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 March 31, 2010





[   ]  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
              (State
      or other jurisdiction of incorporation
              or
      organization)
            88-0437644
              (I.R.S.
      Employer Identification No.)B-26F, Oriental Kenzo Dongcheng
      District
              Beijing 100027
              People’s Republic of China
              (Address
      of principal executive offices)86-10-64168816 or
      86-10-64168916
              (Issuer’s
      telephone number)N/A
              (Former
      name, former address and former fiscal year, if changed since last
      report)Securities
      registered pursuant to Section
              12(b)
      of the Act:
            Name
      of each exchange on which
              registered:NoneSecurities
      registered pursuant to Section 12(g) of the Act:Common Stock, $0.00001 par
      value(Title
      of Class)







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 of each of the issuer’s classes of common
      stock, as of the most practicable date:
              Class
            Outstanding
      as of May 17, 2010Common
      Stock $0.00001 par value
            499,911,400









1













XINHUA
CHINA LTD.





FORM
10-Q





PART
      I – FINANCIAL INFORMATIONItem
      1.
            Financial
      StatementsItem
      2
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationsItem
      3.
            Quantitative
      and Qualitative Discloses About Market RiskItem
      4.
            Controls
      and ProceduresItem
      4T.
            Controls
      and Procedures.
            PART
      II – OTHER INFORMATIONItem
      1.
            Legal
      ProceedingsItem
      1A.
            Risk
      FactorsItem
      2.
            Unregistered
      Sales of Equity Securities and Use of ProceedsItem
      3.
            Defaults
      Upon Senior SecuritiesItem
      4.
            Removed
      and ReservedItem
      5.
            Other
      InformationItem
      6.
            Exhibits







2













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.




































































3









PART
I – FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS













XINHUA
CHINA LTD.





UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS





MARCH
31, 2010 AND JUNE 30, 2009





(Stated
in US Dollars)






































































4





XINHUA CHINA
LTD.











Contents
            PagesReport
      of Registered Independent Public Accounting Firm
            6Unaudited
      Consolidated Balance Sheet
            7 -
      8Unaudited
      Consolidated Statement of Income
            9Unaudited
      Consolidated Statement of Stockholders’ Equity
            10Unaudited
      Consolidated Statement of Cash Flows
            11Notes
      to the Unaudited Consolidated Financial Statements
            12 -
      25


















































































5





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 March 31, 2010 and June 30, 2009, and the related
statements of income, stockholders’ equity, and cash flows for the three-months
and nine-months ended March 31, 2010 and 2009.  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


April 23,
2010                                                                                                                             
 Certified Public Accountants








6
 Xinhua
China Ltd.
 Unaudited
Consolidated Balance Sheets
 As
of March 31, 2010 and June 30, 2009
 (Stated
in US Dollars)


(Audited)Notes
            
            March 31, 2009
            
            June 30, 2009ASSETSCurrent
      AssetsCash
      and Cash
      Equivalents
            
            3D
            
            $                 473,218
            
            $           45,769Accounts
      Receivable, net
            
            3E
            
            73,880
            
            74,228Other
      Receivables and Prepayments
            
            4
            
            227,795
            
            224,535Total
      Current Assets
            
            
            
            774,893
            
            344,532Long-term
      AssetsProperty,
      Plant & Equipment, net
            
            3F,5
            
            141,011
            
            55,156Intangible
      Assets, net
            
            5
            
            39,260
            
            -Total
      Long-term Assets
            
            
            
            180,271
            
            55,156Total
      Assets
            
            
            
            $                955,164
            
            $        399,688LIABILITIES
      & STOCKHOLDERS' EQUITYLiabilitiesCurrent
      LiabilitiesAccounts
      Payable and Accrued Liabilities
            
            6
            
            $                497,484
            
            $       754,025Current
      portion of Loans Payable
            
            7
            
            1,479,475
            
            1,490,911Total
      Current Liabilities
            
            
            
            1,976,959
            
            2,244,936Long-term
      LiabilitiesLoans
      Payable
            
            7
            
            1,058,261
            
            1,058,261Loans
      from Shareholders
            
            8
            
            7,273,608
            
            5,945,061Total
      Long-term Liabilities
            
            
            
            8,331,869
            
            7,003,322Total
      Liabilities
            
            
            
            $           10,308,828
            
            $    9,248,258









































See
Accompanying Notes to the Financial Statements and Accountant’s
Report


7
 Xinhua
China Ltd.
 Unaudited
Consolidated Balance Sheets
 As
of March 31, 2010 and June 30, 2009
 (Stated
in US Dollars)





(Audited)Note
            
            March 31, 2009
            
            June 30, 2009Stockholders' EquityCommon
      Stock $0.00001 Par Value 500,000,000 Shares Authorized; 499,911,400 and
      490,311,400 shares issued and outstanding at March 31, 2010 and June 30,
      2009, accordingly.
            9
            
            4,999
            
            4,903Additional
      Paid-In Capital
            
            
            
            11,721,535
            
            11,399,960Accumulated
      Other Comprehensive
              Income
            
            
            
            38,589
            
            38,756Accumulated
      Deficit
            
            
            
            (21,118,787)
            
            (20,292,189)Total
      Stockholders' (Deficit)/Equity
            
            
            
            (9,353,664)
            
            (8,848,570)Total
      Liabilities & Stockholders' Equity
            
            $          955,164
            
            $       399,688

























































































See
Accompanying Notes to the Financial Statements and Accountant’s
Report





8
 Xinhua
China Ltd.
 Unaudited
Consolidated Statement of Income
 For
the three and nine months ended March 31, 2010 and 2009
 (Stated
in US Dollars)





Note
            
            Three
      months ended
            
            Nine
      months endedMarch
      31,
            
            March
      31,Revenue
            
            
            
            2010
            
            2009
            
            2010
            
            2009Revenue,
      net
            
            3H
            $
            -
            $
            -
            $
            -
            $
            -Cost
      of Sales, net
            
            3I
            
            -
            
            -
            
            -
            
            -Gross
      Profit
            
            
            
            -
            
            -
            
            -
            
            -Operating ExpensesSelling,
      General, and Administrative Expenses
            
            
            
            181,241
            
            145,682
            
            477,634
            
            483,491Total
      Operating Expense
            
            
            
            181,241
            
            145,682
            
            477,634
            
            483,491Operating
      Income/(Loss)
            
            
            
            (181,241)
            
            (145,682)
            
            (477,634)
            
            (483,491)Other Income (Expenses)Other
      Income
            
            
            
            -
            
            -
            
            -
            
            -Interest
      Income
            
            
            
            402
            
            7
            
            442
            
            50Gain
      on debt restructuring
            
            
            
            -
            
            -
            
            -
            
            73,427Gain
      from writing off accounts payable
            
            
            
            -
            
            -
            
            -
            
            179,621Interest
      Expense
            
            
            
            (120,156)
            
            (98,971)
            
            (349,406)
            
            (349,380)Impairment
      Loss on Boheng investment
            
            
            
            -
            
            -
            
            -
            
            (1,625,000)Loss
      before minority interest and income tax
            
            (300,995)
            
            (244,646)
            
            (826,598)
            
            (2,204,872)Loss
      before Income Tax
            
            
            
            (300,995)
            
            (244,646)
            
            (826,598)
            
            (2,204,872)Income
      Tax
            
            3M
            
            -
            
            -
            
            -
            
            -Net
      Loss
            
            
            $
            (300,995)
            $
            (244,646)
            $
            (826,598)
            $
            (2,204,872)Basic
      & Diluted Earnings Per Share
            3N,17
            
            (0.0006)
            
            (0.0012)
            
            (0.0017)
            
            (0.0110)Weighted
      Average Shares Outstanding
            
            
            
            499,911,400
            
            199,873,539
            
            499,911,400
            
            199,873,539



































See
Accompanying Notes to the Financial Statements and Accountant’s
Report


9
 Xinhua
China Ltd.
 Unaudited
Consolidated Statements of Stockholders’ Equity
 For
the nine months ended March 31, 2010
 (Stated
in US Dollars)





Additional
            
            OtherNumber
      of
            Common
            Paid
      in
            Comprehensive
            Comprehensive
            AccumulatedShares
            Stock
            Capital
            Income(Loss)
            Income(Loss)
            Deficit
            TotalBalance,
      July 1, 2008
            
            98,655,733
            987
            10,903,997
            (17,750,304)
            38,149
            (17,788,454)
            (6,845,321)Additional
      Paid-in Capital
            
            -
            -
            109,444
            -
            -
            -
            109,444Imputed
      interest on interest free advances from related party
            
            -
            -
            386,519
            -
            -
            -
            386,519Issuance
      of shares to Highgate
            
            266,655,667
            2,666
            -
            -
            -
            -
            2,666Issuance
      of shares to Xianping Wang
            
            125,000,000
            1,250
            -
            -
            -
            -
            1,250Foreign
      Currency translation
            
            -
            -
            -
            607
            607
            -
            607Net
      Loss for year
            
            -
            -
            -
            (2,503,735)
            -
            (2,503,735)
            (2,503,735)Balance,
      June 30, 2009
            
            490,311,400
            4,903
            11,399,960
            (20,253,432)
            38,756
            (20,292,189)
            (8,848,570)Balance,
      July 1, 2009
            
            490,311,400
            4,903
            11,399,960
            (20,253,432)
            38,756
            (20,292,189)
            (8,848,570)Additional
      Paid-in Capital on conversion
            
            -
            -
            11,339
            -
            -
            -
            11,339Imputed
      interest on interest free advances from related party
            
            -
            -
            310,236
            -
            -
            -
            310,236Issuance
      of shares to Highgate
            
            9,600,000
            96
            -
            -
            -
            -
            96Foreign
      Currency translation
            
            -
            -
            -
            (167)
            (167)
            -
            (167)Net
      Loss for period
            
            -
            -
            -
            (826,598)
            -
            (826,598)
            (826,598)Balance,
      March 31, 2010
            
            499,911,400
            4,999
            11,721,535
            (21,080,197)
            38,589
            (21,118,787)
            (9,353,664)














March 31, 2010
            
            June 30, 2009Comprehensive
      Income(Loss)Net
      Loss
            
            $               (826,598)
            
            $     (2,503,735)Other
      Comprehensive IncomeForeign
      Currency Translation Adjustment
            
            (167)
            
            607Total
      Comprehensive Income
            
            $               (826,765)
            
            $    (2,503,128)
































See
Accompanying Notes to the Financial Statements and Accountant’s
Report








10




Xinhua
China Ltd.
 Unaudited
Consolidated Statements of Cash Flows
 For
the three and nine months ended March 31, 2010 and 2009
 (Stated
in US Dollars)


Three
      months ended
            
            Nine
      months endedMarch
      31,
            
            March
      31,2010
            
            2009
            
            2010
            
            2009Cash
      Flow from Operating Activities:Net
      (Loss)
            $
            (300,995)
            $
            (244,646)
            $
            (826,598)
            $
            (2,204,873)Adjustments
      to reconcile net earnings(loss) to net cash used in operating
      activities:Depreciation
            
            8,410
            
            5,527
            
            17,872
            
            16,156Imputed
      interest expense
            
            120,076
            
            98,971
            
            348,404
            
            310833Amortization
      of deferred imputed interest from note receivable
            
            -
            
            -
            
            -
            
            -Changes in assets and
      liabilities:Decrease/(Increase)
      Accounts receivable
            
            12,245
            
            (4,351)
            
            348
            
            337,765Decrease/(Increase)
      Other receivables and prepayments
            
            (3,139)
            
            -
            
            (3,139)
            
            (812)Decrease/(Increase)
      Accounts Payable and accrued liabilities
            
            (2,348)
            
            26,041
            
            (294,709)
            
            (463,812)Decrease/(Increase)
      in Deferred Revenue
            
            -
            
            -
            
            -
            
            (18,355)Cash
      Sourced/(Used) in Operating Activities
            
            (165,751)
            
            (118,456)
              123984
            
            (757,821)
            
            (2,009,328)Cash
      Flows from Investing Activities:Loss
      on impairment of asset
            
            -
            
            -
            
            
            
            1,625,000Purchase
      of leasehold improvements
            
            -
            
            -
            
            (21,235)
            
            -Purchase
      of plant and equipment
            
            (82,429)
            
            -
            
            (82,429)
            
            -Purchase
      of intangible assets
            
            (39,260)
            
            -
            
            (39,260)
            
            -Cash
      Used/(Sourced) in Investing Activities
            
            (121,689)
            
            -
            
            (142,924)
            
            1,625,000Cash
      Flows from Financing Activities:Stock
      Issue to Highgate on debt conversion
            
            -
            
            1,337
            
            96
            
            1,839Repayment
      of Loan to Highgate
            
            -
            
            (43,100)
            
            (11,436)
            
            (87,274)Loans
      from shareholders
            
            30,000
            
            142,068
            
            1,328,186
            
            414,472Additional
      Paid-in Capital
            
            -
            
            41,763
            
            11,340
            
            41,763Cash
      Sourced/(Used) in Financing Activities
            
            30,000
            
            142,068
            
            1,328,186
            
            370,800Net
      Increase/(Decrease) in Cash & Cash Equivalents for the
      Period
            
            (257,440)
            
            23,652
            
            427,449
            
            (13,266)Effect
      of Currency Translation
            
            313
            
            41
            
            8
            
            252Cash
      & Cash Equivalents at Beginning of Period
            
            730,345
            
            1,814
            
            45,769
            
            38,733Cash
      & Cash Equivalents at End of Period
            $
            473,218
            $
            25,466
            $
            473,218
            $
            25,466Cash
      paid for interest expenses
            $
            -
            $
            -
            $
            -
            $
            -

















See
Accompanying Notes to the Financial Statements and Accountant’s
Report


11
 Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (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 B26-F, Oriental Kenzo, No. 48
Dongzhimenwai Street, Dongcheng District, Beijing 100027 People’s Republic of
China.




As of May
31, 2006, the Company reduced its equity interest in Xinhua C&D from 56.14%
to 7.98%.  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 March 31, 2010 are described
below:




Name
            Place
      of
              incorporation
              and
      kind of
              legal entity
            Principal
      activities
              and place of operation
            Particulars
      of
              issued/registered
              share
      capital
            Effective
              interest
              heldBeijing
      Joannes Information Technology Co., Ltd.
            PRC,
      a company with limited liability
            Sales
      and distribution of books, PRC
            Registered
      capital US$1,250,000
            100%Pac-Poly
      Investment Ltd.
            British
      Virgin Islands, a company with limited liability
            Investment
      holding, PRC
            10,000,000
      ordinary shares of US$1 par value
            100%







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
March 31, 2010, the Company had no working capital but current liabilities
exceeding current assets by $1,202,066 and an accumulated deficit of $21,118,786
because 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 March 31, 2010.  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.









12


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)




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.






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.)
            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.






(E.)
            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.








13


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)




(F.)
            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 LifeLand
      Use right
            50
      yearsBuildings
            50
      yearsMotor
      Vehicles
            8 –
      10 yearsEquipment
      and Machinery
            5 –
      8 yearsIntangible
      Assets
            3
      yearsLeasehold
      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 income.






(G.)
            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 whether the carrying values are not
impaired.






(H.)
            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.  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”.








14


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)




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 period ended
March 31, 2010, there were no shipping and handling costs included in selling,
general and administrative expenses in the accompanying consolidated statements
of income.






(I.)
            Cost
      of Sales






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






(J.)
            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.






(K.)
            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 period ended March 31, 2009,
advertising expenses amount to zero.






(L.)
            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.






(M.)
            Income
      Taxes




The
Company uses the accrual method of accounting to determine and report its
taxable reduction of income taxes for the year in which they are available. The
Company has implemented Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Income tax liabilities computed according to
the United States and People’s Republic of China (PRC) tax laws are provided for
the tax effects of transactions reported in the financial statements and
consists of taxes currently due plus deferred taxes related primarily to
differences between the basis of fixed assets and intangible assets for
financial and tax reporting. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will be either
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are available to
offset future income taxes. A valuation allowance is created to evaluate
deferred tax assets if it is more likely than not that these items will either
expire before the Company is able to realize that tax benefit, or that future
realization is uncertain.








15


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)


In
respect of the Company’s subsidiaries domiciled and operated in
China:





·
            Beijing
      Joannes Information Technology Co., Ltd. is located in the PRC and
      Pac-Poly Investment Ltd. is located in the British Virgin Islands; all of
      these entities are subject to the relevant tax laws and regulations of the
      PRC and British Virgin Islands in which the related entity
      domiciled.  The maximum tax rates of the subsidiaries pursuant
      to the countries in which they domicile are:
-





Subsidiary
            Country of Domicile
            Income Tax RateBeijing
      Joannes Information Technology Co., Ltd.
            PRC
            25.00%Pac-Poly
      Investment Ltd.
            British
      Virgin Islands
            0.00%





·
            Effective
      January 1, 2008, PRC government implemented a new 25% tax rate across the
      board for all enterprises regardless of whether domestic or foreign
      enterprise without any tax holiday which is defined as "two-year exemption
      followed by three-year half exemption" hitherto enjoyed by tax payers. As
      a result of the new tax law of a standard 25% tax rate, tax holidays
      terminated as of December 31, 2007. However, PRC government has
      established a set of transition rules to allow enterprises already started
      tax holidays before January 1, 2008, to continue enjoying the tax holidays
      until being fully utilized.





·
            The
      Company is subject to United States Tax according to Internal Revenue Code
      Sections 951 and 957. Corporate income tax is imposed on progressive rates
      in the range of: -





Taxable
      IncomeRate
            Over
            But Not Over
            Of Amount Over15%
            0
            50,000
            025%
            50,000
            75,000
            50,00034%
            75,000
            100,000
            75,00039%
            100,000
            335,000
            100,00034%
            335,000
            10,000,000
            335,00035%
            10,000,000
            15,000,000
            10,000,00038%
            15,000,000
            18,333,333
            15,000,00035%
            18,333,333
            -
            -




Based on
the consolidated net income/(loss) for the period ended March 31, 2010, the
Company shall not be subject to income tax.








16


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)




(N.)
            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 499,911,400 and 490,311,400 of common stock at March 31, 2009 and June 30,
2009, respectively, are anti-dilutive.  As a result, diluted loss per share
data does not include the assumed exercise of outstanding stock options, stock
purchase warrants, or conversion of convertible debenture and has been presented
jointly with basic loss per share.






(O.)
            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
            March
      31, 2010
            
            June
      30, 2009
            
            March
      31, 2009Period/year
      end RMB : US$ exchange rate
            6.8263
            
            6.8319
            
            6.8359Average
      period/year RMB : US$ exchange rate
            6.8285
            
            6.8355
            
            6.8373







17


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)






(P.)
            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.






(Q.)
            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.






(R.)
            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:






§
            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.






§
            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.






§
            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 income.








18


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)




(S.)
            Recently
      Issued Accounting Standard







In June
2009, FASB issued FASB Statement No. 166, Accounting for Transfers for
Financial Assets and FASB Statement No. 167, a revision to FASB
Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest
Entities.


Statement
166 is a revision to FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
will require more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures.





Statement
167 is a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest
Entities, and changes how a reporting entity determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determination of whether a reporting
entity is required to consolidate another entity is based on, among other
things, the other entity’s purpose and design and the reporting entity’s ability
to direct the activities of the other entity that most significantly impact the
other entity’s economic performance.





On July
1, 2009, FASB issued FASB Statement No. 168, The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting
Principles.  The ASC has become the source of authoritative US
GAAP recognized by the FASB to be applied by nongovernmental entities and
provides that all such guidance carries an equal level of authority. The ASC is
not intended to change or alter existing GAAP. The ASC is effective for interim
and annual periods ending after September 15, 2009.





The
Company is currently evaluating the potential impact, if any, of the adoption of
the above recent accounting pronouncements on its consolidated results of
operations and financial condition.








4.
            OTHER
      RECEIVABLES AND PREPAYMENT




March 31, 2010
            
            June 30, 2009Prepayments
            $
            227,795
            $
            224,535





The
carrying amounts of prepayments approximate their fair value.


19


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)





5.
            PROPERTY,
      PLANT, AND EQUIPMENT, NET





Property,
plant, and equipment consist of the following:





March 31, 2010
            
            June 30, 2009Equipment
      and machinery
            $
            101,364
            $
            53,418Motor
      vehicles
            
            81,534
            
            47,007Leasehold
      Improvement
            
            37,561
            
            16,306220,459
            
            116,731Less: Accumulated
      Depreciation
            
            (79,448)
            
            (61,576)$
            141,011
            $
            55,156





Depreciation
expense for March 31, 2010 and June 30, 2009 were $17,872 and $26,585,
respectively.





During
the period ended March 31, 2010, the Company purchased new intangible assets,
which will be placed in service starting May 2010 for their new line of
business.







6.
            ACCOUNTS
      PAYABLE AND ACCRUED LIABILITIES









Accounts
      payable and accrued liabilities as of March 31, 2010 and June 30, 2009
      consists of the following:


March 31, 2010
            
            June 30, 2009Accounts
      Payable
            $
            497,484
            $
            754,025











7.
            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:








20




Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)


Payment Date
            
            Cash Payment
            
            Conversion
      of DebentureMarch
      10, 2007
            $
            250,000
            
            250,000September
      30, 2007
            
            375,000
            
            375,000October
      31, 2007
            
            375,000
            
            375,000January
      31, 2008
            
            250,000
            
            250,000July
      31, 2008
            
            625,000
            
            625,000$
            1,875,000
            
            1,875,000




The
Company paid $250,000 for the payment due March 10, 2007 and the debenture
holders exercised 100,000 shares and 125,000 shares on March 1, 2007 and April
18, 2007, respectively.  During the period ended March 31, 2010 and
year ended June 30, 2009; the debenture holders converted 9,600,000 and
266,655,667 shares against outstanding loan at a total conversion price of
$11,436 and $144,532, respectively.




Loans
Payable outstanding as of March 31, 2010 amount to $2,537,736 of which
$1,479,475 and $1,058,261 were attributed to current portion and long-term,
respectively.




Loans
Payable outstanding as of June 30, 2009 amount to $2,549,172 of which $1,490,911
and $1,058,261 were attributed to current portion and long-term,
respectively.









8.
            LOANS
      FROM SHAREHOLDERS




The total
outstanding amount of $7,273,608 represents cash advanced from shareholders of
the Company.





These
shareholders’ loans are unsecured and not repayable within the next twelve
months.  For the period ended March 31, 2010, there was $310,236
imputed interest, at 6.00% annum, recorded. For the year ended June 30, 2009,
there was $342,847 imputed interest, at 6.00% per annum, recorded.





9.
            COMMON
      STOCK AND WARRANTS





A.
            Common
      Stock






During
2005, the authorized capital stock of the Company increased from $1,000
consisting of 100,000,000 shares of common stock of par value $0.00001 each to
$5,000 consisting of 500,000,000 shares of common stock of par value $0.00001
each.









21


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)




B.
            Warrants






(1)
            The
      Company completed a private placement in 2005 with certain individuals for
      622,690 units at $3.25 per unit for total cash proceeds of
      $2,023,800.  Each unit consists of one share of common stock and
      one-half of one non-transferable share purchase warrant.  The warrant
      will expire on the earlier of:




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




The
warrant shares shall have an exercise price of $4.50 per warrant share for the
first twelve months, and if still available after twelve months, the warrant
shares shall have an exercise price of $4.60 per warrant share starting on the
first day of the second twelve month period and increasing by $0.10 on the first
day of each subsequent month thereafter until expiration of the
warrants.






(2)
            Share
      purchase warrant issued from convertible
  debenture






On
December 13, 2005, the Company issued to the holder of the convertible debenture
1,035,000 warrants.  One share purchase warrant is exercisable for one
common share at $0.00001 per share, until expiration on November 22,
2010.  As of March 31, 2010, 374,911,400 shares of common stock have
been converted by the convertible debenture holders at an aggregate amount of
$533,168.






(3)
            Share
      warrant issued for service




On
May 1, 2006, the Company issued 100,000 warrants at $1.47 per share to Mr.
Peter Shandro, the VP Business Strategy of the Company, in association with the
planning and execution of the on-line ecommerce initiative of the
Company.  Compensation expense of $94,775 was recorded with the
issuance of these warrants.





10.
            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 accrue for these benefits based on
certain percentages of the employees’ salaries.  The total
contributions made for such employee benefits were $65,457 and $53,457, for the
period ended March 31, 2010 and the year ended June 30, 2009,
respectively.




11.
            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.








22


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)


12.
            GAIN
      ON DEBT RESTRUCTURING




On
December 29, 2006, the Company completed a debt restructuring with its
Investors, namely Cornell Capital Partners, L.P. (“Cornell”) and Highgate House
Funds, Ltd. (“Highgate”) under the Forbearance and Settlement Agreement (the
“Forbearance and Settlement Agreement”).  Pursuant to the Forbearance
and Settlement Agreement, the Company agreed to make certain payments to the
Investors, with respect to the Securities Purchase Agreement (the “Securities
Purchase Agreement”) entered into between the Company and the Investors on
November 23, 2005, as amended on March 23, 2006, on the convertible debentures
in the amounts of $1,250,000 (to Highgate on November 23, 2005) and $2,000,000
(to Cornell on March 23, 2006) (the “Convertible Debentures”) in accordance with
the terms and conditions set forth in the Forbearance and  Settlement
Agreement.





In
accordance with the Forbearance and Settlement Agreement, the Company agrees to
use the proceeds from the disposal of Boheng to repay the principal and interest
due to the Investors under the Convertible Debentures in exchange for the
Investors agreeing to:





(i)
            Waive
      on a one-time basis only any accrued liquidated damages owing to the
      Investors;




(ii)
            Not
      apply the redemption premium on the scheduled
  repayments;




(iii)
            Converting
      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
      the Company to withdraw the Registration Statement filed on March 28, 2006
      with the SEC in connection with the Convertible
  Debentures;




(vi)
            During
      the term of the Forbearance and Settlement Agreement, waiving the
      requirement for the Company to receive written consent of each Buyer for
      any organizational change (as defined in the Securities Purchase
      Agreement) to be directly or indirectly consummated by the Company, and
      that the company will not effectuate any stock splits for at least nine
      months without the consent of the Investors;
and




(vii)
            Terminate
      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 the Investors of the first scheduled
      repayment amount.








23
 
 Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)


As a
result of the debt restructuring arrangement, the Company’s liabilities on
warrants, conversions, discounts were discharged resulting to a net gain of
$1,500,132 attributable as follows:




·
              Liabilities
      on Conversion discharged
              $                      2,334,198·
              Liabilities
      on Warrants discharged
              891,537·
              Loans
      discharged
              225,000·
              Unamortized
      discounts
              (1,950,603)$ 1,500,132




13.
            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.





14.
            COMMITMENT
      AND CONTINGENCIES





The
Company currently occupies two office premises under two lease agreements
indicated as Lease A and Lease B.  Lease A leases an office premise
located at Dongcheng District under a non-cancelable operating lease for a term
of three years from January 1, 2009 to December 31, 2011.  Lease B
leases an office premise located at Xuanwu District under a non-cancelable
operating lease for a term of two years from November 18, 2009 to November 17,
2011.  The cost incurred under these operating leases are recorded as
rental expense and totaled $ 68,005 and $65,944 for the period ended March 31,
2010 and year ended June 30, 2009, respectively.  Future minimum
rental payments due according to the operating leases until date of termination
are as followed:




Lease A
            
            Lease BWithin
      one year
            
            $       17,579
            
            $        9,229Within
      year two until termination
            
            105,474
            
            52,298$     123,053
            
            $      61,527







24


Xinhua
China Ltd.
 Notes
to Unaudited Consolidated Financial Statements
 For
the three and nine months ended March 31, 2010
 (Stated
in US Dollars)





15.
            NET
      LOSS PER SHARE




Basic net
loss per share is computed using the weighted average number of the ordinary
shares outstanding during the year.  Diluted net loss per share is computed
using the weighted average number of ordinary shares and ordinary share
equivalents outstanding during the year.






The
following table sets forth the computation of basic and diluted net loss per
share for the period indicated:




For
      the three months ended
            
            For
      the nine months endedBasic
      and diluted net loss per share calculation:
            
            March 31, 2010
            March 31, 2009
            
            March 31, 2010
            March 31, 2009(a). Numerator:Net
      loss used in computing basic net loss per share
            
            (300,995)
            (244,646)
            
            (826,598)
            (2,204,872)(b). Denominator:Weighted-average
      ordinary shares outstanding
            
            499,911,399
            199,873,539
            
            498,689,581
            199,873,539Basic
      and diluted net loss per share
            
            (.0006)
            (.0012)
            
            (.0017)
            (.0110)







For the
period ended March 31, 2010 and 2009 in which the Company had a net loss,
inclusion of warrants outstanding would have been anti-dilutive and therefore
not included in the computation of diluted losses per share.


25


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.”  We have certain digital media distribution and related rights
in "China" where we mostly operate and seek to pursue our business. We are in
the development stage seeking to grow our company.
 
 Current
Subsidiaries
 
 Pac-Poly Investments
Limited
  On
September 14, 2004, we signed two separate share purchase agreements
(collectively, the “Share Purchase Agreements”), whereby we issued 35,000,000
shares of our restricted common stock in exchange for a 100% interest in
Pac-Poly Investments Limited, a company incorporated under the laws of the
International Companies Business Act Cap 291 of British Virgin Islands
(“Pac-Poly”), and a 95% interest in Beijing Boheng Investments Limited, a
company incorporated under the laws of China (“Beijing Boheng”), respectively.
The shareholders of Pac-Poly and Beijing Boheng received 16,387,000 and
18,613,000 shares of our restricted common stock, respectively.  In
accordance with the terms and provisions of the Share Purchase Agreement, one of
our shareholders returned to us 35,000,000 shares of common stock held of record
by such shareholder and the shares were cancelled and returned to treasury.
Immediately prior to consummation of the respective Share Purchase Agreements,
Pac-Poly and Beijing Boheng were under common control. Subsequently,
Beijing Boheng spun off all of its business and net assets to its president and
became a non-operating shell company.  Pac-Poly had no significant
operations since its inception.
   As of the
date of this Quarterly Report, we hold of record 10,000,000 shares of common
stock at $1.00 par value, which constitutes 100% of the total issued and
outstanding shares of Pac-Poly. Therefore, Pac-Poly is our wholly-owned
subsidiary. Pac-Poly is an investment holding company.
   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 hold 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.
  As of the
date of this Quarterly Report, we hold of record 1,250,000 shares of common
stock at $1.00 par value, which constitutes 100% of the total issued and
outstanding shares of Beijing Joannes. Therefore, Beijing Joannes is our
wholly-owned subsidiary.
 26
   RECENT
BUSINESS OPERATIONS
   We are a
company establishing ourselves as a leader in the digital media industry. We
have refocused our strategic business operation plans to maximize our strategic
position in the publishing industry. We believe that we will be able to
establish ourselves as a leader in the digital media industry.  In
accordance with our refocused strategic plan, we intend to enter into certain
contractual relationships.
  We are
subject to many risks and there is no assurance of success in our
plans.
 
 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, 2009 and 2008, which financial statements are included elsewhere in this
Quarterly Report.
  For
      Nine Month Period Ended March 31, 2010
                (unaudited)
              For
      Nine Month Period Ended March 31, 2009
                (unaudited)RevenueNet
      revenue
              -0-
              -0-Cost
      of Sales
              -0-
              -0-Gross
      Profit
              -0-
              -0-Operating
      ExpensesSelling,
      general and administrative expenses
              $477,634
              $483.491Operating
      Income (loss)
              (477,634)
              (483,491)Other
      Income (Expenses)Other
      income
              -0-
              -0-Interest
      income
              442
              50Gain
      on debt restructuring
              -0-
              73,427Interest
      expense
              (349,406)
              (349,380)Impairment
      loss on Boheng
              -0-
              (1,625,000)Net
      Loss
              (826,598)
              (2,204,872)
  
 27
 
 RESULTS
OF OPERATION
 
 For
Nine Month Period Ended March 31, 2010 Compared to Nine Month Period Ended March
31, 2009.
 
 Revenues
and Gross Margin and Cost of Sales
 
 We had
net sales of $-0- for both nine month periods ended March 31, 2010 and March 31,
2009.
 
 Operating
Expenses
 
 Our total
operating expenses were $477,634 for the nine month period ended March 31, 2010
as compared to total operating expenses of $483,491 for the nine month period
ended March 31, 2009. The decrease in operating expenses during the nine month
period ended March 31, 2010 as compared to the nine month period ended March 31,
2009 was due to a decrease in a variety of expenditures relating to our ongoing
restructuring efforts. During the nine month period ended March 31, 2010, our
selling, general and administrative expenses consisted of: (i) legal and
professional fees of $30,322 (2009: $37,426); (ii) office expenses of $12,061
(2009: $2,652); (iii) salaries and benefits of $171,020 (2009: $113,641); (iv)
management fees of $90,000 (2009: $150,000); (v) vehicle expense of $22,300
(2009: $2,797); and (vii) other expenses of $15,863 (2009: $88).
 
 Selling,
general and administrative expenses primarily increased based on a
reorganization of our subsidiaries and personnel following the move to relocate
our office.
 
 Interest
Expense
 
 We
incurred $349,406 in interest expense during the nine month period ended March
31, 2010 as compared to $349,380 incurred as interest expense during the nine
month period ended March 31, 2009. Interest expense of $349,406 incurred during
the nine month period ended March 31, 2010 consisted of: (i) $-0- (2009: $-0-)
in interest expense from the amortization of note receivable; and (ii) $310,236
(2009: $253,923) imputed interest charged on loans from related
parties.
 
 Interest Income
 
 During
the nine month period ended March 31, 2010, we also recorded $442 (2009: $50) in
interest income.
 
 Gain on Debt Restructuring and Writing
Off Accounts Payable
 
 During
the nine month period ended March 31, 2010, we did not record any gain on debt
restructuring as compared to $73,427 recorded during the nine month period ended
March 31, 2009. During the nine month period ended March 31, 2010, we did not
record any gain from writing off accounts payable as compared to $179,621
recorded during the nine month period ended March 31, 2009.
    28
  
 Impairment Loss on Boheng
Investment/Other Income
 
 During
the nine month period ended March 31, 2010, we did not record an impairment loss
on as compared to an impairment loss of Boheng investment of ($1,625,000)
recorded during the nine month period ended March 31, 2009. As a result of the
termination by the purchaser of the acquisition of Beijing Boheng Investments
and Management Co., Ltd., we repossessed Boheng as our 95% interest subsidiary
on August 25, 2008 at a value of $1,625,000, which was equal to the unpaid
purchase price due by the purchaser. After the repossession of Boheng, we
conducted an evaluation of our carrying value and determined that an impairment
loss in the amount of $1,625,000 was incurred although Boheng still owns a 7.98%
equity interest in Xinhua C&D. This impairment loss was accordingly
reflected in the income statement for fiscal year ended December 31,
2008.
 
 Therefore,
our net loss during the nine month period ended March 31, 2010 was ($826,598) or
($0.0017) per share compared to a net loss of ($2,204,872) or ($0.0110) per
share incurred during the nine month period ended March 31, 2009. The decrease
in net loss during the nine month period ended March 31, 2010 was due primarily
to the impairment loss on Boheng investment recorded during the nine month
period ended March 31, 2009.
 
 For
Three Month Period Ended March 31, 2010 Compared to Three Month Period Ended
March 31, 2009.
 
 Revenues
and Gross Margin and Cost of Sales
 
 We had
net sales of $-0- for both three month periods ended March 31, 2010 and March
31, 2009.
 
 Operating
Expenses
 
 Our total
operating expenses were $181,241 for the three month period ended March 31, 2010
as compared to total operating expenses of $145,682 for the three month period
ended March 31, 2009. The increase in operating expenses during the three month
period ended March 31, 2010 as compared to the three month period ended March
31, 2009 was due to an increase in a variety of expenditures relating to our
restructuring efforts. During the three month period ended March 31, 2010, our
selling, general and administrative expenses consisted of: (i) legal and
professional fees of $9,170 (2009: $16,143); (ii) office expenses of $6,502
(2009: $825); (iii) salaries and benefits of $66,443 (2009: $66,473); (iv)
management fees of $30,000 (2009: $30,000); (v) vehicle expense of $9,391 (2009:
$2,546); and (vii) other expenses of $6,304 (2009: $88).
 
 Interest
Expense
 
 We
incurred $120,156 in interest expense during the three month period ended March
31, 2010 as compared to $98,971 incurred as interest expense during the three
month period ended March 31, 2009. Interest expense of $120,156 incurred during
the three month period ended March 31, 2010 consisted of $120,156 (2009:
$98,971) imputed interest charged on loans from related parties.
 
 Therefore,
our net loss during the three month period ended March 31, 2010 was ($300,995)
compared to a net loss of ($244,646) incurred during the three month period
ended March 31, 2009. The increase in net loss during the three month period
ended March 31, 2010 was due primarily to the increase in costs associated with
our ongoing restructuring efforts.
    29
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Nine
Month Period Ended March 31, 2010
 
 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
nine month period ended March 31, 2010, our current assets were $774,893 and our
current liabilities were $1,976,959, resulting in a working capital deficit of
$1,202,066. As at the nine month period ended March 31, 2010, current assets
were comprised of: (i) $473,218 in cash and cash equivalents; (ii) $73,880 in
net accounts receivable; and (iii) $227,795 in other receivables and
prepayments. As at the nine month period ended March 31, 2010, our current
liabilities were comprised of: (i) $497,484 in accounts payable and accrued
liabilities; and (ii) $1,479,475 in current portion of loans payable. See “ –
Material Commitments.”
 
 As at the
nine month period ended March 31, 2010, our total assets were $955,164 comprised
of: (i) $774,893 in current assets; (ii) $141,011 in net property, plant and
equipment; and (iii) $39,260 in net intangible assets. The increase in total
assets during the nine month period ended March 31, 2010 from fiscal year ended
September 30, 2009 was primarily due to an increase in cash and an increase in
the valuation of our net property, plant and equipment and intangible
assets.
 
 As at the
nine month period ended March 31, 2010, our total liabilities were $10,308,828
comprised of: (i) $1,976,959 in current liabilities; (ii) $1,058,261 in loans
payable; and (iii) $7,273,608 in loans from shareholders. The increase in total
liabilities during the nine month period ended March 31, 2010 from fiscal year
ended June 30, 2009 was primarily due to the increase in loans from
shareholders.
 
 Stockholders’
deficit increased from ($8,848,570) for June 30, 2009 to ($9,353,664) for March
31, 2010.
 
 Operating Activities
 
 We have
not generated positive cash flows from operating activities. For the nine month
period ended March 31, 2010, net cash flow used in operating activities was
($757,821) compared to net cash used operating activities of ($2,009,328) during
the nine month period ended March 31, 2009. Net cash flow from operating
activities during the nine month period ended March 31, 2010 consisted primarily
of a net loss of ($826,598) adjusted by $17,872 in depreciation and $348,404 in
imputed interest expense. Further changes in assets and liabilities consisted of
a decrease of $348 in accounts receivable and an increase of $3,139 in other
receivables and prepayments and $294,709 in accounts payable and accrued
liabilities.
 
 Net cash
flow from operating activities during the nine month period ended March 31, 2009
consisted primarily of a net loss of ($2,204,873) adjusted by $16,156 in
depreciation and $310,833 in imputed interest expense. Further changes in assets
and liabilities consisted of a decrease of $337,765 in accounts receivable and
an increase of $812 in other receivables and prepayments, $463,812 in accounts
payable and accrued liabilities and $18,355 in deferred revenue.
    30
 
 Investing Activities
 
 During
the nine month period ended March 31, 2010, net cash flow used in investing
activities was ($142,924) compared to net cash flow sourced from investing
activities of $1,625,000 in loss on impairment of asset for the nine month
period ended March 31, 2009. The net cash flow used in investing activities of
($142,924) during the nine month period ended March 31, 2010 consisted of: (i)
$21,235 in purchase of leasehold improvements, (ii) $82,429 in purchase of plant
and equipment; and (iii) $39,260 in purchase of intangible assets relating to
our ongoing restructuring efforts.
 
 Financing Activities
 
 During
the nine month period ended March 31, 2010, net cash flow provided by financing
activities was $1,328,186 compared to net cash flow provided by financing
activities of $370,800 for the nine month period ended March 31, 2009. Net cash
flow provided from financing activities during the nine month period ended March
31, 2010 pertained primarily to $1,328,186 received as loan from shareholders
compared to $414,472 received as loan from shareholders during the nine month
period ended March 31, 2009.
 
 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.
   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.
    31
   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, 2010. Furthermore, 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, 2009 and June 30, 2008 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.
   MATERIAL
COMMITMENTS
   Loans
Payable/Convertible Debenture
  During
2009/10, 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.
    32
 
 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:
 
 Payment Date
              
              Cash Payment
              
              Conversion
      of DebentureMarch
      10, 2007
              $
              250,000
              
              250,000June
      30, 2007
              
              375,000
              
              375,000October
      31, 2007
              
              375,000
              
              375,000January
      31, 2008
              
              250,000
              
              250,000July
      31, 2008
              
              625,000
              
              625,000$
              1,875,000
              
              1,875,000
  As of
June 30, 2007, we paid $250,000 for the payment due March 10, 2007 and issued
100,000 shares and 125,000 shares of our common stock on March 1, 2007 and April
18, 2007, respectively, pursuant to exercise rights. During fiscal year ended
June 30, 2009 and the six month period ended December 31, 2009, Cornell and
Highgate converted an aggregate of 9,600,000 and 266,655,667 shares,
respectively, against the outstanding amount at a total conversion price of
$11,436 and $144,532, respectively. Loan payable outstanding as of March 31,
2010 aggregated $2,537,736 of which $1,479,475 and $1,058,261 were attributed to
current portion and long-term portion, respectively.
  LOANS
FROM SHAREHOLDERS
  During
fiscal year 2009/10, a material commitment for us relates to the loans from
shareholders. The outstanding amount of $7,273,608 represents cash advanced to
us from our shareholders. These shareholder loans are unsecured, interest-free
and not repayable within the next twelve months. For fiscal year ended June 30,
2009, we calculated imputed interest expense of $342,847 in relation to
interest-free shareholders loans at its effective interest rate and accounted
for it in the consolidated financial statements. For the nine month period ended
March 31, 2010, we calculated imputed interest expense of $310,236 in relation
to interest-free shareholders loans at its effective interest rate and accounted
for it in the consolidated financial statements. During fiscal year ended June
30, 2009, the shareholders converted an aggregate of 125,000,000 shares against
the shareholders’ loan at a total conversion price of $12,500.
    33
   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 Joannes 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
  FINANCIAL
DISCLOSURE CONTROLS AND PROCEDURES
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to our
management, including our president (also our principal executive officer) and
our secretary, treasurer and chief financial officer (also our principal
financial and accounting officer) to allow for timely decisions regarding
required disclosure.
    34
 
 As of
March 31, 2010, the end of our second quarter covered by this Quarterly Report,
we carried out an evaluation, under the supervision and with the participation
of our president (also our principal executive officer and our principal
financial and accounting officer), of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on the foregoing, our
president (also our principal executive officer and chief financial officer also
our principal financial and accounting officer) concluded that our disclosure
controls and procedures were effective in providing reasonable assurance in the
reliability of our financial reports as of the end of the period covered by this
Quarterly Report.
 
 Inherent
limitations on effectiveness of controls
 
 Internal
control over financial reporting has inherent limitations which include but is
not limited to the use of independent professionals for advice and guidance,
interpretation of existing and/or changing rules and principles, segregation of
management duties, scale of organization, and personnel factors. Internal
control over financial reporting is a process which involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting also can be
circumvented by collusion or improper management override. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements on a timely basis, however these inherent limitations
are known features of the financial reporting process and it is possible to
design into the process safeguards to reduce, though not eliminate, this risk.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
 
 Changes
in Internal Control over Financial Reporting
 
 There
have been no significant changes in our internal controls over financial
reporting that occurred during the quarter ended March 31, 2010 that have
materially or are reasonably likely to materially affect, our internal controls
over financial reporting.
 
 Audit
Committee
 
 Our Board
of Directors has not established an audit committee.  The respective
role of an audit committee has been conducted by our Board of Directors. We are
contemplating establishment of an audit committee during fiscal year 2010. When
established, the audit committee's primary function will be to provide advice
with respect our financial matters and to assist our Board of Directors in
fulfilling its oversight responsibilities regarding finance, accounting, and
legal compliance. The audit committee's primary duties and responsibilities will
be to: (i) serve as an independent and objective party to monitor our financial
reporting process and internal control system; (ii) review and appraise the
audit efforts of our independent accountants; (iii) evaluate our quarterly
financial performance as well as its compliance with laws and regulations; (iv)
oversee management's establishment and enforcement of financial policies and
business practices; and (v) provide an open avenue of communication among the
independent accountants, management and our Board of Directors.
    35
   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
   Not
applicable.
   ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  CORNELL
CAPITAL PARTNERS LP/HIGHGATE HOUSE FUNDS LTD.
 
 We
previously entered into a forbearance and settlement agreement (the “Forbearance
and Settlement Agreement”) with Cornell Capital Partners LP (“Cornell”) and
Highgate House Funds, Ltd. (“Highgate”). On December 29, 2006, we completed a
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.
    36
 
 The
payment plan under the Forbearance and Settlement Agreement is as
follows:
 
 Payment Date
              
              Cash Payment
              
              Conversion
      of DebentureMarch
      10, 2007
              $
              250,000
              
              250,000June
      30, 2007
              
              375,000
              
              375,000October
      31, 2007
              
              375,000
              
              375,000January
      31, 2008
              
              250,000
              
              250,000July
      31, 2008
              
              625,000
              
              625,000$
              1,875,000
              
              1,875,000
  As of
March 31, 2008, 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, were not
paid as of March 31, 2008.
   During
the nine month period ended March 31, 2010 and fiscal year ended June 30, 2009,
an aggregate of 9,600,000 and 266,655,667 shares, respectively, of our common
stock were issued pursuant to conversion of the debt at a total conversion price
of $11,436 and $144,532.
   ITEM
3. DEFAULTS UPON SENIOR SECURITIES
   Not
applicable.
  ITEM
4.  REMOVED AND RESERVED
 
 Not
applicable.
 
 ITEM
5. OTHER INFORMATION
 
 Not
applicable.
    37
  ITEM
6. EXHIBITS
   The
following exhibits are filed as part of this Quarterly Report:
  Exhibit31.1
              
              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.
 
 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:
      May 17, 2010
                By:
      /s/ XIANPING WANGXianping
      WangPresident/Chief
      Executive OfficerDated:
      May 17, 2010
                By: /s/ XIANPING WANGXianping
      WangActing
      as Interim Chief Financial Officer