UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from March 31, 2007 to September 30, 2007.  Commission File Number:000-26347 NextMart, Inc. (Name of small business issuer as specified in its charter)  DELAWARE410985135(State or other jurisdiction of incorporation)(IRS Employer
Identification No.)  Oriental Plaza Bldg. W3, Twelfth Floor
1 East Changan Avenue, Dongcheng District
Beijing, 100738 PRC100738(Address of principal executive offices)(Zip Code)  Issuers telephone number+86 (0)10 8518 9669 Securities Registered under Section 12(b) of the Exchange Act:None Securities Registered pursuant to Section 12(g) of the Act:Common Stock, par value $0.01 per share (Title of class)  Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.o  Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   p Yes     No o p Yes     No o  Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained herein this form, and no disclosure will be contained, to the best of the 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. .o  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYesoNo  State Registrant’s revenues for its most recent fiscal year:$20,413,762  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 prices of such common equity, as of a specified date within the past 60 days:  $10,888,513  Based on last trade price on December 21, 2007  State the number of shares outstanding of each of the Registrants classes of common stock, as of the latest practicable date.   1   90,737,606 common shares issued and outstanding as of December 21, 2007.   DOCUMENTS INCORPORATED BY REFERENCE None. Transitional Small Business Disclosure Format (Check one): Yes o     No pr        TABLE OF CONTENTS PagePART I4Item 1. Description of Business4Item 1A. Risk Factors11Item 2. Properties22Item 3. Legal Proceedings22Item 4. Submissions of Matters to a Vote of Security Holder22PART II23Item 5. Market for Common Equity and Related Shareholder Matters23Item 6. Management Discussion and Analysis24Item 7. Financial Statements27Item 8. Changes In and Disagreements With Accountants on Accountingand Financial Disclosure49Item 8A. Controls and Procedures49Item 8B. Other Information49PART III50Item 9. Directors and Executive Officers of the Registrant50Item 10. Executive Compensation52Item 11. Security Ownership of Certain Beneficial Owners and Management53Item 12. Certain Relationships and Related Transactions55Item 13. Exhibits55Item 14. Principal Accountant Fees and Services58SIGNATURES59EXHIBIT 14.1EXHIBIT 21EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2       2     Table of Contents  FORWARD LOOKING INFORMATION  This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled Risk Factors, that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.  Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars.  As used in this annual report, the terms we, us, our, and NXMR mean NextMart, Inc. and its wholly-owned subsidiaries, including: Sun China Media (Beijing) Technology Co., Ltd., Suizhou Focus Trading Development Co., Ltd., Shanghai Shengji Technology Co., Ltd, Sun China Media (Beijing) International Advertising Co. Ltd, Wine & Dine Co. Ltd, Sun Trade Media (Beijing) Co. Ltd,Sun Asia (Beijing) Investments Consultants Ltd, NextMart Technology (Beijing) Co. Ltd, Wuhan Xinda Weiye Trade and Development Co. Ltd, Beijing Trans Global Logistics, Naixiu Exhibition (Beijing) Co. Ltd .    3     3    PART I Item 1. Description of Business  Overview  Our goal is to become one of Chinas leading wholesale distribution and direct sales enterprises predominantly in the womens fashion apparel industry by leveraging our full range of design, production management, sourcing, media/marketing and technological capabilities. Commencing April 2007, we began to operate primarily as an outsourced brand management and production center for foreign apparel brands mainly in the womens apparel industry through William Brand Administer Co. Ltd., our core operating subsidiary. William Brand contracts with apparel manufacturers and wholesalers, predominately in the United States, to manage the full apparel design, production and export operations. The business accounts for approximately 83% of our total revenues for the six month period ended September 30, 2007.  In addition to our core ladies' apparel business, we possess a portfolio of media, marketing and database assets that we intend to leverage in order to expand into online brand management and e-commerce sectors for womens apparel products. In the coming fiscal year, we plan to increaseour business-to-business revenues by adding new womens apparel clients and to develop business-to-consumer revenue by creating our own apparel brands and marketing these products through new and traditional media using our existing media/marketing resources.  In 2008, we also plan to leverage our current apparel brand management capabilities to develop an integrated online-offline direct sales platform for our ladies' apparel business. The key initiatives of this direct sales strategy include: (1) expanding our sales channels to include offline mail-order catalogues and TV-shopping of our own private label and third party brands; (2) launching our own ladies' apparel product line under the Peeressbrand, and (3) partnering with offline shopping malls in China to create online shopping sites that will carry numerous leading domestic/global fashion brands, including our Peeress brand.  We created our existing business through the ongoing acquisition of various entities and assets. In September 2005, we acquired Sun New Media Group Limited in a reverse acquisition transaction. Since that time, we completed other acquisitions that have enabled us to serve the apparel, handheld electronics verticals and beverage verticals. During the first half of calendar 2007, we re-focused our business operation by divesting our interests in the handheld electronic and beverage vertical markets and concentrated on the development our business in the womens apparel vertical market.  We were originally incorporated under the laws of Minnesota in 1972 and were previously known as SE Global Equity. In September 2005, we acquired 100% of the issued and outstanding share capital of Sun New Media Group Limited and changed the company name to Sun New Media, Inc. The acquisition was treated as a reverse acquisition for accounting purposes, and we adopted the September 30 fiscal year of the accounting acquirer Sun New Media Group Limited. In February 2006, we changed our fiscal year-end date from September 30th to March 31st.  In May 2007, we reincorporated into the State of Delaware and changed our name to NextMart, Inc. On October 10, 2007, we changed our fiscal year end from March 31 to September 30.  Background  The People's Republic of China ("China") has experienced rapid economic growth over the past decade. Chinas central bank estimates that economic growth for 2008 at 9.8 percent this year. Furthermore, Chinas entry into the World Trade Organization, accompanied by a proliferation of private businesses and an increase in the number of foreign multinational companies in China, has led to increased market liberalization and competition. In this competitive environment, companies in China are increasingly recognizing the need for improved methods of doing business.  As a result of economic growth and liberalization, the number of business entities operating in China has increased significantly. These new businesses are competing in an economy traditionally dominated by state owned or controlled enterprises at one end and serviced by millions of small local businesses on the other end. These dynamics have generally led to a very stratified market with inefficient systems for channel marketing, sales and distribution. A significant opportunity exists to leverage internet-based technologies to create direct sales channels and efficient distribution networks across Mainland China. The opportunity is particularly salient in industries characterized by multiple-layers of fragmented distribution systems like the apparel industry.  Corporate Strategy  Our goal is to become one of Chinas leading wholesale distribution and direct sales enterprises predominantly in the ladies'fashion apparel industry. We believe we have the full range of production design and management, material and services sourcing,  4   media/marketing and technological capabilities necessary to achieve our goal. Our current growth initiatives include growing our business-to-business platform by adding new clients domestically and abroad and developing a business-to-consumer platform through direct sales of our private label operations in Mainland China.  Services  The Company is divided into two principal divisions: the Transactional Services Division and the Marketing & Information Services Division. In fiscal year ended September 30, 2007, the Transaction Services Division accounted for 83.4% of revenues and the Marketing & Information Services Division accounted for 16.6% of revenues.  TheTransactional Services Division. This division is operated by our wholly-owned subsidiary in the womens apparel vertical, William Brand Administer Co., Ltd. William Brand contracts with apparel manufacturers and wholesalers, predominately in the United States, to manage the full apparel design, production and export operations. We help companies efficiently produce branded apparel by taking advantage of Chinas global advantages of low-cost labor and high quality apparel production capabilities.  During the fiscal period ended September 30, 2007, the division has predominantly focused on servicing its foreign business clients. Going forward, the division intends to grow revenues by selling womens apparel product in Mainland China. (See Strategy for Fiscal 2008 below).  TheMarketing & Information Services Division. This division generates revenue through the provision of business information services/products such as digital E-Magazines, sale of advertising, and media consulting services. The division maintains a partnership with Chinas leading online media community Her Village (Chinas largest multimedia womens community) for the purpose of building loyal consumer communities and selling them apparel product through our Transactional Services Division.  In fiscal 2008, we plan to expand these operations to include direct sales of womens apparel to urban professional women throughout Mainland China. (See Strategy for Fiscal 2008 below).  .  Strategy for Fiscal 2008  In fiscal 2008, our growth strategy is to develop an integrated online-offline direct sales platform for the ladies'apparel sector in China. To achieve this, we will leverage our full portfolio of assets and capabilities ranging from fashion design, and brand and apparel production management, to export operations. The key initiatives of this direct sales strategy include: (1) Expanding our sales channels to include offline mail-order catalogues and TV-shopping; (2) Launching sales of our private label apparel brand Peeress; and (3) Partnering with offline shopping malls in China to create online shopping sites that will carry numerous leading domestic/global fashion brands.  Our rationale for pursuing an integrated direct sales strategy is two-fold. First, we expect to achieve higher profit margins by selling ladies'apparel directly to consumers rather than selling through high cost, inefficient third-party distribution channels. Second, we already maintain the operational assets and marketing partnerships necessary to realize direct sales distribution. We maintain fashion design and apparel production operations, with a database of several thousand ladies'clothing designs. We also have strategic marketing and sales partnerships with Her Village, Chinas leading multimedia ladies'community with over 40 million web visits and e-magazine downloads, including over 10 million unique visitors, per month. It also has a strategic sales partnership with Shanghai Guifuren Garment, a well-known women's apparel chain with 49 retail points in China.  We plan to execute this direct sales strategy by reorganizing our operations into the following three enhanced business units:  (1)Integrated Direct Sales. We will focus on selling ladies'apparel to urban female consumers through three online and offline direct sales channels: (1) Digital E-catalogues/E-Magazines; (2) Print Mail-Order Catalogues; and (3) TV shopping programs. For (1) Digital E-catalogues/E-Magazines, the company will leverage its existing marketing and sales relationshipwith Her Village. This marketing/sales relationshipgives us marketing space within Her Villages e-magazine properties in exchange for a 10% commission on sales paid to Her Village. In addition to selling product through Her Villages media products, we are developing our own NextMart E-Shopping Cataloguesto sell apparel to Her Villages online consumer community. For (2) Print Mail-Order Catalogues and (3) TV-Shopping, we intend to partner with leading mail-order catalogue and TV-shopping partners in Mainland China. We are currently in discussions with partners for strategic partnership or acquisition. Strategic partnerships would entail our providing low-cost ladies'wear to its partners in exchange for ongoing marketing and sales access to Chinese female customers. The parties would split revenue according to a pre-negotiated percentage. (2) Private Labels. We will leverage our existing fashion design and apparel production capabilities to launch private labels for sale in China and abroad. Our first brand, Peeress, targets mature professional women in Chinas leading cities. Peeress already has  5   several thousand ladies'apparel designs, which include dresses, business suits, evening wear and lingerie. In 2008, we plan to launch sales of Peeress by leveraging our own direct sales network and partnering with retail chains in Mainland China.  Internationally, we will work with our current US business affiliationsto sell product in well known retail chains such as Sears. Domestically, we plan to sell product through two leading Chinese retail chains: Shanghai Guifuren Garment Co., a leading ladies'apparel chain with 49 stores in Mainland China, and Shanghai 1st Department stores, one of Chinas leading department store chains. (3) E-CommerceRelationships. We will associatewith leading offline shopping malls to create e-commerce sites that sell ladies'clothing of several well-known domestic and international fashion brands. The division will provide e-commerce and technical services in exchange for a commission on e-commerce sales. The division will focus mainly on large-scale projects in order to best utilize its resources and capture scalable business opportunities.   Investments in Media and Marketing Companies  As of September 30, 2007, we maintain investments in consumer media and marketing companies that we believe will allow us to offer our customers one-stop-shop interactive marketing solutions that reach directly to Chinas key consumer groups. We own 33,642,508 shares, representing a 6% interest in CEC Unet plc (f.k.a. Sun 3C Media)(AIM:CECU), an Irish company listed on the Alternative Investment Market in London. These shares have been placed in escrow since July, 2006 pursuant to an escrow agreement by and among various parties including Sun 3C Media and us. According to the escrow agreement, our shares can be released subject to the orderly market arrangements in place, which state that any decision to sell these ordinary shares within 12 months of their release must be approved by Blue Oar Securities Plc, our agent. The shares are eligible for release in two tranches; 50% of the 33,642,508 shares on June 30, 2007 and 50% of the 33,642,508 on June 30, 2008. As of September 30, 2007, we have 22,633,233 shares, of which the 14,811,979 shares are free and 7,821,254 shares are restricted before Jun 30, 2008.  We also own 1,000,000 shares, representing a 2.07% interest in Validian Corp. (OTCBB: VLDI), a Canadian-based company listed on the OTCBB.  Competition  Presently, a substantial portion of our business involves the offline apparel market, and we intend to compete in the online wholesale distribution and retail shopping market in the area of ladies' fashion. In our core apparel market, we face competition from large-scale apparel groups such as Li & Fung, HK Yida Apparel Co. Ltd, PPG Apparel Co. and smaller apparel manufacturers, design centers and distributors that service foreign brand clients. Many of these competitors have longer histories and larger client bases than we do. In the online space, we expect to face competition from B2B and B2C e-commerce providers that sell fashion and apparel products. Some of these competitors may be horizontal service providers such as Alibaba.com, Hui Cong, Taobao.com and Global Sources and others may be apparel specialists such as Li & Fung Online.  In the media and information sector, the main competitors in the industry continue to be state-owned media groups, industry associations, and government agencies. In the private sector, our principal competitor is Hui Cong, an information services and business search company focused on the domestic market. We face indirect competition from Global Sources, a business information service companies that are primarily focused on the import-export marketplace.    We also face competition from traditional advertising media, such as newspapers, magazines, yellow pages, billboards and other forms of outdoor media, television and radio. Most large companies in China allocate and will likely continue to allocate the bulk of their marketing budgets to traditional advertising media and only a small portion of their budgets to online marketing. If these companies do not devote a larger portion of their marketing budgets to online marketing services provided by us, or if our existing customers reduce the amount they spend on online marketing, our results of operations and future growth prospects could be adversely affected.  Most of our existing and potential competitors have significantly greater financial resources than we do. They also have longer operating histories and more experience in attracting and retaining users and managing customers than we do. They may use their experience and resources to compete with us in a variety of ways, including by competing more heavily for users, customers, distributors and networks of third-party websites, investing more heavily in research and development and making acquisitions.  Proprietary Rights  We regard our intellectual property rights, such as copyrights, trademarks, trade secrets, practices and tools, as important to the success of our business. To protect our intellectual property rights, we intend to rely on a combination of trademark and copyright law, trade secret protection, confidentiality agreements and other contractual arrangements with our employees, affiliates, clients,  6   strategic partners, acquisition targets and others. Effective trademark, copyright and trade secret protection may not be available in every country in which we intend to offer our services. And the steps we take to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our intellectual property rights or we may not be able to detect unauthorized use and take appropriate steps to enforce our rights. In addition, other parties may assert infringement claims against us. Such claims, regardless of merit, could result in the expenditure of significant financial and managerial resources. Future patents may limit our ability to use processes covered by such patents or expose us to claims of patent infringement or otherwise require us to obtain related licenses. Such licenses may not be available on acceptable terms. The failure to obtain such licenses on acceptable terms could have a negative effect on our businesses.  Governmental Regulation  All television broadcast media in China are government-controlled networks. The television and broadcasting industry in China operates under a legal regime that consists of the State Council, which is the highest authority of the executive branch of the Chinese central government, and the various ministries and agencies under its leadership. These ministries and agencies mainly include:  the Ministry of Culture;the Ministry of Information Industry;the State Press and Publications Administration;the State Copyright Bureau;the State Administration for Industry and Commerce;the Ministry of Public Security; andthe Bureau of State Secrecy.  The State Council and these ministries and agencies have issued a series of rules that regulate a number of different substantive areas of our proposed businesses. We believe we have all necessary governmental approvals to conduct our interactive marketing and sales services businesses.  In compliance with China's foreign investment restrictions on media industry and other laws and regulations, we conduct all our media services in China via the following significant domestic Variable Interest Entities (VIEs):  ·Sun China Media (Beijing) Technology Co., Ltd., a Chinese company controlled through us by contract and is owned equally by Qiong Zhou and Jacob Di, both of whom are non-executive employees of the Company.  ·Suizhou Focus Trading Development Co., Ltd., a Chinese company controlled by us by contract and is engaged in marketing, information and technology services to beverage and electronic device distributors.  It is 60% owned by Qi Yang, one of our officers and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively, two non-executive employees of the Company.  ·Shanghai Shengji Technology Co., Ltd, a Chinese company controlled by us by contract, and is engaged in wireless mobile services. It is 40% owned by Hui Yan, 40% owned by Min Lin and 20% owned by Kezhou Luan, each a non-executive employee of the Company.  ·Sun China Media (Beijing) International Advertising Co. Ltd, a Chinese company controlled by us by contract which is engaged in the advertising business.  It is 70% owned by Qiong Zhou, and 30% owned by Guosheng Wang, both of whom are non-executive employees of the Company.  ·Dragon List Co. Ltd, a Chinese company controlled by us by contract and is engaged in digital publishing business.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Sun Trade Media (Beijing) Co. Ltd, a Chinese company controlled by us by contract and is engaged in digital publishing business.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Sun Asia (Beijing) Investments Consultants Ltd, a Chinese company controlled by us by contract and is engaged in the provision of consultancy services.  It is 60% owned by Qiong Zhou, and 40% owned by Bryan Li, both of whom are non-executive employees of the Company.   7   ·NextMart Technology (Beijing) Co. Ltd, a Chinese company controlled by us by contract and is engaged in software development.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Wuhan Xinda Weiye Trade and Development Co. Ltd, a Chinese company controlled by us by contract and engaged in trading.  It is 40% owned by Jin Liu, 30% owned by Wanzhi Zhu and 30% owned by Mingde Jiang, all of whom are non-executive employees of the Company.  ·Beijing Trans Global Logistics, a Chinese company 80% by us by contract and engaged in trading.  It is 80% owned by Qiong Zhou, 10% owned by Yong Li and 10% owned by Mianchun Wang, Qiong Zhou is a non-executive employees of the Company.  ·Naixiu Exhibition (Beijing) Co. Ltd, a Chinese company that is controlled by us and owned 50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun are non-executive employees of the Company.  The capital investment in these VIEs is funded by the Company and transferred to the VIEs via contractual agreements between the Company (or its non- Chinese subsidiary) and the Chinese employees who own the VIEs. As of September 30, 2007, the total amount of capital investment that was transferred to the VIEs listed above was US$3,451,000.  Under various contractual agreements, employee shareholders of the VIEs are required to transfer their ownership in these entities to our subsidiaries in China when permitted by Chinese laws and regulations or to our designees at any time for the outstanding amount of injected capital investment, and all voting rights of the VIEs are assigned to us. We have the power to appoint all directors and senior management personnel of the VIEs.  Through our wholly-owned subsidiaries in China, we have also entered into exclusive technical agreements and other service agreements with the VIEs, under which these subsidiaries provide technical services.  Employees  As of December 21, 2007, we had 44 employees. Of our employees, 8 were in management; 19 in finance, legal & administration; 5 in business development and research & development and 12 in sales and marketing.  Recent Developments  On October 10, 2007, we changed the fiscal year from March 31 to September 30 in order to better reflect the results of our restructuring initiatives during the period ended September 30, 2007.  Disclosure Regarding Forward Looking and Cautionary Statements.  Forward Looking Statements. Certain of the statements contained in this Annual Report on Form 10-KSB includes "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements other than statements of historical facts included in this Form 10-KSB regarding the Company's financial position, business strategy, and plans and objectives of management for future operations and capital expenditures, and other matters, are forward looking statements. These forward-looking statements are based upon management's expectations of future events. Although we believe the expectations reflected in such forward looking statements are reasonable, there can be no assurances that such expectations will prove to be correct. Additional statements concerning important factors that could cause actual results to differ materially from our expectations ("Cautionary Statements") are disclosed below in the Cautionary Statements section and elsewhere in this Form 10-KSB. All written and oral forward looking statements attributable to us or persons acting on our behalf subsequent to the date of this Form 10-KSB are expressly qualified in their entirety by the Cautionary Statements.  Cautionary Statements. Certain risks and uncertainties are inherent in the Company's business. In addition to other information contained in this Form 10-KSB, the following Cautionary Statements should be considered when evaluating the forward looking statements contained in this Form 10-KSB:    Risks Related to Our Business  Our short operating history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses.  During the last two quarters of the fiscal year ended March 31, 2007, we changed our business focus to the ladies' apparel vertical, through the acquisition of new businesses, including Williams Brand Ltd, and entered into related joint ventures. As a component of our restructuring, we also divested ourselves of certain non core assets and operations. These divested assets and operations contributed significantly to our operations for the 2007 and 2006 fiscal years.  In light of these changes, one should consider the future prospects of our new business endeavors keeping in mind the risks and uncertainties experienced by early stage companies in evolving industries in China. As a result, it will be difficult for us to predict future revenues and operating expenses with a great deal of certainty. We have based our expense levels in part on our expectations of future revenues from these transactions. If our  8   interactive Marketing and Information service business develops slower than we expect, our losses may be higher than anticipated, which may adversely impact our business.  Some of the other risks and uncertainties of our business relate to our ability to:  ·offer new and innovative products and services to attract and retain a larger consumer base;  ·attract customers;  ·increase awareness of our brand and continue to develop consumer and customer loyalty;  ·respond to competitive market conditions;  ·respond to changes in our regulatory environment;  ·manage risks associated with intellectual property rights;  ·maintain effective control of our costs and expenses;  ·raise sufficient capital to sustain and expand our business;  ·attract, retain and motivate qualified personnel; and  ·upgrade our technology to support increased traffic and expanded services.  If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.  The development of our business is dependent upon the completion and integration of acquisitions and other transactions that have only recently or not yet closed.  In September 2006, we acquired Williams Brand, a ladies' apparel manufacturer, which is presently our core business. During August 2007, we also acquired other businesses, assets and entered into joint ventures complimentary to our core business. If we are unable to successfully operate and integrate the businesses we acquire, our business will not be successful. We expect to continually look for new businesses to acquire to maintain and sustain our operations. If we fail to identify such businesses, are unable to acquire such businesses on reasonable terms, or fail to successfully integrate such businesses, our operating results and prospects could be harmed.   If the Internet and, in particular, interactive marketing are not broadly adopted in China, our ability to increase revenue and sustain profitability could be materially and adversely affected.  The use of the Internet as a marketing channel is at an early stage in China. Internet and broadband penetration rates in China are both relatively low compared to those in most developed countries. Many of our existing and potential customers have limited experience with the Internet as a marketing channel, and historically have not devoted a significant portion of their marketing budgets to online marketing and promotion. As a result, they may not consider the Internet effective in promoting their products and services as compared to traditional print and broadcast media. Our ability to generate significant revenues may be negatively impacted by a number of factors, many of which are beyond our control, including:  ·difficulties associated with developing a larger consumer base with demographic characteristics attractive to customers;  ·increased competition and potential downward pressure on online marketing prices;  ·ineffectiveness of our online marketing delivery, tracking and reporting systems; and  ·lack of increase in Internet usage in China.  We face significant competition and may suffer from a loss of users and customers as a result.  We expect to face significant competition in our interactive marketing and sales services business, particularly from other companies that seek to provide online marketing services. Our main competitors include Sohu.com, Alibaba.com, Tom Online, Beijing Media in China and Next Media Group in Hong Kong. Many of these competitors have significantly greater financial resources than we do. They also have longer operating histories and more experience in attracting and retaining users and managing customers than we do. They may use their experience and resources to compete with us in a variety of ways, including by competing more heavily for users, customers, distributors and networks of third-party websites, investing more heavily in research and development and making  9   acquisitions.  We may also face competition from traditional advertising media, such as newspapers, magazines, yellow pages, billboards and other forms of outdoor media, television and radio. Most large companies in China allocate, and will likely continue to allocate, the bulk of their marketing budgets to traditional advertising media and only a small portion of their budgets to online marketing. If these companies do not devote a larger portion of their marketing budgets to online marketing services provided by us, or if our existing customers reduce the amount they spend on online marketing, our results of operations and future growth prospects could be adversely affected.  Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our business and operating results may be harmed.  We believe that recognition of our brand will contribute significantly to the success of our business. We also believe that maintaining and enhancing our brand is critical to expanding our base of consumers and customers. As our market becomes increasingly competitive, maintaining and enhancing our brand will depend largely on our ability to remain as an Internet marketing leader in China, which may be increasingly difficult and expensive.  If we fail to continue to innovate and provide relevant services, we may not be able to generate sufficient user traffic levels to remain competitive.  We must continue to invest significant resources in research and development to enhance services and introduce additional high quality services to attract and retain consumers. If we are unable to anticipate consumer preferences or industry changes, or if we are unable to modify our services on a timely basis, we may lose consumers and customers. Our operating results would also suffer if our innovations do not respond to the needs of our consumers and customers, are not appropriately timed with market opportunities or are not effectively brought to market.  If we fail to keep up with rapid technological changes, our future success may be adversely affected.  The online marketing industry is subject to rapid technological changes. Our future success will depend on our ability to respond to rapidly changing technologies, adapt our services to evolving industry standards and improve the performance and reliability of our services. Our failure to adapt to such changes could harm our business. New marketing media could also adversely affect us. For example, the number of people accessing the Internet through devices other than personal computers, including mobile telephones and hand-held devices, has increased in recent years. If we are slow to develop products and technologies that are more compatible with non-PC communications devices, we may not be successful in capturing a significant share of this increasingly important market for media and other services. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our products, services or infrastructure. If we fail to keep up with rapid technological changes to remain competitive in our rapidly evolving industry, our future success may be adversely affected.  We may face intellectual property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability to continue providing certain existing services.  Internet, technology and media companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property in Internet-related industries, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for Internet-related technologies, including seeking patent protection. There may be patents issued or pending held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China for resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.  Intellectual property litigation is expensive and time consuming and could divert resources and management attention from the operations of our businesses. If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations.  We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.  We rely on a combination of copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods to protect our intellectual property rights. The protection of intellectual property rights in China may not be as effective as those in the United States or other countries. The steps we have taken may be inadequate to prevent the misappropriation of our technology.  10   Reverse engineering, unauthorized copying or other misappropriation of our technologies could enable third parties to benefit from our technologies without paying us. From time to time, we may have to enforce our intellectual property rights through litigation. Such litigation may result in substantial costs and diversion of resources and management attention.  If we fail to attract customers for our online marketing services, our business and growth prospects could be seriously harmed.  Our online marketing customers will not maintain a business relationship with us if their investment does not generate sales leads and ultimately consumers. Failure to retain our existing online marketing customers or attract new customers for our online marketing services could seriously harm our business and growth prospects.  Because we primarily rely on distributors in providing our e-marketing services, our failure to retain key distributors or attract additional distributors could materially and adversely affect our business.  Online sales and marketing is at an early stage of development in China and is not as widely accepted by or available to businesses as in the United States. As a result, we rely heavily on a nationwide distribution network of third-party distributors for our sales to, and collection of payment from, our corporate and consumer customers. If our distributors do not provide quality services to our customers or otherwise breach their contracts with our customers, we may lose customers and our results of operations may be materially and adversely affected. We do not have long-term agreements with any of our distributors, including our key distributors, and cannot assure that we will continue to maintain favorable relationships with them. Our distribution arrangements are non-exclusive. Furthermore, some of our distributors may have contracts with our competitors or potential competitors and may not renew their distribution agreements with us. In addition, as new methods for accessing the Internet, including the use of wireless devices, become available, we may need to expand our distribution network to cater to the new technologies. If we fail to retain our key distributors or attract additional distributors on terms that are commercially reasonable, our business and operations could be materially and adversely affected.  Our strategy of acquiring complementary businesses, assets and technologies may fail.  As part of our business strategy, we have pursued, and intend to continue to pursue, selective strategic acquisitions of businesses, assets and technologies that complement our existing business. Our acquisitions involve uncertainties and risks, including:  ·potential ongoing financial obligations and unforeseen or hidden liabilities;  ·failure to achieve intended objectives, benefits or revenue-enhancing opportunities;  ·costs and difficulties of integrating acquired businesses and managing a larger business; and  ·diversion of resources and management attention.  Our failure to address these risks successfully may have a material adverse effect on our financial condition and results of operations. Any such acquisition may require a significant amount of capital investment, which would decrease the amount of cash available for working capital or capital expenditures. In addition, if we use our equity securities to pay for acquisitions, we may dilute the value of our common stock. If we borrow funds to finance acquisitions, such debt instruments may contain restrictive covenants that could, among other things, restrict us from distributing dividends. Such acquisitions may also generate significant amortization expense related to intangible assets.  We may not be able to manage our expanding operations effectively.  We anticipate significant continued expansion of our business as we address growth in our consumer and customer base and market opportunities. To manage the potential growth of our operations and personnel, we will be required to improve operational and financial systems, procedures and controls, and expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with other websites, Internet companies, and other third parties. We cannot assure you that our current and planned personnel, systems, procedures and controls will be adequate to support our future operations.  Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.  Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, thus one should not rely on our past results as an indication of our future performance. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may be significantly different from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause the price of our common stock to fall. Any of the risk factors listed in this Risk Factors section, and in particular, the following risk factors, could cause our operating results to fluctuate from quarter to quarter:  11    ·general economic conditions in China and economic conditions specific to the Internet, Internet search and online marketing;  ·our ability to attract additional customers;  ·the announcement or introduction of new or enhanced products and services by us or our competitors;  ·the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses, operations and infrastructure;  ·the results of our acquisitions of, or investments in, other businesses or assets;  ·   Chinese regulations or actions pertaining to activities on the Internet, including gambling, online games and other forms of entertainment; and  ·geopolitical events or natural disasters such as war, threat of war, Severe Acute Respiratory Syndrome, or SARS, or other epidemics.  Because of our limited operating history and our rapidly growing business, our historical operating results may not be useful in predicting our future operating results. Advertising spending in China has historically been cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Our rapid growth has lessened the impact of the cyclicality and seasonality of our business. As we continue to grow, we expect that the cyclicality and seasonality in our business may cause our operating results to fluctuate.  The successful operation of our business depends upon the performance and reliability of the Internet infrastructure and fixed telecommunications networks in China.  Our business depends on the performance and reliability of the Internet infrastructure in China. Almost all access to the Internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Information Industry of China. In addition, the national networks in China are connected to the Internet through international gateways controlled by the Chinese government. These international gateways are the only channels through which a domestic user can connect to the Internet. We cannot assure you that a more sophisticated Internet infrastructure will be developed in China. We may not have access to alternative networks in the event of disruptions, failures or other problems with Chinas Internet infrastructure. In addition, the Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.  Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services.  Our future success depends heavily upon the continuing services of the members of our senior management team, in particular our chairman Dr. Bruno Wu. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future.  In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. If any disputes arise between any of our senior executives or key personnel and us, we cannot assure you the extent to which any of these agreements may be enforced.  We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.  Our performance and future success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.  As competition in our industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in attracting additional highly skilled personnel or retaining or motivating our existing personnel, we may be unable to grow effectively.  12    Interruption or failure of our information technology and communications systems could impair our ability to effectively provide our products and services, which could damage our reputation and harm our operating results.  Our ability to provide our Marketing & Information services depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our systems could interrupt our service. Service interruptions could reduce our revenues and profits, and damage our brand if our system is perceived to be unreliable. Our systems are vulnerable to damage or interruption as a result of terrorist attacks, war, earthquakes, floods, fires, power loss, telecommunications failures, computer viruses, interruptions in access to our websites through the use of denial of service or similar attacks, hacking or other attempts to harm our systems, and similar events. Our servers, which are hosted at third-party Internet data centers, are also vulnerable to break-ins, sabotage and vandalism. Some of our systems are not fully redundant, and our disaster recovery planning does not account for all possible scenarios. The occurrence of a natural disaster or a closure of an Internet data center by a third-party provider without adequate notice could result in lengthy service interruptions.  Our business could be adversely affected if our software contains bugs.  Our Marketing & Information systems, including our websites, and other software applications and products, could contain undetected errors or bugs that could adversely affect their performance. We regularly update and enhance our websites and our other online systems and introduce new versions of our software products and applications. The occurrence of errors in any of these may cause us to lose market share, damage our reputation and brand name, and materially and adversely affect our business.  Concerns about the security of electronic commerce transactions and confidentiality of information on the Internet may reduce use of our network and impede our growth.  A significant barrier to electronic commerce and communications over the Internet in general has been public concern over security and privacy, including the transmission of confidential information. If these concerns are not adequately addressed, they may inhibit the growth of the Internet and other online services generally, especially as a means of conducting commercial transactions. If a well-publicized Internet breach of security were to occur, general Internet usage could decline, which could reduce traffic to our destination websites and impede our growth.  We have limited business insurance coverage.  The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. We do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.  Fluctuation and impairment of marketable securities will materially impact our net income  We own securities in a number of public companies. These marketable securities are carried at fair market value, fluctuation of market price of those securities could adversely impact net income and earnings per share.  Any change of the indefinite status of any of our intangible assets may require us to record additional amortization expenses  Some of our intangible assets are characterized as indefinite intangible assets and therefore are not required to be amortized. Any changes of the conditions upon which we based categorization of these intangible assets as indefinite will likely require us to amortize these intangible assets over their economic life. Such additional amortization cost could adversely impact our net income and earnings per share.  Risks Related to Our Corporate Structure  Chinese laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such Chinese laws and regulations may materially and adversely affect our business.  Although we are a Delaware corporation, all of our operations and employees are located in the China. As such, there are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with certain of our affiliated Chinese entities. We are considered foreign persons or foreign invested enterprises under Chinese law. As a result, we are subject to Chinese law limitations on foreign ownership of Internet and advertising companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.   13   The Chinese government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future Chinese laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.  Our corporate actions are substantially controlled by our principal shareholders and affiliated entities.  As of September 30, 2007, our principal shareholders and their affiliated entities own approximately 17.02% of our outstanding common stock. These shareholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common stock. These actions may be taken even if they are opposed by our other shareholders.  There are certain inter-locking relationships and potential conflicts of interest with our Chairman, His Spouse, and a Significant Shareholder.  Dr. Bruno Wu, our Chairman, is also the Chairman and Director of Sun Media Investment Holdings Limited (SMIH), one of our significant shareholders. Dr. Wus wife is the majority shareholder of SMIH. We also have entered into several transactions involving SMIH or entities controlled by SMIH, including a recent transaction with Her Village Co., Ltd. In addition, the parties may enter into future arrangements, including modifications to existing agreements, which have not been determined at this time. Although our management believes that each of these past transactions were entered into in our best interests (and for future transactions our management will endeavor at all times to maintain our best interests in any such transaction(s)), they were not the product of any arms length negotiations between the parties, nor did we obtain an independent fairness opinion with respect to these transactions. Therefore, conflicts of interest between such parties and us have existed in the past and may continue in the future and may have an adverse impact on our business.  Our officers and directors may allocate their time and efforts to other businesses thereby causing conflicts of interest in their determination as to whether or not to present business opportunities to the Company and as to how much time to devote to our affairs.  Our officers and directors, including Dr. Wu, are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. All of our executive officers are engaged in several other business endeavours and are not obligated to contribute any specific number of hours to our affairs. If our executive officers other business affairs require them to devote more substantial amounts of time to such affairs, it could have a negative impact on our financial condition, results of operations and future business prospects.  We intend to protect our interests in having these officers and directors remain part of the Company and prioritize their time and resources in such a way that will benefit interests, although no assurances thereof can be given.  Our officers and directors may become aware of business opportunities which may be appropriate for presentation to us as well as the other entities to which they owe fiduciary duties. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented.  The Company intends to protect its interests in having these officers and directors remain part of the Company and prioritize their time and resources in such a way that will benefit the Company, although no assurances thereof can be given.  Risks Related to Doing Business in China  Adverse changes in economic and political policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.  As our interactive Marketing & Information services business expands, we expect an increasing portion of our business operations to be conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. Chinas economy differs from the economies of most developed countries in  14   many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While Chinas economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The Chinese government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by governmental control over capital investments or changes in tax regulations that may be applicable to us. Since early 2004, the Chinese government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition.  Our subsidiaries and affiliates are subject to restrictions on paying dividends and making other payments to us.  Our operations are conducted through contractual arrangements between our wholly owned subsidiaries and operating entities located in China.  As such, we expect to increasingly rely on dividends payments from our subsidiaries who in turn receive their revenues through the affiliated operating entities in China. However, Chinese regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries and affiliated entities in China are also required to set aside a portion of their after-tax profits according to Chinese accounting standards and regulations for certain reserve funds. The Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our subsidiaries or affiliated entities in China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If either ourselves or our subsidiaries are unable to receive all of the revenues from our operations through these contractual or dividend arrangements, we may be unable to fund our overhead of our non- Chinese entities or declare dividends on our common stock.  Uncertainties with respect to theChineselegal system could adversely affect us.  We conduct a substantial and increasing portion our business through subsidiaries and affiliated entities based in China. Our operations in China are governed by Chinese laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The China legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedent value.  Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the Chinese legal system is based in part on governmental policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.  We may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us or our management.  We conduct all of our operations in China and all of our assets are located in China. In addition, all of our senior executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China on our senior executive officers, including matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us that China does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.  Governmental control of currency conversion may affect the value of your investment.  The Chinese government imposes controls on the conversion of RMB to foreign currencies and, in certain cases, the remittance of currencies out of China. As our domestic sales operations expand, we expect to derive an increasing percentage of our revenues in RMB. Under our current structure, we expect our income will be primarily derived from dividend payments from our Chinese subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest and principal payments on outstanding notes (including our recently completed convertible note financing) and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the People's Republic of China State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required when RMB is to be converted into foreign currency and remitted out of China to pay  15   capital expenses such as the repayment of bank loans denominated in foreign currencies. The Chinese government at its discretion also may restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our common stock.  Fluctuation in the value of RMB may have a material adverse effect on your investment.  The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the Chinese government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. This change in policy has resulted in an approximately 7.9% appreciation of the RMB against the U.S. dollar. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the Chinese government to adopt a more flexible currency policy, which could result in a further and significant appreciation of the RMB against the U.S. dollar. As our interactive marketing and sales services business continues to grow, a greater portion of our revenues and costs will be denominated in RMB, while a significant portion of our financial assets may be denominated in U.S. dollars. We expect to rely significantly on dividends and other fees paid to us by our subsidiaries and affiliated entities in China. Any significant revaluation of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our common stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes.  We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition.  For Chinese regulatory reasons, all of our operations are conducted through contractual arrangements with China operating companies which for accounting purposes currently are considered variable interest entities (VIEs) of us. We are considered the primary beneficiary of such entities, and as such, are required to consolidate their respective financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE would no longer meet the definition of a VIE, or we are deemed not to be the primary beneficiary for any reason, we would not be able to consolidate line by line that entitys financial results in our consolidated financial statements. Also, in the future it is possible that other companies, due to contractual obligations, may become our VIE and thus we would be the primary beneficiary. In such an event, we would be required to include that entitys financial results in our consolidated financial statements. If such entitys financial results were negative, this could have a corresponding negative impact on our operating results.  We may lose control over our VIE entities which could materially adversely affect our operating results and financial condition.  As mentioned elsewhere herein, under Chinese law, we are not allowed to own the Chinese operating entities. Instead, through our subsidiaries, we have contractual arrangement with the Chinese operating entities pursuant to which we receive a substantial portion of the operating revenues of these Chinese companies. If these Chinese companies fail to uphold the operating agreement or if for any reason, these arrangements are deemed unenforceable, we would lose control over such entities which would cause a material adverse impact on our business and operations.   We face risks related to health epidemics and other outbreaks.  Our business could be adversely affected by the effects of SARS or another epidemic or outbreak. China reported a number of cases of SARS in April 2004. Any prolonged recurrence of SARS or other adverse public health developments in China may have a material adverse effect on our business operations. For instance, health or other governmental regulations adopted in response may require temporary closure of Internet cafes, which is one of the avenues where users could access our websites, or of our offices. Such closures would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic.  Rapidly developing Chinese tax laws could negatively affect our businesses.  On March 16 2007, the Chinese government produced a new set of revised tax laws.  In these tax laws, income tax for companies located in China was reduced from 33% to 25%, resulting in a corresponding increase in net income for our Chinese company.  However, given Chinas rapidly changing tax laws and the difference between national tax policy and local tax policy, we could and likely will be exposed to other fluctuations in income associated with these taxes, including but not limited to business taxes, VAT, income taxes, and other taxes.  Risks Related to Our Common Stock   16   There has been only a limited public market for our common stock to date.  To date, there has been only a limited public market for our common stock on the Over-the-Counter Bulletin Board. Our common stock is currently not listed on any exchange. If an active trading market for our common stock does not develop, the market price and liquidity of our common stock will be materially and adversely affected.  The market price for our common stock may be volatile.  The market price for our common stock may be volatile and subject to wide fluctuations in response to factors including the following:  ·actual or anticipated fluctuations in our quarterly operating results;  ·changes in financial estimates by securities research analysts, if any;  ·conditions in the China consumer goods and online marketing markets;  ·changes in the economic performance or market valuations of other U.S. public companies with substantial operations in China;  ·announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;  ·addition or departure of key personnel;  ·fluctuations of exchange rates between RMB and the U.S. dollar;  ·intellectual property litigation; and  ·general economic or political conditions in China.  In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common stock.  We will need additional capital, and the sale of additional common stock or other equity securities could result in additional dilution to our shareholders.  We expect to require additional cash resources to fund our operations, as well as investments or acquisitions which we may decide to pursue. To satisfy our cash requirements, we may seek to sell additional equity or debt securities (in addition to our recently completed financing or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.  Substantial future sales or the perception of sales of our common stock in the public market could cause the price of our common stock to decline.  Sales of our common stock in the public market or the perception that these sales could occur, could cause the market price of our common stock to decline. As of December 20, 2007, approximately 43,886,984 shares, or 50.3% of our outstanding shares will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or are subject to a pending registration statement. The remaining common stock outstanding as of such date will be available for sale, subject to volume and other restrictions as applicable under Rule 144 under the Securities Act.  If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.  We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such companys internal controls over financial reporting in its annual report, which contains managements assessment of the effectiveness of the companys internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on managements assessment of the effectiveness of the companys internal controls over financial reporting.  These requirements first apply to our annual report on Form 10-KSB for the fiscal year ending September 30, 2008. Our  17   management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our managements assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a young company with limited accounting personnel and other resources with which to address our internal controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.  We will incur increased costs as a result of being a public company.  As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by SEC has required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and financial compliance costs and make certain corporate activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.  There is a limited public float of our common stock, which can result in increased volatility in our stock price and prevent the realization of a profit on resale of the Companys common stock  There is a limited public float of our common stock. The term public float refers to shares freely and actively tradable on the Over-the-Counter Bulletin Board System and not owned by officers, directors or affiliates, as defined under the Securities Act. Due to our relatively small public float and the limited trading volume of our common stock, purchases and sales of relatively small amounts of our common stock can have a disproportionate effect on the market price for our common stock. As a result, the market price of our common stock can have increased volatility which may affect a stockholders ability to sell our shares in a timely manner.  Our common stock is subject to restrictions on sales by broker-dealers and penny stock rules, which may be detrimental to investors.  Our common stock is subject to Rules 15g-1 through 15g-9 under the Exchange Act, which impose certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and accredited investors (as defined in Rule 501(c) of the Securities Act). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchasers written consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common stock.  Additionally, our common stock is subject to SEC regulations applicable to penny stock. Penny stock includes any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.  When we account for employee share options using the fair value method, such accounting treatment could significantly reduce our net income.  On December 16, 2004, the Financial Accounting Standard Board, or FASB, issued FASB Statement No. 123(R), Share-Based Payment, which requires a public company to recognize as an expense, the fair value of stock options and other share-based compensation to employees at the first fiscal year that begins on or after June 15, 2005. Currently, we record share-based compensation to the extent that the fair value of the shares on the date of grant exceeds the exercise price of the option. We recognize compensation expense over the related vesting periods. For the periods after December 31, 2005, we could have ongoing accounting charges significantly greater than those we would have recorded under our current method of accounting for share options. See  18   Managements Discussion and Analysis of Financial Conditions and Results of OperationsCritical Accounting Policies for a more detailed presentation of accounting for share-based compensation plans.       Item 2. Properties  The majority of our operations are in China, where we have leased offices in Beijing, Shanghai, and Hong Kong. Our Beijing office consists of 8,740 square feet. The lease extends for a period of two years terminating on July 31, 2008. Our annual rent is $192,569. Our Shanghai office consists of 11,754 square feet. We sublease the space from SMIH, our largest shareholder, on a month to month basis. Our annual rent is $110,672. Our Hong Kong office consists of 366 square feet. The lease extends for a period of 1 year terminating on March 31, 2008. Our annual rent is approximately $18,000. We believe that our existing facilities are adequate to meet our current requirements, and that future growth can be accommodated by leasing additional or alternative space.  Additional, we have leased office in New York consisting of approximately 1,300 square feet. The lease extends for a period of one year. Our annual rent is $108,000.  Item 3. Legal Proceedings  We are not aware of any pending legal proceedings against us. We may in future be party to litigation arising in the course of our business. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.  Item 4. Submissions of Matters to a Vote of Security Holders  None      19   Part II.  Item 5. Market for Common Equity and Related Shareholder Matters  We effected our initial public offering of our common stock on June 14, 1999. Our common stock is quoted on the OTC Bulletin Board under the symbol NXMR. There is an absence of an established trading market for the Company's common stock, as the market is limited, sporadic, and highly volatile. The absence of an active market may have an effect upon the high and low price as reported.The following table sets forth the high and low closing sales price of our common stock as reported on OTC Bulletin Board for the periods indicated:  HighLowFiscal 2004First Quarter$ 0.86$ 0.42Second Quarter$ 0.70$ 0.70Third Quarter$ 0.34$ 0.34Fourth Quarter$ 0.60$ 0.60Fiscal 2005First Quarter$ 1.90$ 1.40Second Quarter$ 5.10$ 1.24Third Quarter$ 4.88$ 2.82Fourth Quarter$ 4.20$ 2.84Fiscal 2006First Quarter$ 4.15$ 3.00Second Quarter$ 4.35$ 3.60Fiscal 2007First Quarter$ 6.28$ 3.61Second Quarter$ 4.37$ 2.68Third Quarter$ 2.70$ 0.61Fourth Quarter$ 0.91$0.50Fiscal 2007( six months ended September 30, 2007)First Quarter$0.48$0.28Second Quarter (up until December 21, 2007)$0.24$0.12   The quotations above reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  On December 21, 2007, the last reported sale price for our common stock on the OTC Bulletin Board was $0.14 per share. As of December 21, 2007, there were 442 record holders of our common stock.  Dividend Policy  We have never paid any cash dividends and do not anticipate paying cash dividends in the foreseeable future.  Securities Authorized For Issuance Under Equity Compensation Plans.  For Securities Authorized For Issuance Under Equity Compensation Plansas required under Item 201 of Regulation S-B, please refer to the table in Part III-Item 13.  Recent Sales of Securities  During the six months year ended September 30, 2007, we issued shares in the following transactions pursuant to exemptions from the registration requirements of theSecurities Act of 1933, as amended (the Act).  On April 11 2007, we issued a total of 99,998 shares to Barron Partners L.P. (Barron) to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.  On April 27, 2007, we issued 6.9 million shares of its common stock to Panpac Tech Strategic Limited, a wholly-owned subsidiary  20   of Lexicon Inc. to satisfy a contractual obligation to SBN relating to the Sale and Purchase Agreement (the Agreement) between the parties, dated November 21, 2005.  On May 10, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (Barron) to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.  On June 7, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (Barron) to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.  On July 3, 2007, we cancelled 7,600,000 shares of paid back by Sun Culture Foundation Limited pursuant to our agreement signed on March 21, 2007.  On July 6, 2007, we cancelled 6,000,000 shares of paid back by Sun Media Investment Holdings, our largest shareholders pursuant to our agreement signed on April 9, 2007.  On July 11, 2007, we issued a total of 99,997 shares to Barron Partners L.P. (Barron) to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.  On August 9, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (Barron") to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.  On September 24, we issued a total of 99,997 shares to Barron Partners L.P. (Barron") to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.  We believe that the above stock issuances qualify as an exemption from the registration requirements of the Securities Act pursuant to Section 4(2) of the Act and/or Regulation D promulgated thereunder since, among other things, the transaction did not involve a public offering, as the transaction involved less that 35 unaccredited investors, and each investor had access to information about us and their investment  Item 6 Management Discussion and Analysis  Overview  Our principal focus is our business-to-business brand and apparel production management business in Shanghai, China. Our goal is to develop Chinas largest online shopping community for wholesale distribution and retail shopping in the apparel and ladies fashion industry. We are working toward a smaller organizational structure centered around William Brand, our key ladies apparel subsidiary and transactional service provider. In fiscal 2008, we plan to build revenues by leveraging our core competency in apparel fashion, design, apparel production and brand management to launch our Private label brand Peeress and develop an integrated online-offline direct sales model.  As of September 30, 2007, we wrote-off several intangible assets for discontinued business. This will reduce the amortization expenses. Please refer to the Notes 4.  Results of Operations  Six Month Period Ended September 30, 2007 compared with Six Month Period Ended September 30, 2006  The following discussion reflects our results from operations for the six month fiscal period ended September 30, 2007 compared with the six month period ended September 30, 2006.  We reported total revenue of $3.5 million for the 6-month period ended September 30, 2007 with a net loss of $33.8 million, or $0.39 per share outstanding. The results include an impairment loss of $18.9 million for the intangibles relating to certain digital publishing rights and other intangible assets, and a loss of marketable securities of $12.1 million for the fiscal year ended September 30, 2007.  Revenue. The Company recognized $3.5 million in revenue for the 6-month period ended September 30, 2007 compared to $15.0 million for the 6-month period ended September 30, 2006. The large disparity in revenues is due to the different operating business during 6-month period ended September 30, 2007. The revenue in the 2007 was reported through two segments: Transactional Services and Marketing and Information Services, which represent 98.7% and 1.3% respectively, of our total continuing operations revenue in 2007.   21   Costs of Revenue. Cost of revenue for the 6-month period ended September 30, 2007 was $2.7 million. Marketing and Information Service costs were 0.3% of the total.  Transactional Services cost were 99.7% of the total, or approximately $2.6 million.  Expenses.  Excluding loss of impairment loss of $18.9 million, total expenses for the 6-month ended September 30, 2007 were approximately $15.9 million. The expenses include an amortization and depreciation of $1.3 million, and other general administrative expenses of $2.4 million.  Loss of Marketable Securities. A loss of marketable securities of $12.1 million, or $0.18 per share outstanding, is associated with the loss of CEC Unet (AIM: CECU) shares of $6.7 million, the loss of Asia Premium Television Group (OTC: ATVG) shares of $3.9 million, and the loss of Broadcasting International Inc. (OCT: BCST) shares of $1.4 million.  Other Income. Other income for the 6-month ended September 30, 2007 was mainly for the sale of the Companys subsidiary, which were Sun New Media Transaction Services Limited and its 100% owned subsidiary, and a contribution from Will Sincere Investment Holdings Ltd with shares on Asia Premium Television Group Limited (OTC:ATVG)  Net Loss. Our net loss for the six month ended September 30, 2007 was $33.8 million.  Six Month Ended September 30, 2006  Revenue Our revenue for the six months ended September 30, 2006 was $15.0 million, of which 81% were derived from our Transactional Services and the remaining 19% from our Marketing and Information Services.  During the six months ended September 30, 2006, Transactional Services revenue was positively impacted by the completed acquisition of our apparels vertical business and the first full quarter of operations of our beverage distribution business, which contributed to the revenues from Transactional Services.  Transactional Services revenue was negatively impacted during the six months ended September 30, 2006 by a decline of 90% in the beverage distribution business during the three months ended September 30, 2006 as compared to the three months ended June 30, 2006. The reduction in our beverage distribution business in the latter half of the six months ended September 30, 2006 was due to a combination of factors, including: financial difficulties suffered by our beverage distribution partner; an increase in inventory financing requirements from the distribution partners largest supplier; and, an increased reliance on large retail chain customers. Marketing and Information Services revenue was positively impacted by the inception of media marketing and services business, which accounted for the majority of the Marketing and Information Services revenues for the six months ended September 30, 2006.  Costs of Revenue  Cost of revenue for the six months ended September 30, 2006 was $2.6 million. Transactional Services costs were 82% of the total, or approximately $2.1 million.  The remaining cost for the six months ended September 30, 2006 were $0.5 million or 18% and related to direct costs, such as printing costs, editorial costs and distribution costs within our Marketing and Information Services businesses.  Transactional Services cost of revenue increased for the latter three months ended September 30, 2006 as compared to the prior three months ended June 30, 2006 with the completed acquisition of our apparels vertical business.  Operating Expenses  Total operating expenses for the six months ended September 30, 2006 were approximately $2.0 million. This was significantly decreased due to a gain of $3.8 million recognized for the repurchase of stock grant at no consideration in the six months ended September 30, 2006.  The gain relates to 1.5 million performance shares that were granted during the fiscal period ended March 31, 2006. An expense was accrued for this grant in the fiscal period ended March 31, 2006, but the shares remained unissued, until the accrued grant was repurchased in the six months ended September 30, 2006. Excluding the gain of $3.8 million, operating expenses were approximately $5.8 million for the six months ended September 30, 2006.  The total operating expenses include expenses related to general & administrative and marketing & sales of $3.5 million, depreciation and amortization of $1.3 million, consulting and professional fees of $1.0 million  Other Income Other income for the six months ended September 30, 2006 was $10.9 million comprise mainly $10.7 million arising from the sale of non-core business-to-consumer (B2C) business assets to CEC Unet (f/k/a Sun TV Shop, AIM: CECU).  Of the $10.7 million, approximately 94% is attributed to the divestments of our interests in the digital mail order catalogue publishing and merchandising that we have been recently developing with two parties.  On June 30, 2006, we entered into a Sale and Purchase Agreement with CECU to sell certain of our assets in exchange for 32.6 million shares in CECU.  These shares account for approximately 9% of CECU shares outstanding and as of July 6, 2006 were valued at approximately US$11.9 million based upon the last traded price.  Net Income Our net income for the six months ended September 30, 2006 was $18.3 million.  This included a gain of $3.8 million recognized for the repurchase of stock grant at no consideration in the six months ended September 30, 2006.  The stock-based compensation relates to 1.5 million performance shares that were granted during the fiscal period ended March 31, 2006.  An expense was accrued for this grant in the three months ended March 31, 2006, but the shares remained unissued, until the grant was cancelled in the six months ended September 30, 2006.  22    Liquidity and Capital Resources. As of September 30, 2007, we had approximately $0.5 million in cash and cash equivalents and $4.2 million in marketable securities. Among our securities are 22,633,233 shares, representing a 4.7% interest, in CEC Unet Pte. (AIM: CECU), an Irish company listed on the Alternative Investment Market in London. These shares have been placed in escrow since July 2006 pursuant to an escrow agreement by and among various parties including CEC Unet Pte. and us. According to the escrow agreement, our shares can be released subject to the orderly market arrangements in place, which state that any decision to sell these ordinary shares within 12 months of their release must be approved by Blue Oar Securities Plc, our agent. The shares are eligible for release in two tranches; 981,979 shares free and 21,651,254 on June 30, 2008 as of September 30, 2007.  As of September 30, 2007, warrants with a weighted average exercise price per share of $1.63 and an aggregate exercise price of $9.8 million remained outstanding. As a comparison, as of June 18, 2006, warrants with a weighted average exercise price per share of $3.51 and an aggregate exercise price of $40.5 million remained outstanding. Proceeds from the conversion of outstanding warrants will be used for working capital, including new acquisitions. The Companys cash needs in 2007 were primarily satisfied through the issuance of common stock and convertible notes. If we are unsuccessful in raising further new capital, our ability to seek strategic acquisitions to grow our business could be adversely affected.  Off-Balance Sheet Arrangement As of September 30, 2007, we do not have any off-balance sheet arrangements.  Capital Expenditure Commitments We had no material capital expenditures for the period ended September 30, 2007. However we expect to invest approximately $250,000 in capital expenditure over the next 12 months.  Recent Accounting Pronouncements In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115, effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. No entity is permitted to apply the Statement retrospectively to fiscal years preceding the effective date unless the entity chooses early adoption. The choice to adopt early should be made after issuance of the Statement but within 120 days of the beginning of the fiscal year of adoption, provided the entity has not yet issued financial statements, including required notes to those financial statements, for any interim period of the fiscal year of adoption. This Statement permits application to eligible items existing at the effective date (or early adoption date).The Company does not expect the adoption of FAS 159 to have a material impact on its consolidated results of operations and financial condition. In September 2006, the FASB issued FAS 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans. For an employer with publicly traded equity securities, the requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006.
For an employer without publicly traded equity securities, the requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after June 15, 2007.
The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position (paragraphs 5, 6, and 9) is effective for fiscal years ending after December 15, 2008.
Earlier application is permitted if for all of an employer's benefit plans. The Company does not expect the adoption of FAS 158 to have a material impact on its consolidated results of operations and financial condition. In September 2006, the FASB issued FAS 157, Fair Value Measurements, effective for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. Earlier application is permitted if the entity has not yet issued interim or annual financial statements for that fiscal year. The Company does not expect the adoption of FAS 157 to have a material impact on its consolidated results of operations and financial condition. In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. Effective for fiscal years beginning after December 15, 2006. Earlier application is permitted if the entity has not yet issued interim or annual financial statements for that fiscal year. The adoption of FIN 48 has not had a material impact on the Companys consolidated results of operations and financial condition.  Critical Accounting Policies and Estimates  23    Our audited financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles (GAAP) used in the United States. In preparing financial statements, management has made certain estimates and assumptions that affected the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions were made consistent with standard accounting policies and practices. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.  Basis of Consolidation and Presentation  The consolidated financial statements include the accounts of the Company, its subsidiaries and variable interest entities, or VIEs for which the Company is the primary beneficiary. All significant inter-company accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but which are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted FASB Interpretation No.46R consolidation of Variable Interest Entities, FIN 46R, an Interpretation of Accounting Research Bulletin No.51. FIN 46R requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIEs residual returns. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.  We have the following significant domestic VIEs:  ·Sun China Media (Beijing) Technology Co., Ltd., a Chinese company controlled through us by contract and is owned equally by Qiong Zhou and Jacob Di, both of whom are non-executive employees of the Company.  ·Suizhou Focus Trading Development Co., Ltd., a Chinese company controlled by us by contract and is engaged in marketing, information and technology services to beverage and electronic device distributors.  It is 60% owned by Qi Yang, one of our officers, and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively, two non-executive employees of the Company.  ·Shanghai Shengji Technology Co., Ltd, a Chinese company controlled by us by contract, and is engaged in wireless mobile services. It is 40% owned by Hui Yan, 40% owned by Min Lin and 20% owned by Kezhou Luan, each a non-executive employee of the Company.  ·Sun China Media (Beijing) International Advertising Co. Ltd, a Chinese company controlled by us by contract which is engaged in the advertising business.  It is 70% owned by Qiong Zhou, and 30% owned by Guosheng Wang, both of whom are non-executive employees of the Company.  ·Dragon List Co. Ltd, a Chinese company controlled by us by contract and is engaged in digital publishing business.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Sun Trade Media (Beijing) Co. Ltd, a Chinese company controlled by us by contract and is engaged in digital publishing business.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Sun Asia (Beijing) Investments Consultants Ltd, a Chinese company controlled by us by contract and is engaged in the provision of consultancy services.  It is 60% owned by Qiong Zhou, and 40% owned by Bryan Li, both of whom are non-executive employees of the Company.  ·NextMart Technology (Beijing) Co. Ltd, a Chinese company controlled by us by contract and is engaged in software development.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Wuhan Xinda Weiye Trade and Development Co. Ltd, a Chinese company controlled by us by contract and engaged in trading.  It is 40% owned by Jin Liu, 30% owned by Wanzhi Zhu and 30% owned by Mingde Jiang, all of whom are non-executive employees of the Company.  ·Beijing Trans Global Logistics, a Chinese company 80% by us by contract and engaged in trading.  It is 80% owned by Qiong Zhou, 10% owned by Yong Li and 10% owned by Mianchun Wang, Qiong Zhou is a non-executive employees of the Company.  ·Naixiu Exhibition (Beijing) Co. Ltd, a Chinese company that is controlled by us and owned 50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun are non-executive employees of the Company.  The capital investment in these VIEs is funded by the Company and transferred to the VIEs via contractual agreements between the  24   Company (or its non-China subsidiary) and the Chinese employees who own the VIEs. As of March 31, 2007, the total amount of capital investment that was transferred to the VIEs listed above was US$3,451,000.  Under various contractual agreements, employee shareholders of the VIEs are required to transfer their ownership in these entities to our subsidiaries in China when permitted by Chinese laws and regulations or to our designees at any time for the outstanding amount of injected capital investment, and all voting rights of the VIEs are assigned to us. We have the power to appoint all directors and senior management personnel of the VIEs.  Through our wholly-owned subsidiaries in China, we have also entered into exclusive technical agreements and other service agreements with the VIEs, under which these subsidiaries provide technical services.  Revenue recognition  We generate revenue through the provision of marketing, information, and transactional services. The Company recognizes revenues from transaction and information services in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, when all of the following conditions exist: persuasive evidence of an arrangement exists in the form of an accepted purchase order; delivery has occurred, based on shipping terms, or services have been rendered; the Companys price to the buyer is fixed or determinable, as documented on the accepted purchase order; and collectibility is reasonably assured.  The Transactional Services include primarily the apparel vertical business and electronic components business. We recognize revenue for the transactional business when the goods have been shipped or delivered and a purchase order exists. The Marketing and Information Services includes newspaper and magazine business and marketing consulting services. The Company recognizes revenue for the Marketing and Information Services when the services have been rendered.  Trade receivables and allowances for Doubtful Accounts  The Company performs ongoing credit evaluations of its customers to minimize credit risk. The allowance for doubtful accounts is based on managements estimates of the collectibility of its accounts receivable after analyzing historical bad debts, customer concentrations, customer credit worthiness, and current economic trends. Specifically, the Company reviews the aged accounts receivable listing for balances that are specifically identifiable as credit risks or uncollectible, and may use judgment for calculation of allowance for doubtful accounts.  Goodwill and intangible assets, net  Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Companys acquisitions of interests in its subsidiaries and VIEs. Under Statement of Financial Accounting Standards, FAS No.142, Goodwill and Other Intangible Assets, FAS 142, goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company assesses goodwill for impairment periodically in accordance with SFAS 142.  The Company applies the criteria specified in SFAS No.141, Business Combinations to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the contractual-legal or separability criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.  Impairment of Long-lived Assets  The Company assets the carrying value of long-lived assets in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include significant decrease in operating results, significant changes in its use of assets, competitive factors and the strategy of it business, and significant negative industry or economic trends. The company cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on the reported asset values. Such events may include strategic decisions made in response to the economic conditions relative to product lines, operations and the impact of the economic environment on our customer base.  When the Company determines that the carrying value of long-lived may not be recoverable based on as assessment of future undiscounted cash flows from the use of those assets, an impairment charge to record the assets at fair value may be recorded. Impairment is measured based on fair values utilizing estimated discounted cash flow, published thirty-party sources, and third-party offers.  25    Comprehensive Income (Loss)  The Company reports comprehensive income (loss) in accordance with FASB No. 130, Reporting Comprehensive Income (Loss). The components of comprehensive loss for the Company include currency translation adjustments and unrealized loss on marketable securities.   Foreign currency transactions  The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation, since the functional currency of the Company is Renminbi, the foreign currency financial statements of the Companys subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders equity accounts and capital asset accounts are translated by using historical exchange rates. Any re-measurement gain or loss incurred is reported in the consolidated statement of operations.  Marketable securities  The Company accounts for investments in marketable securities under Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities.  Marketable equity securities are held as available for sale and are reported at fair value any unrealized gains and losses are included in accumulated other comprehensive income or loss within stockholders equity.  The treatment of a decline in the fair value of an individual security is based on whether the decline is other-than-temporary.  Significant judgment is required to assess whether the impairment is other-than-temporary, particularly for marketable equity securities that provide limited public information.  Our judgment of whether impairment is other-than-temporary is based on an assessment of factors including our ability and intent to hold the individual security, severity of the impairment, expected duration of the impairment and forecasted recovery of fair value.  Changes in the estimates and assumptions could affect our judgment of whether an identified impairment should be recorded as an unrealized loss in the equity section of our consolidated balance sheets or as a realized loss in the consolidated statements of operations.  Stock-based compensation  Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), Share Based Payment, (SFAS No. 123(R)) which revises SFAS No. 123 and supersedes APB 25. SFAS No. 123(R) requires that all share-based payments to employees be recognized in the financial statements based on their fair values at the date of grant. The calculated fair value is recognized as expense (net of any capitalization) over the requisite service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. The statement was adopted using the modified prospective method of application which requires compensation expense to be recognized in the financial statements for all unvested stock options beginning in the quarter of adoption. There were no unvested stock options at the beginning of this reporting period therefore no compensation expense was recognized in the period. No adjustments to prior periods have been made as a result of adopting SFAS No. 123(R). As at September 30, 2005 the Company elected to account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB No. 25) and comply with the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148. During the period from September 18, 2005 to September 30, 2005, no stock-based employee compensation arrangements have been effected and accordingly no disclosure of pro forma information is required. In accordance with SFAS No. 123 the Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to consultants. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services (EITF 96-18). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.   26   Item 7. Financial Statements  Financial Statements NextMart, Inc. Consolidated Financial Statements September 30, 2007 and 2006 (Expressed In United States Dollars)      Table of Contents  >Report of Independent Registered Public Accountants29>Consolidated Balance Sheet30>Consolidated Statement of Operations31>Consolidated Statement of Changes in Stockholders Equity32>Consolidated Statement of Cash Flows34>Notes to Consolidated Financial Statements35                                    28     27     Table of Contents  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board of Directors and Stockholders of  NextMart Inc.  We have audited the accompanying consolidated balance sheet of NextMart Inc (the Company) as of September 30, 2007 and the related consolidated statement of operations, changes in stockholders equity, and cash flows for the period from April 1, 2007 to September 30, 2007. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2007 and the results of its operations and its cash flows for the period from April 1, 2007 to September 30, 2007 in conformity with accounting principles generally accepted in the United States of America.  /s/ Bernstein & Pinchuk, LLP  New York, New York January 14, 2008     28    NEXTMART INC. (f/k/a Sun New Media Inc.)CONSOLIDATED BALANCE SHEETSeptember 30, 2007NoteAuditedUS$ASSETSCurrent AssetsCash and bank balances482,762Accounts receivable, net of provision for doubtful debts $47,8043,464,400Other receivable, prepayments and deposits86,721,710Inventories46,618Marketable securities114,225,158Amounts due from stockholders9421,452Amounts due from related parties9472,2870Total current assets15,834,387Goodwill and intangible assets, net43,643,781Plant and equipment, net52,713,5890Total Assets22,191,7570LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts payable184,756Other payables and accruals102,302,035Amounts due to related parties9197,2550Total current liabilities2,684,046Minority interest1,592,077Convertible notes61,500,000Discount on convertible notes and warrants6(717,679)Commitments and Contingencies12—STOCKHOLDERS’ EQUITYCommon stock; authorized 750,000,000 shares, US$0.01 par valuePreference stock, authorized 250,000,000 shares, US$0.01 par value87,093,170 (2007: 93,193,184) shares of common stock issued and outstanding, US$0.01 par value870,93220,000 (2007: 20,000) shares of common stock reserved to be issued, US$0.01 par value200Additional paid in capital94,978,415Accumulated other comprehensive (loss) income:Foreign currency translation adjustments47,148Deficit(78,763,382)Total stockholders’ equity17,133,3130Total liabilities and stockholder’s equity22,191,757     29    NEXTMART INC. (f/k/a Sun New Media Inc.)CONSOLIDATED STATEMENTS OF OPERATIONSFor the six months ended September 30, 2007, and the six months ended September 30, 2006AuditedUnauditedNoteSix Months Ended September 30, 2007Six Months Ended September 30, 2006US$US$Revenues3,525,50614,986,660Costs of revenue2,711,0452,611,615Gross Profit814,46112,375,045Operating ExpensesGeneral and administrativeStock Based Compensation Costs—(3,810,550)Other General and administrative1,868,9623,384,211Marketing and sales94,401110,174Depreciation and amortization1,277,9011,314,138Consulting and professional fees471,0641,005,462Bad Debt Write-off1358,019Impairment loss on Marketable Securities12,092,708—Impairment loss on intangible assets18,898,130Total operating expenses34,761,1862,003,435Operating income (loss) from continuing operations(33,946,726)10,371,610Interest income (expenses)(30,716)(61,433)Amortization of discount on notes(113,832)(2,570,634)Income from disposal of non-core assets(11,903)—Other income (loss)415,04210,903,210Gain (Loss) from discontinued operations(44,315)Impairment loss on CN(62,989)Share of profits/ (losses) from affiliates300,802Income (loss) before income tax expense and minority interests(33,751,124)18,899,240Income tax expenses7—(182,869)Income (loss) after income tax expense and before minority interests(33,751,124)18,716,371Minority interests(89,091)(446,183)Net income (loss)(33,840,215)18,270,188Other comprehensive loss – Currency translation adjustment23,88417,605Comprehensive income (loss)(33,864,099)18,252,583Basic earning (loss) per share(0.39)0.18Shares used in computing basic loss per share87,113,203102,922,000Diluted net income (loss) per share(0.39)0.17Shares used in computing diluted loss per share87,113,203105,807,000   The period ended September 30, 2007 is shortened (6 months) because we changed our fiscal year end date from March 31st to September 30th in October 2007.  30


NEXTMART INC. (f/k/a Sun New Media Inc.)CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYFor the six month ended September 30, 2007Common SharesAdditionalForeignUnrealized losscurrencyIssuedReserved & to be issuedpaid intranslationon marketableNo. of sharesAmountsNo. of sharesAmountscapitalDeficitadjustmentssecuritiesTotalUS$US$US$US$US$US$US$Balance - March 31, 200793,193,184931,93120,000200104,107,979(44,923,167)(87,824)(4,510,778)55,518,341Issuance of stocks for warrants exercised599,9866,001(6,001)0Issuance of warrants detached to convertible notes0Collection of stocks from shareholders(13,600,000)(136,000)(9,367,530)(9,503,530)Contribution of agreement of related parties deal312,966312,966Issuance of specific agreement6,900,00069,000(69,000)0Net loss for the period(33,840,215)(33,864,099)Translation loss134,973134,973Unrealized loss on marketable securities4,510,7784,510,778Balance - September 30, 200787,093,170870,93220,00020094,978,414(78,763,382)47,149017,133,313


31


NEXTMART INC. (f/k/a Sun New Media Inc.)CONSOLIDATED STATEMENTS OF CASH FLOWSAuditedUnauditedFor the six months ended September 30, 2007April 1, 2007April 1, 2006and the six months ended September 30, 2006to September 30, 2007to September 30, 2006US$US$Cash flows from operating activitiesNet loss for the period(33,840,215)18,270,188Adjustments to reconcile net income (loss) to net cash used in operating activities;-Depreciation and amortization1,277,9011,314,138Impairment loss on intangible assets18,898,130—Share of profits from affiliate—(300,802)Minority interest89,091444,753Gain on disposal of non-core assets(5,473)(12,417,347)Impairment loss on discount of warrants62,989—Stock-based compensation—(3,810,550)Interest Expenses78,0002,570,634Amortization of discount on notes86,741—Impairment loss on marketable securities12,092,708—Provision for doubtful debts(58,019)—Expenses incurred on issuance of common stocks—149,987Changes in operating assets and liabilities:Accounts receivable619,961(7,439,717)Other debtor, deposits and prepayments45,253(2,346,958)Inventories—(246,446)Amounts due from related parties(5,140,652)230,458Amounts due from stockholders—(134,066)Accounts payable(270,752)41,378Other payables and accruals51,9251,745,645Amounts due to related parties—(461,181)Net cash used in operating activities(6,012,412)(2,389,886)Cash flows from investing activitiesProceeds from sale of plant and equipment523,726466,762Purchase of plant and equipment(266,042)(2,128,164)Sale of Marketable Securities3,277,754—Cash (used in)/ acquired in business combination, net—(1,849,910)Disposal of subsidiary companies, net—23,138Net cash used in investing activities3,535,438(3,488,174)Cash flows from financing activitiesIssuance of common stock—9,079,250Proceeds from convertible note—(874,931)Repayment of factoring loans—(57,337)Minority interest, net359,952—Net cash provided by financing activities359,9528,146,982Net effect of exchange rate changes on consolidating subsidiaries(100,165)(32,908)Net increase in cash and cash equivalents(2,217,188)2,236,014Cash and cash equivalents, beginning of the period2,699,9491,373,715Cash and cash equivalents, end of the period482,7623,609,729   32   NEXTMART INC. (f/k/a Sun New Media Group Limited)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  For the six months ended September 30, 2007.  NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION  We operate mainly in the ladies' apparel industry where we derive the bulk of our revenue by acting as an outsourced brand management and production center for foreign apparel brands through our Shanghai-based apparel subsidiary, William Brand Administer Co. Ltd ("William Brand"). We also possess a portfolio of media and marketing assets that we are leveraging to expand into the online brand management and e-commerce sectors for ladies' apparel products. We have supporting operations in the handheld electronics sector. The Company is divided into two principal divisions: the Transactional Services Division and the Marketing & Information Services Division. Going forward, we plan to center our business operations around William Brand. Our business development efforts will consist of growing existing revenues in the business-to-business sector and creating new revenues in the business-to-consumer sector. Our goal is to build Chinas largest shopping community for online wholesale distribution and retail shopping of women's fashion. Our activities are based predominantly in Peoples Republic of China (PRC). Our principal operating subsidiaries include the following: ·Sun New Media Group Limited;  ·William Brand Administer Limited; and  ·Beijing Trans Global Logistics.   NOTE 2 —SUMMARY OF THE COMPANY’S SIGNIFICANT ACCOUNTING POLICIES  Basis of Consolidation and Presentation  The consolidated financial statements include the accounts of the Company, its subsidiaries and variable interest entities, or VIEs for which the Company is the primary beneficiary. All significant inter-company accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but which are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted FASB Interpretation No.46R consolidation of Variable Interest Entities, FIN 46R, an Interpretation of Accounting Research Bulletin No.51. FIN 46R requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIEs residual returns. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.  We have the following significant domestic VIEs:  ·Sun China Media (Beijing) Technology Co., Ltd., a PRC company controlled through us by contract and is owned equally by Qiong Zhou and Jacob Di, both of whom are non-executive employees of the Company.  ·Suizhou Focus Trading Development Co., Ltd., a PRC company controlled by us by contract and is engaged in marketing, information and technology services to beverage and electronic device distributors.  It is 60% owned by Qi Yang, one of our officers and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively, two non-executive employees of the Company.  ·Shanghai Shengji Technology Co., Ltd, a PRC company controlled by us by contract, and is engaged in wireless mobile services. It is 40% owned by Hui Yan, 40% owned by Min Lin and 20% owned by Kezhou Luan, each a non-executive employee of the Company.  ·Sun China Media (Beijing) International Advertising Co. Ltd, a PRC company controlled by us by contract which is engaged in the advertising business.  It is 70% owned by Qiong Zhou, and 30% owned by Guosheng Wang, both of whom are non-executive employees of the Company.  ·Dragon List Co. Ltd, a PRC company controlled by us by contract and is engaged in digital publishing business.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  33    ·Sun Trade Media (Beijing) Co. Ltd, a PRC company controlled by us by contract and is engaged in digital publishing business.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Sun Asia (Beijing) Investments Consultants Ltd, a PRC company controlled by us by contract and is engaged in the provision of consultancy services.  It is 60% owned by Qiong Zhou, and 40% owned by Bryan Li, both of whom are non-executive employees of the Company.  ·NextMart Technology (Beijing) Co. Ltd, a PRC company controlled by us by contract and is engaged in software development.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.  ·Wuhan Xinda Weiye Trade and Development Co. Ltd, a PRC company controlled by us by contract and engaged in trading.  It is 40% owned by Jin Liu, 30% owned by Wanzhi Zhu and 30% owned by Mingde Jiang, all of whom are non-executive employees of the Company.  ·Beijing Trans Global Logistics, a PRC company 80% by us by contract and engaged in trading.  It is 80% owned by Qiong Zhou, 10% owned by Yong Li and 10% owned by Mianchun Wang, Qiong Zhou is a non-executive employees of the Company.  ·Naixiu Exhibition (Beijing) Co. Ltd, a PRC company that is controlled by us and owned 50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun are non-executive employees of the Company.  The capital investment in these VIEs is funded by the Company and transferred to the VIEs via contractual agreements between the Company (or its non-PRC subsidiary) and the PRC employees who own the VIEs. As of March 31, 2007, the total amount of capital investment that was transferred to the VIEs listed above was US$3,451,000.  Under various contractual agreements, employee shareholders of the VIEs are required to transfer their ownership in these entities to our subsidiaries in China when permitted by PRC laws and regulations or to our designees at any time for the outstanding amount of injected capital investment, and all voting rights of the VIEs are assigned to us. We have the power to appoint all directors and senior management personnel of the VIEs.  Through our wholly-owned subsidiaries in China, we have also entered into exclusive technical agreements and other service agreements with the VIEs, under which these subsidiaries provide technical services.  Use of estimates  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses for the periods that the financial statements are prepared. Actual amounts could differ from these estimates.  Financial instruments  The Companys financial instruments include cash and cash equivalents, accounts receivable, accounts payable, marketable securities, other payables, and factoring in loans. The fair values of these financial instruments approximate their carrying values due to the short-term maturity of the instruments.  Business combinations  We are creating this business through the ongoing acquisition of various entities and assets.The Company accounts for its business combinations using the purchase method of accounting in line with FASB141. This method requires that the acquisition cost be allocated to the assets and liabilities the Company acquired based on their fair value. Pursuant to FAB-141, the Company recognizes intangible assets separate from goodwill if they meet one of two criteriathe contractual-legal criterion or the separability criterion. The Company makes estimates and judgments in determining the fair value of the acquired assets and liabilities, based on independent appraisal reports for material purchases as well as its experience with similar assets and liabilities in similar industries. If different judgments or assumptions were used, the amounts assigned to the individual acquired assets or liabilities could be materially different. When considering whether an acquired assets group constitutes a business, the Company used the criteria defined by EITF 98-3 determining Whether a Non-monetary Transaction Involves Receipt of Productive Assets or of a Business.  Goodwill and intangible assets, net  Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Companys acquisitions of interests in its subsidiaries and VIEs. Under Statement of Financial Accounting Standards, FAS No.142, Goodwill and Other Intangible Assets, FAS 142, goodwill is no longer amortized, but tested for impairment upon first  34   adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company assesses goodwill for impairment periodically in accordance with SFAS 142.  The Company applies the criteria specified in SFAS No.141, Business Combinations to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the contractual-legal or separability criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.  Impairment of Long-lived Assets  The Company assets the carrying value of long-lived assets in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include a significant decrease in operating results, a significant changee in its use of assets, competitive factors, strategy of its business, and significant negative industry or economic trends. The company cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on the reported asset values. Such events may include strategic decisions made in response to the economic conditions relative to product lines, operations and the impact of the economic environment on our customer base.  When the Company determines that the carrying value of long-lived assets may not be recoverable based on as assessment of future cash flows from the use of those assets, an impairment charge to record the assets at fair value may be recorded. Impairment is measured based on fair values utilizing estimated discounted cash flow, published thirty-party sources, and third-party offers.  Comprehensive Income (Loss)  The Company reports comprehensive income (loss) in accordance with FASB No. 130, Reporting Comprehensive Income (Loss). The comprehensive loss for the Company includes currency translation adjustments and unrealized loss on marketable securities.  Inventories  Inventories are stated at the lower of cost (first-in, first out method) or market.  Certain inventory goods purchased are subject to spoilage within a short period of time while in possession of the Company.  Inventory costs do not exceed net realizable value.  Plant and equipment  Plant and equipment are stated at cost, net of depreciation.  Depreciation is computed primarily on the straight-line method for financial reporting purposes over the following estimated useful lives:  YearsFurniture, fixtures and equipment3  10Motor vehicles5  10Leasehold buildings and improvements5  40  Revenue recognition  We generate revenue through the provision of marketing & information services, and transactional services. The Company recognizes revenues from transaction and marketing & information services in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, when all of the following conditions exist: persuasive evidence of an arrangement exists in the form of an accepted purchase order; delivery has occurred, based on shipping terms, or services have been rendered; the Companys price to the buyer is fixed or determinable, as documented on the accepted purchase order; and collectibility is reasonably assured.  The Transactional Services business primarily includes activity from the apparel vertical and electronics components business. We recognize revenue for the transactional business when the goods have been shipped or delivered and purchase order exists. The Marketing and Information Services includes the newspaper and magazine business and marketing consulting services. The Company recognizes revenue for the Marketing and Information Services when the services have been rendered.  Cost of revenues  35    Cost of revenues includes the cost of product, salary and other related costs for our management services and technical support staff, as well as third-party contractor expenses.  Additionally cost of revenues includes fees for hosting facilities, bandwidth costs, and equipment and related depreciation costs. Cost of revenues will vary significantly from period to period depending on whether we will take title of the product and the level of management services provided.  Trade receivables and allowances for Doubtful Accounts  The Company performs ongoing credit evaluations of its customers to minimize credit risk. The allowance for doubtful accounts is based on managements estimates of the collectability of its accounts receivable after analyzing historical bad debts, customer concentrations, customer credit worthiness, and current economic trends. Specifically, the Company reviews the aged accounts receivables listing for balances that are specifically identifiable as credit risks or uncollectible, and may use its judgment for calculation of allowances for doubtful accounts.  Sales to Nature's Club International Co. Ltd. were 78% of net sales for the year ended September 30, 2007.  Significant sales to a single customer expose the Company to a concentration of credit risk.  Earnings (loss) per share  Basic earnings (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the year. As the Company has a loss, presenting diluted net earnings (loss) per share is considered anti-dilutive and not included in the statement of operations (diluted shares outstanding were $87,113,203 as of September 30, 2007 and $105,807,000 as of September 30, 2006).  Foreign currency transactions  The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Companys subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are re-measured using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders equity accounts and capital asset accounts are translated by using historical exchange rates. Any re-measurement gain or loss incurred is reported in the consolidated statement of operations. In 2007, we used 7.7257 RMB per U.S. USD for the weighted average rate, and we used 7.5176 RMB per USD as the balance sheet date rate.  Income taxes  The Company follows the liability method of accounting for income taxes in accordance with SFAS No. 109. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. The tax loss arising from PRC can be carried forward for five years. Agreed tax losses by respective local tax authorities can be offset against future taxable profits of the respective companies. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain.   Stock-based compensation  Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share Based Payment, (SFASNo.123(R)) which revises SFAS No. 123 and supersedes APB 25. SFAS No. 123(R) requires that all share-based payments to employees be recognized in the financial statements based on their fair values at the date of grant. The calculated fair value is recognized as expense (net of any capitalization) over the requisite service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. The statement was adopted using the modified prospective method of application which requires compensation expenses to be recognized in the financial statements for all unvested stock options beginning in the quarter of adoption. There were no unvested stock options at the beginning of this reporting period therefore no compensation expense was recognized in the period. No adjustments to prior periods have been made as a result of adopting SFAS No. 123(R).  As at September 30, 2005 the Company elected to account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB No. 25) and comply with the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148.  During the period from September 18, 2005  36   to September 30, 2005, no stock-based employee compensation arrangements have been effected and accordingly no disclosure of pro forma information is required. In accordance with SFAS No. 123 the Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to consultants.  The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services (EITF 96-18). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.  Related Parties  Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions.  Parties are also considered to be related if they are subject to common control or common significant influence.  Deferred Expenses  Payments made for future expenses were amortized over the life of service received.  Convertible Notes and Notes Issued with Stock Warrants  The Company accounts for convertible notes and notes issued with stock warrants in accordance with APB No. 14, Accountingfor Convertible Debt and Debt Issued with Stock Purchase Warrants. The proceeds from the issuance of convertible notes are allocated between the debt and the equity. The Company books a discount on convertible notes for the conversion feature of the notes and warrants and amortizes the discount over the life of the debt.  Segment Information  The Company accounts for segment information in accordance to FASB 131,Disclosures about Segments of an Enterprise and Related Information.Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Companys operations segments include Transactional Services and Marketing Services.  The Transactional Services business primarily includes activity from the apparel vertical and electronics components business. We recognize revenue for the transactional business when the goods have been shipped or delivered and purchase order exists. The Marketing and Information Services includes the newspaper and magazine business and marketing consulting services. The Company recognizes revenue for the Marketing and Information Services when the services have been rendered.  NOTE 3  BUSINESS ACQUISITIONS  Pursuant to FAS 141, paragraph 6, exchange transactions in which the consideration given is cash are measured by the amount of cash paid. However, if the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement is based on the fair value of the consideration given or the fair value of the asset (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.  The current businesses of the Company were acquired when we had a very short history of operating and stock performance.  At the time of completion of the following acquisitions, the Companys common stock was traded on the Over-the-Counter Bulletin Board (OTCBB) with a high volatility in both volume and price. Therefore management decided to use the discounted fair market value of the shares issued to measure our consideration when consideration was not in the form of cash.    NOTE 4 — GOODWILL AND INTANGIBLE ASSETS, NET The following table summarizes goodwill from the Company’s acquisitions: AuditedSeptember 30, 2007  37    Beijing CEAC180,763Accumulated amortization(45,191)Impairment loss(67,786)67,786  The following table summarizes intangible assets: AuditedSeptember 30, 2007Magazines mastheads2,562,308License24,452,368Non-compete agreements and customer relationship2,904,709Database2,499,999Program rights1,912,080Technology2,366,703Partnership agreement license1,056,12237,754,289Less:Accumulated amortization(1,974,268)Sold(3,788,873)Impairment loss(28,402,828)Translation difference(12,325)3,575,995  The above intangible assets have original estimated useful lives as follow and are amortized accordingly: Service agreements30 yearsNon-compete agreements and customer relationship3 yearsPartnership agreements and license3 yearsTechnology2 to 10 years Magazines mastheads, license and program rights have perpetual useful lives and thus are not amortized.  The approximately $2.6 million worth of magazine trademarks and intellectual property of various magazine titles indicated in the table above resulted from the acquisition of Lifestyle Magazines Publishing Ltd. We hired an independent valuation firm to measure value of the trademarks. The discounted cash flow method was adopted in the valuation. Since those trademarks have a perpetual life, they were not amortized.  In April 2007, we sold Lifestyle Magazines Publishing Ltd. and other non-core assets to Sun Media Investment Holdings Ltd., which is our significant shareholder, for a total consideration of $4.15 million.  The approximately $24.5 million in licenses indicated in the table above refers to a group on-line magazine publishing rights acquired from The Lexicon Group Ltd. (TLG) (formerly Sun Business Network Ltd.). We hired an independent valuation firm to measure the value of the naming rights for the acquisition and the discounted cash flow method was adopted in the valuation. Since those licenses have perpetual life, they are not amortized. In March 2007, $8.8 million of the licenses was impaired based on an impairment test conducted by an independent valuation firm. In September 2007, $14.1 million of the licenses was impaired based on the change of our business model.  Credit Network 114 could potentially give users of NextMart websites easy access to credit information, which is critically important in business to business transactions, but the value of this acquisition goes beyond supplying credit information to our users. By making this searchable database available to users of our vertical industry websites, we are building an invaluable service that will bring more users to our websites.  The approximately $2.9 million of non-compete agreements and customer relationship assets indicated on the above table refer to the acquisition of William Brand Administer Limited on September 30, 2006.  We hired an independent valuation firm to measure the companys assets. In addition to the discounted cash flow method, several other valuation approaches were adopted in the valuation, including the income approach, market approach, and cost approach. In September 2007, $0.8 million was impaired based on an impairment conducted test by an independent valuation firm.  The approximately $2.4 million of technology assets indicated on the above table refers to copyright and intellectual property from the acquisition of Magzone Asia on March 10, 2006.  We hired an independent valuation firm to assess the value of technology. The  38   discounted cash flow method was adopted in the valuation. In September 2007, we wrote-off the assets based on the change of our business model.  The approximately $1.9 million of program rights indicated on the above table was acquired from SMIH on September 3, 2006. It was valued at its carry-on net book value at the time of acquisition. In September 2007, the value million of the rights was impaired based on the change of our business model.  The approximately $1.1 million of partnership agreement license on the above table refer to the acquisition of Beijing Trans Global Logistics on November 1, 2006. We hired an independent valuation firm to measure the companys assets. In addition to the discounted cash flow method, several other valuation approaches were adopted in the valuation, including the income approach, market approach, and cost approach. In September 2007, $0.4 million was impaired based on an impairment conducted test by an independent valuation firm.  NOTE 5 — PLANT AND EQUIPMENT, NET  Plant and equipment is summarized as follows:  AuditedSeptember 30 2007Cost0Motor vehicles672,976Leasehold building and improvement352,758Furniture, fixtures and equipments8,605Buildings1,619,368Conputer Software521,8153,175,522Accumulated depreciation(461,933)2,713,589  The buildings include a book value of $1.4 million house located in Shanghai, China. The depreciation expenses were $410,275 and $440,863, for period ended September 30, 2007 and September 30, 2006 respectively.  NOTE 6  Convertible Notes, Warrants and Stock Options  Convertible Notes with Detachable Warrants  On March 22, 2007, we executed a subscription agreement with certain accredited investors pursuant to which we agreed to issue a principal amount worth $1,500,000 in senior convertible promissory notes and warrants to purchase shares of our common stock. The financing was closed on March 29, 2007.  The aggregate gross proceeds from the sale of the notes and warrants were $1,500,000.  The convertible notes are due three years from the date of issuance. We prepaid all interest due under the convertible notes through the issuance of 1.5 million shares of our common stock (the Interest Shares).  The notes are initially convertible into our common shares at a conversion price of $1.00 per share.  After the occurrence of an event of default under the notes, the conversion price shall be adjusted to eighty percent (80%) of the volume weighted average price of our common shares for the five trading days prior to a conversion date.  Commencing on the fifteenth month of the issuance, we must make a payment of one-twenty first (1/21) of the principal amountof each note, either in cash or by conversion of such amount into our common shares.  If, on the payment date, the market price for our common shares is equal to or greater than $1.00 per share, we may make this payment in our common shares at the then existing conversion rate.  However, if, on the payment date, either (i) the market price for our common shares are less than $1.00 per share or (ii) the Registration Statement covering the common stock underlying the notes and warrants is not effective, then our must make this payment in cash in an amount equal to 135% of the Principal Amount component of the Monthly Amount. Subject to certain terms and conditions set forth therein, the notes are redeemable by us at a rate of 120% to 150% of the outstanding principal amount of the notes plus interest.  The notes are being issued with Class A warrants to purchase up to 1,500,000 shares of our common stock at an exercise price of $1.00 per share and Class B warrants to purchase up to 1,500,000 shares of our common stock at an exercise price of $1.50 per  39   share.  Upon exercise of any Class A or Class B warrant, the respective warrant holder will receive a Class C warrant to purchase that number of shares for which such Class A warrant or Class B warrant is exercised at an exercise price of $2.00 per share.  Accordingly, if the Class A and Class B warrants are exercised in full, we will issue Class C warrants to purchase 3,000,000 shares of our common stock.  In accordance with the guidelines set forth in APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, ,EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios and EITF Issue No. 00-27, Application of issue No. 98-5 to Certain Convertible Instruments, the Company has determined that the above rights were issued with beneficial conversion feature. The value of the rights was calculated at the date of issue using the Black-Scholes pricing model, limited by the face amount of the note, and was booked as a discount to the convertible note.  Upon conversion of all or a portion of the note, the proportional share of unamortized discount will be charged an interest expense.  On February 1, 2007, we and Barron Partners LLP (Barron) entered into a supplementary agreement (the Supplementary Agreement) to modify the terms of their original stock purchase agreement (the Agreement) dated December 31, 2005.  As of the date immediately prior to the Supplementary Agreement, Barron possessed the following series of warrants to purchase our stock (the Warrants):  -Warrant A for 1,500,000 common shares at $2.04 exercise price  -Warrant B for 1,500,000 common shares at $2.80 exercise price  -Warrant C for 4,000,000 common shares at $3.60 exercise price  -Warrant D for 3,445,977 common shares at $4.80 exercise price  -Warrant E for 1,100,000 common shares at $2.10 exercise price  Following the Supplementary Agreement, only 3 million of the original 11,545,977 million unexercised warrants remain, and Barron has agreed to limit selling of the shares underlying the warrants to 10% per month for the first 10 months following the date of the agreement.  Specifically, the Company and Barron made the following amendments to the Warrants held by Barron:  1.Exercise Price. The exercise price per share for 1,100,000 E Warrants and 900,000 D Warrants was reduced to $0.80. (collectively, $0.80 Warrants).  2.Exercise Price. The exercise price per share for 1,000,000 D Warrants was reduced to $0.00001. ($0.00001 Warrants).  3.Exercise of Warrants.  a)Barron can exercise up to 10% of the $0.80 Warrants in each 30 day period for the first 10 months following the date of this amendment, provided that the market price of the common stock is below $1.25 for the 30 days period proceeding the exercise date. After ten months from the date of this agreement OR if the market stock price is above $1.25 Barron can exercise the $0.80 Warrants without limitation.  b)Barron can exercise up to 10% of the $0.00001 Warrants in each 30 day period for the first 10 months following the date of this amendment. These amounts shall be cumulative.  For example if Barron does not exercise any $0.00001 Warrants in the first 30 day period, Barron may exercise up to 200,000 $0.00001 Warrants in the second thirty day period.  4.Call provisions. Call provisions have been cancelled on all warrants.  5.Termination. All remaining warrants except for the warrants addressed above in Sections 1 and 2 have been terminated.  During the fiscal year ended September 30, 2007, warrants for 599,986 shares were exercised and we received net proceeds of $8.7 million.   Stock-based compensation  The Companys stock option program is a long-term retention program that is intended to attract, retain and incentivize talented employees, and to align stockholder and employee interests.  The Company currently grants options pursuant to the 1) 2001 Stock  40   Option Plan, 2) 2004 Stock Option Plan, and 3) 2006 Stock Option Plan.  2001 Stock Option Plan  Effective October 10, 2001, the Company awarded a total of 2,150,000 non-qualified options at a price of $1.14 pre stock split ($0.57 post stock split) under the 2001 Plan to certain employees, officers, directors and consultants of the Company and selected subsidiaries. Of these options, 940,000 were deemed to be a modification of options granted under the original Plan and as such are subject to variable accounting in accordance with the provisions of the Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation  An Interpretation of APB Opinion No. 25 (FIN 44). As of March 31, 2007, there were no stock options that were subject to variable accounting.  2004 Stock Option Plan  Effective January 22, 2004, the Company adopted the 2004 Stock Option Plan (the 2004 Plan) allowing for the awarding of options to acquire shares of common stock.  2006 Stock Option Plan  In April 2006, the 2006 Stock Option Plan (the 2006 Plan) was approved by the Companys Board of Directors.  The purpose of the 2006 Plan is to reward employees, officers and directors and consultants and advisors to the Company who are expected to contribute to the growth and success of the Company. The 2006 Plan provides for the award of options to purchase shares of the Companys common stock.  Stock options granted under the 2006 Plan may be either incentive stock options or nonqualified stock options.  During the three months ended September 30, 2006, the Company granted 283,230 options to directors and 1,200,000 to the Companys Chief Financial Officer.  No stock awards were granted during the three months ended September 30, 2006.  During the three months ended December 31, 2006, the Company repurchased 226,584 options from directors at zero consideration, and a corresponding gain of $537,000 was recognized by the Company to offset the original expense. No stock awards were granted during the three months ended December 31, 2006.  During the three months ended March 31, 2007, the Company cancelled 1,200,000 options from the Companys former Chief Financial Officer, and a corresponding gain of $768,000 was recognized by the Company to offset the original expense. No stock awards were granted during the three months ended March 31, 2007.   Stock Compensation  Effective January 1, 2006, the Company adopted SFAS 123R. See Note 2 for a description of the Companys adoption of SFAS 123R. The fair value of stock-based compensation awards was determined using the Black-Scholes option pricing model, which is consistent with the valuation techniques previously utilized for options in footnote disclosures required under SFAS 123, as amended by FASB Statement No.148, Accounting for Stock-Based CompensationTransition and Disclosure.  The determination of the fair value of stock-based compensation awards on the date of the grant using an option-pricing model is affected by the Companys stock price as well as assumptions regarding a number of complex and subjective variables, including the expected volatility of the Companys stock price over the term of the awards, actual and projected employee stock option exercise behaviors, our risk-free interest rate and expected dividends.  The assumptions used to value stock-based compensation awards for the six months ended September 30, 2007 are as follows:  For the 6 months ended September 30, 2007US$000Expected term (in years)4.5-4.9Expected volatility69.7%-70%Risk-free interest rate4.85%-4.77%Expected dividend yield0   The expected term represents the average of the expiration period and the vesting term.  Expected volatility is based on the weekly closing prices of the Companys stock after the reverse takeover on September 18, 2005.  The risk-free rate is based on US Treasury zero-coupon issues with remaining terms similar to the expected term on the stock-based awards.  The Company does not anticipate  41   paying any cash dividends in the foreseeable future.  Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from estimates.  The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest.  Stock based compensation recognized on the Companys Condensed Consolidated Statement of Operations for the Fiscal year ended September 30, 2007 is $3,194,450. This includes $2,460,000 for the 1,200,000 options granted to the Companys former Chief Financial Officer in September 2006, although, the 1,200,000 options were cancelled in February 2007 and a gain of $768,000 was booked.  The following table sets forth the summary of option activity under the Companys stock option programs as of for the Fiscal year ended September 30, 2007:   Options
OutstandingWeighted
Average
Exercise PriceWeighted Average
Remaining
Contractual LifeUS$YearsBalance, September 18, 2005977,0000.382Revere stock split adjustment(488,500)0.382Balance, September 30, 2005488,500)0.765Exercise of stock options(43,000)March 31, 2006445,5000.741Exercise(339,000)0.74Granted1,483,2303.20Cancelled(1,426,584)3.18March 31, 2007163,1461.896.53September 30, 2007163,1461.896.53Vested options as of September 30, 2007163,1461.896.53   2006 Stock Award  On September 18, 2006, the board awarded 20,000 shares of common stock to the Companys Chief Financial Officer.  The Company recorded $63,200 as stock-based compensation in the statement of operations.  On March 31, 2006, the board awarded 1,044,600 shares of common stock to various employees. The Company recorded $3,879,099 as stock-based employee compensation in the statement of operations.  For the financial period ended March 31, 2006, the Company also recorded an expense of $5,775,000 relating to the award of 1,500,000 shares of common stock to senior management as stock based compensation in the statement of operations.  The stock grant was subsequently cancelled by the Board during the three months ended September 2006 and a corresponding gain of $5,775,000 was recognized by the Company to offset the original expense.   NOTE 7 INCOME TAXES  The Company is incorporated in the state of Delaware, United States and has operations in the PRC. The Company has incurred net accumulated operating losses and current operating losses for income tax purposes. The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses at these locations as of September 30, 2007, March 31, 2007, and March 31, 2006.  The components of income before income taxes are as follows:  Audited30-Sep-07US$  42    Loss in non-China operations(33,118,640)Loss in China operations(745,459)Loss before taxes(33,864,099)Income taxes subject to China operations—Effective tax rate for China operations33%   Pursuant to the PRC Income Tax Laws, the Company’s subsidiaries and VIEs are generally subject to Enterprise Income Taxes, EIT, at a statutory rate of 33%, which is made up of 30% national income tax and 3% local income tax. Some of these subsidiaries and VIEs qualify as new technology enterprises which, under the PRC income tax laws, are subject to a preferential tax rate of 15%. In addition, some of the Companys subsidiaries are Foreign Investment Enterprises.  Under PRC Income Tax Laws, they are entitled to either a three-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing the first operating year, or a two-year tax exemption followed by three years with a 50% reduction in the tax rate, commencing the first profitable year. The VIEs are wholly owned by the Companys employees and controlled by the Company through various contractual agreements. To the extent that these VIEs have undistributed after-tax net income, the Company must pay taxes on behalf of its employees when dividends are distributed from these local entities in the future. The dividend tax rate is 20%. Despite the Companys net losses, timing difficulties resulted in the Company having no in taxes in as of September 30, 2007.     NOTE 8  OTHER RECEIVABLES, PREPAYMENTS AND DEPOSITS  Other receivables, prepayments and deposits are summarized as follow:  AuditedSeptember 30 2007Other receivables1,258,705Staff advances40,201Prepaid Advances for Purchase227,049Prepaid Interest expense702,000Prepaid Acquire amount1,697,730Deferred expenses-Rental deposits1,345Prepaid administrative expenses2,794,6806,721,710  On April 9, 2007, we entered in an assets sale agreement with Sun Media Investment Holdings Limited, one of our significant shareholders, to sell certain of our non-core assets for considerations valued at $4.15 million. The consideration included a $500,000 promissory note issued by Validian Corp, a company listed in the OTC-BB. As of September 30, 2007, we had not collected the amount due under the promissory note.  On August 7, 2007, we sold 99,629 shares of ATVG at a price per share of $5.00 and received $498,145 in gross proceeds.  The amount of prepaid advance for purchase was hold by CEAC client.  Prepaid interest refers to the 1.5 million shares of our common stock which we issued as prepaid as interest in connection with the sale of our senior convertible promissory notes to certain accredited investors on March 22, 2007. The prepaid interest expense is to be amortized over the term of the respective notes.  On August 6, 2007, we entered into an agreement with Mr. Jiancai Zhou to acquire all of the issued and outstanding capital stock of Peeress Design and Management Center, Ltd, a British Virgin Island company (Peeress) based in Mainland China. Peeress is a womens clothing brand that has over 3,000 patented clothing designs accumulated over a 12-year period. The consideration for the acquisition is $2.17 million of which $1 million is to be paid in cash and $1.17 million is to be paid with 5 million shares of CEC Unet (AIM: CECU) held by us. We will satisfy $500,000 of the cash consideration and Sun Media Investment Holdings (SMIH), our largest shareholder, will satisfy the other $500,000 of the consideration on our behalf. As of the filing of this Report, this transaction has not been completed.   43   On August 7, 2007, we entered into a consulting agreement (the agreement) with Professional Offshore Opportunity Fund, Ltd. (POOF), a New York based investment fund, to retain POOFs advisory services for locating potential complementary opportunities for acquisition by the Company. The term of the agreement terminates on August 7, 2017. The consideration for the consulting agreement is a one time payment of 10,000,000 shares of CEC Unet (AIM: CECU)  common stock (the Shares) presently held by us. The Shares are not in any way be subject to rescission, repurchase, redemption, or cancellation in the event this Agreement is terminated for any reason. The total amount of the agreement was $3,700,000. The prepaid expense is to be amortized over the period of the consultant agreement. As of the date of this report, we have not completed the transaction.  On December 30, 2007, we entered an agreement with Ren Huiliang and Zhou Jiancai for an amendment of the agreement signed on September 28, 2007. The main change is that Ren Huiliang will pay the consideration of the acquisition to Zhou Jiancai as of $1.8 million in cash from the prepayment amount for purchasing inventory. By the file time of this 10-KSB, we have not file an 8-K to disclose this amendment of the agreement. We will file an amendment before January 30, 2007  NOTE 9  AMOUNTS DUE FROM STOCKHOLDERS AMOUNT DUE TO/FROM RELATED PARTIES  The amounts are non-trade, interest free and with no fixed terms of repayment. Please refer to note 14 for related parties transactions during the period.  NOTE 10 — OTHER PAYABLES AND ACCRUALS  Other payables and accruals are summarized as follows:  AuditedSeptember 30 2007Other payables1,223,568Accrued operating expenses917,187Prepayment from customers161,2802,302,035  Other payables mainly include $1.5 million for professional fee, rental fee for our New York office, other deposit, and other office expenses. Included in accrued operating expenses are business tax, VAT, and $0.5 million of committed investment in a subsidiary of the Company.  NOTE 11  MARKETABLE SECURITIES  As of September 30, 2007, the Company owns marketable securities of $4,225,158 (September 30, 2006: $8,140,377). The Company has no accumulated unrealized loss as of September 30, 2007 (March 31, 2007: $4,510,778, March 31, 2006: null).  In the six months ended September 30, 2007, the Company entered into a sale and purchase agreement with Sun Media Investment Holdings Limited, our significant shareholder, to sale certain assets. Part of the consideration was 1 million shares of Validian Co. (OTC: VLDI). As of September 30, 2007, we have finished the transaction of the shares.  In the six months ended September 30, 2007, the Company sold 99,629 shares in Asia Premium Television Group Limited (OTC: ATVG) to Her Shop Limited.  a subsidiary company owned by the wife of the Companys Chairman .The consideration for the purchase was $498,145. As of September 30, 2007, we had not received this amount.  In the six months ended September 30, 2007, the Company transferred 1 million shares in CEC Unet Pte. to Professional Offshore Opportunity Fund Ltd for a consulting agreement signed in August 2007.  In the six months ended September 30, 2007, the Company sold 1 million shares in Broadcasting International Inc. (Oct: BCST) to Her Shop Limited for $166,667.  In the six months ended September 30, 2007, the Company entered into an agreement with Will Sincere Investment Holdings Limited to sale intangible asset. The consideration was $133,021. We received 20,000 shares in ATVG and realized $32,132 bad debt.  44    In the six months ended September 30, 2007, the Company entered into a contribution agreement with Will Sincere Investment Holdings Limited to receive 84,375 shares in ATVG.  As of September 30, 2007, we hold 1 million shares in Validian Corp (OTC: VLDI), 104,375 shares in Asia Premium Television Group (OTC: ATVG), and 22,633,233 shares in CEC Unet Pte. (AIM: CECU). For the cost of the shares for CECU was $0.37, and as of September 30, 2007, the price went down to $0.16, we realized a loss with the amount of $4,615,007 of the CECU shares due to the price fluctuation of such shares.   NOTE 12  COMMITMENTS AND CONTINGENCIES  Commitments  The Company leases office premises for its operations in the PRC (Beijing, Shanghai, Hong Kong) and the United States under operating leases. Rental expenses under operating lease for six months period ended September 30, 2007 was US$182,974.  Future minimum rental payments under non-cancelable operating leases are approximately as follows:   As ofMarch 31, 200720072008182,974182,974  NOTE 13 STOCKHOLDERS EQUITY  On May 2, 2007, we completed our reincorporation in Delaware. In conjunction with the reincorporation, we modified our Articles of Incorporation in regard to the total number of authorized shares. Pursuant to our revised Articles of Incorporation, the total number of shares of all classes which we shall have authority to issue is One Billion (1,000,000,000) consisting of Seven Hundred Fifty Million (750,000,000) shares of Common Stock, par value $0.01 per share and Two Hundred Fifty Million (250,000,000) shares of Preferred Stock, par value $0.01 per share.   NOTE 14  RELATED PARTIES TRANSACTIONS  We have the following transactions with related parties during the six months ended September 30, 2007.  On April 9, 2007, we entered into agreement with Sun Media Investment Holdings (SMIH), one of our significant shareholders, to sell certain non-core assets in exchange for a total consideration of USD 4.15 million. The assets that we sold were two real estate properties in Beijing; a 30% investment stake in Global Woman Multimedia Co. Ltd; and 100% of the share capital of Lifestyle Magazines Publishing Co. Ltd.  The Company has obtained independent valuations by third parties to determine the fair market value of the assets. All of the assets are either not profitable or marginally profitable. According to the terms of the agreement, SMIH satisfied $4.15 million by issuing to us 1 million shares of Validian Corp. (OTC:VLDI)(Validian), priced at $0.06 per share, a U.S. promissory note originally issued to SMIH by Validian in the principal amount of USD 500,000; and 6 million shares of the Registrants own common stock held by SMIH.  On April 27, 2007, we issued 6.9 million shares of its common stock to Panpac Tech Strategic Limited, a wholly-owned subsidiary of Sun Business Network (SBN) , our largest shareholder. The shares were issued to satisfy a contractual obligation to SBN relating to the Sale and Purchase Agreement (the Agreement) between the parties, dated November 21, 2005. In the original Sale and Purchase Agreement, we purchased certain assets, including various on-line publishing rights, from SBN for an aggregate consideration of 13.8 million Company shares. The consideration was to be satisfied in two installments of 6.9 million shares. The first installment of 6.9 million shares was issued upon the completion of the deal. The second installment of 6.9 million shares remained subject to a profit guarantee for the acquired business of PAT $2,415,000 by December 2006.  NOTE 15  OPERATING RISKS  45    Credit risk  The accounts receivable and cash and bank balances represent the Companys maximum exposure to credit risk. No other financial assets carry a significant exposure to credit risk. The Company has written off $3.1 million of bad debt primarily driven by the discontinuation of the beverage operations and a prudent provision for marketing service revenue. Except for the above mentioned, the Company has no significant concentration of credit risk. Cash is placed with reputable financial institutions.  NOTE 16  REPORT OF SEGMENT INFORMATION  We determine our business segments based upon our management and internal reporting structure. Our reportable segments are out Transactional Services segment and our Information Services segment. We restated our segment information for the six months from April 1, 2007 to September 30, 2007, the twelve months from April 1, 2006 to March 31, 2007, and six months from October 1, 2005 to March 31, 2006 by removing the discontinued online brokerage business.  Information regarding our business segments is as follows:  Six Months fromSix Months fromApril 1, 2007April 1, 2006to September 30,to September 30,20072006‘000 US$‘000 US$RevenueTransactional Service3,48312,098Marketing and Information Service242,888Cost of RevenueTransactional Service2,7042,145Marketing  and Information Service7467Gross profitTransactional Service7799,953Marketing and Information Service162,421Depreciation and amortizationTransactional Service720242Marketing and Information Service5581,072  We currently do not allocate assets and operating expenses other than depreciation and amortization to business segments. This chart does not include results from discontinued operations.  NOTE 17  SUBSEQUENT EVENTS         On October 10, 2007 our Board of Directors approved a change in our Financial Year end from March 31 to September 30.  On September 28, 2007, we entered into a supplementary agreement (the Supplementary Agreement) with Mr. Ren Huiliang, our current CEO, to revise the terms and conditions of the Sales and Purchase Agreement (the Sales and Purchase Agreement) by which we purchased 100% of William Brand Administer Co., Ltd from Mr. Ren. Specifically, the Supplementary Agreement modifies the payment schedule by which we will compensate Mr. Ren for William Brands attainment of certain revenue and profit guarantees.  According to the original Sales and Purchase Agreement, we purchased William Brand Administer Co. Ltd from Mr. Ren for an  46   aggregate consideration of $18,620,688 USD to be satisfied through the issuance of 4,655,172 shares of our common stock (the Consideration Shares). For purposes of the transaction, each share was valued at $4.00 USD. The Consideration Shares were to be issued in four equal installments. The first installment was issued to Mr. Ren upon the closing of the acquisition on September 30, 2006; and the remaining three installments of 1,163,793 (totaling 3,491,379) of our shares were to be issued to Mr. Ren subject to attaining certain revenue and profit requirements from the operations of William Brand in the three fiscal years following the completion of the acquisition. These revenue and profit guarantees as stated in the original Sales and Purchase Agreement are as follows: Year 1; $15 million (revenues)/$3 million (profit), Year 2; $17.5 million  (revenues)/$3.5 million (profit), and Year 3; $20 million (revenues) and $4 million (profit). All amounts are in US Dollars.  Through the Supplementary Agreement, we and Mr. Ren agreed to modify the share payment schedule of the original Sales and Purchase Agreement such that the Company would issued the remaining 3,491,379 shares of NXMR common stock to Mr. Ren. At the time of this filing, these shares have already been issued to Mr. Ren. Despite the preissuance of shares to Mr. Ren, both parties agree that all guarantees made by Mr. Ren to the Company under the original Sales and Purchase Agreement, most notably the revenue and profit guarantees listed above, shall remain unchanged and in full effect.   Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  Disclosure regarding the Companys change of independent registered public accounting firm from Grant Thornton Beijing to Bernstein & Pinchuk LLP effective May 18, 2006 has been reported on the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2006.  Disclosure regarding the Companys change of independent registered public accounting firm from Moores Rowland Mazars to Grant Thornton Beijing effective April 21, 2006 has been reported on the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on April 24, 2006.    Item 8A. Controls and Procedures  Evaluation of Disclosure Controls and Procedures  Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as defined under Rule 13a-15(e) and promulgated under the Securities Exchange Act of 1934. The Company is evaluating its disclosure controls in light of compliance with SOX 404 in its next annual report, and if necessary, will make any changes needed to comply with SOX 404.  Changes in internal control over Financial Reporting  There has been no change in our internal control over financial reporting during the year ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  Item 8A(T). Controls and Procedures  Not Applicable.  Item 8B. Other Information  None.  47    PART III  Item 9. Directors and Executive Officers of the Registrant  Directors and Executive Officers of the Registrant  The following table sets forth as of January 14, 2008 the names of all our directors and executive officers, their positions and the date the position was first held. Directors will categorized as Class I, Class II and Class III Directors and serve staggered terms in accordance with the schedule below, or until their successors are elected or appointed and qualified, or their prior resignation or termination.  ·Class I Directors: Yu Bing and Walter Beach, whose term ends at the annual meeting of stockholders in 2007 [this needs to be reviewed. I will look at by-laws]Dan, would you check?  ·Class II Directors: Ren Huiliang and Chen Zhaobin, whose term ends at the annual meeting of stockholders in 2008  ·Class III Directors: Bruno Zheng Wu, Mr. Tao Kan and Mr. Bryan Li, whose term ends at the annual meeting of stockholders in 2009  NameAgePositionDate Position First HeldBruno Zheng Wu40Chairman and DirectorSept. 12, 2005Ren Huiliang51Vice Chairman, Chief Executive Officer and Acting Chief Financial OfficerFebruary 26, 2007Chen Zhaobin51DirectorJanuary 22, 2007Yu Bing40DirectorJanuary 17, 2006Walter T. Beach40DirectorDec 5, 2006Tao Kan49DirectorJanuary 3, 2008Bryan Li28DirectorJanuary 3, 2008  Dr. Bruno Wu, Chairman and Director.Dr. Bruno Wu is the Co-founder and Executive Chairman of Sun Media Investment Holdings (SMIH), one of the leading private media groups in China and one of our significant shareholders. Prior to SMIH, Dr. Wu was the Chief Operating Officer from June 1998 to February 1999 of ATV, one of the two free-to-air networks in Hong Kong. From 2001 to 2002, Dr. Wu was also the Co-chairman of SINA Corporation, a Chinese internet media company. Dr. Wu received his Diploma of Studies in French Civilization from the University of Savoie, France in 1987, and graduated with a Bachelor of Science in Business Administration-Finance from Culver-Stockton College in Missouri in 1990. He later received his Master of Arts in International Affairs from Washington University, Missouri in 1993, and in 2001, he received his Ph.D. from the International Politics Department of College of Law, Fudan University, Shanghai, China.  Ren Huiliang, Vice-Chairman and Chief Executive Officer.Mr. William Ren Huiliang is the founder, CEO and head designer of William Brand, a Shanghai-based womans apparel production and brand management company. Over the past 10 years, Mr. Ren has built William Brand into a profitable enterprise that primarily helps US brands outsource their apparel design and production processes to China. Mr. Ren acts as the Chief Executive Officer of NextMart and our William Brand subsidiary. In such capacity, he oversees all apparel design, production and export operations and manages a staff of approximately 20 employees.  Mr. Chen Zhaobin, Director.Mr. Chen is the Chairman and Chief Executive Officer of CEC Unet PLC. (AIM: CECU), a consumer and mobile media company and affiliate of SMIH. Prior to joining Sun 3C, Mr. Chen served as Vice Chairman and President of China Mobile (HK) Ltd, the publicly listed vehicle of China Mobile, the worlds largest mobile operator. Mr. Chen served as China Mobile's (HK) Vice Chairman and President from 1996-1999. From 2001 to 2005, Mr. Chen served as Executive Director and President of APT Satellite Holding Limited (NYSE:ATS).  38     48      Mr. Walter T. Beach, Independent Director.Mr. Beach is Managing Director of Beach Investment Counsel, Inc., an investment management firm located in Radnor, Pennsylvania., with approximately one billion dollars under management. He also is Managing Director of Beach Investment Management LLC and Beach Asset Management LLC. Mr. Beach was Managing Director of Financial Securities Management from inception in 2001 until December 2005.  Mr. Beach is on the board of directors of Bancorp Bank(NASDAQ:TBBK)and Resource Capital Corp (NYSE:RSO) where he currently serves both companies as Compensation Committee Chairman and financial expert of the Audit Committee. Mr. Walter Beach resigned as the director of Board from the Company on December 27, 2007.  Mr. Yu Bing, Independent Director.Mr. Yu is a Senior Executive Vice President at Lenovo Computers and President and Chief Executive Officer of the Lenovo/Asia Info group. Mr. Yu joined Lenovo in 1990 and has been the principal executive in charge of developing the companys channel sales distribution network since 1996. In 2001, Mr. Yu was appointed to his current position at the newly formed Lenovo IT Services Group. From 1988 to 1990, Mr. Yu conducted research and development for the PRC government. Mr. Yu Bing resigned as the director of Board from the Company on January 4, 2008.  Mr. Tao Kan, Independent Director.Mr. Tao Kan (''Kan Tao'' according to English word order), a seasoned investor with extensive experience in corporate management, serve as a director on January 3, 2008. Mr. Tao has nearly 30 years of corporate experience in China's business sectors. Since 2004, he has served as the Managing Director of Shanghai North Huaqing Industrial Construction Development Ltd., a leading real estate development company. Prior to that, he served as Chairman and President of Huaxin Investment Group Ltd (2001-2004), as Chairman and Managing Director of Shanghai Residential Property Co. (1999- 2001), and as Vice President of Shanghai Zhuzong Group Corp. (1980-1999).  Mr. Bryan Li, Director.Mr. Bryan Li, a Vice President at Morgen Evan Redrock, a Beijing-based private investment bank and financial advisory firm, serve as an Executive Director of the Company on January 3, 2008. Mr. Li brings to the company strong financial and corporate experience, having worked on several global business and financing transactions during his career. Prior to joining Morgen Evan Redrock in 2007, Mr. Li served as the General Manager of Sun Capital Consultancy, Ltd where he acted as a business advisor across a wide-range of Chinese growth industries, including: IT, media and women's apparel.  Family Relationships Our directors and executive officers are not related by blood, marriage or adoption.  Compliance with Section 16(a) of the Securities Exchange Act of 1934  Section 16(a) of the Securities and Exchange Act of 1934 requires our officers and directors and persons who beneficially own more than 10% of the Companys common stock (collectively, Reporting Persons) to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.  We believe that all Reporting Persons complied with all applicable reporting requirements, except for certain late and delinquent Form 3/4 filings and 13D filings for Mr. Bruno Wu, Ms. Lan Yang, Sun Media Investment Holdings and Panpac Tech Strategic Ltd. We are putting in place an enhanced compliance program to notify and assist all officers, directors, and major shareholders with their filings. [is this accurate?]Nick should confirm it.  Code of Ethics  We have adopted a code of ethics that applies to all of our executive officers and employees, including our Chief Executive Officer and our Chief Financial Officer. A copy of our code of ethics was filed as an exhibit to our Form 10-KSB for the transition period from October 1, 2005 to March 31, 2006 filed with the SEC on June 30, 2006. It also is available on our website at http://corporate.nextmart.net. We also undertake to provide any person with a copy of our code of ethics  Nominees to the Board of Directors.  There have been no material changes to the procedures by which security holders may recommend nominees to the small business issuer's board of directors  Corporate Governance As of September 30, 2007, we do not have a compensation nor audit committee due to the small size of the Board of Directors. As a result, the entire Board of Directors reviewed executive compensation and audit decisions. The Board of Directors have determined that Mr. Walt Beach and Ren Huiliang are independent, as defined under and required by the federal securities laws.   49   Item 10. Executive Compensation  Summary of Compensation of Executive Officers  The following table sets forth certain summary information with respect to the compensation paid to our chief executive officer, former chief financial officers, and former chief accounting officer for the last two fiscal years ended September 30, 2007 and September 30 2006, respectively. Other than as listed below, the Company had no executive officers serving in such capacity at September 30, 2007 whose total compensation exceeded $100,000.   The board of directors agreed to cancel compensation package paid for directors on April 1, 2007.  There is no compensation paid for directors after April 1, 2007.   SUMMARY COMPENSATION Name and principal positionYearSalaryBonusStock awardsOption awardsNonequityNonqualified deferred compensation earningsAll other compensationTotal($)($)($)($)incentive plan compensation($)($)($)($)(a)(b)(c)(d)(e)(f)(g)(h)(i)(j)Dr. Bruno Wu-Chairman and Former CEO (1)20070-0--0--0--0--0--0-02006104,077-0--0--0--0--0--0-104,077Ricky Ang –Former CEO(2)2007-0--0--0--0--0--0--0--0-200630,000555,190585,190Tom Schuler-2007110,000-0--0--0--0-80,000190,000Former CFO(3)200610,00063,20073,200Frank Zhao-Former CFO(4)20070-0--0--0--0--0-0200670,000259,190329,190Joho Zongyang Li-Former Co-CEO(5)20070-0-0-0--0--0--0-02006130,560130,560Hwee ling Ng- Former CAO(6)200750,72050,720Jeffery Li- Former CFO (7)2006101,440101,440200716,00016,0002006  (1)   On October 1, 2006, we entered into a one-year employment contract with Dr. Bruno Wu to serve as our Chief Executive Officer. Pursuant to the agreement, Dr. Wu received a monthly salary of $27,277 until he resigned in this capacity in February 2007. In February 2007, the company entered into a with Dr. Wu to serve as executive Chairman of the company. Pursuant to this agreement, Dr. Wu does not receive compensation for his services to the Company  (2)   Mr. Ang served as our Co-Chief Executive Officer from March 2 until March 29, 2006 and our Chief Executive Officer from March 30, 2006 until October 5, 2006. Mr. Angs annual salary during these periods was $300,000 per annum. He received actual compensation of $150,000 on a pro rate basis in 2006.During the 2007 period, Mr. Ang received a stock grant of 150,000 shares which were valued at $555,190. He resigned as Chief Executive Officer of the Company on October 5, 2006.  (3)  On September 18 2006, we entered into a one-year employment agreement with Mr. Tom Schuler, our former Chief Financial Officer and Company Secretary. Pursuant to the agreement, Mr. Schuler received a salary of$240,000 per annum and actual  50   compensation of $110,000 on a pro-rata basis in 2007. Mr. Schuler also received a stock grant of 20,000 shares, which were valued at $63,200 and certain stock options to acquire 1,200,000 shares of our common stock. These options were subsequently cancelled when Mr. Schuler resigned as Chief Financial Officer and Company Secretary on March 1, 2007. Following his resignation,he received $80,000 in consulting fees.  (4)  On February 27, 2006 we entered into a one-year employment agreement with Mr. Frank Zhao, our former Chief Financial Officer and Company Secretary. Pursuant to the agreement, Mr. Zhao received an annual salary of $120,000 and actual compensation of $70,000 in 2006 on a pro-rata basis.In 2006 Mr. Zhao also received a stock grant of 70,000 shares which were valued at $259,190. Mr. Zhao resigned as Chief Financial Officer effective September 30, 2006.  (5)  On September 18, 2005 we entered into a one-year employment agreement with Mr. John Zongyang Li, who served as our Executive Director from September 18, 2005 until June 30, 2006 and our Co-Chief Executive Officer from January 4, 2006 to March 29, 2006. Pursuant to the agreement(s), Mr. Li received an annual salary of $140,000 and actual compensation of $130,560 in 2006 on a pro-rata basis. Mr. Li resigned as Co-Chief Executive Officer effective March 29, 2006.  (6)  On March 1, 2006 we entered into a two-year employment agreement with Ms. Hwee Ling Ng, our former Chief Accounting Officer. Pursuant to the agreement, Ms. Ng received a base salary of approximately $135,000 per annum. She received actual compensation of  $101,440 and $50,720 in 2006 and 2007 respectively, on a pro-rata basis. Ms. Ng resigned effective February 28, 2007.  (7)  On April 1, 2007, we entered into a one-year employment agreement with Jeffery Zhen Li, our former Chief Financial Officer. Pursuant to the agreement, Mr. Li received a base salary of $48,000 per annum and employee stock options to purchase 200,000 of our shares at $0.01 per share during a term of 10 years. Mr. Li received actual compensation of $16,000 in 2007 on a pro-rata basis. These options have not been exercised. Mr. Li resigned on July 23, 2007.  Outstanding Equity Awards at Fiscal year End September 30, 2007  As of September 30, 2007, we had no outstanding option awards or equity awards for our executive officers.  Compensation of Directors  Except as stated herein, no compensation was paid to any of our directors for their services during the fiscal period ended September 30, 2007. We paid our independent directors for their services from April 1, 2006 until December 31, 2006 in accordance with the following compensation package:  · Annual cash compensation: $50,000 per annum, paid on a quarterly basis. Each $12,500 payment was pro-rated according to the fraction of time served by the director.  · Additional Committee payments $25,000 per annum for the Audit Chair, $10,000 per annum for the Compensation Chair and $10,000 per annum for the Nominating & Governance Chair.  · Payment in cash for each board meeting and committee meeting of $1,000, payable in quarterly stipends along with the retainer.  Effective January 1, 2007, we adopted a revised compensation program for the independent members of our Board of Directors. According to the revised compensation package, our independent Board members are entitled to annual compensation of $24,000, paid in monthly installments until June 30, 2007. The Company is in the process of making these payments. [update]  These payments have not been paid to the Directors of the Company yet because the Board of Directors is currently in the process of reviewing and reconsidering its compensation package for the period beginning January 1, 2007 and the 2008 fiscal year beginning October 1, 2007.  The following table sets forth director compensation for the 12 month period ended September 30, 2007 in accordance with the Board compensation plans listed above. The Company did not pay any compensation to the directors other than that which is listed in the table below.  Name of DirectorFees earned or paid in cash ($) annuallyAll Other Compensation($)Total ($)Walter T. Beach(1)22,000-0-22,000  51    Yu Bing(2)30,500-0-30,500Kay Koplovitz(3)17,000-0-17,000Mark Newburg(4)20,75045,00065,750William Adamopoulos(5)-0--0--0-Herbert Kloiber(6)-0--0--0-  (1)  Walter T. Beach has served as Independent Director and Chairman of the Compensation Committee since December 5, 2006. From October 1, 2006 to September 30, 2007, he received $20,000 in annual compensation for his board membership and is owed $22,000, He is owed $20,000 in annual compensation and $2,000 in board meeting fees.  (2) Yu Bing has served as an Independent Director of the Board since January 17, 2006. From October 1, 2006 to September 30, 2007, he received $30,500 in annual compensation for his board membership, and is owed $21,000. He also is owed $18,000 in in annual compensation and $3,000 in board meeting fees.  (3) Kay Koplovitz served as Independent Director, Vice-Chairperson of the Board, and Chairperson of the Nominating & Governance Committee from September 18, 2005 until February 19, 2007. From October 1, 2006 to February 19, 2007, the final date of her service, she received $17,600 in annual board compensation and meeting fees. She is not owed any compensation by the Company.  (4) Mark Newburg served as Independent Director and Chairperson of the Audit Committee from May 31, 2006 to January 29, 2007. From October 1, 2006 to January 29, 2007, he received $20,750 in annual compensation for his board membership and is not owed funds. Mr. Newburg remains a consultant to the Company and receives $60,000 per annum paid quarterly to assist the Company with its business development efforts. He has received $45,000 in consulting fees as of September 30 2007.  (5) William Adamopoulos served as an Independent Director of the Company from May 11, 2006 to October 31, 2006. From October 1, 2006 to October 31, 2006, his final date of his service, Mr. Adamopoulos did not receive any compensation for his service to the Company. He is not owed any compensation.  (6) Herbert Kloiber served as Independent Director of the Company from January 4, 2006 to October 11, 2006. From October 1, 2006 to October 11 2007, his final date of his service, Mr. Kloiber did not receive any compensation for his service to the Company. He is not owed any compensation.      Item 11. Security Ownership of Certain Beneficial Owners and Management  Equity Compensation PlanThe following table provides information as ofSeptember30, 2007 concerning shares of our common stock authorized for issuance under our existing equity compensation plans.  Plan CategoryNumber of securities
to be issued upon
exercise of
outstanding options,
warrants and rightsWeighted average
exercise price of
outstanding
options, warrants
and rightsNumber of
securities
remaining available
for future issuance
(excluding
securities reflected
in column (a))(a)(b)(c)Equity compensation plans approved by security holders163,146$1.89163,146Equity compensation plans not approved by security holdersN/AN/AN/ATotal:163,146$1.89163,146    52   Note:  (1)The number of securities remaining available for future issuance expired as of September 30, 2007.  Security Ownership of Certain Beneficial Owners and Management  The following table sets forth, as of December 29, 2007, certain information with respect to the beneficial ownership of our common stock by each shareholder known by us to be the beneficial owner of more than five percent (5%) of our common stock, and by each of our current directors and executive officers.  Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.  Unless otherwise indicated, the address for each Beneficial Owner shall be NextMart Inc., Oriental Plaza Bldg. W3, Twelfth Floor, 1 East Changan Avenue, Dongcheng District Beijing, 100738   Name and Address of Beneficial OwnerAmount and Nature of
Beneficial Ownership(1)Percentage
of Class(1)Bruno Wu (2)14,441,36915.92%Yang Lan (3)14,441,36915.92%Jeffery Zhen Li (4)200,000*Bing YuWalter T. Beach (5)415,000*Ren Huiliang4,655,1725.13%Telperion Ltd. PO Box 882 GT Georgetown, Grand Cayman
Cayman Islands BWI (7)6,400,0007.05%Panpac Tech Strategic Limited (PTS) 50 Raffles Place #29-00 Singapore Land Tower Singapore 048623 (6)(8)8,624,6069.50%Sun Media Investment Holdings Limited (SMIH) P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands (6)(9)14,261,36915.72%Directors and Officers as a Group (10)(11)15,445,16217.02%     (1)Based on 90,737,606 shares outstanding of common stock issued and outstanding as of December 21, 2007. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.    (2) Represents 14,441,369 shares held indirectly through Dr. Wus spouse, Ms. Yang Lan. Ms. Yang owns 14,261,369 indirectly through her controlling stock ownership of Sun Media Investment Holdings (SMIH), and 180,000 shares directly in her own name. Dr. Wu is the Chairman and a Director of SMIH, but has no ownership of SMIH. Dr. Wu disclaims ownership of all such shares.  (3)Ms. Yang is the spouse of Dr. Bruno Wu, our Chairman. Ms. Yang owns 14,261,369 indirectly through her controlling ownership of Sun Media Investment Holdings (SMIH) and 180,000 shares directly in her own name.  (4)Assumes the issuance of options to Mr. Jeffery Zhen Li to purchase 200,000 shares of Company stock as $0.01. The issuance of such options is pending.  (5) Mr. Beach holds 370,000 shares through Clearview Investment Fund and 45,000 shares in his own name.  (6)      Pursuant to a Pooling Agreement (the Agreement) between TLG, Sun Media Investment (SMIH), and us dated March 31, 2007, both SMIH and TLG agreed to place 6.9 million shares of their respective holdings in the Company into escrow until at least June 30, 2008, As a result of the Agreement, all 13.8 million shares collectively held by SMIH and TLG will not be transferable by either party unless there is first an amendment to the Agreement.  53    (7) The principal beneficial owner of Telperion Ltd is  Cayman International Corporate & Marine Services Ltd whose address is PO Box 882 GT, Georgetown, Grand Cayman, Cayman Islands BWI.  (8) The sole shareholder of Panpac is The Lexicon Group, Ltd ("TLG") (formerly Sun Business Network Ltd.), whose address is 371 Beach Road #03-18 Keypoint Singapore 199597. TLG is a public company traded on the Singapore Stock Exchange (SIN:523).  (9) Ms. Yang, the spouse of Dr. Bruno Wu, is a controlling person of this shareholder.  (10)Includes14,261,369 shares held indirectly by Dr. Bruno Wu, 200,000 shares held by Jeffery Zhen Li, 415,000 shares held indirectly by Walter T. Beach, and 4,655,172 shares held by Ren Huiliang.  (11)The address of our directors and officer is care of NextMart Inc., Oriental Plaza Bldg. W3, Twelfth Floor, 1 East Changan Avenue, Dongcheng District Beijing, 100738.    Item 12. Certain Relationships and Related Transactions  Other than disclosed below or elsewhere herein, during the last two years, we were not involved in any transaction in which a director, director nominee, officer or shareholder of the Company, or any family member of any such persons, had a direct or indirect material interest where the amount involved exceeded $120,000.  As disclosed below, we have entered into several agreements with Sun Media Investment Holdings Limited (SMIH), a significant shareholder of us, and other affiliated entities. Dr. Bruno Wu, our Chairman, also is the Chairman of SMIH, and Mr. Wu's wife, is the majority shareholder of SMIH. As a result of Dr. Wu's and his wife's respective roles in both companies and the ownership interest of SMIH in us, these agreements cannot be considered arm's length transactions. See section entitled Cautionary Statements in Item 1. Description of Business for certain risks related to these various transactions.  We believe that in each such instance, the transactions were commercially reasonable and no less favorable to us than we could have obtained from an unaffiliated third party on an arms length basis.  In October 2005, we issued 50 million shares of our common stock to SMIH in consideration for the outstanding shares of Sun New Media Group Limited ("SNMG") (the Reverse Acquisition Transaction). Mr. Bruno Wu and John Zongyang Li were directors and officers of SMIH and became our directors and officers at the close of the transaction pursuant to the terms of that agreement. In conjunction with the Reverse Acquisition Transaction, Capital Alliance Group, Inc. (CAG) sold to SMIH 500,000 shares of our common stock (pre stock split) for an aggregate purchase price of $450,000. In addition, CAG entered into a management agreement with us on close of the Reverse Acquisition Transaction and we issued 250,000 shares of our common stock to CAG as compensation for its performance under this management agreement.  SMIH previously owned approximately 2.0% of The Lexicon Group Ltd (TLG) (formerly Sun Business Network Ltd.). Our former director and CEO, Mr. Ricky Ang, at one point owned 4.1% of TLG and served concurrently as the Executive Vice-Chairman & Managing Director of TLG. On November 21, 2005, we entered into two agreements with TLG. Pursuant to the first agreement, we issued 1,156,303 shares of our common stock in exchange for a group of property holdings in Beijing and 53,000,000 common shares of Asia Premium Television Group, Inc (OTCBB:ATVG). Under the second agreement, we issued 13,800,000 shares of our common stock, 50% issued upon closing and the remaining 50% within 30 days of receipt of the audited accounts of the on-line publishing business purchased from TLG, if such audited statement reflect $2,415,000 in profit-after-tax for the period ended December 31, 2006.  SNMD also entered into a Shares Swap Agreement with TLG. Under the terms of the Shares Swap Agreement, TLG issued 150 million TLG shares in exchange for 5,042,017 shares of our common stock. All agreements with TLG were completed on April 20, 2006. TLG is currently our largest shareholder with 16,188,384 shares, held through its wholly-owned subsidiary Panpac Tech Strategic Limited.  On December 6, 2005, we entered into an agreement with SMIH which provided for the issuance of 2,008,929 shares of our common stock in exchange for 75,000,000 ordinary shares of TLG or approximately 10.15% of the then existing issued share capital of TLG. We terminated this agreement with SMIH on March 31, 2006 and no shares were exchanged between the parties.  On February 15, 2006, we acquired Sun New Media Holdings Ltd. (SMH) from SMIH. We paid US$1.00 to SMIH in exchange for 100% of the outstanding shares of SMH. SMH has a 51% stake in Compass Multi-media Ltd, a 85% stake in Sun 365 Multi-Media Holdings Limited and a 30% stake in Global Woman Multimedia Co Limited.  On April 20, 2006, we entered into an agreement with SMIH for the purchase of various assets, including real estate, automobiles,  54   office equipment and program rights as well as 48,629,331 shares in Asia Premium Television Group (OTCBB:ATVG) for an aggregate consideration of US $3,442,587 which is to be satisfied by the issuance of 860,647 shares of our common stock.  On June 30, 2006, we entered into a Sale and Purchase Agreement with Sun 3C Media Plc (Sun 3C)(formerly Sun TV Shop, Plc.), a related party of Sun Media Investment Holdings (SMIH) and a company listed on theAlternative Investment Market of the United Kingdom, to sell certain non-core assets in exchange for 33,642,508 shares in Sun 3C. This transaction was subsequently completed on July 6, 2006.  The entirety of our 33,642,508 shares in Sun 3C have been in escrow since July, 2006 pursuant to an escrow agreement by and among various parties including Sun 3C Media and us.According to the escrow agreement, our shares can be released subject to the orderly market arrangements in place, which state that any decision to sell these ordinary shares within 12 months of their release must be approved by Blue Oar Securities Plc, our agent. The shares are eligible for release in two tranches; 50% of the 33,642,508 shares on June 30, 2007 and 50% of the 33,642,508 on June 30, 2008.  On July 21, 2006, we completed our acquisition of Credit Network 114 Ltd., a company incorporated in the British Virgin Islands, pursuant to a Sale and Purchase Agreement between the Company and SMIH dated June 14, 2006 (the Credit 114 Purchase Agreement). We paid SMIH an aggregate cash consideration of $2.5 million in four equal payments of $625,000. The first installment was made within 10 days of the completion of the agreement, and the remaining payments were made 30, 60 and 90 days after the completion of the agreement, respectively. On June 14, 2006, we signed a Supplementary Agreement with SMIH to acquire search engine technology and additional on-line business media content. This agreement carried no additional consideration from the Credit 114 Purchase Agreement.  On September 3, 2006, pursuant to the Sale and Purchase agreement (the SMIH Purchase Agreement) dated April 20, 2006 between us and SMIH, we acquired a real estate property, automobiles, program rights and 46,629,331 shares in Asia Premium Television Group, Inc. (Asia Premium)(OTCBB:ATVG). The consideration paid by us for the acquisition was satisfied through the issuance of 850,647 shares of our common stock.  At the time of entering into the agreement on April 20, 2006, our common stock was traded on OTCBB with limited liquidity and short term trading history, while Asia Premium Television Group. Inc. has been traded on the OTCBB, for a comparably longer time, therefore management decided to use the discounted fair market value of the shares issued to measure our consideration (the Company stock) paid.  In November 2006, we impaired the intangible assets and goodwill in China Focus Channel Development Co. Ltd. which was acquired pursuant to a Sale and Purchase agreement (the Focus Purchase Agreement) dated November 22, 2005 with Yang Qi, Mao Quan Yi and Wu Bing Wei (collectively, the Sellers). We recorded an impairment loss of $32.5 million. We also redeemed 14.9 million shares of the Company paid as consideration for the acquisition, pursuant to an agreement by and between us and the Sellers in November 2006. The cost was determined to be the fair value of the shares at that time. The cost was recorded as a reduction of paid in capital and additional paid in capital; no gain or loss (after impairment) was recorded.  On March 21, 2007, we entered into agreement with the Sun Culture Foundation, a Hong Kong-based non-profit organization founded by Yang Lan, the spouse of our Chairman Dr. Bruno Wu, to acquire 7.6 million shares of our common stock held by Sun Culture in exchange for 20 million shares of stock in CEC Unet (AIM: CECU), held by us. The transaction was completed in July  2007, and we have since cancelled all of 7.6 million Company shares that were returned to us.  On March 22, 2007, we executed subscription agreements with five accredited investors (the Selling Stockholders) for the purchase of an aggregate of $1,500,000 of our senior convertible promissory notes (Notes) and Class A, Class B, and Class C common stock purchase warrants. The Class A warrants enable the purchase of up to 1,500,000 shares of our common stock at an exercise price of $1.00 per share, and the Class B warrants enable the purchase of up to 1,500,000 shares of our common stock at an exercise price of $1.50 per share.  Upon exercise of any Class A or Class B warrant, the respective warrant holder will receive a Class C warrant to purchase that number of shares for which such Class A warrant or Class B warrant is exercised at an exercise price of $2.00 per share. On March 28, 2007, we completed the transaction (the Issuance Date). The Notes rank senior to all of our current and future indebtedness. The principal amount of the Notes is $1,500,000. The principal amount of the Notes if not converted or redeemed is due and payable on March 28, 2010. The Notes are initially convertible into our common shares at a conversion price of $1.00 per share.  If an event of default occurs under the Notes (as described below), the conversion price shall be adjusted to eighty percent (80%) of the volume weighted average price of our common shares for the five trading days prior to a conversion date (Adjusted Conversion Price). Commencing on the fifteenth month from the Issuance Date, we are obligated to make a payment of one-twenty first (1/21) of the principal amount of each Note, either in cash or by conversion of such amount into our common shares.  If, on the payment date, the market price for our common shares are equal to or above $1.00 per share, we may make this payment in our common shares at the then existing conversion rate.  However, if, on the payment date, either (i) the market price for our common shares are less than $1.00 per share or (ii) the Registration Statement covering the common stock underlying the notes  55   and warrants is not effective, then we must make this payment in cash in an amount equal to 135% of the principal amount component. Subject to certain terms and conditions set forth therein, we may redeem the Notes at a rate of 120% to 150% of the outstanding principal amount of the notes plus interest. Certain mandatory and optional conversion rights exist subject to certain conditions as described in the subscription agreements. At closing, we paid the Selling Stockholders a total of 1,500,000 shares of our common stock as full consideration of all interest due under the Notes. We were unable to complete our registration rights covenants in the agreement with the Selling Stockholders. As a result, we could be in default under the terms of such agreement. We are currently in negotiations with the Selling Shareholders in an effort to remedy the situation.  On March 26, 2007, we divested certain non-core assets including $545,897 (2006: $574,485) worth of debt, owed to us by The Lexicon Group, Ltd ("TLG")(formerly "Sun Business Network Ltd")(made as advances by the Company to TLG) and our entire 16% stake, equal to 150 million shares of stock, in The Lexicon Group (TLG)(formerly Sun Business Network Ltd.), a Singaporean publishing company traded on the Singaporean Stock Exchange, to Maxi Surplus Ltd, another Singapore company. The Company received 20 million shares in CEC Unet Plc in exchange for the se assets. As a result of the transaction, the Company ceased to be a shareholder of TLG and was no longer due $545,897 (2006: $574,485) of debt from TLG.  On April 9, 2007, we entered into agreement with SMIH to sell certain non-core assets in exchange for a total consideration of $4.15 million dollars. The assets to be sold were: Two real estate properties in Beijing; a 30% investment stake in Global Woman Multimedia Co. Ltd; and 100% of the share capital of Lifestyle Magazines Publishing Co. Ltd. According to the terms of the agreement, SMIH will satisfy the $4.15 million consideration by transferring to us 1 million shares of Validian Corp. (OTCBB:VLDI) (Validian) and (ii) a promissory note of Validian in favor of SMIH with a principal amount of $500,000; and by returning to us 6 million of our common shares held by SMIH. As of the date of this filing, we have not yet completed this transaction. However, we have already received and further cancelled the 6 million shares returned to us from SMIH.  On April 11, 2007, we entered into a partnership agreement with Her Village Co. Ltd (Her Village), a related party of Sun Media Investment Holdings (SMIH), one of our significant shareholders, for certain exclusive marketing access within Her Villages multimedia products  namely, its e-magazines. Her Village is a wholly-owned subsidiary of Yang Lan Studio Ltd., which is 100% owned and controlled by Ms. Yang Lan, the spouse of our Chairman Dr. Bruno Wu. As part of the agreement, we agreed to pay for the production of Her Villages online multimedia products at cost, approximately $180,000 per annum and receive the revenues generated from the sale of such products, subject to the payment of a 10% sales commission to her Village on all transactions generated by Her Village. As of the date of this Report, we have not yet completed this transaction. [update situation]  On April 27, 2007, we issued 6.9 million shares of our common stock to Panpac Tech Strategic Limited, a wholly-owned subsidiary of The Lexicon Group Ltd (TLG)(formerly Sun Business Network Ltd.) to satisfy a contractual obligation to TLG relating to a Sale and Purchase Agreement (the Agreement) between the parties dated November 21, 2005. In the original Sale and Purchase Agreement, we purchased certain assets, including various on-line publishing rights, from TLG for an aggregate consideration of the issuance of 13.8 million of our shares. The consideration was to be satisfied in two installments of 6.9 million shares. The first installment of 6.9 million shares was issued upon the completion of the deal. The second installment of 6.9 million shares remained subject to a profit guarantee for the acquired business of PAT $2,415,000 by December 2006.  In July 2006, we sold part of the acquired business to Sun TV Shop Plc (now Sun 3C Plc)(AIM:SCCC) for a gain in excess of $2,415,000, satisfied in Sun 3C stock. We determined this gain to satisfy TLGs profit guarantee of $2,415,000 and proceeded with the second share issuance of 6.9 million shares, pursuant to the original Agreement between TLG and us.  The agreement is incorporated by reference in our Form 8-K filed on November 23, 2005. We further disclosed that these 6.9 million NextMart shares issued to TLG would be held in escrow, along with 6.9 million NextMart shares contributed by Sun Media Investment Holdings until at least June 30, 2008, pursuant to a Pooling Agreement between TLG, Sun Media Investment, and us dated March 31, 2007.  On July 6, 2007, we completed the cancellation of 28,500,000 million our own shares that were returned to us under the following  three separate agreements. · a November 21, 2006 agreement with the sellers of Focus Channel Development Co. Ltd, that returned 14,900,000 of our shares in exchange for certain rights under its existing management services agreement and $4.75 million in past due account receivables; · a March 26, 2007 agreement with Sun Culture Foundation that returned 7,600,000 of our shares in exchange for 20 million shares of CEC Unet (f.k.a. Sun 3C Media plc)(AIM:CECU) held by the Sun Culture Foundation · an April 9, 2007 agreement with Sun Media Investment Holdings that returned 6,000,000 of our shares in exchange for certain assets including two real estate properties in Beijing, a 30% stake in Global Woman Multimedia Co., Ltd., 100% of Lifestyle Magazines Publishing Co. Ltd..   56   On August 6, 2007, we entered into an agreement with Mr. Jiancai Zhou to acquire the Peeress clothing brand and the Peeress Design and Management Center (collectively, Peeress). Based in Shanghai, China, Peeress is an established womens clothing brand with over 3,000 patented clothing designs. The consideration for the acquisition is $2.17 million of which $1 million is to be paid in cash and $1.17 million is to be paid with 5 million shares of Sun 3C Media Plc (AIM SCCC) held by us. We will satisfy $500,000 of the cash consideration and Sun Media Investment Holdings (SMIH), our largest shareholder, will satisfy the other $500,000 of the consideration on our behalf. As of the filing of this Report, this transaction has not been completed.  On August 6, 2007, we entered into an agreement with Sun Media Investment Holdings, our largest shareholder, to grant SMIH perpetual, non-exclusive usage rights to our reverse-auction purchasing software. The consideration for this licensing agreement is a $500,000 to be satisfied through a one-time cash payment. As of the filing of this Report, this transaction has not been completed.  On August 6, 2007, we entered into a strategic partnership agreement with Shanghai Guifuren Garment Co. Ltd (Guifuren Garment), a producer of urban womens suits in Mainland China. According to the terms of agreement, NextMart will gain from Guifuren Garment usage rights to the Guifuren 2.0 mature urban professional womens brand and access to 1/3 of Guifuren Garments sales space in nearly 60 retail stores in Mainland China. As consideration, NextMart will grant Guifuren a commission on its in-store sales of NextMart product. Guifuren Garment will provide the necessary logistics and inventory support to NextMart at no cost.  On August 7, 2007, we entered into an agreement with Her Shop Ltd., an affiliate of Sun Media Investment Holdings, our largest shareholder, to trade 99,629 shares of Asia Premium Television Group (OTC:ATVG) held by us for 231,939 shares of Broadcast International Inc. (OTC:BI) held by Her Shop Ltd. The approximate value of the transaction was $260,000, whereby the ATVG shares were valued at approximately $2.65 per share and the Broadcast International shares were valued at approximately $1.10 per share. The agreement is expected to close on or before September 1, 2007  On August 7, 2007, we entered into an agreement with Yang Lan Studio Ltd, an affiliate of Sun Media Investment Holdings, our largest shareholder, to sell certain non-core assets, including five used automobiles. The consideration for the agreement is $294,867.35 to be satisfied with 268,062 shares of Broadcast International (OTC BCST) valued at $1.10 per share. The agreement is expected to close on or before September 1, 2007.  On August 7, 2007, the Company, entered into a consulting agreement (the agreement) with Professional Offshore Opportunity Fund, Ltd. (POOF), a New York based investment fund, to retain POOFs advisory services for locating potential complementary opportunities for acquisition by the Company. The term of the agreement terminates on August 7, 2017. The consideration of the transaction with POOF is 10,000,000 shares of Sun 3C Media (already renamed "CEC Unet Plc")(AIM:SCCC) common stock (the "Shares") held by the Company. The Shares carry an aggregate value of $2 million USD based on a per share price of $0.20 USD. The Shares are not in any way subject to rescission, repurchase, redemption, or cancellation in the event this Agreement is terminated for any reason. On September 28, 2007, we entered into a supplementary agreement (the Supplementary Agreement) with Mr. Ren Huiliang, our current CEO, to revise the terms and conditions of the Sales and Purchase Agreement (the Sales and Purchase Agreement) by which we purchased 100% of William Brand Administer Co., Ltd from Mr. Ren. Specifically, the Supplementary Agreement modifies the payment schedule by which we will compensate Mr. Ren for William Brands attainment of certain revenue and profit guarantees.  According to the original Sales and Purchase Agreement, we purchased William Brand Administer Co. Ltd from Mr. Ren for an aggregate consideration of $18,620,688 USD to be satisfied through the issuance of 4,655,172 shares of our common stock (the Consideration Shares). For purposes of the transaction, each share was valued at $4.00 USD. The Consideration Shares were to be issued in four equal installments. The first installment was issued to Mr. Ren upon the closing of the acquisition on September 30, 2006; and the remaining three installments of 1,163,793 (totaling 3,491,379) of our shares were to be issued to Mr. Ren subject to attaining certain revenue and profit requirements from the operations of William Brand in the three fiscal years following the completion of the acquisition. These revenue and profit guarantees as stated in the original Sales and Purchase Agreement are as follows: Year 1; $15 million (revenues)/$3 million (profit), Year 2; $17.5 million  (revenues)/$3.5 million (profit), and Year 3; $20 million (revenues) and $4 million (profit). All amounts are in US Dollars.  Through the Supplementary Agreement, we and Mr. Ren agreed to modify the share payment schedule of the original Sales and Purchase Agreement such that the Company would issued the remaining 3,491,379 shares of NXMR common stock to Mr. Ren. At the time of this filing, these shares have already been issued to Mr. Ren. Despite the preissuance of shares to Mr. Ren, both parties agree that all guarantees made by Mr. Ren to the Company under the original Sales and Purchase Agreement, most notably the  57   revenue and profit guarantees listed above, shall remain unchanged and in full effect.   Item 13 Exhibits  The Exhibit Table follows Item 14.  Item 14. Principal Accountant Fees and Services  Bernstein & Pinchuk LLP    During the fiscal years ended September 30, 2007 and March 31, 2007, Bernstein & Pinchuk LLP provided various audit, audit related and non-audit services to us as follows:  September 30, 2007March 31, 2007March 31, 2006Audit Fees$155,000$250,000120,000Audit-Related FeesTax FeesAll Other Fees10,000$165,000$250,000120,000   59     58     Table of Contents     Item 13. Exhibits  Exhibit Number and Exhibit Title    INDEX TO EXHIBITS    Exhibit
NumberExhibit Title2.1Share Purchase Agreement dated July 21, 2005 by and between the Registrant and Sun Media Investment Holdings Limited to acquire Sun New Media Group Limited (incorporated by reference from our Current Report on Form 8-K filed on July 22, 2005)2.2Share Purchase Agreement dated November 21, 2005 by and between the Registrant and The Lexicon Group Ltd. (formerly Sun Business Network Ltd.) to acquire a group of property holdings in Beijing and shares of Asia Premium Television Group, Inc. (incorporated by reference from our Current Report on Form 8-K filed on November 23, 2005)2.3Share Swap Agreement by and between the Registrant and The Lexicon Group Ltd. (formerly Sun Business Network Ltd.) dated November 21, 2005 (incorporated by reference from our Current Report on Form 8-K filed on November 23, 2005)2.4Sale and Purchase Agreement by and between the Registrant, Yang Qi, Mao Quan Yi and Wu Bing Wei dated November 22, 2005 to acquire China Focus Channel Development (HK) Limited (incorporated by reference from our Current Report on Form 8-K filed on November 25, 2005)2.5Sale and Purchase Agreement by and between the Registrant and Sun Media Investment Holdings Ltd. Dated November 29, 2005 to acquire Sun New Media Holdings Ltd. (incorporated by reference from our Current Report on Form 8-K filed on December 1, 2005)2.6Sale and Purchase Agreement by and between the Registrant, Yan Hui, Lin Min and Luan Kezhou dated December 6, 2005 to acquire Telefaith Holdings Limited (incorporated by reference from our Current Report on Form 8-K filed on December 8, 2005)2.7Sale and Purchase Agreement dated December 6, 2005 by and between the Registrant and Sun Media Investment Holdings Limited to acquire shares of The Lexicon Group Ltd. (formerly Sun Business Network Ltd.) (incorporated by reference from our Current Report on Form 8-K filed on December 8, 2005)2.8Stock Purchase Agreement between Sun New Media Inc and Barron Partners LP dated December 31, 2005 (incorporated by reference from our Current Report on Form 8-K filed on January 6, 2006)2.9Share Purchase Agreement dated January 4, 2006 to acquire Magzone Asia Pte Ltd (incorporated by reference from our Current Report on Form 8-K filed on January 6, 2006)2.10Share Purchase Agreement dated February 13, 2006 by and between the Registrant and China Entertainment Sports Limited to acquire China Sport TV Productions Ltd (incorporated by reference from our Current Report on Form 8-K filed on February 17, 2006)2.11Share Purchase Agreement dated February 14, 2006 by and between the Registrant and United Home Limited to acquire Lifestyle Magazines Publishing Pte Ltd (incorporated by reference from our Current Report on Form 8-K filed on February 17, 2006)2.12Stock Purchase Agreement between Sun New Media Inc and Barron Partners LP dated March 6, 2006 (incorporated by reference from our Current Report on Form 8-K filed on March 9, 2006)  59    2.13Termination Agreement dated March 31, 2006 by and between the Registrant and Sun Media Investment Holdings Limited relating to the Sale and Purchase Agreement dated December 6, 2005 by and between the Registrant and Sun Media Investment Holdings Limited to acquire shares of The Lexicon Group Ltd. (formerly Sun Business Network Ltd.) (incorporated by reference from our Current Report on Form 8-K filed on April 5, 2006)2.14Sale and Purchase Agreement dated April 20, 2006 by and between the Registrant and Kingston Capital Group Limited to divest Global American Investments Inc (incorporated by reference from our Current Report on Form 8-K filed on April 26, 2006)2.15Sale and Purchase Agreement dated April 20, 2006 by and between the Registrant and Sun Media Investment Holdings Limited to purchase various assets (incorporated by reference from our Current Report on Form 8-K filed on April 26, 2006)2.16Sales Purchase Agreement dated May 23, 2006 by and between the Registrant, its subsidiary, China Focus Channel Development Co. Ltd (Focus) and China Electronic Appliances Corporation (CEAC) and two individuals to purchase a 49% stake in Beijing Trans Global Logistics (BTGL) and its subsidiary from the two individuals and a 31% stake in BTGL from CEAC (incorporated by reference from our Current Report on Form 8-K filed on May 30, 2006)2.17Sale and Purchase Agreement dated June 8, 2006 by and between the Registrant, its subsidiary, Focus, and Mr Ren Huiliang to acquire William Brand Administer Limited and its subsidiary William Textiles Limited (incorporated by reference from our Current Report on Form 8-K filed on June 14, 2006)2.18Sale and Purchase Agreement dated June 14, 2006 by and between the Registrant and Sun Media Investment Holdings Limited to acquire Credit Network 114 Limited (incorporated by reference from our Current Report on Form 8-K filed on June 20, 2006)2.19Subscription Agreement between the Company and Certain Accredited Investors (incorporated by reference on Form 8-K filed with the SEC on March 23, 2007)2.20Form of Note between the Company and Certain Accredited Investors (incorporated by reference on Form 8-K filed with  the SEC on March 23, 2007)2.21Form of Class A Warrant between the Company and Certain Accredited Investors (incorporated by reference on Form 8-K filed with the SEC on March 23, 2007)2.22Form of Class B Warrant between the Company and Certain Accredited Investors (incorporated by reference on Form 8-K filed with the SEC on March 23, 2007)3.1Certificate of Incorporation. (Incorporated by reference toAppendix C of the Companys proxy statement pursuant to Schedule 14A of the Securities Act of 1933, as amended, for its annual meeting of stockholders for 2006, as filed with the SEC on June 12, 2006.)3.2Certificate of Merger under which NextMart, Inc., a wholly owned subsidiary of the registrant, was merged with and into the Company for the sole purpose of changing the Companys name to NextMart, Inc. (Incorporated by reference in our Form 8-K filed on May 10, 2007)       60       Exhibit
NumberExhibit Title3.3Bylaws. (Incorporated by reference toAppendix B of the Companys proxy statement pursuant to Schedule 14A of the Securities Act of 1933, as amended, for its annual meeting of stockholders for 2006, as filed with the SEC on June 12, 2006.)3.4*Updated Form Indemnification Agreement of Directors and Officers, following our reincorporation into the State of Delaware.4.1Pooling Agreement by and between dated September 18, 2005 among the Registrant, Fidelity Transfer Company, as Trustee, Sun Media Investment Holdings Ltd. And Capital Alliance Group Inc. (incorporated by reference from our Current Report on Form 8-K filed on September 22, 2005)4.2Supplementary Pooling Agreement dated December 23, 2005 among the Registrant, Fidelity Transfer Company, as Trustee, Sun Media Investment Holdings Ltd. And Capital Alliance Group Inc. (incorporated by reference from our Current Report on Form 8-K filed December 27, 2005)4.3Supplementary Pooling Agreement dated March 15, 2006 among the Registrant, Fidelity Transfer Company, as Trustee, Sun Media Investment Holdings Ltd. And Capital Alliance Group Inc. (incorporated by reference from our Current Report on Form 8-K filed March 21, 2006)10.1Finders Fee Agreement by and between the Registrant and Yu Hiyang and Beckford Finance SA dated July 21, 2005 (incorporated by reference from our Current Report on Form 8-K filed on July 22, 2005)10.2Stock Purchase Agreement by and between Capital Alliance and Sun Media dated July 21, 2005 (incorporated by reference from our Current Report on Form 8-K filed on July 22, 2005)10.3Management Agreement by and between the Registrant and Capital Alliance dated September 18, 2005 (incorporated by reference from our Current Report on Form 8-K filed on September 22, 2005)10.4Share Holding Agreement by between Capital Alliance, SE Global and Sun Media Investment Holdings Ltd. dated September 18, 2005 (incorporated by reference from our Current Report on Form 8-K filed on September 22, 2005)10.5Stock Purchase Agreement dated December 31, 2005 by and between Sun New Media Inc. and Barron Partners LP (incorporated by reference from our Current Report on Form 8-K filed on January 6, 2006)14.1*Code of Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed on June 30, 2006)21*Subsidiaries and VIEs of NextMart, Inc.31.1*Certificate of CEO as Required by Rule 13a-14(a)/15d-1431.2*Certificate of CFO as Required by Rule 13a-14(a)/15d-1432.1*Certificate of CEO as Required by Rule 13a-14(b) and Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code32.2*Certificate of CFO as Required by Rule 13a-14(b) and Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code     *Filed herewith    61    SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  NEXTMART, INC.By:/s/ Ren HuiliangMr. Ren Huiliang, Chief Executive OfficerDate: January 14, 2008  In accordance with theSecurities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  By:/s/ Bruno Wu
BBrBruno Wu, Chairman
Date: January 14, 2008By:/s/ Ren Huiliang
Ren Huiliang, Chief Executive Officer
Date: January 14, 2008By:/s/ Tao Kan
Tao Kan, Director
Date: January 14, 2008By:/s/ Bryan Li
Bryan Li, Director
Date: January 14, 2008By:/s/ Chen Zhaobin
Chen Zhaobin, Director
Date: January 14, 2008      62              63