**U.S. SECURITIES AND EXCHANGE COMMISSION					Washington, D.C.  20549****FORM 10-Q						QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)						OF THE SECURITIES EXCHANGE ACT OF 1934**

| For Quarter Ended December 31, 2006 | Commission File Number 000-33195 |
|-------------------------------------|----------------------------------|
| **Nevada**(State or other jurisdiction of								incorporation or organization)                                                                                                                                                 | **       **       | **88-0437644**(IRS Employer Identification No.) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|-------------------------------------------------|
| **         **                                                                                                                                                                      | **        ** | **       **  |
| **A-11 Chaowai Men Property Trade										Center Office Building										No. 26 Chaoyanmen Wai Street,Chaoyang District, Beijing,										People’s Republic of China**								(Address of Principal Executive Offices) | **        ** | **100020**(Zip Code)                            |
| **         **                                                                                                                                                                      |
| **86-10-85656588**(Issuer’s telephone number)                                                                                                                                                                             |
|                                                                                                                                                                                    |
| **N/A**(Former name, former address and former fiscal year, if changed since last report)                                                                                                                                       |
|                                                                                                                                                                                                                       |

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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, or a non-accelerated.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one)

Large accelerated Filer  __  Accelerated Filer  __  Non-accelerated Filer   X _

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2

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

Yes      No  X

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

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

Yes        No       

**Applicable only to corporate issuers**

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

| Class                            | Outstanding as of February 1, 2006 |
|----------------------------------|------------------------------------|
| Common Stock, $0.00001 par value | **51,779,765**                     |

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3

**Table of Contents**
| **PART I    FINANCIAL INFORMATION** |                                                                                                                                     |
|---------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|                                               |                                                                                                                                     |  |
|                                                         | Forward Looking Statements...........................................................................................               | 4 |
|                                               |                                                                                                                                     |  |
| Item 1                                                  | Financial Statements........................................................................................................        | 4 |
|                                               |                                                                                                                                     |  |
| Item 2.                                                 | Management's Discussion and Analysis of Financial Condition and Results of Operations..                                             | 5 |
|                                               |                                                                                                                                     |  |
| Item 3.                                                 | Quantitative and Qualitative Disclosures About Market Risk.............................................                             | 13 |
|                                               |                                                                                                                                     |  |
| Item 4.                                                 | Controls and Procedures.................................................................................................            | 14 |
|                                               |                                                                                                                                     |  |
| **Part II     OTHER INFORMATION**   |                                                                                                                                     |
|                                               |                                                                                                                                     |  |
| Item 1.                                                 | Legal Proceedings...........................................................................................................        | 14 |
|                                               |                                                                                                                                     |  |
| Item 1A.                                                | Risk Factors....................................................................................................................    | 14 |
|                                               |                                                                                                                                     |  |
| Item 2.                                                 | Unregistered Sales of Equity Securities and Use of Proceeds............................................                             | 19 |
|                                               |                                                                                                                                     |  |
| Item 3.                                                 | Defaults Upon Senior Securities.......................................................................................              | 19 |
|                                               |                                                                                                                                     |  |
| Item 4.                                                 | Submission of Matters to a Vote of Security Holders........................................................                         | 19 |
|                                               |                                                                                                                                     |  |
| Item 5.                                                 | Other Information............................................................................................................       | 19 |
|                                               |                                                                                                                                     |  |
| Item 6.                                                 | Exhibits........................................................................................................................... | 19 |
|                                               |                                                                                                                                     |  |
|                                                         | Signatures........................................................................................................................  | 20 |

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4

**FORWARD LOOKING STATEMENTS**

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instruction for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and notes normally provided in audited financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2006 included in the annual report previously filed on Form 10-K.  In the opinion of management all adjustments consisting of normal recurring accruals considered necessary for fair presentation have been included.

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

**PART I—FINANCIAL INFORMATION**

**Item 1. Financial Statements**

| **XINHUA CHINA LTD. AND SUBSIDIARIES****Condensed Consolidated Financial Statements****For The Six Months Period Ended December 31, 2006****(Unaudited)**

****** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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5

**XINHUA CHINA LTD. AND SUBSIDIARIES****INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****(UNAUDITED)**

|                                                             | **Page**        |
|-------------------------------------------------------------|-----------------|
|                                                   |                 |
| Condensed Consolidated Balance Sheets                  | F-2             |
| Condensed Consolidated Statements of Operations        | F-3             |
| Condensed Consolidated Statements of Cash Flow              | F-4             |
| Notes to Condensed Consolidated Financial Statements   | F-5 – F-20 |

F-1

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6

**XINHUA CHINA LTD. AND SUBSIDIARIES						CONDENSED CONSOLIDATED BALANCE SHEETS						AS OF DECEMBER 31, 2006 AND JUNE 30, 2006						(Currency expressed in United States Dollars (“US$”), except for number of shares)**

| ****

****                                                                                                                                                                  | Notes | December 31, 2006                       |  | June 30,2006                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|-----------------------------------------|--|-----------------------------------------|
| ****                                                                                                                                                                        |       | (unaudited)                             |  | (audited)                     |
| **ASSETS**                                                                                                                                                                  |       |                                         |  |                                         |
| Current assets:                                                                                                                                                             |       |                                         |  |                                         |
|    Cash and cash equivalents                                                                                                                                 |       | $      167,135 |  | $      224,192 |
|    Accounts receivable                                                                                                                                       |       | 138,820                                 |  | -                                       |
|    Note receivable                                                                                                                                           | 6     | 1,264,910                               |  | -                                       |
|    Receivable from a trustee                                                                                                                                 | 7     | 1,500,000                               |  | 1,500,000                               |
|    Other receivables and prepayments                                                                                                                         |       | 219,236                                 |  | 60,916                                  |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| Total current assets                                                                                                                                                        |       | 3,290,101                               |  | 1,785,108                               |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| Non current assets:                                                                                                                                                         |       |                                         |  |                                         |
|    Note receivable, long-term portion                                                                                                                        | 6     | 610,090                                 |  | -                                       |
|    Property, plant and equipment, net                                                                                                                        | 8     | 117,057                                 |  | 129,566                                 |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| ****

**TOTAL ASSETS**                                                                                                                                                      |       | $    4,017,248           |  | $     1,914,674     |
|                                                                                                                                                                             |       | =============                           |  | =============                           |
|                                                                                                                                                                   |       |                                         |  |                                         |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                              |       |                                         |  |
| Current liabilities:                                                                                                                                                        |       |                                         |  |                                         |
|    Accounts payable and accrued liabilities                                                                                                                  | 9     | $      669,385 |  | $      565,862 |
|    Deposits received                                                                                                                                         | 5     | 252,982                                 |  | -                                       |
|    Deferred revenue                                                                                                                                          | 5, 6  | 87,195                                  |  | -                                       |
|    Bank overdrafts                                                                                                                                           |       | -                                       |  | 1,642                                   |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| Total current liabilities                                                                                                                                                   |       | 1,009,562                               |  | 567,504                                 |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| Non-current liabilities:                                                                                                                                                    |       |                                         |  |                                         |
|    Convertible debenture                                                                                                                                     | 10    | 3,750,000                               |  | 4,347,234                               |
|    Loans from shareholders                                                                                                                                   | 11    | 4,092,520                               |  | 3,784,432                               |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| Total non-current liabilities                                                                                                                                               |       | 7,842,520                               |  | 8,131,666                               |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| ****

**TOTAL LIABILITIES**                                                                                                                                                 |       | 8,852,082                               |  | 8,699,170                               |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| **Stockholders’ deficiency:            **                                                                 |       |                                         |  |                                         |
|    Common stock,							   $0.00001 par value; 500,000,000 shares authorized;							   51,779,765 shares issued and outstanding |       | 518                                     |  | 618                                     |
|    Additional paid-in capital                                                                                                                                |       | 9,943,926                               |  | 9,684,907                               |
|    Accumulated other comprehensive income                                                                                                                    |       | 6,025                                   |  | 19,478                                  |
|    Accumulated deficit                                                                                                                                       |       | (14,785,303)                            |  | (16,489,499)                            |
|                                                                                                                                                                             |       |                                         |  |                                         |
|                                                                                                                                                                   |       |                                         |  |                                         |
| ****

**Total stockholders’ deficiency**                                                                                                                              |       | (4,834,834)                             |  | (6,784,496)                             |
|                                                                                                                                                                             |       |                                         |  |                                         |
|   						
****                                                                                                                                                     |       |                                         |  |                                         |
| **TOTAL LIABILITIES AND								STOCKHOLDERS’ DEFICIENCY**                                                                                                             |       | $     4,017,248     |  | $     1,914,674     |
|                                                                                                                                                                             |       | =============                           |  | =============                           |

----

|                                                                                              |       | Three months endedDecember 31,                         |  | Six months endedDecember 31,                 |
|----------------------------------------------------------------------------------------------|-------|--------------------------------------------------------|--|----------------------------------------------|
|                                                                                              | Notes | 2006                                                   |  | 2005                                         |  | 2006 |  | 2005 |
|   							
****                                                                     |       |                                                        |  |                                              |  |  |  |  |
| **Revenue**                                                                                  |       | $     102,435                      |  | $   9,146,838                      |  | $    152,655 |  | $   25,215,829 |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| **Cost of revenue**                                                                          |       | 98,937                                                 |  | 8,102,395                                    |  | 144,386 |  | 22,504,822 |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| **Gross profit**                                                                             |       | 3,498                                                  |  | 1,044,443                                    |  | 8,269 |  | 2,711,007 |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| Operating expenses:                                                                          |       |                                                        |  |                                              |  |  |  |  |
|    Selling, general and administrative                                        |       | 278,488                                                |  | 2,110,829                                    |  | 739,919 |  | 4,402,245 |
|    Stock-based compensation                                                   | 12    | 66,815                                                 |  | 918,550                                      |  | 135,480 |  | 1,873,763 |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| Total operating expenses                                                                     |       | 345,303                                                |  | 3,029,379                                    |  | 875,399 |  | 6,276,008 |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| ****

**Loss from operations**                                                               |       | (341,805)                                              |  | (1,984,936)                                  |  | (867,130) |  | (3,565,001) |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| **Other income (expense):**                                                                  |       |                                                        |  |                                              |  |  |  |  |
|    Interest income                                                            |       | -                                                      |  | 186,591                                      |  | 477 |  | 252,274 |
|    Interest expense                                                           |       | (88,725)                                               |  | (495,743)                                    |  | (859,802) |  | (785,467) |
|    Gain on debt restructuring                                                 | 10    | 1,275,132                                              |  | -                                            |  | 1,275,132 |  | - |
|    Gain on disposal of a subsidiary                                           | 5     | 2,155,519                                              |  | -                                            |  | 2,155,519 |  | - |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
| ****                                                                                         |       | 3,341,926                                              |  | (309,152)                                    |  | 2,571,326 |  | (533,193) |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| **Income (loss) before minority									   interest and income taxes**        |       | 3,000,121                                              |  | (2,294,088)                                  |  | 1,704,196 |  | (4,098,194) |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
| Minority interest in net loss of								   consolidated subsidiaries          |       | -                                                      |  | 168,383                                      |  | - |  | 256,594 |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
| ****

**Income (loss) before income taxes**                                                  |       | 3,000,121                                              |  | (2,125,705)                                  |  | 1,704,196 |  | (3,841,600) |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| Income tax expense                                                                           | 13    | -                                                      |  | -                                            |  | - |  | - |
|                                                                                              |       |                                                        |  |                                              |  |  |  |  |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| **Net income (loss)**                                                                        |       | $    3,000,121                          |  | $  (2,125,705)                          |  | $  1,704,196 |  | $  (3,841,600) |
|                                                                                              |       | ===========                                            |  | ===========                                  |  | =========== |  | =========== |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| Net income (loss) per common share								   – Basic                     |       | $         0.06 |  | $       (0.03) |  | $        0.03 |  | $       (0.06) |
|                                                                                              |       | ===========                                            |  | ===========                                  |  | =========== |  | =========== |
| Net income (loss) per common share								   – Diluted                   |       | $         0.05 |  | $       (0.03) |  | $        0.03 |  | $       (0.06) |
|                                                                                              |       | ===========                                            |  | ===========                                  |  | =========== |  | =========== |
|                                                                                    |       |                                                        |  |                                              |  |  |  |  |
| Weighted average number of common								   shares outstanding – Basic   |       | 51,779,765                                             |  | 61,779,765                                   |  | 52,279,765 |  | 61,779,765 |
|                                                                                              |       | ===========                                            |  | ===========                                  |  | =========== |  | =========== |
| Weighted average number of common								   shares outstanding – Diluted |       | 57,793,110                                             |  | 61,779,765                                   |  | 58,293,110 |  | 61,779,765 |
|                                                                                              |       | ===========                                            |  | ===========                                  |  | =========== |  | =========== |

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|                                                                                                                                        | Six months ended December 31,                            |
|----------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
|                                                                                                                                        | 2006                                                     |  | 2005 |
| **Cash flows from operating activities:**                                                                                              |                                                          |  |  |
| Net income (loss)                                                                                                                      | $   1,704,196                                  |  | $   (3,841,600) |
| Adjustments to reconcile net income (loss) to net cash (used in)							   provided by operating activities:             |                                                          |  |  |
|    Depreciation                                                                                                         | 24,060                                                   |  | 417,049 |
|    Stock-based compensation                                                                                             | 135,480                                                  |  | 1,873,763 |
|    Minority interest in net loss of consolidated subsidiaries                                                           | -                                                        |  | (256,594) |
|    Amortization of deferred financing costs and fair value							      conversion feature | 677,898                                                  |  | 180,052 |
|    Imputed interest expenses                                                                                            | 123,539                                                  |  | 166,409 |
|    Gain on disposal of a subsidiary                                                                                     | (2,155,519)                                              |  | - |
|    Gain on debt restructuring                                                                                           | (1,275,132)                                              |  | - |
| Changes in assets and liabilities:                                                                                                     |                                                          |  |  |
|    Accounts receivable                                                                                                  | (138,820)                                                |  | 3,078,670 |
|    Inventories                                                                                                          | -                                                        |  | (439,047) |
|    Other receivables and prepayments                                                                                    | (158,320)                                                |  | (257,328) |
|    Accounts payable and accrued liabilities                                                                             | 101,881                                                  |  | 191,858 |
|                                                                                                                                        |                                                          |  |  |
|   						
****                                                                                                                |                                                          |  |  |
| Net cash (used in) provided by operating activities                                                                                    | (960,737)                                                |  | 1,113,232 |
|                                                                                                                                        |                                                          |  |  |
|   						
****                                                                                                                |                                                          |  |  |
| **Cash flows from investing activities:******                                                                                          |                                                          |  |  |
|    Proceeds from disposal of a subsidiary, Boheng                                                                       | 252,982                                                  |  | - |
|    Purchase of property, plant and equipment                                                                            | (11,551)                                                 |  | (504,214) |
|                                                                                                                                        |                                                          |  |  |
|   						
****                                                                                                                |                                                          |  |  |
| Net cash provided by (used in) investing activities                                                                                    | 241,431                                                  |  | (504,214) |
|                                                                                                                                        |                                                          |  |  |
|                                                                                                                              |                                                          |  |  |
| **Cash flows from financing activities:**                                                                                              | ****                                                     | **** | **** |
|    Loans from (repayments to) shareholders                                                                              | 675,702                                                  |  | (542,461) |
|    Contribution from minority interests of Xinhua C&D                                                               | -                                                        |  | 604,684 |
|    Proceeds from convertible debenture                                                                                  | -                                                        |  | 1,013,460 |
|    Restricted cash                                                                                                      | -                                                        |  | 370,214 |
|                                                                                                                                        |                                                          |  |  |
|                                                                                                                              |                                                          |  |  |
| Net cash provided by financing activities                                                                                              | 675,702                                                  |  | 1,445,897 |
|                                                                                                                                        |                                                          |  |  |
|                                                                                                                              |                                                          |  |  |
| **Foreign currency translation adjustment**                                                                                            | (13,453)                                                 |  | (24,180) |
|                                                                                                                              |                                                          |  |  |
| ****

**NET CHANGE IN CASH AND CASH EQUIVALENTS**                                                                                      | (57,057)                                                 |  | 2,030,735 |
|   						
****                                                                                                                |                                                          |  |  |
| **CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD**                                                                                     | 224,192                                                  |  | 1,336,269 |
|                                                                                                                                        |                                                          |  |  |
|                                                                                                                              |                                                          |  |  |
| **CASH AND CASH EQUIVALENTS, END OF PERIOD**                                                                                           | $     167,135                        |  | $    3,367,004 |
|                                                                                                                                        | ============                                             |  | ============ |
|   						
****                                                                                                                |                                                          |  |  |
| **SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION**                                                                                   |
|    Cash paid for income taxes                                                                                           |           - |  |             - |
|                                                                                                                                        | ============                                             |  | ============ |
|    Cash paid for interest expenses                                                                                      |      -                               |  |     439,006 |
|                                                                                                                                        | ============                                             |  | ============ |

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**NOTE – 1     BASIS OF PRESENTATION**The accompanying unaudited condensed consolidated financial statements of Xinhua China Ltd. and subsidiaries as of December 31, 2006 and for the six months period ended December 31, 2006 and 2005 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America to be included in full year financial statements.					The condensed consolidated financial statements include the accounts of Xinhua China Ltd. and its subsidiaries (“Xinhua China” or the “Company”). The Company consolidates all subsidiaries and applies the cost method for all other investments. All material intercompany balances, transactions and profits have been eliminated.					In the opinion of management, all adjustments considered necessary for fair statement of these interim financial statements have been made. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the six months period ended December 31, 2006 are not necessarily indicative of results that may be expected for the fiscal year ending June 30, 2007. For further information, refer to the condensed consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2006.					Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform with current period presentation.**NOTE – 2     BUSINESS ORGANIZATION**Xinhua China Ltd. was incorporated as Camden Mines Limited in the State of Nevada, United States of America, on September 14, 1999. Up to September 2004, the Company was a non-operating shell company and considered as a development stage enterprise since its inception. On October 12, 2004, the Company changed its company name to Xinhua China Ltd.  The Company has an office in Vancouver, Canada.					On September 22, 2004, the Company’s subsidiaries, Pac-Poly Investment Ltd. (“Pac-Poly”) and Beijing Boheng Investments and Management Co., Ltd. (“Boheng”) jointly entered into an Investment Agreement (“Investment Agreement”) with Xinhua Bookstore (Main Store) (“Xinhua Bookstore”) to acquire a 57.67% interest in publication distribution business in the People’s Republic of China (“PRC”). Pursuant to the Investment Agreement, Xinhua Bookstore transferred the publication distribution business into a newly formed Chinese company, called Xinhua C&D. Pac-Poly and Boheng agreed to contribute $20.9 million (RMB173 million) in cash in exchange for 57.67% interest in Xinhua C&D. The acquisition was completed on February 1, 2005. As of May 31, 2006, the Company reduced its equity interest in Xinhua C&D from 56.14% to 7.98%. 					Subsequent to the deconsolidation of Xinhua C&D in May 2006, the Company commenced the internet book distribution business through Beijing Joannes Information Technology Co., Ltd. (“Joannes”).					On December 28, 2006, the Company disposed all of its equity interest in Boheng for a consideration of US$1,875,000 (equivalent to RMB15,000,000).

F-5

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Details of the Company’s subsidiaries as of December 31, 2006 are described below:
| Name                                                         | Place of							incorporation							and kind oflegal entity           | Principal activitiesand place of operation | Particulars of							issued/registeredshare capital      | Effective							interestheld |
|--------------------------------------------------------------|----------------------------------------------------------------------|--------------------------------------------|----------------------------------------------------------|------------------------------|
|                                                    |                                                            |                                  |                                                |                    |
| 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%                         |
|                                                    |                                                            |                                  |                                                |                    |
| Beijing Joannes							Information Technology							Co., Ltd. | PRC, a company							with limited liability                          | Sales and distribution							of books, PRC | Registered capital							US$1,250,000                    | 100%                         |

F-6

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•    Basis of Consolidation				The interest of the Company in the subsidiaries was acquired by means of exchange for shares in the Company pursuant to a share exchange agreement on September 14, 2004. The transaction is considered to be 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 condensed 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.				•    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.				•    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:

|                         | Depreciable Life |
|-------------------------|------------------|
| Equipment and machinery | 3 – 6 years |
| Motor vehicles          | 5 – 8 years |
| Leasehold improvement   | 2 years          |

Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the condensed consolidated statement of operations.				•    Impairment of Long-life Assets					In accordance with SFAS No. 121, *“Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of’*, a long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  For the purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets.  The Company reviews long-lived assets, if any, to determine the carrying values are not impaired.

F-7

----

•    Revenue Recognition				Sales revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price and considers delivery to have occurred when the customer takes possession of the products. The net sales incorporate offsets for discounts and sales returns. Revenue is recognized upon delivery, risk and ownership of the title is transferred and a reserve for sales returns is recorded even though invoicing may not be completed. The Company has demonstrated the ability to make reasonable and reliable estimates of products returns in accordance with SFAS No. 48, *“Revenue Recognition When Right of Return Exists”*.				Shipping and handling fees billed to customers are included in sales. Costs related to shipping and handling are part of selling, general and administrative expenses in the consolidated statements of operations. EITF No. 00-10, *“Accounting for Shipping and Handling Fees and Costs”* allows for the presentation of shipping and handling expenses in line items other than cost of sales.				Subsequent to the deconsolidation of Xinhua C&D in May 2006, the Company continued to commence the Internet book distribution business through a subsidiary, Joannes.  For the six months period ended December 31, 2006, the Company is principally engaged in the provision of technical service on the Internet book distribution.  The revenue is recorded at an agreed fixed amount in a monthly basis and recognized after deduction of sales tax and upon the service is performed.				•    Cost of Revenues				Cost of revenues includes purchase costs to publishers from the sales and distribution of books.				Cost of revenues consists of direct labor cost in the provision of technical service.				•    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 stockholders’ 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.  For the six months period ended December 31, 2006 and 2005, total comprehensive income (loss) were $1,690,743 and ($3,865,780), respectively.				•    Income Taxes				The Company accounts for income taxes in interim periods as required by Accounting Principles Board Opinion No. 28 "Interim Financial Reporting" and as interpreted by FASB Interpretation No. 18, *"Accounting for Income Taxes in Interim Periods"*. The Company has determined an estimated annual effect tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company’s fiscal year to the Company’s best current estimate. 

F-8

----

The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.				•    Income (Loss) Per Share				The Company calculates income (loss) per share in accordance with SFAS No. 128, *“Earnings per Share”*. Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding. Diluted income (loss) per share is computed similar to basic income (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 dilutive effect of outstanding stock options, stock purchase warrants and convertible debenture, which could result in the issuance of 6,013,345 shares of common stock as of December 31, 2006 is included, in the computation of diluted income (loss) per share for that period.  The effect of such shares is excluded for the six months period ended December 31, 2005, as the effect during that period would be anti-dilutive.				•    Foreign Currencies Translation				The functional and reporting currency of the Company is the United States dollars (“U.S. dollars”). The accompanying condensed 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 condensed consolidated statement of operations is translated using a weighted average rate for the period. Translation adjustments are reflected as cumulative translation adjustments in stockholders’ deficiency.				•    Fair Value of Financial Instruments				The carrying value of the Company’s financial instruments, which include cash and cash equivalents, other receivables and prepayments, other payable and accrued liabilities, approximate their fair values due to the short-term maturity of these instruments.				•    Equity-Based Compensation				The Company adopts SFAS No. 123,*“Accounting for Stock-Based Compensation”* using the fair value method. The Company uses the Black-Scholes Option Pricing Model to estimate the fair value of options. 				The Company has issued stock options to directors, officers, employees and consultants.  As such, the Company records compensation expense for stock options and awards only if the exercise price is less than the fair market value of the stock on the measurement date.				Detailed movement of stock-based compensation has been disclosed in the note 12 to condensed consolidated financial statements.  No options were granted during the six months period ended December 31, 2006.

F-9

----

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* .				•    Recently Issued Accounting Standard				In December 2004, the FASB issued SFAS No. 153, *"Exchanges of Non-monetary Assets - an amendment of APB Opinion No.29"* ("SFAS 153"). SFAS 153 replaces the exception from fair value measurement in APB Opinion No. 29 for non-monetary exchanges of similar productive assets with a general exception from fair value measurement for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for all interim periods beginning after June 15, 2005. The adoption of SFAS 153 did not have a material impact on the Company's financial statements or results of operations.				In May 2005, the FASB issued SFAS No. 154, *"Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3"* ("SFAS 154"). SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. These requirements apply to all voluntary changes and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for fiscal years beginning after December 15, 2005. As such, the Company has adopted these provisions, if any, at the beginning of the fiscal year ended December 31, 2006.				In February 2006, the FASB issued SFAS Statement No. 155, *“Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140”* ("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” This Statement permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued for the Company for fiscal year begins after September 15, 2006. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.				In July 2006, the FASB issued FASB Interpretation No. 48,*“Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”*(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements and prescribes a

F-10

----

recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. The Company continues to evaluate the impact of FIN 48 which is to be adopted effective January 1, 2007.				In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,*“Fair Value Measurements”* (“SFAS 157”). While SFAS 157 formally defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements, it does not require any new fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is required to be adopted effective January 1, 2008 and the Company does not presently anticipate any significant impact on its consolidated financial position, results of operations or cash flows.**NOTE – 5     DISPOSAL OF A SUBSIDIARY, BOHENG**On September 30, 2006, Xinhua China entered into the agreement (the “Disposal Agreement”), and was further amended on December 25, 2006 to sell its 95% equity interest in a subsidiary, Boheng for a cash consideration of approximately $1,875,000 (equivalent to RMB15,000,000). Pursuant to the Disposal Agreement, the consideration was to be settled by the Purchaser with interest-free installments payable in a 2-year period.  The deposit of $252,982 was received during the six months period ended December 31, 2006. On December 29, 2006, the consent was given by the Holders of convertible debenture to dispose of Boheng and the disposal transaction was effectively complete thereafter. 				This disposal transaction was completed on December 31, 2006 and resulted in a net gain of $2,155,519 calculated as follows:-
| Purchase price                                            |           |  | $    1,875,000 |
|-----------------------------------------------------------|-----------|--|-------------------------------|
|                                                 |           |  |                               |
| Less: Net liabilities disposed as of December 31, 2006    |           |  |                               |
|       - Current assets      | 251,685   |  |                               |
|       - Current liabilities | (619,399) |  | (367,714)                     |
|                                                           |           |  |                               |
|                                                 |           |  |                               |
| Gain on disposal of a subsidiary, Boheng                  |           |  |   2,242,714              |
| Less:  Imputed interest on note receivable (Note 6)  |           |  | (87,195)                      |
|                                                           |           |  |                               |
|                                                 |           |  |                               |
| Net gain on disposal of a subsidiary, Boheng              |           |  | $    2,155,519 |
|                                                           |           |  | =============                 |

F-11

----

|                                                       |  | Six months period ended December 31,                            |
|-------------------------------------------------------|--|-----------------------------------------------------------------|
|                                                       |  | 2006                                                            |  | 2005 |
|   						
****                               |  |                                                                 |  |  |
| **Net revenue**                                       |  | $           - |  | $           - |
|                                             |  |                                                                 |  |  |
| Operating expenses:                                   |  |                                                                 |  |  |
|    Selling, general and administrative |  | 174,714                                                         |  | 197,031 |
|                                                       |  |                                                                 |  |  |
| ****

**Loss from operations**                        |  | (174,714)                                                       |  | (197,031) |
|                                                       |  |                                                                 |  |  |
|   						
****                               |  |                                                                 |  |  |
| Other income (expenses):                              |  |                                                                 |  |  |
| Interest income                                       |  | 57                                                              |  | - |
| Interest expenses                                     |  | -                                                               |  | (3,834) |
|                                                       |  |                                                                 |  |  |
|                                             |  |                                                                 |  |  |
| ****

**Net loss**                                    |  | $     (174,657)                             |  | $     (200,865) |
|                                                       |  | =============                                                   |  | ============= |
| Scheduled Receipt Date |  | Approximately                     |  | Equal to RMB  |
|------------------------|--|-----------------------------------|--|---------------|
| March 10, 2007         |  | $     250,000 |  | 2,000,000     |
| June 30, 2007          |  | 375,000                           |  | 3,000,000     |
| October 31, 2007       |  | 375,000                           |  | 3,000,000     |
| January 31, 2008       |  | 250,000                           |  | 2,000,000     |
| July 31, 2008          |  | 625,000                           |  | 5,000,000     |
|                        |  |                                   |  |               |
|              |  |                                   |  |               |
| Total:                 |  | $    1,875,000     |  | 15,000,000    |
|                        |  | =============                     |  | ============= |

F-12

----

Company also provided a sum of $1.5 million (RMB 12 million) to Asia-Durable being the investment capital of the Project Company in April 2006. The sum of $1.5 million is refundable at the Company’s option within one year from the date of the Agreement.  The balance is unsecured, interest-free and repayable within twelve months.**NOTE – 8    PROPERTY, PLANT AND EQUIPMENT, NET**Property, plant and equipment consist of the following:
|                                    | December 31, 2006                                  | **** | June 30, 2006****                                  |
|------------------------------------|----------------------------------------------------|------|----------------------------------------------------|
|                                    | ****                                               | **** | ****                                               |
| Equipment and machinery            | $        60,537 |      | $        48,986 |
| Motor vehicles                     | 33,866                                             |      | 33,866                                             |
| Leasehold improvement              | 71,933                                             |      | 71,933                                             |
|                                    |                                                    |      |                                                    |
|                          |                                                    |      |                                                    |
|                                    | 166,336                                            |      | 154,785                                            |
| Less: Accumulated depreciation     | (49,279)                                           |      | (25,219)                                           |
|                                    |                                                    |      |                                                    |
|                          |                                                    |      |                                                    |
| Property, plant and equipment, net | $       117,057      |      | $       129,566      |
|                                    | ===============                                    |      | ===============                                    |
|                          | December 31, 2006                             |  | June 30, 2006                                 |
|--------------------------|-----------------------------------------------|--|-----------------------------------------------|
|                |                                               |  |                                               |
| Accounts payables        | $       358,988 |  | $       191,512 |
| Accrued expenses         | 252,137                                       |  | 374,350                                       |
| Accrued interest charges | 58,260                                        |  | -                                             |
|                          |                                               |  |                                               |
|                |                                               |  |                                               |
|                          | $       669,385 |  | $       565,862 |
|                          | ===============                               |  | ===============                               |

F-13

----

|                                             | December 31, 2006                         |  | June 30, 2006                             |
|---------------------------------------------|-------------------------------------------|--|-------------------------------------------|
|                                   |                                           |  |                                           |
| Outstanding principal                       | $      3,250,000 |  | $      3,250,000 |
| Less: deferred financing costs              | -                                         |  | (198,993)                                 |
| Less: discounts                             | -                                         |  | (1,828,526)                               |
|                                             |                                           |  |                                           |
|                                   |                                           |  |                                           |
| Convertible debenture                       | 3,250,000                                 |  | 1,222,481                                 |
| Conversion feature liability                | 500,000                                   |  | 3,124,753                                 |
|                                             |                                           |  |                                           |
|                                   |                                           |  |                                           |
| Net carrying value of convertible debenture | $      3,750,000 |  | $      4,347,234 |
|                                             | ===============                           |  | ===============                           |

F-14

----

On December 13, 2005, the Company received $1,013,460, net of estimated expenses of $236,540 after all the closing conditions were satisfied and the Company filed its quarterly report for the period ended December 31, 2005 (the “First Closing”).  The First Closing also provided for the issuance to the Investors of an aggregate of 1,035,000 five-year common stock purchase warrants exercisable at a price of 0.00001 per share.  In lieu of interest, the debenture provided for an original issue discount equals to $1,073,386 and is amortized to non-cash interest expense using the effective interest rate method over the five year life of the debenture.  For the six months period ended December 31, 2006, the Company recognized approximately $11,358 (2005: $758) as interest expense from the amortization of the original issue discount.

The detachable warrants issued in connection with the First Closing of the debenture are exercisable at an exercise price of $0.00001 per share, subject to adjustment in accordance with the terms of the Agreement.  The relative fair value of these warrants was calculated to be approximately $3,622,500 using a Black-Scholes valuation model with the assumptions used as follows: risk-free interest rate of 4.44%, dividend yield of 0%, stock price volatility of 80% and an expected life of the warrants of 0.8 years.  $836,846 was allocated to the detached warrants.  The relative fair value of these warrants was recorded as a discount on the principal amount of the debenture and was amortized to interest expense using the effective interest rate method over the life of the debenture.  For the six months period ended December 31, 2006, the Company recognized approximately $17,791 (2005: $2,680) as non-cash interest expense from the amortization of the discount that arose from the issuance of these warrants.  These warrants were presented as a derivative liability in the financial statements in accordance with EITF No. 00-19 *“Accounting for derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”*.

On March 23, 2006, the Company received 1,976,000, net of estimated expenses of $24,000, upon the filing of the Form SB-2 registration statement pursuant to the terms and conditions in the Agreement (the “Second Closing”).  In lieu of interest, the debenture provided for an original issue discount equals to $1,061,048 and is being amortized to non-cash interest expense using the effective interest rate method over the five year life of the debenture. For the six months period ended December 31, 2006, the Company recognized approximately $10,924 (2005: $0) as interest expense from the amortization of the original issue discount.

The convertible debenture contained an embedded conversion feature.  For the six months period ended December 31, 2006, the Company expensed a total amount of $600,982 (2005: $176,614), which represents the changes of the fair value of the conversion feature. The conversion feature was accounted for as a derivative liability, with changes in fair value recorded in earnings each period, by applying EITF No. 00-19 “*Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock*”, as there is no explicit limit on the number of shares that are to be delivered upon exercise of the conversion feature.				Resale of the shares upon exercise of the related warrants were being registered under the Form SB-2 registration statement (File No. 333-132780) which was filed with the Securities and Exchange Commission (“SEC”) on March 29, 2006. A SEC review comment letter was received on April 28, 2006 and as of December 31, 2006, the registration statement has not become effective.				The third outstanding principal of $750,000 will be funded upon the effectiveness of the Form SB-2 registration statement (the “Third Closing”). The maturity dates of the six principal amounts are five years from the respective funding dates.

F-15

----

On December 29, 2006, the Company entered into the Forbearance and Settlement Agreement (the “Forbearance and Settlement Agreement”) with the Investors, namely Cornell Capital Partners, L.P. (“Cornell”) and Highgate House Funds, Ltd. (“Highgate”), whereby 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 (see Note 5) to repay the principal and interest due to the Investors under the Convertible Debentures in exchange for the Investors agreeing to:
    - waive on a one-time basis only any accrued liquidated damages owing to the Investors;   not apply the redemption premium on the scheduled repayments;converting the Convertible Debentures in an amount equal to at least the amount of a scheduled repayment subject to certain conditions;
- no additional liquidated damages accruing during the term of the Forbearance and Settlement Agreement;   permitting the Company to withdraw the Registration Statement filed on March 29, 2006 with the SEC in connection with the Convertible Debentures;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 six months without the consent of the Investors; and
- 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.			  In addition, Highgate shall exercise its rights to purchase warrant shares pursuant to the warrant issued to it under the Securities Purchase Agreement on November 23, 2005, on a cashless basis in an amount of 200,000 shares of common stock of the Company in every three month period with the Company’s counsel issuing a customary Rule 144 legal opinion to the extent that such warrant shares may be resold in accordance with Rule 144.  The relative fair value of these warrants was calculated to be approximately $331,200 using a Black-Scholes valuation model with the assumptions used as follows: risk-free interest rate of 4.70%, dividend yield of 0%, stock price volatility of 1181% and an expected life of the warrants of 2.5 years.    Pursuant to the Forbearance and Settlement Agreement, the Company has issued to the Investors the convertible debentures, which as of December 29, 2006, have outstanding principal of $3,250,000 and accrued and unpaid interest of $58,260.  The Company shall pay the Investors the Scheduled Payment Amounts (as set forth below) on or prior to the date that is thirty (30) business days from the date of each Scheduled Payment Date towards the repayment of the outstanding principal and interest of the Convertible Debentures.  During the time between the Investors’ receipt of each Scheduled Payment Amount, the Investors shall convert the Convertible Debentures in an amount equal to at least the amount of the prior Scheduled Payment Amount.  
F-16
   			21**XINHUA CHINA LTD. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****FOR THE SIX MONTHS PERIOD ENDED DECEMBER 31, 2006****(Currency expressed in United States Dollars (“US$”), except for number of shares)****(UNAUDITED)**  
Scheduled Payment Date

Scheduled Payment Amount

Conversion of the Debentures

March 10, 2007

$                250,000

$                250,000

June 30, 2007

375,000

375,000

October 31, 2007

375,000

375,000

January 31, 2008

250,000

250,000

July 31, 2008

625,000

625,000

December 31, 2008

Remaining balances on the								Convertible Debentures after								taking into account all								Scheduled Payments made and								all conversion as set forth in								the Forbearance and								Settlement Agreement

-
  
Total:

$               1,875,000

$               1,875,000
===========================================			As of December 31, 2006, the carrying value of the Convertible Debentures is totaled as $3,750,000 and bears interest at 2% per annum.  As a result of the debt restructuring, the gain of $1,275,132 was calculated as the difference between the fair value, as determined on the respective commitment dates, of common stock converted and the repayment of outstanding principal and accrued interest in the transaction under Securities Purchase Agreement and the Forbearance and Settlement Agreement.**NOTE – 11     LOANS FROM SHAREHOLDERS**The outstanding amounts represent cash advanced from shareholders of the Company.			These shareholders’ loans are unsecured, interest-free and not repayable within the next twelve months. For the six months period ended December 31, 2006 and 2005, the Company calculated the imputed interest expense of $123,539 and $166,409 respectively, in relation to interest-free shareholders’ loans at its effective interest rate and accounted for it in the stockholders’ deficiency.**NOTE – 12     STOCK OPTION PLAN**The board of directors approved a Stock Option Plan (the “Plan”) effective on September 4, 2004 pursuant to which directors, officers, employees and consultants of the Company are eligible to receive grants of options for the Company’s common stock. The plan has a life of ten (10) years and expires on September 4, 2014. A maximum of 20,000,000 common shares have been reserved under the plan. Each stock option entitles its holder to purchase one common share of the Company. Options may be granted for a term not exceeding ten years from the date of grant. The plan is administered by the board of directors.			The Company charged $135,480 and $1,873,763 of stock-based compensation to operations for the six months period ended December 31, 2006 and 2005 by applying the fair value method in accordance with SFAS No. 123.  During the six months period ended December 31, 2006, no options were granted or exercised.  The options outstanding as of December 31, 2006 are 4,547,000 shares of options with a weighted average exercise price of $2.28 per share.  The fair value of the stock options granted for the six months period ended December 31, 2006 was estimated, using the Black-Scholes Option Pricing
F-17
  			22**XINHUA CHINA LTD. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****FOR THE SIX MONTHS PERIOD ENDED DECEMBER 31, 2006****(Currency expressed in United States Dollars (“US$”), except for number of shares)****(UNAUDITED)**  
Model with the weighted average assumptions.  The following is a summary of the stock option information:

Range ofexercise prices

No. of optionoutstanding

Weighted								average								remaining								contractuallife (Years)

Weighted								averageexercise price

Number of								optionexercisable

Weighted								average exerciseprice

  

$ 1.01 – 2.00

580,000

4.60

$       1.47

580,000

$    1.47

$ 2.01 – 3.00

3,967,000

2.92

 $       2.40

3,914,500

$    2.40
  
4,547,000

              3.14

$       2.28

4,494,500

$    2.28
=========================================================			As of December 31, 2006, the total compensation cost related to non-vested share-based compensation arrangements granted under the Plan is recognized. **NOTE – 13     INCOME TAX**The Company is subject to US taxes at 35%. Pac-Poly is a BVI company and is not subject to income taxes.  Boheng and Joannes are subject to income taxes in the PRC.  Pursuant to the PRC Income Tax Laws, the subsidiaries are generally subject to a statutory rate of 33% (30% national income tax plus 3% local income tax).			The reconciliation of income tax rate to the effective income tax rate based on income (loss) before income taxes stated in the condensed consolidated statements of operations for the six months period ended December 31, 2006 is as follows:
The PRC

BVI

US

  

Income (loss) before income taxes

(279,354)

(59)

1,983,609

Statutory income tax rate

33%

0%

35%

(92,187)

-

694,264

  

Less:  Adjustments

- Net operating loss

92,187

-

12,750

- Gain on disposal of a PRC subsidiary

-

-

(754,432)

- Stock-based compensation

-

-

47,418

  

-

-

-

===========

===========

===========
			For the six months period ended December 31, 2005, neither the Company nor its subsidiaries had any assessable income during the period and so no provision nor benefit for income tax was recorded.**NOTE – 14     CHINA CONTRIBUTION PLAN**Full-time employees of the Company’s subsidiaries in the PRC 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
F-18
  			23**XINHUA CHINA LTD. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****FOR THE SIX MONTHS PERIOD ENDED DECEMBER 31, 2006****(Currency expressed in United States Dollars (“US$”), except for number of shares)****(UNAUDITED)**  
accrue for these benefits based on certain percentages of the employees’ salaries. The total contributions made for such employee benefits were $36,285 and $110,451 for the six months period ended December 31, 2006 and 2005, respectively.**NOTE – 15     STATUTORY RESERVES**The Company’s subsidiaries in the PRC are 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 the purpose of 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 profits from subsidiaries operating in the PRC. **NOTE – 16     CONCENTRATION OF RISK**(a)       Major Customers and Vendors				For the six months period ended December 31, 2006 and 2005, 11% and 99% of the Company’s assets were located in the PRC, respectively. Both 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 during the six months period ended December 31, 2006 and 2005.				(b)       Credit Risk				No financial instruments that potentially subject the Company to significant concentrations of credit risk. Concentrations of credit risk are limited due to the Company’s large number of transactions are on the cash basis.**NOTE – 17     COMMITMENT AND CONTINGENCIES**(a)       Operating lease commitment				The Company’s subsidiary, Boheng leases an office premise under a non-cancelable operating lease. These costs incurred under this operating lease are recorded as rental expense and totaled approximately $49,342 and $33,430 for the six months period ended December 31, 2006 and 2005, respectively. 				As of December 31, 2006, the Company has no future minimum rental payments due under a non-cancelable operating lease from the date of disposal of Boheng (see Note 5).

F-19
  			24**XINHUA CHINA LTD. AND SUBSIDIARIES****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****FOR THE SIX MONTHS PERIOD ENDED DECEMBER 31, 2006****(Currency expressed in United States Dollars (“US$”), except for number of shares)****(UNAUDITED)**  			(b)       Contractual obligations			The Company has incurred various contractual obligations and financial commitments in the normal course of the operating and financing activities. The following table illustrates the expected future contractual cash obligations as of December 31, 2006.
Payments due before December 31,

Total

2007

2008

  

Interest charges

130,000

65,000

65,000

Convertible debenture

1,875,000

1,000,000

875,000

  

Total:

2,005,000

1,065,000

940,000
====================================
F-20

**
  
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**Item 2.  Management's Discussion and Analysis of Financial Condition and Result of Operations**
  The following discussions of the Company’s results of operations and financial position should be read in conjunction with the financial statements and notes pertaining to them that appear elsewhere in this Form 10-Q. Please read in conjunction with the section entitled “Risks”, and note that this discussion contains forward-looking statements. This discussion focuses on the manner in which the Company will operate in the next year, as well as prospects for the future and the manner in which events and uncertainties known to management would cause reported financial information to not be necessarily indicative of future operating results or of the future financial condition.**Corporate Background**Xinhua China Ltd. (the “Company”) was incorporated September 14, 1999 in the State of Nevada under the company name Camden Mines Limited (“Camden”). The Company maintains its registered agent’s office at 101 Convention Center Drive, Suite 700, Las Vegas, Nevada 89109 and its principal executive office at A-11 Chaowai Men Office Building No. 26 Chaoyangmen Wai Street, Chaoyang District, Beijing.  The telephone number in Beijing is 86-10-85656588 and the facsimile number is 86-10-85656638.    Up to September 4, 2004, Camden was considered an inactive development stage enterprise since its formation and on October 12, 2004, the Company changed its name from “Camden Mines Limited” to its current name “Xinhua China Ltd.” along with increasing the authorized capital stock from 100,000,000 shares of common stock to 500,000,000 shares of common stock with a par value of $0.00001 per share. This change reflected the foundation of Xinhua China Ltd. in anticipation of acquiring an interest in the Chinese book distribution giant: Xinhua Circulation & Distribution (“Xinhua C&D”).    On September 14, 2004, the Company signed two separate Share Purchase Agreements (“Agreements”), whereby the Company issued 35,000,000 shares of its common stock in exchange for a 100% interest in Pac-Poly Investments Limited (“Pac-Poly”), a company incorporated under the laws of the International Companies Business Act Cap 291 of British Virgin Islands, and a 95% interest in Beijing Boheng Investments Limited (“Boheng”), a company incorporated under the laws of China.  The stockholders of Pac-Poly and Boheng received 16,387,000 and 18,613,000 shares of the Company’s common stock, respectively.  As part of the Agreements, a shareholder of the Company cancelled 35,000,000 shares of common stock of the Company.  Immediately prior to the share exchange, Pac-Poly and Boheng were under common control.  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 it inception.    The acquisition was accounted for as a recapitalization of Pac-Poly and Boheng because their stockholders and management have actual and effective operating control of the combined entity after the transaction.  Pac-Poly and Boheng were jointly treated as the acquiring entity for accounting purposes and the Company was         
26
  			the surviving entity for legal purposes, with net liabilities of $16,371 being assumed by Pac-Poly and Boheng.  The combined company is considered to be a continuation of the operations of Pac-Poly and Boheng.  The issued and outstanding common stock of Pac-Poly and Boheng prior to the completion of acquisition was restated to reflect the 35,000,000 shares of stock issued by the Company.			On Jan 21, 2005, through its two subsidiaries Pac-Poly and Boheng, the Company effectively acquired a 57.67% interest in Xinhua C&D - a company organized under the laws of the Peoples’ Republic of China and assigned a national distribution license in China for a wide variety of different publications including: books, periodicals, and wholesale, retail, and mail order of publicly distributed electronic publications.  The remaining shares of Xinhua C&D are held by the Chinese Government-owned Xinhua Main Bookstore and eight major Chinese publishing companies.			Xinhua C&D is presently almost exclusively a book distribution enterprise.  Xinhua C&D is in its second year of operation.  However, on May 31, 2006, the Company reduced its ownership interest in Xinhua C&D to 7.98%.**Recent Corporate Developments**The Company had originally intended to help guide Xinhua C&D through the modernization and growth of its systems and distribution strategies.  Realizing the large investment in real estate, equipment, fixed assets requirements to achieve modernization and growth, as well as the shifting of reading habits to a digital format and a dynamic and growing digital youth (age 12-25) comprising over 50% of the population, the Company’s management, after very careful consideration, effective May 31, 2006 revised its business focus to instead concentrate on the growing opportunity in online content distribution, co-publishing, and digital rights management.  While executing this strategy the Company will continue to maximize its strategic position in the publishing industry by utilizing the connections and channels it has established as a result of its interest in Xinhua C&D.    As a result of the decision to focus on digital media and co-publishing the Company was able to renegotiate its financial commitment to Xinhua C&D and eliminate the requirement to invest a further $16.7 million into Xinhua C&D to build their new distribution warehouse along with all other obligation related to the long term leasing of approximately 128 acres of land on which the warehouse was to be built.  This change has reduced the Company’s equity interest in Xinhua C&D to 7.98%.  At the same time the Company reduced its equity interest in Xinhua C&D, four of the Company’s major shareholders surrendered to the Company for cancellation in aggregate 10million shares of common stock of the Company, resulting in a total of approximately 51.7 million shares outstanding.  Xinhua C&D will remain focused on traditional distribution services for Chinese book publishers throughout China, and is expected to provide procurement services for the Company’s online e-commerce initiative.    Management of the Company believes that it will be able to establish itself as a leader in the digital media industry.  In accordance with the Company’s refocused strategic plan, the Company on:        
27
      - On November 4, 2005, the Company entered into a Consulting Services Agreement with Dial a Book Inc.  Branded as Chapter One, online readers are offered the opportunity to read the first chapter of over seventeen thousand books.  Retailer book stores can connect directly to the site and offer readers the opportunity to order directly from the Retailer once they have previewed the book online.     May 9, 2006 formed Beijing Joannes Information Technology Co. Ltd. (“Joannes”), a Chinese wholly owned subsidiary to launch a digital media content initiative with the web site branded www.geezip.com  The business focus will be to build online communities with connectivity to an ecommerce engine, allowing 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.On May 16, 2006, the Company entered into an agreement with Bear Technology Limited Company (“Bear”), a digital editing software platform.  This agreement contemplated that the Company would acquire 100% of Bear subject to certain valuations.  As of September 1, 2006, Bear has been unable to provide an auditable valuation and the Company has advised Bear that the agreement to purchase cannot be completed.		
On September 30, 2006, Xinhua China and Beijing Meixinda Science & Trade Development Ltd. (“Beijing Meixinda”) entered into a Share Transfer Agreement (the “Disposal Agreement”), which was further amended on December 25, 2006, whereby the Company agreed to dispose of its equity interest of 95% in Boheng to Beijing Meixinda for a cash consideration of approximately $1,875,000 (equivalent to RMB15,000,000). Pursuant to the Agreement, the consideration was to be settled by Beijing Meixinda paying interest-free installments over a 2-year period.  A deposit of $252,000 was received during the six month period ended December 31, 2006.  The disposal of Boheng was subject to the Company receiving the consent of the holders of convertible debentures.  Effective December 29, 2006, Xinhua through entering into a Forbearance and Settlement Agreement with Cornell Capital Partners, L.P. and Highgate House Funds, Ltd. received the required consent in order to have the Disposal Agreement effective. 
This disposal transaction was completed on December 31, 2006 and resulted in a net gain of $2,155,519
The foregoing description of the Disposal Agreement, dated September 30, 2006 and the amended Disposal Agreement, dated December 25, 2006 do not purport to be complete and are qualified in their entirety by reference to the Disposal Agreement, which is attached hereto as Exhibit 10.1, and the Disposal Agreement, which is attached hereto as Exhibit 10.2.
Effective as of December 29, 2006, the Company, Cornell Capital Partners, L.P. ("Cornell"), and Highgate House Funds, Ltd. (“Highgate”) (Cornell and Highgate, collectively referred to herein as the “Buyers”), executed a Forbearance and Settlement Agreement (the "Forbearance Agreement"), whereby the Company agrees 

28

			to make certain payments to the Buyers, with respect to the Securities Purchase Agreement (the “Securities Purchase Agreement”) entered into between the Company and the Buyers 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 Agreement.			Under the Forbearance Agreement, the Company desires to sell its 95% equity interest in its Beijing Boheng Investments subsidiary (the “Subsidiary”) for a purchase price of 15,000,000 RMB (approx. $1,890,000), which funds will be paid to the Company periodically over the course of approximately two years and which sale of the Subsidiary requires the consent of the Buyers.  In accordance with this Forbearance Agreement, the Company agrees to use the proceeds from the sale of the Subsidiary to repay the principal and interest due to the Buyers under the Convertible Debentures in exchange for the Buyers agreeing to: (i) waive on a one-time basis only any accrued liquidated damages owing to the Buyers; (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 this 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 this 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 six months without the consent of the Buyers; 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 Buyers of the first scheduled repayment amount.
In addition, Highgate shall exercise its rights to purchase warrant shares pursuant to the Warrant issued to it under the Securities Purchase Agreement on November 23, 2005, on a cashless basis in an amount of 200,000 shares of common stock of the Company in every three month period with the Company’s counsel issuing a customary Rule 144 legal opinion to the extent that such warrant shares may be resold in accordance with Rule 144.
The foregoing description of the Forbearance and Settlement Agreement does not purport to be complete and the Forbearance and Settlement Agreement attached as Exhibit 10.1 to the Form 8-K filed by the Company on January 19, 2007, is incorporated by reference into this Form 10-Q.

29

			Details of the Company’s subsidiaries as of December 31, 2006 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							held

  

  

  

  

  

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%

  

  

  

  

  

Beijing Joannes Information Technology Co., Ltd.

PRC, a company						with limited						liability

Sales and						distribution of						books

Registered capital						US$1,250,000

100%

		The condensed consolidated financial statements are those of Xinhua China’s, wholly-owned subsidiary Pac-Poly and a wholly-owned subsidiary Joannes.  Collectively, they are referred herein as the “Company”. 
Plan of Operation
The local and regional distribution business for books is competitive and fragmented in the PRC.  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 expect to form two new subsidiaries. We have already established a wholly owned subsidiary, Joannes on May 9, 2006.  Joannes is intended to be our digital media company, and it is expected to distribute all digital content for Xinhua C&D and others.  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.

30

**Results of Operations **
Owing to the deconsolidation of Xinhua C&D on May 31, 2006, the condensed consolidated statements of operations for the six months period ended December 31, 2006 includes 6 months result of operations of Joannes.
The operating results prior to the six months period ended December 31, 2005 included 3 month’s operations of Xinhua C&D as it began operation in the PRC on February 1, 2005.			During the three and six months period ended December 31, 2006, we had net sales, after taking into account sales discounts and sales return allowances, of $102,435 and $152,655. We had a gross profit of $3,498 and $8,269 which represents a gross margin of 3.0% and 5.0% on sales revenues.  The decrease in revenues and gross profit in the three months period compared to the six months period ended December 31, 2006 was mainly attributable to currency appreciation of RMB against USD during the last three months. 
During the six months period ended December 31, 2006 and 2005, we had net sales, after taking into account sales discounts and sales return allowances, of $152,655 and $25,215,829. We had a gross profit of $8,269 and $2,711,007 which represents a gross margin of 5.0% and 10.7% on sales revenues.  The decrease in revenues and gross profit in the six months period ended December 31, 2006 compared to 2005 was mainly attributable to the deconsolidation of Xinhua C&D and Joannes started the operation in e-commence business.  Gross profit margin was 3.0% and 11.4% for the three months period ended December 31, 2006 and 2005, respectively. 
For the six months ended December 31, 2006 and 2005, selling, general and administrative expenses were $739,919 and $4,402,245, respectively.  The decrease was mainly due to deconsolidation of Xinhua C&D in 2006.  We have incurred total of $278,488 and $739,919 in selling, general and administrative expenses for the three and six months period ended December 31, 2006 and 2005, respectively.  Upon the disposal of Boheng, selling, general and administrative expenses was largely decreased.			Stock-based compensation expense largely decreased to $135,480 for the six months period ended December 31, 2006 as compared to 2005 of $1,873,763.  The stock-based compensation expense was attributable to the valuation of the Stock Option Plan of the Company effective on September 4, 2004 under the fair value method in accordance with SFAS No. 123 and a majority of options were fully vested during this three months period.			We incurred $859,802 and $785,467 interest expense for the six months period ended December 31, 2006 and 2005, respectively.  For the six months period ended December 31, 2005, it was paid for the interest charged on the loans advanced from a related party of Xinhua C&D.  For the six months period ended December 31, 2006, interest expense were accrued in relation to non-cash accounting treatment of our convertible debenture and imputed interest charge on loans from shareholders, respectively. 

31

			On September 30, 2006, Xinhua China entered into the agreement (the “Disposal Agreement”), which was further amended on December 25, 2006, to sell its 95% equity interest in a subsidiary, Boheng for a cash consideration of approximately $1,875,000 (equivalent to RMB15,000,000). Pursuant to the Disposal Agreement, the consideration was to be settled by the Purchaser with interest-free installments payable in a 2-year period.  The deposit of $252,982 was received during the six months period ended December 31, 2006.  The disposal of Boheng was subject to the Company receiving the consent of the holders of convertible debentures. 			Effective December 29, 2006, the consent was given by the Holders of convertible debenture to dispose of Boheng and the disposal transaction was effectively complete thereafter. 			This disposal transaction was completed on December 31, 2006 and resulted in a net gain of $2,155,519.			Effective December 29, 2006, the Company entered into the Forbearance and Settlement Agreement (the “Forbearance and Settlement Agreement”) with the Investors, namely Cornell Capital Partners, L.P. (“Cornell”) and Highgate House Funds, Ltd. (“Highgate”), whereby 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.			We generated a net income of $3,000,121 and $1,704,196 for the three and six months period ended December 31, 2006.  			We posted a net income of $1,704,196 and a net loss of $3,841,600 for the six months period ended December 31, 2006 and 2005, respectively. **Liquidity and Capital Resources **
We incurred a net income of $1,704,196 for the six months period ended December 31, 2006 and a net loss of $3,841,600 for the six months period ended December 31, 2005. The accumulated deficit decreased from $16.49 million to $14.78 million.  We had a working capital of $2.28 million as of December 31, 2006 and a working capital of $1.22 million as of June 30, 2006. The stockholders' deficiency decreased from a balance of approximately $6.78 million as of June 30, 2006 to a balance of approximately $4.83 million as of December 31 2006.  Although these factors raise substantial doubt about the our ability to continue as a going concern, we have taken 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: (a) reductions in headcounts and corporate overhead expenses; and (b) continue to develop e-commerce business through Joannes.  We believe that these actions will enable Xinhua China to improve future profitability and cash flow in its continuing operations through June 30, 2007.  Furthermore, a disposal of Boheng may reduce further general and 

32

			administrative expense to improve the operating result.  Along with the reduction in equity interest of Xinhua C&D, we had discharged of the commitment to contribute further capital of $16.7 million into Xinhua C&D.  Ultimately, we have released the burden on the cash flow for further contribution and intended to put its resources in co-publishing and e-commerce business opportunities.			Cash used in operating activities were $960,737 for the six months period ended December 31, 2006, which mainly related to payment to settle the selling, general and administrative expenses in Boheng and Xinhua China.			Cash flows provided by investing activities were $241,431 for the six months period ended December 31, 2006, which was primarily due to deposit received from the disposal of a subsidiary, Boheng and the addition of office equipment in Joannes.			Cash flows provided by financing activities were $675,702 for the six months period ended December 31, 2006, which mainly sourced from shareholders’ loans, which are unsecured, non-interest bearing and not repayable with the next twelve months.  We had accounted for imputed interest expenses in relation to interest-free shareholders’ loans of $123,539 at its effective interest rate for the six months period ended December 31, 2006.**Off Balance Sheet Arrangement **We leased an office premise under a non-cancelable operating lease.  Upon the disposal of Boheng, there are no future minimum rental payments due under a non-cancelable operating lease as of December 31, 2006.**Subsequent Events**Other than the Forbearance and Settlement Agreement entered into between Xinhua China, Cornell Capital Partners, L.P. and Highgate House Funds, Ltd., dated effective December 29, 2006, there are no subsequent events to be reported.**Contractual Obligations**

Payments due before December 31,

Total

2007

2008

*Long Term Debt Obligation:*

Interest charges

130,000

65,000

65,000

Convertible debenture

1,875,000

1,000,000

875,000

  

Total:

2,005,000

1,065,000

940,000
====================================
Research and Development
We are involved in book distribution, and have not incurred any research or development expenditures since we began operations.

33

**Shareholders**
****
As not all beneficial shareholders have their shares registered in their names, the total number of shareholders is not known; however, our Secretary has examined the available lists and estimates there are a minimum of 120 shareholders.****
**Dividends**
Other than the stock dividend of two additional shares for each one share outstanding, which was effective July 29, 2004 and the stock dividend of four additional shares for each one share outstanding, which was effective May 15, 2001, our Board of Directors has never declared a dividend on our common stock.  Our previous losses do not permit the payment of cash dividends, and we do not expect to pay dividends on our common stock in the foreseeable future.**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 the Company.***          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 PRC’s perennial balance of trade surplus). Our loans relate mainly to trade payables and are mainly short-term. However our debt is likely to rise with physical plant in connection with expansion and, were interest rates to rise at the same time, this could become a significant impact on our operating and financing activities.

34

			We have not entered into derivative contracts either to hedge existing risks or for speculative purposes.**Item 4. Controls and Procedures**
As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective. There have been no changes in these internal controls over financial reporting that occurred during the quarter ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.**Part II—****OTHER INFORMATION****Item 1. Legal Proceedings**We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no other proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.**Item 1A.  Risk Factors****An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and its business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are all of the material risks that we are currently aware of that are facing our company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
*We have incurred losses and substantial doubt exists about our ability to continue as a going concern.*
We have incurred a net income of $3,000,121 for the period ended December 31, 2006.  We had a working capital of $2.28 million and shareholders’ deficit of $4.83 million as of December 31, 2006.  These factors raise substantial doubt about our ability to continue as a going concern.  The auditors’ report in our financial statements as at June 30, 2006 includes an explanatory paragraph that states that we have generated net losses and have a shareholders’ deficit factors which raise substantial doubt about our ability to continue as a going concern.**
**

35

*Trading on the OTC Bulletin Board may be sporadic because it is not a stock exchange, and stockholders may have difficulty reselling their shares.*Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with the Company’s operations or business prospects. The OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex. Accordingly, you may have difficulty reselling any of our shares you purchase.
**
*We have substantial debt obligations, including certain debt obligations secured by all of our assets.  If we are unable to repay such obligations, our business will likely fail.*$1,009,562 of our debt as of December 31, 2006 were current liabilities, due within the next year, unless extended.  Such substantial debt obligations could affect our status as a going concern and also represent a concentration of risk which could pose a serious concern.  Our ability to repay debt will be dependent on cash flow from the business and our ability to raise new funds in the form of loans, debt or equity in the next year.  We have $3,750,000 in long term debt due on or before December 31, 2008 in connection with recent debt restructuring arrangement with Highgate House Funds, Ltd. and Cornell Capital Partners, L.P.*Chinese tax and other laws may negatively impact our business results.*We conduct our business in China through our subsidiaries. China currently has a number of laws related to various taxes imposed by both federal and regional governmental authorities. Applicable taxes include value-added tax, corporate income tax, and payroll and worker and welfare taxes, along with others. Laws related to some of these taxes have not been in force for a significant period, in contrast to more developed market economies and regulations for their implementation are often unclear or incomplete. Often, differing opinions regarding legal interpretation exist both among and within government ministries and organizations; thus creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose severe fines, penalties and interest charges. These facts create tax risks in China substantially more significant than typically found in countries with more developed tax systems.
We believe that we are in substantial compliance with the tax laws affecting our operations; however, the risk remains that the relevant authorities could take differing positions with regard to interpretive issues and the effect could be significant. The fact that a year has been reviewed does not close that year, or any tax declaration applicable to that year, from further review.
Chinese company law as it applies to foreign invested corporations (our current subsidiaries Boheng and Joannes) requires them to maintain dedicated reserves which include a general reserve and a reserve for enterprise expansion. The dedicated reserves are appropriated from net income after taxes, determined under the relevant Chinese accounting regulations, at a rate set by the Board of Directors of the respective subsidiaries, and record as a component of shareholders’ equity. These reserves are not distributable, other than upon liquidation. No appropriation has been made for the year as our subsidiaries recorded losses.			Similar provisions of Chinese company law require the Board of Directors at their discretion to transfer a certain amount of their annual net income after taxes, as 

36

				determined under the relevant Chinese accounting regulations, to a staff welfare and bonus fund. No such transfer was made for the fiscal period, as the subsidiaries recorded losses.*Because our common stock is subject to penny stock rules, the liquidity of your investment may be restricted.*
**
Our common stock is now, and may continue to be in the future, subject to the penny stock rules under the Securities Exchange Act of 1934. These rules regulate broker/dealer practices for transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker/dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These additional penny stock disclosure requirements are burdensome and may reduce the trading activity in the market for our common stock. As long as the common stock is subject to the penny stock rules, holders of our common stock may find it more difficult to sell their securities.
*NASD sales practice requirements may also limit a stockholder’s ability to buy and sell our shares of common stock.*
In addition to the “penny stock” rules described above, the National Association of Securities Dealers Inc. has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the National Association of Securities Dealers Inc. believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The National Association of Securities Dealers Inc. requirements make it more difficult for broker-dealers to recommend that their customers buy our shares of common stock, which may limit your ability to buy and sell our shares of common stock and have an adverse effect on the market for its shares.
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*We will need to restructure our business to maximize our profitability and cash flow.*
We may experience significant fluctuations in our operating results and rate of growth.  Due to our limited operating history and our evolving business model, and the unpredictability of the future of our industry, we may not be able to accurately forecast our rate of growth. We base our current and future expense levels and our investment plans on estimates of future net sales. Our expenses and investments are to a large extent fixed, and we may not be able to adjust our spending quickly enough if our net sales fall short of our expectations.
Our revenue and operating profit growth depends on the continued growth of demand for books offered by our customers and partners, and our business is affected by

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				business conditions in China and, indirectly, worldwide. Revenue growth may not be sustainable and our company-wide percentage growth rate may decrease in the future.*We may be unable to protect our intellectual property, particularly in light of Chinese intellectual property laws.*Intellectual property rights are evolving in China, trending towards international norms, but are by no means fully developed. We have not had significant involvement in intellectual property to date. The application of intellectual property rights to protect our foreign clients’ and partners’ media will likely be necessary in the future. Protection is needed at a minimum against piracy; legal action may be needed and all legal action involves risk and expenses.*We operate in a competitive industry and our failure to compete effectively may adversely affect our ability to generate revenue*.
Foreign direct investment in China has increased rapidly in the last 20 years and the investment environment has further improved to encourage foreign and local investors to invest in fields other than those considered by the government of the Peoples’ Republic of China to be sensitive. Distribution channels have been opened up to new foreign investment subject to Peoples’ Republic of China government guidelines.  Many companies are involved in the electronic and traditional publishing and distribution of literary and entertainment material.  There is no guarantee that other competitors will not become involved in business similar to ours.  If this occurs, there may be competitors with greater financial resources and to the extent that such competitors compete on the basis of price, this could affect our results of operations and our ability to continue operations.
*We may not be able to hire and retain the personnel we need to sustain our business.*
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We depend on the continued services of our executive officers and other key personnel. The loss of or failure to attract key personnel could significantly impede our financial plans, growth, and other objectives. We believe that our future success will depend in large part on our ability to attract and retain additional highly skilled and qualified personnel and to expand, train and manage our employee base. We may not continue to be successful in doing so, because the competition for qualified personnel in China is intense.  If we are unable to attract and retain qualified personnel, we may never achieve profitability.
*We may not be able to enter new markets, which may impair our ability to grow.*
Our ability to enter into new markets is dependent upon the availability of quality products and demand of these products in China.  Thus, it is important for us to develop relationships with publishers and distributors of foreign (mainly English-language) books and media contents to expedite their import, translation and distribution through electronic and traditional channels nationwide in China. There is no guarantee that we can develop relationships with foreign publishers and distributors.  Currently, foreign books and media contents are not commonly available in China, therefore, we are not able to quantify the demand of foreign books and media contents in China.  As such we cannot predict our probability of success in this new market.
*Exchange rate fluctuations may negatively impact our business.*
Our reporting currency is the United States Dollar but our functional currency in China is the Renminbi.  As such, rate fluctuations may have a material impact on our consolidated financial reporting and make realistic revenue projections difficult.  Additionally, as Renminbi is the functional currency of Beijing Joannes Information 

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			Technology Co., Ltd. (“Joannes”), Xinhua C&D and Boheng, the fluctuation of exchange rates of Renminbi may have positive or negative impacts on our results of operations.*Chinese funds remittance policies may not allow us to maximize our profitability.*Pursuant to Chinese company law applicable to foreign investment companies, our current Chinese subsidiaries, Joannes, and Boheng, as well as our minor interest in Xinhua C&D, are required to maintain dedicated reserves, which include a general reserve and an enterprise expansion reserve.  The dedicated reserves are to be appropriated from net income after taxes, determined under the relevant Chinese accounting regulations at a rate determined by the board of directors of the respective subsidiaries, and recorded as a component of shareholders’ equity.  The dedicated reserves are not distributable other than upon liquidation.  As Joannes, and Boheng, as well as Xinhua C&D have recorded losses for the six month period ended December 31, 2006, no appropriation to the dedicated reserves was made.			Pursuant to the same Chinese company law, our subsidiaries are required to transfer at the discretion of their boards of directors, a certain amount of its annual net income after taxes as determined under the relevant Chinese accounting regulations to a staff welfare and bonus fund.  As Joannes and Boheng, as well as Xinhua C&D have recorded losses for the six month period ended December 31, 2006, no transfer to the staff welfare and bonus fund was made.
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*A decline in the price of our shares of common stock could affect our ability to raise further working capital and adversely impact our operations.*
A prolonged decline in the price of our shares of common stock could result in a reduction in the liquidity of our shares of common stock and a reduction in our ability to raise capital. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop our business and continue our current operations. If the stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.
*If we issue additional shares of common stock in the future this may result in dilution to our existing stockholders.*
Our articles of incorporation, as amended, authorize the issuance of 500,000,000 shares of common stock. Our board of directors has the authority to issue additional shares of common stock up to the authorized capital stated in the articles of incorporation. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. It will also cause a reduction in the proportionate ownership and voting power of all other stockholders.
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*As a result of a majority of our directors and officers being residents of other countries other than the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our company or our directors and officers.*
We do not currently maintain a permanent place of business within the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our 

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			company or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				          **N/A**Item 3. Defaults Upon Senior Securities				          **N/A**Item 4. Submission of Matters to a Vote of Security Holders				          **N/A**Item 5. Other Information				          **N/A**Item 6. Exhibits**

(a)      Exhibit List
10.1     Disposal Agreement among Xinhua China Ltd. and Beijing Meixinda Science & Trade Development Ltd., dated September 30, 2006.  10.2Disposal Agreement among Xinhua China Ltd. and Beijing Meixinda Science & Trade Development Ltd., dated December 25, 2006.  31.1Certificate pursuant to Rule 13a-14(a)   31.2Certificate pursuant to Rule 13a-14(a)  32.1Certificate pursuant to 18 U.S.C. §1350  32.2Certificate pursuant to 18 U.S.C. §1350
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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be sign on its behalf by the undersigned thereunto duly authorized.				                                                                                                         **Xinhua China Ltd.**Date: February 14, 2007                                                                   Per:      /s/ Clement Wu                                                                                                                                        Clement Wu, Chief Financial Officer				                                                                                                               and a Director