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


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

                     For the fiscal year ended June 30, 2007

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


                For the transition period from ______ to _______


                        COMMISSION FILE NUMBER: 000-33195


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


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


                         7A-11CHANWAI MEN PROPERTY TRADE
                             CENTER OFFICE BUILDING
                          NO. 26 CHAOYANMEN WEI STREET
                           CHAOYANG DISTRICT, BEIJING
                           PEOPLE'S REPUBLIC OF CHINA
                    ________________________________________
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                 86-10-85656588
                           ___________________________
                           (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)


Indicate by checkmark if the  registrant  is a well-known  seasoned  issuer,  as
defined in Rule 405 of the  Securities Act [ ] Yes [X ] No


<PAGE>


Indicate by checkmark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. [ ]

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

Indicate by checkmark if no disclosure of delinquent filers pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of  issuer's  knowledge,  in  definitive  proxy or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K [ X ]

Indicate by checkmark  whether the registrant is a large  accelerated  filer, an
accelerated filer, or a non-accelerated filer.

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

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

State the aggregate market value of the voting and non-voting common equity held
by  non-affiliate  computes by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common  equity,  as of the
last  business day of the  registrant's  most recently  completed  second fiscal
quarter September 28, 2007: US $333,635.30

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

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

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding      Outstanding as of October 1, 2007
of each of the issuer's classes of common
stock, as of the most practicable date:

Class
Common Stock, $0.00025 par value               54,638,890


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<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE


List hereunder the following documents if incorporated by reference and the Part
of the Form  10-KSB  (e.g.,  Part I, Part II,  etc.) into which the  document is
incorporated:  (1) any  annual  report  to  security  holders;  (2) any proxy or
information  statement;  and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933 "Securities Act"). The listed documents should
be clearly described for identification purposes (e.g. annual report to security
holders for fiscal year ended December 24, 1980). None.




























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<PAGE>


                                XINHUA CHINA LTD.

                                    FORM 10-K

Item 1.   Business

Item 1A.  Risk Factors

Item 3.   LEGAL PROCEEDINGS.

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

Item 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Item 6.   Selected Financial Data

Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Item 8.   FINANCIAL STATEMENTS.

Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

Item 9A.  CONTROLS AND PROCEDURES.


Item 9B   OTHER INFORMATION.

Item 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
          CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
          ACT.

Item 11.  EXECUTIVE COMPENSATION.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
          COMPENSATION.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Item 15.  EXHIBITS.


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<PAGE>


                           FORWARD LOOKING STATEMENTS

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

AVAILABLE INFORMATION

Xinhua China Ltd. files annual,  quarterly,  current reports,  proxy statements,
and  other  information  with  the  Securities  and  Exchange   Commission  (the
"Commission"). You may read and copy documents referred to in this 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.



                                     PART I

ITEM 1. BUSINESS

BUSINESS DEVELOPMENT

Xinhua  China Ltd.  was  incorporated  September  14, 1999 under the laws of the
State of Nevada as Camden Mines Limited  ("Camden").  Since its formation and up
to  September  4, 2004,  Camden was  considered  an inactive  development  stage
enterprise.  On October 12, 2004,  Camden  changed its name from  "Camden  Mines
Limited"  to its  current  corporate  name  "Xinhua  China  Ltd." The  change in
corporate  name  reflected  our  anticipation  of  acquiring  an interest in the
Chinese book  distribution  giant" Xinhua  Circulation &  Distribution  ("Xinhua
C&D").  Please note that throughout this report, and unless otherwise noted, the
words "we," "our," "us," or the "Company" refer to Xinhua China Ltd.


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<PAGE>


SUBSIDIARIES

         PAC-POLY INVESTMENTS LIMITED
         BEJING BOHENG 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.
Pac-Poly is an  investment  holding  company.

On September 30, 2006, as amended  December 25, 2006, we entered into a disposal
agreement  (the  "Disposal  Agreement")  with Beijing  Meixinda  Science & Trade
Development  Ltd.  ("Beijing  Meixinda"),  whereby  we agreed to  dispose of our
equity  interest  of  95% in  Beijing  Boheng  to  Beijing  Meixinda  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
Beijing Meixinda paying  interest-free  installments  over a two-year period. An
initial  deposit of $252,000 was received by us. The disposal of Beijing  Boheng
was subject to us  receiving  the consent of the holders of certain  convertible
debentures.  Effective  December 29, 2006,  we entered  into a  forbearance  and
settlement  agreement (the "Forbearance and Settlement  Agreement") with Cornell
Capital Partners,  L.P. and Highgate House Funds, Ltd. and received the required
consent of the holders of the certain  convertible  debentures  in order to have
the Disposal  Agreement  effective.  This disposal  transaction was completed on
December  31,  2006 and  resulted  in a net  gain of  $2,155,519.  See  "Item 7.


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<PAGE>


Management's   Discussion  and  Analysis  of  Financial  Condition  or  Plan  of
Operation."

We  maintain a 7.98%  effective  interest  in Xinhua C&D  through  Pac-Poly  and
Beijing Boheng.

         BEIJING JOANNES INFORMATION TECHNOLOGY CO. LT.

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

CURRENT BUSINESS OPERATIONS

We are a  company  establishing  ourselves  as a  leader  in the  digital  media
industry. As discussed below, we have refocused our strategic business operation
plans to maximize our strategic position in the publishing industry.

DIVESTURE OF  INTEREST IN XINHUA CIRCULATION & DISTIRBUTION

During  September  2004,  pursuant to the terms and  provisions of an investment
agreement (the "Investment  Agreement") among our two subsidiaries  Pac-Poly and
Beijing  Boheng and Xinhua  Bookstore  (Main  Store)  ("Xinhua  Bookstore"),  we
acquired a 57.67%  interest  in the  publication  distribution  business  in the
People's  Republic of China.  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").  Pac-Poly and Beijing Boheng agreed to contribute
$20,900,000  (RMB  173,000,000)  in cash in exchange for the 57.67%  interest in
Xinhua C&D. Twenty percent (20%) of the $20,900,000 was due and owing within two
months of closing the  transaction  and the remaining  amount was payable within
six months of closing.  As of June 30, 2005, a total of $4,340,000 had been paid
by Pac-Poly,  Beijing Boheng and other  investors  group in accordance  with the
payment  schedule.  The due  date for the  remaining  cash  contribution  of 80%
aggregating  $17,360,000  originally  expired  on  August  1,  2005 and had been
extended to July 31, 2006. Pursuant to a letter of confirmation dated October 7,
2005, Xinhua Bookstore agreed to reduce the long-term loan it extended to Xinhua
C&D should any  receivables  acquired by Xinhua C& D become  uncollectible.  The
acquisition was completed on February 1, 2005.

Xinhua C&D is presently primarily a book distribution enterprise. For the eleven
month period ended May 31, 2006,  Xinhua C&D generated  $37,627,191  in revenues
from book distributions  with a gross profit of $4,326,070.  As of May 31, 2006,
we reduced  our  ownership  interest in Xinhua C&D to 7.98%.  We had  originally
intended to help guide  Xinhua C&D through the  modernization  and growth of its
systems and  distribution  strategies.  Realizing  the large  investment in real


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<PAGE>


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.  See
"Item 7. Management's Discussion and Analysis or Plan of Operation."

As a result of the decision to focus on digital media and co-publishing, we were
able to  renegotiate  our  financial  commitment to Xinhua C&D and eliminate the
requirement to invest a further  $16,700,000  into Xinhua C&D to build their new
distribution warehouse along with all other obligations related to the long term
leasing  of  approximately  128 acres of land on which the  warehouse  was to be
built.  This  change  reduced  our  equity  interest  in Xinhua C&D to 7.98% and
resulted in compensation to us in the amount of $1,237,520.

At the same time we reduced our equity interest in Xinhua C&D, four of our major
shareholders  surrendered  to us for  cancellation  in the aggregate  10,000,000
shares of our common  stock,  resulting in a total of  approximately  51,700,000
shares outstanding.  Xinhua C&D will remain focused on traditional  distribution
services  for  Chinese  book  publishers  throughout  China,  and is expected to
provide procurement services for our online e-commerce initiative.

CONTRACTUAL RELATIONSHIPS

Management of the Company believes that it will be able to establish itself as a
leader in the digital media industry. In accordance with our refocused strategic
plan, we have entered into certain contractual relationships as follows:

         DIAL A BOOK, INC.

On November 4, 2005, we entered into a consulting services agreement with Dial a
Book Inc.  Branded as Chapter One, online readers are offered the opportunity to
read the first chapter of over seventeen  thousand  books.  Retailer book stores
can connect  directly to the site and offer  readers  the  opportunity  to order
directly from the Retailer once they have previewed the book online.

ITEM 1A. RISK FACTORS

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


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<PAGE>


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

We have a history of operating losses,  expect to continue to incur losses,  and
may never be  profitable.  We have incurred a net loss of ($608,030)  for fiscal
year ended June 30, 2007. We had a working  capital  deficit of  $1,165,112  and
shareholders'  deficit of  $6,664,709  as of June 30, 2007.  These factors raise
substantial  doubt  about  our  ability  to  continue  as a going  concern.  The
auditors'  report in our  financial  statements  as at June 30, 2007 includes an
explanatory  paragraph  that states that we have generated net losses and have a
shareholders' deficit factors which raise substantial doubt about our ability to
continue  as a going  concern.  We have been  dependent  on sales of our  equity
securities and debt financing to meet our cash requirements.  Further, we do not
expect  positive  cash  flow  from  operations  in the  near  term.  There is no
assurance  that  actual  cash  requirements  will not exceed our  estimates.  In
particular,  additional capital may be required in the event that: (i) operating
costs may be more than we currently  anticipate;  or (ii) we  encounter  greater
costs associated with general and administrative expenses or offering costs.

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

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

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

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

The digital  media  industry  and market for our  products is  characterized  by
rapidly changing technology and frequent new product introductions.  Our success
will depend in part on our ability to enhance our  technologies and products and
to  introduce  new  products  and   technologies   to  meet  changing   customer
requirements.  We are  currently  devoting,  and intend to  continue  to devote,
significant  resources  toward the  development of digital media  technology and
products.  There can be no  assurance  that we will  successfully  complete  the
development of these  technologies  and related  products in a timely fashion or


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that our current or future  products will satisfy the needs of the digital media
industry.  There  can also be no  assurance  that  digital  media  products  and
technologies  developed  by others  will not  adversely  affect our  competitive
position or render our products or technologies non-competitive or obsolete.

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

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

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

WE HAVE LIMITED MARKETING CAPABILITY.

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


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operating results and financial  condition.  Further,  there can be no assurance
that, if developed, such marketing capabilities will lead to sales.

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

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

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

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

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

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

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


                                       11


<PAGE>


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

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

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

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

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

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

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


                                       12


<PAGE>


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

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

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

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

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

Our  current   liabilities  were  $2,554,277  as  of  June  30,  2007  of  which
approximately  $693,207  is due  within  the next  year  unless  extended.  Such
substantial debt obligations could affect our status as a going concern and also
represent  a  concentration  of risk  which  could pose a serious  concern.  Our
ability to repay debt will be  dependent  on cash flow from the business and our
ability  to raise  new  funds in the form of  loans,  debt or equity in the next
year.  We have  $6,138,691  in long term debt of which  $1,250,000  is due on or
before  November 23, 2010 and  $2,000,000  is due on or before March 23, 2011 in
connection  with recent  convertible  debenture  financings  with Highgate House
Funds, Ltd. and Cornell Capital Partners, LP. See "


                                       13


<PAGE>


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

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

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

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

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

EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY IMPACT OUR BUSINESS.

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

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

Pursuant to Chinese company law applicable to foreign investment companies, such
as our Chinese  subsidiaries,  as well as our minor  interest in Xinhua C&D, are
required to maintain dedicated reserves,  which include a general reserve and an
enterprise expansion reserve. The dedicated reserves are to be appropriated from
net  income  after  taxes,  determined  under the  relevant  Chinese  accounting


                                       14


<PAGE>


regulations  at a rate  determined  by the board of directors of the  respective
subsidiaries, and recorded as a component of shareholders' equity. The dedicated
reserves  are not  distributable  other than upon  liquidation.  As our  Chinese
subsidiaries  and Xinhua C&D have recorded losses for the fiscal year ended June
30,  2007,  no  appropriation  to the  dedicated  reserves  was made.  Moreover,
pursuant to the same Chinese company law, our Chinese  subsidiaries are required
to transfer at the discretion of their boards of directors,  a certain amount of
its annual net income  after  taxes as  determined  under the  relevant  Chinese
accounting  regulations  to a staff  welfare and bonus  fund.  Since our Chinese
subsidiaries  and Xinhua C&D have recorded losses for the fiscal year ended June
30, 2007, no transfer to the staff welfare and bonus fund was made.

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

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

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

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

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

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


                                       15


<PAGE>


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

Our articles of incorporation, as amended, authorize the issuance of 500,000,000
shares of  common  stock.  Our board of  directors  has the  authority  to issue
additional  shares of common stock up to the  authorized  capital  stated in the
articles of  incorporation.  Our board of directors  may choose to issue some or
all of such shares to acquire one or more  businesses  or to provide  additional
financing  in the  future.  The  issuance  of any such  shares  may  result in a
reduction  of the book value or market  price of the  outstanding  shares of our
common stock. It will also cause a reduction in the proportionate  ownership and
voting power of all other stockholders.

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

Our common stock is now,  and may  continue to be in the future,  subject to the
penny  stock  rules  under the  Securities  Exchange  Act of 1934.  These  rules
regulate  broker/dealer  practices for  transactions  in "penny  stocks."  Penny
stocks  generally  are equity  securities  with a price of less than $5.00.  The
penny  stock  rules  require  broker/dealers  to  deliver  a  standardized  risk
disclosure document that provides  information about penny stocks and the nature
and  level of risks in the  penny  stock  market.  The  broker/dealer  must also
provide the customer with current bid and offer  quotations for the penny stock,
the  compensation of the  broker/dealer  and its salesperson and monthly account
statements  showing the market value of each penny stock held in the  customer's
account.  The bid and offer  quotations and the  broker/dealer  and  salesperson
compensation  information  must be given to the  customer  orally or in  writing
prior to completing the transaction and must be given to the customer in writing
before or with the customer's  confirmation.  In addition, the penny stock rules
require  that prior to a  transaction,  the  broker  and/or  dealer  must make a
special written  determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's  written agreement to the transaction.
These  additional  penny stock  disclosure  requirements  are burdensome and may
reduce the trading  activity in the market for our common stock.  As long as the
common  stock is subject to the penny stock  rules,  holders of our common stock
may find it more difficult to sell their securities.

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

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


                                       16


<PAGE>


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

Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on
the OTC Bulletin Board is often thin and  characterized by wide  fluctuations in
trading  prices,  due to many  factors  that  may  have  little  to do with  the
Company's  operations  or business  prospects.  The OTC Bulletin  Board is not a
stock  exchange,  and trading of securities  on the OTC Bulletin  Board is often
more sporadic than the trading of securities  listed on a quotation  system like
Nasdaq or a stock  exchange  like  Amex.  Accordingly,  you may have  difficulty
reselling any of our shares you purchase.

ITEM 1B. UNRESLOVED STAFF COMMENTS

Not applicable as we are a non-accelerated filer.

ITEM 2. DESCRIPTION OF PROPERTY

We maintains our registered agent's office at 101 Convention Center Drive, Suite
700, Las Vegas,  Nevada 89109 and our principal executive office at A-11 Chaowai
Men Office Building No. 26 Chaoyangmen Wai Street,  Chaoyang District,  Beijing,
occupying about 240 square meters with monthly rent of $5,500.

ITEM 3. LEGAL PROCEEDINGS.

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

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

During  fiscal  year  ended June 30,  2007,  no matters  were  submitted  to our
stockholders for approval.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER   MATTERS

MARKET FOR COMMON EQUITY


                                       17


<PAGE>


Shares of our common stock are traded on the OTC Bulletin Board under the symbol
"LXRS".  The market for our common stock is limited,  and can be  volatile.  The
trading  volume over the past three months has averaged  13,288  shares per day.
While  management  has a goal of  improving  corporate  value,  share  price and
liquidity, there is no guarantee this will occur. 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 NASDAQ.  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

          March 31, 2006               $3.10             $1.20
          June 30, 2006                $2.50             $0.90
          September 30, 2006           $1.03             $0.90
          December 31, 2006            $0.65             $0.36
          March 31, 2007               $0.38             $0.22
          June 30, 2007                $0.12             $0.04
          September 30, 2007           $0.06             $0.02

As of October 8, 2007, 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 beneficial owners of our common stock.

DIVIDEND POLICY

No  dividends  have ever been  declared by the Board of  Directors on our common
stock.  Our  losses  do not  currently  indicate  the  ability  to pay any  cash
dividends,  and we do not indicate the intention of paying cash dividends either
on our common stock in the foreseeable future.  There are no restrictions in our
articles of incorporation  or by-laws that prevent us from declaring  dividends.
The Nevada Revised Statutes,  however,  do prohibit us from declaring  dividends
where, after giving effect to the distribution of the dividend,  we would not be
able to pay our debts as they become due in the usual  course of business or our
total assets would be less than the sum of our total liabilities plus the amount
that would be needed to satisfy the rights of stockholders who have preferential
rights superior to those receiving the distribution.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS

We have one equity  compensation  plan, the Xinhua China Ltd. Stock Option Plan.
On September 4, 2004, our Board of Directors  unanimously  approved and adopted,
and on September 6, 2004 our  shareholders  holding a majority of our issued and
outstanding common stock, approved a stock option and incentive plan (the "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


                                       18


<PAGE>


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  Stock  Options to our
employees  and   consultants  on  September  23,  2004  and  October  27,  2004,
respectively.  The entire 4,255,000 Stock Options have expired by their terms as
of June 30, 2007. The table set forth below  presents the securities  authorized
for issuance with respect to the Stock Option Plan under which equity securities
are authorized for issuance as of June 30, 2007:

<TABLE>
<CAPTION>

EQUITY COMPENSATION PLAN INFORMATION

                                                               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                              292,000                $   2.28                15,352,300

Total Stock Options                        292,000

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                                    1,849,690

</TABLE>

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


                                       19


<PAGE>


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 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
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.


                                       20


<PAGE>


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.

SECTION 15(G) OF THE SECURITIES EXCHANGE ACT OF 1934

Our shares are covered by Section 15(g) of the Securities  Exchange Act of 1934,
as amended that imposes 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).  For  transactions  covered by
this  Section  15(g),  the  broker/dealer   must  make  a  special   suitability
determination  for the  purchase  and  have  received  the  purchaser's  written
agreement to the transaction prior to the sale. Consequently,  Section 15(g) may
affect the ability of  broker/dealers to sell our securities and also may affect
your ability to sell your shares in the secondary market.

Section  15(g)  also  imposes   additional   sales  practice   requirements   on
broker/dealers who sell penny securities. These rules require a one page summary
of certain  essential  items.  The items  include the risk of investing in penny
stocks in both public offerings and secondary  marketing;  terms important to in
understanding  of the  function  of the penny  stock  market,  such as "bid" and
"offer"  quotes,  a  dealers  "spread"  and  broker/dealer   compensation;   the
broker/dealer   compensation,   the  broker/dealers  duties  to  its  customers,
including the disclosures  required by any other penny stock  disclosure  rules;
the   customers   rights  and  remedies  in  causes  of  fraud  in  penny  stock
transactions;  and, the NASD's toll free telephone number and the central number
of  the  North  American  Administrators  Association,  for  information  on the
disciplinary history of broker/dealers and their associated persons.

RECENT SALES OF UNREGISTERED SECURITIES

As of the date of this Annual Report and during fiscal year ended June 30, 2007,
to provide capital, we sold stock in private placement  offerings,  issued stock
in exchange  for our debts or pursuant to  contractual  agreements  as set forth
below.

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


                                       21


<PAGE>


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 6. Management's Discussion and Analysis or Plan of Operation
- Material Commitments."

In  addition,  Highgate  shall  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, 2007, we issued an aggregate
of 2,859,125 shares of our common stock to Highgate  pursuant to the exercise by
Highgate of its rights to purchase warrant shares pursuant to the Warrant.

ITEM 6. SELECTED FINANCIAL DATA

The  summarized  consolidated  financial  data set forth in the tables below and
discussed in this section  should be read in conjunction  with our  consolidated
financial  statements and related notes for fiscal years ended June 30, 2007 and
2006, which financial statements are included elsewhere in this Annual Report.

                                   FOR FISCAL YEAR ENDED       FOR FISCAL YEAR
                                       JUNE 30, 2007         ENDED JUNE 30, 2006
                                        (AUDITED)                 (AUDITED)
                                   _____________________     ___________________

Net Sales                                $  153,286             $ 35,091,024
Loss from Operations                       (608,030)             (10,837,629)
Loss from Operations per Share                 0.01                    (0.17)
Total Assets                              2,028,259                1,914,674
Long Term Liabilities                     6,138,691                8,131,666

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

On May 31,  2006,  we reduced  our equity  interest in Xinhua C&D from 56.14% to
7.98%. Therefore, effective May 31, 2006, the financial statements of Xinhua C&D
were no longer consolidated into our financial  statements.  The deconsolidation
of Xinhua C& D resulted in a net gain of $1,769,742  incurred during fiscal year
ended June 30, 2006.  Moreover,  effective December 31, 2006, we disposed of our
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.

RESULTS OF OPERATION

FOR FISCAL YEAR ENDED JUNE 30, 2007 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2006.

         REVENUES AND GROSS MARGIN


                                       22


<PAGE>


We had net sales of $153,286 for fiscal year ended June 30,  2007,  after taking
into account sales discounts and sales return allowances,  compared to net sales
of  $37,627,291  for fiscal year ended June 30, 2006,  after taking into account
sales discounts and sales return allowances.  Net sales decreased  substantially
due to the  divesture of our  interest in Xinhua C& D. Gross  profit  margin was
5.4% and 11.4% for fiscal year ended June 30, 2007 and 2006, respectively.

         COST OF SALES

Our cost of sales for fiscal year ended June 30, 2007 was  $144,982  compared to
cost of sales of $31,239,179  for fiscal year ended June 30, 2006. Cost of sales
consisted of purchased costs to publishers and  depreciation of property,  plant
and  equipment.  Cost of sales  decreased  proportionately  with the decrease in
revenues  during fiscal year ended June 30, 2007 compared with fiscal year ended
June 30, 2006 due to the divesture of our interest in Xinhua C&D.

         OPERATING EXPENSES

Our total operating expenses were $2,997,598 for fiscal year ended June 30, 2007
as compared to total  operating  expenses of  $18,765,837  for fiscal year ended
June 30, 2006. The decrease in operating  expenses during fiscal year ended June
30, 2007 as compared June 30, 2006 was due to the corresponding  decrease in net
revenues.  Selling,  general and  administrative  expenses  decreased based on a
substantial  decrease  in  stock-based  compensation.  Stock-based  compensation
decreased from $3,562,086  during fiscal year ended June 30, 2006 to $-0- during
fiscal  year  ended  June  30,  2007.   Stock-based   compensation   expense  is
attributable  to the  valuation  of our Stock  Option  Plan under the fair value
method in  accordance  with SFAS No. 123.  Selling,  general and  administrative
expenses  decreased  also based on a decrease  in legal and  professional  fees.
Legal and professional  fees decreased from $1,009,920  during fiscal year ended
June 30,  2006 to $279,815  during  fiscal  year ended June 30,  2007.  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.

Included in  selling,  general and  administrative  expenses  are also the major
categories of: (i) salaries and benefits of $286,015 incurred during fiscal year
ended June 30, 2007 as compared to $2,621,736  incurred during fiscal year ended
June 30, 2006;  (ii)  allowance  for doubtful  accounts of  $1,500,000  incurred
during fiscal year ended June 30, 2007 as compared to $2,540,008 incurred during
fiscal year ended June 30, 2006;  (iii)  provision  on slow moving  inventory of
$-0-  incurred  during fiscal year ended June 30, 2007 as compared to $4,765,218
incurred  during  fiscal year ended June 30, 2006;  (iv) shipping and freight of
$241  incurred  during  fiscal  year ended June 30, 2007 as compared to $149,173
incurred  during fiscal year ended June 30, 2006; (v) office expenses of $91,085
incurred during fiscal year ended June 30, 2007 as compared to $443,644 incurred
during fiscal year ended June 30, 2006; (vi) vehicle expense of $33,761 incurred
during fiscal year ended June 30, 2007 as compared to $108,751  incurred  during
fiscal  year ended June 30,  2006;  and (vii)  other  miscellaneous  expenses of
$516,767  incurred  during  fiscal  year  ended  June 30,  2007 as  compared  to
$3,175,536  incurred  during fiscal year ended June 30, 2006.  These  associated
expenses   included   in   selling,    general   and   administrative   expenses
correspondingly decreased due to the divesture of our interest in Xinhua C&D.


                                       23


<PAGE>


         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 of approximately $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  Decemebr  29,  2006,  we  entered  into athe
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

         NET GAIN ON DECONSOLIDATION OF XINHUA C&D

On May 30, 2006, we resolved to give up 49.49% equity interest in Xinhua C&D and
its effective equity interest was reduced from 57.67% to 8.18%. The reduction in
equity  interest was to discharge us from an 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,  we
intended to concentrate our 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 $1.24 million to
other shareholders of Xinhua C&D.

Effective  May 31, 2006,  we did not  consolidate  the  financial  statements of
Xinhua  C&D and  accounted  for its  investment  using  cost  method  under  the
provision of SFAS No. 115.

The  deconsolidation of Xinhua C&D was completed on May 31, 2006 and resulted in
a net gain of $1.77 million which is calculated as follows:

         Investment in Xinhua C&D at date of acquisition             $4,170,000
         Share of accumulated losses as of May 31, 2006
         (from the date of acquisition as of February 1, 2005)       (5,940,000)
                                                                     ___________
         Net gain from deconsolidation of Xinhua C&D                 $1,770,000


                                       24


<PAGE>


         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  $1,032,448  in interest  expense  during fiscal year ended June 30,
2007 as compared to $2,642,611  incurred as interest  expense during fiscal year
ended June 30, 2006.  Interest expense of $1,032,448 incurred during fiscal year
ended June 30, 2007  consisted of: (i) $961,544 in imputed  interest  charged on
loans from  shareholders;  and (ii)  $70,904 in interest  on loans from  related
parties.  Interest expense of $2,642,611  incurred during fiscal year ended June
30, 2006 consisted of: (i) $1,357,774 in interest  expense from the amortization
of deferred financing cost and discount on convertible debenture;  (ii) $267,296
in imputed interest charged on loans from shareholders;  and (iii) $1,017,541 in
interest on loans from related parties.

During  fiscal  year ended June 30,  2006,  we  allocated  $3,785,756  of losses
applicable to the minority  shareholders of Xinhua C&D before  consolidation  as
compared to $-0- during fiscal year ended June 30, 2006.

We  incurred  a net loss of  ($608,030)  for fiscal  year  ended  June 30,  2007
compared to a net loss of  ($10,837,629)  incurred during fiscal year ended June
30, 2006.

LIQUIDITY AND CAPITAL RESOURCES

FISCAL YEAR ENDED JUNE 30, 2007

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


                                       25


<PAGE>


As at fiscal year ended June 30, 2007,  our current  assets were  $1,389,165 and
our current liabilities were $2,554,277,  resulting in a working capital deficit
of  $1,165,112.  As at fiscal  year ended June 30,  2007,  current  assets  were
comprised  of: (i) $2,733 in cash and cash  equivalents;  (ii)  $185,246  in net
accounts receivable;  (iii) $1,000,000 in note receivable;  and (iv) $201,186 in
other  receivables and  prepayments.  As at fiscal year ended June 30, 2007, our
current  liabilities  were  comprised  of: (i) $693,207 in accounts  payable and
accrued  liabilities;  (ii) 1,787,643 in current  portion of loans payable;  and
(iii) $73,427 in deferred revenue.
See " - Material Commitments."

As at fiscal  year  ended  June 30,  2007,  our  total  assets  were  $2,028,259
comprised  of: (i)  $1,389,165  in current  assets;  (ii)  $625,000 in long-term
portion  of note  receivable;  and  (iii)  $14,094  in net  property,  plant and
equipment.  The increase in total assets  during fiscal year ended June 30, 2007
from fiscal year ended June 30, 2006 was primarily due to the long-term  portion
of note receivable in the amount of $625,000.

As at fiscal year ended June 30, 2007,  our total  liabilities  were  $8,692,968
comprised of: (i) $2,554,277 in current  liabilities;  (ii)  $1,058,261 in loans
payable; and (iii) $5,080,430 in loans from shareholders. The slight decrease in
total liabilities  during fiscal year ended June 30, 2007 from fiscal year ended
June 30, 2006 was primarily due to the decrease in loans from shareholders.

Stockholders'   deficit  decreased  from  ($6,784,496)  for  June  30,  2006  to
($6,664,709) for June 30, 2007.

         OPERATING ACTIVITIES

We have not generated  positive cash flows from  operating  activities.  For the
fiscal year ended June 30, 2007, net cash flow used in operating  activities was
($2,908,974).  Net cash flow used in  operating  activities  during  fiscal year
ended June 30, 2007 consisted  primarily of a net loss of ($608,030) adjusted by
($2,055,947)  relating to net gain on deconsolidation of Xinhua C&D,  $1,032,448
in imputed  interest  expense,  $1,500,000 in allowance  for doubtful  accounts.
Changes in assets and  liabilitites  consisted of an increase of  $1,625,000  in
note  receivable,   $185,246  in  accounts  receivable  and  $140,270  in  other
receivables and prepayments.

During  fiscal year ended  December  31,  2006,  net cash flow used in investing
activities  was  ($4,077,287)  compared  to net  cash  flow  used  in  investing
activities of  ($3,510,559)  for fiscal year ended  December 31, 2005.  Net cash
flow used in investing activities during fiscal year ended December 31, 2006 was
primarily  the  result  of  ($3,845,864)  in oil and gas  property  expenditures
relating to our oil and gas properties  and ($350,967)  relating to the purchase
of equipment, offset by $119,544 of cash acquired on acquisition of Oak Hills.

During  fiscal  year  ended  December  31,  2006,  net cash flow from  financing
activities was $8,584,229 compared to net cash flow from financing activities of
$5,133,150 for fiscal year ended December 31, 2005. Net cash flow from financing
activities  during fiscal year ended  December 31, 2006  pertained  primarily to
$9,426,250  received as proceeds  from the sales of shares of our common  stock,
($763,735) in  convertible  note  repayments,  and  ($222,423) in long term debt
repayments.


                                       26


<PAGE>


         FINANCING ACTIVITIES

During  fiscal year ended June 30,  2007,  cash from  financing  activities  was
$2,723,151 consisting of receipt of $2,902,247 as loans from shareholders, which
was offset by repayment of loan payable in the amount of ($179,096).

PLAN OF OPERATION

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

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

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

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

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

We have undertaken certain actions and continue to implement changes designed to
improve our financial  results and  operating  cash flows.  The actions  involve
certain  cost-saving   initiatives  and  growing  strategies,   including:   (i)
reductions in headcounts and corporate overhead  expenses;  and (ii) continue to


                                       27


<PAGE>


develop  e-commerce  business  through  Beijing  Joannes.  We believe that these
actions  will  enable us to improve  future  profitability  and cash flow in our
continuing  operations  through June 30, 2008.  Furthermore,  the  commitment to
contribute  further  capital of $16,700,000 to Xinhua C&D and the restructure of
debt  pertaining  to Cornell  and  Highgate  has been  advantageous  to our over
financial  outlook.  Ultimately,  we have  released  the burden on cash flow for
further  contribution  and  intend to put our  resources  in  co-publishing  and
e-commerce business opportunities.

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

MATERIAL COMMITMENTS

LOANS PAYABLE/CONVERTIBLE DEBENTURE

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

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


                                       28


<PAGE>


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 of our common stock on March 1, 2007 and April 18, 2007,
respectively, pursuant to exercise rights.

LOANS FROM SHAREHOLDERS

During  fiscal year 2007/8,  a material  commitment  for us relates to the loans
from shareholders. The outstanding amount of $5,080,430 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,  2007,  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.

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.


                                       29


<PAGE>


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".

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.


                                       30


<PAGE>


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.

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.


                                       31


<PAGE>


     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 May  2005,  the FASB  issued  SFAS No.  154,  "ACCOUNTING  CHANGES  AND ERROR
CORRECTIONS  - A  REPLACEMENT  OF APB OPINION NO. 20 AND FASB  STATEMENT  NO. 3"
("SFAS  154").  SFAS 154 changes the  requirements  for the  accounting  for and
reporting of a change in accounting  principle.  These requirements apply to all
voluntary  changes and changes  required by an accounting  pronouncement  in the
unusual instance that the  pronouncement  does not include  specific  transition
provisions.  SFAS 154 is effective for fiscal years beginning after December 15,
2005.  As such,  the  Company  has  adopted  these  provisions,  if any,  at the
beginning of the fiscal year ended December 31, 2006.

In February  2006,  the FASB  issued SFAS  Statement  No. 155,  "ACCOUNTING  FOR
CERTAIN HYBRID  FINANCIAL  INSTRUMENTS--AN  AMENDMENT OF FASB STATEMENTS NO. 133
AND 140" ("SFAS 155"). This Statement amends FASB Statements No. 133, Accounting
for Derivative  Instruments and Hedging Activities,  and No. 140, Accounting for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities.
This Statement resolves issues addressed in Statement 133  Implementation  Issue
No. D1,  "Application  of Statement 133 to Beneficial  Interests in  Securitized
Financial  Assets." This  Statement  permits fair value  re-measurement  for any
hybrid financial  instrument that contains an embedded derivative that otherwise
would   require   bifurcation,   clarifies   which   interest-only   strips  and
principal-only  strips are not subject to the  requirements  of  Statement  133,
establishes a requirement to evaluate interests in securitized  financial assets
to  identify  interests  that are  freestanding  derivatives  or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that  concentrations  of credit risk in the form of subordination  are
not embedded  derivatives and amends  Statement 140 to eliminate the prohibition
on a  qualifying  special-purpose  entity from  holding a  derivative  financial
instrument that pertains to a beneficial  interest other than another derivative
financial  instrument.  SFAS  155 is  effective  for all  financial  instruments
acquired or issued for the Company for fiscal year begins  after  September  15,
2006. The adoption of this standard is not expected to have a material effect on
the Company's  results of operations or financial  position.

In July 2006,  the FASB  issued FIN 48,  Accounting  for  Uncertainty  in Income
Taxes--an  Interpretation  of  FASB  Statement  No.  109,  which  clarifies  the
accounting for uncertainty in tax positions.  This Interpretation  requires that
the Company recognizes in its consolidated  financial statements the impact of a
tax  position if that  position is more  likely than not of being  sustained  on


                                       32


<PAGE>


audit,  based on the technical merits of the position.  The provisions of FIN 48
are effective for the Company on January 1, 2007, with the cumulative  effect of
the change in accounting principle, if any, recorded as an adjustment to opening
retained earnings.

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

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

EXCHANGE  RATE

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

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


                                       33


<PAGE>


Dollar will be limited to the net operating results of the subsidiary  companies
attributable to us.

INTEREST RATE

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

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

ITEM 8. FINANCIAL STATEMENTS

INDEX TO THE FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm dated July 28, 2007.

Consolidated Balance Sheet.

Consolidated Statement of Income.

Consolidated Statement of Stockholders' Equity.

Consolidated Statement of Cash Flows.

Notes to Consolidated Financial Statements.


                                       34


<PAGE>















                                XINHUA CHINA LTD.

                    AUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2007

                             (STATED IN US DOLLARS)






















                                       35


<PAGE>













XINHUA CHINA LTD.



CONTENTS                                                                   PAGES

Report of Registered Independent Public Accounting Firm                      F-1

Consolidated Balance Sheet                                               F-2 - 3

Consolidated Statement of Income                                             F-4

Consolidated Statement of Stockholders' Equity                               F-5

Consolidated Statement of Cash Flows                                         F-6

Notes to the Financial Statements                                       F-7 - 31











                                       36


<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,  2007,  and the  related
consolidated  statement of operations,  stockholders'  equity and  comprehensive
income  and cash  flows for the year ended  June 30,  2007.  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, 2007 and the consolidated  results of operations and cash
flows for the year ended June 30, 2007 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 28, 2007                                       Certified Public Accountants


                                      F-1


<PAGE>

<TABLE>
<CAPTION>

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

                                                  NOTES        2007           2006            2005
                                                            __________     __________     ____________
<S>                                                <C>      <C>               <C>            <C>

ASSETS
   CURRENT ASSETS

     Cash and Cash Equivalents                     3E,5     $    2,733        224,192        1,336,269
     Restricted Cash                                                 -              -          362,516
     Accounts Receivable, NET                       3F         185,246              -       39,125,170
     Value-added tax receivable                     3N               -              -        5,964,445

     Receivable from trustee                         6               -      1,500,000                -
     Note receivable                                 7       1,000,000              -                -
     Inventories, NET                               3G,              -              -       17,445,410
     Other receivables and prepayments               8         201,186         60,916          167,989
                                                            __________     __________     ____________
        Total Current Assets                                $1,389,165      1,785,108       64,401,799


   LONG-TERM ASSETS
     Property, Plant & Equipment, NET              3H,9         14,094        129,566       26,000,804
     Note receivable, long-term portion              7         625,000              -                -
     Distribution network right, NET                3I               -              -        6,167,000
     Goodwill, NET                                  3J               -              -        6,173,992
                                                            __________     __________     ____________
        Total Long-term Assets                                 639,094        129,566       38,341,796

                                                            __________     __________     ____________
        Total Assets                                        $2,028,259     $1,914,674     $102,743,595
                                                            ==========     ==========     ============

LIABILITIES & STOCKHOLDERS' EQUITY

   LIABILITIES
     CURRENT LIABILITIES
     Accounts Payable and Accrued Liabilities        11        693,207        567,504       76,231,392
     Deferred revenue                                7          73,427              -                -
     Current portion of loans payable                12      1,787,643              -                -
     Due to related parties                          3V              -              -        1,510,965
                                                            __________     __________     ____________
        Total Current Liabilities                            2,554,277        567,504       77,742,357

     LONG-TERM LIABILITIES
     Loans Payable                                   12      1,058,261      4,347,234                -
     Loans from related parties                      3v              -              -       16,989,910
     Loans from shareholders                         13      5,080,430      3,784,432        2,833,319
                                                            __________     __________     ____________
        Total Long-term Liabilities                          6,138,691      8,131,666       19,823,229

        Total Liabilities                                    8,692,968      8,699,170       97,565,586
                                                            __________     __________     ____________


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>


                                      F-2


<PAGE>

<TABLE>
<CAPTION>

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


                                                  NOTES        2007           2006            2005
                                                            __________     __________     ____________
<S>                                                <C>      <C>               <C>            <C>

   Minority Interest                                                 -              -        4,973,683

   STOCKHOLDERS' EQUITY

     Common Stock $0.0001 Par Value
     500,000,000 Shares Authorized;
     54,638,890 issued and outstanding at
     June 30, 2007;  61,779,765 Shares
     at June 30, 2006 and 2005                      14             546            618              618
     Additional Paid in Capital                             10,423,526      9,684,907        5,855,525
     Accumulated Other Comprehensive Income                      8,749         19,478               53
     Accumulated Deficit                                   (17,097,530)   (16,489,499)       5,651,870
                                                            __________     __________     ____________
         Total Stockholders' (Deficit)/Equity               (6,664,709)    (6,784,496)         204,326
                                                            __________     __________     ____________
     Total Liabilities & Stockholders' Equity               $2,028,259     $1,914,674     $102,743,595
                                                            ==========     ==========     ============








               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, 2007
                             (STATED IN US DOLLARS)

                                                      NOTE
REVENUE                                                            2007             2006             2005
                                                               ____________     ____________     ____________
<S>                                                            <C>              <C>              <C>

      Revenue, NET                                             $    153,286     $ 35,091,024     $ 13,889,824
      Revenue, NET - related parties                                      -        2,536,167        1,606,713
      Cost of Sales, NET                                3M          144,982       31,239,179       12,636,786
      Cost of Sales, NET - related parties              3M                -        2,087,027          947,680
                                                               ____________     ____________     ____________
         Gross Profit                                                 8,304        4,300,985        1,912,071

OPERATING EXPENSES

      Selling, General, and Administrative
      Expenses                                          16        2,707,684       18,376,072        7,576,242
      Stock-based Compensation                                      265,080                -                -
      Depreciation of Equipment                                      24,834                -                -
      Rental Expenses - related parties                                   -          389,765          169,745
                                                               ____________     ____________     ____________
         Total Operating Expense                                  2,997,598       18,765,837        7,745,987
                                                               ____________     ____________     ____________
      Operating Income/(Loss)                                    (2,989,294)     (14,464,852)      (5,833,916)
                                                               ____________     ____________     ____________
OTHER INCOME (EXPENSES)

      Other Income                                                        -          410,981           65,878
      Interest Income                                                41,792          303,355              552
      Net gain from deconsolidation of a
      subsidiary                                         4                -        1,769,742                -
      Gain on disposal of Beijing BoHeng                17        2,055,947                -                -
      Gain on debt restructuring                        18        1,500,132                -                -
      Interest Expense                                  19       (1,032,448)      (2,642,611)        (520,875)
                                                               ____________     ____________     ____________
         Loss before minority interest and income                  (423,871)     (14,623,385)      (6,288,361)

      Loss on discontinued Operations:
         Loss on discontinued operation of
         Vancouver office, NET OF TAX                               184,159                -                -
                                                               ____________     ____________     ____________
      Income/(Loss) before minority interest and                   (608,030)     (14,623,385)      (6,288,361)
      income tax
      Minority interest in net loss of
      consolidated subsidiaries                                           -        3,785,756          636,491
                                                               ____________     ____________     ____________
Loss before Income Tax                                             (608,030)     (10,837,629)      (5,651,870)

Income Tax                                           3Q,20                -                -                -
                                                               ____________     ____________     ____________
Net Loss                                                       $   (608,030)    $(10,837,629)    $ (5,651,870)
                                                               ============     ============     ============
                                                               ____________     ____________     ____________
Basic & Diluted Earnings Per Share                      21     $       0.01     $      (0.17)    $      (0.10)
                                                               ____________     ____________     ____________
Weighted Average Shares Outstanding                              57,723,668       61,779,765       55,733,786
                                                               ____________     ____________     ____________


               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)

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

Balance, July 1, 2004                      -        -            -              -             -                -             -

Recapitalization as a result
of reverse acquisition            35,000,000      350         (350)                                                          -

Recapitalization to effect the
acquisition of Camden             61,056,375      611      (16,982)                                                    (16,372)

Cancellation of common stock
in connection with reverse
acquisition                      (35,000,000)    (350)         350                                                           -

Issuance of common stock due
to option exercise                   100,700        1      243,373                                                     243,374

Issuance of common stock due
to private placement                 622,690        6    2,023,794                                                   2,023,800

Stock-based compensation                   -        -    3,534,507                                                   3,534,507

Imputed interest on interest
free advances from related
parties                                    -        -       70,833                                                      70,833

Components of comprehensive
income(loss) - Foreign
currency translation                       -        -            -             53            53                -            53

Net Loss for year                          -        -            -     (5,651,870)            -      (5,651,871)    (5,651,870)
                                 ===========   ======   ==========    ===========       =======      ===========   ===========
Balance, June 30, 2005            61,779,765      618    5,855,525     (5,651,817)           53      (5,651,871)       204,325
                                 ===========   ======   ==========    ===========       =======      ===========   ===========
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 outstanding
shares                           (10,000,000)    (100)                                                                    (100)

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

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

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


               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, 2007
                             (STATED IN US DOLLARS)
                                                                             2007             2006             2005
                                                                         ____________     ____________     ____________
<S>                                                                      <C>              <C>              <C>

CASH FLOW FROM OPERATING ACTIVITIES:
   Net Loss/(Loss)                                                       $   (608,030)    $(10,837,629)    $ (5,651,870)
   Adjustments to reconcile net earnings to net cash provided by
   operating activities:
        Depreciation                                                           24,834          614,054          116,061
        Stock-based compensation                                              265,080        3,562,086        3,534,507
        Net gain on deconsolidation of a subsidiary                        (2,055,947)      (1,769,743)               -
        Minority interest in net loss of consolidated subsidiaries                  -         (3785756)        (636,491)
        Amortization of deferred financing costs and fair value
        conversion feature                                                          -        1,357,774                -
        Imputed interest expense                                            1,032,448          267,296           70,833

        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                -

   Changes in assets and liabilities:
        Decrease/(Increase) Accounts receivable                              (185,246)               -       (4,863,919)
        Decrease/(Increase) Note Receivable                                (1,625,000)               -                -
        Decrease/(Increase) Other receivables and prepayments                (140,270)         (53,312)         556,439
        Decrease/(Increase) Accounts Payable and accrued liabilities          125,703           32,254        3,876,497
        Decrease/(Increase) in Deferred Revenue Inventory                      73,427                -                -
        Inventory                                                                   -                -          412,080
                                                                         ____________     ____________     ____________
   Cash Sourced/(Used) in Operating Activities                             (2,908,974)      (3,307,749)      (2,585,863)

                                                                         ____________     ____________     ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash acquired in connection with acquisition of Xinhua C&D                       -                -          353,249

   Advances to trustee                                                              -       (1,500,000)               -
   Purchase of plant and equipment                                                  -         (147,715)        (153,153)
                                                                         ____________     ____________     ____________

   Cash Used/(Sourced) in Investing Activities                                      -        1,647,715          200,096
                                                                         ____________     ____________     ____________

CASH FLOWS FROM FINANCING ACTIVITIES:
   Contribution from minority interests of Xinhua C&D                               -                -          169,174
   Common Stocks issued for cash                                                    -                -        2,267,174

   Proceeds from convertible debenture                                              -        2,989,460                -
   Repayment of Loan Payable                                                 (179,096)               -                -
   Loans from shareholders                                                  2,902,247          832,860        2,833,318
                                                                         ____________     ____________     ____________
   Cash Sourced/(Used) in Financing Activities                              2,723,151        3,822,320        3,722,036
                                                                         ____________     ____________     ____________


NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS FOR THE YEAR              (185,823)      (1,133,144)       1,336,269

EFFECT OF CURRENCY TRANSLATION                                                (35,636)          19,425                -

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

                                                                         ____________     ____________     ____________
CASH & CASH EQUIVALENTS AT END OF YEAR                                   $      2,733     $      2,550     $  1,336,269
                                                                         ============     ============     ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expenses                                                70,904        1,017,541          450,042
                                                                         ============     ============     ============


               SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

</TABLE>


                                      F-6


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


1.   ORGANIZATION AND BUSINESS BACKGROUND

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

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

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

     Details of the  Company's  subsidiaries  as of June 30, 2007 are  described
     below: -

<TABLE>
<CAPTION>

                                           PLACE OF
                                         INCORPORATION                                     PARTICULARS OF       EFFECTIVE
                                          AND KIND OF           PRINCIPAL ACTIVITIES      ISSUED/REGISTERED     INTEREST
              NAME                       LEGAL ENTITY          AND PLACE OF OPERATION       SHARE CAPITAL         HELD
     ___________________________    _______________________    ______________________    ___________________    _________
<S>                                 <C>                        <C>                       <C>                       <C>

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

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

</TABLE>


                                      F-7


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


2.   GOING CONCERN UNCERTAINTIES

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

     As of June 30,  2007,  the  Company  had no  working  capital  but  current
     liabilities  exceeding current assets by $1,165,112,  a negative  operating
     cash flow of $2,908,974  and an accumulated  deficit of $17,097,530  due to
     the fact that the Company  continued  to incur losses over the past several
     years.  Management  has taken  certain  action and  continues  to implement
     changes designed to improve the Company's  financial  results and operating
     cash flows. The actions involve certain cost-saving initiatives and growing
     strategies,  including (a)  reductions in headcount and corporate  overhead
     expenses;  and (b) development of e-commerce business.  Management believes
     that these actions will enable the Company to improve future  profitability
     and cash flow in its  continuing  operations  through June 30,  2008.  As a
     result, the financial  statements do not include any adjustments to reflect
     the possible future effects on the  recoverability  and  classification  of
     assets or the amounts and  classification  of  liabilities  that may result
     from the outcome of the Company's ability to continue as a going concern.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A.) BASIS OF PRESENTATION

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

     (B.) USE OF ESTIMATES

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

     (C.) BASIS OF CONSOLIDATION

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

          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


                                      F-8


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


          operating  policies;  to appoint or remove the majority of the members
          of the board of directors; or to cast majority of votes at the meeting
          of directors. All significant  inter-company balances and transactions
          within the Company have been eliminated on consolidation.

     (D.) INVESTMENTS IN UNCONSOLIDATED ENTITIES

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

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

     (E.) CASH AND CASH EQUIVALENTS

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

     (F.) ACCOUNTS RECEIVABLE, NET

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

     (G.) INVENTORIES, NET

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


                                      F-9


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


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

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

               ASSET CLASSIFICATION                   DEPRECIABLE LIFE

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

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

     (I.) NATIONAL DISTRIBUTION RIGHT

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

     (J.) GOODWILL

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


                                      F-10


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


     (K.) IMPAIRMENT OF LONG-LIFE ASSETS

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

     (L.) REVENUE RECOGNITION

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

          Shipping and handling  fees billed to customers are included in sales.
          Costs  related to shipping and handling are part of selling,  general,
          and  administrative   expenses  in  the  consolidated   statements  of
          operations. EITF No. 00-10, "ACCOUNTING FOR SHIPPING AND HANDLING FEES
          AND COSTS"  allows  for the  presentation  of  shipping  and  handling
          expenses  in line items  other than cost of sales.  For the 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,7general  and  administrative  expenses  in  the  accompanying
          consolidated statements of operations.

     (M.) COST OF SALES

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

     (N.) VALUE-ADDED TAX

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


                                      F-11


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


     (O.) ADVERTISING EXPENSES

          The Company expenses  advertising costs as incurred in accordance with
          the  American  Institute  of Certified  Public  Accountants  ("AICPA")
          Statement of Position 93-7, "REPORTING FOR ADVERTISING COSTS". For the
          year ended June 30, 2007,  advertising  expenses  amount to zero (2006
          and 2005 $128,103 and zero, respectively).

     (P.) COMPREHENSIVE INCOME

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

     (Q.) INCOME TAXES

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

     (R.) LOSS PER SHARE

          The Company calculates loss per share in accordance with SFAS No. 128,
          "EARNINGS PER SHARE". Basic loss per share is computed by dividing the
          net loss by the weighted-average  number of common shares outstanding.
          Diluted  loss per share is  computed  similar  to basic loss per share
          except  that the  denominator  is  increased  to include the number of
          additional  common  shares  that  would have been  outstanding  if the
          potential  common  stock  equivalents  had  been  issued  and  if  the
          additional  common  shares were  dilutive.  The effect of  outstanding
          stock options,  stock  purchase  warrants and  convertible  debenture,
          which  could  result in the  issuance of  54,638,890  shares of common
          stock at June 30, 2007 is anti-dilutive. As a result, diluted loss per
          share data does not include the assumed exercise 7f outstanding  stock
          options,   stock  purchase  warrants,  or  conversion  of  convertible
          debenture and has been presented jointly with basic loss per share.


                                      F-12


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


     (S.) FOREIGN CURRENCIES TRANSLATION

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

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

          EXCHANGE RATES                             2007       2006       2005

          Period end RMB : US$ exchange rate        7.6248     8.0065     8.2865
          Average period RMB : US$ exchange rate    7.8160     8.0721     8.2765

     (T.) SEGMENT REPORTING

          SFAS No. 131 "DISCLOSURES  ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
          INFORMATION"  establishes  standards for reporting  information  about
          operating  segments on a basis consistent with the Company's  internal
          organization  structure  as well  as  information  about  geographical
          areas,  business segments and major customers in financial statements.
          The Company operates in one principal reportable segment.

     (U.) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     (V.) RELATED PARTIES

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

          All material  related party  transactions  have been  disclosed in the
          Note 19 to consolidated financial statements.

     (W.) EQUITY-BASED COMPENSATION

          The  Company  adopts  SFAS  No.  123,   "ACCOUNTING   FOR  STOCK-BASED
          COMPENSATION"  using  the fair  value  method.


                                      F-13


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


          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.

     (X.) CONVERTIBLE DEBENTURE ISSUED WITH STOCK PURCHASE WARRANTS

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

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

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

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


                                      F-14


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


          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.

     (Y.) RECENTLY ISSUED ACCOUNTING STANDARD

          In May 2005,  the FASB issued SFAS No.  154,  "ACCOUNTING  CHANGES AND
          ERROR  CORRECTIONS  - A  REPLACEMENT  OF APB  OPINION  NO. 20 AND FASB
          STATEMENT NO. 3" ("SFAS 154").  SFAS 154 changes the  requirements for
          the accounting for and reporting of a change in accounting  principle.
          These requirements apply to all voluntary changes and changes required
          by an  accounting  pronouncement  in the  unusual  instance  that  the
          pronouncement does not include specific  transition  provisions.  SFAS
          154 is effective for fiscal years  beginning  after December 15, 2005.
          As such,  the  Company has adopted  these  provisions,  if any, at the
          beginning of the fiscal year ended December 31, 2006.

          In February 2006, the FASB issued SFAS Statement No. 155,  "ACCOUNTING
          FOR  CERTAIN  HYBRID  FINANCIAL   INSTRUMENTS--AN  AMENDMENT  OF  FASB
          STATEMENTS NO. 133 AND 140" ("SFAS 155").  This Statement  amends FASB
          Statements No. 133, Accounting for Derivative  Instruments and Hedging
          Activities,  and No. 140,  Accounting  for  Transfers and Servicing of
          Financial Assets and  Extinguishments  of Liabilities.  This Statement
          resolves issues  addressed in Statement 133  Implementation  Issue No.
          D1,   "Application  of  Statement  133  to  Beneficial   Interests  in
          Securitized  Financial  Assets."  This  Statement  permits  fair value
          re-measurement  for any hybrid  financial  instrument that contains an
          embedded   derivative  that  otherwise   would  require   bifurcation,
          clarifies which interest-only strips and principal-only strips are not
          subject  to  the   requirements   of  Statement  133,   establishes  a
          requirement to evaluate  interests in securitized  financial assets to
          identify  interests  that  are  freestanding  derivatives  or that are
          hybrid  financial  instruments  that  contain an  embedded  derivative
          requiring bifurcation, clarifies that concentrations of credit risk in
          the form of  subordination  are not  embedded  derivatives  and amends
          Statement   140  to  eliminate   the   prohibition   on  a  qualifying
          special-purpose  entity from holding a derivative financial instrument
          that pertains to a beneficial  interest other than another  derivative
          financial  instrument.   SFAS  155  is  effective  for  all  financial
          instruments  acquired or issued for the Company for fiscal year begins
          after  September  15,  2006.  The  adoption  of this  standard  is not
          expected  to  have a  material  effect  on the  Company's  results  of
          operations or financial position.

          In July 2006, the FASB issued FIN 48,  Accounting  for  Uncertainty in
          Income  Taxes--an  Interpretation  of FASB  Statement  No. 109,  which
          clarifies  the  accounting  for  uncertainty  in tax  positions.  This
          Interpretation   requires   that  the   Company   recognizes   in  its
          consolidated financial statements the impact of a tax position if that
          position is more likely than not of being sustained on audit, based on
          the  technical  merits of the position.  The  provisions of FIN 48 are


                                      F-15


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


          effective  for the  Company on January  1, 2007,  with the  cumulative
          effect of the change in accounting  principle,  if any, recorded as an
          adjustment to opening retained earnings.

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

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

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

4.   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 as disclosed in note 1.

     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 (See note 9).


                                      F-16


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


     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:

<TABLE>
<CAPTION>


                                                                 For eleven months
                                                                   period ended
                                                                   May 31, 2006
<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)
                                                                    ============

</TABLE>

     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)
                                                                   ============


                                      F-17


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


5.   CASH AND CASH EQUIVALENTS

     Cash, cash equivalents,  and bank overdrafts  include the following for the
     purposes of the cash flow statement:

                        2007         2006          2005
                       _______     ________     __________

     Cash at banks     $ 2,733     $224,192     $1,336,269
                       _______     ________     __________
                       $ 2,733     $224,192     $1,336,269
                       =======     ========     ==========

6.   RECEIVABLE FROM A TRUSTEE

     On February 28, 2006,  the Company  entered an  entrustment  agreement (the
     "Agreement")   with   Asia-Durable    Investments    (Beijing)   Co.   Ltd.
     ("Asia-Durable"), a company incorporated in the PRC. In accordance with the
     Agreement,  the  Company  agreed to entrust  Asia-Durable  on its behalf to
     invest,  set up, hold, and administer its interest of a company  registered
     in the PRC (the "Project Company"). The Company also provided a sum of $1.5
     million (RMB 12 million) to  Asia-Durable  being the investment  capital of
     the Project Company in April 2006. The sum of $1.5 million is refundable at
     the Company's option within one year from the date of the Agreement.  As of
     June 30, 2006, the  effectiveness  of the Project Company is subject to the
     approval of Chinese  government  to enter into  co-publishing  arrangements
     with foreign publishers.

     The  balance is  unsecured,  interest-free,  and  repayable  within  twelve
     months.  Eventually this account proves to be irrecoverable  after pursuing
     collection.  An  allowance  for  loss of  $1,500,000  was  provided  in the
     financial statements of June 30, 2007.


                                      F-18


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


7.   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
     June 30, 2007                     375,000          3,000,000
     October 31, 2007                  375,000          3,000,000
     January 31, 2008                  250,000          2,000,000
     July 31, 2008                     625,000          5,000,000
                                   ___________         __________

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

     Balance at June 30, 2007      $ 1,625,000         13,000,000
                                   ___________         __________

     The balance is unsecured  and  interest-free.  The Company  calculated  the
     imputed  interest income of $87,195 at the current  effective rate of 4.82%
     per annum and reduced from the gain on disposal of a subsidiary. The amount
     is recognized as deferred  revenue and will be amortized as interest income
     over the terms of repayment period.

     For the year ended June 30, 2007, the Company  charged an imputed  interest
     income of $13,768 to the consolidated statements of operations.

8.   OTHER RECEIVABLES AND PREPAYMENT

                                 2007         2006         2005
                               ________     ________     ________

     Advances to employee      $      -     $  3,792     $      -
     Goods and service tax
        receivable                    -        1,587            -
     Other receivables                -        1,249       41,072
     Prepayments                201,186       54,288      126,917
                               ________     ________     ________
                               $201,186     $ 60,916     $167,989
                               ========     ========     ========

     The carrying amounts of other receivables approximate their fair value.


                                      F-19


<PAGE>


                                XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


9.   PROPERTY, PLANT, AND EQUIPMENT, NET

     Property, plant, and equipment consist of the following:

                                 2007         2006          2005
                               ________     ________     ___________

     Land Use Right            $      -     $      -     $ 5,456,089
     Buildings                        -            -      20,091,753
     Equipment and machinery     38,928       48,986         420,583
     Motor vehicles                   -       33,866         148,440
     Leasehold Improvement            -       71,933               -
                               ________     ________     ___________
                                             154,785      26,116,865
     Less: Accumulated
           Depreciation          24,834      (25,219)       (116,061)
                               ________     ________     ___________
                               $ 14,094     $129,566     $26,000,804
                               ========     ========     ===========

     Depreciation expenses for 2007, 2006, and 2005 were $24,834,  $614,054, and
     $116,061, respectively.

10.  COST METHOD INVESTMENT, NET

                                 2007          2006           2005
                               ________     ___________     ________

     Investment at cost        $      -     $ 4,173,352     $      -
     Less: Impairment                 -      (4,173,352)           -
                               ________     ___________     ________
     Carrying value of cost
        method investment      $      -     $         -     $      -
                               ========     ===========     ========

     As a result of the  deconsolidation as fully explained in Note 4 above, the
     cost of  investment  in Xinhua  C&D was  accounted  for in the  non-current
     assets and  reduced  by the  impairment  loss.  For the year ended June 30,
     2006,  Xinhua C&D  recorded a net  capital  deficiency  of  $1,875,000  and
     therefore the Company decided to write down its investment in Xinhua C&D to
     zero.


                                      F-20


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


11.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Accounts  payable and accrued  liabilities  as of June 30, 2007,  2006, and
     2005 consist of the followings:

                                             2007         2006          2005
                                           ________     ________     ___________

     Accounts payable                      $693,207     $  1,642     $73,341,068
     Other payables                               -      191,512       1,095,168
     Income and business taxes payable            -            -         730,734
     Accrued expenses                             -      374,350         956,737
     Salaries and benefits payable                -            -         107,685
                                           ________     ________     ___________
                                           $693,207     $567,504     $76,231,392
                                           ========     ========     ===========


12.  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:


                                      F-21


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


                                           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,  the Company  paid  $250,000 for the payment due March
     10, 2007 and the creditors  exercised  100,000 shares and 125,000 shares on
     March 1, 2007 and April 18, 2007 respectively Loans Payable  outstanding as
     of June 30, 2007 amount to $2,845,904 of which  $1,787,643  and  $1,058,261
     attributed to current portion and long-term respectively.

13.  LOANS FROM SHAREHOLDERS

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

     These shareholders' loans are unsecured,  interest-free,  and not repayable
     within the next twelve months. For the 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.

14.  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


                                      F-22


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


               (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.  Warrants outstanding at June 30, 2007 will lead to the
               issuance of a total of 311,345  additional shares of common stock
               if fully exercised.

          (2)  Share  purchase  warrant  issued from  convertible  debenture

               On December  13,  2005,  the Company  issued to the holder of the
               convertible  debenture  (note 11) 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,
               2007, 835,000 warrants remained outstanding.

          (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.

15.  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.


                                      F-23


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


16.  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>

                                                  2007           2006            2005
                                               __________     ___________     __________
<S>                                            <C>            <C>             <C>

     Allowance for doubtful accounts           $1,500,000     $ 2,540,008     $        -
     Legal and professional fees                  279,815       1,009,920              -
     Allowance for slow moving inventories              -       4,765,218              -
     Office expenses                               91,085         443,644        142,726
     Salaries and benefits                        286,015       2,621,736      1,403,188
     Shipping and freight                             241         149,173         70,666
     Stock-based compensation                           -       3,562,086      3,534,507
     Vehicle expense                               33,761         108,751         49,686
     Other expenses                               516,767       3,175,536      2,375,469
                                               ==========     ===========     ==========
                                               $2,707,684     $18,376,072     $7,576,242
                                               ==========     ===========     ==========
</TABLE>

17.  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-24


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (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  consideration  of 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.

     In view that the Company  continues  to be engaged in the  distribution  of
     books, the disposal did not constitute a discontinued operation.


18.  GAIN ON DEBT RESTRUCTURING

     On December 29, 2006, the Company completed the debt restructuring with the
     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:


                                      F-25


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


     (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
                                                      ____________

19.  INTEREST EXPENSE

                                             2007           2006          2005
                                          __________     __________     ________
Interest expense from the amortization
of deferred financing cost and discount
on convertible debenture                  $        -     $1,357,774     $      -

Imputed interest charged                     961,544        267,296       70,833

Interest on loans from related parties        70,904      1,017,541      450,042

                                          $1,032,448     $2,642,611     $520,875
                                          ==========     ==========     ========


                                      F-26


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


20.  INCOME TAX

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

     Neither the Company nor its subsidiaries had any assessable  income for the
     year and so neither provision nor benefit for EIT was recorded for the year
     ended June 30, 2007.

     As of June 30, 2007,  2006, and 2005,  the primary  components of temporary
     differences  that might give rise to the  Company's  deferred tax assets or
     liabilities are as follows:

                                           2007          2006          2005
                                         _________    ___________   ___________

     Net operating loss carry-forwards   $ 608,030    $   576,000   $   721,000
     Stock-based compensation              265,080      1,074,000     1,237,000
     Valuation allowance                  (873,110)    (1,650,000)   (1,958,000)
                                         _________    ___________   ___________
     Net deferred tax assets             $       -    $         -   $         -
                                         =========    ===========   ===========

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


                                      F-27


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


21.  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>

                                                            2007           2006           2005
                                                         __________     __________     __________
<S>                                                      <C>            <C>            <C>
     Basic and diluted net loss per share
     calculation:

        Numerator:
           Net loss used in computing basic net loss
           per share                                        608,030     10,837,629      5,651,870
                                                         ==========     ==========     ==========
        Denominator:
           Weighted average ordinary shares
           outstanding                                   57,723,668     61,779,765     55,733,786
                                                         ==========     ==========     ==========
     Basic and diluted net loss per share                $     0.01     $     0.17     $     0.10
                                                         ==========     ==========     ==========
</TABLE>


     For the year  ended  June 30,  2007 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-28


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


22.  RELATED PARTY TRANSACTION

     a.   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
          expenses  for  the  period  ended  May  31,  2006  was  $389,765  (RMB
          3,149,570) and for the years ended June 30, 2005 and 2004 was $169,745
          (RMB 1,404,727) and $nil, respectively.

     b.   During the period  ended May 31,  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.

<TABLE>
<CAPTION>

                                                                2007         2006           2005
                                                               ______     __________     __________
<S>                                                            <C>        <C>            <C>

          China Map Publishing House
          (RMB 2,785,064)                                      $    -     $  344,657     $1,304,341

          Commercial Press
          (RMB 5,557,779)                                           -        687,786      2,551,214

          Jieli Publishing House
          (RMB 433,512)                                             -         53,648        137,082

          People's Literature Publishing House
          (RMB 3,001,379)                                           -        371,427        516,639

          People's Publishing House
          (RMB 3,038,151)                                           -        375,977        522,557

          Sanlian Bookstore
          (RMB 1,239,853)                                           -        153,434        147,922

          The Great Encyclopedia of China Publishing House
          (RMB 808,861)                                             -        100,098        148,910

                                                               $    -     $2,087,027     $5,328,665
                                                               ======     ==========     ==========

</TABLE>


                                      F-29

<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


     iii. During the period ended May 31, 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>

                                                                2007         2006           2005
                                                               ______     __________     __________
<S>                                                            <C>        <C>            <C>

     Xinhua Audio Video Lease and Distribution Co., Ltd.
     (RMB 863,161)                                             $    -     $  106,818     $   92,495

     Beijing Xinhua Qiusuo Books Chain Store Co., Ltd.
     (RMB 3,598,432)                                                -        445,313        642,956
                                                                    -          1,041             62
     Jinhua Books Distribution Co., Ltd.
     (RMB 8,413)
                                                                    -        670,600        161,790
     Chengdu Distribution Branch
     (RMB 5,418,903)
                                                                    -      1,312,395        709,410
     Liaoning Distribution Branch
     (RMB 10,605,047)

                                                               $    -     $2,536,167     $1,606,713
                                                               ======     ==========     ==========
</TABLE>


23.  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 $31,527,  $813,418,  and
     $321,646 for each of the years ended 2007, 2006, and 2005, respectively.

24.  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.


                                      F-30


<PAGE>


                               XINHUA CHINA LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                        FOR THE YEAR ENDED JUNE 30, 2007
                             (STATED IN US DOLLARS)


25.  CONCENTRATION OF RISK

     (A.) Major Customers and Vendors

          For the year ended June 30, 2007,  100% of the  Company's  assets were
          located in the PRC, 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.

     (B.) Credit Risk

          No  financial  instruments  that  potentially  subject  the Company to
          significant  concentrations  of credit risk.  Concentrations of credit
          risk are limited due to the Company's large number of transactions are
          on the cash basis.

26.  COMMITMENT AND CONTINGENCIES

     The  Company's  subsidiary,   Boheng  leases  an  office  premise  under  a
     non-cancelable  operating lease.  These costs incurred under this operating
     lease are  recorded as rental  expense and totaled  approximately  $90,420,
     $79,948, and $22,374 for the years ended 2007, 2006, and 2005 respectively.
     Future minimum rental payments due under a  non-cancelable  operating lease
     until termination at November 30, 2007 are as follows:

          Years ending June 30:

                 2008                      $                30,140

27.  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.


                                      F-31


<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

Effective on July 25, 2007, our Board of Directors  accepted the  resignation of
Zhong Yi (Hong Kong) CPA,  Company  Limited  ("Zhong Yi CPA"),  as our principal
independent  registered  public  accounting firm. On the same date, our Board of
Directors  appointed  Samuel H. Wong & Co.,  LLP, as our  principal  independent
registered public accounting firm.

The report of Zhong Yi CPA on our  financial  statements  for fiscal  year ended
June 30, 2006 did not contain an adverse  opinion or disclaimer of opinion,  nor
was it modified as to uncertainty,  audit scope or accounting principles,  other
than to state that there is substantial doubt as to our ability to continue as a
going  concern.  During our fiscal  year  ended  June 30,  2006,  and during the
subsequent period through to the date of Zhong Yi CPA's resignation,  there were
no disagreements  between us and Zhong Yi CPA,  whether or not resolved,  on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction of Zhong
Yi CPA,  would  have  caused  Zhong Yi CPA to make  reference  thereto  in their
reports on our audited consolidated financial statements.

We provided  Zhong Yi CPA with a copy of the Current  Report on Form 8-K and has
requested that Zhong Yi CPA furnish us with a letter addressed to the Securities
and  Exchange  Commission  stating  whether or not Zhong Yi CPA agrees  with the
statements  made in the Current  Report on Form 8-K with respect to Zhong Yi CPA
and, if not,  stating the aspects with which they do not agree. We have received
the  requested  letter  from  Zhong Yi CPA  wherein  they have  confirmed  their
agreement to our disclosures in the Current Report with respect to Zhong Yi CPA.
A copy of Zhong Yi CPA's letter was filed as an exhibit to the Current Report.

In  connection  with our  appointment  of  Samuel  H.  Wong & Co.,  LLP,  as our
principal  registered  accounting  firm at this time, we have not consulted with
Samuel  H.  Wong & Co.,  LLP,  on any  matter  relating  to the  application  of
accounting   principles  to  a  specific   transaction,   either   completed  or
contemplated,  or the type of  audit  opinion  that  might  be  rendered  on our
financial statements.

The address and telephone  number of our newly  appointed  principal  registered
accounting firm is: Samuel H. Wong & Co., LLP, 400 Oyster Point Boulevard, Suite
122, South San Francisco,  California 94080,  telephone  415.732.1288,  fax 415.
397.9028 and email SWONGCPA@AOL.COM

ITEM 9A. 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, 2007.  Based on that  evaluation,  our Chief Executive


                                       37


<PAGE>


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.

ITEM 9B. OTHER INFORMATION

We did report on a Form 8-K the  information  about the change in the  principal
independent  accountant for us from Zhong Yi (Hong Kong) C.P.A. Company Limited,
Certified Public  Accountants to Samuel H. Wong & Co., LLP, , which is discussed
in Item 9  "Change  in and  Disagreement  with  Accountants  on  Accounting  and
Financial Disclosure", hereinabove.

ITEM  10.  DIRECTORS,   EXECUTIVE  OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

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        46       President, Chief Executive 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 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


                                       38


<PAGE>


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.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

To our knowledge,  during the past five years,  no present or former director or
executive officer: (1) filed a petition under the federal bankruptcy laws or any
state  insolvency  law,  nor had a  receiver,  fiscal  agent or similar  officer
appointed  by a court for the  business  or  present  of such a  person,  or any
partnership  in which he was a general  partner at or within two yeas before the
time of such filing, or any corporation or business  association of which he was
an executive  officer  within two years before the time of such filing;  (2) was
convicted  in a  criminal  proceeding  or named  subject  of a pending  criminal
proceeding (excluding traffic violations and other minor offenses);  (3) was the
subject of any order, judgment or decree, not subsequently  reversed,  suspended
or vacated, of any court of competent  jurisdiction,  permanently or temporarily
enjoining him from or otherwise limiting the following activities: (i) acting as
a futures commission  merchant,  introducing broker,  commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, associated
person of any of the foregoing, or as an investment advisor, underwriter, broker
or dealer in securities,  or as an affiliated person, director of any investment
company, or engaging in or continuing any conduct or practice in connection with
such activity; (ii) engaging in any type of business practice; (iii) engaging in
any  activity  in  connection  with  the  purchase  or sale of any  security  or
commodity or in  connection  with any  violation of federal or state  securities
laws or federal  commodity  laws; (4) was the subject of any order,  judgment or
decree, not subsequently reversed, suspended or vacated, of any federal or state
authority  barring,  suspending or otherwise  limiting for more than 60 days the
right of such person to engage in any activity  described above under this Item,
or to be associated with persons engaged in any such activity;  (5) was found by
a court of competent  jurisdiction  in a civil action or by the  Securities  and
Exchange Commission to have violated any federal or state securities law and the
judgment in subsequently reversed, suspended or vacate; (6) was found by a court
of competent  jurisdiction in a civil action or by the Commodity Futures Trading
Commission  to have  violated any federal  commodities  law, and the judgment in
such civil action or finding by the Commodity Futures Trading Commission has not
been subsequently reversed, suspended or vacated.

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, 2007.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE


                                       39


<PAGE>


As of September 1, 2007,  we do not have any members on our audit  committee due
to the recent resignations of Messrs. Shandro and Wu. Therefore,  As of the date
of this Annual  Report,  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, 2007 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.

ITEM 11. 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.


                                       40


<PAGE>

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE
                                                                    LONG TERM COMPENSATION

                                       ANNUAL COMPENSATION          AWARDS                        PAYOUTS
(A)                       (B)    (C)       (D)         (E)           (F)          (G)            (H)           (I)

                                                                  RESTRICTED   SECURITIES
                                                   OTHER ANNUAL     STOCK      UNDERLYING                    ALL OTHER
NAME AND PRINCIPAL               SALARY    BONUS   COMPENSATION    AWARD(S)    OPTIONS/SARS      LTIP       COMPENSATION
POSITION                  YEAR    ($)       ($)         ($)          ($)            (#)       PAYOUTS ($)       ($)

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

Xianping Wang (1)         2007   120,000     0          0              0              0          0               0
President, CEO and        2006   120,000     0          0              0              0          0               0
Director                  2005    50,000     0          0              0        475,000          0               0

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

Peter Shandro (5)         2007    71,121     0          0              0              0          0               0
VP Business Strategy      2006    18,000     0          0              0         50,000          0          100,000
and Director              2005       nil                                        200,000                     warrants

<FN>

(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, 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 has received  $5,938 per month starting on January 1, 2006 and
     has  received a total of $45,231as  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 has 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.

</FN>
</TABLE>


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

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.

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

The  following  table sets forth  information  as at June 30,  2007  relating to
options that have been granted to the Named  Executive  Officers  during  fiscal
year ended June 30, 2007:


                                       41


<PAGE>

<TABLE>
<CAPTION>

                                                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

                                      OPTION AWARDS                                                      STOCK AWARDS
                                                                                                                       Equity
                                                                                                         Equity        Incentive
                                                                                                         Incentive     Plan
                                                Equity                                         Market    Plan          Awards:
                                                Incentive Plan                                 Value of  Awards:       Market or
                                                Awards:                             Number     Shares    Number of     Payout Value
                    Number of    Number of      Number of                           of Shares  or Units  Unearned      of Unearned
                    Securities   Securities     Securities                          or Units   of Stock  Shares,       Shares, Units
                    Underlying   Underlying     Underlying                          of Stock   That      Units or      or Other
                    Unexercised  Unexercised    Unexercised     Option              That       Have      Other Rights  Rights That
                    Options      Options        Unearned       Exercise Option      Have Not   Not       That Have     Have Not
                    Exercisable  Unexercisable  Options        Price    Expiration  Vested     Vested    Not Vested    Vested
Name                    (#)          (#)            (#)          ($)    Date        (#)        ($)       (#)           (#)
<S>                      <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
Strategy                -0-           -0-            -0-          --       --          --         --         -0-           -0-

</TABLE>


The following table sets forth information  relating to compensation paid to our
directors during fiscal year ended June 30, 2007:

<TABLE>
<CAPTION>


DIRECTOR COMPENSATION TABLE

                                                                               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>


                                       42


<PAGE>


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 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 12.  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
indicated.  Beneficial  ownership consists of a direct interest in the shares of
common  stock,  except as  otherwise  indicated.  As of the date of this  Annual
Report, there are 54,638,890 shares of common stock issued and outstanding.

<TABLE>
<CAPTION>


NAME OF BENEFICIAL                AMOUNT AND NATURE OF                                       PERCENT
OWNER                             BENEFICIAL OWNER               POSITION                    OF CLASS
<S>                                <C>        <C>                                              <C>

Xianping Wang                      10,475,000 (1)(2)      President, Chief Executive           19.0%
B-26F Oriental Kenzo, No. 48                              Officer and a director
Dongzhimenwai, Dongcheng
District, Beijing, China

Jianmin Zhou                        8,760,865 (1)         10% beneficial owner                16.03%
South Construction St., No. 7
Qiaodong District,
Shijiazhuang, China

Hongxing Li                         4,852,135 (1)         10% beneficial owner                 8.88%
Room 702, Block 19
Capital Normal University
Haidian District, Beijing
China

Derrick Luu                         5,717,438 (1)(3)      10% beneficial owner                10.38%
12 B Merlin Champagne Town
No. 6 Liyuan St., Tianzhu
Shunyi District, Beijing
China  101312

Lily Wang                           6,119,562 (1)         10% beneficial owner                12.40%
300 Murchison Drive, #202
Millbrae, CA
94030

ALL OFFICERS AND DIRECTORS AS A
GROUP (1 PERSON)                   10,475,000 (1)(4)                                          19.02%


                                       43


<PAGE>

<FN>

(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.  As of the date of this Annual Report,  there are 54,638,890 shares
     issued and outstanding.

(2)  This  figure  includes  10,000,000  shares  held of record by Mr.  Wang and
     475,000 shares underlying stock options held by Mr. Wang, which have vested
     and are exercisable within sixty days from October 10, 2007.

(3)  This figure includes 5,267,438 shares that are held directly by Derrick Luu
     and  450,000  shares  underlying  stock  options  which have vested and are
     exercisable within 60 days of October 10, 2007.

(4)  This figure  includes  10,000,000  shares that are held either  directly or
     indirectly by Mr. Wang as well as 4750,000 shares  underlying stock options
     held by Mr.  Wang which have vested and are  exercisable  within 60 days of
     October 10, 2007.

</FN>
</TABLE>


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.


                                       44


<PAGE>


ITEM  13.  CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS   AND  DIRECTOR
COMPENSATION

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 will materially affect us.

ITEM 14. PRINCIPAL ACCOUNTING 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:

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

2006 - $250,000 Zhong Yi (Hong Kong) CPA Company Limited

2006 - $592,874 Ernst & Young LLP (Canada)

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:

2007 - Nil to Zhong Yi (Hong Kong) CPA Company  Limited and nil to Samuel  Wong,
CPA.

2006 - nil Zhong Yi (Hong Kong) CPA Company Limited

2006 - nil Ernst & Young LLP (Canada)

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:

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

2006 - nil - Zhong Yi (Hong Kong) CPA Company Limited.

2006 - nil - Ernst & Young LLP (Canada).


                                       45


<PAGE>


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:

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

2006 - nil - Zhong Yi (Hong Kong) CPA Company Limited.

2006 - nil - Ernst & young LLP (Canada).

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%.

ITEM 15. EXHIBITS

The following exhibits are filed with this Annual Report on Form 10-K:

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.


                                       46


<PAGE>


SIGNATURES


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


                                       XINHUA CHINA LTD.


Dated: October 12, 2007                By: /s/ XIANPING WANG
                                               _________________________________
                                               Xianping Wang, President/Chief
                                               Executive Officer



Dated: October 12, 2007                By: /s/ XIANPING WANG
                                               _________________________________
                                               Xianping Wang, Acting as Interim
                                               Chief Financial Officer


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



SIGNATURES                         TITLE                               DATE

/s/ XIANPING WANG       President, Chief Executive Officer      October 12, 2007
    ______________       and a Director
    Xianping Wang


                                       47