 2005, Xinhua C&D rented facilities, including office and warehouse, from Xinhua Bookstore.  The total rental expense was $221,964 (RMB1,798,660) [June 30, 2005 - $169,745 (RMB1,404,727)]. Xinhua Bookstore charged utilities (water and electricity) for the rented facilities with a total amount of $113,189 (RMB917,213) [June 30, 2005 - $58,862 (RMB487,117)] and property management fee of $38,626 (RMB 313,000) [June 30, 2005-$0]. As at December 31, 2005, Xinhua Bookstore owes Xinhua C&D $151,075 (RMB 1,281,952) [June 30,2005 - balance owed to Xinhua Bookstore was $302,579 (RMB 2,503,994)].

[d]     During the six months ended December 31, 2005, Xinhua C&D made purchases in the normal course of business totaling $50,041 [June 30, 2005 - $217,351] from vendors in which Xinhua Bookstore is a major shareholder as follows:
|                                                          | Six months ended | Year ended    |
|----------------------------------------------------------|------------------|---------------|
|                                                          | Dec.31, 2005     | Jun. 30, 2005 |
|                                                          | RMB              | $             | RMB | $ |
|                                                          |                  |               |  |  |
| Shanghai Donghua Books Distribution and Agency Co., Ltd. | 243,331          | 30,028        | 2,700 | 326 |
| Jinhua Books Distribution Co., Ltd.                      | 162,173          | 20,013        | 1,330,285 | 160,750 |
| Nanhai Xinhua (Beijing) Culture Development Co., Ltd.    | -                | -             | 465,702 | 56,275 |
|                                                          |                  |               |  |  |
|                                                          | 405,504          | 50,041        | 1,798,687 | 217,351 |
|                                                          |                  |               |  |  |

As of December 31, 2005, the balances owed to following companies totaling $620,434 (RMB 5,005,971) [June 30, 2005 - $234,836 (RMB1,943,186)].
|                                                          | Six months ended | Year ended    |
|----------------------------------------------------------|------------------|---------------|
|                                                          | Dec.31, 2005     | Jun. 30, 2005 |
|                                                          | RMB              | $             | RMB | $ |
|                                                          |                  |               |  |  |
| Shanghai Donghua Books Distribution and Agency Co., Ltd. | 165,202          | 20,475        | (4,335) | (524) |
| Jinhua Books Distribution Co., Ltd.                      | 4,134,172        | 512,384       | 1,563,101 | 188,883 |
| Nanhai Xinhua (Beijing) Culture Development Co., Ltd.    | 706,597          | 87,575        | 384,420 | 46,477 |
|                                                          |                  |               |  |  |
|                                                          | 5,005,971        | 620,434       | 1,943,186 | 234,836 |
|                                                          |                  |               |  |  |

F-12

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**8. RELATED PARTY TRANSACTIONS (cont’d.)**

[e]     During the six months ended December 31, 2005, Xinhua C&D made sales in the normal course of business totaling $2,447,291 (RMB19,831,421) [June 30, 2005 - $1,606,713 (RMB13,296,346)] to companies in which Xinhua Bookstore is a major shareholder as follows:
|                                                     | Six months ended | Year ended    |
|-----------------------------------------------------|------------------|---------------|
|                                                     | Dec. 31, 2005    | Jun. 30, 2005 |
|                                                     | RMB              | $             | RMB | $ |
|                                                     |                  |               |  |  |
| Xinhua Audio Video Lease and Distribution Co., Ltd. | 2,027,462        | 250,198       | 765,441 | 92,495 |
| Beijing Xinhua Qiusuo Books Chain Store Co., Ltd.   | 1,879,311        | 231,916       | 5,320,781 | 642,956 |
| Jinhua Books Distribution Co., Ltd.                 | 12,377           | 1,527         | 510 | 62 |
| Chengdu Distribution Branch                         | 5,064,173        | 624,943       | 1,338,892 | 161,790 |
| Liaoning Distribution Branch                        | 10,848,098       | 1,338,707     | 5,870,722 | 709,410 |
|                                                     |                  |               |  |  |
|                                                     | 19,831,421       | 2,447,291     | 13,296,346 | 1,606,713 |
|                                                     |                  |               |  |  |

As of December 31, 2005, Xinhua C&D is owed a total of $4,150,698 (RMB33,489,895) [June 30, 2005 - $5,926,629 (RMB49,045,822)], representing approximately 12% [June 30, 2005 – 12%] of trade amounts receivable outstanding, from companies in which Xinhua Bookstore is a major shareholder as follows:
|                                                     | Dec. 31, 2005 | Jun. 30, 2005 |
|-----------------------------------------------------|---------------|---------------|
|                                                     | RMB           | $             | RMB | $ |
|                                                     |               |               |  |  |
| Xinhua Audio Video Lease and Distribution Co., Ltd. | 1,532,100     | 189,887       | 1,530,536 | 184,948 |
| Beijing Xinhua Qiusuo Books Chain Store Co., Ltd.   | 8,204,742     | 1,016,886     | 15,458,023 | 1,867,926 |
| Jinhua Books Distribution Co., Ltd.                 | 13,303        | 1,649         | 7,956,730 | 961,480 |
| Chengdu Distribution Branch                         | 5,234,218     | 648,723       | 5,863,017 | 708,479 |
| Liaoning Distribution Branch                        | 18,505,532    | 2,293,553     | 18,237,516 | 2,203,796 |
|                                                     |               |               |  |  |
|                                                     | 33,489,895    | 4,150,698     | 49,045,822 | 5,926,629 |
|                                                     |               |               |  |  |

F-13

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**8.  RELATED PARTY TRANSACTIONS (cont’d.)**

[f]     For the six months ended December 31, 2005, Xinhua C&D made purchases in the normal course of business amounting to $1,524,797 (RMB12,356,062) [June 30, 2005 - $730,329 (RMB6,043,838)] and as at December 31, 2005, owes a total of $6,134,140 (RMB49,493,306) [June 30, 2005 – 5,328,665 (RMB44,097,367)] to seven minority shareholders in Xinhua C&D who collectively held a 2% interest in the company, as follows:
|                                                  | 6 months ended | Year ended    |
|--------------------------------------------------|----------------|---------------|
|                                                  | Dec.31, 2005   | Jun. 30, 2005 |
|                                                  | RMB            | $             | RMB | $ |
|                                                  |                |               |  |  |
| People’s Publishing House                  | 5,509,301      | 682,816       | 4,324,420 | 522,557 |
| Sanlian Bookstore                                | 1,532,640      | 189,953       | 1,224,129 | 147,922 |
| China Map Publishing House                       | 12,829,518     | 1,590,075     | 10,794,073 | 1,304,341 |
| Commercial Press                                 | 21,821,679     | 2,704,552     | 21,112,573 | 2,551,214 |
| People’s Literature Publishing House       | 6,183,380      | 766,361       | 4,275,443 | 516,639 |
| The Great Encyclopedia of China Publishing House | 1,069,973      | 132,611       | 1,232,304 | 148,910 |
| Jieli Publishing House                           | 546,815        | 67,772        | 1,134,425 | 137,082 |
|                                                  |                |               |  |  |
|                                                  | 49,493,306     | 6,134,140     | 44,097,367 | 5,328,665 |
|                                                  |                |               |  |  |

Total amount due to the publishers/minority shareholder of Xinhua C&D represents 8.1% [June 30, 2005 – 7.2%] of total trade accounts payable amount.

[g]     During the six months ended December 31, 2005, Xinhua C&D has generated sales of $7,632,246 (RMB61,847,237) [June 30, 2005 - $10,818,090 (RMB89,525,105)] from sales to various retail bookstores that are owned by the respective state owned entities where they are located. At December 31, 2005, the total amount owed by these retail bookstores represents approximately 55% [June 30, 2005 – 56%] of trade accounts receivable outstanding.

[h]     During the six months ended December 31, 2005, the Company incurred $60,000 [June 30, 2005 - $102,428] consulting fees to director of the Company. This amount was included in selling, general and administrative expenses in the accompanying consolidated statement of operations.

[i]     Included in other receivable at December 31, 2005, $131,312 (RMB1,059,491) is owed from Beijing Veyu Information & Technology Development Ltd., a related company by the way of a common director.

F-14

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**9.  STOCK OPTION PLAN**

The board of directors approved a Stock Option Plan (the “Plan”) effective on September 4, 2004 pursuant to which directors, officers, employees and consultants of the Company are eligible to receive grants of options for the Company’s common stock. The plan has a life of ten (10) years and expires on September 4, 2014. A maximum of 20,000,000 common shares have been reserved under the plan. Each stock option entitles its holder to purchase one common share of the Company. Options may be granted for a term not exceeding ten years from the date of grant. The plan is administered by the board of directors.

The Company granted options which vest over a period of over 27 months and charged $1,873,763 and $3,534,507 stock-based compensation relating to selling, general and administrative expenses to operations for the six months ended December 31, 2005 and the year ended June 30, 2005 respectively by applying the fair value method in accordance with SFAS No. 123.  During the six months ended December 31, 2005, no options were granted or exercised.  The fair value of the stock options granted for the year ended June 30, 2005 was estimated at $1.54 per share, using the Black-Scholes Option Pricing Model with the following weighted average assumptions: risk-free interest rate of 3.26%, dividend yield of 0%, volatility of 80% and expected lives of 3.77 years.				The following is a summary of the stock option information:**                                                                                                                                              Weighted Average					                                                                                                                Shares                     Exercise Price**                                                                                                                     #                                      $              				Granted in September 2004                                                                  4,100,000                            $2.40				Granted in October 2004                                                                         180,000                            $2.91				Forfeited                                                                                                  (95,000)                           $2.50				Granted in February 2005                                                                          20,000                            $4.70				Exercised in March 2005                                                                           (7,700)                           $2.62Exercised in May 2005                                                                            (93,000)                           $2.40           				Options outstanding at June 30, 2005                                                   4,104,300                            $2.43

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F-15

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**9. STOCK OPTION PLAN (cont’d.)**

| **Options outstanding** | **** | **Options exercisable** |
|-------------------------|------|-------------------------|
|                         |      |                         |

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F-16

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**11. COMMON STOCK AND WARRANTS**

[a]**     **During the year ended June 30, 2005, the Company completed a private placement with certain individuals for 622,690 units at $3.25 per unit for total cash proceeds of $2,023,800. Each unit consists of one share of common stock and one-half of one non-transferable share purchase warrant. The warrants will expire on the earlier of:
> 
(i)     two years from the date of issuance; and

(ii)     fifteen business days from date that the Company provides notice in writing to the subscriber that the Company’s common shares have been trading or traded at a price of $7 or more for a period of ten days.

The warrants shall have an exercise price of $4.50 per warrant for the first twelve months, and if still available after twelve months, the warrants shall have an exercise price of $4.60 per warrant starting on the first day of the second twelve month period and increasing by $0.10 on the first day of each subsequent month thereafter until expiration of the warrants. As at December 31, 2005, all of the warrants totaling 311,345 associated to the private placement remained outstanding.

[b]     Share Purchase Warrants

On December 13, 2005, The Company issued to the holder of the convertible debenture 1,035,000 warrants. One share purchase warrants is exercisable for one common share at $0.00001 per share, until expiration on November 22, 2010. As at December 31, 2005, 1,035,000 warrants remained outstanding (also see note 7).**12. FINANCIAL INSTRUMENTS**

The fair values of financial instruments are estimated at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

The carrying value of cash and restricted cash, accounts receivable, accounts payable and accrued liabilities, amounts due to related parties and loans payable approximate their fair value. Interest expense is subject to the risk arising from interest rate changes.  Interest rates have been stable in China and that the loans obtained by the Company are all current.****

F-17

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**12. FINANCIAL INSTRUMENTS (cont’d)**

The Chinese Renminbi is not a freely convertible currency. Future exchange rates of Renminbi could vary significantly from the current or historical exchange rates as a result of controls that could be imposed by the Chinese government. The exchange rates of Renminbi are affected by changes in the Chinese government policies. The exchange rates of Renminbi are also affected by economic developments and political changes domestically and internationally, and supply and demand for Renminbi.

The official exchange rate for the conversion of Renminbi to US Dollars has generally been stable throughout the previous year and the current period until in July, the Chinese government permitted the Renminbi to appreciate against the US Dollar by approximately 2%. As Renminbi is the functional currency of Xinha C&D and Boheng, the fluctuation of exchange rates of Renminbi may have positive or negative impacts on the results of operations of the Company. However, since all sales revenue and expenses of these two subsidiary companies are denominated in Renminbi, the net income effect of appreciation and devaluation of the currency against the US Dollar will be limited to the net operating results of the subsidiary companies attributable to the Company.

Financial instruments that potentially subject the Company to concentration of credit risks consist principally of cash and trade receivables, the balances of which are stated on the consolidated balance sheet. The Company places its cash in high credit quality financial institutions. Concentration of credit risks with respect to trade receivables is limited to a degree due to the Company’s large number of diverse customers in different locations in China. Ongoing credit evaluations of customers’ financial condition are performed and the Company maintains provision for potential credit losses if necessary. The Company does not require collateral or other security to support financial instruments subject to credit risks.

The Company is exposed to the risk arising from changing interest rates.**13. COMMITMENTS**

[a]     At December 31, 2005, capital commitments in relation to the installation of plant and equipment amount to $170,000 [June 30, 2005 - $170,000].

[b]     Pursuant to the Investment Agreement, Pac-Poly and Boheng jointly committed to contribute a total of $20.9 million into Xinhua C&D. At December 31, 2005, total amount contributed is approximately $4.2 million [June 30, 2005 - $4.2 million] with the balance of approximately $16.7 million [June 30, 2005 - $16.7 million] to be contributed on or before July 31, 2006.

[c]     The debt financing agreement (note 7) is collateralized by all tangible and intangible assets of the Company.

F-18

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						(Unaudited)**					December 31, 2005                                                                                                           (Expressed in U.S. dollars)

**14. DISTRIBUTION OF PROFITS**Pursuant to Chinese company law applicable to foreign investment companies, the Company’s subsidiaries, Xinhua C&D and Boheng, are required to maintain dedicated reserves, which include a general reserve and an enterprise expansion reserve. The dedicated reserves are to be appropriated from net income after taxes, determined under the relevant Chinese accounting regulations at a rate determined by the board of directors of the respective subsidiaries, and recorded as a component of shareholders’ equity. The dedicated reserves are not distributable other than upon liquidation. As both Xinhua C&D and Boheng have recorded losses for the 6 months ended December 31, 2005, no appropriation to the dedicated reserves was made.					Pursuant to the same Chinese company law, the Company’s subsidiaries are required to transfer at the discretion of its board of directors, a certain amount of its annual net income after taxes as determined under the relevant Chinese accounting regulations to a staff welfare and bonus fund. As both Xinhua C&D and Boheng have recorded losses for the 6 months ended December 31, 2005, no transfer to the staff welfare and bonus fund was made.**15. SUBSEQUENT EVENT**

Subsequent to December 31, 2005, the Company was informed that the institutional investor of the debt financing agreement (note 7) was considering refinement to the terms of the second and third closings of the agreement. This refinement has no impact on the $1,250,000 convertible debenture already issued at the first closing on December 13, 2005.

F-19

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5

******Item 2.  Management's Discussion and Analysis or Plan of Operation **

****

The following discussions of the Company’s results of operations and financial position should be read in conjunction with the financial statements and notes pertaining to them that appear elsewhere in this Form 10-QSB. Please read in conjunction with the section entitled “Risks”, and note that this discussion contains forward-looking statements. This discussion focuses on the manner in which the Company will operate in the next year, as well as prospects for the future and the manner in which events and uncertainties known to management would cause reported financial information to not be necessarily indicative of future operating results or of the future financial condition.

**Corporate Background**

Xinhua China Ltd. was incorporated in the State of Nevada, United States, on September 14, 1999 under the name Camden Mines Limited (“Camden”). Up to September 2004, Camden was a non-operating shell company and had been considered a development stage enterprise since its formation. Effective on October 12, 2004, Camden changed its name to Xinhua China Ltd. The Company’s head office is in Beijing, China. The Company had no significant operations between July 1, 2004 and September 13, 2004.

The Company maintains its registered agent's office at 101 Convention Center Drive, suite 700, Las Vegas, Nevada  89109 and its principal executive office is located at B 26F Oriental Kenzo, No. 48 Dongzhimenwai, Dongcheng District, Beijing, P.R. China  100027.  The Company’s telephone number in Beijing is 86-10-84477275. The Company also has an accounting office in Vancouver, Canada at 1880-505 Burrard Street.

These consolidated financial statements are those of Xinhua China Ltd., its 100% owned subsidiary Pac-Poly Investments Limited (“Pac-Poly”), its 95% owned subsidiary Beijing Boheng Investment and Management Co., Ltd. (“Boheng”), and its 56.13% owned subsidiary Xinhua Publications Circulation & Distribution Co., Ltd. (“Xinhua C&D”). Collectively, they are referred herein as the “Company”.  Pac-Poly and Boheng jointly own a 57.67% interest in Xinhua C&D, an entity incorporated under the laws of the People’s Republic of China (“China”) on December 31, 2004.

The Company, through its subsidiaries Pac-Poly and Boheng, primarily operates in China. Both Pac-Poly and Boheng are investment holding companies jointly owning a 57.67% interest in Xinhua C&D.  Xinhua C&D is authorized to distribute books, periodicals, human figure and representation art pictorials, audio video products, wholesale, retail and mail order of publicly distributed electronic publications, advertisement by domestic and foreign firms in certain categories of books, and classified advertisements in China. For the year ended June 30, 2005 and the three and six months ended December 31, 2005, the Company and its subsidiaries had focused on the book distribution business only.

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******Plan of Operation**

On December 31, 2005 we had a working capital deficiency of $34,396,233, while on June 30, 2005, the working capital deficiency was $13,649,558. We have remained solvent due to funding from our shareholders, proceeds of a private placement, issuance of a convertible debenture as well as exercise of options.  During the next year we anticipate that we will have to raise capital in the form of equity financing from the sale of our common stock or some equivalent financing. However, we do not have financing arranged and cannot provide investors with assurance that we will be able to raise sufficient funding from the sale of common stock to fund our anticipated business in China.  In the absence of such timely financing, our business plan could well be subject to modification.

The annual financial statements that were recently filed with the 10-KSB filing for the year ended June 30, 2005 were the first we produced which we consolidated with the wholly-owned subsidiary Pac-Poly and the ninety-five percent owned subsidiary Boheng; the statements include the operations of the new operating subsidiary Xinhua C&D.  Xinhua C&D comprises the former circulation and distribution operations of the Xinhua Bookstore Head Office.  For the foreseeable future, our earnings will most likely be exclusively derived from Xinhua C&D.  The subsidiary commenced operation on February 1st 2005, and the quarter included the 10-day Lunar New Year holiday period during which distribution operations were at a minimal level.  Thus, the annual report reflected the operating results of five months.  Since inception, management has been clearing out old stock, recognizing and reducing delinquent receivables and realizing uncollectible items while implementing modern systems, including computer systems.

Xinhua C&D currently serves over 7,000 clients.  Xinhua C&D also has the authorization to distribute newspapers, periodicals, and electronic publications should it so choose.  At present the focus is entirely on books.

Our goal is to modernize and expand retail book distribution in China on a national scale, and maximize opportunities in one of the largest and fastest growing economies in the world through the only existing national license in the country.  Xinhua C&D is authorized to conduct the publication and distribution business nationwide and provide worldwide publishers a conduit to directly distribute publications throughout China rather than seek approval in each province.

The local and regional distribution business for books is competitive and fragmented in China.  Estimates range up to 500 as to the number of entrants in this field.  It is our plan that economy of scale, relationships with Chinese publishers and also with sub-distributors and retailers and our nationwide scope which allows us the flexibility to distribute books in any region will assist us in maintaining and enhancing our competitive position.  The operations of the business are seasonal: winter and spring comprise typically two-fifths of revenues, and summer and fall comprise the remaining three-fifths.  To a degree this is the influence of the academic terms of schools and universities.  We

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			intend eventually to expand our business into other areas of media distribution to minimize the influence of seasonality.

**Results of Operations****

Net sales of $9,146,838 and $25,215,829 after taking into account sales discounts and sales return allowances, were generated during the three and six months period ending December 31,2005. We had a gross profit of $ 1,044,443 and $ 2,771,007 which represents a gross margin of 11.4% and 10.8% on sales revenues.  However, gross profits were less than selling and general administrative expenses.  Compared with net sales of $15,496,537 for the five months ended in June 30, 2005, Xinhua C&D experienced surges in sales due to seasonality in the three and six months periods.  The gross profit for the year ended June 30, 2005 with five months operation from February 1, 2005 was $1,912,071 with a gross margin of 12.3%.  Approximately fifty four percent of Xinhua C&D’s first quarter sales revenue came from textbook sales, which have a lower margin than general books; while the second quarter was our anticipated peak sales period, text book sales only accounted for thirty percent of total sales, increased in non text books sales contributed to a higher gross margin.  Included in the selling, general and administrative expenses during the three and six months period were salaries and benefits of $736,261 and 1,543,240, rental expenses of $155,328 and 267,702, depreciation expenses of $345,924 and 417,049.  The total expenses for the year ended June 30, 2005 with five months operation from February 1, 2005 was $4,211,480.  We plan to reduce expenses; however there are no assurances that expenses can be reduced.  We have a stock option plan and for the three and six months periods stock-based compensation charge was $918,550 and $1,873,763,  while the stock-based compensation for the year ended June 30, 2005 was $3,534,507. There is approximately $1 million remaining of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted average period of the next 4 months. 

We have paid and accrued $495,743 and $785,467 of interest expense during the three and six months periods [year-ended June 30, 2005: $520,875] of which $273,697 and $512,737 [year-ended June 30, 2005: $446,061] was interest based on the costs of funding of loans received from a related party, Xinhua Bookstore for $16,471,463 [year-ended June 30, 2005: $16,989,910].  We have allocated $168,383 and 256,594 [year-ended June 30, 2005: $636,491] of losses applicable to non-controlling shareholders in the subsidiary company operations. We anticipate that the rate of investment will continue to be high over the next two years as we convert to systems implementing real-time controls, expend resources and legal costs to develop co-marketing agreements and create new operating teams to improve logistics for the rapid supply of books and other media to clients and to speed up collection of accounts.

Based on analysis of collectibility of accounts receivable, we have made provision of $10,253,803 for doubtful accounts. This provision represents 26.4% of total accounts receivable.  Based on the analysis of inventory aging information, we have set up an

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			allowance of $2,478,775 for slow moving and obsolete inventory, about 13.5% of total inventory.

We posted a net loss of $2,125,705 and $3,841,600 for the three and six months period ended December 31, 2005.  For the year ended June 30, 2005 with five months operation since February 1, 2005, the loss was $5,651,870. 

Prior to the acquisition of Xinhua C&D, we were a mineral exploration company, called Camden Mines Limited. As our new line of business has no relation to mineral exploration, a comparison to financial reports of prior quarters cannot give meaningful guidance to investors.  It will be some time before financial analysis can show a clear pattern or trend emerging and being reflected in our statements.

Because our new business affairs (book distribution) are unrelated to prior ventures (mineral exploration) the financial statements between this and the corresponding period in the prior year are essentially incomparable and have not been provided.

**Liquidity and Capital Resources**

We have incurred a net loss of $5,651,870 and $3,841,600 for the year ended June 30, 2005 and the six months ended December 31, 2005 respectively.  The accumulated deficit increased by $3,841,600 to $9,493,470.  We have working capital deficiency of $34,396,233 as of December 31, 2005 and working capital deficiency of $13,649,558 as of June 30, 2005.  The shareholders' equity changed from a positive of $204,326 as of June 30, 2005 to a deficiency of $1,574,970 at December 31, 2005.  The amount due to Xinhua Bookstore as well as the commitment to contribute the balance of the equity injection into C&D becomes current, i.e. within 12 months.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

During the six months ended December 31, 2005, the Board approved the issuance of convertible debentures that will raise around $4 million, if fully subscribed of which $1,250,000 has been completed.  Our ability to continue as a going concern is dependent upon maintaining profitable operations, completion of the issuance of the convertible debentures and continued financial support from the major shareholders. There are no assurances that we will be successful in archiving these goals.

We anticipate that we will continue to raise capital in the form of equity financing from the sale of common stock but we do yet have sufficient financing arranged.  As such we cannot provide investors with assurance that we will be able to raise sufficient funding from the sale of common stock to fund our anticipated business in China.  We are currently reviewing sources of financing by issuance of shares, debt instruments or combinations of debt and equity to fund the remaining approximate $16.8 million commitment to Xinhua C&D by July 31, 2006.  We may also negotiate or arrange bridge loans to meet the investment commitment.  Our ability to continue as a going concern is dependent upon achieving profitable operations, the completion of the issuance of convertible debentures and continued financial support from our

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			major shareholders.  There are no assurances that we will be successful in meeting our $16.8 million investment commitment for our operations in China and continuing as a going concern.

**Research and Development**

We are involved in book distribution, and have not incurred any research or development expenditures since we began operations.

**Shareholders**

As not all beneficial shareholders have their shares registered in their names, the total number of shareholders is not known; however the Secretary has examined the available lists and estimates there are a minimum of 120 shareholders.

**Dividends**

Other than the stock dividend of two additional shares for each one share outstanding, which was effective July 29, 2004 and the stock dividend of four additional shares for each one share outstanding, which was effective May 15, 2001, our Board of Directors has never declared a dividend on our common stock.  Our previous losses do not indicate the payment of cash dividends, and we do not expect to pay dividends on our common stock in the foreseeable future.

**Risk Factors; Uncertainties**

Management of risks is a key responsibility of management. We share many risks in common and known to other enterprises in the industry of book publishing. The following is not an exhaustive list of risks or uncertainties that may affect us now or in the future. And there is of course the risk that new risk factors will arise over time, and risks that management has failed to note, or risks that we now think inconsequential, may arise.

> 
***The Market***

*Because the market for our common stock is limited, you may not be able to resell your shares of common stock.*

There is currently a limited trading market for our common stock. Our common stock trades on the OTC Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol “XHUA.” As a result, you may not be able to resell your securities in open market transactions.

*Because our common stock is subject to penny stock rules, the liquidity of your investment may be restricted.*

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			Our common stock is now, and may continue to be in the future, subject to the penny stock rules under the Exchange Act. These rules regulate broker/dealer practices for transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker/dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These additional penny stock disclosure requirements are burdensome and may reduce the trading activity in the market for our common stock. As long as the common stock is subject to the penny stock rules, holders of our common stock may find it more difficult to sell their securities.

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***Seasonality***

Xinhua C&D distributes both general books and colleges and universities textbooks. In the three months ended December 31, 2005, Xinhua C&D experienced surge in sales due to seasonality.  Approximately fifty four percent of Xinhua C&D’s first quarter sales revenue came from textbook sales Chinese colleges and universities start fall and spring terms in September and February each year.  The educational institutions will stock up textbooks usually one or two months prior to the start of each term.  The seasonality pattern of Xinhua C&D will see higher than usual sales revenue in the months of July, August, September, October and November.

The operations of the business are somewhat seasonal, winter and spring comprising typically two‐fifths of revenues and summer and fall the remaining three-fifths. This is to a degree the influence of the academic terms of schools and universities. The Company intends to expand its business into other areas of media distribution but this may not appreciably affect the influence of seasonality.

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***Cash Flow***

State-owned enterprises (“SOE’s”) are common in China, a legacy from the early stages of the modern history of the PRC when businesses were operated to achieve social or political goals and profitability was a secondary consideration. Xinhua C&D has inherited infrastructure of an SOE and must move to profitability by restructuring, eliminating poorly selling products, and meeting the challenge of competition, and it must do so in a timely manner to turn the corner to profitability.

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			We may experience significant fluctuations in our operating results and rate of growth.  Due to our limited operating history and our evolving business model, and the unpredictability of the future of our industry, we may not be able to accurately forecast our rate of growth. We base our current and future expense levels and our investment plans on estimates of future net sales. Our expenses and investments are to a large extent fixed, and we may not be able to adjust our spending quickly enough if our net sales fall short of our expectations.

Our revenue and operating profit growth depends on the continued growth of demand for books offered by our customers and partners, and our business is affected by business conditions in China and, indirectly, worldwide. Revenue growth may not be sustainable and our company-wide percentage growth rate may decrease in the future.

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***Going Concern***

We have incurred a net loss of $5,651,870 and $2,125,705 for the year ended June 30, 2005 and three months ended December 31, 2005, respectively.  We have a working capital deficiency of $34,396,233 and a shareholders’ deficiency of $1,574,970 as of December 31, 2005.  We have contractual commitment to invest $16.8 million into Xinhua C&D by July 31, 2006, at this time, we do not have sufficient funding arrange.  These factors raise substantial doubt about our ability to continue as a going concern.

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***Debt***

Interest rates in China are low and stable and inflation is well controlled, due to the habit of the population to deposit and save money in the banks (among with other reasons, such as the PRC’s perennial balance of trade surplus). Our loans relate mainly to trade payables and are mainly short-term. However our debt is likely to rise with physical plant in connection with expansion and, were interest rates to rise at the same time, this could become a significant stress factor.

$21,004,108 of our debt is current liabilities and loans from related parties, with the short-term liabilities within the year, unless extended.  This could affect our status as a going concern and also represents a concentration of risk which could pose a serious concern from an interruption of business or an unforeseen and unanticipated damaging of our ability to collect receivables. Our ability to repay debt will be dependent on cash flow from the business and our ability to raise new funds in the form of loans, debt or equity in the next year.

During the six month ending December 31, 2005 we entered into a debt financing agreement.  We anticipate issuing up to $4,000,000 in secured convertible debentures, of which $1,250,000 has been completed. The debentures will mature 5 years from the issuance date. The interest rate is 2% per annum, compounded monthly.  We have the right to redeem the debenture with the redemption price 135% of the face amount plus

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			accrued interest.  The debentures are convertible at the holders’ option.  The debentures are secured by all of our assets and property.  We have issued 20,000,000 shares of common stock as “security stock” and delivered these shares to the escrow agent.  If there is an event which is a default under the convertible debentures provisions, the escrow shares will be distributed to the debenture holders upon receipt of a conversion notice and in accordance with the terms of the convertible debentures and the securities purchase agreement.

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***Tax and Legal Systems in China***

We conduct our business in China through our subsidiaries. China currently has a number of laws related to various taxes imposed by both federal and regional governmental authorities. Applicable taxes include value-added tax, corporate income tax, and payroll and worker and welfare taxes, along with others. Laws related to some of these taxes have not been in force for a significant period, in contrast to more developed market economies and regulations for their implementation are often unclear or incomplete. Often, differing opinions regarding legal interpretation exist both among and within government ministries and organizations; thus creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. These facts create tax risks in China substantially more significant than typically found in countries with more developed tax systems.

We believe that we are in substantial compliance with the tax laws affecting our operations; however, the risk remains that the relevant authorities could take differing positions with regard to interpretive issues and the effect could be significant. The fact that a year has been reviewed does not close that year, or any tax declaration applicable to that year, from further review.

Chinese company law as it applies to foreign invested corporations (the Company’s subsidiaries Boheng and Xinhua C&D) requires them to maintain dedicated reserves which include a general reserve and a reserve for enterprise expansion. The dedicated reserves are appropriated from net income after taxes, determined under the relevant Chinese accounting regulations, at a rate set by the Board of Directors of the respective subsidiaries, and record as a component of shareholders’ equity. These reserves are not distributable, other than upon liquidation. No appropriation has been made for the year as both subsidiaries recorded losses.

Similar provisions of Chinese company law require the Board of Directors at their discretion to transfer a certain amount of their annual net income after taxes, as determined under the relevant Chinese accounting regulations, to a staff welfare and bonus fund. No such transfer was made for the fiscal period, as the subsidiaries recorded losses.

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> 
***Intellectual Property***

Intellectual property (“IP”) rights are evolving in China, trending towards international norms. We are involved for the time being mainly in distribution and have not had significant involvement in IP. The application of IP rights to protect our foreign clients’ and partners’ media is necessary and we must rely in part on the expertise of the Xinhua Bookstore and the services of the Beijing Ying Ke law firm we have retained. Protections are needed at a minimum against piracy; legal action may be needed and all legal action involves risk and expenses.

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***Competition***

Foreign direct investment in China has increased rapidly in the last 20 years and the investment environment has further improved to encourage foreign and local investors to invest in fields other than those considered by the government of the PRC to be sensitive. Our field of publication and distribution has been opened up to new foreign investment subject to PRC government guidelines.  Many companies are involved in the publishing and distribution of literary and entertainment material. There is no guarantee that other competitors will not become involved in business similar to ours. The Company’s only answer is to move cogently forward in an orderly manner using its marketing experience to broaden the quantity and quality of new titles (domestic and foreign) placed before an avid Chinese audience.

If we are successful in providing better and faster service at lower unit costs to our customers and business affiliates then it seems sure that ‘copycats’ will quickly arise, and while imitation is the sincerest form of flattery, it may not help the business model.

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***Restructuring***

Our operating subsidiary must acquire new staff and potentially release others, and retain the most capable employees. We must also implement improved practices and systems and move to new premises over the next two years. While the need for these changes is well understood they may still cause stress.

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***New Markets***

It is important for us to develop relationships with publishers and distributors of foreign (mainly English-language) books to expedite their import, translation and distribution nationwide in China. This is still a young market and we cannot predict our probability of success.

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***Exchange Rate***

The reporting currency of the Company is United States Dollars (“USD”). The Chinese Renminbi (“RMB”) has been informally pegged to the USD. However, China is under international pressure to adopt a more flexible exchange rate system. If the RMB were no longer pegged to the USD, rate fluctuations may have a material impact on the Company’s consolidated financial reporting and make realistic revenue projections

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			difficult. Recently (July 2005) the Renminbi was allowed to rise 2%. This has not had an appreciable effect on our operations and seems unlikely to do so.

As Renminbi is the functional currency of Xinha C&D and Boheng, the fluctuation of exchange rates of Renminbi may have positive or negative impacts on the results of operations of the Company.  However, since all sales revenue and expenses of these two subsidiary companies are denominated in Renminbi, the net income effect of appreciation and devaluation of the currency against the US Dollar will be limited to the net operating results of the subsidiary companies attributable to the Company.

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***Funds Remittance***

Pursuant to Chinese company law applicable to foreign investment companies, the Company’s subsidiaries, Xinhua C&D and Boheng, are required to maintain dedicated reserves, which include a general reserve and an enterprise expansion reserve.  The dedicated reserves are to be appropriated from net income after taxes, determined under the relevant Chinese accounting regulations at a rate determined by the board of directors of the respective subsidiaries, and recorded as a component of shareholders’ equity.  The dedicated reserves are not distributable other than upon liquidation.  As both Xinhua C&D and Boheng have recorded losses for the six months ended December 31, 2005, no appropriation to the dedicated reserves was made.

Pursuant to the same Chinese company law, the Company’s subsidiaries are required to transfer at the discretion of its board of directors, a certain amount of its annual net income after taxes as determined under the relevant Chinese accounting regulations to a staff welfare and bonus fund.  As both Xinhua C&D and Boheng have recorded losses for the 6 months ended December 31, 2005, no transfer to the staff welfare and bonus fund was made

**Item 3. Controls and Procedures**

As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective. There have been no changes in these internal controls over financial reporting that occurred during the quarter ended December 31, 2005, that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

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**Part II—****Other Information**

**Item 1. Legal Proceedings**

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving the Company.  None of the Company’s directors, officers or affiliates is (i) a party adverse to the Company in any legal proceedings, or (ii) has an adverse interest to the Company in any legal proceedings.  Management is not aware of any other legal proceedings pending or that have been threatened against the Company that exceeds 10% of the current assets of the Company.**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

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N/A

****

**Item 3. Defaults Upon Senior Securities**

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N/A

**Item 4. Submission of Matters to a Vote of Security Holders**

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N/A

****

**Item 5. Other Information**

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N/A

**Item 6. Exhibits**

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(a)        Exhibit List

31.1     Certificate pursuant to Rule 13a-14(a)					31.2     Certificate pursuant to Rule 13a-14(a)					32.1     Certificate pursuant to 18 U.S.C. §1350					32.2     Certificate pursuant to 18 U.S.C. §1350

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****

**SIGNATURES**

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                                                                                     **Xinhua China Ltd.**

Date: February 22, 2006                                                               Per:      /s/ Clement Wu                                                                                                                 Clement Wu, Chief Financial Officer			                                                                                                     and a Director

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