Item 2.  Management's Discussion and Analysis of Financial Condition and Result of Operations

The following discussions of the Company’s results of operations and financial position should be read in conjunction with the financial statements and notes pertaining to them that appear elsewhere in this Form 10-Q. Please read in conjunction with the section entitled “Risks”, and note that this discussion contains forward-looking statements. This discussion focuses on the manner in which the Company will operate in the next year, as well as prospects for the future and the manner in which events and uncertainties known to management would cause reported financial information to not be necessarily indicative of future operating results or of the future financial condition.

Corporate Background

Xinhua China Ltd. (the “Company”) was incorporated September 14, 1999 in the State of Nevada under the company name Camden Mines Limited (“Camden”). The Company maintains its registered agent’s office at 101 Convention Center Drive, Suite 700, Las Vegas, Nevada 89109 and its principal executive office at A-11 Chaowai Men Office Building No. 26 Chaoyangmen Wai Street, Chaoyang District, Beijing.  The telephone number in Beijing is 86-10-85656588 and the facsimile number is 86-10-85656638.

Up to September 4, 2004, Camden was considered an inactive development stage enterprise since its formation and on October 12, 2004, the Company changed its name from “Camden Mines Limited” to its current name “Xinhua China Ltd.” along with increasing the authorized capital stock from 100,000,000 shares of common stock to 500,000,000 shares of common stock with a par value of $0.00001 per share. This change reflected the foundation of Xinhua China Ltd. in anticipation of acquiring an interest in the Chinese book distribution giant: Xinhua Circulation & Distribution (“Xinhua C&D”).

On September 14, 2004, the Company signed two separate Share Purchase Agreements (“Agreements”), whereby the Company issued 35,000,000 shares of its common stock in exchange for a 100% interest in Pac-Poly Investments Limited (“Pac-Poly”), a company incorporated under the laws of the International Companies Business Act Cap 291 of British Virgin Islands, and a 95% interest in Beijing Boheng Investments Limited (“Boheng”), a company incorporated under the laws of China.  The stockholders of Pac-Poly and Boheng received 16,387,000 and 18,613,000 shares of the Company’s common stock, respectively.  As part of the Agreements, a shareholder of the Company cancelled 35,000,000 shares of common stock of the Company.  Immediately prior to the share exchange, Pac-Poly and Boheng were under common control.  Boheng spun off all of its business and net assets to its president and became a non-operating shell company.  Pac-Poly had no significant operations since it inception.

The acquisition was accounted for as a recapitalization of Pac-Poly and Boheng because their stockholders and management have actual and effective operating control of the combined entity after the transaction.  Pac-Poly and Boheng were jointly treated as the acquiring entity for accounting purposes and the Company was the surviving entity for legal purposes, with net liabilities of $16,371 being assumed by Pac-Poly and Boheng.  The combined

company is considered to be a continuation of the operations of Pac-Poly and Boheng.  The issued and outstanding common stock of Pac-Poly and Boheng prior to the completion of acquisition was restated to reflect the 35,000,000 shares of stock issued by the Company.

On Jan 21, 2005, through its two subsidiaries Pac-Poly and Boheng, the Company effectively acquired a 57.67% interest in Xinhua C&D - a company organized under the laws of the Peoples’ Republic of China and assigned a national distribution license in China for a wide variety of different publications including: books, periodicals, and wholesale, retail, and mail order of publicly distributed electronic publications.  The remaining shares of Xinhua C&D are held by the Chinese Government-owned Xinhua Main Bookstore and eight major Chinese publishing companies.

Xinhua C&D is presently almost exclusively a book distribution enterprise.  Xinhua C&D is in its second year of operation.  However, on May 31, 2006, the Company reduced its ownership interest in Xinhua C&D to 7.98%.

Recent Corporate Developments

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

As a result of the decision to focus on digital media and co-publishing the Company was able to renegotiate its financial commitment to Xinhua C&D and eliminate the requirement to invest a further $16.7 million into Xinhua C&D to build their new distribution warehouse along with all other obligation related to the long term leasing of approximately 128 acres of land on which the warehouse was to be built.  This change has reduced the Company’s equity interest in Xinhua C&D to 7.98%.  At the same time the Company reduced its equity interest in Xinhua C&D, four of the Company’s major shareholders surrendered to the Company for cancellation in aggregate 10million shares of common stock of the Company, resulting in a total of approximately 51.7 million shares outstanding.  Xinhua C&D will remain focused on traditional distribution services for Chinese book publishers throughout China, and is expected to provide procurement services for the Company’s online e-commerce initiative.

Management of the Company believes that it will be able to establish itself as a leader in the digital media industry.  In accordance with the Company’s refocused strategic plan, the Company on:

• On November 4, 2005, the Company entered into a Consulting Services Agreement with Dial a Book Inc.  Branded as Chapter One, online readers are offered the opportunity to read the first chapter of over seventeen thousand books.  Retailer book stores can connect directly to the site and offer readers the opportunity to order directly from the Retailer once they have previewed the book online.
  
  
• May 9, 2006 formed Beijing Joannes Information Technology Co. Ltd. (“Joannes”), a Chinese wholly owned subsidiary to launch a digital media content initiative with the web site branded www.geepip.com  The business focus will be to build online communities with connectivity to an ecommerce engine, allowing the online purchase of e-books, e-audio, and computer games. Hard copies of books can also be purchase through the portal. A unique customer loyalty program and digital redemption or trade-in strategy will be a market differentiator.
  
  
• On May 16, 2006, the Company entered into an agreement with Bear Technology Limited Company (“Bear”), a digital editing software platform.  This agreement contemplated that the Company would acquire 100% of Bear subject to certain valuations.  As of September 1, 2006, Bear has been unable to provide an auditable valuation and the Company has advised Bear that the agreement to purchase cannot be completed.

On September 30, 2006, Xinhua China entered an agreement (“the Agreement”) to dispose of its equity interest of 95% in Boheng for a cash consideration of approximately $1,897,365 (equivalent to RMB15,000,000). Pursuant to the Agreement, the consideration was to be settled by the purchaser with interest-free installments payable over a 2-year period.  A deposit of $252,000 was received during the three month period ended September 30, 2006.  The disposal of Boheng is subject to the Company receiving the consent of the Holders of convertible debentures, which has not yet been received, and therefore, the disposal of Boheng is not yet effective.

Details of the Company’s subsidiaries as of September 30, 2006 are described below:

The condensed consolidated financial statements are those of Xinhua China’s, wholly-owned subsidiary Pac-Poly, 95%-owned subsidiary Boheng and a wholly-owned subsidiary Joannes. Collectively, they are referred herein as the “Company”.  

Plan of Operation

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

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

To execute on our strategy to become a digital media company we expect to form two new subsidiaries. We have already established a wholly owned subsidiary, Joannes on May 9, 2006.  Joannes is intended to be our digital media company, and it is expected to distribute all digital content for Xinhua C&D and others.  Joannes has anticipated in operating its business to consumer (B2C) e-commerce portal as www.geezip.com, and expects to allow customers to purchase electronic and hard copies of books on-line.

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

Results of Operations

Owing to the deconsolidation of Xinhua C&D on May 31, 2006, the condensed consolidated statements of operations for the three months period ended September 30, 2006 includes 3 months result of operations of Joannes only.

The operating results of prior three months period ended September 30, 2005 included 3 month’s operations of Xinhua C&D as it began operation in the PRC on February 1, 2005.

During the three months period ended September 30, 2006 and 2005, we had net sales, after taking into account sales discounts and sales return allowances, of $50,220 and $16,068,991. We had a gross profit of $4,771 and $ 1,666,565 which represents a gross margin of 9.5% and 10.0% on sales revenues.  The decrease in revenues and gross profit in the three months period ended September 30, 2006 compared to 2005 was mainly attributable to the deconsolidation of Xinhua C&D and Joannes started the operation in e-commence business.  Gross profit margin was 9.5% and 10.0% for the three months period ended September 30, 2006 and 2005, respectively. 

We have incurred total of $461,401 and $2,179,042 in selling, general and administrative expenses for the three months period ended September 30, 2006 and 2005, respectively.  The decrease was mainly due to deconsolidation of Xinhua C&D in 2006.  For the three months period ended September 30, 2006, it included in the selling, general and administrative expenses, the major categories were salaries and benefits of approximately $115,156, professional fees of approximately $93,730, rental expense of approximately $31,621, office expenses of approximately $5,186, vehicle expense of approximately $6,843, various miscellaneous expenses for a total of $12,964 and depreciation expense of approximately $12,182 on plant and equipment and motor vehicles.

Stock-based compensation expense largely decreased to $68,665 for the three months period ended September 30, 2006 as compared to 2005 of $955,213.  The stock-based compensation expense was attributable to the valuation of the Stock Option Plan of the Company effective on September 4, 2004 under the fair value method in accordance with SFAS No. 123 and a majority of options were fully vested during this three months period.

We incurred $771,076 and $289,725 interest expense for the three months period ended September 30, 2006 and 2005, respectively.  For the three months period ended September 30, 2005, it was paid for the interest charged on the loans advanced from a related party of Xinhua C&D.  For the three months period ended September 30, 2006, interest expense were accrued in relation to non-cash accounting treatment of our convertible debenture and imputed interest charge on loans from shareholders, respectively. 

We posted a net loss of $1,295,925 and $1,715,896 for the three months period ended September 30, 2006 and 2005.  

Liquidity and Capital Resources

We incurred a net loss of $1,295,925 for the three months period ended September 30, 2006 and a net loss of $1,715,896 for the three months period ended September 30, 2005. The accumulated deficit increased from $16.49 million to $17.79 million.  We had a working capital of $1.26 million as of September 30, 2006 and a working capital of $1.22 million as of June 30, 2006. The stockholders' deficiency increased from a balance of approximately $6.78 million as of June 30, 2006 to a balance of approximately $7.92 million as of September 30, 2006.  Although these factors raise substantial doubt about the our ability to continue as a going concern, we have taken certain actions and continue

to implement changes designed to improve our financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including: (a) reductions in headcounts and corporate overhead expenses; and (b) continue to develop e-commerce business through Joannes.  We believe that these actions will enable Xinhua China to improve future profitability and cash flow in its continuing operations through June 30, 2007.  Furthermore, a disposal of Boheng may reduced further general and administrative expense to improve the operating result.  Along with the reduction in equity interest of Xinhua C&D, we had discharged of the commitment to contribute further capital of $16.7 million into Xinhua C&D.  Ultimately, we have released the burden on the cash flow for further contribution and intended to put its resources in co-publishing and e-commerce business opportunities.

Cash used in operating activities were $657,689 for the three months period ended September 30, 2006, which mainly related to payment to settle the selling, general and administrative expenses in Boheng and Xinhua China.

Cash flows provided by investing activities were $243,301 for the three months period ended September 30, 2006, which was primarily due to deposit received from the disposal of a subsidiary, Boheng.

Cash flows provided by financing activities were $306,754 for the three months period ended September 30, 2006, which mainly sourced from shareholders’ loans, which are unsecured, non-interest bearing and not repayable with the next twelve months.  We had accounted for imputed interest expenses in relation to interest-free shareholders’ loans of $93,178 at its effective interest rate for the three months period ended September 30, 2006.

Off Balance Sheet Arrangement

We leased an office premise under a non-cancelable operating lease.  Future minimum rental payments due under a non-cancelable operating lease are approximately $98,684 and $16,447 for the years ending June 30, 2007 and 2008 respectively.

Subsequent Events

On September 30, 2006, Xinhua China entered into an agreement to dispose of its subsidiary, Boheng for a cash consideration of approximately $1,897,365 (equivalent to RMB15,000,000). Pursuant to the Agreement, the consideration was to be settled by the purchaser with interest-free installments payable over a 2-year period.  The deposit of $252,982 was received during the three month period ended September 30, 2006.  The disposal of Boheng was also subject to the consent of the Holders of convertible debentures.  As of September 30, 2006, the consent was not given by the Holders of convertible debentures to approve to dispose of Boheng and the disposal transaction was not effectively complete.

Contractual Obligations

Shareholders

As not all beneficial shareholders have their shares registered in their names, the total number of shareholders is not known; however, our Secretary has examined the available lists and estimates there are a minimum of 120 shareholders.

Dividends

Other than the stock dividend of two additional shares for each one share outstanding, which was effective July 29, 2004 and the stock dividend of four additional shares for each one share outstanding, which was effective May 15, 2001, our Board of Directors has never declared a dividend on our common stock.  Our previous losses do not permit the payment of cash dividends, and we do not expect to pay dividends on our common stock in the foreseeable future.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

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

          Exchange Rate

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

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

          Interest Rate

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

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

Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective. There have been no changes in these internal controls over financial reporting that occurred during the quarter ended September 30, 2006, that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Part II—Other Information

Item 1. Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no other proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A.  Risk Factors

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

We have incurred losses and substantial doubt exists about our ability to continue as a going concern.

We have incurred a net loss of $1,295,925 for the quarter ended September 30, 2006.  We had a working capital of $1.26 million and shareholders’ deficit of $7.92 million as of September 30, 2006.  These factors raise substantial doubt about our ability to continue as a going concern.  The auditors’ report in our financial statements as at June 30, 2006 includes an explanatory paragraph that states that we have generated net losses and have a shareholders’ deficit factors which raise substantial doubt about our ability to continue as a going concern.

Trading on the OTC Bulletin Board may be sporadic because it is not a stock exchange, and stockholders may have difficulty reselling their shares.

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

We have substantial debt obligations, including certain debt obligations secured by all of our assets.  If we are unable to repay such obligations, our business will likely fail.

$839,669 of our debt as of September 30, 2006 were current liabilities , due within the next year, unless extended.  Such substantial debt obligations could affect our status as a going concern and also represent a concentration of risk which could pose a serious

concern.  Our ability to repay debt will be dependent on cash flow from the business and our ability to raise new funds in the form of loans, debt or equity in the next year.  We have $3,250,000 in long term debt of which $1,250,000 is due on or before November 23, 2010 and $2,000,000 is due on or before March 23, 2011 in connection with recent convertible debenture financings with Highgate House Funds, Ltd. and Cornell Capital Partners, LP.  

Chinese tax and other laws may negatively impact our business results.

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

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

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

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

Because our common stock is subject to penny stock rules, the liquidity of your investment may be restricted.

Our common stock is now, and may continue to be in the future, subject to the penny stock rules under the Securities Exchange Act of 1934. These rules regulate broker/dealer practices for transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide the customer with current bid and offer quotations for the penny stock,

the compensation of the broker/dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker/dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These additional penny stock disclosure requirements are burdensome and may reduce the trading activity in the market for our common stock. As long as the common stock is subject to the penny stock rules, holders of our common stock may find it more difficult to sell their securities.

NASD sales practice requirements may also limit a stockholder’s ability to buy and sell our shares of common stock.

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

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.

We may be unable to protect our intellectual property, particularly in light of Chinese intellectual property laws.

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

We operate in a competitive industry and our failure to compete effectively may adversely affect our ability to generate revenue.

Foreign direct investment in China has increased rapidly in the last 20 years and the investment environment has further improved to encourage foreign and local investors to invest in fields other than those considered by the government of the Peoples’ Republic of China to be sensitive. Distribution channels have been opened up to new foreign investment subject to Peoples’ Republic of China government guidelines.  Many companies are involved in the electronic and traditional publishing and distribution of literary and entertainment material.  There is no guarantee that other competitors will not become involved in business similar to ours.  If this occurs, there may be competitors with greater financial resources and to the extent that such competitors compete on the basis of price, this could affect our results of operations and our ability to continue operations.

We may not be able to hire and retain the personnel we need to sustain our business.

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

We may not be able to enter new markets, which may impair our ability to grow.

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

Exchange rate fluctuations may negatively impact our business.

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

Chinese funds remittance policies may not allow us to maximize our profitability.

Pursuant to Chinese company law applicable to foreign investment companies, our current Chinese subsidiaries, Joannes, and Boheng, as well as our minor interest in Xinhua C&D,

are required to maintain dedicated reserves, which include a general reserve and an enterprise expansion reserve.  The dedicated reserves are to be appropriated from net income after taxes, determined under the relevant Chinese accounting regulations at a rate determined by the board of directors of the respective subsidiaries, and recorded as a component of shareholders’ equity.  The dedicated reserves are not distributable other than upon liquidation.  As Joannes, and Boheng, as well as Xinhua C&D have recorded losses for the three month period ended September 30, 2006, no appropriation to the dedicated reserves was made.

Pursuant to the same Chinese company law, our subsidiaries are required to transfer at the discretion of their boards of directors, a certain amount of its annual net income after taxes as determined under the relevant Chinese accounting regulations to a staff welfare and bonus fund.  As Joannes and Boheng, as well as Xinhua C&D have recorded losses for the three month period ended September 30, 2006, no transfer to the staff welfare and bonus fund was made.

A decline in the price of our shares of common stock could affect our ability to raise further working capital and adversely impact our operations.

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

If we issue additional shares of common stock in the future this may result in dilution to our existing stockholders.

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

As a result of a majority of our directors and officers being residents of other countries other than the United States, investors may find it difficult to enforce, within the United States, any judgments obtained against our company or our directors and officers.

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

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

          N/A

Item 3. Defaults Upon Senior Securities

          N/A

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

          N/A

Item 5. Other Information

          N/A

Item 6. Exhibits

(a)      Exhibit List

31.1     Certificate pursuant to Rule 13a-14(a)

31.2     Certificate pursuant to Rule 13a-14(a)

32.1     Certificate pursuant to 18 U.S.C. §1350

32.2     Certificate pursuant to 18 U.S.C. §1350

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be sign on its behalf by the undersigned thereunto duly authorized.

                                                                                                                Xinhua China Ltd.


Date: November 17, 2006                                                                        Per:      /s/ Clement Wu                      
                                                                                                                Clement Wu, Chief Financial Officer
                                                                                                                and a Director