**UNITEDSTATES**

** SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM10-KSB**

| **ANNUAL REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the fiscal year ended March 31, 2007.** |
|------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission File Number: 000-26347**

**NextMart,Inc. (f/k/a Sun New Media, Inc.)**

(Name of smallbusiness issuer as specified in its charter)

| **DELAWARE**                                    |   | **410985135**        |
|-------------------------------------------------|--------|----------------------|
| (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 PRC**                             |   | **100738** |
| (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 issueris not required to file reports pursuant to Section 13 or 15(d) of theExchange Act. Yes  o  No  x

Check whether theRegistrant (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the Registrant was required to file such reports) and(2) has been subject to such filing requirements for the past 90 days.

x Yes     No  o

x Yes     No  o

Check if there is nodisclosure of delinquent filers pursuant to Item 405 ofRegulation S-B contained herein this form, and no disclosure will becontained, to the best of the registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. o

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

o   Yes   x  No

State Registrant’srevenues for its most recent fiscal year:****$20,413,762

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was sold, or theaverage bid and asked prices of such common equity, as of a specified datewithin the past 60 days:

     $19,286,425  Based on last trade price on July 9, 2007

State the number ofshares outstanding of each of the Registrant’s classes of common stock, as ofthe latest practicable date. 86,793,210common shares issued and outstanding as of July 9, 2007.

**DOCUMENTSINCORPORATED BY REFERENCE**

     **None.**

 

Transitional Small Business Disclosure Format (Check one):

     Yes o     No x

 

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**TABLEOF CONTENTS**
|                                                                                                     | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------|------------|----------|
| PART I                                                                                              |       | 4        |
| Item 1.  Description of Business                                                               |       | 11       |
| Item 1A. Risk Factors                                                                          |       |     |
| Item 2. Properties                                                                             |       | 24       |
| Item 3. Legal Proceedings                                                                      |       | 24       |
| Item 4.  Submissions of Matters to a Vote of Security Holder                                   |       | 24       |
| PART II                                                                                             |       | 25       |
| Item 5.  Market for Common Equity and Related Shareholder Matters                              |       | 25       |
| Item 6.  Management Discussion and Analysis                                                    |       | 26       |
| Item 7. Financial  Statements                                                                  |       | 33       |
| Item 8. Changes In and Disagreements With  Accountants on Accounting and  Financial Disclosure |       | 58       |
| Item 8A. Controls and Procedures                                                               |       | 58       |
| Item 8B.  Other Information                                                                    |       | 58       |
| PART III                                                                                            |       | 59       |
| Item 9. Directors and Executive Officers of the  Registrant                                    |       | 59       |
| Item 10. Executive Compensation                                                                |       | 60       |
| Item 11. Security Ownership of Certain Beneficial  Owners and Management                       |       | 63       |
| Item 12. Certain Relationships and Related  Transactions                                       |       | 65       |
| Item 13.  Exhibits                                                                             |       | 67       |
| Item 14. Principal Accountant Fees and Services                                                |       | 67       |
| SIGNATURES                                                                                          |       | 71       |
|                                                                                                |       |     |
|  EXHIBIT 14.1                                                                                  |       |     |
|                                                                                                |       |     |
|  EXHIBIT 21                                                                                    |       |     |
|                                                                                                |       |     |
|  EXHIBIT 31.1                                                                                  |       |     |
|                                                                                                |       |     |
|  EXHIBIT 31.2                                                                                  |       |     |
|                                                                                                |       |     |
|  EXHIBIT 32.1                                                                                  |       |     |
|                                                                                                |       |     |
|  EXHIBIT 32.2                                                                                  |       |     |

 

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***FORWARD LOOKING INFORMATION***

This annual reportcontains forward-looking statements as that term is defined in the PrivateSecurities Litigation Reform Act of 1995. These statements relate to futureevents or our future financial performance. In some cases, you can identifyforward-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. Thesestatements are only predictions and involve known and unknown risks,uncertainties and other factors, including the risks in the section entitled “RiskFactors”, that may cause our or our industry’s actual results, levels ofactivity, performance or achievements to be materially different from anyfuture results, levels of activity, performance or achievements expressed orimplied by these forward-looking statements. Although we believe that theexpectations reflected in the forward-looking statements are reasonable, wecannot guarantee future results, levels of activity, performance orachievements. Except as required by applicable law, including the securitieslaws of the United States, we do not intend to update any of theforward-looking statements to conform these statements to actual results.

Our financial statementsare stated in United States Dollars and are prepared in accordance with UnitedStates Generally Accepted Accounting Principles. In this annual report, unlessotherwise specified, all dollar amounts are expressed in United States Dollars.

As used in thisannual report, the terms “we”, “us”, “our”, and “NXMR” mean NextMart, Inc. andits wholly-owned subsidiaries, including: Sun China Media (Beijing) TechnologyCo., Ltd., Suizhou Focus Trading Development Co., Ltd., Shanghai ShengjiTechnology Co., Ltd, Sun China Media (Beijing) International Advertising Co.Ltd, Dragon List Co. Ltd, Sun Trade Media (Beijing) Co. Ltd,   Sun Asia (Beijing)Investments Consultants Ltd, NextMart Technology (Beijing) Co. Ltd, Wuhan XindaWeiye Trade and Development Co. Ltd, Beijing Trans Global Logistics, NaixiuExhibition (Beijing) Co. Ltd .

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**PART I**

**Item 1.Description of Business**

***Overview***

Our goal is to become one of China’s leading distribution enterprisespredominantly in the women’s fashion apparel industry, by leveraging our fullrange of design, production management, sourcing, media/marketing andtechnological capabilities. Commencing in April 2007, we began to operatemainly in the women’s apparel industry where we derive the bulk of our revenueby acting as an outsourced brand management and production center for foreignapparel brands. We also possess a portfolio of media, marketing and databaseassets that we intend to leverage in order to expand into the online brandmanagement and e-commerce sectors for women’s apparel products. Over thecurrent fiscal year, we plan to grow our business-to-business revenues byadding new business clients and to develop business-to-consumer revenues bycreating our own apparel brands and marketing our own apparel products throughnew and traditional media. Our aim is to leverage our media assets andpartnered media assets to develop China’s largest shopping community forwholesale distribution and retail shopping, beginning in the women’s apparelsector.

We are creating this business through the ongoing acquisition ofvarious entities and assets. In September 2005, we acquired Sun New Media GroupLimited in a reverse acquisition transaction. Since that time, we have completedother acquisitions that have enabled us to serve the apparel, handheldelectronics verticals and beverage verticals. Going forward, we plan to centerour business operations around our apparel business, which is operated by ourShanghai-based brand and apparel production management subsidiary, William’sBrand Administer Co. Ltd. Our business development efforts will consist ofgrowing existing revenues in the business-to-business sector and creating newrevenues in the business-to-consumer sector.

Wewere originally incorporated under the laws of Minnesota in 1972 and werepreviously known as SE Global Equity. In September 2005, we acquired 100%of the issued and outstanding share capital of Sun New Media Group Limited andchanged the company name to Sun New Media, Inc. The acquisition was treated asa reverse acquisition for accounting purposes, and we adopted theSeptember 30 fiscal year of the “accounting acquirer” Sun New Media GroupLimited. In February 2006, we changed our fiscal year-end date fromSeptember 30th to March 31st.

InMay 2007, we reincorporated into the State of Delaware and changed our name toNextMart, Inc.

***Background***

Chinahas experienced rapid economic growth over the past decade. China’s centralbank estimates that economic growth for 2008 at 9.8 percent this year. Further,China’s entry into the WTO, accompanied by a proliferation of privatebusinesses and an increase in the number of foreign multinational companies inChina, has led to increased market liberalization and competition. In thiscompetitive environment, companies in China are increasingly recognizing theneed for improved methods of doing business.

Asa result of economic growth and liberalization, the number of business entitiesoperating in China has increased significantly. These new businesses arecompeting in an economy traditionally dominated by state owned or controlledenterprises at one end and serviced by millions of small local businesses onthe other end. These dynamics have generally led to a very stratified marketwith inefficient systems for channel marketing and distribution. A significantopportunity exists to leverage internet-based technologies to enhancecommunication across distribution networks, promoting accountability,transparency, and efficiency through centralized information managementsystems. The opportunity is particularly salient in industries characterized bymultiple-layers of fragmented distribution systems like the apparel industry.

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***Corporate Strategy***

Our goal is to become oneof China’s leadingdistribution enterprises predominantly in the women’s fashion apparel industry.We believe we have the full range of design, production management, sourcingand media/marketing and technological capabilities necessary to achieve ourgoal. Our current growth initiatives include growing our business-to-businessoperations by adding new clients domestically and abroad and developingbusiness-to-consumer operations for retail shopping. We aim to be anonline-based company that also has a strong offline sales and operatingframework. Our goal over time is to build China’s largest shoppingcommunity for online wholesale distribution and retail shopping in the women’sapparel sector. We are in the processof building e-commerce portals and developing our online and offlinemarketing platforms to realize this goal.

Our general strategyincludes:
|   | · | *Integrate our acquired businesses*.  We completed several acquisitions in calendar 2006, including our core  apparel subsidiary William’s Brand Administer Ltd.                                                                                                                                                                                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
|   | · | *Increase our value to customers by developing  broader service offerings.* We intend to develop additional  services to offer to our customers.                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
|   | · | *Increase our brand awareness.*  We intend to increase market awareness of our brand and services through  leveraging our presence in China’s apparel industry. We changed our name from  Sun New Media Inc. to NextMart Inc., which will serve as our unified brand  going forward.                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                        |
|   | · | *Continue to explore complementary acquisitions*.  We intend to continue to seek acquisition of companies or develop strategic  relationships that will allow us to create revenues in the  business-to-consumer sector. We are particularly interested in companies that  have strong marketing operations in the offline retail or direct sales  sectors. |

 

In the current fiscal year, we plan to focus our business developmentefforts around our core apparel subsidiary, William’s Brand Administer Ltd. Wehave the following strategies for our business-to-business (b2b) and business-to-consumer(b2c) operations.

Creating growth in the b2b sector by:

(1)   Adding b2b Clients. We plan to sign upadditional foreign brands and wholesalers for outsourced brand management andapparel design/production.

(2)   Providing b2b Technical Services. We plan toprovide technical services (mainly virtual exhibition and e-commerce) to other e-commerceproviders in exchange for transactional commissions on sales generated throughtheir websites.

Creatinggrowth in the b2c sector by:

(1)      Building a Direct Sales & Marketing Platform. Online, weplan to develop a digital product catalog for distribution via the Company’sCredit 114 database and Her Village’s female consumer database. Offline, wewill explore partnerships and/or acquisitions of direct mail-order catalogcompanies. We also intend to expand into the offline retail sector for women’sapparel by partnering or acquiring PRC-based apparel chain stores.

 (2)     NextMartPrivate Labels. We plan to leverage our design, production and brand-buildingcapabilities to launch our own private labels. These private labels will besold through our direct sales & marketing platform, allowing us tointegrate our vertical operations and earn a higher return on sales.

***Services***

TheCompany is divided into two principal divisions: the Transactional ServicesDivision and the Marketing & Information Services Division. In fiscal yearended March 31, 2007, the Transaction Services Division accounted for 77.8% ofrevenues and the Marketing & Information Services Division accounted for22.2% of revenues.

The*Transactional Services Division*. The goal of this divisionis to give business clients production, distribution and sales access to China’swomen’s apparel industry in exchange for a commission or service fee. Our servicesallow clients to bypass inefficiencies in China’s multi-layered distributionsystems, enhance margins, and consolidate fragmented distribution systems todesign and manufacture product in China. Going forward we plan to build out ouroperations in women’s fashion and apparel products in 

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connectionwith our apparel subsidiary, William’s Brand. Although we operate predominantlyin the apparel industry, we have supporting operations in the industry forhandheld electronics.

We expect the bulk of our revenue in the first phase of strategicdevelopment will come from transactional and services fees predominantly in ourapparel vertical. Revenue is derived from our offline brand management andproduction service fees. To grow revenues going forward, we plan to increaseour marketing operations to build our client base, and to develop a onlinesales services for wholesale and retail shopping that can complement our matureoffline opertions.

Through our*Marketing &Information Services Division*, we are leveraging our database assetsand partnerships with community media companies to build to build a sticky,web-based community of small businesses and urban consumers for onlinewholesale distribution and retail shopping. Our strategy is to build one ofChina’s largest and most accurate multi-vertical databases of buyers of women’sfashion and apparel products and market our own and third-party brands to them.

Our Information Services division markets certain technologies tobusiness, government, and media clients China. The key service is the division’sDjVu (pronounced “déjà vu”) scanning and compression technology. Theservice is a digital archiving and publishing service. As we expand ourdatabase and media offerings, we plan to cross-promote the digital compressiontechnology as a value-added service for customers.

We expect that as our transactional and information services mature, agreater percentage of our revenue will come through the provision of b2b andb2c marketing services, especially in regard to our online wholesaledistribution and retail shopping operations. Our information and transactionalservices will give us proprietary access to critical information about thestate of China’s small business and consumer marketplace, which we believe willallow us to create customized integrated marketing solutions for businessclients looking for effective communication channels with specific targetgroups.

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***Investments in Media and Marketing Companies***

Asof March 31, 2007, we maintain investments in consumer media and marketingcompanies that we believe will allow us to offer business customersone-stop-shop interactive marketing solutions that reach directly to China’skey consumer groups. We own 33,642,508 shares, representing a 6.9% interest inSun 3C Media (AIM:SCCC), an Irish company listed on the Alternative InvestmentMarket in London. These shares have been placed in escrow since July, 2006pursuant to an escrow agreement by and among various parties including Sun 3CMedia and us. According to the escrow agreement, our shares can be released subjectto the orderly market arrangements in place, which state that any decision tosell these ordinary shares within 12 months of their release must be approvedby Blue Oar Securities Plc, our agent. The shares are eligible for release intwo tranches; 50% of the 33,642,508 shares on June 30, 2007 and 50% of the33,642,508 on June 30, 2008.

Wealso own 99,629 shares, representing a 5.69% interest in Asia PremiumTelevision Group Inc. (OTCBB:ATVG), an Asia based company listed on the OTCBB;1,000,000 shares, representing a 3.66% interest in Broadcast International Inc.(OTCBB:BCST), an US company listed on OTCBB; and 1,000,000 shares, representinga 2.77% interest in Validian Corp. (OTCBB:VLDI), a Canadian-based companylisted on the OTCBB.

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***Competition***

Presently,we compete in the offline apparel market, and we intend to compete in theonline wholesale distribution and retail shopping market in the area of women’sfashion. In our core apparel vertical, we face competition from large-scaleapparel groups such as Li & Fung, HK Yida Apparel Co. Ltd, PPG Apparel Co. andsmaller apparel manufacturers, design centers and distributors that serviceforeign brand clients. Many of these competitors have longer histories and largerclient bases than we do. In the online space, we expect to face competitionfrom b2b and b2c e-commerce providers that sell fashion and apparel products.Some of these competitors may be horizontal service providers such asAlibaba.com, Hui Cong, Taobao.com and Global Sources and others may be apparelspecialists such as Li & Fung Online.

Inthe media and information sector, the main competitors in the industry continueto be state-owned media groups, industry associations, and government agencies.In the private sector, our principal competitor is Hui Cong, an informationservices and business search company that focuses on the domestic market. Wealso face indirect competition from Global Sources, a business informationservice companies that are primarily focused on the import-export marketplace.

Wealso 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 likelycontinue to allocate, the bulk of their marketing budgets to traditionaladvertising media and only a small portion of their budgets to onlinemarketing. If these companies do not devote a larger portion of their marketingbudgets to online marketing services provided by us, or if our existingcustomers reduce the amount they spend on online marketing, our results ofoperations and future growth prospects could be adversely affected.

Mostof our existing and potential competitors have significantly greater financialresources than we do. They also have longer operating histories and moreexperience 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 ofways, including by competing more heavily for users, customers, distributorsand networks of third-party websites, investing more heavily in research anddevelopment and making acquisitions.

***Proprietary Rights***

We regard ourintellectual property rights, such as copyrights, trademarks, trade secrets,practices and tools, as important to the success of our business. To protectour intellectual property rights, we intend to rely on a combination oftrademark and copyright law, trade secret protection, confidentialityagreements and other contractual arrangements with our employees, affiliates,clients, strategic partners, acquisition targets and others. Effectivetrademark, copyright and trade secret protection may not be available in everycountry in which we intend to offer our services. And the steps we take toprotect our intellectual property rights may not be adequate. Third parties mayinfringe or misappropriate our intellectual property rights or we may not beable to detect unauthorized use and take appropriate steps to enforce ourrights. In addition, other parties may assert infringement claims against us.Such claims, regardless of merit, could result in the expenditure ofsignificant financial and managerial resources. Future patents may limit ourability to use processes covered by such patents or expose us to claims ofpatent infringement or otherwise require us to obtain related licenses. Suchlicenses may not be available on acceptable terms. The failure to obtain suchlicenses on acceptable terms could have a negative effect on our businesses.

***Governmental Regulation***

All television broadcastmedia in China are government-controlled networks. The television andbroadcasting industry in China operates under a legal regime that consists ofthe State Council, which is the highest authority of the executive branch ofthe PRC central government, and the various ministries and agencies under itsleadership. 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; |

 

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|            | · | the Ministry of Public Security; and |
|------------|--------|--------------------------------------|
|       |   |                                 |
| ** ** | · | the Bureau of State Secrecy.         |

 

The State Council andthese ministries and agencies have issued a series of rules that regulate anumber of different substantive areas of our proposed businesses. We believe wehave all necessary governmental approvals to conduct our interactive marketingand sales services businesses.

Incompliance with PRC’s foreign investment restrictions on media industry andother laws and regulations, we conduct all our media services in China via thefollowing significant domestic Variable Interest Entities (“VIEs”):

·      SunChina Media (Beijing) Technology Co., Ltd., a PRC company controlled through usby contract and is owned equally by Qiong Zhou and Jacob Di, both of whom arenon-executive employees of the Company.

·      SuizhouFocus Trading Development Co., Ltd., a PRC company controlled by us by contractand is engaged in marketing, information and technology services to beverageand electronic device distributors.  It is 60% owned by Qi Yang, one ofour officers and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively,two non-executive employees of the Company.

·      ShanghaiShengji Technology Co., Ltd, a PRC company controlled by us by contract, and isengaged in wireless mobile services. It is 40% owned by Hui Yan, 40% owned byMin Lin and 20% owned by Kezhou Luan, each a non-executive employee of theCompany.

·      SunChina Media (Beijing) International Advertising Co. Ltd, a PRC companycontrolled 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 arenon-executive employees of the Company.

·      DragonList Co. Ltd, a PRC company controlled by us by contract and is engaged indigital publishing business.  It is 70% owned by Qiong Zhou, and 30% ownedby Jacob Di, both of whom are non-executive employees of the Company.

·      SunTrade Media (Beijing) Co. Ltd, a PRC company controlled by us by contract andis 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 theCompany.

·      SunAsia (Beijing) Investments Consultants Ltd, a PRC company controlled by us bycontract and is engaged in the provision of consultancy services.  It is60% owned by Qiong Zhou, and 40% owned by Xiaoang Li, both of whom arenon-executive employees of the Company.

·      NextMartTechnology (Beijing) Co. Ltd, a PRC company controlled by us by contract and isengaged 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.

·      WuhanXinda Weiye Trade and Development Co. Ltd, a PRC company controlled by us bycontract and engaged in trading.  It is 40% owned by Jin Liu, 30% owned byWanzhi Zhu and 30% owned by Mingde Jiang, all of whom are non-executiveemployees of the Company.

·      BeijingTrans Global Logistics, a PRC company 80% by us by contract and engaged intrading.  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.

·      NaixiuExhibition (Beijing) Co. Ltd, a PRC company that is controlled by us and owned50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun arenon-executive employees of the Company.

The capital investment in these VIEs is funded by theCompany and transferred to the VIEs via contractual agreements between theCompany (or its non-PRC subsidiary) and the PRC employees who own the VIEs. Asof March 31, 2007, the total amount of capital investment that was transferredto the VIEs listed above was US$3,451,000.  Under various contractualagreements, employee shareholders of the VIEs are required to transfer theirownership in these entities to our subsidiaries in China when permitted by PRClaws and regulations or to our designees at any time for the outstanding amountof injected captial investment, and all voting rights of the VIEs are assignedto us. We have the power to appoint all directors and senior managementpersonnel of the VIEs.  Through our wholly-owned subsidiaries in China, wehave also entered into exclusive technical agreements and other service 

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agreements with the VIEs, under which thesesubsidiaries provide technical services.

***Employees***

As of July 9, 2007, wehad 44 employees. Of our employees, 8 were in management; 19 were in finance,legal & administration; 5 in business development and research &development and 12 in sales and marketing.

***Recent Developments***

On July 6, 2007, we completed the cancellation of28,500,000 million our own shares that were returned to us. The shares werereturned through three separate agreements: an agreement with the sellers ofFocus Channel Development Co. Ltd, dated November 21, 2006 that returned14,900,000 of our shares; an agreement with Sun Culture Foundation dated March26, 2007 that returned 7,600,000 of our shares; and an agreement with Sun MediaInvestment Holdings dated April 9, 2007 that returned 6,000,000 of our shares.

On May 2, 2007, we reincorporated in the State ofDelaware which changed our corporate domicile from Minnesota to Delaware. Onthat same date, we changed our name from “Sun New Media Inc.” to “NextMart,Inc.”

OnApril 27, 2007, we issued 6.9 million shares of our common stock to Panpac TechStrategic Limited, a wholly-owned subsidiary of The Lexicon Group Ltd (“TLG”)(formerly“Sun Business Network Ltd.”) to satisfy a contractual obligation to TLGrelating to the Sale and Purchase Agreement (“the Agreement”) between theparties dated November 21, 2005. In the original Sale and Purchase Agreement,we purchased certain assets, including various on-line publishing rights, fromTLG for an aggregate consideration of the issuance of 13.8 million of ourshares. The consideration was to be satisfied in two installments of 6.9million shares. The fir st installment of 6.9 million shares was issued uponthe completion of the deal. The second installment of 6.9 million sharesremained subject to a profit guarantee for the acquired business of PAT$2,415,000 by December 2006.

InJuly 2006, we sold part of the acquired business to Sun TV Shop Plc (now “Sun3C Plc”)(AIM:SCCC) for a gain in excess of $2,415,000, satisfied in Sun 3Cstock. We determined this gain to satisfy TLG’s profit guarantee of$2,415,000 and proceeded with thesecond share issuance of 6.9 million shares, pursuant to the original Agreementbetween TLG and us.

Theagreement 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 TLGkwould be held in escrow, along with 6.9 million NextMart shares contributed bySun Media Investment Holdings until at least June 30, 2008, pursuant to aPooling Agreement between TLG, Sun Media Investment, and us dated March 31,2007.

OnApril 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, forcertain exclusive marketing access within Her Village’s multimedia products —namely, its e-magazines. Her Village is a wholly-owned subsidiary of Yang LanStudio Ltd., which is 100% owned and controlled by Ms. Yang Lan, the spouse ofour Chairman Dr. Bruno Wu. As part of the agreement, we agreed to pay for theproduction of Her Village’s online multimedia products at cost, approximately$180,000 per annum and receive the revenues generated from the sale of suchproducts, subject to the payment of a 10% sales commission to her Village onall transactions generated by Her Village. As of the date of this Report, wehave not yet completed this transaction.

OnApril 9, 2007, we entered into agreement with SMIH to sell certain non-coreassets in exchange for a total consideration of $4.15 million dollars. Theassets to be sold are: Two real estate properties in Beijing; a 30% investmentstake in Global Woman Multimedia Co. Ltd; and 100% of the share capital ofLifestyle Magazines Publishing Co. Ltd. According to the terms of theagreement, SMIH will satisfy the $4.15 million consideration by transferring tous 1 million shares of Validian Corp. (OTCBB:VLDI)(“Validian’) and (ii) apromissory 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 sharesreturned to us from SMIH.

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**DisclosureRegarding Forward Looking and Cautionary Statements.**

Forward Looking Statements. Certain of the statements contained inthis Annual Report on Form 10-KSB includes “forward looking statements” withinthe meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“ExchangeAct”). All statements other than statements of historical facts included inthis Form 10-KSB regarding the Company’s financial position, business strategy,and plans and objectives of management for future operations and capitalexpenditures, and other matters, are forward looking statements. Theseforward-looking statements are based upon management’s expectations of futureevents. Although we believe the expectations reflected in such forward lookingstatements are reasonable, there can be no assurances that such expectationswill prove to be correct. Additional statements concerning important factorsthat could cause actual results to differ materially from our expectations (“CautionaryStatements”) are disclosed below in the Cautionary Statements section andelsewhere in this Form 10-KSB. All written and oral forward looking statementsattributable to us or persons acting on our behalf subsequent to the date ofthis Form 10-KSB are expressly qualified in their entirety by the CautionaryStatements.

**CautionaryStatements**.Certain risks and uncertainties are inherent in the Company’s business. Inaddition to other information contained in this Form 10-KSB, the followingCautionary Statements should be considered when evaluating the forward lookingstatements contained in this Form 10-KSB:

**Item 1A.      Risk Factors**

**RisksRelated to Our Business**

***Our short operating history and rapidly evolving business makes itdifficult for us to accurately forecast revenues and expenses.***

Duringthe last two fiscal quarters of year ended March 31, 2007, we changed ourbusiness focus to the women’s apparel vertical market, through the acquisitionof new businesses, including Williams Brand Ltd, and entering into relatedjoint ventures. As a component of our restructuring, we also divested ourselvesof certain non core assets and operations. These divested assets and operationscontributed significantly to our operations for the 2007 and 2006 fiscal yearend periods.  In light of these changes,you should consider our future prospects in light of the risks and uncertaintiesexperienced by early stage companies in evolving industries in China.  As a result, it will be difficult for us topredict future revenues and operating expenses with a great deal of certainty.We based our expense levels, in part, on our expectations of future revenuesfrom these transactions. If our interactive marketing and sales servicesbusiness develops slower than we expect, our losses may be higher thananticipated and may cause our stock price to decline.

Someof the other risks and uncertainties of our business relate to our ability to:

·   offer new and innovative products and servicesto attract and retain a larger consumer base;

·   attract customers;

·   increase awareness of our brand and continueto develop consumer and customer loyalty;

·   respond to competitive market conditions;

·   respond to changes in our regulatoryenvironment;

·   manage risks associated with intellectualproperty rights;

·   maintain effective control of our costs andexpenses;

·   raise sufficient capital to sustain and expandour business;

·   attract, retain and motivate qualifiedpersonnel; and

·   upgrade our technology to support increasedtraffic and expanded services.

Ifwe are unsuccessful in addressing any of these risks and uncertainties, ourbusiness may be materially and adversely affected.

***The development of our business is dependent upon the completion andintegration of acquisitions and other transactions that have only recently ornot yet closed.***

Ourprincipal focus is on our PRC-based Marketing, Information and TransactionalServices, which we are creating through the acquisition of various entities andassets. Certain of these transactions have only recently closed. Accordingly,while our financial 

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statementscontained herein for the 2007 year end period include pro-forma financialstatement of some of the recently acquired business, nonetheless it may bedifficult to

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evaluateour business based upon our historical financial results, including those forthe year ended March 31 2007. If we are unable to successfully operate andintegrate the businesses we acquire, our business will not be successful. Weexpect to continually look for new businesses to acquire to maintain andsustain our operations. If we fail to identify such business, are unable toacquire such businesses on reasonable terms, or fail to successfully integratesuch businesses, our operating results and prospects could be harmed.

***We recognized a large gain in the quarter ended June 30, 2006 which maynot be repeated. Our consolidation and de-consolidation activities may resultin substantial non-operating gains or losses which may mean that our results ofoperations may be materially impacted by non-operating factors.***

Inthe quarter ended June 30, 2006 we recorded net gains of approximately $10.7million relating to the disposition of assets. As part of our strategy weexpect to continue to engage in a significant level of merger and acquisitionsand investment activities as we seek to build our business. When we decide todispose of assets or operations which we determine to be non-core to ourcontinuing operations, we may recognize gains or losses. As in the quarterended June 30, 2006 these may involve significant gains or losses. Such gainsand losses are not predictable and the fluctuating impact on our net income mayhave an adverse affect on the valuation of the Company and our share price.

***If the Internet and, in particular, interactive marketing are notbroadly adopted in China, our ability to increase revenue and sustainprofitability could be materially and adversely affected.***

Theuse of the Internet as a marketing channel is at an early stage in China.Internet and broadband penetration rates in China are both relatively lowcompared to those in most developed countries. Many of our current and potentialcustomers have limited experience with the Internet as a marketing channel, andhistorically have not devoted a significant portion of their marketing budgetsto online marketing and promotion. As a result, they may not consider theInternet effective in promoting their products and services as compared totraditional print and broadcast media. Our ability to generate significantrevenues may be negatively impacted by a number of factors, many of which arebeyond our control, including:

·   difficulties associated with developing alarger consumer base with demographic characteristics attractive to customers;

·   increased competition and potential downwardpressure on online marketing prices;

·   ineffectiveness of our online marketingdelivery, 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 andcustomers as a result.***

Weexpect to face significant competition in our interactive marketing and salesservices business, particularly from other companies that seek to provideonline marketing services. Our main competitors include Sohu.com, Alibaba.com,Tom Online, Beijing Media in China and Next Media Group in Hong Kong. Many ofthese competitors have significantly greater financial resources than we do.They also have longer operating histories and more experience in attracting andretaining users and managing customers than we do. They may use theirexperience and resources to compete with us in a variety of ways, including bycompeting more heavily for users, customers, distributors and networks ofthird-party websites, investing more heavily in research and development andmaking acquisitions.

Wealso 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 likelycontinue to allocate, the bulk of their marketing budgets to traditionaladvertising media and only a small portion of their budgets to onlinemarketing. If these companies do not devote a larger portion of their marketingbudgets to online marketing services provided by us, or if our existingcustomers reduce the amount they spend on online marketing, our results ofoperations and future growth prospects could be adversely affected.

***Our business depends on a strong brand, and if we are not able tomaintain and enhance our brand, our business and operating results may beharmed.***

Webelieve that recognition of our brand will contribute significantly to thesuccess of our business. We also believe that maintaining and enhancing ourbrand is critical to expanding our base of consumers and customers. As ourmarket becomes

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increasinglycompetitive, maintaining and enhancing our brand will depend largely on ourability to remain as an Internet marketing leader in China, which may beincreasingly difficult and expensive.

***If we fail to continue to innovate and provide relevant services, wemay not be able to generate sufficient user traffic levels to remaincompetitive.***

Wemust continue to invest significant resources in research and development toenhance services and introduce additional high quality services to attract andretain consumers. If we are unable to anticipate consumer preferences orindustry 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 ifour innovations do not respond to the needs of our consumers and customers, arenot appropriately timed with market opportunities or are not effectivelybrought to market.

***If we fail to keep up with rapid technological changes, our futuresuccess may be adversely affected.***

Theonline marketing industry is subject to rapid technological changes. Our futuresuccess will depend on our ability to respond to rapidly changing technologies,adapt our services to evolving industry standards and improve the performanceand reliability of our services. Our failure to adapt to such changes couldharm our business. New marketing media could also adversely affect us. Forexample, the number of people accessing the Internet through devices other thanpersonal computers, including mobile telephones and hand-held devices, hasincreased in recent years. If we are slow to develop products and technologiesthat are more compatible with non-PC communications devices, we may not besuccessful in capturing a significant share of this increasingly importantmarket for media and other services. In addition, the widespread adoption ofnew Internet, networking or telecommunications technologies or othertechnological changes could require substantial expenditures to modify or adaptour products, services or infrastructure. If we fail to keep up with rapidtechnological 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 relatedclaims, that could be time-consuming and costly to defend and may result in ourinability to continue providing certain of our existing services.***

Internet,technology and media companies are frequently involved in litigation based onallegations of infringement of intellectual property rights, unfaircompetition, invasion of privacy, defamation and other violations ofthird-party rights. The validity, enforceability and scope of protection ofintellectual property in Internet-related industries, particularly in China,are uncertain and still evolving. In addition, many parties are activelydeveloping and seeking protection for Internet-related technologies, includingseeking patent protection. There may be patents issued or pending that are heldby others that cover significant aspects of our technologies, products,business methods or services. As we face increasing competition and aslitigation becomes more common in China for resolving commercial disputes, weface a higher risk of being the subject of intellectual property infringementclaims.

Intellectualproperty litigation is expensive and time consuming and could divert resourcesand management attention from the operations of our businesses. If there is asuccessful claim of infringement, we may be required to pay substantial finesand damages or enter into royalty or license agreements that may not beavailable on commercially acceptable terms, if at all. Our failure to obtain alicense of the rights on a timely basis could harm our business. Anyintellectual property litigation could have a material adverse effect on ourbusiness, financial condition or results of operations.

***We may not be able to prevent others from unauthorized use of ourintellectual property, which could harm our business and competitive position.***

Werely on a combination of copyright, trademark and trade secret laws, as well asnondisclosure agreements and other methods to protect our intellectual propertyrights. The protection of intellectual property rights in China may not be aseffective as those in the United States or other countries. The steps we havetaken may be inadequate to prevent the misappropriation of our technology.Reverse engineering, unauthorized copying or other misappropriation of ourtechnologies could enable third parties to benefit from our technologieswithout paying us. From time to time, we may have to enforce our intellectualproperty rights through litigation. Such litigation may result in substantialcosts and diversion of resources and management attention.

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***If we fail to attract customers for our online marketing services, ourbusiness and growth prospects could be seriously harmed.***

Ouronline marketing customers will not maintain a business relationship with us iftheir investment does not generate sales leads and ultimately consumers. Failureto retain our existing online marketing customers or attract new customers forour online marketing services could seriously harm our business and growthprospects.

***Because we primarily rely on distributors in providing our e-marketingservices, our failure to retain key distributors or attract additionaldistributors could materially and adversely affect our business.***

Onlinemarketing is at an early stage of development in China and is not as widelyaccepted by or available to businesses in China as in the United States. As aresult, we rely heavily on a nationwide distribution network of third-partydistributors for our sales to, and collection of payment from, our corporateand consumer customers. If our distributors do not provide quality services to ourconsumer customers or otherwise breach their contracts with our consumercustomers, we may lose customers and our results of operations may bematerially and adversely affected. We do not have long-term agreements with anyof our distributors, including our key distributors, and cannot assure you thatwe will continue to maintain favorable relationships with them. Ourdistribution arrangements are non-exclusive. Furthermore, some of ourdistributors may have contracts with our competitors or potential competitorsand may not renew their distribution agreements with us. In addition, as newmethods for accessing the Internet, including the use of wireless devices,become available, we may need to expand our distribution network to cater tothe new technologies. If we fail to retain our key distributors or attractadditional distributors on terms that are commercially reasonable, our businessand results of operations could be materially and adversely affected.

***Our strategy of acquiring complementary businesses, assets andtechnologies may fail.***

Aspart of our business strategy, we have pursued, and intend to continue topursue, selective strategic acquisitions of businesses, assets and technologiesthat complement our existing business. Our acquisitions involve uncertaintiesand risks, including:

·potential ongoing financial obligations andunforeseen or hidden liabilities;

·failure to achieve the intended objectives,benefits or revenue-enhancing opportunities;

·costs and difficulties of integrating acquiredbusinesses and managing a larger business; and

·diversion of resources and managementattention.

Ourfailure to address these risks successfully may have a material adverse effecton our financial condition and results of operations. Any such acquisition mayrequire a significant amount of capital investment, which would decrease theamount of cash available for working capital or capital expenditures. Inaddition, if we use our equity securities to pay for acquisitions, we maydilute the value of our common stock. If we borrow funds to financeacquisitions, such debt instruments may contain restrictive covenants thatcould, among other things, restrict us from distributing dividends. Suchacquisitions may also generate significant amortization expenses related tointangible assets.

***We may not be able to manage our expanding operations effectively.***

Weanticipate significant continued expansion of our business as we address growthin our consumer and customer base and market opportunities. To manage the potentialgrowth of our operations and personnel, we will be required to improveoperational and financial systems, procedures and controls, and expand, trainand manage our growing employee base. Furthermore, our management will berequired to maintain and expand our relationships with other websites, Internetcompanies, and other third parties. We cannot assure you that our current andplanned personnel, systems, procedures and controls will be adequate to supportour future operations.

***Our operating results may fluctuate, which makes our results difficultto predict and could cause our results to fall short of expectations.***

Ouroperating results may fluctuate as a result of a number of factors, many ofwhich are outside of our control. For these reasons, comparing our operatingresults on a period-to-period basis may not be meaningful, and you should notrely on our past results as an indication of our future performance. Ourquarterly and annual revenues and costs and expenses as a percentage of ourrevenues may be significantly different from our historical or projected rates.Our operating results in future quarters may

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fallbelow expectations. Any of these events could cause the price of our commonstock to fall. Any of the risk factors listed in this “Risk Factors” section,and in particular, the following risk factors, could cause our operatingresults to fluctuate from quarter to quarter:

·general economic conditions in China andeconomic conditions specific to the Internet, Internet search and onlinemarketing;

·our ability to attract additional customers;

·the announcement or introduction of new orenhanced products and services by us or our competitors;

·the amount and timing of operating costs andcapital expenditures related to the maintenance and expansion of ourbusinesses, operations and infrastructure;

·the results of our acquisitions of, orinvestments in, other businesses or assets;

·PRC regulations or actions pertaining toactivities on the Internet, including gambling, online games and other forms ofentertainment; and

·geopolitical events or natural disasters suchas war, threat of war, Severe Acute Respiratory Syndrome, or SARS, or otherepidemics.

Becauseof our limited operating history and our rapidly growing business, our historicaloperating results may not be useful to you in predicting our future operatingresults. Advertising spending in China has historically been cyclical,reflecting overall economic conditions as well as budgeting and buyingpatterns. Our rapid growth has lessened the impact of the cyclicality andseasonality of our business. As we continue to grow, we expect that thecyclicality and seasonality in our business may cause our operating results tofluctuate.

***The successful operation of our business depends upon the performanceand reliability of the Internet infrastructure and fixed telecommunicationsnetworks in China.***

Ourbusiness depends on the performance and reliability of the Internetinfrastructure in China. Almost all access to the Internet is maintainedthrough state-owned telecommunication operators under the administrativecontrol and regulatory supervision of the Ministry of Information Industry ofChina. In addition, the national networks in China are connected to theInternet through international gateways controlled by the PRC government. Theseinternational gateways are the only channels through which a domestic user canconnect to the Internet. We cannot assure you that a more sophisticatedInternet infrastructure will be developed in China. We may not have access toalternative networks in the event of disruptions, failures or other problemswith China’s Internet infrastructure. In addition, the Internet infrastructurein China may not support the demands associated with continued growth in Internetusage.

***Our success depends on the continuing efforts of our senior managementteam and other key personnel and our business may be harmed if we lose theirservices.***

Ourfuture success depends heavily upon the continuing services of the members ofour senior management team, in particular our chairman Dr. Bruno Wu. If one ormore of our senior executives or other key personnel are unable or unwilling tocontinue in their present positions, we may not be able to replace them easilyor at all, and our business may be disrupted and our financial condition andresults of operations may be materially and adversely affected. Competition forsenior management and key personnel is intense, the pool of qualifiedcandidates is very limited, and we may not be able to retain the services ofour senior executives or key personnel, or attract and retain high-qualitysenior executives or key personnel in the future.

Inaddition, if any member of our senior management team or any of our other keypersonnel joins a competitor or forms a competing company, we may losecustomers, distributors, know-how and key professionals and staff members. Eachof our executive officers and key employees has entered into an employmentagreement with us, which contains confidentiality and non-competitionprovisions. If any disputes arise between any of our senior executives or keypersonnel and us, we cannot assure you the extent to which any of theseagreements may be enforced.

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***We rely on highly skilled personnel and, if we are unable to retain ormotivate key personnel or hire qualified personnel, we may not be able to groweffectively.***

Ourperformance and future success depends on the talents and efforts of highlyskilled individuals. We will need to continue to identify, hire, develop, motivateand retain highly skilled personnel for all areas of our organization.Competition in our industry for qualified employees is intense. Our continuedability to compete effectively depends on our ability to attract new employeesand to retain and motivate our existing employees.

Ascompetition in our industry intensifies, it may be more difficult for us tohire, motivate and retain highly skilled personnel. If we do not succeed inattracting additional highly skilled personnel or retaining or motivating ourexisting personnel, we may be unable to grow effectively.

***Interruption or failure of our information technology andcommunications systems could impair our ability to effectively provide ourproducts and services, which could damage our reputation and harm our operatingresults.***

Ourability to provide our services depends on the continuing operation of ourinformation technology and communications systems. Any damage to or failure ofour systems could interrupt our service. Service interruptions could reduce ourrevenues and profits, and damage our brand if our system is perceived to beunreliable. Our systems are vulnerable to damage or interruption as a result ofterrorist attacks, war, earthquakes, floods, fires, power loss,telecommunications failures, computer viruses, interruptions in access to ourwebsites through the use of “denial of service” or similar attacks, hacking orother attempts to harm our systems, and similar events. Our servers, which arehosted at third-party Internet data centers, are also vulnerable to break-ins,sabotage and vandalism. Some of our systems are not fully redundant, and ourdisaster recovery planning does not account for all possible scenarios. Theoccurrence of a natural disaster or a closure of an Internet data center by athird-party provider without adequate notice could result in lengthy serviceinterruptions.

***Our business could be adversely affected if our software contains bugs.***

Ouronline systems, including our websites, and other software applications andproducts, could contain undetected errors or “bugs” that could adversely affecttheir performance. We regularly update and enhance our websites and our otheronline systems and introduce new versions of our software products andapplications. The occurrence of errors in any of these may cause us to losemarket share, damage our reputation and brand name, and materially andadversely affect our business.

***Concerns about the security of electronic commerce transactions andconfidentiality of information on the Internet may reduce use of our networkand impede our growth.***

Asignificant barrier to electronic commerce and communications over the Internetin general has been public concern over security and privacy, including thetransmission of confidential information. If these concerns are not adequatelyaddressed, they may inhibit the growth of the Internet and other onlineservices generally, especially as a means of conducting commercialtransactions. If a well-publicized Internet breach of security were to occur,general Internet usage could decline, which could reduce traffic to ourdestination websites and impede our growth.

***We have limited business insurance coverage.***

Theinsurance industry in China is still at an early stage of development.Insurance companies in China offer limited business insurance products. We donot have any business liability or disruption insurance coverage for ouroperations in China. Any business disruption, litigation or natural disastermay result in our incurring substantial costs and the diversion of ourresources.

***Fluctuation and impairment of marketable securities will materiallyimpact our net income***

Weown securities in a number of public companies. These marketable securities arecarried at fair market value, fluctuation of market price of those securitiescould adversely impact net income and earnings per share, we have no controlover the market price of those securities and cannot predict the possibleimpact to our financial result.

***Any change of the indefinite status of any of our intangible assets mayrequire us to record additional amortization expenses***

Someof our intangible assets are characterized as indefinite intangible assets andtherefore are not required to be amortized. Any changes of the conditions uponwhich we based categorization of these intangible asset as indefinite willlikely require us

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toamortize these intangible assets over their economic life. Such additionalamortization cost could adversely impact our net income and earnings per share.

**RisksRelated to Our Corporate Structure**

***PRC laws and regulations governing our businesses and the validity ofcertain of our contractual arrangements are uncertain. If we are found to be inviolation, we could be subject to sanctions. In addition, changes in such PRClaws and regulations may materially and adversely affect our business.***

Althoughwe are a Delaware corporation, all of our operations and employees are locatedin the PRC. As such, there are substantial uncertainties regarding theinterpretation and application of PRC laws and regulations, including, but notlimited to, the laws and regulations governing our business, or the enforcementand performance of our contractual arrangements with certain of our affiliatedChinese entities. We are considered foreign persons or foreign investedenterprises under PRC law. As a result, we are subject to PRC law limitationson foreign ownership of Internet and advertising companies. These laws andregulations are relatively new and may be subject to change, and their officialinterpretation and enforcement may involve substantial uncertainty. Theeffectiveness of newly enacted laws, regulations or amendments may be delayed,resulting in detrimental reliance by foreign investors. New laws andregulations that affect existing and proposed future businesses may also beapplied retroactively.

ThePRC government has broad discretion in dealing with violations of laws andregulations, including levying fines, revoking business and other licenses andrequiring actions necessary for compliance. In particular, licenses and permitsissued or granted to us by relevant governmental bodies may be revoked at alater time by higher regulatory bodies. We cannot predict the effect of theinterpretation of existing or new PRC laws or regulations on our businesses. Wecannot assure you that our current ownership and operating structure would notbe found in violation of any current or future PRC laws or regulations. As aresult, we may be subject to sanctions, including fines, and could be requiredto restructure our operations or cease to provide certain services. Any ofthese or similar actions could significantly disrupt our business operations orrestrict us from conducting a substantial portion of our business operations,which could materially and adversely affect our business, financial conditionand results of operations.

***Our corporate actions are substantially controlled by our principalshareholders and affiliated entities.***

Asof March 31, 2007, our principal shareholders and their affiliated entities ownapproximately 12.25% of our outstanding common stock. These shareholders,acting individually or as a group, could exert substantial influence overmatters such as electing directors and approving mergers or other businesscombination transactions. This concentration of ownership may also discourage,delay or prevent a change in control of our company, which could deprive ourshareholders of an opportunity to receive a premium for their shares as part ofa sale of our company and might reduce the price of our Common stock. Theseactions may be taken even if they are opposed by our other shareholders.

***There are certaininter-locking relationships and potential conflicts of interest with ourChairman, His Spouse, and a Significant Shareholder.***

Dr. Bruno Wu, our Chairman and Chief Executive Officer is also Chairmanand Director of Sun Media Investment Holdings Limited (“SMIH”), one of oursignificant shareholders. Dr. Wu’s wife is the majority shareholder of SMIH. Wealso have entered into several transactions involving SMIH or entitiescontrolled by SMIH, including a recent transaction with Her Village Co., Ltd.In addition, the parties may enter into future arrangements, includingmodifications to existing agreements, which have not been determined at thistime. Although our management believes that each of these past transactionswere entered into in our best interests (and for future transactions ourmanagement will endeavor at all times to maintain our best interests in anysuch transaction(s)), they were not the product of any arm’s lengthnegotiations between the parties, nor did we obtain an independent fairnessopinion with respect to these transactions. Therefore, conflicts of interestbetween such parties and us have existed in the past and may continue in thefuture and may have an adverse impact on our business.

***Our officers and directors may allocatetheir time and efforts to other businesses thereby causing conflicts ofinterest in their determination as to whether or not to present businessopportunities to the Company and as to how much time to devote to our affairs.***

Ourofficers and directors, including Dr. Wu, are not required to commit their fulltime to our affairs, which may result in a conflict of interest in allocating theirtime between our operations and other businesses. All of our executive officersare engaged in several other business endeavours and are not obligated tocontribute any specific number of hours to our affairs. If our executiveofficers’ 

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other businessaffairs require them to devote more substantial amounts of time to suchaffairs, it could have a negative impact on our financial condition, results ofoperations and future business prospects.

We intend to protect our interests in having these officers anddirectors remain part of the Company and prioritize their time and resources insuch a way that will benefit the interests of us, although no assurancesthereof can be given.

Our officers and directors may become aware of business opportunitieswhich may be appropriate for presentation to us as well as the other entitiesto which they owe fiduciary duties. Accordingly, they may have conflicts ofinterest in determining to which entity a particular business opportunityshould be presented.  The Company intendsto protect its interests in having these officers and directors remain part ofthe Company and prioritize their time and resources in such a way that willbenefit the Company, although no assurances thereof can be given.

**RisksRelated to Doing Business in China**

***Adverse changes in economic and political policies of the PRCgovernment could have a material adverse effect on the overall economic growthof China, which could adversely affect our business.***

Asour interactive marketing and sales services business expands, we expect anincreasing portion of our business operations to be conducted in China.Accordingly, our results of operations, financial condition and prospects aresubject to a significant degree to economic, political and legal developmentsin China. China’s economy differs from the economies of most developedcountries in many respects, including the amount of government involvement,level of development, growth rate, control of foreign exchange and allocationof resources. While China’s economy has experienced significant growth in thepast 20 years, growth has been uneven across different regions and amongvarious economic sectors of China. The PRC government has implemented variousmeasures to encourage economic development and guide the allocation ofresources. Some of these measures benefit the overall PRC economy, but may alsohave a negative effect on us. For example, our financial condition and resultsof operations may be adversely affected by governmental control over capital investmentsor changes in tax regulations that may be applicable to us. Since early 2004,the PRC government has implemented certain measures to control the pace ofeconomic growth. Such measures may cause a decrease in the level of economicactivity in China, which in turn could adversely affect our results ofoperations and financial condition.

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***Our subsidiaries and affiliates are subject to restrictions on payingdividends and making other payments to us.***

Asour interactive marketing and sales services business develops, we expect toincreasingly rely on dividends payments from our subsidiaries and affiliatedentities in China. However, PRC regulations currently permit payment ofdividends only out of accumulated profits, as determined in accordance with PRCaccounting standards and regulations. Our subsidiaries and affiliated entitiesin China are also required to set aside a portion of their after-tax profitsaccording to PRC accounting standards and regulations for certain reservefunds. The PRC government also imposes controls on the conversion of RMB intoforeign currencies and the remittance of currencies out of China. We mayexperience difficulties in completing the administrative procedures necessaryto obtain and remit foreign currency. Furthermore, if our subsidiaries oraffiliated entities in China incur debt on their own in the future, theinstruments governing the debt may restrict their ability to pay dividends ormake other payments. If either we or our subsidiaries is unable to receive allof the revenues from our operations through these contractual or dividendarrangements, we may be unable to declare dividends on our common stock.

***Uncertainties with respect to the PRC legal system could adverselyaffect us.***

Weconduct a substantial and increasing portion our business through subsidiariesand affiliated entities based in China. Our operations in China are governed byPRC laws and regulations. Our subsidiaries are generally subject to laws andregulations applicable to foreign investments in China and, in particular, lawsapplicable to wholly foreign-owned enterprises. The PRC legal system is basedon written statutes. Prior court decisions may be cited for reference but havelimited precedent value.

Since1979, PRC legislation and regulations have significantly enhanced theprotections afforded to various forms of foreign investments in China. However,China has not developed a fully integrated legal system and recently-enactedlaws and regulations may not sufficiently cover all aspects of economicactivities in China. In particular, because these laws and regulations arerelatively new, and because of the limited published decisions and theirnon-binding nature, the interpretation and enforcement of these laws andregulations involve uncertainties. In addition, the PRC legal system is basedin part on governmental policies and internal rules (some of which are notpublished on a timely basis or at all) that may have a retroactive effect. As aresult, we may not be aware of our violation of these policies and rules untilafter the occurrence of the violation. In addition, any litigation in China maybe protracted and result in substantial costs and diversion of resources andmanagement attention.

***You may experience difficulties in effecting service of legal process,enforcing foreign judgments or bringing original actions in China based onUnited States or other foreign laws against us or our management.***

Weconduct all of our operations in China and all of our assets are located inChina. 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 theUnited States or elsewhere outside China on our senior executive officers,including matters arising under U.S. federal securities laws or applicablestate securities laws. Moreover, our PRC counsel has advised us that PRC doesnot have treaties with the United States or many other countries providing forthe reciprocal recognition and enforcement of judgment of courts.

***Governmental control of currency conversion may affect the value ofyour investment.***

ThePRC government imposes controls on the conversion of RMB to foreign currenciesand, in certain cases, the remittance of currencies out of China. As ourinteractive marketing and sales services business expands, we expect to derivean increasing percentage of our revenues in RMB. Under our current structure,we expect our income will be primarily derived from dividend payments from ourPRC subsidiaries. Shortages in the availability of foreign currency mayrestrict the ability of our PRC subsidiaries and our affiliated entities toremit sufficient foreign currency to pay dividends or other payments to us, orotherwise satisfy their foreign currency denominated obligations. Underexisting PRC foreign exchange regulations, payments of current account items,including profit distributions, interest and principal payments on outstandingnotes (including our recently completed convertible note financing) andexpenditures from trade-related transactions, can be made in foreign currencieswithout prior approval from the PRC State Administration of Foreign Exchange bycomplying with certain procedural requirements. However, approval fromappropriate government authorities is required when RMB is to be converted intoforeign currency and remitted out of China to pay capital expenses such as therepayment of bank loans denominated in foreign currencies. The PRC governmentat its discretion also may restrict access in the future to foreign currenciesfor current account transactions. If the foreign exchange control systemprevents 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.

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***Fluctuation in the value of RMB may have a material adverse effect onyour investment.***

Thevalue of RMB against the U.S. dollar and other currencies may fluctuate and isaffected by, among other things, changes in political and economic conditions.On July 21, 2005, the PRC government changed its decade-old policy of peggingthe value of the RMB to the U.S. dollar. Under the new policy, the RMB ispermitted to fluctuate within a narrow and managed band against a basket offoreign currencies. This change in policy has resulted in an approximately 7.9%appreciation of the RMB against the U.S. dollar. While the internationalreaction to the RMB revaluation has generally been positive, there remainssignificant international pressure on the PRC government to adopt a moreflexible currency policy, which could result in a further and significantappreciation of the RMB against the U.S. dollar. As our interactive marketingand sales services business continues to grow, a greater portion of ourrevenues and costs will be denominated in RMB, while a significant portion ofour financial assets may be denominated in U.S. dollars. We expect to relysignificantly on dividends and other fees paid to us by our subsidiaries andaffiliated entities in China. Any significant revaluation of RMB may materiallyand 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 makeany new RMB denominated investments or expenditures more costly to us, to theextent 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 ouraffiliated companies or such consolidation could materially adversely affectour operating results and financial condition.***

ForPRC regulatory reasons, much of our operations are conducted through companieswhich for accounting purposes currently are considered variable interest entities(“VIE’s”). We are considered the primary beneficiary of such entities, and assuch are required to consolidate their respective financial results in ourconsolidated financial statements. In the event that in the future a company wehold as a VIE would no longer meet the definition of a VIE, or we are deemednot to be the primary beneficiary for any reason, we would not be able toconsolidate line by line that entity’s financial results in our consolidatedfinancial statements. Moreover, if the PRC changes its regulations such thatour current VIE arrangements are disallowed, then we could conceivably lose ourcontrol over such VIE entities. Also, in the future it is possible that othercompanies due to contractual obligations may become a VIE of us and thus wewould be the primary beneficiary. In such event, we would be required toconsolidate that entity’s financial results in our consolidated financialstatements. If such entity’s financial results were negative, this could have acorresponding negative impact on our operating results.

***We face risks related to health epidemics and other outbreaks.***

Ourbusiness could be adversely affected by the effects of SARS or another epidemicor outbreak. China reported a number of cases of SARS in April 2004. Anyprolonged recurrence of SARS or other adverse public health developments inChina may have a material adverse effect on our business operations. Forinstance, health or other governmental regulations adopted in response mayrequire temporary closure of Internet cafes, which is one of the avenues whereusers could access our websites, or of our offices. Such closures wouldseverely disrupt our business operations and adversely affect our results ofoperations. We have not adopted any written preventive measures or contingencyplans to combat any future outbreak of SARS or any other epidemic.

**RisksRelated to Our Common Stock**

***There has been only a limited public market for our common stock todate.***

Todate, there has been only a limited public market for our common stock on theOver-the-Counter Bulletin Board. Our common stock is currently not listed onany exchange. If an active trading market for our common stock does notdevelop, the market price and liquidity of our common stock will be materiallyand adversely affected.

***The market price for our common stock may be volatile.***

Themarket price for our common stock may be volatile and subject to widefluctuations in response to factors including the following:

· actualor anticipated fluctuations in our quarterly operating results;

· changesin financial estimates by securities research analysts, if any;

· conditionsin the China consumer goods and online marketing markets;

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· changes in the economicperformance or market valuations of other U.S. public companies withsubstantial operations in China;

· announcementsby us or our competitors of new products, acquisitions, strategic partnerships,joint ventures or capital commitments;

· additionor departure of key personnel;

· fluctuationsof exchange rates between RMB and the U.S. dollar;

· intellectualproperty litigation; and

· generaleconomic or political conditions in China.

Inaddition, the securities market has from time to time experienced significantprice and volume fluctuations that are not related to the operating performanceof particular companies. These market fluctuations may also materially andadversely affect the market price of our Common stock.

***We will need additional capital, and the sale of additional commonstock or other equity securities could result in additional dilution to ourshareholders.***

Weexpect to require additional cash resources to fund our operations, as well asinvestments or acquisitions which we may decide to pursue. To satisfy our cashrequirements, we may seek to sell additional equity or debt securities (inaddition to our recently completed financing or obtain a credit facility. Thesale of additional equity securities could result in additional dilution to ourshareholders. The incurrence of indebtedness would result in increased debtservice obligations and could result in operating and financing covenants thatwould restrict our operations. We cannot assure you that financing will beavailable in amounts or on terms acceptable to us, if at all.

***Substantial future sales or the perception of sales of our common stockin the public market could cause the price of our common stock to decline.***

Salesof our common stock in the public market or the perception that these salescould occur, could cause the market price of our common stock to decline. As ofJuly 9, 2007, approximately 35,928,934 shares, or 41% of our outstanding shareswill be freely transferable without restriction or additional registrationunder the Securities Act of 1933, as amended, or the Securities Act or aresubject to a pending registration statement. The remaining common stockoutstanding as of such date will be available for sale, subject to volume andother restrictions as applicable under Rule 144 under the Securities Act.

***If we fail to maintain an effective system of internal control overfinancial reporting, we may not be able to accurately report our financialresults or prevent fraud.***

Weare subject to reporting obligations under the U.S. securities laws. TheSecurities and Exchange Commission, or the SEC, as required by Section 404 ofthe Sarbanes-Oxley Act of 2002, adopted rules requiring every public company toinclude a management report on such company’s internal controls over financialreporting in its annual report, which contains management’s assessment of theeffectiveness of the company’s internal controls over financial reporting. Inaddition, an

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independentregistered public accounting firm must attest to and report on management’sassessment of the effectiveness of the company’s internal controls overfinancial reporting.

Theserequirements first apply to our annual report on Form 10-KSB for the fiscalyear ending March 31, 2008. Our management may conclude that our internalcontrols over our financial reporting are not effective. Moreover, even if ourmanagement concludes that our internal controls over financial reporting areeffective, our independent registered public accounting firm may still declineto attest to our management’s assessment or may issue a report that isqualified if they are not satisfied with our controls or the level at which ourcontrols are documented, designed, operated or reviewed, or if it interpretsthe relevant requirements differently from us. Our reporting obligations as apublic company will place a significant strain on our management, operationaland financial resources and systems for the foreseeable future. We are a youngcompany with limited accounting personnel and other resources with which toaddress our internal controls and procedures. If we fail to timely achieve andmaintain the adequacy of our internal controls, we may not be able to concludethat we have effective internal controls over financial reporting at areasonable assurance level. Moreover, effective internal controls overfinancial reporting are necessary for us to produce reliable financial reportsand are important to help prevent fraud. As a result, our failure to achieveand maintain effective internal controls over financial reporting could resultin the loss of investor confidence in the reliability of our financialstatements, which in turn could harm our business and negatively impact thetrading price of our common stock. Furthermore, we anticipate that we willincur considerable costs and use significant management time and otherresources in an effort to comply with Section 404 and other requirements of theSarbanes-Oxley Act.

***We will incur increased costs as a result of being a public company.***

Asa public company, we will incur significant legal, accounting and otherexpenses that we did not incur as a private company. In addition, theSarbanes-Oxley Act, as well as rules subsequently implemented by SEC hasrequired changes in corporate governance practices of public companies. Weexpect these new rules and regulations to increase our legal, accounting andfinancial compliance costs and make certain corporate activities moretime-consuming and costly. In addition, we will incur additional costsassociated with our public company reporting requirements. We are currentlyevaluating and monitoring developments with respect to these new rules, and wecannot predict or estimate the amount of additional costs we may incur or thetiming of such costs.

***There is a limited public float of our common stock, which can resultin increased volatility in our stock price and prevent the realization of aprofit on resale of the Company’s common stock***

Thereis a limited public float of our common stock. The term “public float” refersto shares freely and actively tradable on the Over-the-Counter Bulletin BoardSystem and not owned by officers, directors or affiliates, as such term isdefined under the Securities Act. Due to our relatively small public float andthe limited trading volume of our common stock, purchases and sales ofrelatively small amounts of our common stock can have a disproportionate effecton the market price for our common stock. As a result, the market price of ourcommon stock can have increased volatility which may affect a stockholder’sability to sell our shares in a timely manner.

***Our common stock is subject to restrictions on sales by broker-dealersand penny stock rules, which may be detrimental to investors.***

Ourcommon 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 ourcommon stock to persons other than established customers and “accreditedinvestors” (as defined in Rule 501(c) of the Securities Act). For transactionscovered by this rule, a broker-dealer must make a special suitabilitydetermination for the purchaser and have received the purchaser’s writtenconsent to the transaction prior to the sale. This rule adversely affects theability of broker-dealers to sell our common stock and purchasers of our commonstock 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 ofless than $5.00 per share, subject to certain exceptions. The regulationsrequire that prior to any non-exempt buy/sell transaction in a penny stock, adisclosure schedule proscribed by the SEC relating to the penny stock marketmust be delivered by a broker-dealer to the purchaser of such penny stock. Thisdisclosure must include the amount of commissions payable to both thebroker-dealer and the registered representative and current price quotationsfor our common stock. The regulations also require that monthly statements besent to holders of penny stock that disclose recent price information for thepenny stock and information of the limited market for penny stocks. Theserequirements adversely affect the market liquidity of our common stock.

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***When we account for employee share options using the fair value method,such accounting treatment could significantly reduce our net income.***

OnDecember 16, 2004, the Financial Accounting Standard Board, or FASB, issuedFASB Statement No. 123(R), Share-Based Payment, which requires a public companyto recognize, as an expense, the fair value of stock options and othershare-based compensation to employees at the first fiscal year that begins onor after June 15, 2005. Currently, we record share-based compensation to theextent that the fair value of the shares on the date of grant exceeds theexercise price of the option. We recognize compensation expense over therelated vesting periods. For the periods after December 31, 2005, we could haveongoing accounting charges significantly greater than those we would have recordedunder our current method of accounting for share options. See “Management’sDiscussion and Analysis of Financial Conditions and Results ofOperations—Critical Accounting Policies for a more detailed presentation ofaccounting for share-based compensation plans.

** Item 2. Properties**

     Themajority of our operations are in China, where we have leased offices inBeijing, Shanghai, and Hong Kong. Our Beijing office consists of 8,740 squarefeet. 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 squarefeet. We sublease the space from SMIH on a month to month basis. Our annualrent is $110,672. Our Hong Kong office consists of 366 square feet. The leaseextends for a period of 1 year terminating on March 31, 2008. Our annual rentis approximately $18,000. We believe that our existing facilities are adequateto meet our current requirements, and that future growth can be accommodated byleasing additional or alternative space.

** Item 3. Legal Proceedings**

     Weare not aware of any pending legal proceedings against us. We may in future beparty to litigation arising in the course of our business. Such claims, even ifnot meritorious, could result in the expenditure of significant financial andmanagerial resources.

** Item 4. Submissions of Matters to a Voteof Security Holders**

None

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**PartII.**

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

Weeffected 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.” Thereis 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 activemarket may have an effect upon the high and low price as reported. The following table sets forth the high andlow closing sales price of our common stock as reported on OTC Bulletin Boardfor the periods indicated:
| ** **                              | ** ** | **High**   | ** ** | **Low**    | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
| **Fiscal  2004**                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                           |       | $          | 0.86       |       | $          | 0.42 |   |
| Second Quarter                          |       | $          | 0.70       |       | $          | 0.70 |   |
| Third Quarter                           |       | $          | 0.34       |       | $          | 0.34 |   |
| Fourth Quarter                          |       | $          | 0.60       |       | $          | 0.60 |   |
|                                    |       |       |       |       |       |
| **Fiscal  2005**                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                           |       | $          | 1.90       |       | $          | 1.40 |   |
| Second Quarter                          |       | $          | 5.10       |       | $          | 1.24 |   |
| Third Quarter                           |       | $          | 4.88       |       | $          | 2.82 |   |
| Fourth Quarter                          |       | $          | 4.20       |       | $          | 2.84 |   |
|                                    |       |       |       |       |       |
| **Fiscal  2006**                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                           |       | $          | 4.15       |       | $          | 3.00 |   |
| Second Quarter                          |       | $          | 4.35       |       | $          | 3.60 |   |
|                                    |       |       |       |       |       |
| **Fiscal  2007**                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter                           |       | $          | 6.28       |       | $          | 3.61 |   |
| Second Quarter                          |       | $          | 4.37       |       | $          | 2.68 |   |
| Third Quarter                           |       | $          | 2.70       |       | $          | 0.61 |   |
| Fourth Quarter                          |       | $          | 0.91       |       | $          | 0.50 |   |
|                                    |       |       |       |       |       |
| **Fiscal  2008**                        |       |       |       |       |       |
| First Quarter                           |       | $          | 0.48       |       | $          | 0.28 |   |
| Second Quarter  (up until July 9, 2007) |       | $          | 0.36       |       | $          | 0.33 |   |

 

Thequotations above reflect inter-dealer prices, without retail mark-up, mark-downor commission and may not represent actual transactions.

On July 9, 2007, the last reported sale price for our common stock onthe OTC Bulletin Board was $0.36 per share. As of July 9, 2007,there were 441 record holders of our common stock.

***Dividend Policy***

     Wehave never paid any cash dividends and do not anticipate paying cash dividendsin the foreseeable future.

***Securities Authorized For Issuance Under Equity CompensationPlans.***

     For *Securities Authorized For Issuance Under EquityCompensation Plans*asrequired under Item 201 of Regulation S-B, please refer to thetable in Part III-Item 13.

***Recent Sales of Securities***

     Duringthe quarter ended March 31, 2007, we issued shares in the followingtransactions pursuant to exemptions from the registration requirements of the*Securities Act of 1933,* as amended (the “Act”).

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On January 4, 2007, we issued 37,701 shares of common stock to BarronPartners LP (“Barron”) to satisfy an interest payment on a $918,000 note thatwas sold to Barron on December 31, 2005. The note carried 22% interest and wasconverted by Barron on May 19, 2006, 139 days following the signing of theagreement.

On February 1 2007, we issued a total of 138,066 shares to the sellersof Beijing Trans Global Logistics Ltd pursuant to the Sale and PurchaseAgreement dated October 19, 2006. 64,506 shares were issued to the ChinaElectronic Appliance Corporation (“CEAC”), 36,780 shares were issued to Mr. LiYong and 36,780 shares were issued to Mr. Wang Jinchun,

On February 2 2007, we issued a total of 1,163,793 shares to Mr. RenHuiliang pursuant to the Sale and Purchase Agreement for William TextilesLimited between the Company and Mr. Ren, completed on September 30, 2006.

Webelieve that the above stock issuances qualify as an exemption from theregistration requirements of the Securities Act pursuant to Section 4(2) of theAct and/or Regulation D promulgated thereunder since, among other things, thetransaction did not involve a public offering, as the transaction involved lessthat 35 unaccredited investors, and each investor had access to informationabout us and their investment

**Item 6Management Discussion and Analysis**

***Overview***

Our principal focus isour business-to-business brand and apparel production management business inShanghai, PRC. Our goal isto develop China’s largest online shopping community for wholesale distributionand retail shopping in the apparel and women’s fashion industry. We are workingtoward a smaller organizational structure centered around William’s Brand, ourkey women’s apparel subsidiary and transactional service provider. In fiscal2008, we plan to build revenues by leveraging our core competency in onlinemarketing, design, production and channel management in the area of women’sfashion and apparel.

As of March 31, 2007, wecompleted several acquisitions, and divested certain assets that are unrelatedto the women’s fashion industry. We also announced a number of initiatives thathave closed or are expect to close subsequent to March 31, 2007. Theseinitiatives were designed to reduce total overhead, rationalize non-core assetsor operations and reduce the number of issued and outstanding shares of ourcommon stock (See “Business — Recent Developments). Particularly, we divestedof our beverage business in the fourth quarter which we operated in the firstthree quarters of the fiscal year ended March 31, 2007. We also divestedcertain real estate holdings and announced our intentions to move our corporateheadquarters to Shanghai, PRC.

As a result of these initiatives,we expect that our results of operations for future periods will be materiallydifferent and that our principal sources of revenue, operating expenses andprofits will be derived from our apparel and women’s fashion business.

***Results of Operations***

**FiscalYear Ended March 31, 2007 compared with the six-month period Ended March31, 2006**

The following discussionreflects our results from operations for the 12 month fiscal period ended March31, 2007 compared with the 6 month fiscal period ended March 31, 2006. Theperiod ended March 31, 2006 is shortened (6 months) because we changed ourfiscal year end date from September 30 to March 31in February 2006. Therefore,as a result such shorted period and due to the change of our business focuswhich occurred during the 2007 period, we have not presented a thorough periodto period comparison of our results of operations.

We reported total revenueof $20.4 million for the 12-month period ended March 31, 2007 with a netloss of $31.4 million, or $0.31 per share outstanding. The results include aloss of discontinued operations of $28.3 million mainly caused by impairmentloss for intangibles and goodwill as well as accounts receivable adjustmentsdue to the discontinuation of beverage business, an impairment loss of $9.2million for the intangibles primarily relating to certain digital publishingrights, stock-based employee incentive compensation of $3.2 million, andamortization of discount on notes of $2.6 million for the fiscal year endedMarch 31, 2007.

**Revenue.**The Company recognized $20.4 million in revenue for the 12-month period endedMarch 31, 2007 compared to $4,261 for the 6-month period ended March 31,2006. The large disparity in revenues between the two years is due to thelimited operating history of our current business during fiscal 2006. Therevenue in 2007 was reported through two segments: Transactional Services andMarketing and Information Services, which represent 77.8% and 22.2%respectively, of our total continuing operations revenue in 2007. The increasein revenue is attributable to several factors, including:  our Transactional Services revenue waspositively impacted by the completion of our acquisitions in the apparel andelectronic component verticals; and we changed our fiscal year end date fromSeptember 30 to March 31 in February 2006, thereby shortening fiscal 2006 to a6-month period ended March 31, 2006.

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**Costs ofRevenue.** Cost of revenue for the fiscal period endedMarch 31, 2007 was $6.1 million. Transactional Services costs were 85.1% of thetotal, or approximately $5.2 million. The remaining costs for the periodwere $0.9 million or 14.9% and related to direct costs, such as printing costs,editorial costs and distribution costs within our Marketing and InformationServices businesses.  Transactional Services cost of revenue increased forthe fiscal year ended March 31, 2007 as compared to the prior year ended March31, 2006 due to the completed acquisitions of our electronics components andapparels vertical businesses. Our total gross margin for the 12-month periodended March 31, 2007 was $14.3 million, or 70.1% as a percentage of sales.

**Expenses.**  Excluding loss of discontinuedoperations of $28.3 million, total expenses for the fiscal year ended March 31,2007 were approximately $26.4 million. The expenses include an impairment lossof $9.2 million for the intangibles primarily relating to certain DigitalPublishing Rights, stock-based employee incentive compensation of $3.2 million,and amortization of discount on notes of $2.6 million for the fiscal year endedMarch 31, 2007. Excluding the above-mentioned non-cash expenses, operatingexpenses would have been approximately $11.4 million for fiscal year endedMarch 31, 2007. These $11.4 million of operating expenses include expensesrelated to employee compensation of $2.6 million, other general administrativeof $3.5 million and marketing/sales of $0.2 million, depreciation andamortization of $2.7 million, consulting and professional fees of $1.6 million,bad debt provision of $0.8 million, and income tax expenses of $0.2 million forthe fiscal year ended March 31, 2007.

**Loss ofDiscontinued Operations.** Loss of discontinued operations of$28.3 million, or $0.28 per share outstanding, is associated with the beveragebusiness, including an impairment loss of $26.3 million primarily forintangibles and goodwill arising out of the Focus acquisition and a $2.4million accounts receivable adjustment. The discontinuation of our beveragedistribution business was due to a combination of factors, including: financialdifficulties experienced by our distribution partner after their largestsupplier changed its inventory policy; and increasingly high working capitalrequirements brought on by a reliance on large retail chain customers that had extendedpayback cycles.

**OtherIncome and Losses**. Other income for the fiscal year endedMarch 31, 2007 was $10.7 million. This is due mainly to gain on thesale of non-core business-to-consumer (“B2C”) assets to Sun 3C Media Plc(Formerly Sun TV Shop) (“Sun 3C”). These assets consisted of our interest in adigital mail order catalogue publishing and merchandising business. Thisdigital catalogue business had an exclusive distribution contract with I-Gem International,a leading Singapore-based e-commerce jewelry provider, to market and sellvarious types of jewelry in Mainland China through e-catalogues. At the time,we deemed this business as non-core to our business strategy.

The Sale & Purchaseagreement with Sun 3C relating to the divestment of these non-corebusiness-to-consumer assets was entered into on June 30, 2006. In exchange forthe sold assets, we received 33,642,508 shares in Sun 3C. These shares arebeing held in escrow pursuant to an escrow agreement by and among variousparties including Sun 3C and us. They account for approximately 6.9% of Sun 3Cshares outstanding. As of July 6, 2006 they were valued at approximatelyUS$11.9 million based upon the closing market price of Sun 3C stock.

Other losses were$1.5 million, mainly due to the sale of 150 million shares in theLexicon Group Ltd. (Formerly “Sun Business Network Ltd.”) to Maxi Surplus Ltd.,a Singaporean Company.

**NetLoss.** Our net loss for the fiscal year ended March 31,2007 was $31.4 million. The net loss included a loss from continuing operationsof $3.1 million and a loss from discontinued operations of $28.3 million.

**6-monthsEnded March 31, 2006**

Except for certainemployee and financing related charges, our operating results for the periodended March 31, 2006 principally reflect our online brokerage business,which has since been divested.

We have restated ourresults of operation for the 6-month ended March 31, 2006 by separating thestock based compensation expenses and loss from discontinued business.

**Revenue.**Total revenue for the 6-month period ended March 31, 2006 was $4,261, whichattributable to the informtion service business.

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**Expenses.**Our total expenses for the 6-month period ended March 31, 2006 were $13.1million. These included expenses related to stock-based compensation of $9.7million, convertible notes discount costs of $0.1 million and provision forimpairment loss in marketable securities of $1.5 million.

Excluding the expensesrelating to the non-cash expenses associated with incentive compensation,warrants and convertible notes, our total operating expenses would have been $1.8million. Of this amount approximately $0.4 million was for legal andprofessional fees incurred for acquisitions.

**NetLoss.** Our net loss for the 6-month period endedMarch 31, 2006 was $13.1 million including non-cash expenses of about $11.3 million.

***Liquidity and Capital Resources.*** As of March 31, 2007, we hadapproximately $2.7 million (2006: $1.4 million) in cash and cash equivalentsand $13.5 million ($8.1 million) in marketable securities. Among our securitiesare 33,642,508 shares, representing a6.9% interest in Sun 3C Media (AIM:SCCC), an Irish company listed on theAlternative Investment Market in London. These shares have been placed inescrow since July, 2006 pursuant to an escrow agreement by and among variousparties including Sun 3C Media and us. According to the escrow agreement, our sharescan be released subject to the orderly market arrangements in place, which statethat any decision to sell these ordinary shares within 12 months of theirrelease must be approved by Blue Oar Securities Plc, our agent. The shares areeligible 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 June 30, 2007,warrants with a weighted average exercise price per share of $1.63 and anaggregate exercise price of $9.8 million remained outstanding. As acomparison, as of June 18, 2006, warrants with a weighted average exerciseprice per share of $3.51 and an aggregate exercise price of $40.5 millionremained outstanding. Proceeds from the conversion of outstanding warrants willbe used for working capital, including new acquisitions. The Company’s cashneeds in 2007 were primarily satisfied through the issuance of common stock andconvertible notes. If we are unsuccessful in raising further new capital, ourability to seek strategic acquisitions to grow our business could be adverselyaffected.

***Off-Balance Sheet Arrangement***

     Asof March 31, 2007, we do not have any off-balance sheet arrangements.

***Capital Expenditure Commitments***

     Wehad no material capital expenditures for the period ended March 31, 2007.However we expect to invest approximately $250,000 in capital expenditure overthe next 12 months.

***Recent Accounting Pronouncements***

In February 2007, the Financial Accounting StandardsBoard, or FASB, issued Statement of Financial Accounting Standard No. 159,“*The Fair Value Option for Financial Assetsand Financial Liabilities,*” or SFAS 159. SFAS 159 permits companiesto choose to measure many financial instruments and certain other items at fairvalue. It is expected to expand the use of fair value measurements which isconsistent with the Financial Accounting Standards Board’s long-termmeasurement objectives for accounting for financial instruments. SFAS 159 iseffective for our first fiscal year that begins after November 15, 2007,which is our fiscal year 2009 that begins in April 2008. The Company is currentlyevaluating the impact of this statement to its financial position and resultsof operations. 

In September 2006, the FASB issued Statement ofFinancial Accounting Standard No. 157, “*FairValue Measurements,*” or SFAS 157. This statement defines fair value,establishes a fair value hierarchy to be used in generally accepted accountingprinciples and expands disclosures about fair value measurements. Although thisstatement does not require any new fair value measurements, the applicationcould change current practice. The statement is effective for fiscal yearsbeginning after November 15, 2007. The Company is currently evaluating theimpact of this statement to its financial position and results of operations. 

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In June 2006, the Emerging Issues Task Force, or EITF,issued EITF 06-3, “*How Taxes Collected fromCustomers and Remitted to Governmental Authorities Should Be Presented in theIncome Statement (That Is, Gross versus Net Presentation),”* or EITF06-3. EITF 06-3 provides guidance on the presentation in the income statementof any tax assessed by a governmental authority that is directly imposed on arevenue-producing transaction between a seller and a customer. EITF 06-3requires that taxes be presented in the income statement either on a grossbasis (included in revenues and costs) or a net basis (excluded from revenues),and that this accounting policy decision be disclosed. EITF 06-3 should beapplied to financial reports for interim and annual reporting periods beginningafter December 15, 2006. Adoption of EITF 06-3 did not have a materialimpact to our consolidated financial statements. 

In July 2006, the FASB issued InterpretationNo. 48, or FIN 48, “*Accounting forUncertainty in Income Taxes*,” which clarifies the accounting foruncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, “*Accountingfor Income Taxes.”* FIN 48 provides guidance on the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosures, and transition. FIN 48 is effective for years beginning afterDecember 15, 2006. We do not believe the adoption of FIN 48 will havea material impact to our consolidated financial statements. 

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 108, “*Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements”*,or SAB 108. SAB 108 provides guidance on consideration of the effectsof prior year misstatements in quantifying current year misstatements for thepurpose of a materiality assessment. SAB 108 is effective for fiscal yearsending after November 15, 2006. The adoption of SAB 108 did not havea material impact on our consolidated financial statements. 

*FSP EITF 00-19-2.* In December 2006, the FASB issued FASB StaffPosition EITF 00-19-2, “Accountingfor Registration Payment Arrangements,” orFSP EITF 00-19-2. FSP EITF 00-19-2 specifies that the contingent obligation tomake future payments or otherwise transfer consideration under a registrationpayment arrangement, whether issued as a separate agreement or included as aprovision of a financial instrument or other agreement, should be separatelyrecognized and measured in accordance with FASB Statement No. 5, “Accounting for Contingencies.” A registration payment arrangement is defined in FSPEITF 00-19-2 as an arrangement with both of the following characteristics:(1) the arrangement specifies that the issuer will endeavor (a) tofile a registration statement for the resale of specified financial instrumentsand/or for the resale of equity shares that are issuable upon exercise orconversion of specified financial instruments and for that registrationstatement to be declared effective by the United States Securities ExchangeCommission within a specified grace period, and/or (b) to maintain theeffectiveness of the registration statement for a specified period of time (orin perpetuity); and (2) the arrangement requires the issuer to transferconsideration to the counterparty if the registration statement for the resaleof the financial instrument or instruments subject to the arrangement is notdeclared effective or if effectiveness of the registration statement is notmaintained. FSP EITF 00-19-2 is effective for registration payment arrangementsand the financial instruments subject to those arrangements that are enteredinto or modified subsequent to December 21, 2006. For registration paymentarrangements and financial instruments subject to those arrangements that wereentered into prior to the issuance of FSP EITF 00-19-2, this guidance iseffective for financial statements issued for fiscal years beginning afterDecember 15, 2006, and interim periods within those fiscal years. Theadoption of FSP EITF 00-19-2 is not expected to have an impact on ourconsolidated financial statements. 

***Critical Accounting Policies and Estimates***

Our audited financialstatements and accompanying notes are prepared in accordance with generallyaccepted accounting principles (“GAAP”) used in the United States. In preparingfinancial statements, management has made certain estimates and assumptionsthat affected the reported amounts of assets, liabilities, revenue, andexpenses. These estimates and assumptions were made consistent with standardaccounting policies and practices. We believe that understanding the basis andnature of the estimates and assumptions involved with the following aspects ofour consolidated financial statements is critical to an understanding of ourfinancials.

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*Basisof Consolidation and Presentation*

The consolidatedfinancial statements include the accounts of the Company, its subsidiaries andvariable interest entities, or VIEs for which the Company is the primarybeneficiary. All significant inter-company accounts and transactions have beeneliminated. Investments in entities in which the Company can exercisesignificant influence, but which are less than majority owned and not otherwisecontrolled by the Company, are accounted for under the equity method. TheCompany has adopted FASB Interpretation No.46R consolidation of VariableInterest Entities, FIN 46R, an Interpretation of Accounting Research BulletinNo.51. FIN 46R requires a VIE to be consolidated by a company if that companyis subject to a majority of the risk of loss for the VIEs or is entitled toreceive a majority of the VIE’s residual returns.The consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States.

We have the followingsignificant domestic VIEs:

·                  Sun China Media(Beijing) Technology Co., Ltd., a PRC company controlled through us by contractand is owned equally by Qiong Zhou and Jacob Di, both of whom are non-executiveemployees of the Company.

·                  Suizhou FocusTrading Development Co., Ltd., a PRC company controlled by us by contract andis engaged in marketing, information and technology services to beverage andelectronic device distributors.  It is 60% owned by Qi Yang, one of ourofficers and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively, twonon-executive employees of the Company.

·                  Shanghai ShengjiTechnology Co., Ltd, a PRC company controlled by us by contract, and is engagedin wireless mobile services. It is 40% owned by Hui Yan, 40% owned by Min Linand 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 bycontract which is engaged in the advertising business.  It is 70% owned byQiong Zhou, and 30% owned by Guosheng Wang, both of whom are non-executiveemployees of the Company.

·                  Dragon List Co.Ltd, a PRC company controlled by us by contract and is engaged in digitalpublishing business.  It is 70% owned by Qiong Zhou, and 30% owned byJacob Di, both of whom are non-executive employees of the Company.

·                  Sun Trade Media(Beijing) Co. Ltd, a PRC company controlled by us by contract and is engaged indigital publishing business.  It is 70% owned by Qiong Zhou, and 30% ownedby Jacob Di, both of whom are non-executive employees of the Company.

·                  Sun Asia(Beijing) Investments Consultants Ltd, a PRC company controlled by us bycontract and is engaged in the provision of consultancy services.  It is60% owned by Qiong Zhou, and 40% owned by Xiaoang Li, both of whom are non-executiveemployees of the Company.

·                  NextMartTechnology (Beijing) Co. Ltd, a PRC company controlled by us by contract and isengaged 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 XindaWeiye Trade and Development Co. Ltd, a PRC company controlled by us by contractand engaged in trading.  It is 40% owned by Jin Liu, 30% owned by WanzhiZhu and 30% owned by Mingde Jiang, all of whom are non-executive employees ofthe Company.

·                  Beijing TransGlobal Logistics, a PRC company 80% by us by contract and engaged intrading.  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.

·                  NaixiuExhibition (Beijing) Co. Ltd, a PRC company that is controlled by us and owned50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun arenon-executive employees of the Company.

30

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The capital investment inthese VIEs is funded by the Company and transferred to the VIEs via contractualagreements between the Company (or its non-PRC subsidiary) and the PRCemployees who own the VIEs. As of March 31, 2007, the total amount of capitalinvestment that was transferred to the VIEs listed above wasUS$3,451,000.  Under various contractual agreements, employee shareholdersof the VIEs are required to transfer their ownership in these entities to oursubsidiaries in China when permitted by PRC laws and regulations or to ourdesignees at any time for the outstanding amount of injected captial investment,and all voting rights of the VIEs are assigned to us. We have the power toappoint all directors and senior management personnel of the VIEs. Through our wholly-owned subsidiaries in China, we have also entered intoexclusive technical agreements and other service agreements with the VIEs,under which these subsidiaries provide technical services.

*Revenuerecognition*

We generate revenuethrough the provision of marketing, information, and transactional services.The Company recognizes revenues from transaction and information services inaccordance with Staff Accounting Bulletin (“SAB”) No. 104, “RevenueRecognition,” when all of the following conditions exist: persuasive evidenceof an arrangement exists in the form of an accepted purchase order; deliveryhas occurred, based on shipping terms, or services have been rendered; theCompany’s price to the buyer is fixed or determinable, as documented on theaccepted purchase order; and collectibility is reasonably assured.

The TransactionalServices include primarily the apparel vertical business and electroniccomponents business. We recognize revenue for the transactional business whenthe goods have been shipped or delivered and a purchase order exists. TheMarketing and Information Services includes newspaper and magazine business andmarketing consulting services. The Company recognize revenue for the Marketingand Information Services when the services have been rendered.

*Trade receivables  and allowance for Doubtful Accounts*

The Company performsongoing credit evaluations of its customers to minimize credit risk. Theallowance for doubtful accounts is based on management’s estimates of thecollectibility of its accounts receivable after analyzing historical bad debts,customer concentrations, customer credit worthiness, and current economictrends. Specifically, the Company reviews the aged accounts receivable listingfor balances that are specifically identifiable as credit risks oruncollectible, and may use judgment for calculation of allowance for doubtfulaccounts.

*Goodwilland intangible assets, net*

Goodwill represents theexcess of the purchase price over the fair value of the identifiable assets andliabilities acquired as a result of the Company’s acquisitions of interests inits subsidiaries and VIEs. Under Statement of Financial Accounting Standards,FAS No.142, Goodwill and Other Intangible Assets, FAS 142, goodwill is nolonger amortized, but tested for impairment upon first adoption and annually,thereafter, or more frequently if events or changes in circumstances indicatethat it might be impaired. The Company assesses goodwill for impairmentperiodically in accordance with SFAS 142.

The Company applies thecriteria specified in SFAS No.141, Business Combinations to determine whetheran intangible asset should be recognized separately from goodwill. Intangibleassets acquired through business acquisitions are recognized as assets separatefrom goodwill if they satisfy either the contractual-legal or separabilitycriterion. Per SFAS 142, intangible assets with definite lives are amortizedover their estimated useful life and reviewed for impairment in accordance withSFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. TheCompany reviews the amortization methods and estimated useful lives ofintangible assets at least annually or when events or changes in circumstancesindicate that it might be impaired. The recoverability of an intangible assetto be held and used is evaluated by comparing the carrying amount of theintangible asset to its future net undiscounted cash flows. If the intangibleasset is considered to be impaired, the impairment loss is measured as theamount by which the carrying amount of the intangible asset exceeds the fairvalue of the intangible asset, calculated using a discounted future cash flowanalysis. The Company uses estimates and judgments in its impairment tests, andif different estimates or judgments had been utilized, the timing or the amountof the impairment charges could be different.

*Impairment  of Long-lived Assets*

The Company asseses thecarrying value of long-lived assets in accordance with SFAS No.144, accountingfor the Impairment or Disposal of Long-lived Assets. Factors considered importantwhich could trigger this review include significant decrease in operatingresults, significant changes in its use of assets, competitive factors and thestrategy of it business, and significant negative industry or economic trends.The company cannot predict the occurrence of future impairment-triggeringevents nor the impact such events might have on the reported asset values. Suchevents may include strategic decisions made in response to the economicconditions relative to product lines, operations and the impact of the economicenvironment on our customer base.  Whenthe Company determine that the carrying value of long-lived may not berecoverable based on as assessment of future undiscounted cash flows from theuse of those assets, an impairment charge to reord the assets at fair value maybe recorded. Impairment is measured based on fair values utilizing estimateddiscounted cash flow, published thirty-party sources, and third-party offers.

*Comprehensive Income (Loss)*

The Company reports comprehensiveincome (loss) in accordance with FASB No. 130, “Reporting Comprehensive Income(Loss). The components of comprehensive loss for the Company include currencytranslation adjustments and unrealized loss on marketable securities.

31

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*Foreigncurrency transactions*

The financial statementsare presented in United States dollars. In accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”,since the functional currency of the Company is Renminbi, the foreign currencyfinancial statements of the Company’s subsidiaries are re-measured into U.S.dollars. Monetary assets and liabilities are re-measured using the foreign ratethat prevailed at the balance sheet date. Revenue and expenses are translatedat weighted average rates of exchange during the year and stockholders’ equityaccounts and capital asset accounts are translated by using historical exchangerates. Any re-measurement gain or loss incurred is reported in the consolidatedstatement of operations.

*Marketablesecurities*

The Company accounts forinvestments in marketable securities under Statement of Financial AccountingStandards (SFAS) No. 115,*  Accounting for Certain Investments in Debtand Equity Securities.*  Marketable equity securities are held as available for sale andare reported at fair value any unrealized gains and losses are included inaccumulated other comprehensive income or loss within stockholders’equity.  The treatment of a decline in the fair value of an individualsecurity is based on whether the decline is other-than-temporary. Significant judgment is required to assess whether the impairment isother-than-temporary, particularly for marketable equity securities thatprovide limited public information.  Our judgment of whether impairment isother-than-temporary is based on an assessment of factors including our abilityand intent to hold the individual security, severity of the impairment,expected duration of the impairment and forecasted recovery of fairvalue.  Changes in the estimates and assumptions could affect our judgmentof whether an identified impairment should be recorded as an unrealized loss inthe equity section of our consolidated balance sheets or as a realized loss inthe consolidated statements of operations.

*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. SFASNo. 123(R) requires that all share-based payments to employees berecognized in the financial statements based on their fair values at the dateof grant. The calculated fair value is recognized as expense (net of anycapitalization) over the requisite service period, net of estimatedforfeitures, using the straight-line method under SFAS No. 123(R). TheCompany considers many factors when estimating expected forfeitures, includingtypes of awards, employee class and historical experience. The statement wasadopted using the modified prospective method of application which requirescompensation expense to be recognized in the financial statements for allunvested stock options beginning in the quarter of adoption. There were nounvested stock options at the beginning of this reporting period therefore nocompensation expense was recognized in the period. No adjustments to priorperiods have been made as a result of adopting SFAS No. 123(R).

     Asat September 30, 2005 the Company elected to account for stock-basedemployee compensation arrangements in accordance with the provisions ofAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees”, (“APB No. 25”) and comply with the disclosure provisions ofSFAS No. 123 as amended by SFAS No. 148. During the period fromSeptember 18, 2005 to September 30, 2005, no stock-based employeecompensation arrangements have been effected and accordingly no disclosure ofpro forma information is required. In accordance with SFAS No. 123 theCompany applies the fair value method using the Black-Scholes option-pricingmodel in accounting for options granted to consultants.

     TheCompany accounts for equity instruments issued in exchange for the receipt ofgoods or services from other than employees in accordance with SFASNo. 123 and the conclusions reached by the Emerging Issues Task Force inIssue No. 96-18, “Accounting for Equity Instruments That Are Issued toOther Than Employees for Acquiring or in Conjunction with Selling Goods orServices” (“EITF 96-18”). Costs are measured at the estimated fair market valueof the consideration received or the estimated fair value of the equityinstruments issued, whichever is more reliably measurable. The value of equityinstruments issued for consideration other than employee services is determinedon the earlier of a performance commitment or completion of performance by theprovider of goods or services as defined by EITF 96-18.

32

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**Item7. Financial Statements**

***Financial Statements***

**NextMart, Inc.**

**Consolidated Financial Statements**

**Period from April 1, 2006 to March 31, 2007**

(Expressed InUnited States Dollars)

**Table ofContents**
| **>Report of Independent  Registered Public Accountants**            |   | 34 |
|-------------------------------------------------------------------------|--------|----|
| **>Consolidated Balance Sheet**                                      |   | 35 |
| **>Consolidated Statement of Operations**                            |   | 36 |
| **>Consolidated Statement of Changes in Stockholders’  Equity** |   | 37 |
| **>Consolidated Statement of Cash Flows**                            |   | 40 |
| **>Notes to Consolidated Financial Statements**                      |   | 41 |

 

33

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

 

 

 

To the Board of Directors and Stockholders of

**NextMart, Inc.**

 

 

We have audited the accompanying consolidated balance sheets of NextMart,Inc (f/k/a Sun New Media, Inc.) as of March 31, 2007 and 2006 and the relatedconsolidated statements of operations, changes in stockholders’ equity, andcash flows for the period from October 1, 2005 to March 31, 2006 and for theyear ended March 31, 2007.  Theseconsolidated financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audit in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  The company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of the Companyas of March 31, 2007 and 2006 and the results of its operations and its cashflows for the period from October 1, 2005 to March 31, 2006 and for the yearended March 31, 2007 in conformity with accounting principles generallyaccepted in the United States of America.

 

 
| /s/ Bernstein & Pinchuk,  LLP | * * |
|-----------------------------------|----------|
| * *                          | * * |
| New York, New  York               |     |
| June 29, 2007                     |     |

 

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**NEXTMARTINC. (f/k/a Sun New Media Inc.)CONSOLIDATED BALANCE SHEETS**As of March 31, 2007 and March 31, 2006
| ** **                                                                                                                                                          | ** ** | ** ** | ** ** | **As of** | ** ** | **As of** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| ** **                                                                                                                                                          | ** ** | **Note**   | ** ** | **31-Mar-07**  | ** ** | **31-Mar-06**  | ** ** |
| ** **                                                                                                                                                          | ** ** | ** ** | ** ** | **US$**        | ** ** | **US$**        | ** ** |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **ASSETS**                                                                                                                                                          |       |       |       |           |       |           |       |
| **Current Assets**                                                                                                                                                  | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| Cash and bank  balances                                                                                                                                             |       |       |       | 2,699,949      |       | 1,373,715      |       |
| Accounts  receivable, net of provision for doubtful debts $47,804                                                                                                   |       |       |       | 3,813,058      |       | 415,735        |       |
| Other  receivable, prepayments and deposits                                                                                                                         |       | 8          |       | 8,491,439      |       | 466,396        |       |
| Inventories                                                                                                                                                         |       |       |       | 128,011        |       | 85,346         |       |
| Marketable  securities                                                                                                                                              |       |       |       | 13,459,884     |       | 8,140,377      |       |
| Amounts due from  stockholders                                                                                                                                      |       | 9          |       | 63,097         |       | 292,106        |       |
| Amounts due from  related parties                                                                                                                                   |       | 9          |       | 630,917        |       | 892,699        |       |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **Total current assets**                                                                                                                                            |       |       |       | 29,286,355     |       | 11,666,374     |       |
| **Investment in associated  company**                                                                                                                               |       |       |       | 544,875        |       | 24,987         |       |
| **Goodwill and intangible assets**                                                                                                                                  |       | 4          |       | 25,950,208     |       | 61,794,537     |       |
| **Plant and equipment**                                                                                                                                             |       | 5          |       | 5,316,191      |       | 2,205,536      |       |
| **Clearing broker deposit**                                                                                                                                         |       |       |       | —         |       | 36,980         |       |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **Total Assets**                                                                                                                                                    |       |       | ** ** | **61,097,629** | ** ** | **75,728,414** | ** ** |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| **Current Liabilities**                                                                                                                                             |       |       |       |           |       |           |       |
| Accounts payable                                                                                                                                                    |       |       |       | 820,742        |       | 987,238        |       |
| Other payables  and accruals                                                                                                                                        |       | 10         |       | 2,402,123      |       | 6,928,098      |       |
| Amounts due to  related parties                                                                                                                                     |       | 9          |       | 238,859        |       | 489,122        |       |
| Factoring loan                                                                                                                                                      |       | 11         |       | 195,340        |       | 233,043        |       |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **Total current liabilities**                                                                                                                                       |       |       |       | 3,657,064      |       | 8,637,501      |       |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **Minority interest**                                                                                                                                               |       |       |       | 1,289,633      |       | (101,520       | )          |
| **Convertible notes**                                                                                                                                               |       | 6          |       | 1,500,000      |       | 2,816,000      |       |
| **Discount on convertible notes  and warrants**                                                                                                                     |       | 6          |       | (867,409       | )          | (2,570,634     | )          |
| **Commitments and Contingencies**                                                                                                                                   |       | 12         |       |           |       |           |       |
| **STOCKHOLDERS’ EQUITY**                                                                                                                                       | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| Common stock;  authorized 350,000,000 shares, US$0.01 par value                                                                                                     |       |       |       |           |       |           |       |
| Preference stock,  authorized 150,000,000 shares, US$0.01 par value 93,193,184 (2006:  84,055,510) shares of common stock issued and outstanding, US$0.01 par value |       |       |       | 931,931        |       | 840,555        |       |
| 20,000 (2006:  14,537,253) shares of common stock reserved to be issued, US$0.01 par value                                                                          |       |       |       | 200            |       | 145,372        |       |
| Additional paid in  capital                                                                                                                                         |       |       |       | 104,107,979    |       | 79,439,397     |       |
| Accumulated other  comprehensive (loss) income:                                                                                                                     |       |       |       |           |       |           |       |
| Foreign currency  translation adjustments                                                                                                                           |       |       |       | (87,824        | )          | 1,920          |       |
| Unrealized loss on  marketable securities                                                                                                                           |       |       |       | (4,510,778     | )          | —         |       |
| **Total accumulated comprehensive  (loss) income**                                                                                                                  | ** ** | ** ** |       | (4,598,602     | )          | 1,920          |       |
| **Deficit**                                                                                                                                                         |       |       |       | (44,923,167    | )          | (13,480,177    | )          |
| **Total stockholders’ equity**                                                                                                                                 |       |       |       | 55,518,341     |       | 66,947,067     |       |
|                                                                                                                                                                |       |       |       |           |       |           |       |
| **Total liabilities and stockholder’s equity**                                                                                                                 |       |       | ** ** | **61,097,629** | ** ** | **75,728,414** | ** ** |

 

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**NEXTMARTINC. (f/k/a Sun New Media Inc.)CONSOLIDATED STATEMENTS OF OPERATIONS**For the year ended March 31, 2007 and the six monthsended March 31, 2006 
| ** **                                                       | ** ** | ** ** | ** ** | **Fiscal Year Ended ** | ** ** | **Six Months Ended  March 31, 2006** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|---------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                       | ** ** | **Note**   | ** ** | **March 31, 2007**          | ** ** | **(Restated)**                                           | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | **US$**                               | ** ** | **US$**                                                  | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                            | ** ** | ** **                                               | ** ** |
| **Revenues**                                                     | ** ** | ** ** | ** ** | **20,413,762**                        | ** ** | **4,261**                                                | ** ** |
| Costs of revenue                                                 |       |       |       | 6,112,617                             |       | —                                                   |       |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                            | ** ** | ** **                                               | ** ** |
| **Gross Profit**                                                 | ** ** | ** ** |       | 14,301,145                            |       | 4,261                                                    |       |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                            | ** ** | ** **                                               | ** ** |
| **Operating Expenses**                                           | ** ** | ** ** |       |                                  |       |                                                     |       |
| General and  administrative                                      |       |       |       |                                  |       |                                                     |       |
| Stock Based  Compensation Costs                                  |       |       |       | 3,194,450                             |       | 9,654,099                                                |       |
| Other General  and administrative                                |       |       |       | 6,102,237                             |       | 950,740                                                  |       |
| Marketing and  sales                                             |       |       |       | 208,843                               |       |                                                     |       |
| Depreciation and  amortization                                   |       |       |       | 2,716,105                             |       | 6,035                                                    |       |
| Consulting and  professional fees                                |       |       |       | 1,590,018                             |       | 959,658                                                  |       |
| Bad Debt  Write-off                                              |       | 13         |       | 804,438                               |       | —                                                   |       |
| Impairment loss  on Marketable Securities                        |       |       |       | —                                |       | 1,456,221                                                |       |
| Impairment loss  on intangible assets                            |       |       |       | 9,171,670                             |       | —                                                   |       |
| Total operating  expenses                                        |       |       |       | 23,787,761                            |       | 13,026,753                                               |       |
| **Operating loss from continuing  operations**                   | ** ** | ** ** | ** ** | **(9,486,616**                        | **)**      | **(13,022,492**                                          | **)**      |
| Interest income                                                  |       |       |       | 23,916                                |       | 637                                                      |       |
| Amortization of  discount on notes                               |       |       |       | (2,570,634                            | )          | (105,807                                                 | )          |
| Other income  from divestment of non-core assets                 |       |       |       | 10,742,791                            |       | 37,590                                                   |       |
| Other loss                                                       |       |       |       | (1,468,016                            | )          | —                                                   |       |
| Share of  profits/ (losses) from affiliates                      |       |       |       | 245,370                               |       | —                                                   |       |
| **Loss before income tax expense  and minority interests**       | ** ** | ** ** | ** ** | **(2,513,189**                        | **)**      | **(13,090,072**                                          | **)**      |
| Income tax  expenses                                             |       | 7          |       | (89,387                               | )          | —                                                   |       |
| **Loss after income tax expense  and before minority interests** | ** ** | ** ** |       | (2,602,576                            | )          | (13,090,072                                              | )          |
| Minority  interests                                              |       |       |       | (497,797                              | )          | —                                                   |       |
| **Loss after income tax expense  and minority interests**        | ** ** | ** ** |       | (3,100,373                            | )          | (13,090,072                                              | )          |
| Other  comprehensive loss – Currency translation adjustment |       |       |       | 16,918                                |       | —                                                   |       |
| **Net Loss from continuing  operations**                         | ** ** | ** ** | ** ** | **(3,117,291**                        | **)**      | **(13,090,072**                                          | **)**      |
| Gain (Loss) from  discontinued operations                        |       |       |       | (28,325,699                           | )          | (56,104                                                  | )          |
| **Net Loss**                                                     | ** ** | ** ** | ** ** | **(31,442,990**                       | **)**      | **(13,146,176**                                          | **)**      |
| Other  comprehensive income                                      |       |       |       | (4,600,523                            | )          |                                                     |       |
| **Comprehensive loss**                                           | ** ** | ** ** | ** ** | **(36,043,513**                       | **)**      | **(13,146,176**                                          | **)**      |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                            | ** ** | ** **                                               | ** ** |
| **Basic loss per share**                                         |       |       |       | (0.31                                 | )          | (0.18                                                    | )          |
| Shares used in  computing basic loss per share                   | ** ** | ** ** |       | 100,416,024                           |       | 72,809,160                                               |       |
| **Diluted net loss per share**                                   |       |       |       | (0.31                                 | )          | (0.18                                                    | )          |
| Shares used in  computing diluted loss per share                 | ** ** | ** ** |       | 105,157,061                           |       | 72,809,160                                               |       |
| **Loss per share of discontinued operations**                    |       |       |       | (0.28                                 | )          | (0.00                                                    | )          |

 

 The period ended March 31, 2006 isshortened (6 months) because we changed our fiscal year end date from September30 to March 31 in February 2006. We restated the Consolidated Statements ofOperations for the six months ended March 31, 2006 by separating the stockbased compensation expenses and loss from discontinued business.

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**NEXTMARTINC. (f/k/a Sun New Media Inc.)CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**For the year ended March 31, 2007 and the six months ended March31, 2006
| ** **                                                     | ** ** | **Common Shares**      | ** ** | **Additional**                                      | ** ** | ** **                  | ** ** | **Foreign  currency** | ** ** | **Unrealized  loss on** | ** ** | ** **     | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------------|------------|-----------------------------|------------|-----------------------|------------|------------------------------|------------|----------------|------------|
| ** **                                                     | ** ** | **Issued**                  | ** ** | **Reserved & to be issued** | ** ** | **paid in**            | ** ** | ** **            | ** ** | **translation**              | ** ** | **marketable** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **No. of shares** | ** ** | **Amounts**                                         | ** ** | **No. of shares** | ** ** | **Amounts**           | ** ** | **capital**                  | ** ** | **Deficit**    | ** ** | **adjustments** | ** ** | **securities** | ** ** | **Total** | ** ** |
| ** **                                                     | ** ** | ** **                  | ** ** | **US$**                                             | ** ** | ** **                  | ** ** | **US$**               | ** ** | **US$**                      | ** ** | **US$**        | ** ** | **US$** | ** ** | **US$** | ** ** | **US$** | ** ** |
| *Balance, October 1, 2005*                                     |       | 9,259,370                   |       | 92,594                                              |       | 55,250,000                  |       | 552,500               |       | 5,250                        |       | (334,001       | )          |   |   |   |   | 316,343 |   |
| Issuance  of stocks for acquisition from SNMG                  |       | 55,250,000                  |       | 552,500                                             |       | (55,250,000                 | )          | (552,500              | )          |                         |       |           |       |   |   |   |   | — |   |
| Issuance  of stocks for stock options exercised                |       | 43,000                      |       | 430                                                 |       |                        |       |                  |       | 34,090                       |       |           |       |   |   |   |   | 34,520 |   |
| Issuance  of stocks for stock purchase                         |       | 296,000                     |       | 2,960                                               |       |                        |       |                  |       | 651,840                      |       |           |       |   |   |   |   | 654,800 |   |
| Issuance  of stocks for acquisition of Focus                   |       | 14,900,000                  |       | 149,000                                             |       |                        |       |                  |       | 24,851,013                   |       |           |       |   |   |   |   | 25,000,013 |   |
| Issuance  of stocks for finders fee                            |       | 2,000,000                   |       | 20,000                                              |       |                        |       |                  |       | 7,780,000                    |       |           |       |   |   |   |   | 7,800,000 |   |
| Issuance  of stocks for acquisition of Telefaith               |       | 853,333                     |       | 8,533                                               |       |                        |       |                  |       | 359,396                      |       |           |       |   |   |   |   | 367,929 |   |
| Issuance  of stocks for acquisition of Magzone                 |       | 409,207                     |       | 4,092                                               |       |                        |       |                  |       | 1,595,910                    |       |           |       |   |   |   |   | 1,600,002 |   |
| Issuance  of stocks for employees’ performance incentives |       | 1,044,600                   |       | 10,446                                              |       |                        |       |                  |       | 3,868,653                    |       |           |       |   |   |   |   | 3,879,099 |   |
| Issuance  of stocks for purchase of assets                     |       |                        |       |                                                |       | 1,156,303                   |       | 11,563                |       | 4,035,497                    |       |           |       |   |   |   |   | 4,047,060 |   |
| Issuance  of stocks for grant of license from SBN              |       |                        |       |                                                |       | 6,900,000                   |       | 69,000                |       | 24,081,000                   |       |           |       |   |   |   |   | 24,150,000 |   |
| Issuance  of stocks for shares swap                            |       |                        |       |                                                |       | 5,042,017                   |       | 50,420                |       | 6,896,178                    |       |           |       |   |   |   |   | 6,946,598 |   |
| Issuance  of stocks for acquisition of CSTV                    |       |                        |       |                                                |       | 460,526                     |       | 4,605                 |       | 556,732                      |       |           |       |   |   |   |   | 561,337 |   |
| Issuance  of stocks for acquisition of Lifestyle               |       |                        |       |                                                |       | 978,407                     |       | 9,784                 |       | 2,259,490                    |       |           |       |   |   |   |   | 2,269,274 |   |
| Discount  on convertible notes and warrants                    |       |                        |       |                                                |       |                        |       |                  |       | 2,676,441                    |       |           |       |   |   |   |   | 2,676,441 |   |
| Capital  contribution                                          |       |                        |       |                                                |       |                        |       |                  |       | 89,907                       |       |           |       |   |   |   |   | 89,907 |   |
| Expenses  incurred on issuance of stocks                       |       |                        |       |                                                |       |                        |       |                  |       | (302,000                     | )          |           |       |   |   |   |   | (302,000 | ) |
| Other  comprehensive income                                    |       |                        |       |                                                |       |                        |       |                  |       |                         |       |           |       | 1,920 |   |   |   | 1,920 |   |
| Net  loss for the period                                       |       |                        |       |                                                |       |                        |       |                  |       |                         |       | (13,146,176    | )          |   |   |   |   | (13,146,176 | ) |
| Balance  - Mar 31, 2006                                        |       | 84,055,510                  |       | 840,555                                             |       | 14,537,253                  |       | 145,372               |       | 79,439,397                   |       | (13,480,177    | )          | 1,920 |   |   |   | 66,947,067 |   |
| Issuance  of stocks for assets acquisition                     |       | 1,156,303                   |       | 11,563                                              |       | (1,156,303                  | )          | (11,563               | )          |                         |       |           |       |   |   |   |   | 0 |   |
| Issuance  of stocks for grant of license                       |       | 6,900,000                   |       | 69,000                                              |       | (6,900,000                  | )          | (69,000               | )          |                         |       |           |       |   |   |   |   | 0 |   |
| Issuance  of stocks for shares swap                            |       | 5,042,017                   |       | 50,420                                              |       | (5,042,017                  | )          | (50,420               | )          |                         |       |           |       |   |   |   |   | 0 |   |

 

37

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| Issuance of stocks for acquisition of  CSTV                  |   | 460,526     |   | 4,605    |   | (460,526   | )      | (4,605  | )      |        |   |       |   |   |   |   |   | 0           |   |
|--------------------------------------------------------------|--------|-------------|--------|----------|--------|------------|--------|---------|--------|-------------|--------|------------|--------|--------|--------|--------|--------|-------------|--------|
| Issuance  of stocks for acquisition of Lifestyle             |   | 978,407     |   | 9,784    |   | (978,407   | )      | (9,784  | )      |        |   |       |   |   |   |   |   | 0           |   |
| Issuance  of stocks for notes conversion                     |   | 1,380,392   |   | 13,804   |   |       |   |    |   | 2,802,196   |   |       |   |   |   |   |   | 2,816,000   |   |
| Issuance  of stocks for warrants exercised                   |   | 2,900,000   |   | 29,000   |   |       |   |    |   | 6,061,000   |   |       |   |   |   |   |   | 6,090,000   |   |
| Issuance  of stocks for warrants exercised                   |   | 554,023     |   | 5,540    |   |       |   |    |   | 2,653,770   |   |       |   |   |   |   |   | 2,659,310   |   |
| Issuance  of stocks for stock options exercised              |   | 204,000     |   | 2,040    |   |       |   |    |   | 146,520     |   |       |   |   |   |   |   | 148,560     |   |
| Issuance  of stocks for service                              |   | 118,421     |   | 1,184    |   |       |   |    |   | 448,816     |   |       |   |   |   |   |   | 450,000     |   |
| Issuance  of stocks for placement                            |   | 40,000      |   | 400      |   |       |   |    |   | 91,600      |   |       |   |   |   |   |   | 92,000      |   |
| Issuance  of stocks for commission for warrants conversion   |   |        |   |     |   |       |   |    |   | (874,931    | )      |       |   |   |   |   |   | (874,931    | )      |
| Acquisition  of trade media - PRC company                    |   |        |   |     |   |       |   |    |   | 40,334      |   |       |   |   |   |   |   | 40,334      |   |
| Issuance  of stocks for placement                            |   | 10,000      |   | 100      |   |       |   |    |   | 22,900      |   |       |   |   |   |   |   | 23,000      |   |
| Issuance  of stocks for stock options exercised              |   | 135,000     |   | 1,350    |   |       |   |    |   | 99,550      |   |       |   |   |   |   |   | 100,900     |   |
| Issuance  of stocks for service                              |   | 115,382     |   | 1,154    |   |       |   |    |   | 437,298     |   |       |   |   |   |   |   | 438,452     |   |
| Issuance  of stocks for assets acquisition from SMIH         |   | 850,647     |   | 8,506    |   |       |   |    |   | 5,734,523   |   |       |   |   |   |   |   | 5,743,029   |   |
| Reserve  stocks for acquisition of William Brand             |   |        |   |     |   | 1,163,793  |   | 11,638  |   | 4,115,172   |   |       |   |   |   |   |   | 4,126,810   |   |
| Acquisition  of Wuhan Xinda                                  |   |        |   |     |   |       |   |    |   | 63,222      |   |       |   |   |   |   |   | 63,222      |   |
| Stock-based  compensation                                    |   |        |   |     |   | 20,000     |   | 200     |   | 1,964,250   |   |       |   |   |   |   |   | 1,964,450   |   |
| Contribution  of property and inventory                      |   |        |   |     |   |       |   |    |   | 1,813,840   |   |       |   |   |   |   |   | 1,813,840   |   |
| Issuance  of stocks for placement                            |   | 153,000     |   | 1,530    |   |       |   |    |   | 350,370     |   |       |   |   |   |   |   | 351,900     |   |
| Reserve  stocks for acquisition of CEAC                      |   |        |   |     |   | 138,066    |   | 1,381   |   | 520,509     |   |       |   |   |   |   |   | 521,890     |   |
| Transfer  of stocks to treasury stocks                       |   | (14,900,000 | )      | (149,000 | )      |       |   |    |   | (10,534,300 | )      |       |   |   |   |   |   | (10,683,300 | )      |
| Stock-based  compensation                                    |   |        |   |     |   |       |   |    |   | 5,775,000   |   | (6,312,000 | )      |   |   |   |   | (537,000    | )      |
|                                                         |   |        |   |     |   |       |   |    |   |        |   |       |   |   |   |   |   |        |   |
| Issuance  of stocks for interest expense                     |   | 37,701      |   | 377      |   |       |   |    |   | 76,534      |   |       |   |   |   |   |   | 76,911      |   |
| Issuance  of reserved stock for acquisition of CEAC          |   | 64,506      |   | 645      |   | (64,506    | )      | (645    | )      |        |   |       |   |   |   |   |   | 0           |   |
| Issuance  of reserved stock for acquisition of CEAC          |   | 36,780      |   | 368      |   | (36,780    | )      | (368    | )      |        |   |       |   |   |   |   |   | 0           |   |
| Issuance  of reserved stock for acquisition of CEAC          |   | 36,780      |   | 368      |   | (36,780    | )      | (368    | )      |        |   |       |   |   |   |   |   | 0           |   |
| Issuance  of reserved stock for acquisition of William Brand |   | 1,163,793   |   | 11,638   |   | (1,163,793 | )      | (11,638 | )      |        |   |       |   |   |   |   |   | 0           |   |

 

38

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| Stock-based  compensation                           |   |       |   |    |   |   |   |   |   | 1,230,000   |   |        |   |    |   |       |   | 1,230,000   |   |
|-----------------------------------------------------|--------|------------|--------|---------|--------|--------|--------|--------|--------|-------------|--------|-------------|--------|---------|--------|------------|--------|-------------|--------|
| Stock-based  compensation cancelled                 |   |       |   |    |   |   |   |   |   | 0           |   | (768,000    | )      |    |   |       |   | (768,000    | )      |
| Issuance  of stocks for warrants exercised          |   | 199,996    |   | 2,000   |   |   |   |   |   | (2,000      | )      |        |   |    |   |       |   | 0           |   |
| Issuance  of warrants detached to convertible notes |   |       |   |    |   |   |   |   |   | 867,409     |   |        |   |    |   |       |   | 867,409     |   |
| Issuance  of stock for convertible notes            |   | 1,500,000  |   | 15,000  |   |   |   |   |   | 765,000     |   |        |   |    |   |       |   | 780,000     |   |
| Net  loss for the period                            |   |       |   |    |   |   |   |   |   |        |   | (24,362,990 | )      |    |   |       |   | (24,362,990 | )      |
| Other  comprehensive loss                           |   |       |   |    |   |   |   |   |   |        |   |        |   |    |   |       |   |        |   |
| -  Translation loss                                 |   |       |   |    |   |   |   |   |   |        |   |        |   | (89,744 | )      |       |   | (89,744     | )      |
| -  Unrealized loss on marketable securities         |   |       |   |    |   |   |   |   |   |        |   |        |   |    |   | (4,510,778 | )      | (4,510,778  | )      |
| Balance - March 31, 2007                            |   | 93,193,184 |   | 931,931 |   | 20,000 |   | 200    |   | 104,107,979 |   | (44,923,167 | )      | (87,824 | )      | (4,510,778 | )      | 55,518,341  |   |

 

39

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**NEXTMARTINC. (f/k/a Sun New Media Group Limited)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**For the year ended March 31, 2007 and the six monthsended March 31, 2006
| ** **                                                                            | ** ** | **1-Apr-06**                         | ** ** | **1-Oct-05**                         | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                            | ** ** | **to March 31, 2007** | ** ** | **to March 31, 2006** | ** ** |
| ** **                                                                            | ** ** | **US$**                              | ** ** | **US$**                              | ** ** |
| **Cash flows from operating  activities**                                             | ** ** | ** **                           | ** ** | ** **                           | ** ** |
| **Net loss for the period**                                                           | ** ** | **(31,442,990**                      | **)**      | **(13,146,176**                      | **)**      |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities; |       | —                               |       | —                               |       |
| Depreciation and  amortization                                                        |       | 2,716,383                            |       | 6,767                                |       |
| Impairment loss on  intangible assets                                                 |       | 30,702,537                           |       | —                               |       |
| Share of profits from  affiliate                                                      |       | (216,018                             | )          | —                               |       |
| (Gain)loss on sale of  fixed assets                                                   |       | 16,830                               |       |                                 |       |
| Gain on sale of  non-core assets paid by stock                                        |       | (10,742,791                          | )          | —                               |       |
| Gain on disposal of  subsidiary companies                                             |       | (74,556                              | )          | —                               |       |
| Non-cash expense for  consultancy services fee                                        |       | 149,987                              |       | —                               |       |
| Stock-based  compensation                                                             |       | 3,194,450                            |       | 9,654,099                            |       |
| Stock received for  Finders’ fee                                                 |       | (1,600,000                           | )          | —                               |       |
| Amortization of  discount on notes                                                    |       | 2,570,634                            |       | 105,807                              |       |
| Impairment loss on  marketable securities                                             |       |                                 |       | 1,456,221                            |       |
| Provision for  doubtful debts                                                         |       | 3,187,138                            |       | —                               |       |
| Expenses incurred on  issuance of common stocks                                       |       | (874,931                             | )          | (302,000                             | )          |
|                                                                                  |       |                                 |       |                                 |       |
| **Changes in operating assets and  liabilities:**                                     | ** ** | ** **                           | ** ** | ** **                           | ** ** |
| Accounts receivable                                                                   |       | (3,188,286                           | )          | (43,689                              | )          |
| Other debtor, deposits  and prepayments                                               |       | (878,343                             | )          | (294,642                             | )          |
| Inventories                                                                           |       | 470,557                              |       | —                               |       |
| Amounts due from  related parties                                                     |       | 261,782                              |       | (751,166                             | )          |
| Amounts due from  stockholders                                                        |       | 74,543                               |       | (141,660                             | )          |
| Accounts payable                                                                      |       | (1,079,566                           | )          | 241,856                              |       |
| Other payables and  accruals                                                          |       | 230,033                              |       | 853,701                              |       |
| Amounts due to related  parties                                                       |       | (395,298                             | )          | 403,628                              |       |
| **Net cash used in operating  activities**                                            | ** ** | **(6,917,905**                       | **)**      | **(1,957,254**                       | **)**      |
|                                                                                  |       |                                 |       |                                 |       |
| **Cash flows from investing  activities**                                             |       |                                 |       |                                 |       |
| Proceeds from sale of  plant and equipment                                            |       | 468,555                              |       | —                               |       |
| Purchase of plant and  equipment                                                      |       | (2,337,053                           | )          | (5,680                               | )          |
| Sale of Marketable  Securities                                                        |       | 1,574,455                            |       | —                               |       |
| Cash (used in)/  acquired in business combination, net                                |       | (2,849,820                           | )          | (403,159                             | )          |
| Disposal of subsidiary  companies, net                                                |       | 23,138                               |       | —                               |       |
| Capitalization of  intangible assets                                                  |       | (128,815                             | )          | —                               |       |
| Investment in  associated company                                                     |       |                                 |       | (24,987                              | )          |
| **Net cash used in investing  activities**                                            | ** ** | **(3,249,540**                       | **)**      | **(433,826**                         | **)**      |
|                                                                                  |       |                                 |       |                                 |       |
| **Cash flows from financing  activities**                                             |       |                                 |       |                                 |       |
| Issuance of common  stock                                                             |       | 9,584,973                            |       | 654,800                              |       |
| Proceeds from  convertible note                                                       |       | 1,500,000                            |       | 2,816,000                            |       |
| Repayment of factoring  loans                                                         |       | (37,703                              | )          | —                               |       |
| Minority interest, net                                                                |       | 497,797                              |       | 89,907                               |       |
| **Net cash provided by financing  activities**                                        | ** ** | **11,545,067**                       | ** ** | **3,560,707**                        | ** ** |
| **Net effect of exchange rate  changes on consolidating subsidiaries**                | ** ** | **(51,388**                          | **)**      | **2,131**                            | ** ** |
| **Net increase in cash and cash  equivalents**                                        | ** ** | **1,326,234**                        | ** ** | **1,171,758**                        | ** ** |
| **Cash and cash equivalents,  beginning of the period**                               | ** ** | **1,373,715**                        | ** ** | **201,957**                          | ** ** |
| **Cash and cash equivalents, end of the period**                                      | ** ** | **2,699,949**                        | ** ** | **1,373,715**                        | ** ** |

 

40

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**NEXTMARTINC. (f/k/a Sun New Media Group Limited)**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

For the yearsended March 31, 2007 and March 31, 2006

**NOTE 1 —NATURE OF OPERATIONS ANDBASIS OF PRESENTATION**

Weoperate mainly in the women’s apparel industry where we derive the bulk of ourrevenue by acting as an outsourced brand management and production center forforeign apparel brands. We also possess a portfolio of media and marketingassets that we are leveraging to expand into the online brand management ande-commerce sectors for women’s apparel products. We have supporting operationsin the handheld electronics sector. The Company is divided into two principaldivisions: the Transactional Services Division and the Marketing &Information Services Division.

Goingforward, we plan to center our business operations around our Shanghai-basedapparel subsidiary, William’s Brand Administer Co. Ltd. Our businessdevelopment efforts will consist of growing existing revenues in thebusiness-to-business sector and creating new revenues in thebusiness-to-consumer sector. Our goal here is to build China’s largest shoppingcommunity for online wholesale distribution and retail shopping.

Ouractivities are based predominantly in People’s Republic of China (“PRC”). Our principal operating subsidiaries include the following:

·                                          SunNew Media Group Limited;

·                                          SunGlobal Marketing Network Limited;

·                                          ChinaTradex Limited;

·                                          SunNew Media Holdings Limited;

·                                          WilliamBrand Administer Limited; and

·                                          BeijingTrans Global Logistics.

**NOTE 2 —SUMMARY OF THE COMPANY’SSIGNIFICANT ACCOUNTING POLICIES**

*Basisof Consolidation and Presentation*

The consolidatedfinancial statements include the accounts of the Company, its subsidiaries andvariable interest entities, or VIEs for which the Company is the primarybeneficiary. All significant inter-company accounts and transactions have beeneliminated. Investments in entities in which the Company can exercisesignificant influence, but which are less than majority owned and not otherwisecontrolled by the Company, are accounted for under the equity method. TheCompany has adopted FASB Interpretation No.46R consolidation of VariableInterest Entities, FIN 46R, an Interpretation of Accounting Research BulletinNo.51. FIN 46R requires a VIE to be consolidated by a company if that companyis subject to a majority of the risk of loss for the VIEs or is entitled toreceive a majority of the VIE’s residual returns.The consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States.

We have the followingsignificant domestic VIEs:

·                  Sun China Media(Beijing) Technology Co., Ltd., a PRC company controlled through us by contractand is owned equally by Qiong Zhou and Jacob Di, both of whom are non-executiveemployees of the Company.

·                  Suizhou FocusTrading Development Co., Ltd., a PRC company controlled by us by contract andis engaged in marketing, information and technology services to beverage andelectronic device distributors.  It is 60% owned by Qi Yang, one of ourofficers and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively, twonon-executive employees of the Company.

·                  Shanghai ShengjiTechnology Co., Ltd, a PRC company controlled by us by contract, and is engagedin wireless mobile services. It is 40% owned by Hui Yan, 40% owned by Min Linand 20% owned by Kezhou Luan, each a non-executive

41

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employee of theCompany.

·                  Sun China Media(Beijing) International Advertising Co. Ltd, a PRC company controlled by us bycontract which is engaged in the advertising business.  It is 70% owned byQiong Zhou, and 30% owned by Guosheng Wang, both of whom are non-executiveemployees of the Company.

·                  Dragon List Co.Ltd, a PRC company controlled by us by contract and is engaged in digital publishingbusiness.  It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, bothof whom are non-executive employees of the Company.

·                  Sun Trade Media(Beijing) Co. Ltd, a PRC company controlled by us by contract and is engaged indigital publishing business.  It is 70% owned by Qiong Zhou, and 30% ownedby Jacob Di, both of whom are non-executive employees of the Company.

·                  Sun Asia(Beijing) Investments Consultants Ltd, a PRC company controlled by us bycontract and is engaged in the provision of consultancy services.  It is60% owned by Qiong Zhou, and 40% owned by Xiaoang Li, both of whom arenon-executive employees of the Company.

·                  NextMartTechnology (Beijing) Co. Ltd, a PRC company controlled by us by contract and isengaged 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 XindaWeiye Trade and Development Co. Ltd, a PRC company controlled by us by contractand engaged in trading.  It is 40% owned by Jin Liu, 30% owned by WanzhiZhu and 30% owned by Mingde Jiang, all of whom are non-executive employees ofthe Company.

·                  Beijing TransGlobal Logistics, a PRC company 80% by us by contract and engaged intrading.  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.

·                  NaixiuExhibition (Beijing) Co. Ltd, a PRC company that is controlled by us and owned50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun arenon-executive employees of the Company.

The capital investment in these VIEs is funded by the Company andtransferred to the VIEs via contractual agreements between the Company (or itsnon-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 listedabove was US$3,451,000.  Under various contractual agreements, employeeshareholders of the VIEs are required to transfer their ownership in theseentities to our subsidiaries in China when permitted by PRC laws andregulations or to our designees at any time for the outstanding amount of injectedcaptial investment, and all voting rights of the VIEs are assigned to us. Wehave the power to appoint all directors and senior management personnel of theVIEs.  Through our wholly-owned subsidiaries in China, we have alsoentered into exclusive technical agreements and other service agreements withthe VIEs, under which these subsidiaries provide technical services.

*Use ofestimates*

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amount of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reported amountof revenue and expenses for the periods that the financial statements areprepared. Actual amounts could differ from these estimates.

*Financialinstruments*

The Company’s financialinstruments include cash and cash equivalents, accounts receivable, accounts payable,marketable securities, other payable and factoring loan. The fair values ofthese financial instruments approximate their carrying values due to theshort-term maturity of the instruments.

*Businesscombinations*

Weare creating this business through the ongoing acquisition of various entitiesand assets. The Company accounts for its business combinations using thepurchase method of accounting in line with FASB141. This method requires thatthe acquisition cost be allocated to the assets and liabilities the Companyacquired based on their fair value. Pursuant to FAB-141, the Company recognizesintangible assets separate from goodwill if they meet one of two criteria—thecontractual-legal criterion or the separability criterion. The Company makesestimates and judgments in determining the fair value of the acquired assetsand liabilities, based on

42

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independent appraisalreports for material purchases as well as its experience with similar assetsand liabilities in similar industries. If different judgments or assumptionswere used, the amounts assigned to the individual acquired assets orliabilities could be materially different. When considering whether an acquiredassets group constitutes a business, the Company used the criteria defined byEITF 98-3 determining Whether a Non-monetary Transaction Involves Receipt ofProductive Assets or of a Business.

*Goodwilland intangible assets, net*

Goodwill represents theexcess of the purchase price over the fair value of the identifiable assets andliabilities acquired as a result of the Company’s acquisitions of interests inits subsidiaries and VIEs. Under Statement of Financial Accounting Standards,FAS No.142, Goodwill and Other Intangible Assets, FAS 142, goodwill is nolonger amortized, but tested for impairment upon first adoption and annually,thereafter, or more frequently if events or changes in circumstances indicatethat it might be impaired. The Company assesses goodwill for impairmentperiodically in accordance with SFAS 142.

The Company applies thecriteria specified in SFAS No.141, Business Combinations to determine whetheran intangible asset should be recognized separately from goodwill. Intangibleassets acquired through business acquisitions are recognized as assets separatefrom goodwill if they satisfy either the contractual-legal or separabilitycriterion. Per SFAS 142, intangible assets with definite lives are amortizedover their estimated useful life and reviewed for impairment in accordance withSFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets.The Company reviews the amortization methods and estimated useful lives ofintangible assets at least annually or when events or changes in circumstancesindicate that it might be impaired. The recoverability of an intangible assetto be held and used is evaluated by comparing the carrying amount of theintangible asset to its future net undiscounted cash flows. If the intangibleasset is considered to be impaired, the impairment loss is measured as theamount by which the carrying amount of the intangible asset exceeds the fairvalue of the intangible asset, calculated using a discounted future cash flowanalysis. The Company uses estimates and judgments in its impairment tests, andif different estimates or judgments had been utilized, the timing or the amountof the impairment charges could be different.

*Impairment of Long-lived Assets*

The Company asseses thecarrying value of long-lived assets in accordance with SFAS No.144, accountingfor the Impairment or Disposal of Long-lived Assets. Factors consideredimportant which could trigger this review include esignificant decrease inoperating results, significant changes in its use of assets, competitivefactors and the strategy of it business, and significant negative industry oreconomic trenends. The company cannot predict the occurrence of futureimpaiment-triggering events nor the impact such events might have on thereported asset values. Such events may include strategic decisions made inresponse to the ecnomic conditions relative to product lines, operations andthe impact of the economic environment on our customer base. When the Companydetermine that the carrying value of long-lived may not be recoverable based onas assessment of future undiscounted cash flows from the use of those assets,an impairment charge to reord the assets at fair value may be recorded.Impairment is is measured based on fair values utilizing estimated disountedcash flow, published thirty-party sources, and third-party offers.

*Comprehensive Income (Loss)*

The Company reportscomprehensive income (loss) in accordance with FASB No. 130, “ReportingComprehensive Income (Loss). The components of comprehensive loss for theCompany inlcude currency translation adjustments and unrealized loss onmarketable securities.

*Inventories*

Inventories are stated atthe lower of cost (first-in, first out method) or market.  Certaininventory goods purchased are subject to spoilage within a short period of timewhile in possession of the Company.  Inventory costs do not exceed netrealizable value.

*Plantand equipment*

Plant and equipment arestated at cost, net of depreciation.  Depreciation is computed primarilyon the straight-line method for financial reporting purposes over the followingestimated useful lives:
| ** **                            | ** ** | **Years**   | ** ** |
|---------------------------------------|------------|-------------|------------|
| Furniture,  fixtures and equipment    |       | 3 –  5 |       |
| Motor vehicles                        |       | 5           |       |
| Leasehold buildings and  improvements |       | 5 – 30 |       |

 

*Revenuerecognition*

We generate revenuethrough the provision of marketing, information, and transactional services.The Company recognizes revenues

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from transaction andinformation 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 acceptedpurchase order; delivery has occurred, based on shipping terms, or serviceshave been rendered; the Company’s price to the buyer is fixed or determinable,as documented on the accepted purchase order; and collectibility is reasonablyassured.

The TransactionalServices include primarily the apparels vertical business and electronicscomponents. We recognize revenue for the transactional business when the goodshave been shipped or delivered and purchase order exists. The Marketing andInformation Services include newspaper and magazine business and marketingconsulting services. The Company recognize revenue for the Marketing andInformation Services when the services have been rendered.

*Cost ofrevenues*

Cost of revenues includesthe cost of product, salary and other related costs for our management servicesand technical support staff, as well as third-party contractor expenses. Additionally cost of revenues includes fees for hosting facilities, bandwidthcosts, and equipment and related depreciation costs. Cost of revenues will varysignificantly from period to period depending on whether we will take title ofthe product and the level of management services provided.

*Trade recevible and allowance forDoubtful Accounts*

The Company performsongoing credit evaluations of its customers to minumize credit risk. Theallowance for doubtful accounts is based on management’s estimates of thecollectability of its accounts receivable after analyzing historical bad debts,customer concentrations, customer credit worthiness, and current economictrends. Specifically, the Company reviews the aged accounts receivable listingfor balances that are specifically identifiable as credit risks oruncollectible, and may use judgement for calculation of allowance for doubtfulaccounts.

Sales to Nature’s ClubInternational Co. Ltd. were 27% of net sales for the year ended March 31, 2007.Significant sales to a single customer expose the Company to a concentration ofcredit risk.

*Earnings(loss) per share*

Basic earnings (loss) pershare includes no dilution and is computed by dividing income (loss) availableto common stockholders by the weighted average number of common sharesoutstanding for the year. As the Company has a loss, presenting diluted netearnings (loss) per share is considered anti-dilutive and not inlcuded in thestatement of operations (diluted shares outstanding were 105,157,016 as ofMarch 31, 2007, and 72,809,160 as of March 31, 2006).

*Foreigncurrency transactions*

The financial statementsare presented in United States dollars. In accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”,since the functional currency of the Company is Renminbi (RMB), the foreigncurrency financial statements of the Company’s subsidiaries are re-measuredinto U.S. dollars (USD). Monetary assets and liabilities are re-measured usingthe foreign rate that prevailed at the balance sheet date. Revenue and expensesare translated at weighted average rates of exchange during the year andstockholders’ equity accounts and capital asset accounts are translated byusing historical exchange rates. Any re-measurement gain or loss incurred isreported in the consolidated statement of operations. In 2007, we used 7.9005RMB per U.S. USD for the weighted average rate, and we used 7.7342 RMB per USDas the balance sheet date rate.

*Incometaxes*

The Company follows the liability method of accountingfor income taxes in accordance with SFAS No. 109. Under this method, future taxassets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax balances. Future taxassets and liabilities are measured using enacted or substantially enacted taxrates expected to apply to the taxable income in the years in which thosedifferences are expected to be recovered or settled. The effect on future taxassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the date of enactment or substantive enactment. The tax loss arisingfrom PRC can be carried forward for five years. Agreed tax losses by respectivelocal tax authorities can be offset against future taxable profits of therespective companies. A valuation allowance is provided for deferred taxassets if it is more likely than not that the Company will not realize thefuture benefit, or if the future deductibility is uncertain.

*Stock-basedcompensation*

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 thatall share-based payments to employees be recognized

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in the financialstatements based on their fair values at the date of grant. The calculated fairvalue is recognized as expense (net of any capitalization) over the requisiteservice period, net of estimated forfeitures, using the straight-line methodunder SFAS No. 123(R). The Company considers many factors when estimatingexpected forfeitures, including types of awards, employee class and historicalexperience. The statement was adopted using the modified prospective method ofapplication which requires compensation expense to be recognized in thefinancial statements for all unvested stock options beginning in the quarter ofadoption. There were no unvested stock options at the beginning of thisreporting period therefore no compensation expense was recognized in theperiod. No adjustments to prior periods have been made as a result of adoptingSFAS No. 123(R).

As at September 30, 2005the Company elected to account for stock-based employee compensation arrangementsin accordance with the provisions of Accounting Principles Board Opinion No.25, “Accounting for Stock Issued to Employees”, (“APB No. 25”) and comply withthe 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-basedemployee compensation arrangements have been effected and accordingly nodisclosure of pro forma information is required. In accordance with SFAS No.123 the Company applies the fair value method using the Black-Scholesoption-pricing model in accounting for options granted to consultants.

The Company accounts forequity instruments issued in exchange for the receipt of goods or services fromother than employees in accordance with SFAS No. 123 and the conclusionsreached by the Emerging Issues Task Force in Issue No. 96-18, “Accounting forEquity Instruments That Are Issued to Other Than Employees for Acquiring or inConjunction with Selling Goods or Services” (“EITF 96-18”). Costs are measuredat the estimated fair market value of the consideration received or theestimated fair value of the equity instruments issued, whichever is morereliably measurable. The value of equity instruments issued for considerationother than employee services is determined on the earlier of a performancecommitment or completion of performance by the provider of goods or services asdefined by EITF 96-18.

*RelatedParties*

Parties are considered tobe related if one party has the ability, directly or indirectly, to control theother party, or exercise significant influence over the other party in makingfinancial and operating decisions.  Parties are also considered to berelated if they are subject to common control or common significant influence.

*DeferredExpenses*

Payments made forfuture expenses were amortized over the life of service received.

*Marketablesecurities*

The Company accounts forinvestments in marketable securities under Statement of Financial AccountingStandards (SFAS) No. 115,*Accounting forCertain Investments in Debt and Equity Securities.*  Marketableequity securities are held as available for sale and are reported at fair valueany unrealized gains and losses are included in accumulated other comprehensiveincome or loss within stockholders’ equity.  The treatment of a decline inthe fair value of an individual security is based on whether the decline isother-than-temporary.  Significant judgment is required to assess whetherthe impairment is other-than-temporary, particularly for marketable equitysecurities that provide limited public information.  Our judgment ofwhether impairment is other-than-temporary is based on an assessment of factorsincluding our ability and intent to hold the individual security, severity ofthe impairment, expected duration of the impairment and forecasted recovery offair value.  Changes in the estimates and assumptions could affect ourjudgment of whether an identified impairment should be recorded as anunrealized loss in the equity section of our consolidated balance sheets or asa realized loss in the consolidated statements of operations.

*ConvertibleNotes and Notes Issued with Stock Warrants*

The Company accounts for convertible notes and notes issued with stockwarrants 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 thedebt and the equity. The Company books a discount on convertible notes for theconversion feature of the notes and waarants and amortizes the discount overthe life of the debt.

*Segment Information*

The Company accounts forsegment information in accordance to FASB 131,*Disclosuresabout Segments of an Enterprise and Related Information.*Operatingsegments are components of an enterprise about which separate financialinformation is available that is evaluated regularly by the chief operatingdecision maker in deciding how to allocate resources and in assessingperformance. The Company’s operations segments include Transactional Servicesand Marketing Serives.

The TransactionalServices include primarily the apparels vertical business and electronicscomponents. We recognize revenue for

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the transactionalbusiness when the goods have been shipped or delivered and purchase orderexists. The Marketing and Information Services include newspaper and magazinebusiness and marketing consulting services. The Company recognize revenue forthe Marketing and Information Services when the services have been rendered.

**NOTE3 — BUSINESS ACQUISITIONS**

Pursuant to FAS 141,paragraph 6, exchange transactions in which the consideration given is cash aremeasured by the amount of cash paid. However, if the consideration given is notin the form of cash (that is, in the form of non-cash assets, liabilitiesincurred, or equity interests issued), measurement is based on the fair valueof the consideration given or the fair value of the asset (or net assets)acquired, whichever is more clearly evident and, thus, more reliablymeasurable.

The current businesses ofthe Company were acquired when we had a very short history of operating andstock performance.  At the time of completion of the followingacquisitions, the Company’s common stock was traded on the Over-the-CounterBulletin Board (OTCBB) with a high volatility in both volume and price.Therefore management decided to use the discounted fair market value of theshares issued to measure our consideration when consideration was not in theform of cash.

*SharePurchase Agreement between the Company, China Focus Channel Development Limited(“Focus”), China Electronic Appliances (“CEAC”), Mr Yong Li and Mr MianchunWang for the acquisition of Beijing Trans Global Logistics (“BTGL”) and itssubsidiary, Beijing CEAC Trans Global Logistics (“BCTGL”) (BTGL and BCTGLcollectively Beijing CEAC)*

On October 19, 2006 wecompleted the acquisition of CEAC pursuant to a Sale and Purchase Agreementdated May 23, 2006 (the “CEAC Purchase Agreement”) by and between the Company,Focus, CEAC, Yong Li and Mianchun Wang and acquired an 80% controlling interestin BTGL.  BTGL owns an 80% stake in BCTGL.

The consideration paid bythe Company was US$1.125 million (RMB 9 million) in cash and 138,066 shares ofthe Company’s stocks.  Pursuant to the CEAC Purchase Agreement, thesellers will receive an additional 138,066 of the Company’s common stock peryear in each of the three years if Beijing CEAC meet the profit and revenueguarantee.

The Company usedindependent valuation report as a guidance to record the intangibles arisingfrom this transaction. The purchase price was allocated as follows:
| Cash                           |   | $         | 749,722   |   |
|--------------------------------|--------|-----------|-----------|--------|
| Current assets                 |   | 1,254,139 |      |
| Current  liabilities           |   | (911,698  | )         |
| Property, plant  and equipment |   | 91,147    |      |
| Minority  interest             |   | (393,448  | )         |
| Goodwill on  consolidation     |   | 180,763   |      |
| Intangible  assets             |   | 675,899   |      |
| Purchase price                 |   | $         | 1,646,524 |   |

 

The result of operationsof the above acquisition was included in the income statement of the combinedentiry in September 2006 through March 2007.

*SharePurchase Agreement between the Company and Sun Media Investment HoldingsLimited (“SMIH”) for the acquisition of Credential 114 Network Limited (“Credit114”)*

On July 21, 2006 wecompleted the acquisition of Credit 114 pursuant to a Sale and PurchaseAgreement dated June 14, 2006 (the “Credit 114 Purchase Agreement”) by andbetween the Company and SMIH and acquired a 100% controlling interest in Credit114. SMIH has been a significant shareholder of the Company.

The consideration paid bythe Company was US$2.5 million cash.

The purchase price wasallocated as follows:
| Cash               |   | $         | 1         |   |
|--------------------|--------|-----------|-----------|--------|
| Intangible  assets |   | 2,499,999 |      |
| Purchase price     |   | $         | 2,500,000 |   |

 

The Company usedindependent valuation firm to establish valuations for the acquisition, who hasadopted the discounted cash flow

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approach in thisvaluation. Credit 114 was valued at $2.5 million

Credit 114 has thepotential to give users of NextMart websites easy access to credit information,which is critically important in business to business transactions, but thevalue of this acquisition, goes beyond supplying credit information to our siteusers. By making this searchable database available to users of our verticalindustry websites, we are building an invaluable service that will bring moreusers to our industry websites more frequently.

This database will beinvested in NextMart Online Catalogues Ltd, a 50%-50% joint venture with HerVillage Media Co. for the production and distribution of e-shopping cataloguesin the area of women’s fashion and apparel, pursuant to an agreement by andbetween us and Her Village Media Co. on June 11, 2007.

The result of operationsof the above acquisition was included in the income statement of the combinedentiry in July 2006 through March 2007.

*SharePurchase Agreement between the Company, China Focus Channel Development Limited(“Focus”) and Ren Huiliang for the acquisition of William Brand AdministerLimited and its subsidiary William Textiles Limited (collectively “WilliamBrand”)*

On September 30, 2006 wecompleted the acquisition of William Brand pursuant to a Sale and PurchaseAgreement dated June 8, 2006 (the “William Brand Purchase Agreement”) by andbetween the Company, (“Focus”) and Ren Huiliang and acquired a 100% controllinginterest in William Brand.  The company, Focus and Ren Huiliang agreedthat the effective date of the acquisition will be July 1, 2006.  WilliamBrand is a China-based producer and distributor of women’s luxury apparel.

The consideration paid bythe Company for the acquisition was satisfied through the issuance of 4,655,173shares of the Company’s common stock.  Pursuant to the William BrandPurchase Agreement, the shares are to be issued as follow:

·      1,163,793 shares on completionof the transaction;

·      1,163,793 shares to beissued if William Brand achieves a minimum of US$15 million revenue and US$3million after-tax profits in Year 1;

·      1,163,793 shares to beissued if William Brand achieves a minimum of US$17.5 million revenue andUS$3.5 million after-tax profits in Year 2; and

·      1,163,793 shares to beissued if William Brand achieves a minimum of US$20.0 million revenue andUS$4.0 million after-tax profits in Year 3.

At the time of enteringinto the agreement on June 8, 2006, our common stock was traded on OTCBB withlimited liquidity and a comparative short trading history.  As such, themanagement decided to use the discounted fair market value of the shares issuedto measure our consideration (the Company stock) paid. The Company usedindependent valuation report as a guidance to record the intangibles arisingfrom this transaction.

The Company hiredindependent valuation firm to measure the assets for the acquisition. Inaddition to the discounted cash flow method, several other valuation approacheswere adoptd in the valuation, including Income Approach, Market Approach, andCost Approach. Intangible assets of William Brand include customer relationshipand Non-compete clause.

The purchase price wasallocated as follows:
| Cash                 |   | $          | 14,275    |   |
|----------------------|--------|------------|-----------|--------|
| Current assets       |   | 3,073,120  |      |
| Current  liabilities |   | (1,865,294 | )         |
| Intangible  assets   |   | 2,904,709  |      |
| Purchase price       |   | $          | 4,126,810 |   |

 

The acquisition of allthe issued and outstanding shares of William Brand is described as a “purchaseacquisition”. The result of operations of the acquisition was included in theincome statement of the combined entiry in July 2006 through March 2007.

With over two decades ofexperience manufacturing and distributing women’s luxury apparel in China andabroad, William Brand has access to a strong distribution network that can beleveraged to facilitate the Company’s expansion into the vertical.

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*SharePurchase Agreement between the Company and SMIH*

On September 3, 2006,pursuant to the Sale and Purchase agreement (the “SMIH Purchase Agreement”)dated April 20, 2006 between the Company and SMIH, the Company acquired aproperty, automobiles, program rights and 46,629,331 shares in Asia Premium TelevisionGroup Inc (OTCBB:ATVG).  The consideration paid by the Company for theacquisition was satisfied through the issuance of 850,647 shares of the Company’scommon stock.

At the time of enteringinto the agreement on April 20, 2006, our common stock was traded on OTCBB withlimited liquidity and short term trading history, while Asia Premium TelevisionGroup. Inc. has been traded on the OTCBB, for a comparably longer time,therefore management decided to use the discounted fair market value of theshares issued to measure our consideration (the Company stock) paid.

**NOTE4 — GOODWILL AND INTANGIBLE ASSETS**

The following tablesummarizes goodwill from the Company’s acquisitions:
|                 | ** ** | **March 31,  2007** | ** ** | **March31,  2006** | ** ** |
|-----------------|------------|--------------------------|------------|--------------------|------------|
| ** **      | ** ** | **US$’000**         | ** ** | **US$’000**   | ** ** |
| Focus           |       | 7,800                    |       | 7,800              |       |
| Beijing CEAC    |       | 181                      |       | —             |       |
| Impairment loss |       | (7,800                   | )          | —             |       |
|            |       | 181                      |       | 7,800              |       |

 

The goodwill of $7,800,000relates to the acquisition of *China FocusChannel Development Co. Ltd*pursuant to a Sale and Purchaseagreement (the “Focus Purchase Agreement”) dated November 22, 2005 withYang Qi, Mao Quan Yi and Wu Bing Wei (collectively, the “Sellers”). Thisgoodwill was impaired in November 2006 due to the change of the marketsituation for the acquired business.

The following tablesummarizes intangible assets:
|                                                   | ** ** | **March 31,** | ** ** | **March31,**     | ** ** |
|---------------------------------------------------|------------|--------------------|------------|------------------|------------|
| ** **                                        | ** ** | **2007**           | ** ** | **2006**         | ** ** |
| ** **                                        | ** ** | **US$’000**   | ** ** | **US$’000** | ** ** |
| Service agreements                                |       | 25,000             |       | 25,000           |       |
| Magazines  mastheads                              |       | 2,562              |       | 2,562            |       |
| License                                           |       | 24,452             |       | 24,452           |       |
| Non-compete  agreements and customer relationship |       | 2,905              |       | —           |       |
| Database                                          |       | 2,500              |       | —           |       |
| Program rights                                    |       | 1,792              |       | —           |       |
| Technology                                        |       | 2,367              |       | 1,981            |       |
| Partnership  agreement license                    |       | 1,056              |       | —           |       |
|                                              |       | 62,814             |       | 53,995           |       |
| Less:  Accumulated amortization                   |       | (1,125             | )          | —           |       |
| Sold                                              |       | (1,208             | )          | —           |       |
| Impairment loss                                   |       | (34,505            | )          | —           |       |
| Translation difference                            |       | (27                | )          |             |       |
|                                              |       | 25,769             |       | 53,995           |       |

 

The above intangibleassets have original estimated useful lives as follow and are amortizedaccordingly:
| Service agreements                           |   | 30 years |   |
|---------------------------------------------------|--------|---------------|--------|
| Non-compete  agreements and customer relationship |   | 3 years       |   |
| Partnership  agreements and license               |   | 3 years       |   |
| Technology                                        |   | 2 to 10 years |   |

 

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Magazines mastheads,license and program rights have perpetual useful lives and thus are notamortized.

The service agreements of$25 million relate to the assets acquired with the acquisition of *China Focus Channel Development Co. Ltd*pursuantto a Sale and Purchase agreement (the “Focus Purchase Agreement”) datedNovember 22, 2005 with Yang Qi, Mao Quan Yi and Wu Bing Wei (collectively,the “Sellers”). It relates to an agreement between China Focus ChannelDevelopment Co. Ltd. (“Focus”) and Hubei Zhengyuan Trade Development Ltd. (“HZTD”).Pursuant to the service agreement, Focus was entitled to the higher of 12% ofHZTD’’s cash revenue and RMB 4 million per month for the management serviceprovision. We hired independent valuation firm to measure the service agreementfor the acquisition and the discounted cash flow method was adoptd in thevaluation.

In November 2006, weimpaired the intangible assets and goodwill in *China FocusChannel Development Co. Ltd.* which was acquired pursuant to a Saleand Purchase agreement with Yang Qi, Mao Quan Yi and Wu Bing Wei (collectively,the “Sellers”), dated November 22, 2005. We recorded an impairment loss of$26.3 million. As part of the transaction, we redeemed 14.9 million shares ofthe Company paid as consideration for the acquisition, pursuant to an agreementby and between us and the Sellers in November 2006. The cost was determined tobe the fair value of the shares at that time. The cost was recorded as areduction of paid in capital and additional paid in capital; no gain or loss(after impairment) was recorded.

The $2.6 million ofmagazines mastheads relates to various magazine titles arising out of theacquisition of Lifestyle Magazines Publishing Ltd. We hired independentvaluation firm to measure the mastheads for the acquisition and the discountedcash flow method was adoptd in the valuation. Since those mastheads haveperpertual life, they are not amortized.

The $24.5 million oflicense relates to a group on line magazine publishing rights acquired from TheLexicon Group Ltd. (“TLG”)(formerly “Sun Business Network Ltd.”). We hiredindependent valuation firm to measure the licenses for the acquisition and thediscounted cash flow method was adoptd in the valuation. Since those licenseshave perpertual life, they are not amortized. In March 2007, $8.8 million ofthe licenses was impaired based on an impairement test by an independentvaluation firm.

Credit 114 has thepotential to give users of NextMart websites easy access to credit information,which is critically important in business to business transactions, but thevalue of this acquisition, goes beyond supplying credit information to our siteusers. By making this searchable database available to users of our verticalindustry websites, we are building an invaluable service that will bring moreusers to our industry websites more frequently.

This database will beinvested in NextMart Online Catalogues Ltd, a 50%-50% joint venture with HerVillage Media Co. for the production and distribution of e-shopping cataloguesin the area of women’s fashion and apparel, pursuant to an agreement by andbetween us and Her Village Media Co. on June 11, 2007.

The $2.9 million of non-competeagreements and customer relationship relates to the acquisition of WilliamBrand Purchase Administer Limited on September 30, 2006. We hired independentvaluation firm to measure the assets for the acquisition. In addition to thediscounted cash flow method, several other valuation approaches were adoptd inthe valuation, including Income Approach, Market Approach, and Cost Approach.

The $2.4 million oftechnology primarily relates to copyright and all intellectual property in onecomputer software and related technology. It was associated with theacquisition of Magzone Asia on March 10, 2006. We hired independent valuationfirm to measure the technology for the acquisition and the discounted cash flowmethod was adopted in the valuation.

The$1.8 million of program rights was acquired from SMIH on September 3, 2006. Itwas valued at its carry-on net book value at the acquisition.

Theimpairment loss of intangible assets mainly includes the impairment of digitalmagazine publishing rights and a service agreement with Focus ChannelDevelopment Co. These assets were impaired due to changes in the marketcondition.

**NOTE 5 —PLANT AND EQUIPMENT, NET**

Plant and equipment issummarized as follows:
|                                    | ** ** | **As of** | ** ** | **As of** | ** ** |
|------------------------------------|------------|----------------|------------|----------------|------------|
| ** **                         | ** ** | **31-Mar-07**  | ** ** | **31-Mar-06**  | ** ** |
| ** **                         | ** ** | **US$**        | ** ** | **US$**        | ** ** |
| Cost                               |       |           |       |           |       |
| Motor vehicles                     |       | 652,634        |       | 124,303        |       |
| Leasehold building and improvement |       | 3,400,618      |       | 1,401,397      |       |
| Furniture, fixtures and equipments |       | 2,407,178      |       | 982,650        |       |
|                               |       | 6,460,430      |       | 2,508,350      |       |
| Accumulated  depreciation          |       | (1,144,239     | )          | (302,814       | )          |
|                               |       | 5,316,191      |       | 2,205,536      |       |

 

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Theequipment includes net book value of $1.3 million of anti-auction software.Similar to the software deployed in the China state auctioning platform, thissoftware is the key to the self-service advertisement sell system and valuablefor the Company future searching engine business which is currently undernegotiation with prospective partners.  Thedepreciation expenses was $911,303, $6,767, 0 for 2007, 2006, 2005respectively.

**NOTE 6 —Convertible Notes, Warrants and Stock Options**

**ConvertibleNotes with Detachable Warrants**

On March 22, 2007, weexecuted a subscription agreement with certain accredited investors pursuant towhich it agreed to issue $1,500,000 of principal amount of senior convertiblepromissory notes and warrants to purchase shares of our common stock. Thefinancing was closed on March 29, 2007.

The aggregate grossproceeds from the sale of the notes and warrants was $1,500,000.  Theconvertible notes are due three years from the date of issuance. We prepaid allinterest due under the convertible notes through the issuance of 1.5 millionshares of NextMart common stock (the “Interest Shares”).  The notes areinitially convertible into NextMart common shares at a conversion price of$1.00 per share.  After the occurrence of an event of default under thenotes, the conversion price shall be adjusted to eighty percent (80%) of thevolume weighted average price of NextMart common shares for the five tradingdays prior to a conversion date.

Commencing on thefifteenth month of the notes, we must make a payment of one-twenty first (1/21st) of the principal amount****ofeach note, either in cash or by conversion of such amount into NextMart commonshares.  If, on the payment date, the market price for NextMart commonshares are equal to or  $1.00 per share, we may make this payment inNextMart common shares at the then existing  conversion rat. However, if, on the payment date, either (i) the market price for NextMartcommon shares are less than $1.00 per share or (ii) the Registration Statementcovering the common stock underlying the notes and warrants is not effective,then NextMart must make this payment in cash in an amount equal to 135% of thePrincipal Amount component of the Monthly Amount.. Subject to certain terms andconditions set forth therein, the notes are redeemable by us at a rate ofbetween 120% to 150% of the outstanding principal amount of the notes plusinterest.

The notes are beingissued with Class A warrants to purchase up to 1,500,000 shares of NextMartcommon stock at an exercise price of $1.00 per share and Class B warrants topurchase up to 1,500,000 shares of NextMart common stock at an exercise priceof $1.50 per share.  Upon exercise of any Class A or Class B warrant, therespective warrantholder will receive a Class C warrant to purchase that numberof shares for which such Class A warrant or Class B warrant is exercised at anexercise price of $2.00 per share.  Accordingly, if the Class A and ClassB warrants are exercised in full, we will issue Class C warrants to purchase 3,000,000shares of NextMart common stock.

In accordance with theguidelines of APB No. 14, “Accounting for Convertible Debt and Debt Issued withStock Purchase Warrants”, EITF Issue No. 98-5, “Accounting for ConvertibleSecurities with Beneficial Conversion Features or Contingently AdjustableConversion Ratios” and EITF Issue No. 00-27, “Application of issue No. 98-5 toCertain Convertible Instruments”, the Company has determined that the above rightswere issued with beneficial conversion feature. The value of the rights wascalculated at the date of issue using the Black-Scholes pricing model, limitedby the face amount of the note, and was booked as a discount to the convertiblenote.  Upon conversion of all or a portion of the note, the proportionateshare of unamortized discount will be charged to interest expense.

On February 1, 2007,NextMart, Inc. (the “Registrant”) and Barron Partners LLP (“Barron”) enteredinto a supplementary agreement (the “Supplementary Agreement”) to modify theterms of their original stock purchase agreement (the “Agreement”) datedDecember 31, 2005.

As of the dateimmediately prior to the Supplementary Agreement, Barron possessed thefollowing series of warrants to purchase

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NextMart stock (the “Warrants”):

·             Warrant “A” for1,500,000 common shares at $2.04 exercise price

·             Warrant “B” for1,500,000 common shares at $2.80 exercise price

·             Warrant “C” for4,000,000 common shares at $3.60 exercise price

·             Warrant “D” for3,445,977 common shares at $4.80 exercise price

·             Warrant “E” for1,100,000 common shares at $2.10 exercise price

Following theSupplementary Agreement, only 3 million of the original 11,545,977 millionunexercised warrants remain, and Barron has agreed to limit selling of theshares underlying the warrants to 10% per month for the first 10 monthsfollowing the date of the agreement.

Specifically, the Companyand 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, so 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 yearended March 31, 2007, warrants for 3,654,023 shares were exercised and theCompany received net proceeds of $8.7 million.

We assessed ourderivative liabilities pursuant to EITF BO. 00-19, Accounting for DerivativeFinancial Instruments Indexed to, and Potentially Settled in, a Company’s OwnStock. The management team has determined that we do not have derivativeliabilities as of the filing date of this report.

**Stock-basedcompensation**

The Company’s stockoption program is a long-term retention program that is intended to attract,retain and incentivize talented employees, and to align stockholder andemployee interests.  The Company currently grant options pursuant to the1) 2001 Stock Option Plan, 2) 2004 Stock Option Plan 3) 2006 Stock Option Plan.

**2001Stock****Option Plan**

EffectiveOctober 10, 2001, SE Global awarded a total of 2,150,000 non-qualifiedoptions at a price of $1.14 post stock split ($0.57 pre stock split) under the2001 Plan to certain employees, officers, directors and consultants of SE Globaland certain of its subsidiaries. Of these options, 940,000 were deemed to be amodification of options granted under the original Plan and as such are subjectto variable accounting in accordance with the provisions of the FinancialAccounting Standards Board Interpretation No. 44, “Accounting for CertainTransactions Involving Stock Compensation — An Interpretation of APB OpinionNo. 25” (“FIN 44”). As at March 31, 2007, there were no stock optionsthat were subject to variable accounting.

**2004Stock Option Plan**

Effective January 22,2004, the Company adopted the 2004 Stock Option Plan (the “2004 Plan”) allowingfor the awarding of options to acquire shares of common stock.

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**2006Stock Option Plan**

In April 2006, the 2006Stock Option Plan (the 2006 Plan) was approved by the Company’s Board ofDirectors.  The purpose of the 2006 Plan is to reward employees, officersand directors and consultants and advisors to the Company who are expected tocontribute to the growth and success of the Company.  The 2006 Planprovides for the award of options to purchase shares of the Company’s commonstock.  Stock options granted under the 2006 Plan may be either incentivestock options or nonqualified stock options.

During the three monthsended September 30, 2006, the Company granted 283,230 options to directors and1,200,000 to the Company’s Chief Financial Officer.  No stock awards weregranted during the three months ended September 30, 2006.

During the three monthsended December 31, 2006, the Company repurchased 226,584 options from directorsat zero consideration, and a corresponding gain of $537,000 was recognized bythe Company to offset the original expense. No stock awards were granted duringthe three months ended December 31, 2006.

During the three monthsended March 31, 2007, the Company cancelled 1,200,000 options from the Company’sformer Chief Financial Officer, and a corresponding gain of $768,000 wasrecognized by the Company to offset the original expense.  No stock awards were granted during the threemonths ended March 31, 2007.

***Stock Compensation***

Effective January 1,2006, Company adopted SFAS 123R. See Note 2 for a description of the Company’sadoption of SFAS 123R. The fair value of stock-based compensation awards isdetermined using the Black-Scholes option pricing model, which is consistentwith the valuation techniques previously utilized for options in footnotedisclosures required under SFAS 123, as amended by FASB Statement No.148, “Accountingfor Stock-Based Compensation—Transition and Disclosure.”  Thedetermination of the fair value of stock-based compensation awards on the dateof grant using an option-pricing model is affected by the Company’s stock priceas well as assumptions regarding a number of complex and subjective variables,including the expected volatility of the Company’s stock price over the term ofthe awards, actual and projected employee stock option exercise behaviors,risk-free interest rate and expected dividends.

The assumptionsused to value stock-based compensation awards for the three and nine monthsended December 31, 2006 and 2005 are as follows:
|                           | ** ** | **Years ended March31** | ** ** |
|---------------------------|------------|-----------------------------------|------------|
| ** **                | ** ** | **2007**                          | ** ** | **2006** | ** ** |
| ** **                | ** ** | **US$’000**                  | ** ** | **US$’000** | ** ** |
| Expected term  (in years) |       | 5.0-5.4                           |       | N/A |   |
| Expected  volatility      |       | 69.7%-70%                         |       | N/A |   |
| Risk-free interest  rate  |       | 4.85%-4.77%                       |       | N/A |   |
| Expected dividend yield   |       | 0                                 |       | N/A |   |

 

Expected term representsthe average of the expiration period and the vesting term.  Expectedvolatilities are based on the weekly closing prices of the Company’s stockafter the Company’s reverse takeover in September 18, 2005.  Risk-freerate is based on US Treasury zero-coupon issues with remaining terms similar tothe expected term on the stock-based awards.  The Company does notanticipate paying any cash dividends in the foreseeable future. Forfeitures are estimated at the time of grant and revised in subsequentperiods if actual forfeitures differ from those estimates.  The Companyuses historical data to estimate pre-vesting option forfeitures and recordstock-based compensation expense only for those awards that are expected tovest.

Stock based compensationrecognized on the Company’s Condensed Consolidated Statement of Operations forthe Fiscal year ended March 31, 2007 is $3,194,450. This includes $2,460,000for the 1,200,000 options granted to the Company’s former Chief FinancialOfficer in September 2006, although, the 1,200,000 options were cancelled inFebruary 2007 and a gain of $768,000 was booked.

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The following table setsforth the summary of option activity under the Company’s stock option programfor the Fiscal year ended March 31, 2007:
|                                          | ** ** | ** **      | ** ** | **Weighted**      | ** ** | **WeightedAverage** | ** ** |
|------------------------------------------|------------|-----------------|------------|-------------------|------------|---------------------|------------|
| ** **                               | ** ** | **Options**     | ** ** | **Average**       | ** ** | **Remaining**       | ** ** |
| ** **                               | ** ** | **Outstanding** | ** ** | **ExercisePrice** | ** ** | **ContractualLife** | ** ** |
| ** **                               | ** ** | ** **      | ** ** | **US$**           | ** ** | **Years**           | ** ** |
| **Balance,  September 18, 2005**    |       | 977,000         |       | 0.382             |       |                |       |
| Revere stock  split adjustment           |       | (488,500        | )          | 0.382             |       |                |       |
| **Balance,  September 30, 2005**    |       | 488,500         | )          | 0.765             |       |                |       |
| Exercise of  stock options               |       | (43,000         | )          |              |       |                |       |
| **March  31, 2006**                      |       | 445,500         |       | 0.741             |       |                |       |
| Exercise                                 |       | (339,000        | )          | 0.74              |       |                |       |
| Granted                                  |       | 1,483,230       |       | 3.20              |       |                |       |
| Cancelled                                |       | (1,426,584      | )          | 3.18              |       |                |       |
| **March  31, 2007**                      |       | 163,146         |       | 1.89              |       | 6.53                |       |
| **Vested options as of March 31,  2007** |       | 163,146         |       | 1.89              |       | 6.53                |       |

 

**2006Stock Award**

On September 18, 2006,the board awarded 20,000 shares of common stock to the Company’s ChiefFinancial Officer.  The Company recorded $63,200 as stock-basedcompensation in the statement of operations.

On March 31, 2006, theboard awarded 1,044,600 shares of common stock to various employees. TheCompany recorded $3,879,099 as stock-based employee compensation in thestatement of operations.

For the financial periodended March 31, 2006, the Company also recorded an expense of $5,775,000relating to the award of 1,500,000 shares of common stock to senior managementas stock based compensation in the statement of operations.  The stockgrant was subsequently cancelled by the Board during the three months endedSeptember 2006 and a corresponding gain of $5,775,000 was recognized by theCompany to offset the original expense.

**NOTE7— INCOME TAXES**

The Company is incorporatedin the state of Delaware, United States and has operations in the PRC and theUnited States of America. The Company has incurred net accumulated operatinglosses and current operating losses for income tax purposes. The Companybelieves that it is more likely than not that these net accumulated operatinglosses will not be utilized in the future. Therefore, the Company has providedfull valuation allowance for the deferred tax assets arising from the losses atthese locations as of March 31, 2007 and March 31, 2006.

The components of incomebefore income taxes are as follows:
| ** **                                | ** ** | **As of**               | ** ** | **As of**               | ** ** |
|-------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                | ** ** | **March 31, 2007** | ** ** | **March 31, 2006** | ** ** |
| ** **                                | ** ** | **US$**                      | ** ** | **US$**                      | ** ** |
| Loss subject to  non-China operations     |       | (20,812,147                  | )          | (15,594,962                  | )          |
| Loss subject to  China operations         |       | (2,919,016                   | )          | (231,901                     |       |
| Loss before  taxes                        |       | (23,731,163                  | )          | (15,826,863                  | )          |
| Income taxes  subject to China operations |       | 89,145                       |       | —                       |       |
| Effective tax rate for  China operations  |       | 30                           | %          | —                       |       |

 

Pursuant to the PRCIncome Tax Laws, the Company’s subsidiaries and VIEs are generally subject toEnterprise Income Taxes, EIT, at a statutory rate of 33%, which comprises 30%national income tax and 3% local income tax. Some of these subsidiaries andVIEs are qualified new technology enterprises and under PRC Income Tax Laws,they are subject to a preferential tax rate of 15%. In addition, some of theCompany’s subsidiaries are Foreign Investment Enterprises and under PRC IncomeTax Laws, they are entitled to either a three-year tax exemption followed bythree years with a 50% reduction in the tax rate, commencing the firstoperating 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 arewholly owned by the Company’s employees and controlled by the Company throughvarious contractual agreements. To the extent that these VIEs haveundistributed after-tax net income, the Company has to pay taxes on behalf ofits employees when

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dividends are distributedfrom these local entities in the future. The dividend tax rate is 20%. Despite theCompany’s net losses, timing differences resulted in the Company having $89,145in taxes in 2007.

**NOTE8 — OTHER RECEIVABLES, PREPAYMENTS AND DEPOSITS**

Other receivables,prepayments and deposits are summarized as follow:
|                                  | ** ** | **As of** | ** ** | **As of** | ** ** |
|----------------------------------|------------|----------------|------------|----------------|------------|
| ** **                       | ** ** | **31-Mar-07**  | ** ** | **31-Mar-06**  | ** ** |
| ** **                       | ** ** | **US$**        | ** ** | **US$**        | ** ** |
| Other  receivables               |       | 5,945,958      |       | 114,923        |       |
| Staff advances                   |       | 25,207         |       | 34,069         |       |
| Prepaid Advances  for Purchase   |       | 1,515,566      |       |           |       |
| Prepaid Interest  expense        |       | 780,000        |       | —         |       |
| Deferred  expenses               |       | 1,818          |       | 2,063          |       |
| Rental deposits                  |       | 41,578         |       | 9,111          |       |
| Prepaid  administrative expenses |       | 181,312        |       | 306,230        |       |
|                             |       |           |       |           |       |
|                             |       | 8,491,439      |       | 466,396        |       |

 

Other receivables wereprimarily driven by un-received consideration for The Lexicon Group Ltd. (“TLG”)(formerly“Sun Business Network Ltd.”) shares sales. Pursuant to a Sales and PurchaseAgreement by and between the Company (the Vendor) and Maxi Surplus InvestmentLimited (the Purchaser) in March 2007, the Purchaser acquired 150 millionshares of TLG from the Vendor on March 26, 2007. The consideration for thepurchase was approximately $5.88 million (9 million Singaporean dollars) to besatisfied by way of a transfer of 20 million shares in Sun 3C Media PLC, acorporation established in Ireland (Consideration Shares). As of March 31,2007, the Consideration Shares were still in the process of being transferredto the Company.

Prepaid advances forpurchase represents an advance paid to Mr. Ren Huiliang for purchases ofmaterials and products as well as contingent needs for supporting operations ofWilliam Brand Administer Limited (WB), the apparel subsidiary of the Company.Mr. Ren Huiliang became the Company’s director in February, 2007. On June 18th, 2007, WB and Mr. RenHuiliang signed an agreement pursuant to which Mr. Ren Huiliang will return theadvances in way of purchasing apparel materials for WB.

Prepaid interest relatesto the 1.5 million shares of NextMart common stock prepaid as interest for thesenior convertible promisory notes that we issued to certain accreditedinvestors on March 22, 2007. The prepaid interest expense is to be amortizedover the term of the respective notes.

**NOTE9 — AMOUNTS DUE FROM STOCKHOLDERS AMOUNT DUE FROM/ (TO) RELATED PARTIES**

The amounts arenon-trade, interest free and with no fixed terms of repayment.

Please refer tonote 16 for related parties’ transactions during the period.

**NOTE10 — OTHER PAYABLES AND ACCRUALS**

Other payables andaccruals are summarized as follow:
|                             | ** ** | **As of** | ** ** | **As of** | ** ** |
|-----------------------------|------------|----------------|------------|----------------|------------|
| ** **                  | ** ** | **31-Mar-07**  | ** ** | **31-Mar-06**  | ** ** |
| ** **                  | ** ** | **US$**        | ** ** | **US$**        | ** ** |
| Other payables              |       | 847,298        |       | 126,835        |       |
| Accrued  operating expenses |       | 1,374,674      |       | 6,726,887      |       |
| Prepayment from  customers  |       | 180,151        |       | 74,376         |       |
|                        |       |           |       |           |       |
|                        |       | 2,402,123      |       | 6,928,098      |       |

 

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Other payables mainlyinclude $0.5 million payables for acquiring the anti-auction software. Includedin accrued operating expenses is various professional fees and $0.2 million ofcommitted investment in a subsidiary of the Company.

**NOTE11 — FACTORING LOAN**

This relates to amountswhich has been obtained from a finance company under a factoring facility forone subsidiary of the Company. Interest is charged at 1.5% per annum abovethe prevailing Singapore Inter-Bank offer rate.  These loans are securedby a guarantee given by Sun Business Network Ltd, a related party and floatingcharge over accounts receivables amounting to $195,340 (March 31, 2006:$233,000).

**NOTE12 — MARKETABLE SECURITIES**

As of March 31, 2007, theCompany owns marketable securities of $13,459,883 (2006: $8,140,377). Among oursecurities are 33,642,508 shares, representing a 6.9% interest in Sun 3C Media(AIM:SCCC), an Irish company listed on the Alternative Investment Market inLondon. These shares have been placed in escrow since July, 2006 pursuant to anescrow agreement by and among various parties including Sun 3C Media and us.According to the escrow agreement, our shares can be released subject to theorderly market arrangements in place, which state that any decision to sellthese ordinary shares within 12 months of their release must be approved byBlue Oar Securities Plc, our agent. The shares are eligible for release in twotranches; 50% of the 33,642,508 shares on June 30, 2007 and 50% of the33,642,508 on June 30, 2008. The Company has an accumulated unrealized loss of$4,510,778 as of March 31, 2007 (2006: nil).

In the year ended March31, 2007, the Company sold 150,000,000 shares, representing approximately a 16%interest in The Lexicon Group (“TLG”)(formerly “Sun Business Network Ltd.”), toMaxi Surplus Ltd, a Singaporean company. The consideration for the sale ofshares was approximately $5.88 milion (9 million Singaporean dollars) to besatisfied by way of a transfer of 20 million shares in Sun 3C Media PLC. As ofMarch 31, 2007, the Consideration Shares were still in the process of beingtransferred to the Company. The Company used the purchase price as the cost ofthe security sold. As of the date of the filing of this report, we havecompleted this transaction.

The Company realized$1,574,455 losses from selling marketable securities for the year ended March31, 2007 (2006: $1,456,221 as impairment loss).

**NOTE13 — COMMITMENTS AND CONTINGENCIES**

*Commitments*

The Company leases officepremises for its operations in the PRC (Beijing, Shanghai, Hong Kong) and the UnitedStates under operating leases. Rental expenses under operating lease for theperiod ended March 31, 2007 was US$277,459 (2006: US$75,390).

Future minimum rentalpayments under non-cancelable operating leases are approximately as follows:
| ** ** | ** ** | **As of**               | ** ** | **As of**               | ** ** |
|------------|------------|------------------------------|------------|------------------------------|------------|
| ** ** | ** ** | **March 31, 2007** | ** ** | **March 31, 2006** | ** ** |
| ** ** | ** ** | **US$**                      | ** ** | **US$**                      | ** ** |
| 2007       |       |                         |       | 174,862                      |       |
| 2008       |       | 226,810                      |       | 61,979                       |       |
|       |       | 226,810                      |       | 236,841                      |       |

 

Pursuantto the Sale and Purchase Agreement with The Lexicon Group, Ltd (“TLG”)(formerly“Sun Business Network, Ltd.) dated November 21, 2005, we purchased certainassets, including various on-line publishing rights, from TLG for an aggregateconsideration of the issuance of 13.8 million of our shares. The considerationwas to be satisfied in two installments of 6.9 million shares. The firstinstallment 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 profitguarantee for the acquired business of profit-after-tax $2,415,000 by December2006.

AtMarch 31, 2007, we faced a potential commitment to issue a second tranche of 6.9million shares to TLG pursuan to the terms and conditions of the November 2005agreement.

**NOTE14 — Stockholders’ Equity**

On May 2, 2007, wecompleted our reincorporation into Delaware effected by a Merger Agreement withour wholly-owned subsidiary Delaware Sun New Media Inc. In conjunction with thereincorporation, we modified our Articles of Incorporation in regard to thetotal number of authorized shares. Pursuant to our revised Articles ofIncorporation, the total number of shares of all classes which the Corporationshall have authority to issue is Five Hundred Million (500,000,000) consistingof Three Hundred Fifty Million (350,000,000) shares of Common Stock, par value$0.01 per share (the “Common Stock”) and One Hundred Fifty Million(150,000,000) shares of Preferred Stock, par value $0.01 per share (the “PreferredStock”).

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**NOTE15 — BAD DEBT WRITE-OFF**

Thebad debt write-off relates to the $0.8 million of questionable accountreceivables from Huaxia Du Cheng Co. Ltd for the provision of marketingservices. There is a possibility that we will collect these receivables inthird or fourth quarter of the year ending March 31, 2008. However, we havedecided to make a $0.8 million provision for these questionable receivables tobe prudent.

**NOTE16 — RELATED PARTIES TRANSACTIONS**

On June 30, 2006, weentered into a Sale and Purchase Agreement with Sun 3C Media Plc (“Sun 3C”)(formerlySun TV Shop, Plc.), a related party of Sun Media Investment Holdings (“SMIH”)and a company listed on the*Alternative InvestmentMarket* of the United Kingdom, to sell certain non-core assets inexchange for 33,642,508shares 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 inescrow since July, 2006 pursuant to an escrow agreement by and among variousparties including Sun 3C Media and us. According to the escrow agreement, our sharescan be released subject to the orderly market arrangements in place, whichstate that any decision to sell these ordinary shares within 12 months of theirrelease must be approved by Blue Oar Securities Plc, our agent. The shares areeligible 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 acquisitionof Credit Network 114 Ltd., a company incorporated in the British VirginIslands, pursuant to a Sale and Purchase Agreement between the Company and SMIHdated June 14, 2006 (the “Credit 114 Purchase Agreement”). We paid SMIH anaggregate 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 theagreement, and the remaining payments were made 30, 60 and 90 days after thecompletion of the agreement, respectively. On June 14, 2006, we signed aSupplementary Agreement with SMIH to acquire search engine technology andadditional on-line business media content. This agreement carried no additionalconsideration 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 TelevisionGroup, Inc. (“Asia Premium”)(OTCBB:ATVG). The consideration paid by us forthe acquisition was satisfied through the issuance of 850,647 shares of ourcommon stock.

At the time of enteringinto the agreement on April 20, 2006, our common stock was traded on OTCBB withlimited liquidity and short term trading history, while Asia Premium TelevisionGroup. Inc. has been traded on the OTCBB, for a comparably longer time,therefore management decided to use the discounted fair market value of theshares issued to measure our consideration (the Company stock) paid.

In November 2006, we impairedthe intangible assets and goodwill in *ChinaFocus Channel Development Co. Ltd.* which was acquired pursuant to a Sale andPurchase 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  $26.3million. We also redeemed 14.9 million shares of the Company paid asconsideration for the acquisition, pursuant to  an agreement by and between us and the Sellersin November 2006. The cost was determined to be the fair value of the shares atthat time. The cost was recorded as a reduction of paid in capital andadditional paid in capital; no gain or loss (after impairment) was recorded.

OnMarch 21, 2007, we entered into agreement with the Sun Culture Foundation, aHong Kong-based non-profit organization, founded by Yang Lan, the spouse of ourChairman Dr. Bruno Wu, to acquire 7.6 million shares of Company stock inexchange for 20 million shares of stock in Sun 3C Media Plc (AIM:SCCC), held byus. We have since cancelled all 7.6 million Company shares that were returnedto us.

On March 26, 2007, wedivested certain non-core assets by selling our entire 16% stake, equal to 150million shares of stock, in The Lexicon Group (“TLG”)(formerly “Sun BusinessNetwork Ltd.”), a Singaporean publishing company traded on the SingaporeanStock Exchange, to Maxi Surplus Ltd, another Singapore company. The Companyreceived 20 million shares in Sun 3C Media Plc in exchange for the stock ofTLG. As a result of the transaction, the Company ceased to be a shareholder ofTLG.

**NOTE17 — OPERATING RISKS**

*Creditrisk*

The carrying amounts ofaccounts receivable and cash and bank balances represent the Company’s maximumexposure to credit risk. 

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No other financial assetscarry a significant exposure to credit risk. The Company has written off $3.1million of bad debt primarily driven by the discontinuation of the beverageoperations and a prudent provision for a marketing service revenue. Except forthe above mentioned, the Company has no significant concentration of creditrisk. Cash is placed with reputable financial institutions.

**NOTE18 — REPORT OF SEGMENT INFORMATION**

We determine our businesssegments based upon our management and internal reporting structure. Our reportablesegments are Tansactional Service segment and Information Service segment. Werestated our segment information for the six months from October 1, 2005 toMarch 31, 2006 by removing the discontinued online brokerage business.

Information regarding ourbusiness segments is as follows:
| ** **                         | ** ** | **Year from**               | ** ** | **Six months from**          | ** ** |
|------------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| ** **                         | ** ** | **April 1, 2006**      | ** ** | **October 1, 2005**          | ** ** |
| ** **                         | ** ** | **to March 31,  2007** | ** ** | **to March 31,   2006** | ** ** |
| ** **                         | ** ** | ** **                       | ** ** | **(Restated)**                         | ** ** |
| ** **                         | ** ** | **‘000 US$**           | ** ** | **‘000 US$**                 | ** ** |
|                               |       |                             |       |                                   |       |
| **Revenue**                        | ** ** | ** **                       | ** ** | ** **                             | ** ** |
| Transactional Service              |       | 15,888                           |       | —                                 |       |
| Marketing and Information Service  |       | 4,526                            |       | 4,261                                  |       |
|                               |       |                             |       |                                   |       |
| **Cost of  Revenue**               | ** ** | ** **                       | ** ** | ** **                             | ** ** |
| Transactional Service              |       | 5,202                            |       | —                                 |       |
| Marketing and Information Service  |       | 911                              |       |                                   |       |
| ** **                         | ** ** | ** **                       | ** ** | ** **                             | ** ** |
| **Gross  profit**                  | ** ** | ** **                       | ** ** | ** **                             | ** ** |
| Transactional Service              |       | 10,686                           |       | —                                 |       |
| Marketing and Information Service  |       | 3,615                            |       | 4,261                                  |       |
| ** **                         | ** ** | ** **                       | ** ** | ** **                             | ** ** |
| **Depreciation  and amortization** | ** ** | ** **                       | ** ** | ** **                             | ** ** |
| Transactional Service              |       | 863                              |       | —                                 |       |
| Marketing and Information  Service |       | 245                              |       | 6,035                                  |       |

 

We currently allocateassets and operating expenses other than depreciation and amortization tobusiness segments based on segments’ revenues. This chart does not includeresults from discontinued operations.

**NOTE 19 — SUBSEQUENT EVENTS**

On July 6, 2007, we completed the cancellation of28,500,000 million our own shares that were returned to us. The shares werereturned through three separate agreements: an agreement with the sellers ofFocus Channel Development Co. Ltd, dated November 21, 2006 that returned14,900,000 of our shares; an agreement with Sun Culture Foundation dated March26, 2007 that returned 7,600,000 of our shares; and an agreement with Sun MediaInvestment Holdings dated April 9, 2007 that returned 6,000,000 of our shares.

On May 2, 2007, we reincorporated in the State ofDelaware which changed our corporate domicile from Minnesota to Delaware. Onthat same date, we changed our name from “Sun New Media Inc.” to “NextMart,Inc.”

OnApril 27, 2007, we issued 6.9 million shares of our common stock to Panpac TechStrategic Limited, a wholly-owned subsidiary of The Lexicon Group Ltd (“TLG”)(formerly“Sun Business Network Ltd.”) to satisfy a contractual obligation to TLGrelating to the Sale and Purchase Agreement (“the Agreement”) between theparties dated November 21, 2005. In the original Sale and Purchase Agreement,we purchased certain assets, including various on-line publishing rights, fromTLG for an aggregate consideration of the issuance of 13.8 million of ourshares. The consideration was to be satisfied in two installments of 6.9million shares. The fir st installment of 6.9 million shares was issued uponthe completion of the deal. The second installment of 6.9 million sharesremained subject to a profit guarantee for the acquired business of PAT$2,415,000 by December 2006.

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InJuly 2006, we sold part of the acquired business to Sun TV Shop Plc (now “Sun3C Plc”)(AIM:SCCC) for a gain in excess of $2,415,000, satisfied in Sun 3Cstock. We determined this gain to satisfy TLG’s profit guarantee of$2,415,000 and proceeded withthe second share issuance of 6.9 million shares, pursuant to the originalAgreement between TLG and us.

Theagreement 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 TLGkwould be held in escrow, along with 6.9 million NextMart shares contributed by SunMedia Investment Holdings until at least June 30, 2008, pursuant to a PoolingAgreement between TLG, Sun Media Investment, and us dated March 31, 2007.

OnApril 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, forcertain exclusive marketing access within Her Village’s multimedia products —namely, its e-magazines. Her Village is a wholly-owned subsidiary of Yang Lan StudioLtd., which is 100% owned and controlled by Ms. Yang Lan, the spouse of ourChairman Dr. Bruno Wu. As part of the agreement, we agreed to pay for theproduction of Her Village’s online multimedia products at cost, approximately$180,000 per annum and receive the revenues generated from the sale of suchproducts, subject to the payment of a 10% sales commission to her Village onall transactions generated by Her Village. As of the date of this Report, wehave not yet completed this transaction.

OnApril 9, 2007, we entered into agreement with SMIH to sell certain non-coreassets in exchange for a total consideration of $4.15 million dollars. Theassets to be sold are: Two real estate properties in Beijing; a 30% investmentstake in Global Woman Multimedia Co. Ltd; and 100% of the share capital ofLifestyle Magazines Publishing Co. Ltd. According to the terms of theagreement, SMIH will satisfy the $4.15 million consideration by transferring tous 1 million shares of Validian Corp. (OTCBB:VLDI)(“Validian’) and (ii) apromissory 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 sharesreturned to us from SMIH.

**Item 8.Changes In and Disagreements With Accountants on Accounting and FinancialDisclosure**

Disclosure regarding theCompany’s change of independent registered public accounting firm from GrantThornton Beijing to Bernstein & Pinchuk LLP effective May 18,2006 has been previously reported on the Company’s Current Report on Form 8-Kfiled with the Securities and Exchange Commission on May 24, 2006.

Disclosure regarding theCompany’s change of independent registered public accounting firm from MooresRowland Mazars to Grant Thornton Beijing effective April 21, 2006 has beenpreviously reported on the Company’s Current Report on Form 8-K filed with theSecurities and Exchange Commission on April 24, 2006.

**Item 8A.Controls and Procedures**

***Evaluation of Disclosure Controls and Procedures***

Under the supervision andwith the participation of our management, including our Chief Executive Officerand Chief Financial Officer, we evaluated the effectiveness of our disclosurecontrols and procedures, as such term is defined under Rule 13a-15(e)promulgated under the Securities Exchange Act of 1934, as amended. The Companyis evaluating its disclosure controls in light of compliance with SOX 404 inits next annual report, and if necessary, will make any changes needed tocomply with SOX 404.

***Changes in internal control over Financial Reporting***

There has been no changein our internal control over financial reporting during the year ended March 31,2007 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

**Item8A(T). Controls and Procedures**

NotApplicable.

**Item 8B.Other Information**

None.

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**PART III**

**Item 9.Directors and Executive Officers of the Registrant**

**Directorsand Executive Officers of the Registrant**

Thefollowing table sets forth as of July 9, 2007 the names of all our directorsand executive officers, their positions and the date the position was firstheld. These persons will categorized as Class I, Class II and Class IIIDirectors and serve staggered terms in accordance with the schedule below, oruntil their successors are elected or appointed and qualified, or their priorresignation or termination.

·          Class I Directors: Yu Bing and Walter Beach, whose term ends at theannual meeting of stockholders in 2007

·          Class II Directors: Ren Huiliang and Chen Zhaobin, whose term ends atthe annual meeting of stockholders in 2008

·          Class III Directors: Bruno Wu, whose term ends at the annual meeting ofstockholders in 2009
| **Name**        | ** ** | **Age** | ** ** | **Position**                                   | ** ** | **Date Position First Held** |
|-----------------|------------|---------|------------|------------------------------------------------|------------|----------------------------------------|
| Bruno Wu        |       | 40      |       | Chairman, Chief Executive Officer and Director |       | Sept. 12, 2005                         |
| Ren Huiliang    |       | 51      |       | Vice Chairman                                  |       | February 26, 2007                      |
| Chen Zhaobin    |       | 51      |       | Director                                       |       | January 22, 2007                       |
| Yu Bing         |       | 40      |       | Director                                       |       | January 17, 2006                       |
| Walter T. Beach |       | 40      |       | Director                                       |       | Dec 5, 2006                            |
| Jeffery Zhen Li |       | 37      |       | Chief Financial Officer and Secretary          |       | April 1, 2007                          |

 

**Dr. BrunoWu, Chairman and Director.** Dr. Bruno Wu is the Co-founder and Executive Chairman of SunMedia Investment Holdings (“SMIH”), one of the leading private media groups inChina and one of our significant shareholders. Prior to SMIH, Dr. Wu wasthe 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 internetmedia company. Dr. Wu received his Diploma of Studies in FrenchCivilization from the University of Savoie, France in 1987, and graduated witha Bachelor of Science in Business Administration-Finance from Culver-StocktonCollege in Missouri in 1990. He later received his Master of Arts inInternational Affairs from Washington University, Missouri in 1993, and in2001, he received his Ph.D. from the International Politics Department ofCollege of Law, Fudan University, Shanghai, China.

**RenHuiliang, Vice-Chairman****.** Mr. ‘William’ RenHuiliang is the founder, CEO and head designer of William’s Brand, aShanghai-based woman’s apparel production and brand management company. Overthe past 18 years, Mr. Ren has built William’s Brand into a profitableenterprise that primarily helps US brands outsource their apparel design andproduction processes to China. Mr. Ren continues to operate William’s Brand asa subsidiary of NextMart, Inc. He oversees all apparel design, production andexport operations and manages a staff of about 20 people.

**Mr. ChenZhaobin, Director.****** Mr.Chen is the Chairman and Chief Executive Officer of Sun 3C Media Plc (“Sun 3C)(AIM:SCCC), a consumer and mobile media company and affiliate of SMIH. Prior tojoining Sun 3C, Mr. Chen seved as Vice Chairman and President of China Mobile(HK) Ltd, the publicly listed vehicle of China Mobile, the world’s largestmobile operator. Mr. Chen served as China Mobile’s (HK) Vice Chairman andPresident from 1996-1999. From 2001 to 2005, Mr. Chen served as ExecutiveDirector and President of APT Satellite Holding Limited.

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**Mr.Walter T. Beach, Independent Director.** Mr. Beach is Managing Director of BeachInvestment Counsel, Inc., an investment management firm with approximately onebillion dollars under management. He also is Managing Director of BeachInvestment Management LLC and Beach Asset Management LLC. Mr. Beach had beenManaging Director of Financial Securities Management from inception in 2001until December 2005.  Mr. Beach is on theboard of directors of Bancorp Bank (NASDAQ:TBBK)  andResource Capital Corp (NYSE:RSO) where he currently serves both companies asCompensation Committee Chairman and financial expert of the Audit Committee.

**Mr. YuBing, Independent Director*****.*** Mr. Yu is a Senior Executive Vice President at Lenovo Computersand President and Chief Executive Officer of the Lenovo/Asia Info group.Mr. Yu joined Lenovo in 1990 and has been the principal executive incharge of developing the company’s channel sales distribution network since1996. In 2001, Mr. Yu was appointed to his current position at the newlyformed Lenovo IT Services Group. From 1988 to 1990, Mr. Yu conducted researchand development for the PRC government.

**Mr. JefferyZhen Li, Chief Financial Officer and Company Secretary.** Mr. Li is a certified public accountant, andholds a Bachelors degree from Tsinghua University and an MBA degree from theUniversity of Michigan Business School. From 2005-2007, Mr. Li was the ChiefFinancial Officer of DGT Information Systems, a China-based joint venture withGeneral Electric Corporation. Mr. Li served in a financial executive role withVolvo (China) Investment Company, Ltd. in 2004 and with CTS Electronics Company(Tianjin)(NYSE:CTS) from 2002-2004.

***Compliance with Section 16(a) of the Securities Exchange Act of1934***

Section 16(a)of the Securities and Exchange Act of 1934 requires our officers and directorsand persons who beneficially own more than 10% of the Company’s common stock(collectively, “Reporting Persons”) to file reports of beneficial ownership andchanges in beneficial ownership with the SEC. Reporting Persons are required bySEC regulations to furnish us with copies of all Section 16(a) forms they file.

Webelieve that all Reporting Persons complied with all applicable reportingrequirements, except for certain late and delinquent Form 3/4 filings and 13Dfilings for Mr. Bruno Wu, Ms. Lan Yang, Sun Media Investment Holdings andPanpac Tech Strategic Ltd. We are putting in place an enhanced complianceprogram to notify and assist all officers, directors, and major shareholderswith their filings.

***Code of Ethics***

Wehave adopted a code of ethics that applies to all of our executive officers andemployees, including our Chief Executive Officer and our Chief FinancialOfficer. A copy of our code of ethics was filed as an exhibit to our Form10-KSB for the transition period from October 1, 2005 toMarch 31, 2006 filed with the SEC on June 30, 2006. It also is available on our website athttp://corporate.nextmart.net. We also undertake to provide any person with acopy of our code of ethics

***Nominees to theBoard of Directors*.**

There have been nomaterial changes to the procedures by which security holders may recommendnominees to the small business issuer’s board of directors

***Audit Committee Financial Expert***

Mr.Mark Newburg previously served as our audit committee financial expert.However, on January 29, 2007, he resigned in such capacity. Since suchresignation, we have been unable to identify and appoint a new audit committeefinancial expert due to the numerous transactions and related negotiationswhich management has effected during such time. We plan to appoint a auditcommittee financial expert in the near future.

**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 acting principal executive officer, former chief financial officer, and former chief accounting officer for the last two fiscal years ended March 31, 2007 and March 31 2006, respectively. Other than as listed below, the Company had no executive officers serving in such capacity at March 31, 2007 whose total compensation exceeded $100,000.

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SUMMARY COMPENSATION
| **Name and principal  position** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Stock   awards  ($)** | ** ** | **Option  awards  ($)** | ** ** | **Nonequity  incentive  plan  compensation  ($)** | ** ** | **Nonqualified   deferred  compensation  earnings  ($)** | ** ** | **All other   compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------------------------------|------------|----------|------------|-----------------|------------|----------------|------------|------------------------------|------------|-------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------|------------|----------------|------------|
| (a)                                        |       | (b)      |       | (c)             |       | (d)            |       | (e)                          |       | (f)                     |       | (g)                                               |       | (h)                                                           |       | (i)                                         |       | (j)            |       |
| Dr. Bruno  Wu-Current CEO (1)              |       | 2007     |       | 193,662         |       | -0-            |       | -0-                          |       | -0-                     |       | -0-                                               |       | -0-                                                           |       | -0-                                         |       | 193,662        |       |
|                                       |       | 2006     |       | 104,077         |       | -0-            |       | -0-                          |       | -0-                     |       | -0-                                               |       | -0-                                                           |       | -0-                                         |       | 104,077        |       |
|                                       |       |     |       |            |       |           |       |                         |       |                    |       |                                              |       |                                                          |       |                                        |       |           |       |
| Ricky Ang —Former  CEO(2)             |       | 2007     |       | 150,000         |       | -0-            |       | 555,190                      |       | -0-                     |       | -0-                                               |       | -0-                                                           |       | -0-                                         |       | 705,190        |       |
|                                       |       |     |       |            |       |           |       |                         |       |                    |       |                                              |       |                                                          |       |                                        |       |           |       |
| Tom Schuler-  Former CFO(3)                |       | 2007     |       | 110,000         |       | -0-            |       | 63,200                       |       | -0-                     |       | -0-                                               |       | -0-                                                           |       | 80,000                                      |       | 253,200        |       |
|                                       |       |     |       |            |       |           |       |                         |       |                    |       |                                              |       |                                                          |       |                                        |       |           |       |
| Frank Zhao-Former  CFO(4)                  |       | 2007     |       | 70,000          |       | -0-            |       | 259,190                      |       | -0-                     |       | -0-                                               |       | -0-                                                           |       | -0-                                         |       | 329,190        |       |

 

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(1)   As of March 31, 2007, Dr. Bruno Wu is ourchief executive officer. OnOctober 1, 2006 we entered into a one-year employment contract with Dr. BrunoWu. Pursuant to the agreement, Dr. Wu is entitled to a basic salary of $60,000per annum, payable in equal monthly installments. He is also entitled toemployment benefits, including 25 days of annual leave and any performancebonuses that the Board of Directors decides to grant to him. Prior to theemployment agreement, Dr. Wu received he received monthly compensation of  $27,277.

(2)   Mr. Ang served as our Co-Chief Executive Officer from March 2 untilMarch 29, 2006. From March 30, 2006 until September 30, 2006, he served as oursole chief executive officer at an annual salary of $300,000. During the 2007 period,Mr. Ang received a stock grant of 150,000 shares which were valued at $555,190.

(3)   Mr. Schuler served as our as Chief Financial Officer andSecretary from September 18, 2006 to March 1, 2007. His annual salary was$240,000. He resigned as our chief financial officer on March 1, 2007. Mr.Schuler has received $80,000 in consulting fees since his resignation. Duringthe 2006 period, Mr. Schuler received a stock grant of 20,000 shares which werevalued at $63,200.  In addition duringthe 2006, we granted Mr. Schuler certain stock options to acquire 1,200,000shares of our common stock. The options were cancelled when Mr. Schulerresigned in his officer capacity.

(4)   Mr. Zhao served as the Chief FinancialOfficer and Secretary of the Company from February 27, 2006 until September 30,2006. His annual salary was $120,000. During the 2007 period, Mr. Zhao received a stockgrant of 70,000 shares which were valued at $259,190.

OnApril 1, 2007, we entered into a one-year employment agreement with JefferyZhen Li, our Chief Financial Officer. Pursuant to the agreement, Mr. Li isentitled to a base salary of $48,000 per annum and employee stock options topurchase 200,000 of our shares at $0.01 per share during a term of 10 years.

***Outstanding Equity Awards at Fiscal year End March 31, 2007***

Asof March 31, 2007, we had no outstanding option awards or equity awards for ourexecutive officers.

***Compensation of Directors***

Nocompensation was paid to any of our directors for their services during thefiscal period ended March 31, 2006. We paid our 

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independentdirectors for their services from April 1, 2006 until December 31, 2006 inaccordance 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 thefraction of time served by the director.

·      Additional Committee payments $25,000 perannum 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 andcommittee meeting of $1,000, payable in quarterly stipends along with theretainer.

EffectiveJanuary 1, 2007, we adopted a revised compensation program for the independentmembers of our Board of Directors. According to the revised compensationpackage, our independent Board members are entitled to annual compensation of$24,000, paid in monthly installments until June 30, 2007. The Company is inthe process of making these payments.

Thefollowing table sets forth director compensation from April 1, 2006 to March31, 2007 in accordance with the Board compensation plans listed above. TheCompany did not pay any compensation to the directors other than that which islisted in the table below.
| **Name of  Director**   | ** ** | **Fees earned  or paid in   cash ($) annually** | ** ** | **All Other   Compensation($)** | ** ** | **Total ($)** | ** ** |
|-------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|---------------|------------|
| Walter T. Beach(1)      |       | 8,000                                           |       | -0-                             |       | 8,000         |       |
| Yu Bing(2)              |       | 47,500                                          |       | -0-                             |       | 47,500        |       |
| Kay Koplovitz(3)        |       | 59,500                                          |       | -0-                             |       | 59,500        |       |
| Mark Newburg(4)         |       | 59,000                                          |       | 30,000                          |       | 89,000        |       |
| William  Adamopoulos(5) |       | 25,000                                          |       | -0-                             |       | 25,000        |       |
| Herbert Kloiber(6)      |       | 27,000                                          |       | -0-                             |       | 27,000        |       |

 

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(1)  Walter T. Beach has served as IndependentDirector and Chairman of the Compensation Committee of the Board since December5, 2006. He is owed $8,000 in outstanding board payments; $6,000 incompensation for his three months of service from the beginning of January 2007until the March 31, 2007 and In $2,000 in board meeting fees.

(2)YuBing has served as an Independent Director of the Board since January 17, 2006.He has received $37,500 in boardpayments over the last fiscal year, and $4,000 in board meeting attendancefees. Heis owed $6,000 in outstanding board payments, which cover his three months ofservice from the beginning of January 2007 until the March 31, 2007.

(3)KayKoplovitz served as Independent Director, Vice-Chairperson of the Board, andChairperson of the Nominating & Governance Committee from September 18,2005 until February 19, 2006. She received $41,500 in board payments over the last fiscal year and $10,000 in boardmeeting attendance fees. She also received $8,000 for serving as the Chairof the Nominating & Governance Committee.

(4)MarkNewburg served as Independent Director and Chairperson of the Audit Committeefrom May 31, 2006 to January 29, 2007. During this time he received $29,000 in board compensation, $20,000/year forserving as the Chair of the Audit Committee, and $10,000 in board attendancefees. Mr. Newburg remains a consultant to the Company and receives $60,000 perannum paid quarterly to assist the Company with its business developmentefforts. He received $15,000 during the fiscal 2007 period.

(5)WilliamAdamopoulos served as Independent Director of the Company from May 11, 2006 toOctober 31, 2006. During this time he received $16,000 in board compensation, $4,000 in meeting attendance fees, and approximately$5,000 for serving as the Chair of the CompensationCommittee.

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(6)HerbertKloiber served as Independent Director of the Company from January 4, 2006 toOctober 11, 2006.  During this time hereceived $25,000 in boardcompensation and $2,000 in board attendance fees.

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

***Equity Compensation Plan*** The following table provides information as of March 31, 2007concerning shares of our common stock authorized for issuance under ourexisting equity compensation plans.
| **Plan Category**                                          | ** ** | **Number of securities   to be issued upon   exercise of   outstanding options,   warrants and rights** | ** ** | **Weighted average   exercise price of   outstanding   options, warrants   and rights** | ** ** | **Number of   securities   remaining available   for future issuance   (excluding   securities reflected   in column (a))** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **(a)**                                                                                                                                                                  | ** ** | **(b)**                                                                                                                              | ** ** | **(c)**                                                                                                                                                                                      | ** ** |
| **Equity  compensation plans approved by security holders**     |       | 163,146                                                                                                                                                                  |       | $                                                                                                                                    | 1.89       |                                                                                                                                                                                         | 163,146    | — |
| **Equity  compensation plans not approved by security holders** |       | N/A                                                                                                                                                                      |       | N/A                                                                                                                                  |       | N/A                                                                                                                                                                                          |       |
| **Total:**                                                      |       | 163,146                                                                                                                                                                  |       | $                                                                                                                                    | 1.89       |                                                                                                                                                                                         | 163,146    | — |

 

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**Note**:

(1)    The number of securities remaining availablefor future issuance expired as of December 31, 2006.

***Security Ownership of Certain Beneficial Owners and Management***

Thefollowing table sets forth, as of July 9, 2007, certain information withrespect to the beneficial ownership of our common stock by each shareholder knownby us to be the beneficial owner of more than five percent (5%) of our commonstock, and by each of our current directors and executive officers.

Eachperson has sole voting and investment power with respect to the shares ofcommon stock, except as otherwise indicated. Beneficial ownership consists of adirect interest in the shares of common stock, except as otherwise indicated.

**Unlessotherwise indicated, the address for each Beneficial Owner shall be NextMartInc., Oriental Plaza Bldg. W3, Twelfth Floor, 1 East Chang’an Avenue, DongchengDistrict Beijing, 100738**
| **Name and Address of Beneficial Owner**                                                                                   | ** ** | **Amount and Nature of   Beneficial Ownership(1)** | ** ** | **Percentage   of Class(1)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|----------------------------------------|------------|
| Bruno Wu (2)                                                                                                                                        |       | 8,852,631                                                                   |       | 10.2                                   | %          |
| Yang Lan (3)                                                                                                                                        |       | 8,852,631                                                                   |       | 10.2                                   | %          |
| Jeffery Zhen Li  (4)                                                                                                                                |       | 200,000                                                                     |       | *                                      |       |
| Bing Yu                                                                                                                                             |       | —                                                                      |       | —                                 |       |
| Walter T. Beach  (5)                                                                                                                                |       | 415,000                                                                     |       | *                                      |       |
| Ren Huiliang                                                                                                                                        |       | 1,163,793                                                                   |       | 1.34                                   | %          |
| Telperion Ltd. PO Box 882 GT Georgetown, Grand Cayman Cayman  Islands BWI (6)                                                                       |       | 6,400,000                                                                   |       | 7.4                                    | %          |
| Panpac Tech  Strategic Limited (“PTS”) 50 Raffles Place #29-00 Singapore Land Tower  Singapore 048623(7)                                  |       | 16,188,384                                                                  |       | 18.7                                   | %          |
| Sun Media  Investment Holdings Limited (“SMIH”) P.O. Box 957, Offshore Incorporations  Centre, Road Town, Tortola, British Virgin Islands |       | 8,672,631                                                                   |       | 10.0                                   | %          |
| Directors and Officers  as a Group (8)(9)                                                                                                           |       | 10,631,424                                                                  |       | 12.25                                  | %          |

 

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(1)                        Based on 86,793,210 shares outstanding ofcommon stock issued and outstanding as of July 9, 2007. Except as otherwise 

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indicated, we believe that the beneficialowners of the common stock listed above, based on information furnished by suchowners, have sole investment and voting power with respect to such shares,subject to community property laws where applicable. Beneficial ownership isdetermined in accordance with the rules of the SEC and generally includesvoting or investment power with respect to securities. Shares of common stocksubject to options or warrants currently exercisable, or exercisable within60 days, are deemed outstanding for purposes of computing the percentageownership of the person holding such option or warrants, but are not deemedoutstanding for purposes of computing the percentage ownership of any otherperson.

(2)                        Includes 8,852,631 shares held indirectlythrough Dr. Wu’s spouse, Ms. Yang Lan. Ms. Yang owns 8,672,631 indirectlythrough 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 aDirector of SMIH, but has no ownership of SMIH. Dr. Wu disclaims ownership ofall such shares except to the extent of his pecuniary interest.

(3)                        Ms. Yang is the spouse of Dr. Bruno Wu, ourChairman and CEO. Ms. Yang owns 8,672,631 indirectly through majority ownershipof Sun Media Investment Holdings (“SMIH”) and 180,000 shares directly in herown name.

(4)                          Assumes the issuance of options to Mr. JefferyZhen Li to purchase 200,000 shares of Company stock as $0.01. The issuance ofsuch options is pending.

(5)                          Mr. Beach holds 370,000 shares throughClearview Investment Fund and 45,000 shares in his own name.

(6)                      The principal beneficial owner of TelperionLtd is  Cayman International Corporate & MarineServices Ltd whose address is PO Box 882 GT,Georgetown, Grand Cayman, Cayman Islands BWI.

(7)                        The sole shareholder of Panpac is The LexiconGroup, Ltd (“TLG”)(formerly “Sun Business Network Ltd.”), whose address is 371Beach Road #03-18 Keypoint SWingapore 199597. TLG is a public company traded onthe Singapore Stock Exchange (SIN:523).

(8)                        Includes 8,852,631 shares held indirectly byDr. Bruno Wu, 200,000 shares held by Jeffery Zhen Li, 415,000 shares heldindirectly by Walter T. Beach, and 1,163,793 shares held by Ren Huiliang.

(9)                      The address of our directors and officer is careof NextMart Inc., Oriental Plaza Bldg. W3, Twelfth Floor, 1 East Chang’anAvenue, Dongcheng District Beijing, 100738.

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

Otherthan disclosed below or elsewhere herein, during the last two years, we werenot involved in any transaction in which a director, director nominee, officeror shareholder of the Company, or any family member of any such persons, had adirect or indirect material interest where the amount involved exceeded$120,000.

As disclosed below, we have entered into severalagreements with Sun MediaInvestment Holdings Limited (“SMIH’’), a significant shareholder of us. Dr.Bruno Wu, our Chairman, also is the Chairman of SMIH, and Mr. Wu’s wife, is themajority shareholder of SMIH. As a result of Dr. Wu’s and his wife’s respectiveroles in both companies and the ownership interest of SMIH in us, theseagreements cannot be considered arm’s length transactions. See section entitled***Cautionary Statements*** in Item 1.Description of Business for certain risks related to these varioustransactions.

InOctober 2005, we issued 50 million shares of our common stock to SMIHin consideration for the outstanding shares of Sun New Media Group Limited (“SNMG”)(the “Reverse Acquisition Transaction’’). Messrs. Bruno Wu and JohnZongyang Li were directors and officers of SMIH and became our directors andofficers at the close of the transaction pursuant to the terms of thatagreement. In conjunction with the Reverse Acquisition Transaction, CapitalAlliance 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, CAGentered into a management agreement with us on close of the Reverse AcquisitionTransaction and we issued 250,000 shares of our common stock to CAG ascompensation for its performance under this management agreement.

SMIHpreviously owned approximately 2.0% of The Lexicon Group Ltd (“TLG’’)(formerly “SunBusiness Network Ltd.”). Our former director and CEO, Mr. Ricky Ang at onepoint owned 4.1% of TLG and served concurrently as the Executive Vice-Chairman& Managing Director of TLG. On November 21, 2005, we entered into twoagreements with TLG. Pursuant to the first agreement, we issued 1,156,303shares of our common stock in exchange for a group of property holdings inBeijing 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 ourcommon stock, 50% issued upon closing and the remaining 50% within 30 daysof receipt of the audited accounts of the on-line publishing business purchasedfrom TLG, if such audited statement reflect $2,415,000 in profit-after-tax forthe period ended December 31, 2006.  SNMDalso entered into a Shares Swap Agreement with TLG. Under the terms of the SharesSwap Agreement, TLG issued 150 million TLG shares in exchange for 5,042,017shares 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, heldthrough its wholly-owned subsidiary Panpac Tech Strategic Limited.

OnDecember 6, 2005, we entered into a agreement with SMIH which provided forthe issuance of 2,008,929 shares of our common stock in exchange for 75,000,000ordinary shares of TLG or approximately 10.15% of the then existing issuedshare capital of TLG. We terminated this agreement with SMIH on March 31,2006 and no shares were exchanged between the parties.

OnFebruary 15, 2006, we acquired Sun New Media Holdings Ltd. (“SMH’’) fromSMIH. We paid US$1.00 to SMIH in exchange for 100% of the outstanding shares ofSMH. SMH has a 51% stake in Compass Multi-media Ltd, a 85% stake in Sun 365Multi-Media Holdings Limited and a 30% stake in Global Woman Multimedia CoLimited.

OnApril 20, 2006, we entered into an agreement with SMIH for the purchase ofvarious assets, including real estate, automobiles, office equipment andprogram 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 besatisfied by the issuance of 860,647 shares of our common stock.

On June 30, 2006, weentered into a Sale and Purchase Agreement with Sun 3C Media Plc (“Sun 3C”)(formerlySun TV Shop, Plc.), a related party of Sun Media Investment Holdings (“SMIH”)and a company listed on the*Alternative InvestmentMarket* of the United Kingdom, to sell certain non-core assets inexchange for 33,642,508shares 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 inescrow since July, 2006 pursuant to an escrow agreement by and among variousparties including Sun 3C Media and us. According to the escrow agreement, our sharescan be released subject to the orderly market arrangements in place, whichstate that any decision to sell these ordinary shares within 12 months of theirrelease must be approved by Blue Oar Securities Plc, our agent. The shares areeligible 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 acquisitionof Credit Network 114 Ltd., a company incorporated in the British VirginIslands, pursuant to a Sale and Purchase Agreement between the Company and SMIHdated June 14, 2006 (the “Credit 114 Purchase 

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Agreement”).We paid SMIH an aggregate cash consideration of $2.5 million in four equalpayments of $625,000. The first installment was made within 10 days of thecompletion of the agreement, and the remaining payments were made 30, 60 and 90days after the completion of the agreement, respectively. On June 14, 2006, wesigned a Supplementary Agreement with SMIH to acquire search engine technologyand additional on-line business media content. This agreement carried noadditional 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 TelevisionGroup, Inc. (“Asia Premium”)(OTCBB:ATVG). The consideration paid by us forthe acquisition was satisfied through the issuance of 850,647 shares of ourcommon stock.

At the time of enteringinto the agreement on April 20, 2006, our common stock was traded on OTCBB withlimited liquidity and short term trading history, while Asia Premium TelevisionGroup. Inc. has been traded on the OTCBB, for a comparably longer time,therefore management decided to use the discounted fair market value of theshares issued to measure our consideration (the Company stock) paid.

In November 2006, weimpaired the intangible assets and goodwill in *ChinaFocus Channel Development Co. Ltd.* which was acquired pursuant to a Sale andPurchase 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  $32.5million. We also redeemed 14.9 million shares of the Company paid asconsideration for the acquisition, pursuant to  an agreement by and between us and the Sellersin November 2006. The cost was determined to be the fair value of the shares atthat time. The cost was recorded as a reduction of paid in capital andadditional paid in capial; no gain or loss (after impairment) was recorded.

OnMarch 21, 2007, we entered into agreement with the Sun Culture Foundation, aHong Kong-based non-profit organization, founded by Yang Lan, the spouse of ourChairman Dr. Bruno Wu, to acquire 7.6 million shares of Company stock inexchange for 20 million shares of stock in Sun 3C Media Plc (AIM:SCCC), held byus. We have since cancelled all 7.6 million Company shares that were returnedto us.

On March 22, 2007,we executed subscription agreements with five accredited investors (the “SellingStockholders”) for the purchase of an aggregate of $1,500,000 of our seniorconvertible promissory notes (“Notes”) and Class A, Class B, and Class C commonstock purchase warrants. The Class A warrants enable the purchase of up to1,500,000 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 ourcommon stock at an exercise price of $1.50 per share.  Upon exercise ofany Class A or Class B warrant, the respective warrant holder will receive aClass C warrant to purchase that number of shares for which such Class Awarrant or Class B warrant is exercised at an exercise price of $2.00 pershare. On March 28, 2007, we completed the transaction (the “Issuance Date”).The Notes rank senior to all of our current and future indebtedness. Theprincipal amount of the Notes is $1,500,000. The principal amount of the Notesif not converted or redeemed is due and payable on March 28, 2010. The Notesare initially convertible into our common shares at a conversion price of $1.00per share.  If an event of default occurs under the Notes (as describedbelow), the conversion price shall be adjusted to eighty percent (80%) of thevolume weighted average price of our common shares for the five trading daysprior to a conversion date (“Adjusted Conversion Price”). Commencing on thefifteenth month from the Issuance Date, we are obligated to make a payment ofone-twenty first (1/21st)of the principal amount of each Note, either in cash or by conversion of suchamount into our common shares.  If, on the payment date, the market pricefor our common shares are equal to or above $1.00 per share, we may make thispayment in our common shares at the then existing  conversion rate. However, if, on the payment date, either (i) the market price for our commonshares are less than $1.00 per share or (ii) the Registration Statementcovering the common stock underlying the notes and warrants is not effective,then we must make this payment in cash in an amount equal to 135% of theprincipal amount component. Subject to certain terms and conditions set forththerein, we may redeem the Notes at a rate of between 120% to 150% of theoutstanding principal amount of the notes plus interest. Certain mandatory and optional conversion rights exist subject tocertain conditions as described in the subscription agreements. Atclosing, we paid the Selling Stockholders a total of 1,500,000 shares of ourcommon stock as full consideration of all interest due under the Notes. We wereunable to complete our registration rights covenants in the agreement with theSelling Stockholders. As a result, we could be in default under the terms ofsuch agreement. We are currently in negotiations with the Selling Shareholdersin an effort to remedy the situation.

On March 26, 2007, wedivested certain non-core assets by selling our entire 16% stake, equal to 150million shares of stock, in The Lexicon Group (“TLG”)(formerly “Sun BusinessNetwork Ltd.”), a Singaporean publishing company traded on the SingaporeanStock Exchange, to Maxi Surplus Ltd, another Singapore company. The Companyreceived 20 million shares in Sun 3C Media Plc in exchange for the stock ofTLG. As a result of the transaction, the Company ceased to be a shareholder ofTLG.

OnApril 9, 2007, we entered into agreement with SMIH to sell certain non-coreassets in exchange for a total consideration of $4.15 million dollars. Theassets for sale are: Two real estate properties in Beijing; a 30% investment stakein Global Woman Multimedia Co. Ltd; and 100% of the share capital of LifestyleMagazines Publishing Co. Ltd. According to the terms of the agreement, SMIH 

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willsatisfy the consideration of $4.15 million with 1 million shares of ValidianCorp. (OTC:VLDI)(“Validian’); a promissory note of Validian with a principalamount of $500,000, originally issued to SMIH by Validian; and 6 million of ourcommon shares held by SMIH. As of the filing of this Report, we have notcompleted this transaction.

OnApril 11, 2007, we entered into a partnership agreement with Her Village Co.Ltd (‘Her Village’) for exclusive marketing access within Her Village’smultimedia products — namely, its e-magazines. Her Village is a wholly-ownedsubsidiary 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, weagreed to pay for the production of Her Village’s online multimedia products atcost, approximately $180,000 per annum and receive the revenues generated fromthe sale of such products, subject to the payment of a 10% sales commission toHer Village on all transactions generated by Her Village. As of the date ofthis Report, we have not completed this transaction.

Asat March 31, 2007, there are amounts due from The Lexicon Group, Ltd (“TLG”)(formerly“Sun Business Network Ltd”) of $545,897 (2006: $574,485). These amounts weremade as advances made by the Company to TLG.

**Item13 Exhibits**

TheExhibit Table follows Item 14.

**Item 14.Principal Accountant Fees and Services**

***Bernstein& Pinchuk LLP***

During the fiscal yearsended March 31, 2007 and March 31, 2006, Bernstein & Pinchuk LLPprovided various audit, audit related and non-audit services to us as follows:
| ** **          | ** ** | **March 31, 2007** | ** ** | **March 30, 2006** | ** **    |
|---------------------|------------|------------------------------|------------|------------------------------|---------------|
| Audit Fees          |       | $                            | 250,000    |                         | 120,000— |   |
| Audit-Related  Fees |       | —                       |       | —                       |          |
| Tax Fees            |       | —                       |       | —                       |          |
| All Other Fees      |       | —                       |       | —                       |          |
|                |       | $                            | 250,000    |                         | 120,000— |   |

 

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**Item 13.Exhibits**

Exhibit Number andExhibit Title

INDEX TO EXHIBITS
| Exhibit  Number | ** ** | **Exhibit Title**                                                                                                                                                                                                                                                                                                                                                        |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1             |       | Share 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)                                                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.2             |       | Share 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) |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.3             |       | Share 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)                                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.4             |       | Sale 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)                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.5             |       | Sale 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)                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.6             |       | Sale 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)                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.7             |       | 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 December 8, 2005)                                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.8             |       | Stock 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)                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.9             |       | Share 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)                                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.10            |       | Share 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)                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.11            |       | Share 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)                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                     |
| 2.12            |       | Stock 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)                                                                                                                                                                         |

 

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| 2.13   |   | Termination 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)                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.14   |   | Sale 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)                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.15   |   | Sale 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)                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.16   |   | Sales 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) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.17   |   | Sale 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)                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.18   |   | Sale 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)                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.19   |   | Subscription Agreement between the Company and Certain  Accredited Investors (incorporated by reference on Form 8-K filed with the  SEC on March 23, 2007)                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.20   |   | Form of Note between the Company and Certain  Accredited Investors (incorporated by reference on Form 8-K filed with   the SEC on March 23, 2007)                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.21   |   | Form 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)                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 2.22   |   | Form 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)                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.1    |   | Certificate of Incorporation. (Incorporated by  reference to Appendix 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.)                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.2    |   | Certificate 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)                                                                                                                                                                                                                             |

 

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| Exhibit  Number | ** ** | **Exhibit Title**                                                                                                                                                                                                                                                                                        | ** ** | ** ** |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 3.3             |       | Bylaws. (Incorporated by reference to Appendix 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             |       | Form Indemnification Agreement of Directors and  Officers (incorporated by reference from our SB-2 filed on May 18, 2007).                                                                                                                                                                               |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 4.1             |       | Pooling 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) |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 4.2             |       | Supplementary 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)       |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 4.3             |       | Supplementary 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)              |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 10.1            |       | Finders 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)                                                                                   |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 10.2            |       | Stock 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)                                                                                                       |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 10.3            |       | Management 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)                                                                                            |       |       |
| 10.4            |       | Share 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)                                                             |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 10.5            |       | Stock 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-14                                                                                                                                                                                                                                            |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 31.2*           |       | Certificate of CFO as Required by  Rule 13a-14(a)/15d-14                                                                                                                                                                                                                                            |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 32.1*           |       | 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 Code                                                                                                                                                |       |       |
|            |       |                                                                                                                                                                                                                                                                                                     |       |       |
| 32.2*           |       | 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                                                                                                                                                |       |       |

 

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*          Filed herewith

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.
| **SUN NEW MEDIA, INC.** |                                                      |   |
|-------------------------|-----------------------------------------------------------|--------|
|                    |
| By:                     | /s/ Bruno Wu Zheng                                        |   |
|                    | Mr. Bruno Wu Zheng, Chairman and Chief Executive  Officer |   |
|                    | Date: July 13, 2007                                       |   |
|                         |                                                           |        |  |  |

 

In accordance with the*Securities Exchange Act of 1934*, thisreport has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.
| By:    |   | /s/ Bruno Wu                                     |   | By:    | /s/ Ren Huiliang                   |
|--------|--------|--------------------------------------------------|--------|--------|------------------------------------|
|        |   | Bruno Wu, Chairman & Chief Executive Officer |   |   | Ren Huiliang, Vice-Chairman        |
|   |   | Date: July 13, 2007                              |   |   | Date: July 13, 2007                |
|   |   |                                             |   |   |                               |
| By:    |   | /s/ Bing Yu                                      |   | By:    | /s/ Walter Beach                   |
|   |   | Bing Yu, Director                                |   |   | Walter Beach, Director             |
|   |   | Date: July 13, 2007                              |   |   | Date: July 13, 2007                |
|   |   |                                             |   |   |                               |
| By:    |   | /s/ Chen Zhaobin                                 |   | By:    | /s/ Jeffery Zhen Li           |
|   |   | Chen Zhaobin, Director                           |   |   | Jeffery Zhen Li, CFO and Secretary |
|   |   | Date: July 13, 2007                              |   |   | Date: July 13, 2007                |

 

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