**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**








**[
                X ]**
            **ANNUAL
                REPORT UNDER SECTION 13 0R 15(****d****)
                OF THE SECURITIES EXCHANGE ACT OF
                1934**





For
      the
      fiscal year ended  **May
      31, 2006**





**[
                ]**
            **TRANSITION
                REPORT UNDER SECTION 13 0R 15(****d****)
                OF THE SECURITIES EXCHANGE ACT OF
                1934**





For
      the
      transition period from ___________ to
      ___________





Commission
      file number     **000-51571**








**NSM
                HOLDINGS, INC.**(Name
                of Small Business Issuer in its
                charter)








Incorporated
                in the State of Delaware
            98-0425713(State
                or other jurisdiction of incorporation or
                organization)
            (I.R.S. Employer Identification
              No.)Suite1106,
                1200 West 73rdAvenue, Vancouver, British Columbia
            V6P
                6G5(Address
                of principal executive offices)
            (Zip
                Code)





Issuer’s
      telephone number: **(604)
      671-8780**








Securities
      registered pursuant to Section 12(b) of the Act:


**Title
                of each class**
            **Name
                of each exchange on which registered**None
            N/A








Securities
      registered pursuant to Section 12(g) of the Act:








**shares
                of common stock - $0.001 par value**(Title
                of Class)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the last 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. **[
      x ] Yes [ ] No**





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. **[ 
       ]**




**Page
          - 1**





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


**[ 
       ] Yes [ X ] No**





State
      issuer’s revenues for its most recent fiscal year.   $48,309





State
      the
      aggregate market value of the voting and non-voting common equity held by **non-affiliates** computed
      by reference to the price at which the common equity was sold, or the average
      bid and asked price of such common equity, as of a specified date within the
      past 60 days: **$117,500
      as of August 28, 2006**





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





**Class**
            **Outstanding
                at August 28, 2006**shares
                of common stock - $0.001 par value
            4,175,000





Documents
      incorporated by reference: Exhibit 3.1 (Certificate of Incorporation), Exhibit
      3.2 (By-laws), Exhibit 3.3 (Certificate of Incorporation for Northern Star
      Distributors Ltd.), Exhibit 3.4 (Notice of Articles for Northern Star
      Distributors Ltd.), Exhibit 3.5 (Articles of Northern Star Distributors Ltd.),
      Exhibit 10.1 (Asset Purchase Agreement), and Exhibit 10.2 (Sublease) all filed
      as Exhibits to NSM’s registration statement on Form SB-2/A filed on April 12,
      2005; and Exhibit 10.3 (Lease) filed as an Exhibit to NSM’s annual report on
      Form 10-KSB filed on October 13, 2005.





Transitional
      Small Business Disclosure Format (Check one): **Yes [ ] No [ x ]**





**Page
          - 2**


**PART
      I**





**Item
      1.**  **Description
      of Business.**





**(a)**
            **Business
                Development**





NSM
      holdings, Inc. (“NSM”) is a holding company incorporated under the laws of the
      State of Delaware on April 8, 2004, which operates
      through its wholly-owned subsidiary, Northern Star Distributors Ltd.
      (“ **Northern
      Star** ”),
      which
      was incorporated under the laws of the Province of British Columbia on April
      8,
      2004.





NSM
      is in
      the e-commerce business and provides products and services for model ship
      enthusiasts, offering its products and services to the internet consumer through
      its website www.northernstarmall.com.





Neither
      NSM nor Northern Star have been involved in any bankruptcy, receivership or
      similar proceedings. There have been no material reclassifications, mergers,
      consolidations or purchases or sales of a significant amount of assets not
      in
      the ordinary course of NSM’s business.





**(b)**
            **Business
                of NSM**





NSM
      is in
      the e-commerce business and provides products and services for model ship
      enthusiasts, offering unique products to the internet consumer through its
      website www.northernstarmall.com. NSM operates through Northern Star. The
      website offers products and services for the model ship enthusiast, specifically
      wooden ship builders. The core products include model ship kits, micro tools,
      limited-edition prints, books and magazines based on the model ship genre.
      The
      website currently offers a host of marine themed products and memorabilia.
      The
      products are priced competitively, relative to NSM’s competitors, and offered
      through a website on a secure server offering privacy, ease of order and quick
      delivery. The website is fully functional and operational. Northern Star
      inventories a selection of its products and has arrangements with suppliers
      and
      manufacturers for others whereby certain suppliers will ship directly to the
      customer without having the item sent to NSM’s offices .





**Products
      and Services**





NSM
      will
      provide marine hobby products through its website. Currently, the products
      offered through the website are:





!  **Model
      ship kits** :
      These
      products are from various manufacturers around the globe, with a focus on
      European kit suppliers.





!  **Micro
      tools** :
      NSM
      supplies tools such as Proxxon (similar to the Dremel brand and line), which
      specifically cater to model builders.





!  **Limited
      edition prints** :
      NSM
      sells nautical themed artwork created by Robin Brooks of the United Kingdom,
      including hand painted artwork of ships, and prints and
      lithographs.





NSM
      plans
      to provide a hobby website that provides specialty kits, marine antiquities,
      marine prints, and any other marine hobby items that will educate and target
      the
      sophisticated hobby market.





NSM
      strives to provide a level of customer service that gives a caring human element
      to any transaction that requires the customer to speak with NSM and potentially
      creates a long-term customer with each website visitor. NSM wants potential
      customers to perceive the website as a preferred source of unique maritime
      products packaged and delivered in a professional, authoritative and efficient
      manner.





NSM
      confirms that it has no major customers at this time.





**Distribution
      of Products and Services**





The
      main
      modes of distribution of NSM’s products are (1) NSM’s website, (2) strategic
      alliances, (3) direct wholesaling to retailers, and (4) the use of Ebay.com,
      all
      as described in more detail below:




**Page
          - 3**





**1)**  **northernstarmall.com
      Website**





For
      any
      development stage company, it would be financially impossible for NSM to provide
      brick and mortar locations to all customers in all regions. Due to the specialty
      products that NSM provides and the diverse locations that customers live, very
      few cities would have enough customers to warrant a retail location. The nature
      of NSM’s products, the demographics of potential customers, and their need to
      source specific marine items makes e-commerce a very suitable mode of providing
      product information to NSM’s customers and promoting distribution and sales of
      NSM’s products.





The
      products and their detailed features are described in detail in the
      professionally designed www.northernstarmall.com website.
      The products are offered through a simple “point and click” interface and
      transaction secure website accepting the usual modes of secured credit card
      payments. Coupled with contact information, a privacy policy and a 100%
      satisfaction guarantee the website offers all the safety and ease of a
      professionally designed e-commerce website. NSM has adopted a policy of a
      24-hour turnaround period from receipt of order to shipping of the product
      through established couriers like FedEx and UPS. NSM plans to establish a
      customer service line via a toll-free phone line during business hours to answer
      customer queries.





**2)**  **Strategic
      Alliances**





NSM
      intends on developing strategic alliances to market its maritime products by
      taking advantage of museums and existing brick and mortar stores and leverage
      on
      its existing retail distribution channels. The Maritime Museum and the Model
      Ship Museum, both located in Vancouver, British Columbia, are two examples
      of
      successful relationships that have been developed. The previous management
      of
      NSM’s business established the relationships with both the museums in
      approximately 2002. Zuber Jamal believes that these relationships are successful
      because the standards of workmanship required and requested by the museums
      are
      very high and the museums have allowed NSM’s products to go on sale in their
      stores, which in turn provides a form of advertisement for NSM’s products. Mr.
      Jamal believes that nautical connoisseurs will be more apt to purchase from
      a
      company that carries this legitimacy. Currently, NSM does not have a formal
      agreement with any strategic alliance partner, including the
      museums.





Also,
      Mr.
      Jamal and NSM’s technical team are developing marketing strategies with various
      strategic sites on the internet that would drive traffic to www.northernstarmall.com .
      The
      relationships may be from reciprocal hyperlinks, banner ads or profiles on
      these
      sites. Currently, Mr. Jamal has identified some suitable strategic partners
      for
      its products and services but has yet to begin discussions or negotiations
      with
      these strategic partners.





**3)**  **Direct
      Wholesaling to Retailers**





NSM
      is
      presently meeting with retailers in the Vancouver, British Columbia marketplace
      and in the United States to have its products placed in retail environments.
      NSM
      is initially targeting hobby stores, marine museum shops, higher-end toy stores,
      and independent retailers. The margins on these sales for the kit products
      range
      from 10% to 50% with bulk orders demanding greater sales discounts.





**4)**  **eBay.com**





Zuber
      Jamal has concluded that eBay.com is a valid method by which to sell NSM’s
      products on a retail basis. NSM will set a floor or reserve price on any item
      and if the item is not sold, NSM will list it for sale on eBay.com. The reserve
      price will not be set lower than the retail price quoted on NSM’s website. eBay
      will be used for inventory that is over one year old and has not moved off
      NSM’s
      shelves. Currently, NSM has no inventory that is more than one year old. In
      the
      past, NSM has also used eBay selectively for products that were not selling
      on
      the main site.





NSM’s
      revenues generated from business operations are derived from NSM’s website
      (30%), strategic alliances (5%), and direct wholesaling to retailers (60%),
      and
      eBay (5%).





NSM
      intends to negotiate distribution relationships with suppliers whereby NSM
      will
      negotiate a “drop shipment” arrangement with suppliers and manufacturers for
      other products whereby certain suppliers will ship directly to NSM’s customer
      without having the item sent to NSM’s offices, which in turn saves storage space
      and shipping costs.





**Market**





The
      target market for NSM’s products and services will be a customer base of mature
      consumers that desire the best quality marine products for their hobbies. The
      consumer will tend to be very educated in their body of knowledge of the genre,
      and usually know specifically what they are searching for. Also, NSM intends
      to
      target the potential market of museums, educational institutions, and the gift
      market. Finally, there is an entire demographic category that NSM also plans
      to
      address the radio controlled ship market.




**Page
          - 4**





Zuber
      Jamal believes that NSM’s website will attract a broad range of nationalities
      due to its broad variety of items and its common cross-cultural appeal. It
      is
      the intention of NSM to impart a sense of maritime history to the enthusiast
      in
      an educative and informative way through its website and its
      products.





NSM
      uses
      general information available via the internet, trade shows, business sources,
      business periodicals and the media to ascertain the size of the nautical hobby
      market. From the size of the suppliers that NSM uses and the number of suppliers
      NSM utilizes, Mr. Jamal estimates the size of the market NSM is targeting on
      a
      global basis is approximately $500 million.





**Principal
      Suppliers**





NSM
      is
      not dependent on any single supplier for its products. NSM’s products are
      supplied by a variety of manufacturers and suppliers from Europe and the United
      States. Any relationship NSM has with its suppliers is strictly a
      supplier/purchaser relationship, which does not require a formal
      agreement.





**Competition**





The
      industry in which NSM operates is extremely competitive and always changing.
      Within the Internet marketplace, there are an enormous number of corporations
      that are competing for online users, advertising dollars, sponsorship fees
      and
      many other unique opportunities for revenue. Many of these potential competitors
      are likely to enjoy substantial competitive advantages, including:





(1)
            greater
                financial, technical and marketing resources that can be devoted
                to the
                development, promotion and sale of their
                services;


(2)
            easier
                and more access to capital;


(3)
            longer
                operating histories;


(4)
            greater
                name recognition and established corporate
                identity;


(5)
            larger
                user base; and


(6)
            developed
                websites.





More
      specifically, online participants focused on the e-commerce industry are growing
      and the services and products that they are offering continues to increase
      at a
      rapid rate. Suppliers, retailers, consumers and other industry participants
      do
      not rely solely on the use of the Internet to communicate and interact. There
      are many alternative and traditional means that will continue to provide
      competition to the utilization of the Internet for similar purposes. Zuber
      Jamal
      believes that competition will grow as the Internet usage increases and it
      becomes an easier and more efficient medium for the e-commerce industry
      participants to interact.





NSM
      will
      strive to obtain a competitive advantage by providing unique, quality products,
      privacy, secure mode of payment, and guaranteed product and service
      satisfaction. Zuber Jamal believes that NSM will have a competitive advantage
      for the following reasons:





1.
            The
                marine products that NSM is selling are designed and manufactured
                mostly
                in Europe, the home of centuries of marine history. This gives the
                products a level of authenticity.


2.
            The
                products are manufactured where the talent pool is very high but
                the costs
                can be 50% less than the costs of labor in North America.


3.
            Zuber
                Jamal has broad based business experience, including the North American
                and the Asian marketplaces.


4.
            www.northernstarmall.com
                is fully operational and ready to receive customer
                orders.


5.
            There
                is a 30-day money back guarantee on all products. Customers pay for
                shipping on purchases and returns. If returned, the item is checked
                for
                damage and replaced.


6.
            The
                first product offerings are already in inventory and ready to be
                shipped
                to customers.


7.
            There
                is a free NSM newsletter that visitors of the website may subscribe
                to for
                information.





NSM’s
      principal competitors are www.model-ships.com , www.shipslocker.com ,
      and www.handcraftedmodelships.com .
      As they
      are private corporations, NSM is unable to ascertain the size of their market.
      As the competitors are private corporations with no requirement for financial
      disclosure, there is no way of quantifying and qualifying what position on
      a
      sale’s basis NSM is in relative to its competition.




**Page
          - 5**





**Government
      Controls and Regulations**





Currently,
      other than business and operations licenses applicable to most commercial
      ventures, NSM is not required to comply with any extraordinary regulations
      for
      its business operations. However, there can be no assurance that current or
      new
      laws or regulations will not, in the future, impose additional fees and taxes
      on
      NSM and its business operations. Any new laws or regulations relating to the
      Internet or any new interpretations of existing laws could have a negative
      impact on NSM’s business and add additional costs to NSM’s business
      operations.





Websites
      are not currently subject to direct federal laws or regulations applicable
      to
      access, content or commerce on the Internet. However, due to the increasing
      popularity and use of the Internet, it is possible that a number of laws and
      regulations may be adopted with respect to the Internet covering issues such
      as:





•
user
      privacy


•
freedom
      of expression


•
      pricing


•
content
      and quality of products and services


•
      taxation


•
      advertising


•
      intellectual property rights


•
      information security





The
      adoption of any such laws or regulations might decrease the rate of growth
      of
      Internet use, which in turn could decrease the demand for NSM’s products and
      services, increase the cost of doing business, or in some other manner have
      a
      negative impact on NSM’s business, financial condition and operating results. In
      addition, applicability to the Internet of existing laws governing issues such
      as property ownership, copyrights and other intellectual property issues,
      taxation, libel, obscenity and personal privacy is uncertain. The vast majority
      of such laws were adopted prior to the advent of the Internet and related
      technologies and, as a result, do not contemplate or address the unique issues
      of the Internet and related technologies.





Additionally,
      in response to concerns regarding “spam” (unsolicited electronic messages),
“pop-up” web pages and other Internet advertising, the federal government and a
      number of states have adopted or proposed laws and regulations that would limit
      the use of unsolicited Internet advertisements. While a number of factors may
      prevent the effectiveness of such laws and regulations, the cumulative effect
      may be to limit the attractiveness of effecting sales on the Internet, thus
      reducing the value of NSM’s business operations.





Also,
      several telecommunications companies have petitioned the Federal Communications
      Commission to regulate Internet service providers and on-line service providers
      in a manner similar to long distance telephone carriers and to impose access
      fees on those companies. This could increase the cost of transmitting data
      over
      the Internet.





**Number
      of Total Employees and Number of Full Time Employees**





Currently,
      NSM has no employees and, has no intention to hire any employees or retain
      any
      third party independent contractors to provide services to NSM. However, as
      part
      of phase 2 of NSM’s proposed plan of operation, NSM plans to hire personnel for
      sales, marketing and customer service provided that NSM is able to raise the
      necessary working capital to implement phase 2 either through revenue generation
      from its business operations or from equity financing.





At
      present, NSM’s sole officer and director does not have an employment agreement
      with NSM. NSM presently does not have pension, health, annuity, insurance,
      stock
      options, profit sharing or similar benefit plans; however, NSM may adopt plans
      in the future. There are presently no personal benefits available to any
      employees.





**RISK
      FACTORS**





You
      should consider each of the following risk factors and the other information
      in
      this Annual Report, including NSM’s financial statements and the related notes,
      in evaluating NSM’s business and prospects. The risks and uncertainties
      described below are not the only ones that impact on NSM’s business. Additional
      risks and uncertainties not presently known to NSM or that NSM currently
      considers immaterial may also impair its business operations. If any of the
      following risks actually occur, NSM’s business and financial results could be
      harmed. Please consider the following risk factors before deciding to invest
      in
      NSM’s shares of common stock.





**Page
          - 6**





**Risks
      associated with NSM’s business and properties:**





**1.**  **NSM
      is an initial development stage company and may not be able to continue as
      a
      going concern and may not be able to raise additional
      financing.**





A
      note
      provided by NSM’s independent auditors in NSM’s financial statements for the
      period from inception, April 8, 2004, through May 31, 2006 contains an
      explanatory note that indicates that NSM is an initial development stage company
      and its ability to continue as a going concern is dependent on continued
      financial support from its shareholders, raising additional capital to fund
      future operations and ultimately to attain profitable operations. The
      explanatory note states that, because of such uncertainties, there may be a
      substantial doubt about NSM’s ability to continue as a going concern. This note
      may make it more difficult for NSM to raise additional equity or debt financing
      needed to run its business and is not viewed favorably by analysts or investors.
      NSM urges potential investors to review this report before making a decision
      to
      invest in NSM.





**2.**  **NSM
      lacks an operating history upon which to judge its current operations and has
      losses that it expects to continue into the future. If the losses continue
      NSM
      will have to suspend operations or cease operations.**





In
      deciding whether to purchase NSM’s shares of common stock, and the likelihood of
      NSM’s success, you should consider that NSM is relatively new to the internet
      marketplace and has no operating history upon which to judge its current
      operations. As a result, you will be unable to assess NSM’s future operating
      performance or its future financial results or condition by comparing these
      criteria against its past or present equivalents.





NSM
      was
      incorporated on April 8, 2004 and NSM has no significant operating history
      upon
      which an evaluation of its future success or failure can be made. NSM’s net loss
      since inception is $109,881. NSM’s ability to achieve and maintain profitability
      and positive cash flow is dependent upon its ability to generate revenues from
      its planned business operations and to reduce development costs.





Based
      upon current plans, NSM expects to incur up to $18,000 in operating losses
      over
      the next 12 to 18 months. This will
      happen because there are expenses associated with the development and operation
      of its website. NSM cannot guaranty that it will be successful in generating
      revenues in the future. Failure to generate revenues may cause NSM to go out
      of
      business.





**3.**  **NSM
      does not have sufficient funds to complete each phase of its proposed plan
      of
      operation and as a result may have to suspend operations.**





Each
      of
      the phases of NSM’s plan of operation is limited and restricted by the amount of
      working capital that NSM has and is able to raise from financings and generate
      from business operations. NSM currently does not have sufficient funds to
      complete each phase of its proposed plan of operation and NSM expects that
      it
      will not satisfy its cash requirements for the next 12 months. As a result,
      NSM
      may have to suspend or cease its operations on one or more phases of the
      proposed plan of operation. Until NSM is able to generate any consistent and
      significant revenue it may be required to raise additional funds by way of
      equity. At any phase, if NSM finds that it does not have adequate funds to
      complete a phase, it may have to suspend its operations and attempt to raise
      more money so it can proceed with its business operations. If NSM cannot raise
      the capital to proceed it may have to suspend operations until it has sufficient
      capital .





**4.**  **Failure
      to successfully compete in the e-commerce industry with established e-commerce
      companies may result in NSM’s inability to continue with its business
      operations.**





There
      are
      three prominent, established e-commerce companies that are competitors with
      NSM.
      Each of www.model-ships.com and www.shipslocker.com and www.handcraftedmodelships.com have
      been in business for at least five years. Each of the competitors are private
      companies and as a result it is difficult for NSM to determine its competitive
      position among these competitors. Based on feedback from NSM’s customers, Zuber
      Jamal thinks that NSM provides a wider range of products than its competitors.
      NSM expects competition in this market to increase significantly as new
      companies enter the market and current competitors expand their online services.





If
      NSM is
      unable to develop and introduce enhanced or new technology or services quickly
      enough to respond to market or user requirements or to comply with emerging
      industry standards, or if these services do not achieve market acceptance,
      NSM
      may not be able to compete effectively.





In
      addition, NSM’s competitors may develop content that is better than NSM’s or
      that achieves greater market acceptance. It is also possible that new
      competitors may emerge and acquire significant market share. Competitive
      pressures created by any one of these companies, or by NSM’s competitors
      collectively, could have a negative impact on NSM’s business, results of
      operations and financial condition and as a result, NSM may not be able to
      continue with its business operations.




**Page
          - 7**





**5.**  **NSM
      may not be able to develop and introduce enhanced or new products and services
      quickly enough to respond to market or user requirements or to comply with
      emerging industry standards and, as a result, NSM’s ability to operate and
      compete effectively may be affected negatively.**





The
      computer and Internet industries are characterized by rapidly changing
      technologies, frequent introductions of new products, services, and industry
      standards. NSM’s future success will depend on its ability to adapt to rapidly
      changing technologies by continually improving the performance features and
      reliability of NSM’s services, as well as, the development and maintenance of
      the Internet’s infrastructure to cope with this increased traffic. NSM’s future
      success will also depend in large part on its ability to develop and enhance
      NSM’s products and services. There are significant technical risks in the
      development of new or enhanced services, including the risk that NSM will be
      unable to effectively use new technologies, adapt its services to emerging
      industry standards, or develop, introduce and market new or enhanced products
      and services. Also, if NSM is unable to develop and introduce enhanced or new
      products and services quickly enough to respond to market or user requirements
      or to comply with emerging industry standards, or if these products and services
      do not achieve market acceptance, NSM may not be able to compete
      effectively.





**6.**  **Since
      NSM’s success depends upon the efforts of Zuber Jamal, the sole officer of NSM,
      and its ability to attract and retain key personnel, NSM’s failure to retain key
      personnel will negatively effect its business** **.**





NSM’s
      business is greatly dependent on the efforts of its CEO, Zuber Jamal, and on
      its
      ability to attract, motivate and retain key personnel and highly skilled
      technical employees. Currently, NSM does not have any employment agreement
      with
      Mr. Jamal and does not carry a key man life insurance policy on Mr. Jamal.
      Also,
      neither NSM nor Northern Star have any full time or part time employees at
      this
      time. The loss of Mr. Jamal could have a negative impact on NSM’s business,
      operating results and financial condition. Competition for qualified personnel
      is intense and NSM may not be able to hire or retain qualified personnel, which
      could also have a negative impact on NSM’s business.





Also,
      Mr.
      Jamal devotes only 20 hours per week to NSM’s operations, with the balance of
      the work week devoted to research for Microcap e-mail to al. Mr Jamal is
      employed by Microcap e-mail to al. to provide 20 hours of research per week.
      However, under the terms of employment with Microcap e-mail to al. Mr. Jamal
      has
      the discretion to work in any capacity he sees fit.





**7.**  **Since
      NSM relies on one provider to host its website, NSM’s technical systems could
      fail if this service is interrupted, which in turn would have a negative impact
      on NSM’s business** **.**





Although
      NSM has back up facilities for its computer systems, NSM relies on one provider
      to host its website, www.easyasphosting.com .
      In the
      past, the website host has not failed to provide services to NSM’s systems and
      website. However, if NSM’s website host failed to provide service to its
      systems, NSM would be unable to maintain website availability. Interruptions
      could result from natural disasters as well as power loss, telecommunications
      failure and similar events. NSM’s business depends on the efficient and
      uninterrupted operation of its computer and communications hardware systems.
      Any
      system interruptions that cause its website to be unavailable could materially
      adversely affect its business. NSM does not currently have a formal agreement
      with its website host, but rather a standard monthly recurring billing
      relationship. Furthermore, NSM will be depending on outside expertise to
      maintain and expand its website design and capabilities. There is no assurance
      that website consultants can be retained that will understand the needs of
      and
      have the solution for a desirable, user-friendly commercial
      website.




**Page
          - 8**





**8.**  **NSM’s
      business exposes NSM to potential product liability claims, and NSM may incur
      substantial expenses if NSM is subject to product liability claims or
      litigation, which could result in a negative impact on its
      business.**





Zuber
      Jamal believes that products for model ship enthusiasts involve a minimal
      inherent risk of product liability claims and associated adverse publicity.
      However, NSM may be held liable if any product it sells causes injury or is
      otherwise found unsuitable. Currently, NSM does not carry any product liability
      insurance or general business coverage. A product liability claim, regardless
      of
      its merit or eventual outcome, could result in significant legal defense costs.
      These costs would have the effect of increasing NSM’s expenses and diverting
      Zuber Jamal’s attention away from the operation of its business, and could harm
      NSM’s business.





**9.**  **NSM
      has no independent board members, which places NSM’s sole officer and director,
      Zuber Jamal, in a conflict of interest with respect to compliance with NSM’s
      Code of Ethics.**





As
      Mr.
      Jamal is NSM’s sole officer and director, and employee at this time, there is no
      independent director and no other compliance officer or employee to oversee
      compliance of NSM’s Code of Ethics. As a result, Mr. Jamal is in a conflict of
      interest when it comes to overseeing compliance of NSM’s Code of Ethics. See
“Exhibit 99.1 - Code of Ethics” for more details.





**Risks
      associated with NSM’s industry:**




**10.**  Any
      new
      laws or regulations relating to the Internet or any new interpretations of
      existing laws could have a negative impact on NSM’s
      business.


Currently,
      other than business and operations licenses applicable to most commercial
      ventures, NSM is not required to obtain any governmental approval for its
      business operations. However, there can be no assurance that current or new
      laws
      or regulations will not, in the future, impose additional fees and taxes on
      NSM
      and its business operations. Additionally, in response to concerns regarding
      “spam” (unsolicited electronic messages), “pop-up” web pages and other Internet
      advertising, the federal government and a number of states have adopted or
      proposed laws and regulations that would limit the use of unsolicited Internet
      advertisements. While a number of factors may prevent the effectiveness of
      such
      laws and regulations, the cumulative effect may be to limit the attractiveness
      of effecting sales on the Internet, thus reducing the value of NSM’s business
      operations. Also, several telecommunications companies have petitioned the
      Federal Communications Commission to regulate Internet service providers and
      on-line service providers in a manner similar to long distance telephone
      carriers and to impose access fees on those companies. This could increase
      the
      cost of transmitting data over the Internet. Any new laws or regulations
      relating to the Internet or any new interpretations of existing laws could
      have
      a negative impact on NSM’s business and add additional costs to NSM’s business
      operations.





**11.**  **Security
      of online transactions via the Internet and any security breaches will have
      a
      negative impact on NSM’s business.**





The
      secure transmission of confidential information over public telecommunications
      facilities is a significant barrier to electronic commerce and communications
      on
      the Internet. Many factors may cause compromises or breaches of security systems
      used by NSM and other Internet sites to protect proprietary information. A
      compromise of security on the Internet would materially negatively affect the
      use of the Internet for commerce and communications. This in turn would
      negatively affect NSM’s business. Circumvention of NSM’s security measures could
      result in misappropriation of its proprietary information or cause interruptions
      of NSM’s operations. Protecting against the threat of such security breaches may
      require NSM to expend significant amounts of capital and other resources. There
      can be no assurance that NSM’s security measures will prevent security
      breaches .





**12.**  **NSM’s
      business will be adversely affected if the infrastructure of the Internet is
      unable to support demands placed on it by NSM’s business.**





The
      success of commercial use of the Internet depends in large part upon the
      development and maintenance of the Internet’s infrastructure, including the
      development of complementary products such as various broadband technologies.
      The number of users of the Internet and the amount of traffic on the Internet
      have grown significantly and are expected to continue to grow, placing greater
      demands on the Internet's infrastructure. This infrastructure may not be able
      to
      support the demands placed on it by this continued growth without its
      performance or reliability being decreased. Any outages or delays in services
      could lower the level of Internet usage. In addition, the infrastructure and
      complementary products and services necessary to make the Internet a viable
      commercial marketplace may not develop. If usage of the Internet is curtailed
      due to infrastructure constraints or lack of complementary products, NSM expects
      an adverse impact on its business and revenues. Even if such infrastructure
      and
      complementary products and services do develop, there can be no guarantee that
      the Internet will become a viable commercial marketplace for products and
      services such as those offered by NSM


**Page
          - 9**


**Risks
      associated with NSM and its subsidiary:**





**13.**  **No
      public market for the shares of common stock and as a result you may not be
      able
      to resell your shares.**




There
      is
      currently no public market for the shares of common stock of NSM. Therefore
      there is no central place, such as stock exchange or electronic trading system,
      to resell your shares. If you want to resell your shares, you will have to
      locate a buyer and negotiate your own sale. There can be no assurance that
      a
      liquid public market on a stock exchange or quotation system will develop,
      or be
      sustained. The lack of a liquid public market will reduce your ability to divest
      an investment in NSM.





**14.**  **NSM
      does not expect to pay dividends in the foreseeable
      future.**





NSM
      has
      never paid cash dividends on its shares of common stock and has no plans to
      do
      so in the foreseeable future. NSM intends to retain earnings, if any, to develop
      and expand its business.





**15.**  **“Penny
      Stock” rules may make buying or selling NSM’s shares of common stock difficult,
      and severely limit the market and liquidity of the shares of common
      stock.**





Trading
      in NSM’s shares of common stock is subject to certain regulations adopted by the
      SEC commonly known as the “penny stock” rules. If and when NSM’s shares of
      common stock are listed for trading, Zuber Jamal believes that trading will
      begin in the $1.00 per share range. If this is the case, then the shares will
      trigger and be subject to the “penny stock” rules. These rules govern how
      broker-dealers can deal with their clients and “penny stocks”. The additional
      burdens imposed upon broker-dealers by the “penny stock” rules may discourage
      broker-dealers from effecting transactions in NSM’s securities, which could
      severely limit their market price and liquidity of NSM’s securities. See “Penny
      Stock rules” on page 11 for more details.





**Item
      2.**  **Description
      of Property.**





NSM's
      sole assets consists of its 100% interest in Northern Star. Northern Star’s
      assets consist of its domain name www.northernstarmall.com ,
      its
      website, and the inventory it has in stock at this time.





NSM
      operates from its principal office at Suite 1106, 1200 West 73 rd Avenue,
      Vancouver, British Columbia, Canada. Since October 1, 2005, NSM leases the
      office space under a one year term lease at a rental rate of CDN$650 a month
      (approximately US$565/month). Zuber Jamal believes this office space is
      sufficient at this time. See “Exhibit 10.3 - Lease” for more
      details.





**Item
      3.**  **Legal
      Proceedings.**





NSM
      is
      not a party to any pending legal proceedings and, to the best of NSM’s
      knowledge, none of NSM’s property or assets are the subject of any pending legal
      proceedings





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





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the fourth quarter of the fiscal year covered by this
      report.





**PART
      II**





**Item
      5.**  **Market
      for Common Equity and Related Stockholder Matters.**





**(a)**  **Market
      Information**





Currently,
      NSM’s shares of common stock are not listed for trading on any exchange or
      quotation service.




**Page
          - 10**





**(b)**  **Holders
      of Record**





There
      are
      approximately 40 holders of record of NSM’s shares of common stock.





**(c)**  **Dividends**





NSM
      has
      declared no dividends on its shares of common stock and is not subject to any
      restrictions that limit its ability to pay dividends on its shares of common
      stock. Dividends are declared at the sole discretion of NSM’s Board of
      Directors.





**(d)**  **Recent
      Sales of Unregistered Securities**





There
      have been no sales of unregistered securities within the last three years that
      would be required to be disclosed pursuant to Item 701 of Regulation S-B, except
      for the following:





On
      April
      16, 2004, NSM issued 2,500,000 restricted shares of common stock to Zuber Jamal,
      NSM’s sole director and officer, pursuant to Section 4(2) of the Securities Act
      of 1933. The restricted shares of common stock were issued in consideration
      of
      the services that were provided by Mr. Jamal in the formation of NSM and its
      business operations. NSM valued those services at $2,500. Mr. Jamal determined
      that the number of shares issued for the services was representative of an
      equity position of a sole director and officer in a development company. Mr.
      Jamal is a sophisticated investor, an officer and a director of NSM, and was
      in
      possession of all material information relating to NSM. Further, no commissions
      were paid to anyone in connection with the sale of the shares and no general
      solicitation was made to anyone.





On
      April
      23, 2004, NSM issued 500,000 restricted shares of common stock to Zuber Jamal
      pursuant to Section 4(2) of the Securities Act of 1933. NSM set the offering
      price for this offering at $0.05 per share. In determining this offering price,
      NSM’s sole director, Zuber Jamal, considered similar factors that were
      considered when determining the offering price of this offering, such as the
      offering price of NSM’s past and future offerings and what effect the offering
      price would have on the dilution of net tangible book value on future investors.
      Mr. Jamal determined that the offering price needed to be increased from the
      last offering price to ensure that the $0.05 offering would not be too dilutive
      in consideration of future offerings. NSM received $25,000 in subscription
      funds
      from Mr. Jamal as consideration for these shares. Mr. Jamal is a sophisticated
      investor, an officer and a director of NSM, and was in possession of all
      material information relating to NSM. Further, no commissions were paid to
      anyone in connection with the sale of the shares and no general solicitation
      was
      made to anyone.





On
      April
      30, 2004, NSM authorized the issuance of up to 750,000 shares of common stock
      at
      $0.10 to private investors for a total offering price of $75,000. NSM raised
      $44,500 from this offering, which was closed on September 30, 2004. The 445,000
      restricted shares of common stock were issued for investment purposes in a
      “private transaction”. NSM relied upon Section 4(2) of the Securities Act of
      1933 and Rule 903 of Regulation S. The offering was not a public offering and
      was not accompanied by any general advertisement or any general solicitation.
      Each subscriber had a pre-existing business relationship with the sole executive
      officer that allowed NSM to determine that (1) each subscriber met certain
      suitability standards and (2) had the level of knowledge and experience in
      finance to evaluate the merits and risks of the investment in the shares. NSM
      received from each subscriber a completed and signed subscription agreement
      containing certain representations and warranties, including, among others,
      that
      (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for
      the
      shares for their own investment account and not on behalf of a U.S. person,
      and
      (c) there was no prearrangement for the sale of the shares with any buyer.
      No
      offer was made or accepted in the United States and the share certificates
      representing the shares have been legended with the applicable trading
      restrictions .





On
      July
      14, 2005, the Securities and Exchange Commission declared NSM’s Form SB-2
      Registration Statement effective, file number 333-120993, permitting NSM to
      offer up to 2,500,000 shares of common stock at $0.10 per share. There was
      no
      underwriter involved in NSM’s public offering. On December 30, 2005, NSM filed a
      post-effective amendment to the Form SB-2 Registration Statement. On March
      28,
      2006, NSM sold 680,000 shares of common stock in the public offering. NSM did
      not sell any other shares under this public offering. The offering period for
      the public offering expired on March 31, 2006.





On
      April
      5, 2006, NSM authorized and approved the issuance of 50,000 shares of common
      stock at $0.10 to private investors for a total offering price of $5,000. The
      50,000 restricted shares of common stock were issued for investment purposes
      in
      a “private transaction”. NSM relied upon Section 4(2) of the Securities Act of
      1933 and Rule 903 of Regulation S. The offering was not a public offering and
      was not accompanied by any general advertisement or any general solicitation.
      Each subscriber had a pre-existing business relationship with the sole executive
      officer that allowed NSM to determine that (1) each subscriber met certain
      suitability standards and (2) had the level of knowledge and experience in
      finance to evaluate the merits and risks of the investment in the shares. NSM
      received from each subscriber a completed and signed subscription agreement
      containing certain representations and warranties, including, among others,
      that
      (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for
      the
      shares for their own investment account and not on behalf of a U.S. person,
      and
      (c) there was no prearrangement for the sale of the shares with any buyer.
      No
      offer was made or accepted in the United States and the share certificates
      representing the shares have been legended with the applicable trading
      restrictions .




**Page
          - 11**





There
      are
      no outstanding options or warrants to purchase, or securities convertible into,
      shares of NSM’s common stock at this time.





**(e)**
            **Penny
                Stock Rules**





Trading
      in NSM’s shares of common stock is subject to the “penny stock” rules. The SEC
      has adopted regulations that generally define a penny stock to be any equity
      security that has a market price of less than $5.00 per share, subject to
      certain exceptions. These rules require that any broker-dealer who recommends
      NSM’s shares of common stock to persons other than prior customers and
      accredited investors, must, prior to the sale, make a special written
      suitability determination for the purchaser and receive the purchaser’s written
      agreement to execute the transaction. Unless an exception is available, the
      regulations require the delivery, prior to any transaction involving a penny
      stock, of a disclosure schedule explaining the penny stock market and the risks
      associated with trading in the penny stock market. In addition, broker-dealers
      must disclose commissions payable to both the broker-dealer and the registered
      representative and current quotations for the securities they offer. The
      additional burdens imposed upon broker-dealers by such requirements may
      discourage broker-dealers from effecting transactions in NSM’s shares of common
      stock, which could severely limit their market price and liquidity of NSM’s
      shares of common stock.





The
      “penny stock” rules also imposes additional sales practice requirements on
      broker/dealers who sell penny stock. 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 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.





**Item
      6.**  **Management’s
      Discussion and Analysis or Plan of Operation.**





THE
      FOLLOWING IS A DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS OF NSM
      HOLDINGS, INC. FOR THE
      FISCAL YEARS ENDED MAY
      31,
      2006 AND
      2005. THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
      FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE HEREIN.





**Overview**





NSM
      is a
      start-up, development stage company and has not yet generated or realized any
      significant revenues from its e-commerce business operations. During the last
      fiscal year, NSM focused its efforts on the e-commerce operations of its
      business, including the development of the Website its strategic alliances
      for
      marketing.





NSM’s
      auditors have provided an explanatory note in its financial statements that
      indicates that NSM is an initial development stage company and NSM’s ability to
      continue as a going concern is dependent on raising additional capital to fund
      future operations and ultimately to attain profitable operations. This means
      that NSM’s auditors believe there is substantial doubt that NSM can continue as
      an on-going business for the next twelve months unless NSM obtains additional
      capital to pay its bills. This is because NSM has not generated any significant
      revenues and no earnings are anticipated until NSM’s business operations become
      profitable.





NSM
      incurred net losses for the period from inception of April 8, 2004 to May 31,
      2005 and for the period from inception of April 8, 2004 to May 31, 2006 of
      $69,235 and $109,881 respectively.





To
      meet
      its need for cash, NSM will rely on the proceeds raised from its April 2004
      private placement, its September 2004 private placement, its March 2006 sale
      of
      registered shares, its April 2006 private placement, and from revenues generated
      from its business operations. These proceeds will be applied to (1) the
      development of NSM’s website www.northernstarmall.com (the
“ **Website** ”),
      (2)
      the development and delivery of its products and services, (3) the operation
      of
      its business, and (4) working capital. NSM cannot guaranty that these proceeds
      will be enough for it to stay in business and Zuber Jamal does not know how
      long
      NSM can satisfy its cash requirements. If NSM requires additional proceeds,
      NSM
      will have to find alternative sources, like a public offering, a private
      placement of securities, or loans from its sole officer or others. At the
      present time, NSM has a current registration statement and offering filed with
      the United States Securities and Exchange Commission. NSM has not made any
      arrangements to raise additional cash. If NSM needs additional cash and cannot
      raise it, NSM will either have to suspend operations until it does raise the
      cash, or cease operations entirely.




**Page
          - 12**





During
      the next 12 months, NSM has no current plan to (1) buy any specific additional
      plant or equipment, (2) conduct any significant research or development
      activities, or (3) to hire any employees.





NSM’s
      financial statements included in this annual report have been prepared without
      any adjustments that would be necessary if NSM becomes unable to continue as
      a
      going concern and would therefore be required to realize upon its assets and
      discharge its liabilities in other than the normal course of its business
      operations.





**Results
      of Operations**





Since
      inception, NSM’s business operations have been financed primarily from the
      proceeds of private placements. While NSM is currently generating some revenue,
      NSM does not anticipate earning significant revenues until it completes its
      plan
      of operation. There is no assurance that NSM will be able to complete its plan
      of operation.





During
      the period ended May 31, 2004, NSM completed a private placement in the amount
      of $25,000. A significant portion of the private placement funds was used to
      pay
      existing payables with the balance being spent on the preparation and filing
      of
      a registration statement. In September 2004, NSM completed a $44,500 financing
      through a private placement. Also, in March 2006, NSM sold $68,000 of registered
      shares under its Form SB -2 and in April 2006, NSM completed a $5,000 financing
      through a private placement. There can be no assurances that additional equity
      or other financing will be available on terms acceptable to NSM.





**Revenue**





NSM
      earned $20,590 in revenues during the fiscal year ended May 31, 2005 and $48,309
      in revenues during the fiscal year ended May 31, 2006. NSM’s auditors’ report on
      its May 31, 2006 financial statements contained an explanatory paragraph that
      states that due to recurring losses since inception and negative cash flows
      substantial doubt exists as to NSM’s ability to continue as a going concern.





For
      the
      period from inception (April 8, 2004) to May 31, 2006, NSM realized $68,899
      in
      sales of its products. The concurrent cost of sales was $54,019, resulting
      in
      gross profit from operations of $14,880. During the same period, NSM incurred
      $124,761 in total expenses, as listed below under “Expenses”. Therefore, for the
      fiscal period ended May 31, 2006 NSM had total net loss of
      $109,881.




For
      the
      period from inception (April 8, 2004) to May 31, 2005, NSM realized $20,590
      in
      sales of its products. The concurrent cost of sales was $14,049, resulting
      in
      gross profit from operations of $6,541. During the same period, NSM incurred
      $75,776 in total expenses, as listed below under “Expenses”. Therefore, for the
      fiscal period ended May 31, 2005 NSM had total net loss of $69,235.





**Expenses**





NSM’s
      expenses decreased by $10,935 or 18% from $59,920 for the year ended May 31,
      2005 to $48,985 for the year ended May 31, 2006. The decrease was primarily
      due
      to a $10,683 decrease in professional fees, a $1,449 decrease in consulting
      fees, a $710 decrease in office and general expenses and offset by a $1,534
      increase in rent. The decreases were mainly due to the completion of the
      Registration Statement and less professional time involvement for the current
      fiscal year.





NSM
      had
      cash of $14,097 at May 31, 2006. From inception to May 31, 2006, NSM had a
      loss
      of $109,881, including (a) office and general expenses of $16,043, which
      included rent of $7,759 and general administrative charges of $8,284; (b)
      professional fees of $81,958, which included legal fees of $42,808 for a private
      placement and the preparation of a registration statement, accounting fees
      of
      $11,700 for preparation of the financial statements, and auditor’s fees of
      $27,450; (c) consulting fees of $15,284, (d) management service fees of $10,196,
      which included 2,500,000 shares issued to the president in lieu of cash for
      services rendered with a fair value of $2,500, and $7,696 for management fee;
      and (e) amortization of $1,280 for the accumulated amortization on the Website.





NSM
      had
      cash of $27,321 at May 31, 2005. From inception to May 31, 2005, NSM had a
      loss
      of $69,235, including (a) office and general expenses of $7,990, which included
      rent of $3,479 and general administrative charges of $4,511; (b) professional
      fees of $52,288, which included legal fees of $29,888 for a private placement
      and the preparation of a registration statement, accounting fees of $6,200
      for
      preparation of the financial statements, and auditor’s fees of $16,200; (c)
      consulting fees of $8,458; (d) management service fees of $6,406, which included
      2,500,000 shares issued to the president in lieu of cash for services rendered
      with a fair value of $2,500, and $3,906 for management fee; and (e) amortization
      of $634 for the accumulated amortization on the Website.




**Page
          - 13**





**Liquidity
      and Financial Condition**





NSM
      had
      cash of $14,097 and working capital of $11,789 at May 31, 2006. During the
      period from inception (April 8, 2004) to May 31, 2006, NSM used $103,794 in
      cash
      for operating activities. Cash used in operations was financed by the sale
      of
      common stock of $120,196, net of offering costs. NSM has accumulated a deficit
      of $109,881 since inception and has a stockholder’s equity of $12,815.





As
      of May
      31, 2005, NSM’s total assets were $37,653 and its total liabilities were
      $42,510. As of May 31, 2006, NSM’s total assets were $37,327 and its total
      liabilities were $24,512. The decrease in the assets was a direct result of
      a
      decrease of $13,324 in cash, a decrease of $824 in inventory, an increase of
      $13,871 in accounts receivable, and an increase of $497 in prepaid and deposits.
      The decrease in cash was a result of slower than anticipated accounts receivable
      cycle. Payment terms for all accounts receivable have been negotiated.. The
      decrease in total liabilities is a result of a decrease of $8,629 in accounts
      payable, a decrease of $9,809 in accrued liabilities, and an increase of $440
      due to a related party. Accounts payable and accrued liabilities have decreased
      since May 31, 2005 due to efficiencies in operations and completion of the
      Registration Statement filing.





As
      of May
      31, 2006, NSM had assets recorded on its consolidated financial statements
      at
      $37,327 consisting of cash of $14,097, accounts receivable of $14,425, inventory
      of $7,282, and prepaid and deposits of $497. NSM’s liabilities on May 31, 2006
      totaled $24,512, consisting of $21,668 in accounts payable, $1,210 in accrued
      liabilities, and $1,634 due to a related party. There are no material defaults
      or past due amounts for the accounts payable or accrued liabilities.





NSM
      has
      no contingencies or long-term commitments.





NSM
      has
      not attained profitable operations and is dependent upon obtaining financing
      to
      continue and to expand its existing business operations and to complete its
      plan
      of operation. For these reasons, NSM’s auditors stated in their report that they
      have substantial doubt that NSM will be able to continue as a going
      concern.





NSM’s
      future business activities are dependent upon its ability to obtain third party
      financing in the form of debt and equity and ultimately to generate future
      profitable e-commerce activity or revenue from its product and services. As
      of
      May 31, 2005, NSM has only generated $20,590 in revenues, and has experienced
      negative cash flow from its e-commerce activities. NSM may look to secure
      additional funds through future debt or equity financings. Such financings
      may
      not be available or may not be available on reasonable terms.





**Plan
      of Operations**





NSM
      has
      not had any significant revenues generated from its business operations since
      inception. Zuber Jamal expects that the revenues generated from its website
      for
      the next 12 months will not be enough for NSM’s required working capital. Until
      NSM is able to generate any consistent and significant revenue it may be
      required to raise additional funds by way of equity.





At
      any
      phase, if NSM finds that it does not have adequate funds to complete a phase,
      it
      may have to suspend its operations and attempt to raise more money so it can
      proceed with its business operations. If NSM cannot raise the capital to proceed
      it may have to suspend operations until it has sufficient capital.





NSM
      anticipates that it will require approximately $285,700 for additional
      organization costs for the next 12 months, including $250,000 for NSM’s plan of
      operations, as described below.





To
      become
      profitable and competitive, NSM needs to establish its Website as a
      comprehensive on-line shopping mall. To achieve this goal, Zuber Jamal has
      prepared the following phases for its plan of operation for the next 12
      months.





**Phase
      1 - Develop and populate Website (2 months)**





In
      Phase
      1, NSM plans to (1) upgrade and update the Website so that it is more visually
      appealing and technologically sound, (2) update its product line and visuals
      on
      the Website, and (3) implement a downloadable high resolution picture format
      for
      viewing its products. NSM has budgeted $50,000 for this phase and expects it
      to
      take two months to complete, with completion expected within the first two
      months of NSM’s plan of operation. Also in this phase, NSM will continue to
      maintain and populate the Website with new products and services.




**Page
          - 14**





**Phase
      2 - Implement marketing strategy (6 months)**





In
      Phase
      2, NSM plans to (1) hire personnel for sales, marketing and customer service,
      (2) create a marketing strategy for the Website and its products, (3) upgrade
      its newsletter, and (4) implement its marketing strategy on its target market,
      including international customers.





NSM’s
      marketing goals in this phase are to attract potential and repeat customers
      to
      the Website and have customers perceive the Website as a preferred source of
      unique maritime products that are packaged and delivered in a professional,
      authoritative and efficient manner.





NSM
      has
      budgeted $75,000 for this phase and expects it to take six months to complete
      with completion expected within the first six months of NSM’s plan of
      operation.





**Phase
      3 - Expand inventory and products (6 months)**





In
      Phase
      3, NSM plans to expand its product line to include more specialty kits, marine
      antiquities, marine prints, multimedia products, educational products, and
      radio-controlled products.





NSM’s
      expansion goals in this phase are to (1) expand its product line by 20 new
      products each year, (2) expand its business by offering products directly
      applicable to its retail model, and (3) position itself as an authority on
      the
      subject of marine based products and memorabilia and extend its product line
      to
      include other media such as antiquities, books and DVD’s.





NSM
      has
      budgeted $75,000 for this phase and expects it to take six months to complete,
      with completion expected within the second six months of NSM’s plan of
      operation.





**Phase
      4- Develop strategic alliances (4 months)**





In
      Phase
      4, NSM plans to develop and establish strategic alliances with (1) webmasters
      of
      various strategic sites on the Internet, (2) national retail chains, (3)
      museums, (4) educational institutions, (5) gift market, (6) product suppliers,
      and (7) national and international shipping companies.





NSM’s
      strategic alliance goals in this phase are to (1) create relationships with
      the
      strategic alliances to help attract traffic to the Website and to the reciprocal
      hyperlinks, banner ads or profiles on their sites, (2) assist in the marketing
      strategy,(3) capitalize on the extensive market reach of the strategic
      alliances, (4) help fill rates and provide inventory in an allotted processing
      time, and (5) develop customer service with timely and economical delivery
      of
      products to customers.





Currently,
      NSM has identified some suitable strategic partners for its products and
      services but has yet to finalize the terms of such a partnership. During this
      phase, NSM will identify more strategic partners and contact them to negotiate
      a
      strategic alliance.





NSM
      has
      budgeted $50,000 for this phase and expects it to take four months to complete,
      with completion expected within the final four months of NSM’s plan of
      operation





**Critical
      Accounting Policies**





NSM’s
      discussion and analysis of its financial condition and results of operations,
      including the discussion on liquidity and capital resources, are based upon
      its
      financial statements, which have been prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of these
      financial statements requires Zuber Jamal to make estimates and judgements
      that
      affect the reported amounts of assets, liabilities, revenues and expenses,
      and
      related disclosure of contingent assets and liabilities. Actual results could
      differ from those estimates. Some unique factors that will affect these
      estimates include the continuation of NSM as a going concern, the collectibility
      of trade accounts receivable, and the valuation of inventory.





Also,
      any
      reasonable change in these factors listed above could impact NSM’s reported
      results, financial position and liquidity. For instance, if NSM is unable to
      continue as a going concern, it may be forced to liquidate its inventory on
      hand
      for less than cost resulting in negative impact on gross margin. Also, if NSM’s
      assumptions about the collectibility of trade accounts receivable differs from
      actual collections, this would have a negative impact on reported
      results.




**Page
          - 15**





On
      an on
      going basis, Mr. Jamal re-evaluates his estimates and judgments, including
      but
      not limited to, those related to revenue recognition and collectibility of
      accounts receivable. Critical accounting policies identified are as
      follows:





Revenue
      Recognition and Accounts Receivable





NSM
      recognizes revenue from the online sale of marine hobby products in accordance
      with Securities and Exchange Commission Staff Accounting Bulletin No. 104
“ *Revenue
      Recognition in Financial Statements* ”.
      Revenue consists of the sale of marine hobby products and is recognized only
      when the price is fixed or determinable, persuasive evidence of an arrangement
      exists, the product is shipped, and collectibility is reasonably
      assured.





Trade
      accounts receivable relate to the sale of marine hobby products. NSM sells
      to
      customers based on standard credit policies and regularly reviews accounts
      receivable for any bad debts. As of May 31, 2006, no allowance for doubtful
      accounts is considered necessary.





Website
      Development Costs





NSM
      recognizes the costs associated with developing a website in accordance with
      the
      American Institute of Certified Public Accountants (“AICPA”) Statement of
      Position (“SOP”) No. 98-1, “ *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* ”.
      Relating to website development costs the Company follows the guidance pursuant
      to the Emerging Issues Task Force (EITF) No. 002, “ *Accounting
      for Website Development Costs”* .





Costs
      associated with the website consist primarily of a domain name purchased from
      a
      third party, and web site design costs. These capitalized costs are amortized
      based on their estimated useful life over four years. Payroll and related costs
      have not been capitalized, as the amounts principally relate to maintenance.
      Internal costs related to the development of website content will be charged
      to
      operations as incurred.





Foreign
      Currency Transaction




The
      functional and reporting currency of both NSM and Northern Star is the United
      States dollar. Monetary assets and liabilities denominated in foreign currencies
      are translated to United States dollars in accordance with SFAS No. 52
“ *Foreign
      Currency Translation* ”
using
      the exchange rate prevailing at the balance sheet date. Gains and losses arising
      on translation or settlement of foreign currency denominated transactions or
      balances are included in the determination of income. Foreign currency
      transactions are primarily undertaken in Canadian dollars. NSM has not, to
      the
      date of these financials statements, entered into derivative instruments to
      offset the impact of foreign currency fluctuations.





Going
      Concern Issue




The
      going
      concern basis of presentation assumes NSM will continue in operation throughout
      the next fiscal year and into the foreseeable future and will be able to realize
      its assets and discharge its liabilities and commitments in the normal course
      of
      business. Certain conditions currently exist that raise substantial doubt upon
      the validity of this assumption. The financial statements do not include any
      adjustments that might result from the outcome of the uncertainty.





Inventory




NSM
      values inventory at the lower of cost or market. Cost is determined on a first
      in, first out basis. Market is determined based on the net realizable value.
      NSM
      will write down inventory balances for estimated obsolescence or unmarketable
      inventory equal to the difference between the cost of inventory and the
      estimated market value based upon assumptions about future demand and market
      conditions. If actual market conditions are less favourable than those projected
      by management, additional inventory write-downs may be required.




**INTERNAL
      AND EXTERNAL SOURCES OF LIQUIDITY**





NSM
      has
      funded its operations principally from its April 2004, September 2004, and
      April
      2006 non-public offerings.





**Page
          - 16**








On
      July
      14, 2005, the Securities and Exchange Commission declared NSM’s Form SB-2
      Registration Statement effective, file number 333-120993, permitting NSM to
      offer up to 2,500,000 shares of common stock at $0.10 per share. There was
      no
      underwriter involved in NSM’s public offering. On December 30, 2005, NSM filed a
      post-effective amendment to the Form SB-2 Registration Statement. On March
      28,
      2006, NSM sold 680,000 shares of common stock in the public offering. NSM did
      not sell any other shares under this public offering. The offering period for
      the public offering expired on March 31, 2006.





**INFLATION**





Zuber
      Jamal does not believe that inflation will have a material impact on NSM’s
      future operations





**UNCERTAINTIES
      RELATING TO FORWARD LOOKING STATEMENTS**





This
      Form
      10-KSB Annual Report contains “forward-looking statements” within the meaning of
      the Private Securities Litigation Reform Act of 1995. Certain information
      contained or incorporated by reference in this Annual Information Form,
      including the information set forth as to the future financial or operating
      performance of NSM, constitutes “forward-looking statements”. These statements
      may be identified by their use of words like “plans”, “expect”, “aim”,
“believe”, “projects”, “anticipate”, “intend”, “estimate”, “will”, “should”,
“could”, “contemplate”, “target”, “continue”, “budget”, “may”, “schedule”, and
      other similar expressions that indicate future events and trends and identify
      forward-looking statements. All statements, other than historical statements
      of
      fact, that address expectations or projections about the future, including
      statements about NSM’s strategy for growth, product development, market
      position, expenditures and financial results, are forward-looking
      statements.





Forward-looking
      statements in this Form 10-KSB include statements regarding (1) expectation
      that
      revenue will increase during fiscal 2006; (2) expectation participant base
      increasing; (3) expectation of future operating expenses increasing; (4)
      expectation that the development of NSM’s business will cause wages, marketing
      and promotional costs to increase; (5) expectation that working capital needs
      for fiscal 2006 will be funded through the equity capital markets and private
      financings; (6) expectation of future developments of content, features, and
      services to be provided on the website; and (7) expectation that inflation
      will
      not have a material impact on future operations. All forward-looking statements
      are made as of the date of filing of this Form 10-KSB and NSM disclaims any
      duty
      to update such statements.





Certain
      parts of this Form 10-KSB may contain “forward-looking statements” within the
      meaning of the Securities Exchange Act of 1934 based on current managements
      expectations. Actual results could differ materially from those in the forward
      looking statements due to a number of uncertainties including, but not limited
      to, those discussed in this section. Factors that could cause future results
      to
      differ from these expectations include general economic conditions, particularly
      related to demand the features and services offered on NSM’s website; changes in
      business direction or strategy; competitive factors (including competitors
      introducing superior services); pricing pressure (including competitors offering
      similar services at lower prices); inability to attract, develop or retain
      technical, consulting, managerial, agents, or independent contractors; and
      changes in participant’s tastes. As a result, the identification and
      interpretation of data and other information and their use in developing and
      selecting assumptions from and among reasonable alternatives requires the
      exercise of judgment. To the extent that the assumed events do not occur, the
      outcome may vary substantially from anticipated or projected results, and
      accordingly, no opinion is expressed on the achievability of those
      forward-looking statements. No assurance can be given that any of the
      assumptions relating to the forward-looking statements specified in the
      following information are accurate, and NSM assumes no obligation to update
      any
      such forward-looking statements.





NSM
      may,
      from time to time, make oral forward-looking statements. NSM strongly advises
      that the above paragraph and the risk factors described in this annual report
      and in NSM’s other documents filed with the United States Securities and
      Exchange Commission should be read for a description of certain factors that
      could cause the actual results of NSM to materially differ from those in the
      oral forward-looking statements. NSM disclaims any intention or obligation
      to
      update or revise any oral or written forward-looking statements whether as
      a
      result of new information, future events or otherwise.





**Item
      7.**  **Financial
      Statements**





See
      audited consolidated financial statements for the year ended May 31, 2006 and
      2005, and for the period from April 8, 2004 (date of inception) to May 31,
      2006
      attached as Exhibit A to this Form 10-KSB.





**Item
      8.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





NSM’s
      principal independent accountant, Manning Elliott, Chartered Accountants, has
      not changed since the date of incorporation and there have been no disagreements
      with NSM’s principal independent accountant.




**Page
          - 17**





**Item
      8A.**  **Controls
      and Procedures.**





**Disclosure
      Controls and Procedures**





Zuber
      Jamal, NSM’s Chief Executive Officer and Chief Financial Officer, has evaluated
      the effectiveness of NSM’s disclosure controls and procedures (as such term is
      defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934
      (the “Exchange Act” )) as of the end of the period covered by this annual report
      (the “Evaluation Date”). Based on such evaluation, Mr. Jamal has concluded that,
      as of the Evaluation Date, NSM’s disclosure controls and procedures are
      effective in alerting NSM on a timely basis to material information required
      to
      be included in its reports filed or submitted under the Exchange
      Act.





**Changes
      in Internal Controls**





During
      the quarter of the fiscal year covered by this report, there were no changes
      in
      NSM’s internal controls or, to NSM’s knowledge, in other factors that have
      materially affected, or are reasonably likely to materially affect, these
      controls and procedures subsequent to the date NSM carried out this evaluation.





**Item
      8B.**  **Other
      Information.**





During
      the fourth quarter of the fiscal year covered by this Form 10-KSB, NSM had
      no
      information to be disclosed as required on a Form 8-K.





**PART
      III**





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





**(a)**  **Identify
      Directors and Executive Officers**





Each
      director of NSM or its subsidiaries holds office until (i) the next annual
      meeting of the stockholders, (ii) his successor has been elected and qualified,
      or (iii) the director resigns.





NSM’s
      and
      its subsidiaries’ management teams are listed below.





**Management
                Teams****Name
                of Directors and Officers**
            **NSM
                Holdings, Inc.**
            **Northern
                Star Distributors Ltd.**Zuber
                Jamal
            sole
                Director,
              CEO,
                President, CFO, Treasurer, Corporate Secretary
            sole
                Director,
              President
              Corporate
                Secretary





*Zuber
      Jamal* ●
Mr.
      Jamal (36) has
      been
      NSM’s president and sole director since inception of NSM and is expected to hold
      those offices/positions until the next annual meeting of NSM’s stockholders.
      Since 1999 Mr. Jamal has been an associate of Microcap E-mail to. al, a venture
      capital firm. In 1991, Mr. Jamal obtained his Bachelor of Arts in Economics
      from
      the University of Western Ontario.





**(b)**  **Identify
      Significant Employees**





NSM
      currently does not have any significant employees.





**(c)**  **Family
      Relationships**





There
      are
      no family relationships among the directors, executive officers or persons
      nominated or chosen by NSM to become directors or executive
      officers.





**Page
          - 18**




**(d)**  **Involvement
      in Certain Legal Proceedings**





(1)
            No
                bankruptcy petition has been filed by or against any business of
                which any
                director was a general partner or executive officer either at the
                time of
                the bankruptcy or within two years prior to that
                time.





(2)
            No
                director has been convicted in a criminal proceeding and is not subject
                to
                a pending criminal proceeding (excluding traffic violations and other
                minor offences).





(3)
            No
                director has been subject to any order, judgement, or decree, not
                subsequently reversed, suspended or vacated, of any court of competent
                jurisdiction, permanently or temporarily enjoining, barring, suspending
                or
                otherwise limiting his involvement in any type of business, securities
                or
                banking activities.





(4)
            No
                director has been found by a court of competent jurisdiction (in
                a civil
                action), the Securities Exchange Commission or the Commodity Futures
                Trading Commission to have violated a federal or state securities
                or
                commodities law, that has not been reversed, suspended, or
                vacated.





**(e)**  **Compliance
      with Section 16(a) of the Exchange Act.**





All
      reports were filed with the SEC on a timely basis and NSM is not aware of any
      failures to file a required report during the period covered by this annual
      report.





**(f)**  **Audit
      Committee Financial Expert**





NSM
      has
      no financial expert. Management believes the cost related to retaining a
      financial expert at this time is prohibitive. Further, because of NSM’s limited
      operations, Zuber Jamal believes the services of a financial expert are not
      warranted.





**(g)**  **Identification
      of Audit Committee**





NSM
      does
      not have a separately-designated standing audit committee. Rather, Zuber Jamal
      performs the required functions of an audit committee. Mr. Jamal does not meet
      the independent requirements for an audit committee member. Mr. Jamal is
      responsible for: (1) selection and oversight of NSM’s independent accountant;
      (2) establishing procedures for the receipt, retention and treatment of
      complaints regarding accounting, internal controls and auditing matters; (3)
      establishing procedures for the confidential, anonymous submission by NSM’s
      employees of concerns regarding accounting and auditing matters; (4) engaging
      outside advisors; and, (5) funding for the outside auditory and any outside
      advisors engagement by the audit committee.





**(h)**  **Code
      of Ethics**





NSM
      has
      adopted a code of ethics that applies to all its executive officers and
      employees, including its CEO and CFO. See Exhibit 99.1 - Code of Ethics for
      more
      information. Also, NSM’s code of ethics has been posted on its website at www.northernstarmall.com .
      NSM
      undertakes to provide any person with a copy of its code of ethics free of
      charge. Please contact Zuber Jamal at 604-671-8780 to request a copy of NSM’s
      code of ethics. Management believes NSM’s 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.





**Item
      10. Executive Compensation.**





NSM
      paid
      $3,790 to its named executive officers during its fiscal year ending May 31,
      2006.





**Page
          - 19**




**SUMMARY
      COMPENSATION TABLE**





Long-term
                compensation***Annual
                compensation***
            ***Awards***
            ***Payouts***Name
                and principal position
              (a)
            Year
              (b)
            Salary
              ($)
              (c)
            Bonus
              ($)
              (d)
            Other
                annual compen-sation
              ($)
              (e)
            Restricted
                stock awards
              ($)
              (f)
            Securities
                underlying options/
              SARs
              (#)
              (g)
            LTIP
                Payouts
              ($)
              (h)
            All
                other compen-sation
              ($)
              (i)Zuber
                Jamal
              CEO
              April
                2004 - present
            2004
              2005
              2006
            2,478
              2,500
              3,790
            nil
              nil
              nil
            nil
              nil
              nil
            nil
              nil
              nil
            nil
              nil
              nil
            nil
              nil
              nil
            2,500[1]
              Nil
              nil


[1] NSM
      issued 2,500,000 shares of common stock to Mr. Jamal for services valued at
      $2,500.





Since
      NSM’s inception, no stock options, stock appreciation rights, or long-term
      incentive plans have been granted, exercised or repriced.





Currently,
      there are no arrangements between NSM and any of its directors or between any
      of
      the subsidiaries and any of its directors whereby such directors are compensated
      for any services provided as directors.





There
      are
      no other employment agreements between NSM or the subsidiaries and any named
      executive officer, and there are no employment agreements or other compensating
      plans or arrangements with regard to any named executive officer which provide
      for specific compensation in the event of resignation, retirement, other
      termination of employment or from a change of control of NSM or from a change
      in
      a named executive officer’s responsibilities following a change in
      control.





There
      are
      no management agreements, plans or arrangements in which NSM compensates its
      sole officer with the exception that NSM has agreed to pay Mr. Jamal a
      management fee of $500 per month for operational expertise. If NSM is unable
      to
      pay Mr. Jamal this monthly fee on a timely manner, then Mr. Jamal has agreed
      that such fee can be accrued and paid at a later date, as NSM has done in the
      past with Mr. Jamal. Such a debt will be non-interest bearing, unsecured and
      have no specific terms of repayment. As of today, no fees are owed to Mr. Jamal
      and no fees have accrued.





Indemnification





The
      Delaware General Corporation Law permits indemnification of directors, officers,
      and employees of corporations under certain conditions subject to certain
      limitations. Part 6 of NSM’s By-laws provides that NSM may indemnify an officer
      or director who is made a party to any proceeding, including a law suit, because
      of his position, if he acted in good faith and in a manner he reasonably
      believed to be in NSM’s best interest and has satisfied the applicable standard
      of conduct required to be satisfied under the Delaware General Corporation
      Law.
      NSM may advance expenses incurred in defending a proceeding, but only upon
      receipt by NSM of an undertaking, by or on behalf of such director, officer,
      employee, or agent, to repay all amounts so advanced unless it will ultimately
      be determined that such person is entitled to be indemnified under the By-laws
      or otherwise. To the extent that the officer or director is successful on the
      merits in a proceeding as to which he is to be indemnified, NSM must indemnify
      him against all expenses incurred, including attorney’s fees. NSM will indemnify
      any such person seeking indemnification in connection with a proceeding
      initiated by such person only if such proceeding was specifically authorized
      by
      the board of directors of NSM. The indemnification is intended to be to the
      fullest extent permitted by the laws of the State of Delaware.





**Item
      11. Security Ownership of Certain Beneficial Holders and
      Management.**





**(a)**  **Security
      Ownership of Certain Beneficial Owners (more than 5%)**





The
      following table sets forth, as of the date of this annual report, the total
      number of shares of common stock owned beneficially by each of NSM’s directors,
      officers and key employees, individually and as a group, and the sole owner
      of
      5% or more of NSM’s total outstanding shares. The stockholder listed below has
      direct ownership of his shares and possesses sole voting and dispositive power
      with respect to the shares.




**Page
          - 20**





**(1)**
              **Title
                of Class**
            **(2)**
              **Name
                and Address of Beneficial Owner**
            **(3)**
              **Amount
                and Nature of Beneficial Owner**
            **(4)**
              **Percent**
              **of
                Class**[2]shares
                of
              common
                stock
            **Zuber
                Jamal**
              10941
                - 168 Street
              Surrey,
                British Columbia
              V4N
                5H6 Canada
            3,000,000
            71.86%


[1] The
      listed beneficial owner has no right to acquire any shares within 60 days of
      the
      date of this Form 10-KSB from options, warrants, rights, conversion privileges
      or similar obligations excepted as otherwise noted.


[2] Based
      on
      4,175,000 shares of common stock issued and outstanding as of August 28,
      2006.




**(b)**  **Security
      Ownership of Management**







**(1)**
              **Title
                of Class**
            **(2)**
              **Name
                and Address of Beneficial Owner**
            **(3)**
              **Amount
                and Nature of Beneficial Owner**
            **(4)**
              **Percent**
              **of
                Class**[2]shares
                of
              common
                stock
            **Zuber
                Jamal**
              10941
                - 168 Street
              Surrey,
                British Columbia
              V4N
                5H6 Canada
            3,000,000
            71.86%shares
                of
              common
                stock
            Directors
                and Executive Officers (as a group)
            3,000,000
            71.86%


[1] The
      listed beneficial owner has no right to acquire any shares within 60 days of
      the
      date of this Form 10-KSB from options, warrants, rights, conversion privileges
      or similar obligations excepted as otherwise noted.


[2] Based
      on
      4,175,000 shares of common stock issued and outstanding as of August 28,
      2006.





**(c)**  **Changes
      in Control**





NSM
      is
      not aware of any arrangement that may result in a change in control of
      NSM.





**Item
      12. Certain Relationships and Related Transactions.**





**(a)**  **Relationships
      with Insiders**





No
      member
      of management, executive officer or security holder has had any direct or
      indirect interest in any transaction to which NSM was a party to and that
      exceeded $60,000 in total.





**(b)**  **Transactions
      with Promoters**





Zuber
      Jamal is the sole promoter of NSM. Mr. Jamal is the only person who has taken
      an
      initiative in founding and organizing NSM’s business. Mr. Jamal has not received
      anything of value from NSM, nor is Mr. Jamal entitled to receive anything of
      value from NSM, for services provided as a promoter.





**Item
      13. Exhibits**





**(a)**  **Index
      to and Description of Exhibits.**





**Exhibit**
            **Description**
            **Status****Exhibit
                A**
            Audited
                Financial Statements for the period ended May 31, 2006
            Included**3.1**
            Certificate
                of Incorporation for NSM Holdings, Inc., filed as an Exhibit to NSM’s
                registration statement on Form SB-2/A filed on April 12, 2005, and
                incorporated herein by reference.
            Filed**3.2**
            By-laws
                of NSM Holdings, Inc., filed as an Exhibit to NSM’s registration statement
                on Form SB-2/A filed on April 12, 2005, and incorporated herein by
                reference.
            Filed




**Page
          - 21**






**Exhibit**
            **Description**
            **Status**


**3.3**
            Certificate
                of Incorporation for Northern Star Distributors Ltd., filed as an
                Exhibit
                to NSM’s registration statement on Form SB-2/A filed on April 12, 2005,
                and incorporated herein by reference.
            Filed**3.4**
            Notice
                of Articles for Northern Star Distributors Ltd., filed as an Exhibit
                to
                NSM’s registration statement on Form SB-2/A filed on April 12, 2005,
                and
                incorporated herein by reference.
            Filed**3.5**
            Articles
                of Northern Star Distributors Ltd., filed as an Exhibit to NSM’s
                registration statement on Form SB-2/A filed on April 12, 2005, and
                incorporated herein by reference.
            Filed**10.1**
            Asset
                Purchase Agreement dated April 30, 2004, between Northern Star
                Distributors Ltd. and Hansa Capital Corp., filed as an Exhibit to
                NSM’s
                registration statement on Form SB-2/A filed on April 12, 2005, and
                incorporated herein by reference.
            Filed**10.2**
            Sublease
                dated April 1, 2004, between David Higano and Northern Star Distributors
                Ltd., filed as an Exhibit to NSM’s registration statement on Form SB-2/A
                filed on April 12, 2005, and incorporated herein by
                reference
            Filed**10.3**
            Lease
                dated October 1, 2005 between Officesuites At Airport Square and
                Northern
                Star Distributors Ltd., filed as an Exhibit to NSM’s Form 10-KSB filed on
                October 13, 2005, and incorporated herein by reference
            Filed**31**
            Certifications
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
            Included**32**
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.
            Included**99.1**
            Code
                of Ethics, filed as an Exhibit to NSM’s Form 10-KSB filed on October 13,
                2005, and incorporated herein by reference
            Filed







**ITEM
      14.   PRINCIPAL ACCOUNTING FEES AND SERVICES**




**(1)
        Audit Fees**




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




2006
      -
      $15,100 - Manning Elliott, Chartered Accountants


2005
      -
      $10,200 - Manning Elliott, Chartered Accountants





**(2)
        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 NSM’s financial statements and are not
      reported in the preceding paragraph were:




2006
      -
      $nil - Manning Elliott, Chartered Accountants


2005
      -
      $nil - Manning Elliott, Chartered Accountants





**(3)
        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 were:




2006
      -
      $nil - Manning Elliott, Chartered Accountants


2005
      -
      $nil - Manning Elliott, Chartered Accountants




**Page
          - 22**






**(4)
        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) above were:




2006
      -
      $nil - Manning Elliott, Chartered Accountants


2005
      -
      $nil - Manning Elliott, Chartered Accountants





(5)
        NSM’s 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.




(6)
        The percentage of hours expended on the principal accountant’s engagement
      to audit NSM’s 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 nil













**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities and Exchange Act of 1934,
      NSM Holdings, Inc. has caused this report to be signed on its behalf by the
      undersigned duly authorized person.








**NSM
      HOLDINGS, INC.**




By:
      */s/ Zuber Jamal*


Name:  **Zuber
      Jamal**


Title **:**  **Director
      and CEO**


Dated:  **August
      29, 2006**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the following
      persons on behalf of NSM and in the capacities and on the dates indicated have
      signed this report below.








**Signature**
            **Title**
            **Date***/s/
                Zuber Jamal*
            President,
                Principal Executive Officer,
              Chief
                Executive Officer, Principal Financial Officer, Chief Financial Officer,
                Treasurer, Corporate Secretary and
              and
                the sole member of the Board of Directors
            29
                August 2006





**Page
          - 23**







**Exhibit
      31**














**Page
          - 24**




**NSM
      HOLDINGS, INC** **.**


**CERTIFICATIONS
      PURSUANT TO**


**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**






**CERTIFICATION**






I,
      Zuber
      Jamal, certify that:




1.
 
      I have reviewed this annual report on Form 10-KSB of NSM Holdings, Ltd.;




2.
      Based
      on my knowledge, this annual report does not contain any untrue statement of
      a
      material fact or omit to state a material fact necessary to make the statements
      made, in light of the circumstances under which such statements were made,
      not
      misleading with respect to the period covered by this report;




3.
      Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the financial
      condition, results of operations and cash flows of the small business issuer
      as
      of, and for, the periods presented in this report;




4.
      The
      small business issuer’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as defined
      in
      Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
      reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
      small business issuer and have:




(a)
      Designed such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure that
      material information relating to the small business issuer, including its
      consolidated subsidiaries, is made known to us by others within those entities,
      particularly during the period in which this report is being prepared;




(b)
      Designed such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles;




(c)
      Evaluated the effectiveness of the small business issuer’s disclosure controls
      and procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of the
      period covered by this report based on such evaluation; and




(d)
      Disclosed in this report any change in the small business issuer’s internal
      control over financial reporting that occurred during the small business
      issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal
      quarter in the case of an annual report) that has materially affected, or is
      reasonably likely to materially affect, the small business issuer’s internal
      control over financial reporting; and




5.
      The
      small business issuer’s other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial reporting,
      to
      the small business issuer’s auditors and the audit committee of the small
      business issuer’s board of directors (or persons performing the equivalent
      functions):




(a)
      All
      significant deficiencies and material weaknesses in the design or operation
      of
      internal control over financial reporting which are reasonably likely to
      adversely affect the small business issuer’s ability to record, process,
      summarize and report financial information; and




(b)
      Any
      fraud, whether or not material, that involves management or other employees
      who
      have a significant role in the small business issuer’s internal control over
      financial reporting.






Date: 29
      August
      2006







***/s/
      Zuber Jamal*


Zuber
      Jamal


Chief
      Executive Officer





**Page
          - 25**




**NSM
      HOLDINGS, INC** **.**


**CERTIFICATIONS
      PURSUANT TO**


**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**




**CERTIFICATION**




I,
      Zuber
      Jamal, certify that:




1.
 
      I have reviewed this annual report on Form 10-KSB of NSM Holdings, Ltd.;




2.
      Based
      on my knowledge, this annual report does not contain any untrue statement of
      a
      material fact or omit to state a material fact necessary to make the statements
      made, in light of the circumstances under which such statements were made,
      not
      misleading with respect to the period covered by this report;




3.
      Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the financial
      condition, results of operations and cash flows of the small business issuer
      as
      of, and for, the periods presented in this report;




4.
      The
      small business issuer’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as defined
      in
      Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
      reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
      small business issuer and have:




(a)
      Designed such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure that
      material information relating to the small business issuer, including its
      consolidated subsidiaries, is made known to us by others within those entities,
      particularly during the period in which this report is being prepared;




(b)
      Designed such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles;




(c)
      Evaluated the effectiveness of the small business issuer’s disclosure controls
      and procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of the
      period covered by this report based on such evaluation; and




(d)
      Disclosed in this report any change in the small business issuer’s internal
      control over financial reporting that occurred during the small business
      issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal
      quarter in the case of an annual report) that has materially affected, or is
      reasonably likely to materially affect, the small business issuer’s internal
      control over financial reporting; and




5.
      The
      small business issuer’s other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial reporting,
      to
      the small business issuer’s auditors and the audit committee of the small
      business issuer’s board of directors (or persons performing the equivalent
      functions):




(a)
      All
      significant deficiencies and material weaknesses in the design or operation
      of
      internal control over financial reporting which are reasonably likely to
      adversely affect the small business issuer’s ability to record, process,
      summarize and report financial information; and




(b)
      Any
      fraud, whether or not material, that involves management or other employees
      who
      have a significant role in the small business issuer’s internal control over
      financial reporting.






Date: 29
      August
      2006







***/s/
      Zuber Jamal*


Zuber
      Jamal


Chief
      Financial Officer










**Page
          - 26**







**Exhibit
      32**








**Page
          - 27**




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350,**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**






In
      connection with the Annual Report of NSM Holdings, Inc. (“NSM”) on Form 10-KSB
      for the period ending May 31, 2006 as filed with the Securities and Exchange
      Commission on the date hereof (the “Report”), I, Zuber Jamal, President and
      Chief Executive Officer of NSM and the sole member of the Board of Directors,
      certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:




(1)
        The Report fully complies with the requirements of section 13(a) or 15(d)
      of the Securities Exchange Act of 1934; and




(2)
        The information contained in the Report fairly represents, the financial
      condition and result of operations of NSM.









***/s/
      Zuber Jamal*


Zuber
      Jamal


Chief
      Executive Officer




August
      29, 2006




**Page
          - 28**




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350,**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**






In
      connection with the Annual Report of NSM Holdings, Inc. (“NSM”) on Form 10-KSB
      for the period ending May 31, 2006 as filed with the Securities and Exchange
      Commission on the date hereof (the “Report”), I, Zuber Jamal, Treasurer and
      Chief Financial Officer of NSM and the sole member of the Board of Directors,
      certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:




(1)
        The Report fully complies with the requirements of section 13(a) or 15(d)
      of the Securities Exchange Act of 1934; and




(2)
        The information contained in the Report fairly represents, the financial
      condition and result of operations of NSM.









***/s/
      Zuber Jamal*


Zuber
      Jamal


Chief
      Financial Officer




August
      29, 2006







**Page
          - 29**





NSM
      Holdings, Inc.


(A
      Development Stage Company)





May
      31,
      2006







Report
      of Independent Registered Public Accounting
      Firm





Consolidated
      Balance Sheets





Consolidated
      Statements of Operations





Consolidated
      Statements of Cash Flows





Consolidated
      Statement of Stockholders’ Equity
      (Deficit)





Notes
      to the Consolidated Financial Statements





**Page
          - 30**




















Report
      of Independent Registered Public Accounting
      Firm





To
      the
      Board of Directors and Stockholders of


NSM
      Holdings, Inc. (A Development Stage Company)





We
      have
      audited the accompanying consolidated balance sheets of NSM Holdings, Inc.
      (A
      Development Stage Company) as of May 31, 2006 and 2005 and the related
      consolidated statements of operations, stockholders’ equity (deficit) and cash
      flows for the years then ended and accumulated for the period from April 8,
      2004
      (Date of Inception) to May 31, 2006. 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
      audits.





We
      conducted our audits in accordance with the Standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. 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 consolidated financial statement presentation. We
      believe that our audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of NSM Holdings, Inc. (A
      Development Stage Company) as of May 31, 2006 and 2005, and the results of
      its
      operations and its cash flows for the years then ended and accumulated for
      the
      period from April 8, 2004 (Date of Inception) to May 31, 2006, in conformity
      with accounting principles generally accepted in the United States.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As discussed in Note 1 to the
      consolidated financial statements, the Company has not generated profitable
      operations since inception and will need additional equity financing to begin
      realizing its business plan. These factors raise substantial doubt about the
      Company’s ability to continue as a going concern. Management’s plans in regard
      to these matters are also discussed in Note 1. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





MANNING
      ELLIOTT LLP





CHARTERED
      ACCOUNTANTS




Vancouver,
      Canada




August
      14, 2006





**Page
          - 31**





NSM
      Holdings, Inc.


(A
      Development Stage Company)


Consolidated
      Balance Sheets


(Expressed
      in US dollars)





May
                31,
              2006
              $
            
            
            May
                31,
              2005
              $ASSETSCurrent
                AssetsCash
            
            14,097
            
            
            27,321Accounts
                receivable
            
            14,425
            
            
            554Inventory
            
            7,282
            
            
            8,106Prepaid
                and deposits
            
            497
            
            
            -Total
                Current Assets
            
            36,301
            
            
            35,981Property
                and Equipment (Note 3)
            
            291
            
            
            570Intangible
                Assets (Note 4)
            
            735
            
            
            1,102Total
                Assets
            
            37,327
            
            
            37,653LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
                LiabilitiesAccounts
                payable
            
            21,668
            
            
            30,297Accrued
                liabilities
            
            1,210
            
            
            11,019Due
                to a related party (Note 5(a))
            
            1,634
            
            
            1,194Total
                Liabilities
            
            24,512
            
            
            42,510Commitments
                (Notes 1 and 6)Stockholders’
                Equity (Deficit)Preferred
                Stock, 5,000 shares authorized, $0.001 par value
              None
                issued and outstanding
            
            -
            
            
            -Common
                Stock, 100,000,000 shares authorized, $0.001 par value
              4,175,000
                and 3,445,000 shares issued and outstanding, respectively
            
            4,175
            
            
            3,445Additional
                Paid in Capital
            
            119,521
            
            
            60,933Stock
                Subscriptions Receivable
            
            (1,000
            )
            
            -Deficit
                Accumulated During the Development Stage
            
            (109,881
            )
            
            (69,235
            )Total
                Stockholders’ Equity (Deficit)
            
            12,815
            
            
            (4,857
            )Total
                Liabilities and Stockholders’ Equity (Deficit)
            
            37,327
            
            
            37,653





The
      accompanying notes are an integral part of these financial
      statements.







**Page
            - 32**





NSM
      Holdings, Inc.


(A
      Development Stage Company)


Consolidated
      Statements of Operations


(Expressed
      in US dollars)








Accumulated
              From
              April
                8, 2004
            
            
            For
                the
            
            
            For
                the(Date
                of Inception)
            
            Year
                Ended
            
            
            Year
                Endedto
                May 31,
            
            
            May
                31,
            
            
            May
                31,2006
            
            
            2006
            
            
            2005$
            
            
            $
            
            
            $Revenue
            
            68,899
            
            
            48,309
            
            
            20,590Cost
                of Sales
            
            (54,019
            )
            
            (39,970
            )
            
            (14,049
            )Gross
                Profit
            
            14,880
            
            
            8,339
            
            
            6,541ExpensesAmortization
            
            1,280
            
            
            646
            
            
            634Consulting
                fees
            
            15,284
            
            
            6,826
            
            
            8,275General
                and administrative
            
            8,284
            
            
            3,773
            
            
            4,483Management
                services (Note 5(b))
            
            10,196
            
            
            3,790
            
            
            3,429Professional
                fees
            
            81,958
            
            
            29,670
            
            
            40,353Rent
            
            7,759
            
            
            4,280
            
            
            2,746Total
                Expenses
            
            124,761
            
            
            48,985
            
            
            59,920Net
                Loss
            
            (109,881
            )
            
            (40,646
            )
            
            (53,379
            )Net
                Loss Per Share - Basic and Diluted
            
            
            
            
            (0.01
            )
            
            (0.02
            )Weighted
                Average Shares Outstanding
            
            
            
            
            3,570,000
            
            
            3,296,000








The
      accompanying notes are an integral part of these
      financial statements.





**Page
            - 33**





NSM
      Holdings Inc.


(A
      Development Stage Company)


Consolidated
      Statements of Cash Flows


(Expressed
      in US dollars)








AccumulatedFromApril
                8, 2004
            
            
            For
                the
            
            
            For
                the(Date
                of Inception)
            
            Year
                Ended
            
            
            Year
                EndedTo
                May 31,
            
            
            May
                31,
            
            
            to
                May 31,2006
            
            
            2006
            
            
            2005$
            
            
            $
            
            
            $Operating
                ActivitiesNet
                loss
            
            (109,881
            )
            
            (40,646
            )
            
            (53,379
            )Adjustments
                to reconcile net loss to net cash used in operating and financing
                activities:Amortization
            
            1,280
            
            
            646
            
            
            634Issuance
                of shares for services
            
            2,500
            
            
            -
            
            
            -Change
                in operating assets and liabilities:Accounts
                receivable
            
            (14,425
            )
            
            (13,871
            )
            
            (554
            )Prepaid
                and deposits
            
            (497
            )
            
            (497
            )
            
            -Inventory
            
            59
            
            
            824
            
            
            (765
            )Notes
                payable
            
            (7,342
            )
            
            -
            
            
            (7,342
            )Accounts
                payable and accrued liabilities
            
            22,878
            
            
            (18,438
            )
            
            26,969Due
                to related party
            
            1,634
            
            
            440
            
            
            717Net
                Cash Used By Operating Activities
            
            (103,794
            )
            
            (71,542
            )
            
            (33,720
            )Investing
                ActivitiesPurchase
                of property and equipment
            
            (837
            )
            
            -
            
            
            (837
            )Website
                development costs
            
            (1,468
            )
            
            -
            
            
            -Net
                Cash Flows Used In Investing Activities
            
            (2,305
            )
            
            -
            
            
            (837
            )Financing
                ActivitiesProceeds
                from issue of common stock, net of offering costs
            
            120,196
            
            
            58,318
            
            
            61,878Net
                Cash Flows Provided By Financing Activities
            
            120,196
            
            
            58,318
            
            
            61,878Increase
                (Decrease) in Cash
            
            14,097
            
            
            (13,224
            )
            
            27,321Cash
                - Beginning of Period
            
            -
            
            
            27,321
            
            
            -Cash
                - End of Period
            
            14,097
            
            
            14,097
            
            
            27,321Non-Cash
                Financing ActivitiesPurchase
                of assets by issue of note payable
            
            7,342
            
            
            -
            
            
            -Issue
                of common shares for services
            
            2,500
            
            
            -
            
            
            -Supplemental
                DisclosuresInterest
                paid
            
            442
            
            
            -
            
            
            442Income
                taxes paid
            
            -
            
            
            -
            
            
            -





The
      accompanying notes are an integral part of these
      financial statements.




**Page
          - 34**










NSM
      Holdings, Inc.


(A
      Development Stage Company)


Consolidated
      Statement of Stockholders’ Equity
      (Deficit)


From
      April 8, 2004 (Date of Inception) to May 31, 2006


(Expressed
      in US dollars)








DeficitAccumulatedAdditional
            
            
            
            
            
            During
                theCommon
                Stock
            
            Paid-in
            
            
            Subscriptions
            
            
            DevelopmentShares
            
            
            Amount
            
            
            Capital
            
            
            Receivable
            
            
            Stage
            
            
            Total#
            
            
            $
            
            
            $
            
            
            $
            
            
            $
            
            
            $Balance
                - April 8, 2004 (Date of Inception)
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                shares issued for services at $0.001 per share
            
            2,500,000
            
            
            2,500
            
            
            -
            
            
            -
            
            
            -
            
            
            2,500Common
                shares issued for cash at $0.05 per share
            
            500,000
            
            
            500
            
            
            24,500
            
            
            (25,000
            )
            
            -
            
            
            -Net
                loss for the period
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (15,856
            )
            
            (15,856
            )Balance
                - May 31, 2004
            
            3,000,000
            
            
            3,000
            
            
            24,500
            
            
            (25,000
            )
            
            (15,856
            )
            
            (13,356
            )Common
                shares issued for cash at $0.10 per share
            
            445,000
            
            
            445
            
            
            44,055
            
            
            -
            
            
            -
            
            
            44,500Share
                issuance costs
            
            -
            
            
            -
            
            
            (7,622
            )
            
            -
            
            
            -
            
            
            (7,622
            )Proceeds
                from share subscriptions
            
            -
            
            
            -
            
            
            -
            
            
            25,000
            
            
            -
            
            
            25,000Net
                loss for the year
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (53,379
            )
            
            (53,379
            )Balance
                - May 31, 2005
            
            3,445,000
            
            
            3,445
            
            
            60,933
            
            
            -
            
            
            (69,235
            )
            
            (4,857
            )Common
                shares issued for cash at $0.10 per share
            
            680,000
            
            
            680
            
            
            67,320
            
            
            
            
            
            -
            
            
            68,000Common
                shares issued for cash at $0.10 per share
            
            50,000
            
            
            50
            
            
            4,950
            
            
            (1,000
            )
            
            -
            
            
            4,000Share
                issuance costs
            
            -
            
            
            -
            
            
            (13,683
            )
            
            -
            
            
            -
            
            
            (13,683
            )Net
                loss for the year
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (
                40,646
            )
            
            (40,232
            )Balance
                - May 31, 2006
            
            4,175,000
            
            
            4,175
            
            
            119,521
            
            
            (1,000
            )
            
            (109,881
            )
            
            13,228






The
      accompanying notes are an integral part of these
      financial statements.





**Page
          - 35**




NSM
        Holdings, Inc.
 (A
        Development Stage Company)
 Notes
        to the Consolidated Financial Statements
 May
        31,
        2006
 (Expressed
        in US dollars)


1.  Development
      Stage Company




The
      Company was incorporated in the State of Delaware on April 8, 2004. The Company
      is a Development Stage Company, as defined by Statement of Financial Accounting
      Standard (“SFAS”) No.7 “ *Accounting
      and Reporting by Development Stage Enterprises* ”.
      The
      Company’s principal business is the sale of marine hobby products through its
      website “northernstarmall.com”.




These
      consolidated financial statements have been prepared on a going concern basis,
      which implies the Company will continue to realize its assets and discharge
      its
      liabilities in the normal course of business. The Company has incurred operating
      losses since inception and is unlikely to generate earnings in the immediate
      or
      foreseeable future. The continuation of the Company as a going concern is
      dependent upon the continued financial support from its shareholders, the
      ability of the Company to obtain necessary equity financing to continue
      operations and the attainment of profitable operations. As at May 31, 2006,
      t he
      Company has accumulated losses of $109,881 since inception. These
      financial statements do not include any adjustments to the recoverability and
      classification of recorded asset amounts and classification of liabilities
      that
      might be necessary should the Company be unable to continue as a going concern. These
      factors raise substantial doubt regarding the Company’s ability to continue as a
      going concern.




On
      July
      8, 2005, the Company filed an amended Form SB-2 Registration Statement (“SB-2”)
      with the United States Securities and Exchange Commission that was declared
      effective July 14, 2005 to register 945,000 shares of common stock held by
      existing shareholders for resale at a price of $0.10 per share. Also pursuant
      to
      the SB-2, the Company is offering up to 2,500,000 common shares at a price
      of
      $0.10 per share for maximum proceeds of $250,000 to the Company. On March 28,
      2006, the Company issued 680,000 shares of common stock at $0.10 per share
      for
      cash proceeds of $54,317, net of offering costs of $13,683. On April 5, 2006,
      the Company issued 50,000 shares of common stock at $0.10 per share for cash
      proceeds of $5,000.








2.  Summary
      of Significant Accounting Policies




a)
            Basis
                of Presentation and Fiscal Year




These
      consolidated financial statements include the accounts of the Company and it’s
      wholly owned subsidiary, Northern Star Distributors Ltd., a private company
      incorporated in the Province of British Columbia, Canada. These consolidated
      financial statements and related notes are presented in accordance with
      accounting principles generally accepted in the United States, and are expressed
      in US dollars. The Company’s fiscal year-end is May 31.




b)
            Cash
                and Cash Equivalents




The
      Company considers all highly liquid instruments with maturity of three months
      or
      less at the time of issuance to be cash equivalents.




c)
            Use
                of Estimates




The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.




d)
            Basic
                and Diluted Net Income (Loss) Per
                Share




The
      Company computes net income (loss) per share in accordance with Financial
      Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards
      (“SFAS”) No. 128, " *Earnings
      per Share* "
      which
      requires presentation of both basic and diluted earnings per share (EPS) on
      the
      face of the income statement. Basic EPS is computed by dividing net income
      (loss) available to common shareholders (numerator) by the weighted average
      number of shares outstanding (denominator) during the period. Diluted EPS gives
      effect to all dilutive potential common shares outstanding during the period
      using the treasury stock method and convertible preferred stock using the
      if-converted method. In computing Diluted EPS, the average stock price for
      the
      period is used in determining the number of shares assumed to be purchased
      from
      the exercise of stock options or warrants. Diluted EPS excludes all dilutive
      potential shares if their effect is anti dilutive.





**Page
            - 36**


NSM
        Holdings, Inc.
 (A
        Development Stage Company)
 Notes
        to
        the Consolidated Financial Statements
 May
        31,
        2006
 (Expressed
        in US dollars)




2.  Summary
      of Significant Accounting Policies (continued)




e)
            Share
                Offering Costs




Costs
      incurred related to share offerings are deducted from the proceeds of the
      related offerings. Costs incurred related to the registration of common stock
      held by existing shareholders of the Company are expensed as
      incurred.




f)
            Comprehensive
                Loss


SFAS
      No.
      130, “ *Reporting
      Comprehensive Income* ,”
      establishes standards for the reporting and display of comprehensive loss and
      its components in the financial statements. As at May
      31,
      2006 and 2005 ,
      the
      Company has no items that represent a comprehensive loss and, therefore, has
      not
      included a schedule of comprehensive loss in the financial
      statements .




g)
            Inventory




Inventory
      is determined on a first-in, first-out basis and is stated at the lower of
      cost
      or market. Market is determined based on the net realizable value, with
      appropriate consideration given to obsolescence, excessive levels, deterioration
      and other factors. At May 31, 2006 and 2005, inventory consisted of marine
      hobby
      products held for sale.




h)
            Property
                and Equipment




Property
      and equipment consists of computer hardware, is recorded at cost and is being
      amortized on a straight-line basis over their estimated lives of three
      years.




i)
            Website
                Development Costs




The
      Company recognizes the costs associated with developing a website in accordance
      with the American Institute of Certified Public Accountants (“AICPA”) Statement
      of Position (“SOP”) No. 98-1, “ *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* ”.
      Relating to website development costs the Company follows the guidance pursuant
      to the Emerging Issues Task Force (EITF) No. 00-2, “ *Accounting
      for Website Development Costs* ”.




Costs
      associated with the website consist primarily of a domain name purchased from
      a
      third party, and web site design costs. These capitalized costs are amortized
      based on their estimated useful life over four years. Payroll and related costs
      have not been capitalized, as the amounts principally relate to maintenance.
      Internal costs related to the development of website content will be charged
      to
      operations as incurred.




j)
            Long-Lived
                Assets




In
      accordance with SFAS No. 144, “ *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ”,
      the
      carrying value of intangible assets and other long-lived assets is reviewed
      on a
      regular basis for the existence of facts or circumstances that may suggest
      impairment. The Company recognizes impairment when the sum of the expected
      undiscounted future cash flows is less than the carrying amount of the asset.
      Impairment losses, if any, are measured as the excess of the carrying amount
      of
      the asset over its estimated fair value.




k)
            Financial
                Instruments and Concentrations




Financial
      instruments, which include prepaid expenses, accounts payable and accrued
      liabilities, were estimated to approximate their carrying values due to the
      immediate or short-term maturity of these financial instruments. The Company’s
      operations are in Canada resulting in exposure to market risks from changes
      in
      foreign currency rates. The financial risk is the risk to the Company’s
      operations that arise from fluctuations in foreign exchange rates and the degree
      of volatility of these rates. Currently, the Company does not use derivative
      instruments to reduce its exposure to foreign currency risk. During the year
      ended May 31, 2006, revenues from two customers accounted for 24% of total
      revenues. During the year ended May 31, 2005, revenues from one customer
      accounted for 64% of total revenues. At May 31, 2006, accounts receivable from
      four unaffiliated customers accounted for 97% of total accounts receivable.
      At
      May 31, 2005, accounts receivable from a single unaffiliated customer accounted
      for 90% of total accounts receivable.








**Page
            - 37**


NSM
        Holdings, Inc.
 (A
        Development Stage Company)
 Notes
        to
        the Consolidated Financial Statements
 May
        31,
        2006
 (Expressed
        in US dollars)




2.  Summary
      of Significant Accounting Policies (continued)




l)
            Income
                Taxes




Potential
      benefits of income tax losses are not recognized in the accounts until
      realization is more likely than not. The Company has adopted SFAS No. 109
“ *Accounting
      for Income Taxes* ”
as
      of
      its inception. Pursuant to SFAS No. 109 the Company is required to compute
      tax
      asset benefits for net operating losses carried forward. Potential benefit
      of
      net operating losses have not been recognized in these financial statements
      because the Company cannot be assured it is more likely than not it will utilize
      the net operating losses carried forward in future years.




m)
            Foreign
                Currency Translation




The
      functional and reporting currency of the Company and its subsidiary is the
      United States dollar. Monetary assets and liabilities denominated in foreign
      currencies are translated to United States dollars in accordance with SFAS
      No.
      52 “ *Foreign
      Currency Translation* ”
using
      the exchange rate prevailing at the balance sheet date. Gains and losses arising
      on translation or settlement of foreign currency denominated transactions or
      balances are included in the determination of income. Foreign currency
      transactions are primarily undertaken in Canadian dollars. The Company has
      not,
      to the date of these financials statements, entered into derivative instruments
      to offset the impact of foreign currency fluctuations.




n)
            Revenue
                Recognition




The
      Company recognizes revenue from the online sale of marine hobby products in
      accordance with Securities and Exchange Commission Staff Accounting Bulletin
      No.
      104 (“SAB 104”), “ *Revenue
      Recognition in Financial Statements* .”
      Revenue consists of the sale of marine hobby products and is recognized only
      when the price is fixed or determinable, persuasive evidence of an arrangement
      exists, the product is shipped, and collectibility
      is reasonably assured .




Trade
      accounts receivable relate to the sale of marine hobby products. The Company
      sells to customers based on standard credit policies and regularly reviews
      accounts receivable for any bad debts. As at May 31, 2006 and 2005, no allowance
      for doubtful accounts is considered necessary.




o)
            Stock
                - Based Compensation




Prior
      to
      March 1, 2006, the Company recorded stock-based compensation in accordance
      with
      SFAS No. 123, *“Accounting
      for Stock-Based Compensation”* using
      the
      fair value method of accounting. Effective March 1, 2006, the Company the
      provisions of SFAS No. 123R “ *Share
      Based Payments* ”,
      using
      the modified prospective transition method. The Company has not issued any
      stock
      options since its inception. Accordingly, there was no effect on the Company’s
      reported loss from operations, cash flows or loss per share, as a result of
      adopting SFAS No. 123R.




p)
            Recent
                Accounting Pronouncements




In
      May
      2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, *“Accounting
      Changes and Error Corrections - A Replacement of APB Opinion No. 20 and SFAS
      No.
      3”.* SFAS 154
      changes the requirements for the accounting for and reporting of a change in
      accounting principle and applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. SFAS 154 requires retrospective application to prior periods’
financial statements of changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. The provisions of SFAS No. 154 are effective for
      accounting changes and correction of errors made in fiscal years beginning
      after
      December 15, 2005. The adoption of this standard is not expected to have a
      material effect on the Company’s results of operations or financial
      position





**Page
            - 38**


NSM
        Holdings, Inc.
 (A
        Development Stage Company)
 Notes
        to
        the Consolidated Financial Statements
 May
        31,
        2006
 (Expressed
        in US dollars)




2.  Summary
      of Significant Accounting Policies (continued)




p)
            Recent
                Accounting Pronouncements
                (continued)




In
      December 2004, the FASB issued SFAS No. 153, “ *Exchanges
      of Nonmonetary Assets - An Amendment of APB Opinion No. 29* ”.
      The
      guidance in APB Opinion No. 29, “ *Accounting
      for Nonmonetary Transactions* ”,
      is
      based on the principle that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged. The guidance in that Opinion,
      however, included certain exceptions to that principle. SFAS No. 153 amends
      Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. A nonmonetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to
      change significantly as a result of the exchange. The provisions of SFAS No.
      153
      are effective for nonmonetary asset exchanges occurring in fiscal periods
      beginning after June 15, 2005. Early application is permitted and companies
      must
      apply the standard prospectively. The adoption of this standard did not have
      a
      material effect on the Company’s results of operations or financial
      position.




The
      FASB
      has also issued SFAS No. 155 “ *Accounting
      for Certain Hybrid Financial Instruments* ”
and
      SFAS No. 156 “ *Accounting
      for Servicing of Financial Assets* ”,
      but
      they will not have any relationship to the operations of the Company. Therefore
      a description and its impact for each on the Company’s operations and financial
      position have not been disclosed.








3.  Property
      and Equipment


May
                31, 2006
            
            May
                31, 2005Accumulated
            
            Net
                Book
            
            Net
                BookCost
            
            Amortization
            
            Value
            
            Value$
            
            $
            
            $
            
            $Computer
                hardware
            837
            
            546
            
            291
            
            570








4.  Intangible
      Assets


May
                31, 2006
            
            May
                31, 2005Accumulated
            
            Net
                Book
            
            Net
                BookCost
            
            Amortization
            
            Value
            
            Value$
            
            $
            
            $
            
            $Website
                domain name
            1
            
            -
            
            1
            
            1Website
                development costs
            1,468
            
            734
            
            734
            
            1,1011,469
            
            734
            
            735
            
            1,102








5.  Related
      Party Balances/Transactions




a)
            At
                May 31, 2006, the Company is indebted to a director of the Company
                in the
                amount of $1,634, representing expenses paid on behalf of the Company.
                This amount is non-interest bearing, unsecured and has no specific
                repayment terms.




b)
            During
                the year ended May 31, 2006, the Company paid $3,790 (May 31, 2005
                -
                $3,429) to the President of the Company for management services rendered.








6.  Commitment




The
      Company entered into a lease agreement commencing October 1, 2005 for office
      premises at a rate of CDN $6,000 per annum, for a one year term expiring
      September 30, 2006.




**Page
            - 39**


NSM
        Holdings, Inc.
 (A
        Development Stage Company)
 Notes
        to
        the Consolidated Financial Statements
 May
        31,
        2006
 (Expressed
        in US dollars)




7.  Common
      Stock




a)
            On
                April 5, 2006, the Company issued 50,000 restricted shares of common
                stock
                pursuant to a private placement, at $0.10 per share for cash proceeds
                of
                $5,000, of which $1,000 is receivable as at May 31,
                2006.




b)
            On
                March 28, 2006, the Company issued 680,000 shares of common stock
                at $0.10
                per share for cash proceeds of $54,317, net of issuance costs of
                $13,683,
                pursuant to an offering under an SB-2 Registration
                Statement.




c)
            On
                October 1, 2004, the Company issued 445,000 shares of common stock
                at a
                price of $0.10 per share for cash proceeds of $36,878, after issuance
                costs of $7,622, pursuant to a private
                placement.





8.  Income
      Tax




Potential
      benefits of income tax losses are not recognized in the accounts until
      realization is more likely than not. As of May 31, 2006, the Company has net
      operating losses carried forward totalling $82,000 for US tax purposes and
      $23,000 for Canadian tax purposes which expire starting in 2024 and 2011,
      respectively. Pursuant to SFAS No. 109 the Company is required to compute tax
      asset benefits for net operating losses carried forward. Potential benefit
      of
      net operating losses have not been recognized in these financial statements
      because the Company cannot be assured it is more likely than not to utilize
      the
      net operating losses carried forward in future years. For the periods ended
      May
      31, 2006 and 2005, the valuation allowance established against the deferred
      tax
      assets increased by $14,000 and $19,000 respectively.




The
      components of the net deferred tax asset at May 31, 2006, the statutory tax
      rate, the effective tax rate and the amount of the valuation allowance are
      indicated below:




May
                31, 2006
              $
            May
                31,
              2005
              $Net
                Operating Losses
            
            105,000
            65,000Statutory
                Tax Rate
            
            35%
            35%Effective
                Tax Rate
            
            -
            -Deferred
                Tax Asset
            
            37,000
            23,000Valuation
                Allowance
            
            (37,000)
            (23,000)Net
                Deferred Tax Asset
            
            -
            -





**Page
          - 40**