U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


Mark One
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                For the six-month period ended December 31, 2007


[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                For the transition period from ______ to _______


                        COMMISSION FILE NUMBER: 000-33195


                                XINHUA CHINA LTD.
                 ______________________________________________
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


             NEVADA                                              88-0437644
_______________________________                              ___________________
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                              IDENTIFICATION NO.)


             SUITE 304, BUILDING #1, YUANJIA INTERNATIONAL APARTMENT
                    NO. 40 DONGZHONG ST., DONGCHENG DISTRICT
                                 BEIJING 100027
                           PEOPLE'S REPUBLIC OF CHINA
             _______________________________________________________
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                 86-10-64168816
                           ___________________________
                           (ISSUER'S TELEPHONE NUMBER)


                        7A-11 CHANWAI MEN PROEPRTY TRADE
                             CENTER OFFICE BUILDING
                          NO. 26 CHAOYANMEN WEI STREET
                           CHAOYANG DISTRICT, BEIJING
                           PEOPLE'S REPUBLIC OF CHINA
________________________________________________________________________________
(FORMER NAME,FORMER ADDRESS AND FORMER FISCAL YEAR,IF CHANGED SINCE LAST REPORT)


SECURITIES REGISTERED PURSUANT TO SECTION         NAME OF EACH EXCHANGE ON WHICH
            12(b) OF THE ACT:                              REGISTERED:
                  NONE


          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                        COMMON STOCK, $0.000025 PAR VALUE
          ___________________________________________________________
                                (TITLE OF CLASS)


<PAGE>


Indicate by checkmark whether the issuer:  (1) has 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 checkmark  whether the  registrant  is a large accelerated  filer,
an accelerated  filer,  or a  non-accelerated  filer.

Large accelerated filer [ ] Accelerated  filer [ ] Non-accelerated  filer [X]

Indicate by checkmark  whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [X] No

    APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS.
                                       N/A

Indicate by  checkmark  whether the issuer has filed all  documents  and reports
required to be filed by Section 12, 13 and 15(d) of the Securities  Exchange Act
of 1934 after the  distribution of securities under a plan confirmed by a court.
Yes[ ] No[ ]

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares  outstanding   Outstanding as of February 19, 2008
of each of the issuer's classes of common
stock, as of the most practicable date:
Class
Common Stock, $0.00025 par value                        54,638,890









                                      -2-


<PAGE>


                                XINHUA CHINA LTD.

                                    FORM 10-Q

           PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements                                               5

Item 2     Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                          7

Item 3.    Quantitative and Qualitative Discloses About Market Risk          15

Item 4.    Controls and Procedures                                           15

Item 4T.   Controls and Procedures                                           16

           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings                                                 16

Item 1A.   Risk Factors                                                      16

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds       25

Item 3.    Defaults Upon Senior Securities                                   25

Item 4.    Submission of Matters to a Vote of Security Holders               25

Item 5.    Other Information                                                 25

Item 6.    Exhibits                                                          25

Signatures                                                                   26





                                      -3-


<PAGE>


                           FORWARD LOOKING STATEMENTS

Statements  made in this Form 10-Q that are not  historical or current facts are
"forward-looking  statements"  made  pursuant to the safe harbor  provisions  of
Section  27A of the  Securities  Act of 1933 (the  "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use  of  terms  such  as  "may,"  "will,"  "expect,"  "believe,"   "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such  forward-looking  statements  be  subject  to the  safe  harbors  for  such
statements.  We wish to caution  readers not to place undue reliance on any such
forward-looking  statements,   which  speak  only  as  of  the  date  made.  Any
forward-looking  statements represent  management's best judgment as to what may
occur in the future. However,  forward-looking  statements are subject to risks,
uncertainties  and important  factors beyond our control that could cause actual
results and events to differ  materially from  historical  results of operations
and events  and those  presently  anticipated  or  projected.  We  disclaim  any
obligation  subsequently  to revise any  forward-looking  statements  to reflect
events or  circumstances  after the date of such  statement  or to  reflect  the
occurrence of anticipated or unanticipated events.

AVAILABLE INFORMATION

Xinhua China Ltd. files annual,  quarterly,  current reports,  proxy statements,
and  other  information  with  the  Securities  and  Exchange   Commission  (the
"Commission").  You may read and copy  documents  referred to in this  Quarterly
Report on Form 10-Q that have been filed with the Commission at the Commission's
Public Reference Room, 450 Fifth Street, N.W.,  Washington,  D.C. You may obtain
information  on the  operation  of the  Public  Reference  Room by  calling  the
Commission  at  1-800-SEC-0330.  You can also  obtain  copies of our  Commission
filings by going to the Commission's website at http://www.sec.gov.









                                      -4-


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS













                                Xinhua China Ltd.

                   Unaudited Consolidated Financial Statements

                                December 31, 2007

                             (Stated in US Dollars)

















                                      -5-


<PAGE>













XINHUA CHINA LTD.



CONTENTS                                                                  PAGES

Report of Registered Independent Public Accounting Firm                   F-1

Consolidated Balance Sheet                                                F-2-3

Consolidated Statement of Income                                          F-4

Consolidated Statement of Stockholders' Equity                            F-5

Consolidated Statement of Cash Flows                                      F-6

Notes to the Financial Statements                                         F-7-19










                                      -6-


<PAGE>













Board of Directors and Stockholders
Xinhua China Ltd.

             REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

We have reviewed the accompanying  interim consolidated Balance Sheets of Xinhua
China Ltd.  ("the  Company") as of December 31, 2007 and June 30, 2007,  and the
related statements of income,  stockholders'  equity, and cash flows for the six
months  and  three  months  ended  December  31,  2007 and 2006.  These  interim
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.

We conducted our review in accordance  with the standards of the Public  Company
Accounting  Oversight  Board  (United  States).  A review of  interim  financial
information  consists  principally of applying analytical  procedures and making
inquiries of persons  responsible  for financial and accounting  matters.  It is
substantially  less in scope  than an audit  conducted  in  accordance  with the
standards of the Public Company  Accounting  Oversight  Board,  the objective of
which is the expression of an opinion  regarding the financial  statements taken
as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the accompanying interim  consolidated  financial statements for them
to be in conformity with U.S. generally accepted accounting principles.







South San Francisco, California                        Samuel H. Wong & Co., LLP
January 11, 2008                                    Certified Public Accountants


                                      F-1


<PAGE>

<TABLE>
<CAPTION>


                                XINHUA CHINA LTD.
                           CONSOLIDATED BALANCE SHEETS
                    AS OF DECEMBER 31, 2007 AND JUNE 30, 2007
                             (STATED IN US DOLLARS)

                                                            NOTES              12/31/2007              6/30/2007
                                                                              ____________            ___________
<S>                                                                           <C>                     <C>

ASSETS
        CURRENT ASSETS
          Cash and Cash Equivalents                                                 20,009                  2,733
          Accounts Receivable, net                                                 252,980                185,246
          Receivable from trustee                                                        -                      -
          Note receivable                                     4                  1,625,000              1,000,000
          Other receivables and prepayments                                        209,732                201,186
                                                                              ____________            ___________
             Total Current Assets                                                2,107,721              1,389,165

        LONG-TERM ASSETS
          Property, Plant & Equipment, net                    5                     68,571                 14,094
          Note receivable, long-term portion                  4                          -                625,000
          Distribution network right, net                                                -                      -
          Goodwill, net                                                                  -                      -
                                                                              ____________            ___________
             Total Long-term Assets                                                 68,571                639,094

                                                                              ____________            ___________
             Total Assets                                                     $  2,176,292            $ 2,028,259
                                                                              ============            ===========

LIABILITIES & STOCKHOLDERS' EQUITY

        LIABILITIES
          CURRENT LIABILITIES
          Accounts Payable and Accrued Liabilities                                 844,710                693,207
          Deferred revenue                                                          45,892                 73,427
          Current portion of loans payable                     6                 2,012,643              1,787,643
          Due to related parties                                                         -                      -
                                                                              ____________            ___________
             Total Current Liabilities                                           2,903,245              2,554,277

          LONG-TERM LIABILITIES
          Loans Payable                                        6                 1,058,261              1,058,261
          Loans from shareholders                              7                 4,942,218              5,080,430
                                                                              ____________            ___________
             Total Long-term Liabilities                                         6,000,479              6,138,691

             Total Liabilities                                                   8,903,724              8,692,968
                                                                              ____________            ___________


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

</TABLE>

                                      F-2


<PAGE>

<TABLE>
<CAPTION>


                                XINHUA CHINA LTD.
                           CONSOLIDATED BALANCE SHEET
                    AS OF DECEMBER 31, 2007 AND JUNE 30, 2007
                             (STATED IN US DOLLARS)



                                                      NOTES                    12/31/2007             6/30/2007
                                                                              ____________            ___________
<S>                                                                              <C>                  <C>

Minority Interest                                                                        -                      -

STOCKHOLDERS' EQUITY

  Common Stock $0.0001 Par Value
  500,000,000 Shares Authorized;
  54,638,890 issued and outstanding at
  December 31, 2007 and June 30, 2007                                                  546                    546
  Additional Paid in Capital                                                    10,636,953             10,423,526
  Accumulated Other Comprehensive
  Income                                                                            43,049                  8,749
  Accumulated Deficit                                                          (17,407,980)           (17,097,530)
                                                                              ____________            ___________
      Total Stockholders' (Deficit)/Equity                                      (6,727,432)            (6,664,709)
                                                                              ____________            ___________

                                                                              ____________            ___________
  Total Liabilities & Stockholders' Equity                                       2,176,292            $ 2,028,259
                                                                              ============            ===========









               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

</TABLE>

                                      F-3


<PAGE>

<TABLE>
<CAPTION>


                                XINHUA CHINA LTD.
                        CONSOLIDATED STATEMENTS OF INCOME
          FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006
                             (STATED IN US DOLLARS)

                                                                    SIX MONTHS ENDED DECEMBER 31,    THREE MONTHS ENDED DECEMBER 31,
                                                         NOTE            2007           2006                2007            2006
                                                                      __________     __________          __________      __________
<S>                                                                   <C>            <C>                 <C>             <C>

REVENUE
      Revenue, net                                                             -        152,655                   -         102,435
      Revenue, net - related parties                                           -              -                   -               -

COST OF SALES
      Cost of Sales, net                                                       -        144,386                   -          98,937
      Cost of Sales, net - related parties                                     -              -                   -               -
                                                                      __________     __________          __________      __________
         Gross Profit                                                          -          8,269                   -           3,498

OPERATING EXPENSES
      Selling, General, and Administrative
      Expenses                                                           170,754        739,919              90,720         278,488
      Stock-based Compensation                                                 -        135,480                   -          66,815
                                                                      __________     __________          __________      __________
         Total Operating Expense                                         170,754        875,399              90,720         345,303

                                                                      __________     __________          __________      __________
      Loss from Operations                                             (170,754)      (867,130)            (90,720)       (341,805)
                                                                      __________     __________          __________      __________

OTHER INCOME
      Interest Income                                                     13,800            477              13,789               -
      Gain on debt restructuring                                               -      1,275,132                   -       1,275,132
      Gain on disposal of a subsidiary                                         -      2,155,519                   -       2,155,519

OTHER EXPENSES
      Interest Expense                                                   229,750        859,802             146,507          88,725
                                                                      __________     __________          __________      __________
         Loss before minority interest and income                      (386,704)      1,704,196           (225,170)       3,000,121

      Minority interest in net loss of
      consolidated subsidiaries                                                -              -                   -               -
                                                                      __________     __________          __________      __________

Loss before Income Tax                                                 (386,704)      1,704,196           (225,170)       3,000,121

Income Tax                                                                     -              -                   -               -

                                                                      __________     __________          __________      __________
Net Loss                                                               (386,704)      1,704,196           (225,170)       3,000,121
                                                                      ==========     ==========          ==========      ==========

Net Loss per common share-
         -Basic                                                           (0.01)           0.03                0.00            0.06
                                                                      ==========     ==========          ==========      ==========
         -Diluted                                                         (0.01)           0.03                0.00            0.05
                                                                      ==========     ==========          ==========      ==========

Weighted Average Shares Outstanding
         -Basic                                                       57,723,668     52,279,765          57,723,668      51,779,765
                                                                      ==========     ==========          ==========      ==========
         -Diluted                                                     57,723,668     58,293,110          57,723,668      57,793,110
                                                                      ==========     ==========          ==========      ==========

               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

</TABLE>

                                      F-4


<PAGE>

<TABLE>
<CAPTION>

                                XINHUA CHINA LTD.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    AS OF DECEMBER 31, 2007 AND JUNE 30, 2007
                             (STATED IN US DOLLARS)

                                     NO.                ADDITIONAL                       OTHER
                                     OF        COMMON    PAID IN     COMPREHENSIVE   COMPREHENSIVE   ACCUMULATED
                                   SHARES       STOCK    CAPITAL      INCOME(LOSS)    INCOME(LOSS)     DEFICIT         TOTAL
                                  ____________________________________________________________________________________________
<S>           <C>                 <C>            <C>     <C>          <C>                <C>         <C>            <C>

Balance, July 1, 2006             61,779,765     618     9,684,907    (16,470,021)       19,478      (16,489,500)   (6,784,497)
Additional Paid-in Capital                                 738,619                                                     738,619
Cancellation of outstanding
shares                           (10,000,000)   (100)                                                                     (100)
Issuance of shares to Highgate     2,859,125      28                                                                        28
Foreign Currency translation                                              (10,729)      (10,729)                       (10,729)
Net Loss for year                                                        (608,030)                      (608,030)     (608,030)
                                  ____________________________________________________________________________________________
Balance, June 30, 2007            54,638,890     546    10,423,526    (17,088,780)        8,749      (17,097,530)   (6,664,709)
                                  ============================================================================================

Balance, July 1, 2007             54,638,890     546    10,423,526    (17,088,780)        8,749      (17,097,530)   (6,664,709)
Additional Paid-in Capital:
   o Imputed interest from
     Shareholder                                           186,029                                                     186,029
   o Deferred Revenue
     amortized as interest                                  27,398                                                      27,398
                                                        __________                                                  __________
                                                           226,981                                                     226,981
Foreign Currency translation                                               34,300        34,300                         34,300
Net Loss for year                                                        (310,450)                      (310,450)     (310,450)
                                  ____________________________________________________________________________________________
Balance, December 31, 2007        54,638,890     546    10,636,953    (17,364,930)       43,049      (17,407,980)   (6,727,432)
                                  ============================================================================================


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

</TABLE>

                                      F-5


<PAGE>

<TABLE>
<CAPTION>

                                XINHUA CHINA LTD.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
               FOR THE SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
                             (STATED IN US DOLLARS)

                                                                                  12/31/2007        12/31/2006
                                                                                  __________       ___________
<S>                                                                               <C>              <C>

CASH FLOW FROM OPERATING ACTIVITIES:
       Net Loss                                                                   $ (310,450)      $ 1,704,196
       Adjustments to reconcile net earnings to net cash provided by
       operating activities:
            Depreciation                                                               2,554            24,060
            Stock-based compensation                                                       -           135,480
            Net gain on deconsolidation of a subsidiary                                    -                 -
            Amortization of deferred imputed interest                                 13,768           677,898
            Imputed interest expense                                                 199,659           123,539
            Gain on disposal of a subsidiary                                               -        (2,155,519)
            Gain on debt restructuring                                                     -        (1,275,132)

       Changes in assets and liabilities:
            Decrease/(Increase) Accounts receivable                                  (67,734)         (138,820)
            Decrease/(Increase) Other receivables and prepayments                     (8,546)         (158,320)
            Decrease/(Increase) Accounts Payable and accrued liabilities             151,503           101,881
            Decrease/(Increase) in Deferred Revenue Inventory                        (27,535)                -
                                                                                  __________       ___________
       Net Cash Used in Operating Activities                                         (46,781)         (960,737)
                                                                                  __________       ___________

CASH FLOWS FROM INVESTING ACTIVITIES:
       Deposits received from disposal of a subsidiary                                     -           252,982
       Purchase of plant and equipment                                               (57,031)          (11,551)
                                                                                  __________       ___________
       Net Cash Used in Investing Activities                                         (57,031)          241,431
                                                                                  __________       ___________

CASH FLOWS FROM FINANCING ACTIVITIES:
       Loans from shareholders                                                        86,788           675,702
                                                                                  __________       ___________
       Net Cash Provided by Financing Activities                                      86,788           675,702
                                                                                  __________       ___________


NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS FOR THE YEAR                      (17,024)          (57,057)

EFFECT OF CURRENCY TRANSLATION                                                        34,300           (13,453)

CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR                                           2,733           224,192

                                                                                  __________       ___________
CASH & CASH EQUIVALENTS AT END OF YEAR                                            $   20,009       $   167,135
                                                                                  ==========       ===========

Cash paid for interest expenses                                                            -                 -
                                                                                  ==========       ===========


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

</TABLE>

                                      F-6


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


1.       ORGANIZATION AND BUSINESS BACKGROUND

         Xinhua China Ltd. (the  "Company",  formerly  Camden Mines Limited) was
         incorporated  in the State of  Nevada,  United  States of  America,  on
         September  14,  1999.   Until   September   2004,  the  Company  was  a
         non-operating  shell  company and  considered  as a  development  stage
         enterprise  since its  inception.  Effective from October 12, 2004, the
         Company changed to its current name. The Company  established an office
         in Vancouver,  Canada; however, this office was closed down in December
         2006. The Company  established its principal  executive  office at A-11
         Chaowai Men Property Trade Center Office  Building,  No. 26 Chaoyangmen
         Wai Street,  Chaoyang District,  Beijing,  100020, People's Republic of
         China.

         On September 22, 2004, the Company's subsidiaries,  Pac-Poly Investment
         Ltd.  ("Pac-Poly")  and Beijing Boheng  Investments and Management Co.,
         Ltd.   ("Boheng")   jointly   entered  into  an  Investment   Agreement
         ("Investment  Agreement")  with Xinhua  Bookstore (Main Store) ("Xinhua
         Bookstore") to acquire a 57.67%  interest in  publication  distribution
         business in the  People's  Republic of China  ("PRC").  Pursuant to the
         Investment  Agreement,  Xinhua  Bookstore  transferred  the publication
         distribution  business  into a newly  formed  Chinese  company,  called
         Xinhua C&D.  Pac-Poly and Boheng  agreed to  contribute  $20.9  million
         (RMB173 million) in cash in exchange for 57.67% interest in Xinhua C&D.
         20% of $20.9  million  is payable  within  two  months of  closing  the
         transaction  and the remaining is payable within six months of closing.
         The eight other founding member corporations  ("Other Investors Group")
         agreed to  contribute  $800,000 (RMB 7 million) in cash in exchange for
         2.33%  interest  in Xinhua C&D.  20% of $800,000 is payable  within two
         months of closing the  transaction  and the remaining is payable within
         six months of closing.  As of June 30, 2005,  a total of $4.34  million
         was  paid  by  Pac-Poly,  Boheng  and  the  other  investors  group  in
         accordance  with the payment  schedule.  The due date for the remaining
         cash contribution of 80% amounting to $17.36 million originally expired
         on August 1, 2005 has been  extended  to July 31,  2006.  Pursuant to a
         letter of  confirmation  dated  October 7, 2005,  Xinhua  Bookstore has
         agreed to reduce the  long-term  loan it  extended to Xinhua C&D should
         any  receivables  acquired  by Xinhua  C&D  become  uncollectible.  The
         acquisition was completed on February 1, 2005.

         As of May 31, 2006, the Company  reduced its equity  interest in Xinhua
         C&D from 56.14% to 7.98% (note 4). Subsequent to the deconsolidation of
         Xinhua C&D,  the  Company  commenced  the  internet  book  distribution
         business  through  Beijing  Joannes  Information  Technology  Co., Ltd.
         ("Joannes").

         Details of the  Company's  subsidiaries  as of  December  31,  2007 are
         described below: -

<TABLE>
<CAPTION>


                                                Place of
                                              incorporation                                 Particulars of       Effective
                                               and kind of         Principal activities    issued/registered      interest
                      Name                    legal entity        and place of operation     share capital          held
          _________________________________________________________________________________________________________________
<S>        <C>                            <C>                        <C>                   <C>                       <C>

           Pac-Poly Investment Ltd.       British Virgin Islands,    Investment holding,   10,000,000 ordinary       100%
                                          a company with limited            PRC            shares of US$1 par
                                                liability                                  value
           _________________________________________________________________________________________________________________

           Beijing Joannes Information       PRC, a company with          Sales and        Registered capital        100%
           Technology Co., Ltd.               limited liability        distribution of     US$1,250,000
                                                                         books, PRC
           _________________________________________________________________________________________________________________

</TABLE>



                                      F-7


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


2.       GOING CONCERN UNCERTAINTIES

         These  consolidated  financial  statements have been prepared  assuming
         that Company will continue as a going concern,  which  contemplates the
         realization  of assets and the discharge of  liabilities  in the normal
         course of business for the foreseeable future.

         As of December 31, 2007, the Company had no working capital but current
         liabilities  exceeding current assets by $795,524, a negative operating
         cash flow of $46,781 and an accumulated  deficit of $17,407,980  due to
         the fact  that the  Company  continued  to incur  losses  over the past
         several  years.  Management  has taken certain  action and continues to
         implement  changes designed to improve the Company's  financial results
         and  operating  cash flows.  The actions  involve  certain  cost-saving
         initiatives  and  growing  strategies,   including  (a)  reductions  in
         headcount and  corporate  overhead  expenses;  and (b)  development  of
         e-commerce business. Management believes that these actions will enable
         the  Company  to  improve  future  profitability  and cash  flow in its
         continuing operations through June 30, 2008. As a result, the financial
         statements  do not include  any  adjustments  to reflect  the  possible
         future effects on the  recoverability  and  classification of assets or
         the amounts and  classification of liabilities that may result from the
         outcome of the Company's ability to continue as a going concern.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A.)     Basis of Presentation

         These accompanying consolidated financial statements have been prepared
         in accordance  with  generally  accepted  accounting  principles in the
         United States of America ("US GAAP").

(B.)     Use of Estimates

         In preparing these consolidated financial statements,  management makes
         estimates and  assumptions  that affect the reported  amounts of assets
         and  liabilities in the balance sheets and revenues and expenses during
         the year reported. Actual results may differ from these Estimates.

(C.)     Basis of Consolidation

         The interest of the Company in the  subsidiaries  was acquired by means
         of  exchange  of shares in the  Company  pursuant  to a share  exchange
         agreement  on September  14,  2004.  The  transaction  is  considered a
         transfer between  entities under common control,  within the meaning of
         US GAAP. Accordingly,  the assets and liabilities transferred have been
         accounted for at  historical  cost or at their "fair value" at the date
         of their original  acquisition  and have been included in the foregoing
         financial statements as of the beginning of the periods presented.


                                      F-8


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


         The consolidated  financial statements include the financial statements
         of the Company and its subsidiaries. Subsidiaries are those entities in
         which the Company, directly or indirectly,  controls more than one half
         of the  voting  power;  has the  power  to  govern  the  financial  and
         operating policies; to appoint or remove the majority of the members of
         the board of directors;  or to cast majority of votes at the meeting of
         directors.  All  significant  inter-company  balances and  transactions
         within the Company have been eliminated on consolidation.

(D.)     Investments in Unconsolidated Entities

         The  investments  in and the  operating  results  of  50%-or-less-owned
         entities  not  required  to  be   consolidated   are  included  in  the
         consolidated  financial statements on the basis of the equity method of
         accounting  or the cost  method of  accounting,  depending  on specific
         facts and  circumstances.  The Company has an investment in a privately
         held  entity in the form of equity  instruments  that are not  publicly
         traded and for which  fair  values are not  readily  determinable.  The
         Company  records  its  investment  in a private  entity  under the cost
         method of  accounting  and  assesses the net  realizable  value of this
         entity on a quarterly  basis to  determine  if there has been a decline
         (other than temporary) in the fair value of the entity, under Statement
         of Financial  Accounting  Standards  ("SFAS") No. 115,  "Accounting for
         Certain Investments in Debt and Equity Securities".

(E.)     Cash and Cash Equivalents

         Cash and cash  equivalents  are carried at cost and  represent  cash on
         hand, demand deposits placed with banks or other financial institutions
         and all highly liquid  investments  with an original  maturity of three
         months or less as of the purchase date of such investments.

(F.)     Accounts Receivable, Net

         Accounts receivable are recorded at the invoiced amount and do not bear
         interest.  The Company extends unsecured credit to its customers in the
         ordinary  course of business  but  mitigates  the  associated  risks by
         performing  credit checks and actively  pursuing past due accounts.  An
         allowance for doubtful  accounts is established and determined based on
         managements'  assessment of known  requirements,  aging of receivables,
         payment  history,  the customer's  current credit  worthiness,  and the
         economic environment.

(G.)     Inventories, Net

         Inventories  consist  primarily of books and are stated at the lower of
         cost or net realizable  value, with cost being determined on a weighted
         average basis. A majority of the inventories  carry the right of return
         to   publishers.   An  allowance  for   slow-moving   inventories   and
         obsolescence  is an  estimate  amount  based on an  analysis of current
         business and economic  risks,  the  duration of the  inventories  held,
         whether the  inventories  carry the right of return to  publishers  and
         other specific  identifiable  risks that may indicate a potential loss.
         The  allowance  is  reviewed  regularly  to ensure  that it  adequately
         provides for all reasonable expected losses.


                                      F-9


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


(H.)     Property, Plant, and Equipment, Net

         Property,  plant,  and  equipment  are stated at cost less  accumulated
         depreciation and accumulated impairment losses, if any. Depreciation is
         calculated  on the  straight-line  basis  over the  following  expected
         useful lives from the date on which they become fully operational.

               Asset Classification              Depreciable Life
               ____________________              ________________

               Land Use right                         50 years
               Buildings                              50 years
               Equipment and machinery               5-8 years
               Motor vehicles                       8-10 years
               Leasehold improvement                   2 years

         Expenditure for  maintenance  and repairs is expensed as incurred.  The
         gain or loss on the disposal of property,  plant,  and equipment is the
         difference  between the net sales  proceeds and the carrying  amount of
         the relevant assets and is recognized in the consolidated  statement of
         operations.

(I.)     National Distribution Right

         The national distribution right enables the Company, through its former
         subsidiary,  Xinhua C&D, to distribute  books and  publications  in all
         provinces in The PRC without the need to obtain  individual  provincial
         approval.  The intangible  asset is acquired as part of the acquisition
         of Xinhua  C&D at fair  value.  Management  expects  the right  will be
         renewed  indefinitely for nominal  periodic  renewal costs.  Hence, the
         fair value of the national distribution right is not amortized but will
         be evaluated  annually in  accordance  with SFAS No. 142  "Goodwill and
         Other  Intangible  Assets",  ("SFAS  142").  If facts or  circumstances
         suggest that the Company's intangible asset is impaired,  an impairment
         loss would be recognized in that period for the difference  between the
         carrying  value of the  intangible  asset and its estimated  fair value
         based on  discounted  net future  cash flows or quoted  market  prices.
         There have been no impairment losses recognized to date.

(J.)     Goodwill

         The Company's  goodwill is deemed to have an indefinite  life and is no
         longer amortized under SFAS No.142, but is subject to annual impairment
         tests. If facts or circumstances suggest that the Company's goodwill is
         impaired,  the  Company  assesses  the fair value of the  goodwill  and
         reduces it to an amount that results in book value  approximating  fair
         value.  Under SFAS 142,  goodwill  impairment is deemed to exist if the
         net book value of a reporting unit exceeds its estimated fair value.


                                      F-10


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


(K.)     Impairment of Long-life Assets

         In  accordance  with SFAS No. 121,  "Accounting  for the  impairment of
         Long-Lived  Assets  and for  Long-Lived  Assets to be  Disposed  of', a
         long-lived assets and certain  identifiable  intangible assets held and
         used by the Company are  reviewed  for  impairment  whenever  events or
         changes in circumstances  indicate that the carrying amount of an asset
         may  not  be   recoverable.   For  the  purposes  of   evaluating   the
         recoverability  of  long-lived  assets,  the  recoverability   test  is
         performed using  undiscounted  net cash flows related to the long-lived
         assets. The Company reviews long-lived assets, if any, to determine the
         carrying values are not impaired.

(L.)     Revenue Recognition

         Sales revenue is recognized when persuasive  evidence of an arrangement
         exists,  the price is fixed and final,  delivery has occurred and there
         is  reasonable  assurance  of  collection  of the sales  proceeds.  The
         Company  generally obtains purchase  authorizations  from its customers
         for a specified  amount of products at a specified  price and considers
         delivery to have  occurred  when the customer  takes  possession of the
         products.  The net sales  incorporate  offsets for  discounts and sales
         returns. Revenue is recognized upon delivery, risk and ownership of the
         title is  transferred  and a reserve for sales returns is recorded even
         though invoicing may not be completed. The Company has demonstrated the
         ability to make reasonable and reliable  estimates of products  returns
         in  accordance  with SFAS No. 48,  "Revenue  Recognition  When Right of
         Return Exists".

         Shipping and handling  fees billed to customers  are included in sales.
         Costs  related to shipping and  handling are part of selling,  general,
         and   administrative   expenses  in  the  consolidated   statements  of
         operations.  EITF No. 00-10, "Accounting for Shipping and Handling Fees
         and  Costs"  allows  for the  presentation  of  shipping  and  handling
         expenses in line items other than cost of sales.  For the quarter ended
         December 31, 2007,  there were no shipping and handling  costs included
         in selling,  general and  administrative  expenses in the  accompanying
         consolidated statements of operations.

(M.)     Cost of Sales

         Cost of sales includes  depreciation of property,  plant, and equipment
         and purchase costs to publishers.

(N.)     Value-Added Tax

         The Company is subject to value added tax ("VAT") imposed by the PRC on
         sales.  The output VAT is charged to customers who purchase  books from
         the Company and the input VAT is paid when the Company  purchases books
         from  publishers.  The VAT rate is 13%.  The  input  VAT can be  offset
         against the output VAT.


                                      F-11


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


(O.)     Advertising Expenses

         The Company expenses  advertising  costs as incurred in accordance with
         the  American  Institute  of  Certified  Public  Accountants  ("AICPA")
         Statement of Position 93-7,  "Reporting for Advertising Costs". For the
         year ended December 31, 2007, advertising expenses amount to zero.

(P.)     Comprehensive Income

         SFAS No. 130, "Reporting  Comprehensive Income",  establishes standards
         for reporting and display of comprehensive income, its components,  and
         accumulated  balances.  Comprehensive  income as defined  includes  all
         changes in equity during a period from non-owner  sources.  Accumulated
         comprehensive  income,  as presented in the  accompanying  statement of
         changes in owners' equity  consists of changes in unrealized  gains and
         losses on foreign currency  translation.  This comprehensive  income is
         not included in the computation of income tax expense or benefit.

(Q.)     Income Taxes

         The Company  accounts for income tax using SFAS No. 109 "Accounting for
         Income  Taxes",  which  requires the asset and  liability  approach for
         financial  accounting  and  reporting  for  income  taxes.  Under  this
         approach,  deferred income taxes are provided for the estimated  future
         tax effects  attributable to temporary  differences  between  financial
         statement   carrying  amounts  of  assets  and  liabilities  and  their
         respective  tax bases,  and for the expected  future tax benefits  from
         loss  carry-forwards  and provisions,  if any.  Deferred tax assets and
         liabilities  are measured  using the enacted tax rates  expected in the
         years of recovery or reversal and the effect from a change in tax rates
         is recognized in the statement of operations and  comprehensive  (loss)
         income in the period of enactment. A valuation allowance is provided to
         reduce  the amount of  deferred  tax  assets if it is  considered  more
         likely than not that some portion of, or all of the deferred tax assets
         will not be realized.

(R.)     Loss Per Share

         The Company  calculates loss per share in accordance with SFAS No. 128,
         "Earnings per Share".  Basic loss per share is computed by dividing the
         net loss by the  weighted-average  number of common shares outstanding.
         Diluted  loss per share is  computed  similar  to basic  loss per share
         except  that the  denominator  is  increased  to include  the number of
         additional  common  shares  that  would  have been  outstanding  if the
         potential  common  stock   equivalents  had  been  issued  and  if  the
         additional common shares were dilutive. The effect of outstanding stock
         options, stock purchase warrants and convertible debenture, which could
         result in the issuance of 54,638,890 shares of common stock at December
         31, 2007 is  anti-dilutive.  As a result,  diluted  loss per share data
         does not include the assumed  exercise 7f  outstanding  stock  options,
         stock purchase warrants, or conversion of convertible debenture and has
         been presented jointly with basic loss per share.


                                      F-12


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


(S.)     Foreign Currencies Translation

         The  functional  and  reporting  currency  of the Company is the United
         States  dollars  ("U.S.   dollars").   The  accompanying   consolidated
         financial   statements  have  been  expressed  in  U.S.  dollars.   The
         functional  currency  of  the  Company's  foreign  subsidiaries  is the
         Renminbi  Yuan ("RMB").  The balance  sheet is  translated  into United
         States  dollars  based on the rates of  exchange  ruling at the balance
         sheet date. The statement of operations is translated  using a weighted
         average rate for the year.  Translation  adjustments  are  reflected as
         cumulative translation adjustments in stockholders' equity.

             Exchange Rates                             12/31/2007     6/30/2007
             ______________                             __________     _________

             Period end RMB : US$ exchange rate           7.3141        7.6248
             Average period RMB : US$ exchange rate       7.5063        7.8160

(T.)     Segment Reporting

         SFAS No. 131  "Disclosures  about Segments of an Enterprise and Related
         Information"  establishes  standards  for reporting  information  about
         operating  segments on a basis  consistent with the Company's  internal
         organization structure as well as information about geographical areas,
         business  segments and major  customers in  financial  statements.  The
         Company operates in one principal reportable segment.

(U.)     Fair Value of Financial Instruments

         The  carrying  value  of the  Company's  financial  instruments,  which
         include cash and cash equivalents,  accounts receivables, other payable
         and  accrued  liabilities,  approximate  their  fair  values due to the
         short-term maturity of these instruments.

(V.)     Related Parties

         For the purposes of these financial statements,  parties are considered
         to be related if one party has the ability,  directly or indirectly, to
         control the party or exercise  significant  influence over the party in
         making financial and operating  decisions,  or vice versa, or where the
         Company  and  the  party  are  subject  to  common  control  or  common
         significant  influence.  Related  parties may be  individuals  or other
         entities.

(W.)     Equity-Based Compensation

         The  Company  adopts  SFAS  No.  123,   "Accounting   for   Stock-Based
         Compensation"  using  the  fair  value  method.

         The Company uses the Black-Scholes Option Pricing Model to estimate the
         fair value of options.


                                      F-13


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


         The Company has issued stock options to directors, officers, employees,
         and consultants.  As such, the Company records compensation expense for
         stock  options and awards only if the  exercise  price is less than the
         fair market value of the stock on the measurement date.

         No options  were granted  during the three  months  ended  December 31,
         2007.

(X.)     Convertible Debenture Issued with Stock Purchase Warrants

         The  Company  accounts  for the  issuance of and  modifications  to the
         convertible debt issued with stock purchase warrants in accordance with
         APB No. 14,  Accounting for Convertible Debt and Debt Issued with Stock
         Purchase   Warrants  ,  EITF  No.  98-5,   Accounting  for  Convertible
         Securities   with  Beneficial   Conversion   Features  or  Contingently
         Adjustable Conversion Ratios, and EITF No. 00-27,  Application of Issue
         No. 98-5 to Certain Convertible Instruments and SFAS No. 15, Accounting
         by Debtors and Creditors for Troubled Debt  Restructurings.


         Due to the indeterminate  number of shares, which might be issued under
         the  embedded   convertible  host  debt  conversion  feature  of  these
         debentures,  the Company is required to record a liability  relating to
         both the detachable  warrants and embedded  convertible  feature of the
         notes   payable   (included  in  the   liabilities   as  a  "derivative
         liability").

         The accompanying  consolidated financial statements comply with current
         requirements relating to warrants and embedded derivatives as described
         in SFAS 133 as follows: -

          o    The Company  treats the full fair market value of the  derivative
               and warrant liability on the convertible  secured debentures as a
               discount on the  debentures  (limited to their face  value).  The
               excess,  if any, is  recorded  as an  increase in the  derivative
               liability and warrant liability with a corresponding  increase in
               loss on adjustment  of the  derivative  and warrant  liability to
               fair value.

          o    Subsequent to the initial recording, the change in the fair value
               of the detachable  warrants,  determined under the  Black-Scholes
               option  pricing  formula  and the change in the fair value of the
               embedded derivative  (utilizing the Black-Scholes  option pricing
               formula) in the conversion feature of the convertible  debentures
               are recorded as  adjustments  to the  liabilities as of September
               30, 2006.

          o    The  expense  relating  to the  change  in the fair  value of the
               Company's  stock reflected in the change in the fair value of the
               warrants and  derivatives is included in interest  expense in the
               accompanying consolidated statements of operations.


                                      F-14


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


(Y.)     Recently Issued Accounting Standard

         In July 2006,  the FASB issued FIN 48,  Accounting  for  Uncertainty in
         Income  Taxes--an  Interpretation  of FASB  Statement  No.  109,  which
         clarifies  the  accounting  for  uncertainty  in  tax  positions.  This
         Interpretation requires that the Company recognizes in its consolidated
         financial  statements  the impact of a tax position if that position is
         more  likely  than  not of  being  sustained  on  audit,  based  on the
         technical  merits  of  the  position.  The  provisions  of  FIN  48 are
         effective  for the  Company on January  1,  2007,  with the  cumulative
         effect of the change in accounting  principle,  if any,  recorded as an
         adjustment to opening  retained  earnings.

         In September  2006, the FASB issued SFAS 157, Fair Value  Measurements,
         which defines fair value,  establishes  a framework for measuring  fair
         value  in  generally  accepted  accounting   principles,   and  expands
         disclosures about fair value measurements. SFAS 157 applies under other
         accounting   pronouncements   that   require   or  permit   fair  value
         measurements,  where fair value is the relevant measurement  attribute.
         The standard does not require any new fair value measurements. SFAS 157
         is effective for financial  statements issued for fiscal year beginning
         after November 15, 2007, and interim periods within those fiscal years.

         In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option
         for Financial Assets and Financial Liabilities - Including an Amendment
         of SFAS 115"  (SFAS No.  159),  which  allows for the option to measure
         financial instruments and certain other items at fair value. Unrealized
         gains and  losses on items for  which the fair  value  option  has been
         elected  are  reported in  earnings.  The  objective  of SFAS 159 is to
         provide  opportunities  to mitigate  volatility  in  reported  earnings
         caused by measuring related assets and liabilities  differently without
         having to apply hedge accounting provisions.  SFAS 159 also establishes
         presentation  and  disclosure   requirements   designed  to  facilitate
         comparisons   between  companies  that  choose  different   measurement
         attributes for similar types of assets and liabilities.  This statement
         is effective for financial statements issued for fiscal years beginning
         after November 15, 2007. The Company is currently evaluating the impact
         of SFAS No. 159 on our consolidated financial statements.

         The  Company  does  not  anticipate  that  the  adoption  of the  above
         standards will have a material impact on these  consolidated  financial
         statements.

3.       RECEIVABLE FROM A TRUSTEE

         On February 28, 2006, the Company entered an entrustment agreement (the
         "Agreement")   with   Asia-Durable   Investments   (Beijing)  Co.  Ltd.
         ("Asia-Durable"), a company incorporated in the PRC. In accordance with
         the Agreement, the Company agreed to entrust Asia-Durable on its behalf
         to invest,  set up,  hold,  and  administer  its  interest of a company
         registered  in the  PRC  (the  "Project  Company").  The  Company  also
         provided a sum of $1.5 million (RMB 12 million) to  Asia-Durable  being
         the investment capital of the Project Company in April 2006. The sum of
         $1.5 million is refundable at the Company's option within one year from


                                      F-15


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


         the date of the Agreement.  As of September 30, 2006, the effectiveness
         of the Project Company is subject to the approval of Chinese government
         to enter into co-publishing arrangements with foreign publishers.

         The balance is unsecured,  interest-free,  and repayable  within twelve
         months.  Eventually  this  account  proves  to be  irrecoverable  after
         pursuing  collection.  An allowance for loss of $1,500,000 was provided
         in the financial statements of December 31, 2007.

4.       NOTE RECEIVABLE

         The amount  represents the sales proceeds  receivable from the disposal
         of Boheng.  Pursuant to the Disposal Agreement,  the sales proceeds are
         receivable  in 5  installments  and are due in full, no later than July
         31, 2008.

         SCHEDULED RECEIPT DATE           APPROXIMATELY     EQUAL TO RMB

         March 10, 2007                    $   250,000       2,000,000
         September 30, 2007                    375,000       3,000,000
         October 31, 2007                      375,000       3,000,000
         January 31, 2008                      250,000       2,000,000
         July 31, 2008                         625,000       5,000,000
                                           ___________      __________

         Total                             $ 1,875,000      15,000,000
         Less: Paid                           (250,000)     (2,000,000)
         ____                              ___________      __________

         Balance at December 31, 2007      $ 1,625,000      13,000,000
                                           ___________      __________

         The schedule  payments of $375,000  and $375,000 on September  30, 2007
         and October 31, 2007 were still unpaid  through  December 31, 2007. The
         balance is unsecured  and  interest-free.  The Company  calculated  the
         imputed  interest  income of $87,195 at the current  effective  rate of
         4.82% per annum and reduced from the gain on disposal of a  subsidiary.
         The amount is recognized  as deferred  revenue and will be amortized as
         interest income over the terms of repayment period.

5.       PROPERTY, PLANT, AND EQUIPMENT, NET

         Property, plant, and equipment consist of the following: -

                                           12/31/2007        6/30/2007
         Land Use Right                     $      -          $      -
         Buildings                                 -                 -
         Equipment and machinery              37,072            38,928
         Motor vehicles                       57,403                 -
         Leasehold Improvement                     -                 -
                                            ________          ________
                                              94,475            38,928
         Less: Accumulated Depreciation       25,904            24,834
         ____                               ________          ________
                                            $ 68,571          $ 14,094
                                            ========          ========

         Depreciation  expense for the quarter  ended  December  31,  2007,  was
         $2,554.


                                      F-16


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


6.       LOANS PAYABLE/CONVERTIBLE DEBENTURE

         On  November  23,  2005,  the  Company  entered  into a debt  financing
         agreement (the  "Agreement")  with an  institutional  investor,  and on
         March 23, 2006,  the  Agreement  was modified to include an  additional
         institutional   investor,   who  is  an   affiliate   of  the  original
         institutional  investor  (both  institutional   investors  collectively
         referred to as "the Investors"). The Investors committed to purchase up
         to $4,000,000 of a secured convertible debenture ("the debenture") that
         shall be convertible into shares of the Company's common stock.

         After two closings on December 13, 2005 and March 23, 2006, the Company
         received gross proceeds of $3,250,000 (net proceeds $2,989,460) for the
         secured  convertible  debenture.   The  Company  and  debenture-holders
         entered into a  Forbearance  and  Settlement  Agreement on December 29,
         2006 because of default in debt service,  whereby the Company agreed to
         make cash  payment  and to grant  rights to the  creditors  to cashless
         purchase  the  Company's  common  stock by  exercising  the  warrant at
         200,000  shares in every three month  period  beginning on December 29,
         2006 according to the following payment plan:

                                                           CONVERSION OF
         PAYMENT DATE                  CASH PAYMENT          DEBENTURE

         March 10, 2007                $   250,000            250,000
         September 30, 2007                375,000            375,000
         October 31, 2007                  375,000            375,000
         January 31, 2008                  250,000            250,000
         July 31, 2008                     625,000            625,000
                                       ___________          _________
                                       $ 1,875,000          1,875,000
                                       ===========          =========

         As of December 31, 2007,  the Company paid $250,000 for the payment due
         March 10, 2007 and the creditors  exercised  100,000 shares and 125,000
         shares on March 1, 2007 and April 18, 2007 respectively

         Loans Payable  outstanding as of December 31, 2007 amount to $3,070,904
         of which  $2,012,643 and $1,058,261  attributed to current  portion and
         long-term respectively.

7.       LOANS FROM SHAREHOLDERS

         The outstanding  amounts  represent cash advanced from  shareholders of
         the Company.

         These  shareholders'  loans are unsecured and not repayable  within the
         next twelve months.  For the quarter ended December 31, 2007, there was
         $116,370 imputed interest, at 6.00% per annum, recorded.

8. INCOME TAX

         The  Company is subject to US taxes at 35%.  Pac-Poly  is a BVI company
         and is not subject to income  taxes.  Xinhua C&D and Boheng are subject
         to income  taxes in The PRC.  Pursuant to the PRC Income Tax Laws,  the
         subsidiaries are generally  subject to enterprise income tax ("EIT") at
         a statutory  rate of 33% (30% national  income tax plus 3% local income
         tax).


                                      F-17


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


         Neither the Company nor its subsidiaries had any assessable  income for
         the period and so neither  provision  nor benefit for EIT was  recorded
         for the quarter ended December 31, 2007.

         Subject to the approval of the relevant  tax  authorities,  the Company
         had tax losses carry-forward against future years' taxable income.

         As of December 31, 2007,  valuation  allowance of $873,110 was provided
         to the deferred  tax assets due to the  uncertainty  surrounding  their
         realization.

9.       CHINA CONTRIBUTION PLAN

         Full-time  employees  of the  Company  are  entitled  to staff  welfare
         benefits  including  medical  care,  welfare  subsidies,   unemployment
         insurance  and  pension  benefits  through a China  government-mandated
         multi-employer  defined  contribution  plan. The Company is required to
         pay for these benefits  based on certain  percentages of the employees'
         salaries.  The total contributions made for such employee benefits were
         $ 6,072 for the quarter ended December 31, 2007.

10.      STATUTORY RESERVES

         The  Company is  required to make  appropriations  to  reserves  funds,
         comprising the statutory surplus reserve, statutory public welfare fund
         and  discretionary  surplus  reserve,  based on  after-tax  net  income
         determined in accordance with generally accepted accounting  principles
         of the People's  Republic of China (the "PRC GAAP").  Appropriation  to
         the statutory  surplus  reserve should be at least 10% of the after-tax
         net income determined in accordance with the PRC GAAP until the reserve
         is equal to 50% of the Company's  registered capital.  Appropriation to
         the  statutory  public  welfare fund is 10% of the after-tax net income
         determined  in  accordance  with the PRC  GAAP.  Appropriations  to the
         discretionary  surplus  reserve are made at the discretion of the Board
         of Directors.  The statutory  public  welfare fund is  established  for
         providing  employee  facilities  and other  collective  benefits to the
         employees  and is  non-distributable  other  than in  liquidation.  The
         Company made no appropriations to the statutory reserve,  as it did not
         have a pre-tax profit.

11.      CONCENTRATION OF RISK

         (A.) Major Customers and Vendors

         100% of the Company's  revenues were derived from customers  located in
         the PRC, and there are no customers  and vendors who account for 10% or
         more of revenues and purchases. The Company's assets are all located in
         the PRC.

         (B.) Credit Risk

         There are no concentrations  of credit risk because the Company,  while
         in  operation,  entered  into  large  number of cash sale  transactions
         without deploying financial instruments, which may potentially drive to
         significant concentrations.


                                      F-18


<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2007
                             (STATED IN US DOLLARS)


12.      COMMITMENT AND CONTINGENCIES

         The Company leases an office premise under a  non-cancelable  operating
         lease.  The cost  incurred  under this  operating  lease is recorded as
         rental  expense and totaled  $17,258 for the quarter ended December 31,
         2007.  Future  minimum  rental  payments  due  under  a  non-cancelable
         operating lease until termination at December 31, 2009 are $112,310.

























                                      F-19



<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

BUSINESS DEVELOPMENT

Xinhua  China Ltd.  was  incorporated  September  14, 1999 under the laws of the
State of Nevada as Camden Mines Limited ("Camden").  On October 12, 2004, Camden
changed its name from  "Camden  Mines  Limited" to its  current  corporate  name
"Xinhua China Ltd." The change in corporate name reflected our  anticipation  of
acquiring an interest in the Chinese book distribution giant" Xinhua Circulation
& Distribution ("Xinhua C&D").

As of the date of this Quarterly Report, we are a company establishing ourselves
as a leader in the digital media industry. As discussed below, we have refocused
our strategic business operation plans to maximize our strategic position in the
publishing  industry.  Please note that  throughout this Quarterly  Report,  and
unless  otherwise  noted, the words "we," "our," "us," or the "Company" refer to
Xinhua China Ltd.

SUBSIDIARIES

         PAC-POLY INVESTMENTS LIMITED

As of the date of this  Quarterly  Report,  we hold of record  100% of the total
issued and  outstanding  shares of Pac-Poly  Investments  Limited  ("Pac-Poly"),
which is our wholly-owned subsidiary. Pac-Poly is an investment holding company.
We maintain a 7.98% effective interest in Xinhua C&D through Pac-Poly.

         BEIJING JOANNES INFORMATION TECHNOLOGY CO. LT.

On May 9,  2006,  we formed  Beijing  Joannes  Information  Technology  Co.  Lt.
("Beijing Joannes"), as our Chinese wholly owned subsidiary, to launch a digital
media  content  initiative.  We held of  record  100% of the  total  issued  and
outstanding  shares of  Beijing  Joannes.  Beijing  Joannes  was  formed for the
purpose  of  launching  a digital  media  content  initiative  with the web site
branded  www.geepip.com.  The business focus is building online communities with
connectivity  to an ecommerce  engine,  which allows for the online  purchase of
e-books,  e-audio, and computer games. Hard copies of books can also be purchase
through the portal. A unique customer loyalty program and digital  redemption or
trade-in   strategy  will  be  a  market   differentiator.   Subsequent  to  the
deconsolidation of Xinhua C&D as discussed below, we have commenced the internet
book distribution business through Beijing Joannes.


                                      -7-


<PAGE>


RECENT BUSINESS OPERATIONS

DIVESTURE OF  INTEREST IN XINHUA CIRCULATION & DISTIRBUTION

Pursuant to the terms and provisions of an investment agreement (the "Investment
Agreement")  among our two  subsidiaries  Pac-Poly and Beijing Boheng and Xinhua
Bookstore  (Main Store) ("Xinhua  Bookstore"),  we acquired a 57.67% interest in
the publication  distribution business in the People's Republic of China. Xinhua
Bookstore transferred the publication  distribution business into a newly formed
Chinese company called Xinhua Circulation & Distribution  ("Xinhua C&D"). Xinhua
C&D is presently primarily a book distribution  enterprise.  As of May 31, 2006,
we reduced  our  ownership  interest in Xinhua C&D to 7.98%.  We had  originally
intended to help guide  Xinhua C&D through the  modernization  and growth of its
systems and  distribution  strategies.  Realizing  the large  investment in real
estate,  equipment,  fixed  assets  requirements  to achieve  modernization  and
growth,  as well as the  shifting  of reading  habits to a digital  format and a
dynamic  and  growing  digital  youth  (age  12-25)  comprising  over 50% of the
population, our management, after very careful consideration,  effective May 31,
2006,  revised  our  business  focus  to  instead  concentrate  on  the  growing
opportunity in online content  distribution,  co-publishing,  and digital rights
management.  While  executing  this  strategy,  we will continue to maximize our
strategic  position in the publishing  industry by utilizing the connections and
channels  we have  established  as a result of our  interest in Xinhua C&D. As a
result of the decision to focus on digital media and co-publishing, we were able
to  renegotiate  our  financial  commitment  to  Xinhua  C&D and  eliminate  the
requirement to invest a further  $16,700,000  into Xinhua C&D to build their new
distribution warehouse along with all other obligations related to the long term
leasing  of  approximately  128 acres of land on which the  warehouse  was to be
built. This change reduced our equity interest in Xinhua C&D to 7.98%.

RESULTS OF OPERATION
The  summarized  consolidated  financial  data set forth in the tables below and
discussed in this section  should be read in conjunction  with our  consolidated
financial  statements and related notes for the six-month  period ended December
31, 2007 and 2006,  which  financial  statements are included  elsewhere in this
Quarterly Report.

___________________________________________________________________________

                                   FOR QUARTER ENDED     FOR QUARTER ENDED
                                   DECEMBER 31, 2007     DECEMBER 31, 2006
                                      (UNAUDITED)           (UNAUDITED)
___________________________________________________________________________

Net Sales                                   $-0-             $152,655
___________________________________________________________________________
Loss from Operations                    (170,754)            (867,130)
___________________________________________________________________________
Loss from Operations per Share             (0.01)                0.03
___________________________________________________________________________
Total Assets                           2,176,292            2,028,259
                                                           (as of 06/30/07)
___________________________________________________________________________
Total Liabilities                      8,903,724            8,692,968
                                                         (as of 06/30/07)
___________________________________________________________________________


                                      -8-


<PAGE>


RESULTS OF OPERATION

FOR SIX-MONTH  PERIOD ENDED DECEMBER 31, 2007 COMPARED TO SIX-MONTH PERIOD ENDED
DECEMBER 31, 2006.

         REVENUES AND GROSS MARGIN

We had net  sales of $-0- for the  six-month  period  ended  December  31,  2007
compared to net sales of $152,655 for the  six-month  period ended  December 31,
2006,  before taking into account cost of sales of $144,386,  resulting is gross
profit of $8,269. Net sales decreased  substantially due to the divesture of our
interest in Xinhua C& D.

         COST OF SALES

Our cost of sales for the  six-month  period  ended  December  31, 2007 was $-0-
compared to cost of sales of $144,386 for the  six-month  period ended  December
31,  2006.  Cost of  sales  consisted  of  purchased  costs  to  publishers  and
depreciation  of  property,  plant  and  equipment.   Cost  of  sales  decreased
proportionately  with the  decrease in  revenues  to $-0-  during the  six-month
period ended December 31, 2007 compared with the six-month period ended December
31, 2006 due to the divesture of our interest in Xinhua C&D.

         OPERATING EXPENSES

Our total  operating  expenses  were  $170,754  for the  six-month  period ended
December  31, 2007 as compared to total  operating  expenses of $875,399 for the
six-month  period ended  December 31, 2006.  The decrease in operating  expenses
during the  six-month  period ended  December 31, 2007 as compared  December 31,
2006 was due to the corresponding decrease in net revenues. Selling, general and
administrative expenses decreased based on a substantial decrease in stock-based
compensation.  Stock-based  compensation  decreased  from  $135,480  during  the
six-month  period ended  December 31, 2006 to $-0- during the  six-month  period
ended December 31, 2007. Stock-based compensation expense is attributable to the
valuation  of our Stock  Option Plan under the fair value  method in  accordance
with SFAS No. 123. Selling,  general and administrative  expenses decreased from
$739,919 during the six-month  period ended December 31, 2006 to $170,754 during
the six-month  period ended December 31, 2007. This primarily  resulted from the
decrease of fees to our  consultants and  professionals  in relation to our fund
raising and issuance of convertible  debentures primarily to Cornell Capital LLC
and other legal and financial matters.

         INTEREST

We incurred  $229,750 in interest  expense  during the  six-month  period  ended
December 31, 2007 as compared to $859,802  incurred as interest  expense  during
the  six-month  period  ended  December  31,  2006.  Interest  expense  incurred
consisted primarily of interest charged on loans from related parties.

         OTHER INCOME

We earned interest income of $13,800 during the six-month  period ended December
31,  2007 as compared to  interest  income of $477 during the  six-month  period
ended  December 31, 2006. We,  however,  recognized a gain of $1,275,132 on debt


                                      -9-


<PAGE>


restructuring  and a gain of $2,155,519  on disposal of a subsidiary  during the
six-month  period ended  December 31, 2006 compared to a gain of $-0- during the
six-month period ended December 31, 2007.

Thus,  we  incurred a net loss of  ($386,704)  for the  six-month  period  ended
December  31, 2007  compared  to a net gain of  $1,704,196  incurred  during the
six-month  period ended December 31, 2006.  This difference  resulted  primarily
from recognition of the gains on debt  restructuring  and disposal of subsidiary
during the six-month period ended December 31, 2006.

FOR  THREE-MONTH  PERIOD ENDED DECEMBER 31, 2007 COMPARED TO THREE-MONTH  PERIOD
ENDED DECEMBER 31, 2006.

         REVENUES AND GROSS MARGIN

We had net sales of $-0- for the  three-month  period  ended  December  31, 2007
compared to net sales of $102,435 for the three-month  period ended December 31,
2006,  before  taking into account cost of sales of $98,937,  resulting is gross
profit of $3,498. Net sales decreased  substantially due to the divesture of our
interest in Xinhua C& D.

         COST OF SALES

Our cost of sales for the  three-month  period ended  December 31, 2007 was $-0-
compared to cost of sales of $98,937 for the  three-month  period ended December
31, 2006. Cost of sales decreased  proportionately with the decrease in revenues
to $-0- during the three-month  period ended December 31, 2007 compared with the
three-month  period ended December 31, 2006 due to the divesture of our interest
in Xinhua C&D.

         OPERATING EXPENSES

Our total  operating  expenses  were  $90,720 for the  three-month  period ended
December  31, 2007 as compared to total  operating  expenses of $345,303 for the
three-month  period ended December 31, 2006. The decrease in operating  expenses
during the three-month  period ended December 31, 2007 as compared  December 31,
2006 was due to the corresponding decrease in net revenues. Selling, general and
administrative expenses decreased based on a substantial decrease in stock-based
compensation.   Stock-based  compensation  decreased  from  $66,815  during  the
three-month period ended December 31, 2006 to $-0- during the three-month period
ended December 31, 2007. Selling,  general and administrative expenses decreased
from $278,488 during the  three-month  period ended December 31, 2006 to $90,720
during the three-month  period ended December 31, 2007. This primarily  resulted
from the decrease of fees to our  consultants and  professionals  in relation to
our fund raising and  issuance of  convertible  debentures  primarily to Cornell
Capital LLC and other legal and financial matters.

         INTEREST

We incurred  $146,507 in interest  expense during the  three-month  period ended
December 31, 2007 as compared to $88,725 incurred as interest expense during the
three-month period ended December 31, 2006.  Interest expense incurred consisted
primarily of interest charged on loans from related parties.


                                      -10-


<PAGE>


         OTHER INCOME

We earned  interest  income of  $13,789  during  the  three-month  period  ended
December 31, 2007 as compared to interest  income of $-0- during the three-month
period ended December 31, 2006. We, however,  recognized a gain of $1,275,132 on
debt  restructuring  and a gain of $2,155,519 on disposal of a subsidiary during
the three-month period ended December 31, 2006 compared to a gain of $-0- during
the three-month period ended December 31, 2007.

Thus,  we incurred a net loss of  ($225,170)  for the  three-month  period ended
December  31, 2007  compared  to a net gain of  $3,000,121  incurred  during the
three-month  period ended December 31, 2006. This difference  resulted primarily
from recognition of the gains on debt  restructuring  and disposal of subsidiary
during the three-month period ended December 31, 2006.

LIQUIDITY AND CAPITAL RESOURCES

SIX-MONTH PERIOD ENDED DECEMBER 31, 2007

Our financial  statements have been prepared assuming that we will continue as a
going  concern  and,  accordingly,  do not include  adjustments  relating to the
recoverability  and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation.

As at the  six-month  period ended  December 31, 2007,  our current  assets were
$2,107,721 and our current  liabilities were $2,903,245,  resulting in a working
capital deficit of $795,524. As at the six-month period ended December 31, 2007,
current assets were comprised of: (i) $20,009 in cash and cash equivalents; (ii)
$252,980 in net accounts  receivable;  (iii) $1,625,000 in note receivable;  and
(iv)  $209,732  in  other  receivables  and  prepayments.  The  note  receivable
represents the sales  proceeds of  $1,875,000,  of which $250,000 has been paid,
from the disposal of Beijing Boheng in accordance  with the terms and provisions
of  the  disposal   agreement.   The  sales  proceeds  are  receivable  in  five
installments  and are due in  full  no  later  than  July  31,  2008.  As at the
six-month period ended December 31, 2007, our current liabilities were comprised
of: (i) $844,710 in accounts payable and accrued liabilities; (ii) $2,012,643 in
current portion of loans payable; and (iii) $45,892 in deferred revenue. See " -
Material Commitments."

As at the  six-month  period  ended  December  31,  2007,  our total assets were
$2,176,292  comprised of: (i) $2,107,721 in current assets;  and (ii) $68,571 in
net property,  plant and equipment.  The slight  increase in total assets during
the  six-month  period  ended  December 31, 2007 from fiscal year ended June 30,
2007 was primarily due to the note receivable.

As at the six-month  period ended December 31, 2007, our total  liabilities were
$8,903,724 comprised of: (i) $2,903,245 in current liabilities;  (ii) $1,058,261
in loans payable;  and (iii) $4,942,218 in loans from  shareholders.  The slight


                                      -11-


<PAGE>


increase in total  liabilities  during the six-month  period ended  December 31,
2007 from fiscal year ended June 30, 2007 was  primarily  due to the increase in
accounts payable and accrued liabilities.

Stockholders'   deficit  increased  from  ($6,664,709)  for  June  30,  2007  to
($6,727,432) for December 31, 2007.

         OPERATING ACTIVITIES

We have not generated  positive cash flows from  operating  activities.  For the
six-month  period  ended  December  31,  2007,  net cash flow used in  operating
activities was ($46,781).  Net cash flow used in operating activities during the
six-month  period ended December 31, 2007  consisted  primarily of a net loss of
($310,450)  adjusted  by  $199,659  in  imputed  interest  expense,   $2,554  in
depreciation and $13,768 in amortization of deferred imputed expense. Changes in
assets  and  liabilities   consisted  of  an  increase  of  $67,734  in  account
receivable,   $27,535  in  deferred  revenue   inventory  and  $8,546  in  other
receivables and  prepayments and a decrease of $151,503 in accounts  payable and
accrued liabilities.

         INVESTING ACTIVITIES

During the  six-month  period ended  December  31,  2007,  net cash flow used in
investing  activities  was  $57,031  compared  to net cash flow  from  investing
activities of $241,431 for the  six-month  period ended  December 31, 2006.  Net
cash flow  used in  investing  activities  during  the  six-month  period  ended
December 31, 2007 was  primarily  the result of $57,031 in purchase of plant and
equipment  compared  to  $252,982  in  deposits  received  from  disposal of the
subsidiary  and  $11,551  used in  purchase  of plant and  equipment  during the
six-month period ended December 31, 2006.

         FINANCING ACTIVITIES

During the six-month  period ended  December 31, 2007, net cash flow provided by
financing activities was $86.788 compared to net cash flow provided by financing
activities of $675,702 for the  six-month  period ended  December 31, 2006.  Net
cash flow from financing  activities  during the six-month period ended December
31, 2007  pertained  primarily  to $86,788  received as proceeds  from loan from
shareholders   compared  to  $675,702   received  as  proceeds  from  loan  from
shareholders during the six-month period ended December 31, 2006.

PLAN OF OPERATION

The local and  regional  distribution  business  for  books is  competitive  and
fragmented in the People's  Republic of 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.

Our goal is to expand our  business to include  electronic  sales,  delivery and
distribution of media contents.  We also plan to partner with foreign publishers
to provide  foreign  media  contents in China.  We seek to achieve our goal on a
national  scale to  maximize  opportunities  in one of the  largest  and fastest
growing economies in the world.


                                      -12-


<PAGE>


To execute on our strategy to become a digital  media  company we formed our new
subsidiary, Beijing Joannes. Beijing Joannes is intended to be our digital media
company and it is expected to distribute all digital  content for Xinhua C&D and
others.  Beijing  Joannes has  anticipated in operating its business to consumer
(B2C)  e-commerce  portal as  www.geezip.com,  and expects to allow customers to
purchase electronic and hard copies of books on-line.

We expect  to also  establish  a  co-publishing  company  which  anticipates  on
co-publishing  agreements with both domestic and foreign publishers,  publishing
both hard copy and digital works.

Existing  working  capital,  further  advances  and possible  debt  instruments,
warrant exercises, further private placements,  monetization of existing assets,
and  anticipated  cash flow are  expected to be adequate to fund our  operations
over the next two  months.  We have no lines of credit or other  bank  financing
arrangements.  Generally,  we  have  financed  operations  to date  through  the
proceeds of the private  placement of equity and debt  securities and loans from
our  shareholders.  In connection with our business plan,  management will delay
additional increases in operating expenses and capital  expenditures.  We intend
to utilize our best  efforts to settle  current  finance  accounts  payables and
liabilities  with  further  issuances  of  securities,  debt  and  or  advances,
monetization of existing assets,  and revenues from operations.  We will need to
raise  additional  capital  and  increase  revenues  to meet both short term and
long-term operating requirements.

We have undertaken certain actions and continue to implement changes designed to
improve our financial  results and  operating  cash flows.  The actions  involve
certain  cost-saving   initiatives  and  growing  strategies,   including:   (i)
reductions in headcounts and corporate overhead  expenses;  and (ii) continue to
develop  e-commerce  business  through  Beijing  Joannes.  We believe that these
actions  will  enable us to improve  future  profitability  and cash flow in our
continuing  operations  through June 30, 2008.  Furthermore,  the  commitment to
contribute  further  capital of $16,700,000 to Xinhua C&D and the restructure of
debt  pertaining  to Cornell  and  Highgate  has been  advantageous  to our over
financial  outlook.  Ultimately,  we have  released  the burden on cash flow for
further  contribution  and  intend to put our  resources  in  co-publishing  and
e-commerce business opportunities.

The report of the independent registered public accounting firm that accompanies
our June 30, 2007 and June 30, 2006 consolidated  financial  statements contains
an  explanatory  paragraph  expressing  substantial  doubt  about our ability to
continue as a going concern.  The  consolidated  financial  statements have been
prepared "assuming that we will continue as a going concern," which contemplates
that we will realize our assets and satisfy our  liabilities  and commitments in
the ordinary course of business.


                                      -13-


<PAGE>


MATERIAL COMMITMENTS

LOANS PAYABLE/CONVERTIBLE DEBENTURE

During  2007/8,  a material  commitment  for us relates to the  Forbearance  and
Settlement  Agreement  with  Cornell and  Highgate.  On December  29,  2006,  we
completed the debt restructuring with Cornell and Highgate under the Forbearance
and Settlement Agreement.  Pursuant to the Forbearance and Settlement Agreement,
we agreed to make certain  payments to Cornell and Highgate  with respect to the
Securities  Purchase  Agreement  previously  entered into by us with Cornell and
Highgate  dated  November  23, 2005 and amended on March 23,  2006,  and the two
convertible  debentures in the amounts of $1,250,000 to Highgate  dated November
23, 2005 and  $2,000,000  to Cornell  dated March 23,  2006  (collectively,  the
"Convertible  Debentures") in accordance with the terms and conditions set forth
in the Forbearance and Settlement Agreement.

In further accordance with the Forbearance and Settlement  Agreement,  we agreed
to use the proceeds  from the disposal of Beijing  Boheng to repay the principal
and interest due to Cornell and Highgate  under the  Convertible  Debentures  in
exchange  for the  agreement of Cornell and Highgate to: (i) waive on a one-time
basis only any accrued liquidated damages owing to Cornell and Highgate; (ii) no
application  of the  redemption  premium  on  the  scheduled  repayments;  (iii)
conversion  of the  Convertible  Debentures  in an amount  equal to at least the
amount  of  a  scheduled  repayment  subject  to  certain  conditions;  (iv)  no
additional  liquidated  damages  accruing during the term of the Forbearance and
Settlement Agreement;  (v) permitting us to withdraw the registration  statement
filed on  March  28,  2006  with  the  Securities  and  Exchange  Commission  in
connection  with  the  Convertible  Debentures;  (vi)  during  the  term  of the
Forbearance and Settlement Agreement,  waiving the requirement for us to receive
written  consent of  Cornell  and  Highgate  for any  organizational  change (as
defined in the  Securities  Purchase  Agreement)  to be directly  or  indirectly
consummated by us, and that we will not effectuate any stock splits for at least
nine months without the consent of Cornell and Highgate;  and (vii)  terminating
the provisions  for security  shares as set forth in Section 9 of the Securities
Purchase  Agreement  and in Section 2 of the transfer  agent  instructions  upon
receipt by Cornell and Highgate of the first scheduled repayment amount.

The payment plan under the Forbearance and Settlement Agreement is as follows:

                                                                Conversion of
         Payment Date              Cash Payment                   Debenture
         ________________          ____________                 _____________
         March 10, 2007             $  250,000                     250,000
         June 30, 2007                 375,000                     375,000
         October 31, 2007              375,000                     375,000
         January 31, 2008              250,000                     250,000
         July 31, 2008                 625,000                     625,000
                                    __________                   _________
                                    $1,875,000                   1,875,000
                                    ==========                   =========

As of December 31, 2007, we paid $250,000 for the payment due March 10, 2007 and
issued 100,000 shares of our common stock on March 1, 2007 and 125,000 shares on
April 18,  2007,  respectively,  pursuant  to  exercise  rights.  The  scheduled
payments  of  $375,000  due  on  September   30,  2007  and  October  31,  2007,
respectively,  have remained  unpaid as of December 31, 2007. We have calculated
imputed  interest  income of $87,195  and  reduced  from the gain on disposal of
subsidiary.


                                      -14-


<PAGE>


LOANS FROM SHAREHOLDERS

During  fiscal year 2007/8,  a material  commitment  for us relates to the loans
from shareholders. The outstanding amount of $4,942,218 represents cash advanced
to  us  from  our   shareholders.   These   shareholder   loans  are  unsecured,
interest-free and not repayable within the next twelve months. For the six-month
period ended  December 31,  2007,  we  calculated  imputed  interest  expense of
$116,370  in  relation  to  interest-free  shareholders  loans at its  effective
interest rate and accounted for it in the consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial  position,
results of  operations or cash flows due to adverse  change in foreign  currency
and  interest  rates.

EXCHANGE  RATE

Our reporting  currency 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 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 us.

INTEREST RATE

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 People's  Republic of China'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 impact on our operating and financing activities.

We have not entered into derivative  contracts either to hedge existing risks or
for  speculative  purposes.

ITEM 4. CONTROLS AND  PROCEDURES

An evaluation was conducted under the supervision and with the  participation of
our management, including our Chief Executive Officer/Chief Financial Officer of
the  effectiveness  of the design and operation of our  disclosure  controls and


                                      -15-


<PAGE>


procedures  as of  December  31,  2007.  Based  on that  evaluation,  our  Chief
Executive Officer/Chief Financial Officer concluded that our disclosure controls
and  procedures  were  effective  as of such  date to  ensure  that  information
required  to be  disclosed  in the  reports  that we file or  submit  under  the
Exchange Act, is recorded,  processed,  summarized and reported  within the time
periods  specified in SEC rules and forms.  Such  officers also  confirmed  that
there was no change in our internal control over financial  reporting during the
six-month  period ended  December 31, 2007 that has materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

ITEM 4T. CONTROLS AND PROCEDURES

Not applicable.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDING

Management  is  not  aware  of  any  legal   proceedings   contemplated  by  any
governmental  authority or any other party involving us or our properties.  None
of our  directors,  officers or affiliates  are (i) a party adverse to us in any
legal  proceedings,  or  (ii)  has  an  adverse  interest  to  us in  any  legal
proceedings.  Management is not aware of any other legal proceedings  pending or
that have been threatened against us or our properties.

ITEM 1A. RISK FACTORS

An investment in our common stock involves a number of very  significant  risks.
You should carefully  consider the following risks and uncertainties in addition
to other  information  in this  prospectus  in  evaluating  our  company and its
business before purchasing  shares of our common stock. Our business,  operating
results and  financial  condition  could be  seriously  harmed due to any of the
following risks. The risks described below are all of the material risks that we
are  currently  aware of that are  facing  our  company.  Additional  risks  not
presently  known to us may also impair our business  operations.  You could lose
all or part of your investment due to any of these risks.

WE HAVE  INCURRED  LOSSES AND  SUBSTANTIAL  DOUBT  EXISTS  ABOUT OUR  ABILITY TO
CONTINUE AS A GOING CONCERN.

We have a history of operating losses,  expect to continue to incur losses,  and
may never be  profitable.  We have  incurred  a net loss of  ($386,704)  for the
six-month  period ended December 31, 2007. We had a working  capital  deficit of
($795,524) and  shareholders'  deficit of  ($6,727,432) as of December 31, 2007.
These factors raise  substantial  doubt about our ability to continue as a going
concern.  The  auditors'  report in our  financial  statements as at fiscal year
ended June 30, 2007 includes an  explanatory  paragraph that states that we have
generated  net losses  and have a  shareholders'  deficit  factors  which  raise
substantial doubt about our ability to continue as a going concern. We have been
dependent on sales of our equity  securities and debt financing to meet our cash
requirements.  Further,  we do not expect  positive cash flow from operations in
the near term.  There is no  assurance  that actual cash  requirements  will not
exceed our estimates.  In particular,  additional capital may be required in the


                                      -16-


<PAGE>


event that:  (i) operating  costs may be more than we currently  anticipate;  or
(ii) we encounter  greater  costs  associated  with  general and  administrative
expenses or offering costs.

WE ARE OPERATING IN A DEVELOPING  MARKET AND THERE IS  UNCERTAINTY  AS TO MARKET
ACCEPTANCE OUR TECHNOLOGY AND PRODUCTS.

We researched the markets for our products involving the digital media industry.
We have  conducted  limited  test  marketing  and thus  have  relatively  little
information on which to estimate our levels of sales,  the amount of revenue our
planned operations will generate and our operating and other expenses. There can
be no assurance that we will be successful in our efforts to market our products
or to develop our markets in the manner we contemplate  within the digital media
industry.

The markets for our products and technology are developing and rapidly  evolving
and are  characterized  by an  increasing  number  of market  entrants  who have
developed  or are  developing a wide  variety of products  and  technologies,  a
number of which offer certain of the features that our products  offer.  Because
of these factors, demand and market acceptance for new products are subject to a
high level of  uncertainty.  There can be no assurance  that our  technology and
products will become widely  accepted.  It is also difficult to predict with any
assurance  the  future  growth  rate,  if  any,  and  size of the  market.  If a
substantial  market  fails to develop,  develops  more  slowly than  expected or
becomes  saturated  with  competitors  or if our products do not achieve  market
acceptance,  our business,  operating  results and financial  condition  will be
materially and adversely affected.

OUR DIGITAL MEDIA INDUSTRY AND MARKET IS CHARACTERISED BY NEW ENTRANTS AND RAPID
TECHNOLOGICAL CHANGE.

The digital  media  industry  and market for our  products is  characterized  by
rapidly changing technology and frequent new product introductions.  Our success
will depend in part on our ability to enhance our  technologies and products and
to  introduce  new  products  and   technologies   to  meet  changing   customer
requirements.  We are  currently  devoting,  and intend to  continue  to devote,
significant  resources  toward the  development of digital media  technology and
products.  There can be no  assurance  that we will  successfully  complete  the
development of these  technologies  and related  products in a timely fashion or
that our current or future  products will satisfy the needs of the digital media
industry.  There  can also be no  assurance  that  digital  media  products  and
technologies  developed  by others  will not  adversely  affect our  competitive
position or render our products or technologies non-competitive or obsolete.

IF WE ARE UNABLE TO COMPETE IN THE  DIGITAL  MEDIA  MARKET,  YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT.

The  digital  media  market is highly  competitive  and highly  fragmented.  Our
competitors may have substantially greater financial, technological,  marketing,
personnel and research and development  resources than we currently have.  There
are direct  competitors who have  competitive  technology and products.  Many of


                                      -17-


<PAGE>


these  competitors may have significant  advantages over us,  including  greater
financial,  technical,  marketing and  manufacturing  resources,  more extensive
distribution channels,  larger customer bases and faster response times to adapt
new or emerging technologies and changes in customer requirements.  As a result,
our competitors may develop superior products or beat us to market with products
similar to ours. Further,  there can be no assurance that new companies will not
enter our markets in the future.  Although we believe that our products  will be
distinguishable   from  those  of  our   competitors   on  the  basis  of  their
technological  features and  functionality at an attractive  value  proposition,
there  can be no  assurance  that  we  will  be  able  to  penetrate  any of our
anticipated  competitors' portions of the market. There can be no assurance that
we will be able to compete successfully against currently  anticipated or future
competitors  or that  competitive  pressures  will not have a  material  adverse
effect on our business, operating results and financial condition. If we are not
successful in competing  against our current and future  competitors,  you could
lose your entire investment.

Moreover,  foreign direct  investment in China has increased rapidly in the last
twenty 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 Peoples'  Republic of China to be sensitive.  Distribution
channels  have been  opened up to new  foreign  investment  subject to  Peoples'
Republic of China  government  guidelines.  Many  companies  are involved in the
electronic  and  traditional   publishing  and   distribution  of  literary  and
entertainment  material.  There is no guarantee that other  competitors will not
become  involved  in  business  similar to ours.  If this  occurs,  there may be
competitors  with  greater  financial  resources  and to the  extent  that  such
competitors  compete  on the basis of price,  this could  affect our  results of
operations and our ability to continue operations.

WE HAVE LIMITED MARKETING CAPABILITY.

We have limited marketing capabilities and resources. In order to achieve market
penetration we will have to undertake  significant  efforts and  expenditures to
create awareness of, and demand for, our technology and products. Our ability to
penetrate the market and build our customer base will be substantially dependent
on our marketing efforts, including our ability to establish strategic marketing
arrangements.  No assurance  can be given that we will be able to enter into any
such  arrangements or if entered into that they will be successful.  Our failure
to successfully develop our marketing capabilities,  both internally and through
third-party  alliances,  would have a material  adverse  effect on our business,
operating results and financial  condition.  Further,  there can be no assurance
that, if developed, such marketing capabilities will lead to sales.

WE WILL NEED TO RESTRUCTURE OUR BUSINESS TO MAXIMIZE OUR  PROFITABILITY AND CASH
FLOW.

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.


                                      -18-


<PAGE>


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.

OUR BUSINESS IS EXPOSED TO RISKS  ASSOCIATED WITH ONLINE  COMMERCE  SECURITY AND
CREDIT CARD FRAUD WHICH COULD REDUCE OUR REVENUES.

A fundamental  requirement for online commerce and  communications is the secure
transmission of confidential  information,  such as credit card numbers or other
personal  information,  over  public  networks.  Our  security  measures  may be
inadequate  and, if any  compromise of security  were to occur,  it could have a
detrimental  effect on our  reputation  and  adversely  affect  our  ability  to
maintain our existing travelers and/or attract new travelers.

Consumer concerns over the security of transactions conducted on the Internet or
the privacy of users may inhibit the growth of the Internet and online commerce.
To  transmit  confidential  information  such as customer  credit  card  numbers
securely,  we rely on encryption and  authentication  technology.  Unanticipated
events or developments  could result in a compromise or breach of the systems we
use to protect customer  transaction  data. Our servers and those of our service
providers  may be  vulnerable  to  viruses  or other  harmful  code or  activity
transmitted  over the Internet.  A virus or other harmful activity could cause a
service disruption.

In addition,  we bear  financial  risk from products or services  purchased with
fraudulent credit card data. Although we have implemented anti-fraud measures, a
failure  to  control  fraudulent  credit  card  transactions   adequately  could
adversely  affect our business.  Because of our limited  operating  history,  we
cannot  assure  you that our  anti-fraud  measures  are  sufficient  to  prevent
material  financial  loss.  Since we cannot exert the same level of influence or
control over our sales agents as we could were they our own employees, our sales
agents could fail to comply with our policies and procedures, which could result
in claims  against us that  could harm our  financial  condition  and  operating
results.  We are not in a  position  to  directly  provide  the same  direction,
motivation  and  oversight for our sales agents as we would if such sales agents
were our own  employees.  As a result,  there can be no assurance that our sales
agents  will  participate  in our  marketing  strategies  or plans,  accept  our
introduction  of new  products  and  services,  or comply with our  policies and
procedures.

Moreover,  our  processing,  storage,  use and disclosure of personal data could
give rise to liabilities as a result of government regulation, conflicting legal
requirements or differing views of personal privacy rights. In the processing of
our traveler  transactions,  we receive and store a large  volume of  personally
identifiable  information.  This  information  is also  increasingly  subject to
legislation and  regulations in numerous  jurisdictions  around the world.  This
government  action is  typically  intended  to protect  the  privacy of personal
information  that  is  collected,  processed  and  transmitted  in or  from  the
governing  jurisdiction.  We could  be  adversely  affected  if  legislation  or
regulations  are  expanded to require  changes in our  business  practices or if
governing  jurisdictions interpret or implement their legislation or regulations
in ways that negatively affect our business,  financial condition and results of
operations. As privacy and data protection have become more sensitive issues, we
may also become exposed to potential  liabilities as a result of differing views


                                      -19-


<PAGE>


on the privacy of travel data.  These and other  privacy  developments  that are
difficult to anticipate could adversely affect our business, financial condition
and results of operation.


WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY,  PARTICULARLY IN LIGHT OF
CHINESE INTELLECTUAL PROPERTY LAWS.

Intellectual   property   rights  are  evolving  in  China,   trending   towards
international  norms,  but are by no  means  fully  developed.  We have  not had
significant  involvement in  intellectual  property to date. The  application of
intellectual property rights to protect our foreign clients' and partners' media
will  likely  be  necessary  in the  future.  Protection  is needed at a minimum
against  piracy;  legal action may be needed and all legal action  involves risk
and expenses.

WE MAY NOT BE ABLE TO HIRE AND  RETAIN  THE  PERSONNEL  WE NEED TO  SUSTAIN  OUR
BUSINESS.

We depend on the  continued  services of our  executive  officers  and other key
personnel.  The loss of or failure to attract key personnel could  significantly
impede our financial plans,  growth,  and other objectives.  We believe that our
future  success  will  depend in large part on our ability to attract and retain
additional  highly  skilled and  qualified  personnel  and to expand,  train and
manage our  employee  base.  We may not continue to be  successful  in doing so,
because the competition for qualified  personnel in China is intense.  If we are
unable  to  attract  and  retain  qualified  personnel,  we  may  never  achieve
profitability.

WE MAY NOT BE ABLE TO ENTER NEW MARKETS, WHICH MAY IMPAIR OUR ABILITY TO GROW.

Our  ability to enter into new markets is  dependent  upon the  availability  of
quality  products and demand of these  products in China.  Thus, it is important
for us to develop  relationships  with  publishers and  distributors  of foreign
(mainly  English-language)  books and media  contents to expedite  their import,
translation  and  distribution   through  electronic  and  traditional  channels
nationwide  in China.  There is no guarantee  that we can develop  relationships
with foreign  publishers and  distributors.  Currently,  foreign books and media
contents are not  commonly  available  in China,  therefore,  we are not able to
quantify  the demand of foreign  books and media  contents in China.  As such we
cannot predict our probability of success in this new market.

THE SUCCESS OF OUR BUSINESS  DEPENDS ON CONTINUED GROWTH OF ONLINE DIGITAL MEDIA
PRODUCTS AND ATTRACTING CUSTOMERS IN A COST-EFFECTIVE MANNER.

Our sales and  revenues  will not grow as we plan if  consumers  do not purchase
significantly  more digital media products  online than they currently do and if
the use of the  Internet  as a medium of  commerce  for such  products  does not
continue to grow or grows more slowly than expected. The success of our business
is dependent  on  significant  increase in the number of  consumers  who use the
Internet to purchase digital media products.


                                      -20-


<PAGE>


Our  business  strategy  depends on our  ability  to  broaden  the appeal of our
website to consumers and business and to increase the overall number of consumer
transactions  conducted on our website in a cost-effective  manner.  In order to
increase the number of consumer  transactions,  we must attract more visitors to
our website and convert a larger number of these visitors into paying customers.
Our ability to offer  products  and  services  that will  attract a  significant
number of consumers  to use our  services is not certain.  If it does not occur,
our growth may be limited.  It may be necessary to spend substantial  amounts on
marketing  and  advertising  to enhance  our brand  recognition  and attract new
customers to our website,  and to  successfully  convert these new visitors into
paying  customers.  We cannot  assure  you that our  marketing  and  advertising
efforts  will be  effective  to  attract  new  customers.  If we fail to attract
customers  and  increase  our  overall  number  of  consumer  transactions  in a
cost-effective  manner,  our  ability  to  grow  and  become  profitable  may be
impaired.

Moreover, we rely on the Internet  infrastructure which may be unable to support
increased  levels of demand.  The  internet  infrastructure  may not expand fast
enough to meet the  increased  levels of demand.  In  particular,  the  expected
benefits from our online  operations  may be reduced if internet  usage does not
continue to grow.  In addition,  activities  that  diminish the  experience  for
internet  users,  such as spyware,  spoof e-mails,  viruses and spam directed at
internet users, as well as viruses and "denial of service"  attacks  directed at
internet companies and service  providers,  may discourage people from using the
internet,  including  for  commerce.  If consumer use  diminishes  or grows at a
slower  rate,  then our business  and results of  operations  could be adversely
affected.

WE HAVE SUBSTANTIAL DEBT OBLIGATIONS, INCLUDING CERTAIN DEBT OBLIGATIONS SECURED
BY ALL OF OUR ASSETS. IF WE ARE UNABLE TO REPAY SUCH  OBLIGATIONS,  OUR BUSINESS
WILL LIKELY FAIL.

Our  current  liabilities  were  $2,903,245  as of  December  31,  2007 of which
approximately  $2,012,643  is due within  the next year  unless  extended.  Such
substantial debt obligations could affect our status as a going concern and also
represent  a  concentration  of risk  which  could pose a serious  concern.  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.  We have  $6,000,479  in long term debt of which  $1,250,000  is due on or
before  November 23, 2010 and  $2,000,000  is due on or before March 23, 2011 in
connection  with recent  convertible  debenture  financings  with Highgate House
Funds, Ltd. and Cornell Capital Partners, LP.

CHINESE TAX AND OTHER LAWS MAY NEGATIVELY IMPACT OUR BUSINESS RESULTS.

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


                                      -21-


<PAGE>


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  (our
subsidiaries)  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 our subsidiaries recorded losses.

Similar  provisions  of Chinese  company law require our 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.

EXCHANGE RATE FLACTUATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.

Our reporting  currency is the United States Dollar but our functional  currency
in China is the Renminbi.  As such, rate fluctuations may have a material impact
on our consolidated  financial  reporting and make realistic revenue projections
difficult.  Additionally,  as  Renminbi  is the  functional  currency of Beijing
Joannes,  Xinhua C&D and Beijing  Boheng,  the  fluctuation of exchange rates of
Renminbi may have positive or negative impacts on our results of operations.

CHINESE   FUNDS   REMITTANCE   POLICIES   MAY  NOT  ALLOW  US  TO  MAXIMIZE  OUR
PROFITABILITY.

Pursuant to Chinese company law applicable to foreign investment companies, such
as our Chinese  subsidiaries,  as well as our minor  interest in Xinhua C&D, 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 our  Chinese
subsidiaries  and Xinhua C&D have recorded losses for the fiscal year ended June
30,  2007,  no  appropriation  to the  dedicated  reserves  was made.  Moreover,
pursuant to the same Chinese company law, our Chinese  subsidiaries are required
to transfer at the discretion of their boards 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.  Since our Chinese
subsidiaries  and Xinhua C&D have recorded losses for the fiscal year ended June
30, 2007, no transfer to the staff welfare and bonus fund was made.


                                      -22-


<PAGE>


AS A RESULT OF A MAJORITY OF OUR DIRECTORS AND OFFICERS BEING RESIDENTS OF OTHER
COUNTRIES  OTHER THAN THE UNITED  STATES,  INVESTORS  MAY FIND IT  DIFFICULT  TO
ENFORCE  WITHIN  THE  UNITED  STATES ANY  JUDGMENTS  OBTAINED  AGAINST US OR OUR
DIRECTORS  AND  OFFICERS.

We do not  currently  maintain a permanent  place of business  within the United
States.  In addition,  a majority of our  directors  and officers are  nationals
and/or  residents  of  countries  other  than the  United  States,  and all or a
substantial  portion of such  persons'  assets are  located  outside  the United
States.  As a result,  it may be difficult for  investors to enforce  within the
United  States any  judgments  obtained  against our company or our  officers or
directors, including judgments predicated upon the civil liability provisions of
the securities laws of the United States or any state thereof.

NEVADA LAW AND OUR  ARTICLES OF  INCORPORATION  MAY PROTECT OUR  DIRECTORS  FROM
CERTAIN TYPES OF LAWSUITS.

Nevada law provides that our officers and directors  will not be liable to us or
our  stockholders  for monetary  damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons  against all damages  incurred in  connection  with our  business to the
fullest extent provided or allowed by law. The  exculpation  provisions may have
the effect of  preventing  stockholders  from  recovering  damages  against  our
officers  and  directors  caused by their  negligence,  poor  judgment  or other
circumstances.  The indemnification provisions may require us to use our limited
assets to defend our officers and directors  against  claims,  including  claims
arising  out of their  negligence,  poor  judgment,  or other  circumstances.

A DECLINE IN THE PRICE OF OUR SHARES OF COMMON STOCK COULD AFFECT OUR ABILITY TO
RAISE FURTHER WORKING CAPITAL AND ADVERSELY IMPACT OUR OPERATIONS.

A prolonged decline in the price of our shares of common stock could result in a
reduction in the  liquidity of our shares of common stock and a reduction in our
ability to raise  capital.  Any reduction in our ability to raise equity capital
in the future  would force us to  reallocate  funds from other  planned uses and
would have a significant  negative  effect on our business plans and operations,
including  our  ability  to  develop  our  business  and  continue  our  current
operations.  If the stock price declines,  there can be no assurance that we can
raise  additional  capital or generate funds from operations  sufficient to meet
our obligations.

IF WE ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE,  THIS MAY RESULT IN
DILUTION TO OUR EXISTING STOCKHOLDERS.

Our articles of incorporation, as amended, authorize the issuance of 500,000,000
shares of  common  stock.  Our board of  directors  has the  authority  to issue
additional  shares of common stock up to the  authorized  capital  stated in the
articles of  incorporation.  Our board of directors  may choose to issue some or
all of such shares to acquire one or more  businesses  or to provide  additional
financing  in the  future.  The  issuance  of any such  shares  may  result in a


                                      -23-


<PAGE>


reduction  of the book value or market  price of the  outstanding  shares of our
common stock. It will also cause a reduction in the proportionate  ownership and
voting power of all other stockholders.


BECAUSE OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES,  THE LIQUIDITY OF YOUR
INVESTMENT MAY BE RESTRICTED.

Our common stock is now,  and may  continue to be in the future,  subject to the
penny  stock  rules  under the  Securities  Exchange  Act of 1934.  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.

NASD SALES PRACTIVE  REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S  ABILITY TO BUY
AND SELL OUR SHARES OF COMMON  STOCK.

In addition to the "penny stock" rules described above, the National Association
of Securities  Dealers Inc. has adopted rules that require that in  recommending
an investment to a customer,  a broker-dealer  must have reasonable  grounds for
believing  that  the  investment  is  suitable  for  that  customer.   Prior  to
recommending  speculative  low  priced  securities  to  their  non-institutional
customers,  broker-dealers  must make reasonable  efforts to obtain  information
about the customer's  financial status,  tax status,  investment  objectives and
other   information.   Under   interpretations  of  these  rules,  the  National
Association of Securities Dealers Inc. believes that there is a high probability
that  speculative  low priced  securities will not be suitable for at least some
customers. The National Association of Securities Dealers Inc. requirements make
it more difficult for  broker-dealers  to recommend that their customers buy our
shares of common stock,  which may limit your ability to buy and sell our shares
of common stock and have an adverse effect on the market for its shares.

TRADING  ON THE OTC  BULLETIN  BOARD MAY BE  SPORADIC  BECAUSE IT IS NOT A STOCK
EXCHANGE, AND STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES.

Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on
the OTC Bulletin Board is often thin and  characterized by wide  fluctuations in
trading  prices,  due to many  factors  that  may  have  little  to do with  the


                                      -24-


<PAGE>


Company's  operations  or business  prospects.  The OTC Bulletin  Board is not a
stock  exchange,  and trading of securities  on the OTC Bulletin  Board is often
more sporadic than the trading of securities  listed on a quotation  system like
Nasdaq or a stock  exchange  like  Amex.  Accordingly,  you may have  difficulty
reselling any of our shares you purchase.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this Quarterly Report:

Exhibit

23.1             Consent of Independent Registered Public Accounting Firm
31.1             Certification under Rule 13a-14(a).
31.2             Certification under Rule 13a-14(a).
32.1             Certification under Section 1350.
32.2             Certification under Section 1350.





                                      -25-


<PAGE>


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.


Dated: February 19, 2008               By: /s/ XIANPING WANG
                                           ____________________________________
                                               Xianping Wang, President/Chief
                                               Executive Officer



Dated: February 19, 2008               By: /s/ XIANPING WANG
                                               ________________________________
                                               Xianping Wang, Acting as Interim
                                               Chief Financial Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities.



SIGNATURES             TITLE                                        DATE


/s/ XIANPING WANG      President, Chief Executive Officer      February 19, 2008
_________________      and a Director
    Xianping Wang






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