UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
Mark One
[X]     ANNUAL REPORT UNDERSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934

                     For the fiscal year ended June 30, 2008

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

                For the transition period from ______ to _______

                        Commission file number: 000-33195

                                XINHUA CHINA LTD.
                                _________________
                 (Name of small business issuer in its charter)

                     NEVADA                                      88-0437644
                     ______                                      __________
 (State or other jurisdiction of incorporation               (I.R.S. Employer
                or organization)                             Identification No.)

                         YUANJIA INTERNATIONAL APARTMENT
                             BUILDING #1, SUITE 304
                             NO. 40 DONGZHONG STREET
                       DONGCHENG DISTRICT, BEIJING 100027
                           PEOPLE'S REPUBLIC OF CHINA
                           __________________________
                    (Address of principal executive offices)


                                 86-10-64168816
                                 ______________
                           (Issuer's telephone number)

Securities registered pursuant to Section     Name of each exchange on which
            12(b) of the Act:                          registered:
                   NONE
                   ____

Securities registered pursuant to Section 12(g) of the Act:
          COMMON STOCK, $0.000025 PAR VALUE
          _________________________________
                   (Title of Class)

Check whether the issuer is not required to file reports  pursuant to Section 13
or Section 15(d) of the Act. [X]

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing  requirements  for the past 90 days. Yes [X ] No[ ]

                                       1
<PAGE>


Check if there is nondisclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ X ]

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

The issuer's revenues for the fiscal year ended June 30, 2008 were $0.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates computed by reference to the average bid and asked prices of such
common equity, as of September 28, 2008: approximately $333,635.

The number of shares of common stock of the issuer  outstanding and the date is:
October 7, 2008: 82,460,118






                                       2


<PAGE>


                               XINHUA CHINA LTD.

                                   FORM 10-KSB

                                     PART I

Item 1.         Description of Business

Item 2.         Description of Property



Item 5.         Market for Common Equity and Related Stockholder Matters
                and Small Business Issuer Purchases of Equity Securities.

Item 6.         Management's Discussion and Analysis or Plan of Operations.

Item 7.         Financial Statements.

Item 8A(T).     Controls and Procedures.



                                       3
<PAGE>

                                    PART III


Item 9.         Directors, Executive Officers, Promoters, Control Persons
                and Corporate Governance; Compliance with Section 16(a)
                of the Exchange Act.

Item 10.        Executive Compensation.

Item 11.        Security Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters.

Item 12.        Certain Relationships and Related Transactions and Director
                Independence.

Item 13.        Exhibits.

Item 14.        Principal Accountant Fees and Services.


                           FORWARD LOOKING STATEMENTS

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

AVAILABLE INFORMATION

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



                                       4
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OUR BUSINESS AND PLANS-SUMMARY

Our company,  Xinhua China Ltd. ("Company") was incorporated  September 14, 1999
under  the laws of the State of  Nevada,  USA.  We have  certain  digital  media
distribution  and related  rights in "China" where we mostly operate and seek to
pursue  our  business.  We are in the  development  stage  seeking  to grow  our
Company.

We are  focused  to  develop  a plan for  funding,  sales,  marketing  and other
benefits relating to China and this plan may include other related pursuits such
as  assisting  one or  more  USA or  international  companies  to  navigate  the
regulatory  demands of doing related business in China and to possibly join with
us by joint  venture or similar  arrangement  to pursue  business  in one of the
World's  if  not  the  World's  most  rapidly  growing  financial  and  consumer
population environments. As part of this we still seek to establish ourselves as
a  leader  in the  digital  media  industry  first in  China  and then  possibly
elsewhere.  We intend to  maximize  our  strategic  position  in the  publishing
industry.

We are  developing a new business  plan focused on the upcoming New Year of 2009
to  achieve  several  key areas or goals:  restructure  certain  aspects  of our
organization and relationships  after careful  consideration as part of our plan
to grow our  Company  and  revenues;  focus on market  awareness  of our Company
primarily making those investors in the USA stock markets aware of us, given our
arrangements,  discussed below, with the People's Republic of China (China) seek
how we can expand our business in both our core  license  rights and to possibly
obtain other  benefits or rights  similar in nature,  and seek  acquisitions  of
mainly  China  companies or assets that may be the subject of  registrations  or
"spin-off" transactions in the USA markets, both stock and business trade, given
the extensive  energy,  time and expense we have been through in learning  about
the  markets.  These  plans need to be  developed  and  approved by the Board of
Directors, which we also plan to restructure by adding Directors to expand.

We are subject to many risks and there is no assurance of success in our plans.

CHINA MARKET/DEMOGRAPHICS

We believe  the  country  (China),  where we  primarily  seek to pursue our core
business,  offers a tremendous emerging  marketplace of consumers.  It is key to
our business and plans, first in importance in understanding who we are and what
we may achieve, and the country when coupled with both are favorable status with
the paternal but market savvy government and certain government related contract
rights, we face the potential for major marketing,  sales and revenues,  subject
of course to many factors like obtaining  sufficient  capital  funding and being
successful in our business plans.

                                       5

<PAGE>

Foreign  direct  investment  in China has  increased  rapidly in the last twenty
years and the investment  environment has further improved to encourage  foreign
and local  investors  to invest in fields  other  than those  considered  by the
government of China to be sensitive.  Distribution  channels have been opened up
to new foreign investment subject to China government guidelines. Many companies
are involved in the electronic and  traditional  publishing and  distribution of
literary  and  entertainment  material.   There  are  competitors  with  greater
financial resources than us.

PAST BUSINESS DEVELOPMENT

Since  formation  and up to September  4, 2004,  our Company was  considered  an
inactive development stage enterprise.  On October 12, 2004, we changed our name
from "Camden Mines  Limited" to our current  corporate  name "Xinhua China Ltd."
The change in  corporate  name  reflected  plan of  acquiring an interest in the
Chinese book  distribution  giant" Xinhua  Circulation &  Distribution  ("Xinhua
C&D").  Please note that  throughout  this Annual Report,  and unless  otherwise
noted, the words "we," "our," "us," or the "Company" refer to Xinhua China Ltd.

XINHUA CIRCULATION & DISTRIBUTION-HISTORY

Major  Agreement/National  Rights.  During September 2004, pursuant to the terms
and provisions of an investment agreement (the "Investment Agreement") among our
two  subsidiaries,  identified  below,  Pac-Poly  and Beijing  Boheng and Xinhua
Bookstore  (Main Store) ("Xinhua  Bookstore"),  we acquired a 57.67% interest in
the  publication  distribution  business in the People's  Republic of China (the
"National  Rights").  We  reduced  our  interest  in Beijing  Boheng:  effective
December 31, 2006, we disposed of our  approximately  95% equity interest in our
subsidiary,  Beijing  Boheng.  Recent Event: On August 25, 2008, the Company and
the Purchaser of Boheng agreed to terminate the  consummation  of acquisition of
Boheng whereby the 70,500,000 shares  representing 96.58% of interests in Boheng
as  held  by  the  Purchaser  will  be  transferred   back  to  the  Company  in
consideration of the forbearance of Note Receivable $1,625,000  representing the
unpaid balance of the purchase price. Please also refer to the Company Financial
Statements for further  details.  The statements  herein regarding  Boheng,  the
"Note" and related should be considered in light of this recent event.


The National  Rights  amount to the ability for our Company,  subject to funding
and certain other considerations,  to develop, and institute a marketing,  sales
and  distribution  plan  in  the  country  of  China,  a  major  market,  as  to
publications    mostly   of   a   consumer   oriented   nature.    (See,   China
Market/Demographics.)

In accordance with the terms and provisions of the Investment Agreement,  Xinhua
Bookstore transferred the publication  distribution business into a newly formed
Chinese company called Xinhua Circulation & Distribution ("Xinhua C&D").

Xinhua C&D is presently primarily a book distribution enterprise.

Rise of Electronic Media/Shift.  We had originally intended to help guide Xinhua
C&D  through  the  modernization  and  growth of its  systems  and  distribution
strategies.  Realizing  the large  investment in real estate,  equipment,  fixed
assets requirements to achieve modernization and growth, as well as the shifting
of reading  habits to a digital  format and a dynamic and growing  digital youth
(age 12-25)  comprising over 50% of the population,  our management,  after very
careful  consideration,  effective May 31, 2006,  revised our business  focus to
instead concentrate on the growing  opportunity in online content  distribution,
co-publishing,  and digital rights management. While executing this strategy, we
will continue to maximize our strategic  position in the publishing  industry by
utilizing the  connections  and channels we have  established as a result of our
interest in Xinhua C&D.

                                       6

<PAGE>

Significant  Debt  Reduction.  As a result of the  decision  to focus on digital
media and co-publishing, we were able to renegotiate our financial commitment to
Xinhua C&D and eliminate the  requirement to invest a further  $16,700,000  into
Xinhua C&D. As of May 31, 2006, we reduced our ownership  interest in Xinhua C&D
to 7.98%.  The reduction in ownership does not,  however,  reduce our government
granted rights to undertake the projected  lucrative business of distribution of
publications.  Xinhua  C&D  will  remain  focused  on  traditional  distribution
services  for  Chinese  book  publishers  throughout  China,  and is expected to
provide  procurement  services for our online  e-commerce  initiative.  In other
words, we still have the electronic distribution rights.

CURRENT SUBSIDIARIES

         PAC-POLY INVESTMENTS LIMITED

On  September  14,  2004,  we signed  two  separate  share  purchase  agreements
(collectively,  the "Share Purchase  Agreements"),  whereby we issued 35,000,000
shares  of our  restricted  common  stock in  exchange  for a 100%  interest  in
Pac-Poly  Investments  Limited,  a  company  incorporated  under the laws of the
International   Companies  Business  Act  Cap  291  of  British  Virgin  Islands
("Pac-Poly"),  and a 95%  interest  in Beijing  Boheng  Investments  Limited,  a
company  incorporated under the laws of China ("Beijing Boheng"),  respectively.
The  shareholders  of  Pac-Poly  and  Beijing  Boheng  received  16,387,000  and
18,613,000  shares of our restricted common stock,  respectively.  In accordance
with the  terms  and  provisions  of the Share  Purchase  Agreement,  one of our
shareholders  returned to us 35,000,000 shares of common stock held of record by
such  shareholder  and the shares  were  cancelled  and  returned  to  treasury.
Immediately  prior to consummation of the respective Share Purchase  Agreements,
Pac-Poly and Beijing  Boheng were under common  control.  Subsequently,  Beijing
Boheng spun off all of its business and net assets to its president and became a
non-operating  shell company.  Pac-Poly had no significant  operations since its
inception.

The acquisition was accounted for as a recapitalization  of Pac-Poly and Beijing
Boheng  because  their  shareholders  and  management  have actual and effective
operating  control of the combined  entity after the  transaction.  Pac-Poly and
Beijing  Boheng were  jointly  treated as the  acquiring  entity for  accounting
purposes  and we  were  the  surviving  entity  for  legal  purposes,  with  net
liabilities  of $16,371  being  assumed by  Pac-Poly  and  Beijing  Boheng.  The
combined  company  is  considered  to be a  continuation  of the  operations  of
Pac-Poly and Beijing Boheng. The issued and outstanding common stock of Pac-Poly
and Beijing  Boheng  prior to the  completion  of  acquisition  was  restated to
reflect the 35,000,000 shares of stock issued by us.

As of the date of this Annual Report, we hold of record 100% of the total issued
and outstanding shares of Pac-Poly,  which is our wholly-owned subsidiary and we
are completing the reversal of a past  transaction,  discussed below, so that we
receive back our 96.58% interest in Boheng and now own it also.


                                       7

<PAGE>

         BEIJING JOANNES INFORMATION TECHNOLOGY CO. LT.

On May 9,  2006,  we formed  Beijing  Joannes  Information  Technology  Co.  Lt.
("Beijing Joannes"), as our Chinese wholly owned subsidiary, to launch a digital
media  content  initiative.  We hold of  record  100% of the  total  issued  and
outstanding  shares of  Beijing  Joannes.  Beijing  Joannes  was  formed for the
purpose of launching a digital media content  initiative.  The business focus is
building online  communities  with  connectivity to an ecommerce  engine,  which
allows for the online purchase of e-books,  e-audio,  and computer  games.  Hard
copies of books can also be  purchased  through the portal.  We believe a unique
customer loyalty program and digital  redemption or trade-in  strategy will be a
market differentiator.

ITEM 2. DESCRIPTION OF PROPERTY.

We maintain our registered  agent's office at 101 Convention Center Drive, Suite
700,  Las Vegas,  Nevada  89109 and our  principal  executive  office at YuanJia
International  Apartment,  Building  #1,  Suite 304,  No. 40  Dongzhong  Street,
Dongcheng District, Beijing.


                                     PART II

ITEM 5.  MARKET FOR COMMON  EQUITY AND  RELATED  STOCKHOLDER  MATTERS  AND SMALL
BUSINESS PURCHASES OF EQUITY SECURITIES.

MARKET FOR COMMON EQUITY

Shares of our common stock are traded on the OTC  Bulletin  Board (OTC BB) under
the symbol XHUA.  The  following  table sets forth the high and low sales prices
relating to our common stock on a quarterly  basis for the last two fiscal years
as quoted by the OTC BB. These quotations  reflect  inter-dealer  prices without
retail  mark-up,   mark-down,  or  commissions,   and  may  not  reflect  actual
transactions.

QUARTER ENDED                HIGH BID          LOW BID

June 30, 2008                $0.005            $0.003
March 31, 2008               $0.004            $0.002
December 31, 2007            $0.011            $0.011
September 30, 2007           $0.03             $0.025
June 30, 2007                $0.07             $0.04
March 31, 2007               $0.23             $0.19



As of  September  26, 2008,  we had 30  shareholders  of record,  which does not
include  shareholders  whose  shares  are held in street or  nominee  names.  We
believe that there are approximately  1,000 such beneficial owners of our common
stock. While Management has a goal of improving corporate value, share price and
liquidity, there is no guarantee this will occur.

                                       8

<PAGE>

DIVIDEND POLICY

No dividends  have ever been  declared by the Board of  Directors  and we do not
anticipate  dividends in the near  future.

SECURITIES  AUTHORIZED  FOR ISSUANCE UNDER COMPENSATION PLANS

We have one equity  compensation  plan, the Xinhua China Ltd. Stock Option Plan.
The  purpose  of the Stock  Option  Plan is to  advance  our  interests  and our
shareholders  by affording our key personnel an  opportunity  for investment and
the  incentive  advantages  inherent in stock  ownership in us.  Pursuant to the
provisions of the Stock Option Plan, stock options, stock awards, cash awards or
other  incentives (the "Stock Options and  Incentives")  will be granted only to
our key  personnel,  generally  defined as a person  designated  by the Board of
Directors upon whose judgment,  initiative and efforts we may rely including any
of our directors,  officers,  employees,  consultants or advisors.  A maximum of
20,000,000  shares of common  stock have been  reserved  under the Stock  Option
Plan. Options may be granted for a term not exceeding ten years from the date of
grant. Under the Stock Option Plan, the Board of Directors previously authorized
the  grant  of  4,255,000  The  entire   4,255,000  Stock  Options,   previously
authorized, have expired by their terms as of June 30, 2007.

The table below presents the securities  authorized for issuance with respect to
the Stock Option Plan as of June 30, 2008:

EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>

                                                                                  WEIGHTED-AVERAGE       NUMBER OF SECURITIES
                                                     NUMBER OF SECURITIES TO     EXERCISE PRICE OF     REMAINING AVAILABLE FOR
                                                     BE ISSUED UPON EXERCISE        OUTSTANDING         FUTURE ISSUANCE UNDER
                                                     OF OUTSTANDING OPTIONS,     OPTIONS, WARRANTS    EQUITY COMPENSATION PLANS
                                                       WARRANTS AND RIGHTS           AND RIGHTS         (EXCLUDING COLUMN (A))
PLAN CATEGORY                                                  (A)                      (B)                      (C)

<S>                                                             <C>                    <C>                       <C>
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS

Stock Options                                                          -0-                                        20,000,000

Total Stock Options                                                    -0-                                        20,000,000

EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS

Warrants                                                           622,690                 $4.60                           0

                                                                   835,000              $0.00001                           0

                                                                   100,000                 $1.47                           0

Total warrants                                                   1,557,690

Total                                                            1,557,690

</TABLE>

                                       9

<PAGE>


XINHUA CHINA LTD. STOCK OPTION PLAN

The Stock Option Plan is to be  administered  by our Board of  Directors,  which
shall determine (i) the persons to be granted Stock Options and Incentives; (ii)
the Fair  Market  Value of our  shares;  (iii) the  exercise  price per share of
options  to be  granted;  (iv) the  number of shares to be  represented  by each
option or incentive  award; (v) the time or times at which options and incentive
awards shall be granted; (vi) the interpretation of the Stock Option Plan; (vii)
whether to prescribe,  amend and rescind rules and  regulations  relating to the
Stock Option Plan;  (viii) the term and  provisions or each option and incentive
award granted (which need not be identical) and, with the consent of the grantee
thereof,  modify or amend  such  option or  incentive  award;  (ix)  whether  to
accelerate  or defer (with the consent of the grantee) of the  exercise  date of
any  option or  incentive  award;  (x) the  person to  execute on our behalf any
instrument  required to  effectuate  the grant of an option or  incentive  award
previously  granted by the Board;  (xi) whether to accept or reject the election
made by a grantee  pursuant to Section 7.5 of the Stock Option  Plan;  and (xii)
all other determinations deemed necessary or advisable for the administration of
the Stock Option Plan. The Stock Option Plan provides authorization to the Board
of Directors to grant Stock  Options and  Incentives to a total number of shares
of our common stock,  not to exceed Twenty  Million  (20,000,000)  shares of our
common  stock as at the date of adoption by the Board of  Directors of the Stock
Option Plan.

In the  event  an  optionee  who is one of our  directors,  officers,  employees
(employee also encompasses consultants and advisors where such is appropriate or
where such is  intended  by the Board or by a  particular  grant under the Stock
Option Plan) (each an "Employee") has his employment terminated by us, except if
such  termination  is voluntary or occurs due to retirement  with the consent of
the Board or due to death or  disability,  then the Stock Option,  to the extent
not exercised,  shall  terminate on the date on which the Employee's  employment
with us is terminated.  If an Employee's  termination is voluntary or occurs due
to  retirement  with the consent of the Board,  then the  Employee may after the
date such Employee ceases to be one of our employees, exercises his Stock Option
at any time  within  three (3) months  after the date he ceases to be one of our
Employees,  but only to the extent  that he was  entitled  to exercise it on the
date of such  termination.  To the extent that the  Employee was not entitled to
exercise  the Stock  Option at the date of such  termination,  or if he does not
exercise such Stock Option  (which he was entitled to exercise)  within the time
specified  herein,  the option  shall  terminate.  In no event may the period of
exercise  in the case of  Incentive  Options  extend  more than three (3) months
beyond termination of employment.

In the event an  Employee  is unable to  continue  his  employment  with us as a
result of his permanent and total  disability (as defined in Section 22(e)(3) of
the Internal  Revenue Code), he may exercise his Stock Option at any time within
six (6)  months  from the date of  termination,  but only to the  extent  he was
entitled to exercise it at the date of such  termination.  To the extent that he
was not entitled to exercise the Stock Option at the date of termination,  or if

                                       10

<PAGE>

he does not exercise such option (which he was entitled to exercise)  within the
time specified  herein,  the Stock Option shall  terminate.  In no event may the
period of exercise in the case of an Incentive  Option  extend more than six (6)
months beyond the date the Employee is unable to continue employment due to such
disability.

In the event an optionee  dies during the term of the Stock Option and is at the
time of his death an  Employee  who shall have been in  continuous  status as an
Employee  since  the  date of grant  of the  option,  the  Stock  Option  may be
exercised at any time within six (6) months  following  the date of death by the
optionee's  estate or by a person who  acquired  the right to exercise the Stock
Option by bequest or  inheritance,  but only to the extent that an optionee  was
entitled to exercise the Stock Option on the date of death, or if the optionee's
estate, or person who acquired the right to exercise the Stock Option by bequest
or  inheritance,  does not exercise  such Stock Option (which he was entitled to
exercise) within the time specified herein, the Stock Option shall terminate. In
no event may the period of exercise in the case of an  Incentive  Option  extend
more than six (6) months beyond the date of the Employee's death.

Except to the extent  otherwise  expressly  provided  in an award,  the right to
acquire  shares or other assets under the Stock Option Plan may not be assigned,
encumbered  or  otherwise  transferred  by an  optionee  and any  attempt  by an
optionee to do so will be null and void.  However Stock  Options and  Incentives
granted under this Stock Option Plan may be  transferred  by an optionee by will
or the laws of descent and  distribution  or  pursuant  to a qualified  domestic
relations  order  as  defined  by the  Internal  Revenue  Code or Title I of the
Employee  Retirement  Income Security Act, as amended,  or the rules thereunder.
Unless  assigned  in  accordance  with the terms of an award,  options and other
awards  granted  under this Stock  Option  Plan may not be  exercised  during an
optionee's  lifetime  except by the optionee or, in the event of the  optionee's
legal incapacity,  by his guardian or legal representative acting in a fiduciary
capacity on behalf of the optionee under state law and court supervision.

Our shares  may be  subjected  to  additional  sales  practice  requirements  on
broker/dealers  who sell such  securities  to  persons  other  than  established
customers and accredited investors (generally institutions with assets in excess
of  $5,000,000 or  individuals  with net worth in excess of $1,000,000 or annual
income  exceeding  $200,000  or  $300,000  jointly  with  their  spouses).   The
broker/dealer  may  need to make a  special  suitability  determination  for the
purchase and have received the purchaser's  written agreement to the transaction
prior to the sale. Other compliance rules may apply.

RECENT SALES OF UNREGISTERED SECURITIES

As of the date of this Annual Report and during fiscal year ended June 30, 2008,
we sold or issued stock in private placement offerings, issued stock in exchange
for our debts or pursuant to contractual  agreements.  These  transactions  were
conducted  under  one or more  possible  exemptions  from  registration  such as
Section 4(2) of the Securities  Act of 1933, as amended,  or Regulation D of the
Commission. Securities were marked as restricted securities.

                                       11

<PAGE>

FORBEARANCE AND SETTLEMENT AGREEMENT

Effective  December 29, 2006, we entered into a forbearance  and settlement (the
"Forbearance  and Settlement  Agreement")  with Cornell Capital  Partners,  L.P.
("Cornell") and Highgate House Funds, Ltd. ("Highgate").  In accordance with the
terms and provisions of the Forbearance and Settlement  Agreement,  we agreed to
make  certain  payments to Cornell and Highgate  with respect to the  securities
purchase  agreement  dated  November 23, 2005, as amended on March 23, 2006 (the
"Securities  Purchase  Agreement")  previously  entered  into with  Cornell  and
Highgate. See "Item Management's  Discussion and Analysis or Plan of Operation."

In  addition,  Highgate  may  exercise  its rights to  purchase  warrant  shares
pursuant to the Warrant issued to it under the Securities  Purchase Agreement on
a cashless basis. During fiscal year ended June 30, 2008, we issued an aggregate
of 44,016,843 shares of our common stock to Highgate pursuant to the exercise by
Highgate of its rights to purchase warrant shares pursuant to the Warrant.

MARKET CONSIDERATIONS

Our Company is  suffering  from stock  price and volume  volatility  issues.  In
simple terms,  these may be attributed to a variety of factors,  in our opinion,
and this may include  natural,  as in the case of  downward  trends in the stock
market, or man made, as in the case of potential  profiting on our stock through
abusive short selling tactics. These factors are broad, like the market concerns
involving  the  economy,  and more  specific  like  the lack of any  responsible
promotion and public  relationships such as market awareness  campaigns,  mostly
non-existent,  and  also  possibly  due to  stock  conversion  or  similar  debt
retirement relationships that may be driving down the stock price or potentially
not allowing  upward  movement.  We are reviewing  possible  options and actions
considering  the advice of lawyers  and others  taking  into  consideration  the
regulatory  environment,  recent, seeking to stop short selling, and what may be
favorable potential judicial support in light of the many abuses small companies
face from  market  "players,"  and public and  government  pressure to end short
selling and seeking to stop market manipulation.  We are considering our trading
history  and the  actions  of  shareholders,  creditors  and others on our stock
trading. While we have not completed a review, nor can we say any conclusions at
this time,  we intend or at least hope to  vigorously  analyze prior and current
credit and stock related  obligations,  including  those  developed in the past,
current relationships,  and other factors, and it may, no assurance, be a change
in circumstance through settlement,  suit,  government complaints against firms,
or other actions all as legally permissible and reasonable.

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS  OR PLAN OF OPERATION.

OVERVIEW

Effective  December  31,  2006,  we  disposed  of our  approximately  95% equity
interest in our  subsidiary,  Beijing  Boheng,  which  resulted in a net gain of
$2,155,519  incurred  during fiscal year ended June 30, 2007. We need capital to
implement  our plans.  We don't expect to fund our business from cash flow until
later in the future.  We are burdened with obligations but also see ourselves as
having tremendous  opportunities if we can improve our plans, obtain capital and
restructure ourselves to a certain extent.

Recent Event: On August 25, 2008, the Company and the Purchaser of Boheng agreed
to terminate the  consummation  of  acquisition of Boheng whereby the 70,500,000
shares  representing 96.58% of interests in Boheng as held by the Purchaser will
be transferred  back to the Company in  consideration of the forbearance of Note
Receivable  $1,625,000  representing  the unpaid balance of the purchase  price.
Please also refer to the Company Financial  Statements for further details.  The
statements herein regarding Boheng,  the "Note" and related should be considered
in light of this recent event.


                                       12

<PAGE>


RESULTS OF OPERATION

FOR FISCAL YEAR ENDED JUNE 30, 2008 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2007.

         REVENUES AND GROSS MARGIN

During  fiscal year ended June 30, 2008,  we had net revenue of $-0- as compared
to net revenue of $153,286  during  fiscal year ended June 30, 2007 after taking
into account sales discounts and sales return allowances.  Our cost of sales for
fiscal  year ended June 30,  2008 was $-0-  compared to cost of sales for fiscal
year  ended  June  30,  2006.  Cost of sales  consisted  of  purchased  costs to
publishers and  depreciation of property,  plant and equipment.  Net revenue and
cost of sales  decreased  proportionately  with the decrease in revenues  during
fiscal  year ended June 30, 2008  compared  with fiscal year ended June 30, 2007
due to the divesture of our interest in Xinhua C&D. Gross profit margin was 5.4%
for fiscal year ended June 30, 2007.

         OPERATING EXPENSES

Our total  operating  expenses were $374,767 for fiscal year ended June 30, 2008
as compared to total operating expenses of $2,997,598 for fiscal year ended June
30,  2007.  During  fiscal year ended June 30, 2008,  our  selling,  general and
administrative  expenses  consisted of: (i)  allowance for doubtful  accounts of
$-0- (2007:  $1,500,000);  (ii) legal and  professional  fees of $108,111 (2007:
$279,815);  (iii) office expenses of $14,162 (2007: $91,085);  (iv) salaries and
benefits of $99,117 (2007:  286,015);  (v) shipping and freight of $9,557 (2007:
$241); (vi) vehicle expense of $13,595 (2007: $33,761); and (vii) other expenses
of $130,225 (2007:  $806,683).  The decrease in operating expenses during fiscal
year ended June 30, 2008 as compared June 30, 2007 was due to the  corresponding
decrease in net revenues and decrease in scope and scale of business operations.
These  associated  expenses  included  in selling,  general  and  administrative
expenses  correspondingly  decreased  due to the  divesture  of our  interest in
Xinhua C&D.

Selling,  general and  administrative  expenses decreased based on a substantial
decrease in allowance for doubtful  accounts from $1,500,000  during fiscal year
ended June 30, 2007 to $-0- during  fiscal  year ended June 30,  2008.  Selling,
general and administrative  expenses also decreased based on a decrease in legal
and  professional  fees from $279,815  during fiscal year ended June 30, 2007 to
$108,111 during fiscal year ended June 30, 2008. The fees represent  payments to
consultants  and  professional  in relation  to our fund  raising of issuance of
convertible  debentures  primarily  to Cornell and  Highgate and other legal and
financial  matters.   Selling,   general  and  administrative  expenses  further
decreases  based on a decrease in salaries and  benefits  from  $286,015  during
fiscal  year ended June 30,  2007 to $99,117  during  fiscal year ended June 30,
2008.

         NET GAIN ON DISPOSAL OF BEIJING BOHENG

Effective  December 2006 and in accordance  with the terms and provisions of the
Disposal  Agreement,  we disposed of our 95% equity  interest in our subsidiary,
Beijing Boheng,  for cash consideration in the approximate amount of $1,875,000.
The disposal of our equity  interest was to assist in the repayment of funds due
and owing to Cornell and Highgate.  Effective December 29, 2006, we entered into

                                       13

<PAGE>

the  Forbearance  and  Settlement  Agreement  with  Cornell  and  Highgate.  See
"Material  Commitments".   This  disposal  provided  a gain  in  the  amount  of
$2,055,947 during fiscal year ended June 30, 2007, which is calculated below:

         Purchase price                                              $1,875,000

         Less: net liabilities disposed as of December 31, 2006
                  Fixed Assets, net                                      99,572
                  Current Assets                                        251,685
                  Current Liabilities                                  (619,399)
                                                                     ___________
                                                                       (268,142)

                  Gain on disposal of Beijing Boheng                 $2,143,142
                  Less: Imputed interest on note receivable             (87,195)
                                                                     ___________
                  Net gain on disposal of Beijing Boheng              $2,055,947

         GAIN ON DEBT RESTRUCTURING

On December  29,  2006,  we completed  the debt  restructuring  with Cornell and
Highgate  under the terms  and  provisions  of the  Forbearance  and  Settlement
Agreement.  In accordance  with the terms and provisions of the  Forbearance and
Settlement Agreement, we agreed to make certain payments to Cornell and Highgate
with respect to the Securities  Purchase Agreement  previously entered into with
Cornell and  Highgate on November 23, 2005 and as amended  March 23,  2006,  and
those  certain  convertible  debentures  in the amount of $1,250,000 to Highgate
dated  November  23,  2005 and  $2,000,000  to  Cornell  dated  March  23,  2006
(collectively, the "Convertible Debentures"). See "Material Commitments."

As a result of the debt restructuring arrangement, during fiscal year ended June
30, 2007, our  liabilities on warrants,  conversions,  discounts were discharged
resulting in a net gain of $1,500,132 attributable as follows:

         Liabilities on Conversion Discharged                       $ 2,334,198
         Liabilities on Warrants Discharged                             891,537
         Loans Discharged                                               225,000
         Unamortized Discounts                                       (1,950,603)
                                                                    ___________
                                                                    $ 1,500,132

         INTEREST EXPENSE

We incurred  $383,928 in interest expense during fiscal year ended June 30, 2008
as compared to $1,032,448  incurred as interest expense during fiscal year ended
June 30, 2007.  Interest  expense of $383,928  incurred during fiscal year ended
June 30, 2008 consisted of: (i) $314,865  (2007:  $961,544) in imputed  interest
charged on loans from shareholders;  (ii) $19,435 (2007: $70,904) in interest on
loans from related parties;  and (iii) $49,628 (2007:  $-0-) in interest expense
from the  amortization  of deferred  financing  cost and discount on convertible
debenture.

                                       14

<PAGE>


We  incurred  a net loss of  ($690,924)  for fiscal  year  ended  June 30,  2008
compared to a net loss of ($608,630)  incurred during fiscal year ended June 30,
2007.

LIQUIDITY AND CAPITAL RESOURCES

FISCAL YEAR ENDED JUNE 30, 2008

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

As at fiscal year ended June 30, 2008,  our current  assets were  $2,298,746 and
our current liabilities were $2,749,336,  resulting in a working capital deficit
of  $450,590.  As at fiscal  year  ended  June 30,  2008,  current  assets  were
comprised  of: (i) $38,733 in cash and cash  equivalents;  (ii)  $411,782 in net
accounts receivable;  (iii) $1,625,000 in note receivable;  and (iv) $223,231 in
other  receivables and  prepayments.  The note  receivable  represents the sales
proceeds  receivable  from the disposal of Beijing Boheng in accordance with the
terms and  provisions of the Disposal  Agreement.  Pursuant to the provisions of
the Disposal  Agreement,  the sales proceeds are receivable in five installments
and are due in full no later than July 31,  2008.  As of the date of this Annual
Report, the scheduled  payments of $375,000,  $375,000,  $250,000,  $625,000 due
September  30,  2007,  October 31,  2007,  January  31, 2008 and July 31,  2008,
respectively,  remain unpaid. The balance is unsecured and interest-free.  As at
fiscal year ended June 30, 2008, our current  liabilities were comprised of: (i)
$1,095,538  in accounts  payable and accrued  liabilities;  (ii)  $1,635,443  in
current portion of loans payable; and (iii) $18,355 in deferred revenue. See " -
Material Commitments."

As at fiscal  year  ended  June 30,  2008,  our  total  assets  were  $2,372,532
comprised  of:  (i)  $2,298,746  in  current  assets;  and (ii)  $73,786  in net
property,  plant and equipment.  The increase in total assets during fiscal year
ended June 30, 2008 from fiscal  year ended June 30, 2007 was  primarily  due to
the long-term portion of note receivable in the amount of $1,625,000.

As at fiscal year ended June 30, 2008,  our total  liabilities  were  $9,217,853
comprised of: (i) $2,749,336 in current  liabilities;  (ii)  $1,058,261 in loans
payable; and (iii) $5,410,256 in loans from shareholders. The slight increase in
total liabilities  during fiscal year ended June 30, 2008 from fiscal year ended
June 30, 2007 was primarily due to the increase in loans from shareholders.

Stockholders'   deficit  decreased  from  ($6,664,709)  for  June  30,  2007  to
($6,845,321) for June 30, 2008.

         OPERATING ACTIVITIES

We have not generated  positive  cash flows from  operating  activities.  During
fiscal year ended June 30, 2008, net cash flow used in operating  activities was
($111,775)   compared  to  net  cash  flow  used  in  operating   activities  of
($2,908,974)  during  fiscal  year  ended June 30,  2007.  Net cash flow used in

                                       15

<PAGE>

operating  activities during fiscal year ended June 30, 2008 consisted primarily
of a net loss of ($690,924) adjusted by $466,703 in imputed interest expense and
$13,768 in  amortization  of deferred  imputed  interest  from note  receivable.
Changes in assets and  liabilities  consisted  of an  increase  of  $226,536  in
accounts receivable, $22,045 in other receivables and prepayments and $55,072 in
deferred  revenue,  and a decrease of  $402,331 in accounts  payable and accrued
liabilities.  Net cash flowed used in operating  activities  during  fiscal year
ended June 30, 2007 consisted  primarily of a net loss of ($608,030) adjusted by
$24,834 in stock based compensation,  $265,080 in net gain on deconsolidation of
a subsidiary,  $1,032,448 in imputed interest  expense,  $1,500,000 in allowance
for doubtful accounts,  $1,500,000 in loss on discontinuance of Vancouver office
and  ($2,055,947)  in net gain on  deconsolidation  of a subsidiary.  Changes in
assets  and  liabilities  consisted  of an  increase  of  $185,246  in  accounts
receivable,  $1,625,000 in note receivable and $140,270 in other receivables and
prepayments,  and a  decrease  of  $125,703  in  accounts  payable  and  accrued
liabilities and $73,427 in deferred revenue.

         INVESTING ACTIVITIES

During  fiscal  year  ended  June 30,  2008,  net cash  flow  used in  investing
activities was ($59,692) compared to net cash flow used in investing  activities
of $-0- for fiscal  year ended June 30,  2007.  Net cash flow used in  investing
activities  during  fiscal year ended June 30, 2008 was  primarily the result of
the purchase of plant and equipment in the amount of $59,692.

         FINANCING ACTIVITIES

During  fiscal year ended June 30, 2008,  net cash flow  sourced from  financing
activities  was  $178,067  compared  to net cash  flow  sourced  from  financing
activities of $2,723,151 for fiscal year ended June 30, 2007. Net cash flow from
financing  activities during fiscal year ended June 30, 2008 pertained primarily
to $329,826  received as loans from  shareholders  and $441 received as proceeds
from  convertible  debenture  offset by ($152,200) in repayment of loan payable.
Net cash flow from financing  activities  during fiscal year ended June 30, 2007
pertained  primarily to $2,902,247 received as loans from shareholders offset by
($179,096) in repayment of loan payable.

         PLAN OF OPERATION

The local and  regional  distribution  business  for  books is  competitive  and
fragmented in China.  Estimates  range up to 500 as to the number of entrants in
this field.  It is our plan that  economy of scale,  relationships  with Chinese
publishers and also with sub-distributors and retailers and our nationwide scope
which allows us the flexibility to distribute  books in any region should assist
us in creating,  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.

                                       16

<PAGE>


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

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

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

We have undertaken certain actions and continue to implement changes designed to
improve our financial  results and  operating  cash flows.  The actions  involve
certain  cost-saving   initiatives  and  growing  strategies,   including:   (i)
reductions in headcounts and corporate overhead  expenses;  and (ii) continue to
develop  e-commerce  business  through  Beijing  Joannes.  We believe that these
actions  will  enable us to improve  future  profitability  and cash flow in our
continuing  operations  through  June 30,  2009.  The report of the  independent
registered  public  accounting firm that  accompanies our June 30, 2008 and June
30, 2007 consolidated  financial  statements  contains an explanatory  paragraph
expressing  substantial  doubt about our ability to continue as a going concern.
The consolidated  financial statements have been prepared "assuming that we will
continue as a going concern," which contemplates that we will realize our assets
and satisfy our liabilities and commitments in the ordinary course of business.

MATERIAL COMMITMENTS

LOANS PAYABLE/CONVERTIBLE DEBENTURE

During  2008/9,  a material  commitment  for us relates to the  Forbearance  and
Settlement  Agreement  with  Cornell and  Highgate.  On December  29,  2006,  we
completed the debt restructuring with Cornell and Highgate under the Forbearance
and Settlement Agreement.  Pursuant to the Forbearance and Settlement Agreement,
we agreed to make certain  payments to Cornell and Highgate  with respect to the
Securities  Purchase  Agreement  previously  entered into by us with Cornell and
Highgate  dated  November  23, 2005 and amended on March 23,  2006,  and the two
convertible  debentures in the amounts of $1,250,000 to Highgate  dated November
23, 2005 and  $2,000,000  to Cornell  dated March 23,  2006  (collectively,  the
"Convertible  Debentures") in accordance with the terms and conditions set forth
in the Forbearance and Settlement Agreement.

                                       17

<PAGE>


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

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

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

As of June 30,  2007,  we paid  $250,000  for the payment due March 10, 2007 and
issued  100,000  shares and 125,000  shares of our common stock on March 1, 2007
and April 18, 2007,  respectively,  pursuant to exercise  rights.  During fiscal
year ended June 30,  2008,  Cornell and  Highgate  converted  44,016,843  shares
against the outstanding amount at a total conversion price of $152,200.

LOANS FROM SHAREHOLDERS

A  material  commitment  for us  relates  to the loans  from  shareholders.  The
outstanding  amount  of  $5,410,256  represents  cash  advanced  to us from  our
shareholders.  These  shareholder  loans are  unsecured,  interest-free  and not
repayable within the next twelve months. For fiscal year ended June 30, 2008, we
calculated  imputed  interest  expense of $961,544 in relation to  interest-free
shareholders  loans at its  effective  interest rate and accounted for it in the
consolidated financial statements.

                                       18

<PAGE>


PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any  significant  equipment  during the next twelve
months.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting
principles  generally  accepted in the United States.  The  preparation of these
financial  statements  require us to make estimates and assumptions  that affect
the  reported  amounts of assets and  liabilities  at the date of the  financial
statements and the reported  amounts of revenues and expenses during the periods
presented.  Refer  to  Note  3 to the  Consolidated  Financial  Statements.  The
following  paragraphs include a discussion of the critical areas that required a
higher degree of judgment or are considered complex.

BASIS OF CONSOLIDATION

The  interest  of the  Company  in the  subsidiaries  was  acquired  by means of
exchange of shares in the  Company  pursuant to a share  exchange  agreement  on
September 14, 2004. The  transaction is considered a transfer  between  entities
under common control, within the meaning of US GAAP. Accordingly, the assets and
liabilities  transferred  have been accounted for at historical cost or at their
"fair value" at the date of their original acquisition and have been included in
the foregoing financial statements as of the beginning of the periods presented.
The consolidated  financial  statements include the financial  statements of the
Company  and its  subsidiaries.  Subsidiaries  are those  entities  in which the
Company,  directly  or  indirectly,  controls  more than one half of the  voting
power; has the power to govern the financial and operating policies;  to appoint
or remove the  majority  of the  members of the board of  directors;  or to cast
majority of votes at the meeting of  directors.  All  significant  inter-company
balances  and   transactions   within  the  Company  have  been   eliminated  on
consolidation.

INVESTMENT IN UNCONSOLIDATED ENTITIES

The investments in and the operating results of  50%-or-less-owned  entities not
required  to  be  consolidated  are  included  in  the  consolidated   financial
statements on the basis of the equity method of accounting or the cost method of
accounting, depending on specific facts and circumstances.

The Company has an investment  in a privately  held entity in the form of equity
instruments  that are not  publicly  traded  and for which  fair  values are not
readily  determinable.  The Company  records its  investment in a private entity
under the cost method of  accounting  and assesses the net  realizable  value of
this entity on a quarterly basis to determine if there has been a decline (other
than  temporary) in the fair value of the entity,  under  Statement of Financial
Accounting  Standards ("SFAS") No. 115,  "ACCOUNTING FOR CERTAIN  INVESTMENTS IN
DEBT AND EQUITY SECURITIES".

                                       19

<PAGE>

REVENUE RECOGNITION

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

Shipping and  handling  fees billed to  customers  are included in sales.  Costs
related  to  shipping   and  handling   are  part  of  selling,   general,   and
administrative expenses in the consolidated  statements of operations.  EITF No.
00-10,  "ACCOUNTING  FOR SHIPPING AND  HANDLING  FEES AND COSTS"  allows for the
presentation of shipping and handling  expenses in line items other than cost of
sales. For the year ended June 30, 2007, $0 (2006 and 2005 $149,173 and $70,666,
respectively)  related to shipping and  handling  costs was included in selling,
general and administrative expenses in the accompanying  consolidated statements
of  operations.

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 weighted average fair value of options granted during the
years ended June 30, 2007, 2006, and 2005 was $0.32, $1.02, and $1.54 per share,
respectively.  Weighted average  assumptions used in the valuation for the years
ended June 30, are summarized below:
                                                     2007       2006      2005
                                                     ____       ____      ____
         Risk free interest rate (%)                 4.07%      5.01%     3.26%
         Dividend yield (%)                          0.00%      0.00%     0.00%
         Expected life of option grants (years)      2.38%      5.00%     3.77%
         Expected volatility of option grants (%)   1,181%     80.00%    80.00%

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 14
to consolidated  financial  statements.


                                       20

<PAGE>

CONVERTIBLE DEBENTURE ISSUED WITH STOCK PURCHASE WARRANTS

The Company  accounts for the issuance of and  modifications  to the convertible
debt  issued  with  stock  purchase  warrants  in  accordance  with APB No.  14,
ACCOUNTING FOR CONVERTIBLE  DEBT AND DEBT ISSUED WITH STOCK PURCHASE  WARRANTS ,
EITF No. 98-5, ACCOUNTING FOR CONVERTIBLE  SECURITIES WITH BENEFICIAL CONVERSION
FEATURES OR  CONTINGENTLY  ADJUSTABLE  CONVERSION  RATIOS,  and EITF No.  00-27,
APPLICATION OF ISSUE NO. 98-5 TO CERTAIN  CONVERTIBLE  INSTRUMENTS  and SFAS No.
15, ACCOUNTING BY DEBTORS AND CREDITORS FOR TROUBLED DEBT RESTRUCTURINGS.

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

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

          o    The Company  treats the full fair market value of the  derivative
               and warrant liability on the convertible  secured debentures as a
               discount on the  debentures  (limited to their face  value).  The
               excess,  if any, is  recorded  as an  increase in the  derivative
               liability and warrant liability with a corresponding  increase in
               loss on adjustment  of the  derivative  and warrant  liability to
               fair value.
          o    Subsequent to the initial recording, the change in the fair value
               of the detachable  warrants,  determined under the  Black-Scholes
               option  pricing  formula  and the change in the fair value of the
               embedded derivative  (utilizing the Black-Scholes  option pricing
               formula) in the conversion feature of the convertible  debentures
               are recorded as  adjustments  to the  liabilities  as of June 30,
               2006.
          o    The  expense  relating  to the  change  in the fair  value of the
               Company's  stock reflected in the change in the fair value of the
               warrants and  derivatives is included in interest  expense in the
               accompanying consolidated statements of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial Assets and Financial Liabilities - Including an Amendment of SFAS 115"
(SFAS No. 159), which allows for the option to measure financial instruments and
certain  other  items at fair  value.  Unrealized  gains and losses on items for
which the fair value  option has been  elected  are  reported in  earnings.  The
objective  of SFAS 159 is to provide  opportunities  to mitigate  volatility  in
reported earnings caused by measuring related assets and liabilities differently
without having to apply hedge accounting  provisions.  SFAS 159 also establishes
presentation  and  disclosure  requirements  designed to facilitate  comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities.  This statement is effective for financial statements
issued for fiscal years  beginning after November 15, 2007. We do not expect the
adoption of SFAS No. 159 to have a material impact on its financial  statements.

                                       21

<PAGE>

In  December   2007,  the  FASB  issued  SFAS  141  (revised   2007),   BUSINESS
COMBINATIONS,  ("SFAS 141(R)"). SFAS 141(R) retains the fundamental requirements
of the original pronouncement requiring that the purchase method be used for all
business  combinations,  but also provides  revised guidance for recognizing and
measuring  identifiable  assets and goodwill  acquired and  liabilities  assumed
arising  from  contingencies,  the  capitalization  of  in-process  research and
development  at fair value,  and the expensing of  acquisition-related  costs as
incurred. SFAS 141(R) is effective for fiscal years beginning after December 15,
2008.  In the event that the Company  completes  acquisitions  subsequent to its
adoption of SFAS 141 (R), the  application of its provisions  will likely have a
material impact on our results of operations, although we are not currently able
to estimate that impact.

In  December  2007,  the FASB  issued  SFAS  160,  NONCONTROLLING  INTERESTS  IN
CONSOLIDATED  FINANCIAL  STATEMENTS  - AN  AMENDMENT  OF ARB NO.  51.  SFAS  160
requires that ownership interests in subsidiaries held by parties other than the
parent  (previously  referred  to as  minority  interests),  and the  amount  of
consolidated  net income,  be clearly  identified,  labeled and presented in the
consolidated  financial  statements.  It  also  requires  once a  subsidiary  is
deconsolidated,  any retained  noncontrolling  equity  investment  in the former
subsidiary  be  initially  measured at fair value.  Sufficient  disclosures  are
required to clearly identify and distinguish between the interests of the parent
and the interests of the  noncontrolling  owners as components of equity.  It is
effective  for fiscal years  beginning  after  December  15, 2008,  and requires
retroactive  adoption  of  the  presentation  and  disclosure  requirements  for
existing minority interests.  All other requirements are applied  prospectively.
We do not  expect  the  adoption  of SFAS 160 to have a  material  impact on its
financial condition or results of operations.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments  and Hedging  Activities,  an amendment of FASB  Statement  No. 133"
("SFAS 161"). SFAS 161 applies to all derivative  instruments and related hedged
items accounted for under SFAS No. 133,  "Accounting for Derivative  Instruments
and Hedging  Activities"  ("SFAS  133").  SFAS 161 requires  entities to provide
greater   transparency   about  (a)  how  and  why  an  entity  uses  derivative
instruments,  (b) how  derivative  instruments  and  related  hedged  items  are
accounted  for  under  SFAS  133 and its  related  interpretations,  and (c) how
derivative  instruments  and related  hedged items affect an entity's  financial
position,  results of  operations  and cash  flows.  SFAS 161 is  effective  for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally  Accepted
Accounting  Principles"  ("SFAS  162").  SFAS  162  identifies  the  sources  of
accounting principles and the framework for selecting the principles used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented in conformity with generally accepted accounting  principles (the GAAP
hierarchy).  Statement  162 will become  effective 60 days  following  the SEC's
approval of the Public  Company  Accounting  Oversight  Board  amendments  to AU
Section  411,  "The  Meaning  of Present  Fairly in  Conformity  With  Generally
Accepted Accounting Principles."

                                       22

<PAGE>


In May 2008,  the FASB  issued FSP  Accounting  Principles  Board  ("APB")  14-1
"Accounting for Convertible  Debt  Instruments  That May Be Settled in Cash upon
Conversion  (Including  Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1
requires the issuer of certain  convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately  account for the liability
(debt) and equity  (conversion  option) components of the instrument in a manner
that reflects the issuer's  non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years  beginning  after  December 15, 2008 on a retroactive
basis.

We are currently evaluating the potential impact, if any, of the adoption of the
above recent accounting pronouncements on our consolidated results of operations
and financial condition.

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

EXCHANGE RATE

Our reporting  currency is United States Dollars  ("USD").  The Chinese Renminbi
("RMB")  has  been  informally  pegged  to the  USD.  However,  China  is  under
international pressure to adopt a more flexible exchange rate system. If the RMB
were no longer pegged to the USD, rate  fluctuations  may have a material impact
on the Company's  consolidated  financial  reporting and make realistic  revenue
projections difficult. Recently (July 2005) the Renminbi was allowed to rise 2%.
This has not had an  appreciable  effect on our operations and seems unlikely to
do so.

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

INTEREST RATES

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

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


                                       23

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

INDEX TO THE FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm..

Consolidated Balance Sheet as of June 30, 2008.

Consolidated Statement of Income For the Year Ended June 30, 2008.

Consolidated Statement of Stockholders' Equity as of June 30, 2008.

Consolidated Statement of Cash Flows For the Year Ended June 30, 2008.

Notes to Consolidated Financial Statements.







                                XINHUA CHINA LTD.

                    AUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2008

                             (STATED IN US DOLLARS)





XINHUA CHINA LTD.



CONTENTS                                                                   PAGES

Report of Registered Independent Public Accounting Firm                       F1

Consolidated Balance Sheet                                               F2 - F3

Consolidated Statement of Income                                              F4

Consolidated Statement of Stockholders' Equity                                F5

Consolidated Statement of Cash Flows                                          F6

Notes to the Financial Statements                                       F7 - F27




                                       24


<PAGE>


Board of Directors and Stockholders
Xinhua China Ltd.

             REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheet of Xinhua China Ltd.
and its  subsidiaries  ("the  Company")  as of June 30,  2008,  and the  related
consolidated  statement of operations,  stockholders'  equity and  comprehensive
income  and cash flows for the year then  ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  an  audit  to  obtain  reasonable   assurance  about  whether  the
consolidated financial statements are free of material misstatement. The Company
is not  required  to  have,  nor  were we  engaged  to  perform  an audit of the
Company's  internal  control  over  financial  reporting.   Our  audit  includes
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the purpose of expressing an opinion on the  effectiveness  of the Company's
internal  control  over  financial  reporting.  Accordingly,  we express no such
opinion. An audit includes examining,  on a test basis,  evidence supporting the
amounts and  disclosures  in the  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company as of June 30, 2008 and the consolidated  results of operations and cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
consolidated  financial statements,  the Company has incurred substantial losses
and has a working capital deficit,  all of which raise  substantial  doubt about
its  ability to continue as a going  concern.  Management's  plans in regards to
these  matters  are  also  described  in Note 2.  These  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



South San Francisco, California                        Samuel H. Wong & Co., LLP
July 12, 2008                                       Certified Public Accountants


                                      F-1
<PAGE>

<TABLE>
<CAPTION>

                                XINHUA CHINA LTD.
                           CONSOLIDATED BALANCE SHEET
                               AS OF JUNE 30, 2008
                             (STATED IN US DOLLARS)

                                                        NOTES           2008               2007               2006
                                                                    ____________       ____________       ____________
<S>                                                      <C>              <C>          <C>                     <C>

ASSETS
        CURRENT ASSETS

          Cash and cash equivalents                      3D               38,733       $      2,733            224,192
          Accounts receivable, NET                       3E              411,782            185,246                  -
          Receivable from trustee                                              -                  -          1,500,000
          Note receivable                                 4            1,625,000          1,000,000                  -
          Other receivables and prepayments               5              223,231            201,186             60,916
                                                                    ____________       ____________       ____________
             Total Current Assets                                      2,298,746       $  1,389,165          1,785,108


        LONG-TERM ASSETS
          Property, plant & equipment, NET              3F,6              73,786             14,094            129,566
          Note receivable, long-term portion                                   -            625,000                  -
                                                                    ____________       ____________       ____________
             Total Long-term Assets                                       73,786            639,094            129,566
                                                                    ____________       ____________       ____________

             Total Assets                                           $  2,372,532       $  2,028,259       $  1,914,674
                                                                    ============       ============       ============

LIABILITIES & STOCKHOLDERS' EQUITY

        LIABILITIES
          CURRENT LIABILITIES
          Accounts payable and accrued liabilities        7            1,095,538            693,207            567,504
          Deferred revenue                                                18,355             73,427                  -
          Current portion of loans payable               3S,8          1,635,443          1,787,643                  -
                                                                    ____________       ____________       ____________
             Total Current Liabilities                                 2,749,336          2,554,277            567,504

          LONG-TERM LIABILITIES
          Loans payable                                  3S,8          1,058,261          1,058,261          4,347,234
          Loans from related parties                      3Q                   -                  -                  -
          Loans from shareholders                         9            5,410,256          5,080,430          3,784,432
                                                                    ____________       ____________       ____________
             Total Long-term Liabilities                               6,468,517          6,138,691          8,131,666

             Total Liabilities                                         9,217,853          8,692,968          8,699,170
                                                                    ____________       ____________       ____________


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>

                                      F-2
<PAGE>

<TABLE>
<CAPTION>

                                XINHUA CHINA LTD.
                           CONSOLIDATED BALANCE SHEET
                               AS OF JUNE 30, 2008
                             (STATED IN US DOLLARS)



                                                 NOTE           2008               2007               2006
                                                            ____________       ____________       ____________
<S>                                                         <C>                <C>                <C>

Minority Interest                                                      -                  -                  -

STOCKHOLDERS' EQUITY

  Common Stock $0.00001 Par Value
  500,000,000 Shares Authorized;
  98,655,733, 54,638,890, and 61,779,765
  shares issued and outstanding at June 30,
  2008, 2007, and 2006 accordingly.               10                 987                546                618
  Additional paid in capital                                  10,903,997         10,423,526          9,684,907
  Accumulated other comprehensive income                          38,149              8,749             19,478
  Accumulated deficit                                        (17,788,454)       (17,097,530)       (16,489,499)
                                                            ____________       ____________       ____________
      Total Stockholders' (Deficit)/Equity                    (6,845,321)        (6,664,709)        (6,784,496)
                                                            ____________       ____________       ____________

  Total Liabilities & Stockholders' Equity                  $  2,372,532       $  2,028,259       $  1,914,674
                                                            ============       ============       ============














               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>

                                      F-3
<PAGE>

<TABLE>
<CAPTION>

                                XINHUA CHINA LTD.
                        CONSOLIDATED STATEMENT OF INCOME
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)

                                                         NOTE
                                                                        2008               2007               2006
                                                                    ____________       ____________       ____________
<S>                                                                 <C>                <C>                <C>

REVENUE

      Revenue, NET                                                  $          -       $    153,286       $ 35,091,024
      Revenue, NET - related parties                                           -                  -          2,536,167
      Cost of Sales, NET                                  3H                   -            144,982         31,239,179
      Cost of Sales, NET - related parties                3I                   -                  -          2,087,027
                                                                    ____________       ____________       ____________
         Gross Profit                                                          -              8,304          4,300,985

OPERATING EXPENSES

      Selling, General, and Administrative
      Expenses                                            14             374,767          2,997,598         18,376,072
      Rental Expenses - related parties                                        -                  -            389,765
                                                                    ____________       ____________       ____________
         Total Operating Expense                                         374,767          2,997,598         18,765,837

                                                                    ____________       ____________       ____________
      Operating Income/(Loss)                                           (374,767)        (2,989,294)       (14,464,852)
                                                                    ____________       ____________       ____________

OTHER INCOME (EXPENSES)

      Other Income                                                        55,127                  -            410,981
      Interest Income                                                          -             41,792            303,355
      Net gain from deconsolidation of a
      subsidiary                                          25                   -                  -          1,769,742
      Gain on disposal of Beijing BoHeng                  15                   -          2,055,947                  -
      Gain on debt restructuring                          17              12,644          1,500,132                  -
      Interest Expense                                    18            (383,928)        (1,032,448)        (2,642,611)
                                                                    ____________       ____________       ____________
         Loss before minority interest and income tax                   (690,924)          (423,871)       (14,623,385)

      Loss on discontinued Operations:
         Loss on discontinued operation of
         Vancouver office, NET OF TAX                                          -           (184,159)                 -
                                                                    ____________       ____________       ____________
      Income/(Loss) before minority interest and                        (690,924)          (608,030)       (14,623,385)
      income tax
      Minority interest in net loss of
      consolidated subsidiaries                                                -                  -          3,785,756
                                                                    ____________       ____________       ____________

Loss before Income Tax                                                  (690,924)          (608,030)       (10,837,629)


Income Tax                                              3M,19                  -                  -                  -

                                                                    ____________       ____________       ____________

Net Loss                                                            $   (690,924)      $   (608,030)      $(10,837,629)
                                                                    ============       ============       ============

Basic & Diluted Earnings Per Share                      3N,23       $     (0.011)      $    ( 0.011)      $      (0.17)

                                                                    ============       ============       ============

Weighted Average Shares Outstanding                                   65,400,512         57,723,668         61,779,765
                                                                    ____________       ____________       ____________


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

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

                                                      ADDITIONAL                           OTHER
                            NUMBER OF      COMMON       PAID IN      COMPREHENSIVE     COMPREHENSIVE     ACCUMULATED
                             SHARES        STOCK        CAPITAL      INCOME (LOSS)     INCOME (LOSS)       DEFICIT         TOTAL
                           ___________     ______     __________     ____________      _____________        ___________    _________
<S>                         <C>               <C>      <C>             <C>                     <C>       <C>                <C>

Balance, July 1, 2005       61,779,765        618      5,855,525       (5,651,817)             53        ( 5,651,871)       204,325

Stock-based
   compensation                      -          -      3,526,086                -               -                  -      3,526,086

Imputed interest on
   interest free
   advances from
   related parties                   -          -        267,296                -               -                  -        267,296

Components of
   comprehensive
   income(loss) -
   Foreign currency
   translation                       -          -              -           19,425          19,425                  -         19,425

Net Loss for year                    -          -              -      (10,837,629)              -        (10,837,629)   (10,837,629)
                           ___________     ______     __________     ____________         _______        ___________    ___________
Balance, June 30, 2006      61,779,765        618      9,684,907      (16,470,021)         19,478        (16,489,500)    (6,784,497)
                           ===========     ======     ==========     ============         =======        ===========    ===========

Balance, July 1, 2006       61,779,765        618      9,684,907      (16,470,021)         19,478        (16,489,500)    (6,784,497)

Additional Paid-in
   Capital                           -          -        738,619                -               -                  -        738,619

Cancellation of out-
   standing shares         (10,000,000)      (100)             -                -               -                  -           (100)

Issuance of shares to
   Highgate                  2,859,125         28              -                -               -                  -             28

Foreign Currency
   translation                       -          -              -          (10,729)        (10,729)                 -        (10,729)

Net Loss for year                    -          -              -         (608,030)              -           (608,030)      (608,030)
                           ___________     ______     __________     ____________         _______        ___________    ___________
Balance, June 30, 2007      54,638,890        546     10,423,526      (17,088,780)          8,749        (17,097,530)    (6,664,709)
                           ===========     ======     ==========     ============         =======        ===========    ===========

Balance, July 1, 2007       54,638,890        546     10,423,526      (17,088,780)          8,749        (17,097,530)    (6,664,709)

Additional Paid-in
   Capital                           -          -        151,760                -               -                  -        151,760

Imputed interest on
   interest free
   advances from
   related party                     -          -        328,711                -               -                  -        328,711

Issuance of shares to
   Highgate                 44,016,843        441              -                -               -                  -            441

Foreign Currency
   translation                       -          -              -           29,400          29,400                  -         29,400

Net Loss for year                    -          -              -         (690,924)              -           (690,924)      (690,924)
                           ___________     ______     __________     ____________         _______        ___________    ___________
Balance, June 30, 2008      98,655,733        987     10,903,997      (17,750,304)         38,149        (17,788,454)    (6,845,321)
                           ===========     ======     ==========     ============         =======        ===========    ===========


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                XINHUA CHINA LTD.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)

                                                                                     2008               2007               2006
                                                                                  __________       ____________       _____________
<S>                                                                               <C>              <C>                <C>

CASH FLOW FROM OPERATING ACTIVITIES:
       Net Loss/(Loss)                                                            $ (690,924)      $   (608,030)      $ (10,837,629)
       Adjustments to reconcile net earnings to net cash provided by
       operating activities:
            Depreciation                                                                   -             24,834             614,054
            Stock-based compensation                                                       -            265,080           3,562,086
            Net gain on deconsolidation of a subsidiary                                    -         (2,055,947)         (1,769,743)
            Minority interest in net loss of consolidated subsidiaries                     -                  -          (3,785,756)
            Amortization of deferred financing costs and fair value
            conversion feature                                                             -                  -           1,357,774
            Imputed interest expense                                                 466,703          1,032,448             267,296
            Allowance for doubtful accounts                                                -          1,500,000                   -
            Loss on Vancouver office discontinuation                                       -            184,159           2,540,008
            Provision on slow moving inventories                                           -                  -           4,765,219
            Amortization of deferred imputed interest from note receivable            13,768                  -                   -

       Changes in assets and liabilities:
            Decrease/(Increase) Accounts receivable                                 (226,536)          (185,246)                  -
            Decrease/(Increase) Note Receivable                                            -         (1,625,000)                  -
            Decrease/(Increase) Other receivables and prepayments                    (22,045)          (140,270)            (53,312)
            Decrease/(Increase) Accounts Payable and accrued liabilities             402,331            125,703              32,254
            Decrease/(Increase) in Deferred Revenue                                  (55,072)            73,427                   -
                                                                                  __________       ____________       _____________
       Cash Sourced/(Used) in Operating Activities                                  (111,775)        (2,908,974)
                                                                                                     (3,307,749)         (3,307,749)
                                                                                  __________       ____________       _____________

CASH FLOWS FROM INVESTING ACTIVITIES:
       Cash acquired in connection with acquisition of Xinhua C&D                          -                  -                   -
       Advances to trustee                                                                 -                  -          (1,500,000)
       Purchase of plant and equipment                                               (59,692)                 -            (147,715)
                                                                                  __________       ____________       _____________
                                                                                                              -
       Cash Used/(Sourced) in Investing Activities                                   (59,692)         1,647,715          (1,647,715)
                                                                                  __________       ____________       _____________

CASH FLOWS FROM FINANCING ACTIVITIES:
       Proceeds from convertible debenture                                               441                  -           2,989,460
       Repayment of Loan Payable                                                    (152,200)          (179,096)                  -
       Loans from shareholders                                                       329,826          2,902,247             832,860
                                                                                  __________       ____________       _____________
       Cash Sourced/(Used) in Financing Activities                                   178,067          2,723,151           3,822,320
                                                                                  __________       ____________       _____________


NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS FOR THE YEAR                        6,600           (185,823)         (1,133,144)

EFFECT OF CURRENCY TRANSLATION                                                        29,400            (35,636)             19,425

CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR                                           2,733            224,192           1,336,269

                                                                                  __________       ____________       _____________
CASH & CASH EQUIVALENTS AT END OF YEAR                                            $   38,733       $      2,733       $       2,550
                                                                                  ==========       ============     ===============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expenses                                                   $   55,217       $     70,904       $   1,017,541
                                                                                  ==========       ============       =============

               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>

                                      F-6
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


1.   ORGANIZATION AND BUSINESS BACKGROUND

     Xinhua  China Ltd.  (the  "Company",  formerly  Camden  Mines  Limited) was
     incorporated in the State of Nevada, United States of America, on September
     14, 1999.  Until  September  2004,  the Company was a  non-operating  shell
     company  and  considered  as  a  development  stage  enterprise  since  its
     inception.  Effective  from  October 12, 2004,  the Company  changed to its
     current  name.  The Company  established  an office in  Vancouver,  Canada;
     however,  this  office  was  closed  down in  December  2006.  The  Company
     established  its  principal  executive  office at Suite 304,  Building  #1,
     YuanJia International  Apartment, No. 40 Dongzhong St., Dongcheng District,
     Beijing 100027 People's Republic of China.

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

     Details of the  Company's  subsidiaries  as of June 30, 2008 are  described
     below:

<TABLE>
<CAPTION>
                                            PLACE OF
                                          INCORPORATION                                     PARTICULARS OF        EFFECTIVE
                                           AND KIND OF           PRINCIPAL ACTIVITIES      ISSUED/REGISTERED       INTEREST
                  NAME                    LEGAL ENTITY           AND PLACE OF OPERATION       SHARE CAPITAL           HELD
<S>                                 <C>                          <C>                       <C>                       <C>

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

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

</TABLE>


     2. GOING CONCERN UNCERTAINTIES

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

     As of June 30,  2008,  the  Company  had no  working  capital  but  current
     liabilities exceeding current assets by $450,590 and an accumulated deficit
     of $17,788,454  due to the fact that the Company  continued to incur losses
     over the past  several  years.  Management  has taken  certain  action  and
     continues to implement changes designed to improve the Company's  financial
     results and operating cash flows.  The actions involve certain  cost-saving
     initiatives and growing  strategies,  including (a) reductions in headcount
     and  corporate  overhead  expenses;   and  (b)  development  of  e-commerce
     business. Management believes that these actions will enable the Company to
     improve future  profitability  and cash flow in its  continuing  operations
     through June 30, 2009. As a result, the financial statements do not include
     any   adjustments   to  reflect  the   possible   future   effects  on  the
     recoverability   and   classification   of  assets  or  the   amounts   and
     classification  of  liabilities  that may  result  from the  outcome of the
     Company's ability to continue as a going concern.

                                      F-7
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A.) BASIS OF PRESENTATION

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

     (B.) USE OF ESTIMATES

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

     (C.) BASIS OF CONSOLIDATION

          The interest of the Company in the  subsidiaries was acquired by means
          of  exchange of shares in the  Company  pursuant  to a share  exchange
          agreement  on September  14, 2004.  The  transaction  is  considered a
          transfer between entities under common control,  within the meaning of
          US GAAP. Accordingly, the assets and liabilities transferred have been
          accounted for at historical  cost or at their "fair value" at the date
          of their original  acquisition and have been included in the foregoing
          financial statements as of the beginning of the periods presented. The
          consolidated  financial statements include the financial statements of
          the Company and its  subsidiaries.  Subsidiaries are those entities in
          which the Company, directly or indirectly, controls more than one half
          of the  voting  power;  has the  power to  govern  the  financial  and
          operating  policies;  to appoint or remove the majority of the members
          of the board of directors; or to cast majority of votes at the meeting
          of directors. All significant  inter-company balances and transactions
          within the Company have been eliminated on consolidation.

     (D.) CASH AND CASH EQUIVALENTS

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

     (E.) ACCOUNTS RECEIVABLE, NET

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

                                      F-8
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


     (F.) PROPERTY, PLANT, AND EQUIPMENT, NET

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

           ASSET CLASSIFICATION              DEPRECIABLE LIFE

          Land Use right                          50 years
          Buildings                               50 years
          Motor vehicles                      8 - 10 years
          Equipment and machinery              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 consolidated statement of
          operations.

     (G.) IMPAIRMENT OF LONG-LIFE ASSETS

          In accordance  with SFAS No. 121,  "ACCOUNTING  FOR THE  IMPAIRMENT OF
          LONG-LIVED  ASSETS AND FOR  LONG-LIVED  ASSETS TO BE  DISPOSED  OF', a
          long-lived assets and certain identifiable  intangible assets held and
          used by the Company are reviewed  for  impairment  whenever  events or
          changes in circumstances indicate that the carrying amount of an asset
          may  not  be   recoverable.   For  the  purposes  of  evaluating   the
          recoverability  of  long-lived  assets,  the  recoverability  test  is
          performed using  undiscounted net cash flows related to the long-lived
          assets.  The Company reviews  long-lived  assets, if any, to determine
          whether the carrying values are not impaired.

     (H.) REVENUE RECOGNITION

          Sales revenue is recognized when persuasive evidence of an arrangement
          exists, the price is fixed and final,  delivery has occurred and there
          is  reasonable  assurance of  collection  of the sales  proceeds.  The
          Company generally obtains purchase  authorizations  from its customers
          for a specified  amount of products at a specified price and considers
          delivery to have  occurred when the customer  takes  possession of the
          products.  Net  sales  incorporate  offsets  for  discounts  and sales
          returns.  Revenue is recognized  upon delivery,  risk and ownership of
          the title is  transferred  and a reserve for sales returns is recorded
          even  though   invoicing  may  not  be  completed.   The  Company  has


                                      F-9
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


          demonstrated the ability to make reasonable and reliable  estimates of
          products returns in accordance with SFAS No. 48, "REVENUE  RECOGNITION
          WHEN RIGHT OF RETURN EXISTS".

          Shipping and handling  fees billed to customers are included in sales.
          Costs  related to shipping and handling are part of selling,  general,
          and  administrative   expenses  in  the  consolidated   statements  of
          operations. EITF No. 00-10, "ACCOUNTING FOR SHIPPING AND HANDLING FEES
          AND COSTS"  allows  for the  presentation  of  shipping  and  handling
          expenses  in line items  other than cost of sales.  For the year ended
          June 30, 2008,  there were no shipping and handling  costs included in
          selling,  general  and  administrative  expenses  in the  accompanying
          consolidated statements of operations.

     (I.) COST OF SALES

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

     (J.) VALUE-ADDED TAX

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

     (K.) ADVERTISING EXPENSES

          The Company expenses  advertising costs as incurred in accordance with
          the  American  Institute  of Certified  Public  Accountants  ("AICPA")
          Statement of Position 93-7, "REPORTING FOR ADVERTISING COSTS". For the
          period ended June 30, 2008, advertising expenses amount to zero.

     (L.) COMPREHENSIVE INCOME

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

     (M.) INCOME TAXES

          The Company accounts for income tax using SFAS No. 109 "ACCOUNTING FOR
          INCOME  TAXES",  which  requires the asset and liability  approach for
          financial  accounting  and  reporting  for  income  taxes.  Under this


                                      F-10
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


          approach,  deferred income taxes are provided for the estimated future
          tax effects  attributable to temporary  differences  between financial
          statement  carrying  amounts  of  assets  and  liabilities  and  their
          respective  tax bases,  and for the expected  future tax benefits from
          loss  carry-forwards  and provisions,  if any. Deferred tax assets and
          liabilities  are measured  using the enacted tax rates expected in the
          years of  recovery  or  reversal  and the effect  from a change in tax
          rates is recognized in the statement of operations  and  comprehensive
          (loss)  income in the period of  enactment.  A valuation  allowance is
          provided  to  reduce  the  amount  of  deferred  tax  assets  if it is
          considered  more likely  than not that some  portion of, or all of the
          deferred tax assets will not be realized.

     (N.) LOSS PER SHARE

          The Company calculates loss per share in accordance with SFAS No. 128,
          "EARNINGS PER SHARE". Basic loss per share is computed by dividing the
          net loss by the weighted-average  number of common shares outstanding.
          Diluted  loss per share is  computed  similar to basic loss per share,
          except  that the  denominator  is  increased  to include the number of
          additional  common  shares  that  would have been  outstanding  if the
          potential  common  stock  equivalents  had  been  issued  and  if  the
          additional  common  shares were  dilutive.  The effect of  outstanding
          stock options,  stock  purchase  warrants and  convertible  debenture,
          which could  result in the issuance of  98,655,733  of common stock at
          June 30, 2008 is  anti-dilutive.  As a result,  diluted loss per share
          data does not  include  the  assumed  exercise  of  outstanding  stock
          options,   stock  purchase  warrants,  or  conversion  of  convertible
          debenture and has been presented jointly with basic loss per share.

     (O.) FOREIGN CURRENCIES TRANSLATION

          The  functional  and  reporting  currency of the Company is the United
          States  dollars  ("U.S.  dollars").   The  accompanying   consolidated
          financial statements have been expressed in U.S. dollars.

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

<TABLE>
<CAPTION>



          EXCHANGE RATES                                  6/30/2008        6/30/2007         6/30/2006
                                                         __________        _________         _________
<S>                          <C>                            <C>              <C>               <C>

          Period end RMB : US$ exchange rate                6.8718           7.6248            8.0065
          Average period RMB : US$ exchange rate            7.0726           7.8160            8.0721

</TABLE>

                                      F-11
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


     (P.) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     (Q.) RELATED PARTIES

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

          All material related part  transactions have been disclosed in Note 16
          - Related Party Transactions.

     (R.) 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.

          The weighted  average fair value of options  granted  during the years
          ended  June 30,  2007,  and 2006,  was  $0.32,  and  $1.02 per  share,
          respectively. Weighted below:

                                                        2007       2006

          Risk free interest rate (%)                   4.07%      5.01%
          Dividend yield (%)                            0.00%      0.00%
          Expected life of option grants (years)        2.38       5.00
          Expected volatility of option grants (%)     1,181%     80.00%

          No options were granted during the year ended June 30, 2008.

          Detailed  movement of stock-based  compensation  has been disclosed in
          the Note 11-Stock Option Plan.


                                      F-12
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


     (S.) CONVERTIBLE DEBENTURE ISSUED WITH STOCK PURCHASE WARRANTS

          The Company  accounts  for the  issuance of and  modifications  to the
          convertible  debt issued with stock  purchase  warrants in  accordance
          with APB No. 14,  ACCOUNTING FOR CONVERTIBLE DEBT AND DEBT ISSUED WITH
          STOCK PURCHASE  WARRANTS , EITF No. 98-5,  ACCOUNTING FOR  CONVERTIBLE
          SECURITIES  WITH  BENEFICIAL   CONVERSION   FEATURES  OR  CONTINGENTLY
          ADJUSTABLE CONVERSION RATIOS, and EITF No. 00-27, APPLICATION OF ISSUE
          NO.  98-5  TO  CERTAIN  CONVERTIBLE   INSTRUMENTS  and  SFAS  No.  15,
          ACCOUNTING BY DEBTORS AND CREDITORS FOR TROUBLED DEBT RESTRUCTURINGS.

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

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

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

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

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

     (T.) RECENTLY ISSUED ACCOUNTING STANDARD

          In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
          for  Financial  Assets  and  Financial   Liabilities  -  Including  an
          Amendment of SFAS 115" (SFAS No. 159),  which allows for the option to
          measure  financial  instruments and certain other items at fair value.
          Unrealized  gains and losses on items for which the fair value  option
          has been elected are reported in earnings.  The  objective of SFAS 159
          is  to  provide  opportunities  to  mitigate  volatility  in  reported
          earnings   caused  by  measuring   related   assets  and   liabilities
          differently without having to apply hedge accounting provisions.  SFAS
          159 also establishes presentation and disclosure requirements designed
          to facilitate  comparisons  between  companies  that choose  different
          measurement  attributes  for similar types of assets and  liabilities.
          This statement is effective for financial statements issued for fiscal
          years  beginning  after November 15, 2007. The Company does not expect
          the  adoption  of  SFAS  No.  159 to  have a  material  impact  on its
          financial statements.

                                      F-13
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


          In December  2007, the FASB issued SFAS 141 (revised  2007),  BUSINESS
          COMBINATIONS,  (``SFAS 141(R)'').  SFAS 141(R) retains the fundamental
          requirements of the original pronouncement requiring that the purchase
          method  be used  for all  business  combinations,  but  also  provides
          revised guidance for recognizing and measuring identifiable assets and
          goodwill acquired and liabilities  assumed arising from contingencies,
          the  capitalization  of in-process  research and  development  at fair
          value,  and the  expensing of  acquisition-related  costs as incurred.
          SFAS 141(R) is effective for fiscal years beginning after December 15,
          2008. In the event that the Company completes acquisitions  subsequent
          to its adoption of SFAS 141 (R),  the  application  of its  provisions
          will  likely  have a  material  impact  on the  Company's  results  of
          operations,  although  the Company is not  currently  able to estimate
          that impact.

          In December 2007, the FASB issued SFAS 160,  NONCONTROLLING  INTERESTS
          IN  CONSOLIDATED  FINANCIAL  STATEMENTS  - AN AMENDMENT OF ARB NO. 51.
          SFAS 160 requires that  ownership  interests in  subsidiaries  held by
          parties  other than the parent  (previously  referred  to as  minority
          interests),  and the amount of  consolidated  net  income,  be clearly
          identified,  labeled  and  presented  in  the  consolidated  financial
          statements. It also requires once a subsidiary is deconsolidated,  any
          retained  noncontrolling equity investment in the former subsidiary be
          initially measured at fair value.  Sufficient disclosures are required
          to clearly  identify  and  distinguish  between the  interests  of the
          parent and the interests of the noncontrolling owners as components of
          equity.  It is effective for fiscal years beginning after December 15,
          2008,  and  requires  retroactive  adoption  of the  presentation  and
          disclosure  requirements for existing  minority  interests.  All other
          requirements  are applied  prospectively.  The Company does not expect
          the  adoption of SFAS 160 to have a material  impact on its  financial
          condition or results of operations.

          In March  2008,  the FASB  issued  SFAS No.  161,  "Disclosures  about
          Derivative  Instruments and Hedging  Activities,  an amendment of FASB
          Statement  No. 133" ("SFAS 161").  SFAS 161 applies to all  derivative
          instruments and related hedged items accounted for under SFAS No. 133,
          "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS
          133").  SFAS 161  requires  entities to provide  greater  transparency
          about (a) how and why an entity uses derivative  instruments,  (b) how
          derivative  instruments  and related  hedged items are  accounted  for
          under SFAS 133 and its related interpretations, and (c) how derivative
          instruments  and related  hedged  items  affect an entity's  financial
          position,  results of operations and cash flows. SFAS 161 is effective
          for financial  statements  issued for fiscal years and interim periods
          beginning after November 15, 2008.

          In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
          Accepted Accounting  Principles" ("SFAS 162"). SFAS 162 identifies the
          sources of accounting  principles  and the framework for selecting the
          principles  used  in  the  preparation  of  financial   statements  of
          nongovernmental   entities  that  are  presented  in  conformity  with
          generally  accepted   accounting   principles  (the  GAAP  hierarchy).
          Statement  162 will  become  effective  60 days  following  the  SEC's
          approval of the Public Company  Accounting  Oversight Board amendments
          to AU Section 411, "The Meaning of Present  Fairly in Conformity  With
          Generally  Accepted  Accounting  Principles."


                                      F-14
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


          In May 2008, the FASB issued FSP Accounting  Principles  Board ("APB")
          14-1  "Accounting for Convertible Debt Instruments That May Be Settled
          in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB
          14-1").  FSP APB 14-1 requires the issuer of certain  convertible debt
          instruments  that  may  be  settled  in  cash  (or  other  assets)  on
          conversion to separately  account for the liability  (debt) and equity
          (conversion  option)  components  of the  instrument  in a manner that
          reflects the issuer's  non-convertible  debt  borrowing  rate. FSP APB
          14-1 is effective for fiscal years  beginning  after December 15, 2008
          on a retroactive basis.

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


4.   NOTE RECEIVABLE

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

         SCHEDULED RECEIPT DATE        APPROXIMATELY        EQUAL TO RMB

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

         Total                        $     1,875,000       15,000,000
         LESS: Paid                          (250,000)      (2,000,000)
                                      _______________       __________

         Balance at June 30, 2008     $     1,625,000       13,000,000
                                      _______________       __________

     The schedule  payments of  $375,000,  $375,000,  $250,000 on September  30,
     2007,  October 31,  2007,  and January 31, 2008,  respectively,  were still
     unpaid through June 30, 2008.  The balance is unsecured and  interest-free.
     The  Company  calculated  the  imputed  interest  income of  $13,768 at the
     current  effective  rate of 4.82% per annum  and  reduced  from the gain on
     disposal of a subsidiary.  The amount is recognized as deferred revenue and
     will be amortized as interest income over the terms of repayment period.

                                      F-15
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)

<TABLE>
<CAPTION>



5.   OTHER RECEIVABLES AND PREPAYMENT

                                                                2008                 2007                  2006
<S>                                                   <C>                   <C>                  <C>

         Advances to employee                         $                  -  $                 -  $               3,792
         Goods and service tax receivable                                -                    -                  1,587
         Other receivables                                               -                    -                  1,249
         Prepayments                                               223,231              201,186                 54,288
                                                           ________________     _______________      __________________
                                                      $            223,231  $           201,186  $              60,916
                                                           ================     ================     ==================

     The carrying amounts of other receivables approximate their fair value.


6.   PROPERTY, PLANT, AND EQUIPMENT, NET

     Property, plant, and equipment consist of the following:

                                                                 2008                2007                  2006
         Equipment and machinery                        $           53,108  $            38,928  $              48,986
         Motor vehicles                                             39,458                    -                 33,866
         Leasehold Improvement                                      16,211                    -                 71,933
                                                             ______________     ________________    ___________________
                                                                   108,777               38,928                154,785
         LESS: Accumulated Depreciation                            (34,991)             (24,834)               (25,219)
                                                             ______________     ________________    ___________________
                                                         $          73,786  $            14,094  $             129,566
                                                             ==============     ================     ==================

         Depreciation expense for 2008 was $10,157.

7.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Accounts  payable and accrued  liabilities  as of June 30, 2008,  2007, and
     2006 consist of the followings:

                                                             2008                   2007                   2006

      Accounts payable                             $           1,095,538   $            693,207   $             1,642
                                                                                                              191,512
      Other payables                                                   -                      -

      Income and business taxes payable                                -                      -                     -
                                                                                                              374,350
      Accrued expenses                                                 -                      -
                                                                                                                    -
      Salaries and benefits payable                                    -                      -
                                                       __________________     __________________     _________________

                                                   $           1,095,538   $            693,207   $           567,504
                                                       ==================     ==================     =================

</TABLE>

                                      F-16
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


8.   LOANS PAYABLE/CONVERTIBLE DEBENTURE

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

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


                                                             CONVERSION OF
                                                                 DEBENTURE
     PAYMENT DATE               CASH PAYMENT

     March 10, 2007         $              250,000                     250,000

     September 30, 2007                    375,000                     375,000

     October 31, 2007                      375,000                     375,000

     January 31, 2008                      250,000                     250,000

     July 31, 2008                         625,000                     625,000
                                __________________       _____________________
                            $            1,875,000                   1,875,000
                                ===================      ======================

     The  Company  paid  $250,000  for the  payment  due March 10,  2007 and the
     debenture  holders  exercised 100,000 shares and 125,000 shares on March 1,
     2007 and April 18, 2007, respectively. During the year ended June 30, 2008,
     the debenture holders converted  44,016,843 shares against outstanding loan
     at a total conversion price of $152,200.

     Loans Payable outstanding as of June 30, 2008 amount to $2,693,704 of which
     $1,635,443 and $1,058,261 were attributed to current portion and long-term,
     respectively.

                                      F-17
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


9.   LOANS FROM SHAREHOLDERS

     The total  outstanding  amount of $5,410,256  represents cash advanced from
     shareholders of the Company.

     These  shareholders'  loans are unsecured and not repayable within the next
     twelve months. For the year ended June 30, 2008, there was $328,711 imputed
     interest,  at 6.00% per annum,  recorded.  For the year ended June 30, 2007
     the Company  calculated the imputed  interest expense of $961,544 (2006 and
     2005  $267,296  and  $70,833,  respectively)  in relation to  interest-free
     shareholders'  loans at its effective interest rate and accounted for it in
     the consolidated statements of stockholders' equity.


10.  COMMON STOCK AND WARRANTS

     A.   COMMON STOCK

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

     B.   WARRANTS

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

               (i)  two years from the date of issuance; and

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

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

                                      F-18
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


          (2)  SHARE PURCHASE WARRANT ISSUED FROM CONVERTIBLE DEBENTURE

               On December  13,  2005,  the Company  issued to the holder of the
               convertible  debenture  1,035,000  warrants.  One share  purchase
               warrants is  exercisable  for one common  share at  $0.00001  per
               share,  until  expiration  on November 22,  2010.  As of June 30,
               2008,  835,000 warrants issued to convertible  debenture  holders
               were  outstanding  which will lead to the  issuance of a total of
               213,554,987  additional shares of common stock if fully exercised
               at June 30, 2008.

          (3)  SHARE WARRANT ISSUED FOR SERVICE

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


11.  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.

     Under  the Plan,  the  Board of  Directors  authorized  to grant  4,255,000
     options to the  employees  and  consultants  of the  Company,  respectively
     basically  on  September  23, 2004 and  October 27, 2004 with an  estimated
     value of $1.00 per share, using the Black-Scholes Option Pricing Model with
     the  weighted  average  assumptions.  However,  the whole of the  4,255,000
     options have been expired as of June 30, 2007.

12.  CHINA CONTRIBUTION PLAN

     Full-time  employees of the Company are entitled to staff welfare  benefits
     including  medical  care,  welfare  subsidies,  unemployment  insurance and
     pension benefits through a China government-mandated multi-employer defined
     contribution  plan.  The Company is  required to accrue for these  benefits
     based  on  certain  percentages  of  the  employees'  salaries.  The  total
     contributions  made for such employee benefits were $23,854,  $31,527,  and
     $813,418 for each of the years ended 2008, 2007, and 2006, respectively.

                                      F-19
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


13.  STATUTORY RESERVES

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

14.  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>


                                                              2008                   2007                        2006
<S>                                                   <C>                  <C>                        <C>

      Allowance for doubtful accounts                 $                -   $            1,500,000     $             2,540,008
      Legal and professional fees                                108,111                  279,815                   1,009,920
      Allowance for slow moving inventories                            -                        -                   4,765,218

      Office expenses                                             14,162                   91,085                     443,644
      Salaries and benefits                                       99,117                  286,015                   2,621,736
      Shipping and freight                                         9,557                      241                     149,173
      Stock-based compensation                                         -                        -                   3,562,086
      Vehicle expense                                             13,595                   33,761                     108,751
      Other expenses                                             130,225                  806,681                   3,175,536
                                                         ________________     ____________________       _____________________
                                                      $          374,767   $            2,997,598     $            18,376,072
                                                         ================     ====================       =====================
</TABLE>

15.  GAIN ON 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 nine months  ended March 31,  2007.  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.

                                      F-20
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


     This disposal  transaction  was completed on December 31, 2006 and resulted
     in a net gain of $2,055,947 calculated as follows:

          Purchase price                                            $  1,875,000

          LESS: Net liabilities disposed as of December 31, 2006

               o Fixed assets, NET                                       99,572
               o current assets                                         251,685
               o Current liabilities                                   (619,399)
                                                                    ___________
                                                                       (268,142)
                                                                    ___________

          Gain on disposal of a subsidiary, Boheng                    2,143,142

          LESS: Imputed interest on note receivable                     (87,195)
                                                                    ___________

          Net gain on disposal of a subsidiary, Boheng              $ 2,055,947
                                                                    ___________

     The purchase  price is based on the net book value of Boheng as of December
     31,  2006,  plus the  investment  cost of  Xinhua  C&D which  Xinhua  China
     previously contributed, through a subsidiary, Boheng during 2004.










                                      F-21
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


16.  RELATED PARTY TRANSACTIONS

     1.   During  the year ended June 30,  2006,  Xinhua C&D rented  facilities,
          including  office and  warehouse,  from Xinhua  Bookstore,  a formerly
          non-controlling  interest  stockholder of Xinhua C&D. The total rental
          expense during the year was $389,765 (RMB 3,149,570).

     2.   During the year  ended  June 30,  2006,  Xinhua  C&D  purchased  books
          totaling  $2,087,027  (RMB  16,864,599)  from  vendors in which Xinhua
          Bookstore is a major stockholder.  The transactions were conducted and
          acquired in the ordinary course of business and at arms length.  These
          transactions are as follows:

<TABLE>
<CAPTION>


                                                                    2008               2007                 2006
<S>                                                           <C>              <C>                 <C>

          China Map Publishing House (RMB 2,785,064)          $             -  $                -  $             344,657
          Commercial Press (RMB 5,557,779)                                  -                   -                687,786
          Jieli Publishing House (RMB 433,512)                              -                   -                 53,648
          People's Literature Publishing House (RMB
          3,001,379)                                                        -                   -                371,427
          People's Publishing House (RMB 3,038,151)                         -                   -                375,977
          Sanlian Bookstore (RMB 1,239,853)                                 -                   -                153,434
          The Great Encyclopedia of China Publishing House
          (RMB 808,861)                                                     -                   -                100,098
                                                                 ____________     _______________     __________________
                                                              $             -  $                -  $           2,087,027
                                                                 ============     ===============     ==================

</TABLE>


     3.   During the year ended June 30,  2006,  Xinhua C&D sold books  totaling
          $2,536,167 (RMB  20,493,956) to customers in which Xinhua Bookstore is
          a major  stockholder.  The transactions were conducted and acquired in
          the ordinary course of business and at arms length.

<TABLE>
<CAPTION>


                                                                           2008              2007                2006

<S>                                                                <C>                <C>                <C>

Xinhua Audio Video Lease and Distribution Co., Ltd. (RMB 863,161)  $              -   $              -   $          106,818

Beijing Xinhua Qiusuo Books Chain Store Co., Ltd. (RMB 3,598,432)                 -                  -              445,313

Jinhua Books Distribution Co., Ltd. (RMB 8,413)                                   -                  -                1,041

Chengdu Distribution Branch (RMB 5,418,903)                                       -                  -              670,600
                                                                                  -                  -
Liaoning Distribution Branch (RMB 10,605,047)                                     -                  -            1,312,395
                                                                        ____________    _______________     ________________
                                                                   $              -   $              -   $        2,536,167
                                                                        ============     ==============     ================

</TABLE>


                                      F-22
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


17.  GAIN ON DEBT RESTRUCTURING

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

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

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

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

     (iii) Converting the Convertible Debentures in an amount equal to
                   at least  the  amount of a  scheduled  repayment  subject  to
                   certain conditions;

     (iv) No  additional  liquidated  damages  accruing  during  the term of the
          Forbearance and Settlement Agreement;

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

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

     (vii) Terminate the provisions for security  shares as set forth in Section
          9 of  the  Securities  Purchase  Agreement  and  in  Section  2 of the
          Transfer Agent Instructions upon receipt by the Investors of the first
          scheduled repayment amount.

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

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

                                      F-23
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


18.  INTEREST EXPENSE

<TABLE>
<CAPTION>


                                                                   2008               2007              2006
<S>                                                        <C>                <C>                <C>

Interest expense from the amortization of deferred
financing cost and discount on convertible debenture       $          49,628  $              -   $     1,357,774
Imputed interest charged                                             314,865           961,544           267,296
Interest on loans from related parties                                19,435            70,904         1,017,541

                                                               _____________      _____________     _____________
                                                           $         383,928   $     1,032,448   $     2,642,611
                                                               ==============     =============     =============

</TABLE>

19.  INCOME TAX

     The Company is subject to US corporate taxes at a rate of 35%.  Pac-Poly is
     a BVI  company  and is not  subject to income  taxes.  Pursuant  to the PRC
     Income Tax Laws, the PRC subsidiaries  are generally  subject to enterprise
     income tax ("EIT") at a statutory rate of 33% (30% national income tax plus
     3% local income tax).  Effective January 1, 2008, PRC government  adopted a
     new uniform tax rate of 25% applicable to domestic and foreign enterprise.

     Neither the Company nor its subsidiaries had any assessable  income for the
     period and so neither  provision  nor benefit for EIT was  recorded for the
     year ended June 30, 2008.

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

     As of June 30,  2008,  valuation  allowance of $690,924 was provided to the
     deferred tax assets due to the uncertainty surrounding their realization.

20.  CONCENTRATION OF RISK

     (A). MAJOR CUSTOMERS AND VENDORS

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

                                      F-24
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


     (B). CREDIT RISK

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

21.  COMMITMENT AND CONTINGENCIES

     The Company leases an office premise under a non-cancelable operating lease
     for a term of two years from January 1, 2008 to December 31, 2009. The cost
     incurred  under this  operating  lease is  recorded  as rental  expense and
     totaled  $51,261 for the year ended June 30, 2008.  Future  minimum  rental
     payments due according to the operating lease until termination at December
     31, 2009 are:

                  Within one year                    $  60,026
                  Within year two until termination     45,020
                                                     __________
                                                     $ 105,046
                                                     ==========

22.  NET LOSS PER SHARE

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

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

<TABLE>
<CAPTION>


     Basic and diluted net loss per share calculation:             2008                  2007                2006
<S>                                                                   <C>                  <C>               <C>


     (a). Numerator:
       Net loss used in computing basic net loss per share            690,924              608,030           10,837,629

     (b). Denominator:
       Weighted average ordinary shares outstanding                65,400,512           57,723,668           61,779,765


     Basic and diluted net loss per share                    $          0.011       $        0.011           $     0.17

</TABLE>


     For the year  ended  June 30,  2008 in which  the  Company  had a net loss,
     inclusion  of  warrants  outstanding  would  have  been  anti-dilutive  and
     therefore not included in the computation of diluted losses per share.

                                      F-25
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


23.  COMPARATIVE AMOUNTS

     Certain amounts included in prior years' consolidated balance sheet and the
     consolidated statements of operations and cash flows have been reclassified
     to conform to the current year's presentation.  These reclassifications had
     no effect on reported total assets,  liabilities,  stockholders' equity, or
     net income.

24.  DECONSOLIDATION OF A SUBSIDIARY, XINHUA C&D

     On May 30, 2006, the Company  resolved to give up 48.16% equity interest in
     Xinhua C&D and its  effective  equity  interest  was reduced from 56.14% to
     7.98%.  The reduction in equity  interest was to discharge the Company from
     its obligation to contribute  further  capital of $16.7 million into Xinhua
     C&D in accordance with the terms and conditions of the Investment Agreement
     dated  September  22,  2004.  Ultimately,  the Company  intended to put its
     resources in co-publishing  and e-commerce  business  opportunities,  while
     maintaining  a strategic  partnership  with Xinhua C&D.  This  reduction in
     capital  also led the  Company to a  compensation  of  $1,237,520  to Other
     Investors Group of Xinhua C&D.

     Effective May 31, 2006,  Xinhua C&D's  financial  statements were no longer
     consolidated  into  the  Company.  The  investment  is  calculated  by  the
     accounting of cost method under the provision of SFAS No. 115.

     The  operating  result of Xinhua C&D (for eleven month period ended May 31,
     2006) in the aggregate for the year ended June 30, 2006, which are included
     in the consolidated statement of operations of the Company, are as follows:

                                      F-26
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


<TABLE>
<CAPTION>
                                                                                              For eleven months
                                                                                                period ended
                                                                                                  31-MAY-06
<S>                                                                                              <C>

     Revenue                                                                                     $ 37,627,191
     Cost of goods sold                                                                           (33,301,121)
                                                                                                 ____________
     Gross profit                                                                                   4,326,070
                                                                                                 ____________

     Operating expenses:
       Selling, general and administrative                                                        (12,968,079)
                                                                                                 ____________
     Total operating expenses                                                                     (12,968,079)
                                                                                                 ____________

     Loss from operations                                                                          (8,642,009)

     Other income (expense):
       Interest income                                                                                303,148
       Other income                                                                                   408,975
       Interest expense                                                                            (1,012,914)
                                                                                                 ____________

     Loss before minority interest and income taxes                                                (8,942,800)

     Minority interest in net loss of a consolidated subsidiary                                     3,785,756
                                                                                                 ____________

     Loss before minority interest                                                                 (5,157,044)
     Income tax expense                                                                                     -
                                                                                                 ____________

     Net loss                                                                                    $ (5,157,044)
                                                                                                 ============

     The  deconsolidation  of Xinhua C&D was  completed  on May 31, 2006 and
     resulted in a net gain of $1,769,742, which is calculated as follows:

     Investment in Xinhua C&D at the date of acquisition                                         $  4,173,352
     Share of accumulated losses in Xinhua C&D as of May 31, 2006 (from the date of
     acquisition as of February 1, 2005)                                                           (5,943,094)
                                                                                                 ____________
     Net gain from deconsolidation of a subsidiary                                               $ (1,769,742)
                                                                                                 ============

</TABLE>

                                      F-27
<PAGE>


                                XINHUA CHINA LTD.
                          NOTES TO FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2008
                             (STATED IN US DOLLARS)


25.      SUBSEQUENT EVENT



         On August 25, 2008,  the Company and the  Purchaser of Boheng agreed to
         terminate  the  consummation  of  acquisition  of  Boheng  whereby  the
         70,500,000 shares representing 96.58% of interests in Boheng as held by
         the Purchaser will be transferred  back to the Company in consideration
         of the  forbearance  of Note  Receivable  $1,625,000  representing  the
         unpaid balance of the purchase price.  Please also refer to Note 4 Note
         Receivable.





                                      F-28

<PAGE>


ITEM 8A(T). CONTROLS AND PROCEDURES

FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES

An evaluation was conducted under the supervision and with the  participation of
our Management, including our Chief Executive Officer/Chief Financial Officer of
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures as of June 30, 2008.  Based on that  evaluation,  our Chief Executive
Officer/Chief  Financial  Officer  concluded  that our  disclosure  controls and
procedures were effective as of such date to ensure that information required to
be disclosed  in the reports  that we file or submit under the Exchange  Act, is
recorded,  processed,  summarized and reported within the time periods specified
in SEC rules and forms. Such officers also confirmed that there was no change in
our internal  control over  financial  reporting  during the year ended June 30,
2007 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.

We maintain  "disclosure  controls and  procedures,"  as such term is defined in
Rule 13a-15(e) under the Securities  Exchange Act of 1934 (the "Exchange  Act"),
that are  designed to ensure that  information  required to be  disclosed in our
Exchange Act reports is recorded, processed,  summarized and reported within the
time periods  specified in the  Securities  and  Exchange  Commission  rules and
forms,  and  that  such  information  is  accumulated  and  communicated  to our
management,  including our Chief Executive  Officer/Chief  Financial Officer, as
appropriate,  to  allow  timely  decisions  regarding  required  disclosure.  We
conducted an evaluation (the  "Evaluation"),  under the supervision and with the
participation  of our Chief  Executive  Officer/Chief  Financial  Officer of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  ("Disclosure  Controls") as of the end of the period covered by this
report  pursuant to Rule  13a-15 of the  Exchange  Act.  The  evaluation  of our
disclosure controls and procedures included a review of the disclosure controls'
and  procedures'  objectives,  design,  implementation  and  the  effect  of the
controls and procedures on the information  generated for use in this report. In
the  course of our  evaluation,  we  sought to  identify  data  errors,  control
problems or acts of fraud and to confirm the appropriate  corrective actions, if
any, including process improvements,  were being undertaken. Our Chief Executive
Officer/Chief  Financial  Officer  concluded  that,  as of the end of the period
covered by this report,  our disclosure  controls and procedures  were effective
and  were  operating  at the  reasonable  assurance  level.  Please  note we are
considering  engaging a dedicted  financial  officer  other than our CEO and the
current person is an interim officer in such position as financial officer.

                                       25

<PAGE>


Our management is responsible for establishing and maintaining  adequate control
over financial  reporting (as defined in Rules 13a-15(f)  promulgated  under the
Exchange Act. The term internal control over financial reporting is defined as a
process  designed  by, or under  the  supervision  of,  the  issuer's  principal
executive  and  principal  financial  officers,  or persons  performing  similar
functions, and effected by the issuer's board of directors, management and other
personnel,   to  provide  reasonable  assurance  regarding  the  reliability  of
financial  reporting and the  preparation  of financial  statements for external
purposes  in  accordance  with  generally  accepted  accounting  principles  and
includes those policies and procedures that:

          1.   Pertain to the  maintenance of records that in reasonable  detail
               accurately and fairly reflect the  transactions  and dispositions
               of the assets of the issuer;

          2.   Provide  reasonable  assurance that  transactions are recorded as
               necessary  to  permit  preparation  of  financial  statements  in
               accordance with generally  accepted  accounting  principles,  and
               that receipts and  expenditures of the issuer are being made only
               in accordance with  authorizations of management and directors of
               the issuer; and

          3.   Provide  reasonable  assurance  regarding  prevention  or  timely
               detection of unauthorized acquisition,  use or disposition of the
               issuer's  assets  that  could  have  a  material  effect  on  the
               financial statements.

Our  management,  including  our chief  executive  officer  and chief  financial
officer,  do/does not expect that our disclosure  controls and procedures or our
internal  controls will prevent all error and all fraud.  A control  system,  no
matter how well  conceived  and  operated,  can  provide  only  reasonable,  not
absolute,  assurance that the objectives of the control system are met. Further,
the design of a control  system must  reflect  the fact that there are  resource
constraints  and the benefits of controls must be  considered  relative to their
costs. Due to the inherent  limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.

Our management,  with the participation of the chief executive officer and chief
financial  officer,  assessed the  effectiveness  of our  internal  control over
financial  reporting  as of December 31, 2007.  In making this  assessment,  our
management   used  the  criteria  set  forth  by  the  Committee  of  Sponsoring
Organizations of the Treadway Commission ("COSO") in INTERNAL CONTROL-INTEGRATED
FRAMEWORK.  Our  management  has concluded  that,  as of December 31, 2007,  our
internal control over financial reporting is effective.

This  annual  report  does not include an  attestation  report of the  Company's
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's  report was not subject to attestation by the company's
registered  public accounting firm pursuant to temporary rules of the Securities
and Exchange  Commission  that permit the company to provide  only  management's
report in this annual report.

                                       26

<PAGE>

ITEM 9. DIRECTORS,  EXECUTIVE OFFICERS,  PROMOTERS,CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

All of our Directors  hold office until the next annual  general  meeting of the
shareholders or until their  successors are elected and qualified.  Our officers
are  appointed  by our board of directors  and hold office  until their  earlier
death, retirement, resignation or removal.

As of the date of this Annual Report our directors and executive officers, their
ages, positions held are as follows:

NAME                AGE    POSITION WITH THE COMPANY
_____________       ___    _________________________________________________
Xianping Wang        47    President, Chief Executive Officer, Interim Chief
                           Financial Officer and a Director

Mr. Peter Shandro resigned as a director and our Vice-President effective August
1, 2007.

Mr. Clement Wu resigned as a director and our Chief Financial Officer, Secretary
and Treasurer effective August 6, 2007.

BACKGROUND OF OUR OFFICERS AND DIRECTORS

XIANPING WANG.  Mr. Wang has been one of our Directors  since August 5, 2004 and
has been our President and Chief  Executive  Officer since September 4, 2004. In
addition,  Mr. Wang is the President of Asia-Durable  (Beijing) Investments Co.,
Ltd.  from 2002 to 2004,  which is a company that has  successfully  invested in
construction and development  projects as well as biotechnology  research.  From
1997 to 2002, Mr. Wang was the President of Beijing New Fortune  Investment Co.,
Ltd.,  which is a company that has invested in real estate and other  profitable
projects  such as  Chongqing  Wanli  Storage  Battery  Co.,  Ltd.  and  Shenzhen
Technology  Co., Ltd. Mr. Wang helped  Chongqing Wanli Storage Battery Co., Ltd.
and Shenzhen Technology Co., Ltd. to become publicly listed companies on Chinese
stock  markets in  Shanghai  and  Shenzhen.  Mr. Wang  received  an  Engineering
Bachelor Degree from Navy Engineering  Institute in 1978 and an Economics Master
Degree from Tsinghua University in 1990.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires our  directors and officers,  and the
persons who  beneficially own more than ten percent of our common stock, to file
reports of ownership and changes in ownership  with the  Securities and Exchange
Commission.  Copies of all filed  reports  are  required to be  furnished  to us
pursuant to Rule 16a-3  promulgated  under the Exchange Act. Based solely on the
reports received by us and on the  representations of the reporting persons,  we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended June 30, 2008.

                                       27

<PAGE>


COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE

As of the date of this  Annual  Report,  we do not have any members on our audit
committee  due to the  resignations  of  Messrs.  Shandro  and Wu.  We have  not
appointed  additional  members  to  the  audit  committee  and,  therefore,  the
respective  role of an  audit  committee  has  been  conducted  by our  board of
directors.  When new members are to be  appointed  to the audit  committee,  the
audit committee's primary function will be to provide advice with respect to our
financial  matters  and to  assist  our board of  directors  in  fulfilling  its
oversight responsibilities regarding finance,  accounting, and legal compliance.
The audit committee's primary duties and responsibilities  will be to: (i) serve
as an independent and objective party to monitor our financial reporting process
and internal  control system;  (ii) review and appraise the audit efforts of our
independent  accountants;  (iii) evaluate our quarterly financial performance as
well as our  compliance  with laws and  regulations;  (iv) oversee  management's
establishment and enforcement of financial policies and business practices;  and
(v) provide an open avenue of communication  among the independent  accountants,
management and the board of directors.

Our Board of Directors has  considered  whether the provision of such  non-audit
services  would  be  compatible  with  maintaining  the  principal   independent
accountant's  independence.  Our  Board  of  Directors  considered  whether  our
principal independent accountant was independent, and concluded that the auditor
for the fiscal year ended June 30, 2008 was independent.

CODE OF ETHICS

We have  adopted a  corporate  code of ethics.  We believe our code of ethics is
reasonably  designed to deter wrongdoing and promote honest and ethical conduct;
provide full, fair,  accurate,  timely and  understandable  disclosure in public
reports;  comply with applicable laws; ensure prompt internal  reporting of code
violations; and provide accountability for adherence to the code.

DISCLOSURE COMMITTEE AND CHARTER

We have a disclosure  committee and disclosure committee charter. Our disclosure
committee  is  comprised  of our  officers  and  directors.  The  purpose of the
committee is to provide  assistance to the Chief Executive Officer and the Chief
Financial   Officer  in   fulfilling   their   responsibilities   regarding  the
identification and disclosure of material information about us and the accuracy,
completeness and timeliness of our financial reports.


                                       28

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth  information with respect to compensation paid by
us to the Chief Executive Officer and the other highest paid executive  officers
(the Named Executive Officer) during the three most recent fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>



                                                                     LONG TERM COMPENSATION

                                  ANNUAL COMPENSATION                AWARDS                       PAYOUTS

(A)                       (B)     (C)            (D)      (E)             (F)           (G)            (H)           (I)

                                                                                          SECURITIES
                                                          OTHER ANNUAL    RESTRICTED      UNDERLYING                  ALL OTHER
NAME AND PRINCIPAL                  SALARY       BONUS    COMPENSATION      STOCK        OPTIONS/SARS     LTIP       COMPENSATION
POSITION                  YEAR       ($)          ($)          ($)        AWARD(S)($)        (#)       PAYOUTS ($)        ($)
<S>                       <C>     <C>               <C>             <C>           <C>      <C>               <C>     <C>
Xianping Wang (1)         2008    120,000           0               0             0              0           0              0
President, CEO and        2007    120,000           0               0             0              0           0              0
Director                  2006    120,000           0               0             0              0           0              0

Clement Wu (3)            2008        -0-           0               0             0              0           0              0
CFO, Secretary, Treasurer 2007     45,231           0               0             0              0           0              0
and Director              2006     35,625           0               0             0        150,000           0              0

Peter Shandro (5)         2008        -0-           0               0             0              0           0              0
VP Business Strategy and  2007     71,121           0               0             0              0           0              0
Director                  2006     18,000           0               0             0         50,000           0        100,000
                                                                                                                     warrants

</TABLE>

(1) Mr.  Xianping  Wang was appointed as a Director on August 5, 2004 and as our
President and Chief Executive Officer on September 4, 2004.
(2) Mr.  Xianping  Wang was to receive  $10,000 per month  starting  Feb.  2005.
However,  this amount has been  accrued by Mr. Wang.  Therefore,  for the fiscal
years ended June 30, 2008, June 30, 2007 and June 30, 2006, we have  outstanding
obligations of $120,000 owing to Mr. Wang each year.
(3) Mr. Clement Wu was appointed a director and our Chief  Financial  Officer on
January 1, 2006 and as our  Secretary  and  Treasurer  on May 19,  2006.  Mr. Wu
resigned as a director and as our Chief Financial Officer on August 6, 2007.
(4) Mr.  Clement  received  $5,938  per month  starting  on  January 1, 2006 and
received a total of $45,231 as  compensation  for the fiscal year ended June 30,
2007.
(5) Mr. Peter  Shandro was  appointed a director on September 3, 2004 and as our
Vice-President for Business Strategy on April 1, 2006. Mr. Shandro resigned from
both positions on August 1, 2007.
(6) Mr. Peter Shandro received a total of $71,121 as compensation for the fiscal
year  ended  June  30,  2007.  In  addition,  as  part  of Mr.  Peter  Shandro's
compensation  for acting as Vice President  Business  Strategy,  Mr. Shandro was
issued  100,000  warrants at an exercise  price of $1.47 per share and having an
expiry date of May 1, 2009.

No long term incentive plan awards were made to any executive officer during the
fiscal years ended June 30, 2008 and June 30, 2007.

                                       29

<PAGE>

Our officers and  directors  may be reimbursed  for any  out-of-pocket  expenses
incurred by them on our behalf.  As of the date of this Annual  Report,  none of
our  officers or  directors  are a party to  employment  agreements  with us. We
presently have no pension, health, annuity, insurance, profit sharing or similar
benefit plans.

There were no formal  arrangements under which our directors were compensated by
us during the most recently  completed  fiscal year for their services solely as
directors.

We  reserve  the  right to  cancel  shares  or  otherwise  act with  respect  to
shareholders  otherwise  disclosed  herein  which may  result in a change in the
ownership of our Company.

STOCK OPTIONS/GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2006

The  following  table sets forth  information  as at June 30,  2008  relating to
options that have been granted to the Named  Executive  Officers  during  fiscal
year ended June 30, 2008:

<TABLE>
<CAPTION>

                                                     OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
                                 PTION AWARDS                                                  STOCK AWARDS
                                                                                                                       Equity
                                                                                                        Equity         Incentive
                                                                                                        Incentive      Plan Awards:
                                                                                              Market    Plan Awards:   Market or
                                             Equity                                           Value of  Number of      Payout Value
                   Number of   Number of     Incentive Plan                        Number of  Shares    Unearned       of Unearned
                   Securities  Securities    Awards: Number                        Shares or  or Units  Shares, Units  Shares, Units
                   Underlying  Underlying    of Securities                         Units of   of Stock  or Other       or Other
                   Unexercised Unexercised   Underlying       Option               Stock That That      Rights That    Rights That
                   Options     Options       Unexercised      Exercise  Option     Have Not   Have Not  Have Not       Have Not
                   Exercisable Unexercisable Unearned Options Price     Expiration Vested     Vested    Vested         Vested
Name                   (#)         (#)           (#)            ($)     Date         (#)       ($)        (#)            (#)
<S>                    <C>          <C>           <C>            <C>       <C>       <C>       <C>        <C>             <C>
Xianping Wang,
Chief Executive
Officer/President      -0-          -0-           -0-            --        --        --         --         -0-             -0-

Clement Wu, prior
Chief Financial        -0-          -0-           -0-            --        --        --         --         -0-             -0-
Officer/Treasurer

Peter Shandro,
prior Vice
President Business     -0-          -0-           -0-            --        --         --        --         -0-             -0-
Strategy

</TABLE>


                                       30

<PAGE>

The following table sets forth information  relating to compensation paid to our
directors during fiscal year ended June 30, 2008:

DIRECTOR COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                               Change in
                                                                               Pension
                                                                               Value and
                       Fees                                 Non-Equity         Nonqualified
                       Earned or                            Incentive          Deferred                All
                       Paid in       Stock      Option      Plan               Compensation           Other
                       Cash          Awards     Awards      Compensation       Earnings            Compensation        Total
Name                     ($)          ($)         ($)             ($)              ($)                  ($)              ($)
<S>                       <C>          <C>        <C>           <C>                <C>                 <C>               <C>
Xianping Wang             -0-          -0-        -0-           -0-                -0-                 -0-               -0-
Clement Wu                -0-          -0-        -0-           -0-                -0-                 -0-               -0-
Peter Shandro             -0-          -0-        -0-           -0-                -0-                 -0-               -0-

</TABLE>

INDEMNIFICATION

Pursuant to the articles of incorporation and bylaws of the corporation,  we may
indemnify  an  officer  or  director  who is  made a  party  to any  proceeding,
including a lawsuit, because of his position, if he acted in good faith and in a
manner he reasonably  believed to be in our best interest.  In certain cases, we
may advance expenses  incurred in defending any such  proceeding.  To the extent
that the officer or director is successful on the merits in any such  proceeding
as to which such person is to be indemnified,  we must indemnify him against all
expenses  incurred,  including  attorney's  fees.  With  respect to a derivative
action, indemnity may be made only for expenses actually and reasonably incurred
in defending the  proceeding,  and if the officer or director is judged  liable,
only by a court  order.  The  indemnification  is  intended to be to the fullest
extent permitted by the laws of the state of Nevada.

Regarding  indemnification  for liabilities  arising under the Securities Act of
1933,  as amended,  which may be permitted to directors or officers  pursuant to
the foregoing provisions, we are informed that, in the opinion of the Securities
and Exchange  Commission,  such  indemnification  is against public  policy,  as
expressed in the Act and is, therefore unenforceable.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The  following  table  sets  forth  certain  information  with  respect  to  the
beneficial  ownership of our common stock by each stockholder  known by us to be
the  beneficial  owner of more  than 5% of our  common  stock and by each of our
current  directors  and  executive  officers.  Each  person has sole  voting and
investment power with respect to the shares of common stock, except as otherwise

                                       31

<PAGE>

indicated.  Beneficial  ownership consists of a direct interest in the shares of
common stock, except as otherwise  indicated.  As of the June 20, 2008, the date
of this Annual Report,  there are  98,655,733  shares of common stock issued and
outstanding.

                         AMOUNT AND NATURE
NAME OF BENEFICIAL       OF BENEFICIAL                                  PERCENT
OWNER                    OWNER              POSITION                    OF CLASS

Xianping  Wang           10,00,000(1)       President, Chief Executive  10.14%
B-26F Oriental Kenzo,                       a director
No. 48
Dongzhimenwai, Dongcheng
District, Beijing, China

Jianmin Zhou              8,760,865(1)      10% beneficial owner         8.88%
South  Construction St.,
No. 7
Qiaodong District,
Shijiazhuang, China

Hongxing Li               4,852,135(1)      10%  beneficial owner        4.92%
Room 702, Block 19
Capital Normal University
Haidian  District,
Beijing China

Derrick Luu               5,267,438(1)      10% beneficial owner         5.34%
12 B Merlin Champagne
Town No. 6 Liyuan St.,
Tianzhu Shunyi District,
Beijing China 101312

Lily Wang                 6,119,562 (1)     10% beneficial owner         6.20%
300 Murchison Drive,
#202 Millbrae, CA
94030

ALL OFFICERS AND
DIRECTORS AS A GROUP
(1 PERSON)               10,000,000 (1)                                 10.14%

(1)
These are  restricted  shares of common  stock.  Under Rule 13d-3,  a beneficial
owner of a security includes any person who, directly or indirectly, through any
contract, arrangement, understanding,  relationship, or otherwise has or shares:
(i) voting power,  which  includes the power to vote, or to direct the voting of
shares; and (ii) investment power, which includes the power to dispose or direct
the disposition of shares. Certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to vote or the
power  to  dispose  of  the  shares).  In  addition,  shares  are  deemed  to be
beneficially owned by a person if the person has the right to acquire the shares
(for example, upon exercise of an option) within 60 days of the date as of which
the  information  is provided.  In  computing  the  percentage  ownership of any
person,  the amount of shares  outstanding  is deemed to  include  the amount of
shares  beneficially  owned by such person  (and only such  person) by reason of
these acquisition  rights. As a result,  the percentage of outstanding shares of
any person as shown in this  table does not  necessarily  reflect  the  person's
actual  ownership or voting power with respect to the number of shares of common
stock  actually  outstanding  as of the date of this Annual  Report.

                                 32

<PAGE>

CHANGES IN CONTROL

We are unaware of any contract, or other arrangement or provision, the operation
of which may at a subsequent date result in a change of control.

ITEM  12.  CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS   AND  DIRECTOR
INDEPENDENCE.

None of our directors, officers or principal stockholders,  nor any associate or
affiliate  of the  foregoing,  have any  interest,  direct or  indirect,  in any
transaction to the date of this Annual Report, or in any proposed  transactions,
which has materially affected or which we believe will materially affect us.

It is  possible,  however,  that debts owed to Mr. Wang, a Director and officer,
could be  demanded  and cause us  serious  harm if we are unable to pay and must
settle in some  manner.  The total amount owed to Mr. Wang up to June 30 2008 is
$3,426,444 (not including his salary of $120,000 in 2008 which is pending).  The
shareholders loan is interest free, but the Company's accrued the interest at 6%
annually and recorded it as additional paid in capital. Adjustments, conversions
or other action could be taken as to his debt.  Note:  Mr.  Xianping Wang was to
receive  $10,000 per month  starting Feb.  2005.  However,  this amount has been
accrued by Mr. Wang.  Therefore,  for the fiscal years ended June 30, 2008, June
30, 2007 and June 30, 2006, we have outstanding obligations of $120,000 owing to
Mr. Wang each year.

ITEM 13. EXHIBITS

Exhibit

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

ITEM 14. PRINCIPAL ACCOUNTANT  FEES AND SERVICES.

AUDIT FEES

The aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal  accountant for our audit of annual financial
statements and review of financial  statements  included in our Form 10-Q/10-QSB
or services that are normally  provided by the  accountant  in  connection  with
statutory and regulatory filings or engagements for those fiscal years was:

2008: $55,000 to Samuel Wong.

2007:  $71,693 to Zhong Yi (Hong Kong) CPA Company Limited and $57,195 to Samuel
Wong, CPA.


                                       33

<PAGE>

AUDIT RELATED FEES

The aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance  of the  audit or  review of our  financial  statements  and are not
reported in the preceding paragraph:

2008: $0 to Samuel Wong, CPA.

2007:  $0 to Zhong Yi (Hong  Kong) CPA Company  Limited and nil to Samuel  Wong,
CPA.

TAX FEES

The aggregate fees billed in each of the last two fiscal years for  professional
services  rendered by the principal  accountant for tax compliance,  tax advice,
and tax planning was:

2008: $0 to Samuel Wong.

2007: $0 to Zhong (Hong Kong) CPA Company Limited and nil to Samuel Wong, CPA.

ALL OTHER FEES

The aggregate  fees billed in each of the last two fiscal years for the products
and  services  provided by the  principal  accountant,  other than the  services
reported in paragraphs (1), (2), and (3) was:


2008: $0 to Samuel Wong.

2007:  $0 to Zhong Yi (Hong  Kong) CPA Company  Limited and nil to Samuel  Wong,
CPA.

When  existing,  our audit  committee's  pre-approval  policies  and  procedures
described in paragraph  (c)(7)(i) of Rule 2-01 of  Regulation  S-X were that the
audit  committee  pre-approve  all accounting  related  activities  prior to the
performance of any services by any accountant or auditor.

The  percentage of hours  expended on the principal  accountant's  engagement to
audit  our  financial  statements  for the most  recent  fiscal  year  that were
attributed to work  performed by persons  other than the principal  accountant's
full time, permanent employees was 0%.



                                       34

<PAGE>



                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                      XINHUA CHINA LTD.


Dated: October 14, 2008               By: /s/ XIANPING WANG
                                              _______________________________
                                              Xianping Wang, President
                                              (principal executive officer)


Dated: October 14, 2008               By: /s/ XIANPING WANG
                                              _______________________________
                                              Xianping Wang, Acting as
                                              Interim Chief Financial Officer
                                              (principal financial officer)

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

SIGNATURES                             TITLE                  DATE
/s/ XIANPING WANG                      Director               October 14, 2008
_________________
Xianping Wang




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