UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________  FORM 10-Q _______________  TQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended June 30, 2009   oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ______to______.  NextMart, Inc. (Exact name of registrant as specified in Charter)  DELAWARE000-26347410985135(State or other jurisdiction of
incorporation or organization)(Commission File No.)(IRS Employee Identification No.) Oriental Plaza Bldg. W3, Twelfth Floor 1 East Changan Avenue, Dongcheng District Beijing, 100738 PRC (Address of Principal Executive Offices)  +86 (0)10 8518 9669 (Issuer Telephone number)  (Former Name or Former Address if Changed Since Last Report)  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. T  Yes      o No  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes T No  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one):  Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company T  Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes x No T  Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 193,204,734 shares of common stock outstanding as of August 13, 2009.   1   NEXTMART, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED June 30, 2009   Table of Contents  INDEX    PART I FINANCIAL INFORMATION3Item 1.Financial Statements14Item 2.Management Discussion and Analysis of Financial Condition and Results of Operations.Item 3.Quantitative and Qualitative Disclosures About Market Risk.20Item 4.Controls and Procedures.21PART II OTHER INFORMATIONItem 3.Defaults Upon Senior Securities.21Item 6.Exhibits.21Signatures.22       2   PART I   FINANCIAL INFORMATION   ITEM 1. FINANCIAL STATEMENTS  NEXTMART, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSJune 30,   2009September 30,
2008(Unaudited)(Audited)ASSETSCURRENT ASSETS:Cash and cash equivalents$99,215$106,171Other receivables, net of allowance for doubtful accounts58,2471,178Marketable securities7,200661,944Other Assets542,544-Amount due from shareholders967,976946,891Amount due from related parties45,199-Current assets of discontinued operations3,448,4194,323,038Total Current Assets5,168,8006,039,222Deferred charges, net1,306,6681,816,666Property, plant and equipment, net7,3465,749Other long-term assets1,731,4011,731,401Long-term Assets of discontinued operations2,121,1932,224,421$10,335,408$11,817,459LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES:Accounts payable$47,219$47,219Other payables and accrued expenses2,466,2641,554,951Amount due to shareholders303,335-Amount due to related parties611,411532,537Current liabilities of discontinued operations2,344,3342,402,828Total Current Liabilities5,772,5634,537,535Convertible notes-1,500,000Discount on warrants fair value, net-(500,379)STOCKHOLDERS' EQUITYPreferred stock; authorized 250,000,000 shares, par value US$0.01; none issued--Common stock; authorized 750,000,000 shares, par value US$0.01;  Issued and outstanding, 193,204,734 shares (2009),and 90,204,734 shares(2008)1,932,048902,048Reserved to be issued , 53,029 shares530530Additional paid-in capital95,900,14295,337,626Accumulated deficit(90,209,323)(87,493,877)Accumulated other comprehensive loss-Unrealized loss on marketable securities(2,608,825)(2,161,519)Accumulated other comprehensive loss-Other(451,727)(304,505)Total stockholders' equity4,562,8456,280,303$10,335,408$11,817,459 See notes to consolidated financial statements.  3     NEXTMART, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSUnauditedUnauditedThree Months Ended  June 30,Nine Months Ended  June 30,2009$20082009$2008Sales$57,215-$98,852-Cost of sales18,593-20,675-Gross Margin38,622-78,177-Operating expensesGeneral and administrative expenses174,209735,004386,1141,025,741Depreciation and amortization40,195210,286120,441630,469Consulting and professional fees18,395169,699112,882362,035232,7991,114,989619,4372,018,245Operating loss(194,177)(1,114,989)(541,260)(2,018,245)Other income(expense)Other income (expense)(610,168)338(610,313)960Change in fair value of convertible note, warrants and option--(562,895)-Interest expense(290,000)(151,871)(420,000)(413,613)(900,168)(151,533)(1,593,208)(412,653)Loss from continuing operations before income tax expense and minority interest(1,094,345)(1,266,522)(2,134,468)(2,430,898)Income tax expense----Loss from continuing operations(1,094,345)(1,266,522)(2,134,468)(2,430,898)(Loss) income from discontinued operations(64,189)113,289(580,978)209,065Net Loss(1,158,534)(1,153,233)(2,715,446)(2,221,833)Other comprehensive income (loss)Foreign currency translation adjustment(149,101)(167,023)(147,222)(179,788)Unrealized loss9,568(1,096,828)(447,306)(2,342,934)Total comprehensive loss$(1,298,067)$(2,417,084)$(3,309,974)$(4,744,555)Weighted average number of common shares outstanding  basic and diluted163,067,69787,093,170114,492,38887,093,170Loss per shareContinuing operations  basic and diluted$(0.01)$(0.01)$(0.02)$(0.03)Discontinued operations  basic and diluted$(0.00)$0.00$(0.00)$0.00 See notes to consolidated financial statements.       4       NEXTMART, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSUnauditedNine Months Ended June 30,20092008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss$(2,715,446)$(2,221,833)Adjustments to reconcile net loss to net cash used in operating activities :Depreciation and amortization120,441630,469Change in fair value of CN & warrants option562,895-Interest expense420,000413,613Discontinued operations580,978(209,065)Other expense610,126-Change in operating assets and liabilitiesAccounts receivable & other receivables(57,069)-Other current assets-2,495,307Accounts payable , other payables & accruals301,187(1,388,904)Net Cash Used in Operating Activities(176,888)(280,413)CASH FLOWS FROM INVESTING ACTIVITIES :(Acquisition of ) /proceeds from sale of plant and equipment(2,038)505,231Amounts due from related party(45,199)(151,882)Amounts collected (due) from shareholders(21,085)11,636Net Cash provided by (used in) Investing Activities(68,322)364,985CASH FLOWS FROM FINANCING ACTIVITIES :Amounts due to related parties78,87467,144Amounts due to shareholders303,335-Net Cash Provided by Financing Activities382,20967,144Effect of exchange rate fluctuations on cash and cash equivalents(270,308)(244,533)Net decrease in cash and cash equivalents from continuing operations(133,309)(92,817)Net increase in cash and cash equivalents from discontinued operations126,3535,525CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD106,171139,723  5    CASH AND CASH EQUIVALENTS AT END OF PERIOD$99,215$52,431Supplemental disclosure of cash flow informationInterest paid$-$-Income taxes paid$-$-  See notes to consolidated financial statements.       6     NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Consolidation and Presentation  The consolidated financial statements include the accounts of Nextmart, Inc (the Company), its subsidiaries and variable interest entities, or VIEs for which the Company is the primary beneficiary. All significant inter-company accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but which are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted FASB Interpretation No.46R consolidation of Variable Interest Entities, FIN 46R, an Interpretation of Accounting Research Bulletin No.51. FIN 46R requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIEs residual returns. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  Use of estimates  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses for the periods that the financial statements are prepared. Actual amounts could differ from these estimates.  Financial instruments  The Companys financial instruments include cash and cash equivalents, accounts receivable, accounts payable, marketable securities, other payables, and factoring in loans. The fair values of these financial instruments approximate their carrying values due to the short-term maturity of the instruments.  Business combinations  We are creating this business through the ongoing acquisition of various entities and assets. The Company accounts for its business combinations using the purchase method of accounting in line with FASB141. This method requires that the acquisition cost be allocated to the assets and liabilities the Company acquired based on their fair value. Pursuant to FAB-141, the Company recognizes intangible assets separate from goodwill if they meet one of two criteriathe contractual-legal criterion or the separability criterion. The Company makes estimates and judgments in determining the fair value of the acquired assets and liabilities, based on independent appraisal reports for material purchases as well as its experience with similar assets and liabilities in similar industries. If different judgments or assumptions were used, the amounts assigned to the individual acquired assets or liabilities could be materially different. When considering whether an acquired assets group constitutes a business, the Company used the criteria defined by EITF 98-3 determining Whether a Non-monetary Transaction Involves Receipt of Productive Assets or of a Business.  Goodwill and intangible assets, net  Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Companys acquisitions of interests in its subsidiaries and VIEs. Under Statement of Financial Accounting Standards, FAS No.142, Goodwill and Other Intangible Assets, FAS 142, goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company assesses goodwill for impairment periodically in accordance with SFAS 142.  The Company applies the criteria specified in SFAS No.141, Business Combinations to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the contractual-legal or separability criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in  7   circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.  Impairment of Long-lived Assets  The Company assesses the carrying value of long-lived assets in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include a significant decrease in operating results, a significant change in its use of assets, competitive factors, strategy of its business, and significant negative industry or economic trends. The company cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on the reported asset values. Such events may include strategic decisions made in response to the economic conditions relative to product lines, operations and the impact of the economic environment on our customer base.  When the Company determines that the carrying value of long-lived assets may not be recoverable based on as assessment of future cash flows from the use of those assets, an impairment charge to record the assets at fair value may be recorded. Impairment is measured based on fair values utilizing estimated discounted cash flow, published thirty-party sources, and third-party offers.  Comprehensive Income (Loss)  The Company reports comprehensive income (loss) in accordance with FASB No. 130, Reporting Comprehensive Income (Loss). The comprehensive loss for the Company includes currency translation adjustments and unrealized loss on marketable securities.  Inventories  Inventories are stated at the lower of cost (first-in, first out method) or market.  Certain inventory goods purchased are subject to spoilage within a short period of time while in possession of the Company.  Inventory costs do not exceed net realizable value.  Property, Plant and equipment  Property, Plant and equipment are stated at cost, net of accumulated depreciation.  Depreciation is computed primarily on the straight-line method for financial reporting purposes over the following estimated useful lives:  YearsFurniture, fixtures and equipment3-10  Revenue recognition  We generate revenue through the provision of consulting services. We recognize revenues from consulting 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 providing consulting services; or services have been rendered; the Companys consulting fee received from the clients is fixed or determinable pursuant to the terms of the consulting agreement.  Cost of revenues  Cost of revenues includes salary and other related costs for our management services and technical support staff, as well as third-party contractor expenses.  Additionally cost of revenues includes fees for hosting facilities, bandwidth costs, and equipment and related depreciation costs. Cost of revenues will vary significantly from period to period depending on the level of management services provided.  8   Trade receivables and allowances for Doubtful Accounts  The Company performs ongoing credit evaluations of its customers to minimize credit risk. The allowance for doubtful accounts is based on managements estimates of the collectability of its accounts receivable after analyzing historical bad debts, customer concentrations, customer credit worthiness, and current economic trends. Specifically, the Company reviews the aged accounts receivables listing for balances that are specifically identifiable as credit risks or uncollectible, and may use its judgment for calculation of allowances for doubtful accounts.  Earnings (loss) per share  Basic earnings (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the year. As the Company has a loss, presenting diluted net loss per share is considered anti-dilutive and not included in the statement of operations.  Foreign currency translation  The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Companys subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are translated using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders equity accounts and capital asset accounts are translated by using historical exchange rates. Any translation gain or loss incurred is reported in the consolidated statement of operations. In 2009, we used 6.8268 RMB per USD for the weighted average rate, and we used 6.8353 RMB per USD as the balance sheet date rate (June 30, 2009).  Income taxes  The Company follows the liability method of accounting for income taxes in accordance with SFAS No. 109. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. The tax loss arising from PRC can be carried forward for five years. Agreed tax losses by respective local tax authorities can be offset against future taxable profits of the respective companies. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain.  Stock-based compensation   The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services (EITF 96-18). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.  Related Parties  Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions.  Parties are also considered to be related if they are subject to common control or common significant influence.  Deferred Charges  9     Payments made for future expenses were amortized over the life of service received.  Convertible Notes and Notes Issued with Stock Warrants  The Company accounts for convertible notes and notes issued with stock warrants in accordance with APB No. 14, Accountingfor Convertible Debt and Debt Issued with Stock Purchase Warrants. The proceeds from the issuance of convertible notes are allocated between the debt and the equity. The Company books a discount on convertible notes for the conversion feature of the notes and warrants and amortizes the discount over the life of the debt.  Reclassification  The comparative figures have been reclassified to conform to current period presentation.  NOTE 2  MARKETABLE SECURITIES AND OTHER ASSETS  UnauditedAuditedJune 30, 2009September 30,2008Number of sharesAmountNumber of sharesAmountMarketable SecuritiesCEC Unet PLC0$016,821,254$2,562,469Asia Premium TV Inc60,000154,91760,000154,917Unrealized loss(147,717)(2,055,442)Net balance$7,200$661,944Other AssetsCEC Unet PLC16,821,254$2,562,469--Unrealized loss(2,019,925)--542,544-  The Company holds 16,821,254 common shares of CEC Unet, PLC, subject to the disclosures below. The Company has been informed that on January, 19, 2009, the shares of CEC Unet, PLC were delisted on the AIM Market (London Exchange). From September 30 to January 18, 2009, the shares of CEC Unet, PLC were suspended from trading on AIM Market. Having reviewed the valuation of the CECU shares as stated in the Companys Form 10-K for the period ended September 30, 2008, management believes that there is no material changes to the value of the shares as CEC Unets operations have not undergone any material changes when compared with the time of delisting. The management of the Company was informed by CEC Unet that CEC Unet is considering splitting CEC Unet into two entities, separating the core top up business from its other non-performing assets and injecting it into a shell company, that could be listed. CEC Unet may also consider relisting its current shell company on the AIM market after undergoing a restructuring and acquiring other performing assets. However, at this time we have not received any detailed information or confirmation about the relisting plan. The Directors of CEC Unet Plc have promised to provide further information about their plan once they decide on the best course of action to enhance shareholders value. As such, management will continue to closely monitor the situation and will make a further assessment based on the expected disclosure of their plans. The shares of CEC Unet, PLC were reclassified to Other Assets due to the delisting situation.  Of the total amount of shares stated above;  The Company holds 1,009,275 shares of CEC Unet Plc. (AIM: CECU) in escrow which will be transferred to Arum Island Ltd, an unaffiliated third party, when these shares are free from restriction as a consulting fee.  10     The Company holds 4,000,000 shares of CECU in escrow which will be transferred to Professional Offshore Opportunity Fund Ltd when these shares are free from restriction under a consulting agreement with the third party.  On January 23, 2008, Evenstar Master Fund SPC (Evanstar) subscribed convertible bonds of CEC Unet PLC in the amount of US$10,000,000. In connection with this transaction, on April 29, 2008, the Company entered into an agreement with Evenstar, on behalf of CECU, to lend to Evenstar 10,821,254 ordinary shares of CEC Unet PLC (AIM:CECU).  Evenstar has the legal and beneficial title to these shares until the redemption date of convertible bonds.  The Company also holds 60,000 shares of Asia Premium TV Inc (OTC BB: ATVG).   NOTE 4  PROPERTY, PLANT AND EQUIPMENT  The following is a summary of property and equipment, at cost, less accumulated depreciation:  UnauditedAuditedJune 30, 2009September 30, 2008Office equipment$9,203$7,165Less: accumulated depreciation1,8571,416Net$7,346$5,749  Depreciation for the nine months ended June 30, 2009 was 441 compared with the nine months ended June 30, 2008 $71,791, respectively.  NOTE 5 - CONVERTIBLE NOTES, WARRANTS AND STOCK OPTIONS  On March 22, 2007, we executed a subscription agreement with certain accredited investors, including Professional Offshore Opportunity Fund Ltd, pursuant to which we agreed to issue a principal amount worth $1,500,000 in senior convertible promissory notes and warrants to purchase shares of our common stock. The financing was closed on March 29, 2007.  The aggregate gross proceeds from the sale of the notes and warrants were $1,500,000.  The convertible notes are due three years from the date of issuance. We prepaid all interest due under the convertible notes through the issuance of 1.5 million shares of our common stock.  The notes are initially convertible into our common shares at a conversion price of $1.00 per share.  After the occurrence of an event of default under the notes, the conversion price adjusts to eighty percent (80%) of the volume weighted average price of our common shares for the five trading days prior to a conversion date. The discount on warrants fair value increases from $(500,379) as at September 30, 2008 to $62,516 as at March 31, 2009.  On February 6, 2009, we closed a Convertible Debt Settlement Agreement with these accredited investors (Settlement Agreement) pursuant to which we have re-purchased all of the outstanding senior convertible notes. Under the Settlement Agreement, in exchange for canceling the notes and underlying agreements, we agreed to pay back the principal amount of the Notes ($1,500,000), and $610,126 in interest and default penalties. We paid $250,000 of the $1,500,000 in the principal amount at closing, and are obligated to pay $250,000 every 90 days from closing until the principal is paid in full. As of May 9, 2009, an additional $250,000 was due and payable. We made a payment of $150,000 of the amount due in July 2009 and $100,000 of the May payment remains outstanding. We agreed to pay interest and penalties of $610,126 in the form of common shares of CEC Unet Plc. (AIM: CECU) which we hold. The payment is due 90 days from closing date. The amount of CECU shares payable to the investors is calculated by using the lowest bid price of the CECU shares for the five days prior to the payment date minus 10%. The securities of CECU are currently subject to a trading suspension on the AIM Market. If on the stated payment date, the CECU Shares are not trading on the AIM Market, then we are required to pay the amount in cash or cash equivalents. As of the date of this report, we have not made the interest and penalty payment to these investors. The parties also amended the Warrants to remove any registration rights and purchase price reset provisions, among other changes. As additional consideration, limited mutual releases were given by the parties. We received a loan in the amount of $250,000 from Redrock Capital Venture Limited, a BVI company (Redrock), and we used these funds to  11   make the initial payment under the Settlement Agreement. Dr. Bruno Wu, our former Chairman and an influential person of our company, is the Chairman of Redrock, however, Dr. Wu has no ownership interest in Redrock. Dr. Wus wife, Ms. Yang Lan, is the majority shareholder of Redrock. She is also the controlling shareholder of Sun Media Investment Holdings, one of our shareholders. The loan from Redrock is due on demand and bears no interest.   NOTE 6 - OTHER PAYABLES AND ACCRUALS  Other payables and accruals are summarized as follows: UnauditedAuditedJune 30, 2009September 30, 2008Other payable$2,192,560$1,170,590Accrued expenses273,234383,734Taxes payable470627$2,466,264$1,554,951  Other payables mainly include the principal and interests payment to some certain accredited investors, professional fees, other deposit, and other office expenses. Included in accrued operating expenses are business tax, VAT and consulting expenses.   NOTE 7  OPERATING LEASES  The majority of our operations are in China, where we have leased offices in Beijing. Our Beijing office consists of 8,740 square feet. The lease extends for a period of two years terminating on July 31, 2011. Our annual rent is $192,569.  We believe that our existing facilities are adequate to meet our current requirements, and that future growth can be accommodated by leasing additional or alternative space.  At June 30, 2009, the total future commitments for minimum rentals payment were as follows:  UnauditedReminder of fiscal 2008/09$48,142Fiscal 2009/2010192,569Fiscal 2010/2011160,474Fiscal 2011/2012-Total$401,185   NOTE 8 -AMOUNTS DUE FROM/ (TO) SHAREHOLDERS/ RELATED PARTIES  The amounts due from and to shareholders and other related parties are non-trade, non interest bearing and with no fixed terms of repayment.   NOTE 9- DISCONTINUED OPERATIONS The Company intends to divest itself of the William Brands women apparel business and other non-material businesses. In keeping with that intent, on August 1, 2009, the Company entered into a subscription and asset sale agreement (the Agreement) with Beijing Hua Hui Hengye Investment Lt. (Hua Hui), an unaffiliated PRC company (See Note  12   11-Subsequent Events). Consequently, the following assets and liabilities, which reflect these businesses, have been segregated and included in assets and liabilities of discontinued operations, as appropriate, in the consolidated balance sheet as of June 30, 2009:  UnauditedAuditedJune 30,
2009September 30,
2008Cash and bank$500,929$374,576Accounts receivable-net2,099,5562,544,660Due from shareholders680,763680,763Other receivable, prepayments and deposit145,667366,429Marketable security21,504356,610Property plant and equipment - net1,494,3401,595,134Intangible assets-net and goodwill626,853629,287Assets of discontinued operations$5,569,612$6,547,459Accounts payable$295,611$184,151Other payables1,140,8221,309,279Minority interest907,901909,398Liabilities of discontinued operations$2,344,334$2,402,828  Moreover, the following income and expense items, attendant to these businesses, have been segregated and included in income (loss) from held for sale operations, as appropriate, in the consolidated income statement for the nine months ended June 30, 2009 and 2008.  Unauditednine months ended June 30,20092008Net sales$1,368,329$4,450,052Cost of sales1,567,7493,580,250Gross margin(199,420)869,802Consulting and professional fees12,42226,887General and administrative176,710444,939Marketing and sales86,61293,241Depreciation and amortization109,801120,679385,545685,746Income(Loss) from operations(584,965)184,056Other income (expenses)2,648(7,214)Income tax365(378)Minority interest97432,601Net income (loss) from discontinued operations$(580,978)$209,065   NOTE 10- COMMON STOCK  On March 9, 2009, as previously reported, we completed a Subscription Agreement with Redrock Venture Capital Ltd (Redrock), a BVI company, under which we agreed to issue up to $1,500,000 of our senior convertible notes (Senior Notes) to Redrock. At closing, we issued $1,250,000 in Senior Notes in exchange for the cancellation of demand notes for the same principal amount held by Redrock. As a result, a total of $250,000 remained unsubscribed under the Subscription Agreement. On April 15, 2009, Redrock converted the $1,250,000 Senior Note into 83,333,333 shares of our common stock. We also issued Redrock 2,500,000 shares of our common stock as prepaid interest for the $1,250,000 Senior Note. Redrock has since paid the $250,000 to us under the terms of the Subscription Agreement. In connection with that payment, on June 1, 2009, we issued a Senior Note in the amount of $250,000. This Senior Note is due and payable on November 1, 2010. We also are required to issue 500,000 shares of our common stock to Redrock as prepaid interest for the Senior Note as provided under the Subscription Agreement.  13   On June 17, 2009, we received a notice of conversion from Redrock converting the $250,000 Senior Note into 16,666,667 shares of our common stock at a conversion price is $0.015 per share. On June 23, 2009, we issued 17,166,667 shares of our common stock to Redrock Capital Venture Limited. The amount represents 16,666,667 shares of our common stock issuable on conversion of the $250,000 Senior Note and 500,000 shares of our common stock issuable as prepaid interest on the Senior Note. Redrock is our largest shareholder, holding approximately 53.3% of our outstanding common stock.  On August 1, 2009, the Company entered into a subscription and asset sale agreement (the Agreement) with Beijing Hua Hui Hengye Investment Lt. (Hua Hui), an unaffiliated PRC company (See Note 11-Subsequent Events). Under the terms of the Agreement, the Company received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel located in the city of Changde in Chinas Hunan Province (Project). As consideration, the Company shall pay RMB100,000,000 (US$14,627,811), to be satisfied by issuing to Hua Hui 250,000,000 shares of its common stock valued at US$0.024 per share (the closing price of the Companys common stock on the transaction date) for a total stock value of approximately RMB41,000,000 (or US$6,000,000).  Upon completion of the transaction, Hua Hui will become the Companys majority shareholder and will own approximately 56.41% Companys outstanding shares.  The transaction will be executed through an escrow agreement (Escrow Agreement) in which Hua Hui will receive 30% of the Shares and all the Assets within 90 days of signing the Agreement. The other 70% of the Shares will be held in escrow until the completion of the Construction.   NOTE 11- SUBSEQUENT EVENTS  On August 1, 2009, the Company entered into a subscription and asset sale agreement (the Agreement) with Beijing Hua Hui Hengye Investment Lt. (Hua Hui), an unaffiliated PRC company. Hua Hui is part of The Beijing Hua Hui Corporation, a PRC real estate construction and development conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within China.  Under the terms of the Agreement, the Company received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel located in the city of Changde in Chinas Hunan Province (Project). The Project is currently under development by Hua Hui. The parties have valued the commercial income rights at RMB115,000,000 (US$16,821,719). As consideration, the Company shall pay RMB100,000,000 (US$14,627,812), to be satisfied by issuing Hua Hui 250,000,000 shares of its common stock valued at US$0.024 per share (the closing price of the Companys common stock on the transaction date) for a total stock value of approximately RMB41,000,000 (or US$6,000,000),and the transfer of certain company assets valued at approximately RMB59,000,000 (US$8,630,273).  Upon completion of the transaction, Hua Hui will become the Companys majority shareholder and will own approximately 56.41% Companys outstanding shares.  The transaction will be executed through an escrow agreement (Escrow Agreement) in which Hua Hui will receive 30% of the Shares and all the Assets within 90 days of signing the Agreement. The other 70% of the Shares will be held in escrow until the completion of the Construction.    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Forward-Looking Statements This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the "Securities Act ") and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act "). Such statements relate to, among other things, our future plans of operations, business strategy, operating results and financial position and are often, though not always, indicated by words or phrases such as "anticipate," "estimate," "plan," "project," "outlook," "continuing," "ongoing," "expect," "believe," "intend," and similar words or phrases. These forward-looking statements include statements other than historical information or statements of current condition, but instead represent only our belief regarding future events, many of which by their nature are inherently uncertain and outside of our control. Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to, those described in the section titled "Risk Factors" previously  14   disclosed in our Annual Report on Form 10-K for the year ended September 30, 2008: Our business history makes it difficult for us to accurately forecast revenues and expenses ; Our strategy of acquiring businesses, assets and technologies may fail; We have no agreements for our new business endeavors and we have not  established standards for such transactions. ; Our need for additional capital (and concomitant dilution effect); Consequently, readers of this Report should not rely upon these forward-looking statements as predictions of future events. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements in this Report to reflect any new events or any change in conditions or circumstances. All of the forward-looking statements in this Report are expressly qualified by these cautionary statements. Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars.  As used in this quarter report, the terms we, us, our, and NXMR mean NextMart, Inc. and its wholly-owned subsidiaries.  Overview  As reported on our Form 8-K filed on August 5, 2009, we entered into a subscription and asset sale agreement (the Agreement) with Beijing Hua Hui Hengye Investment Lt. (Hua Hui), an unaffiliated PRC company. Hua Hui is part of The Beijing Hua Hui Corporation, a PRC real estate construction and development conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within China.  Under the terms of the Agreement, the Company received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel located in the city of Changde in Chinas Hunan Province (Project). The Project is currently under development by Hua Hui. The parties have valued the commercial income rights at RMB115,000,000 (US$16,821,719). As consideration, the Company shall pay RMB100,000,000 (US$14,627,812), to be satisfied by issuing Hua Hui 250,000,000 shares of its common stock valued at US$0.024 per share (the closing price of the Companys common stock on the transaction date) for a total stock value of approximately RMB41,000,000 (or US$6,000,000),and the transfer of certain company assets valued at approximately RMB59,000,000 (US$8,630,273).  Upon completion of the transaction, Hua Hui will become the Companys majority shareholder and will own approximately 56.41% Companys outstanding shares.  As a result of this transaction, our new business strategy is to offer private member health club memberships to wealthy Chinese and to sell self-branded health products via direct sales channels. This product and services model will be rolled out in two phases. Phase One is to establish its Demao Tang Clubs as private member health clubs that offer specialized health services and products to its members. These clubs would provide first class preventative and recovery care using the most modern methods and products. We plan to develop this club concept in cooperation with top tier membership clubs and health care services companies specializing in preventative and recovery care. To begin, the Company plans to partner with Chinas most elite members clubs to embed its Demao Tang clubs and related health services and products into these existing operations. To that end, we are in final discussions with existing elite clubs in Beijing and Shanghai and expect to enter into partnership with these clubs sometime during the second half of calendar 2009. The Company also plans to develop its own Demao Tang clubs at independent locations, as in the case of the Hunan Club. Revenues from the planned clubs would be derived from the sale of memberships to its clubs and the sale of private label and third party health products and services within the clubs.   15   In order to provide its planned health services and products to club members, we plan to selectively partner with leading health service and technology providers to provide our members with state of the art medical screening and certain treatment procedures. We are currently in final stage discussions with potential partners that would provide: 1) an infrared automatic screening system, which is used to identify various ailments and diseases at an early stage; 2) DNA testing for cervical cancer; 3) cancer recovery and anti-aging treatments; 4) stem cell based recovery and restorative treatments. These services would be complimented by a range of leading health products including herbal medicines. The health services and product partnerships would be managed by us at each of the planned health clubs, which will allow Demao Tang clubs to offer its high-end members with holistic health solutions and a comfortable environment in which to undergo their desired health treatment.  Phase Two involves the direct sales for Demao Tang branded or third party health products. These products would include certain types of supplements and herbal and homeopathetic medicines as well as general health and anti-aging products designed to restore and maintain health and well-being.  We will partner with established producers to self-brand already developed and government approved supplements, herbal medicines, and general health products. We do not intend to develop and manufacture its own health products, but rather carefully select and brand existing products with the Demao Tang brand name. In order to minimize product costs, product partnerships will be done through profit sharing agreements. This light weight product sales model eliminates many of the costs associated with the development and sale of health products. The direct sales channel would initially include our private member health clubs and our own online direct sales platform. The Company is also considering launching a small network of self-owned retail stores in major Chinese cities to sell our Demao Tang products in the second half of 2010, after which the Company plans to expand the network through franchising.  We expect to successfully sell club memberships and Demao Tang branded health products through its access (via its various affiliates) to a network of media channels which includes over 70 print media and 700 online media channels including online sales channels, many of which target our desired market: Chinas rich and influential. Existing data indicates that China now has 900,000 people with over RMB10,000,000 in assets, of which 100,000 have over RMB100,000,000 in assets. We believe that as Chinas economy continues its explosive growth, the number of Chinese consumers able and willing to access top quality health services will grow exponentially. Our health services and product business model is based on our assessment of the needs of the emerging Chinese healthcare market as it seeks to increase care capacity. We believe that lack of access to top-quality preventative treatments and particularly recovery care for major diseases like cancer is inversely matched by the demand among an ever expanding class of affluent Chinese consumers. By providing private, high-class health clubs and direct sales channels through which our branded health products and are directly provided to affluent customers, we believe we will be well placed to meet that demand.  We remind investors that our plans to re-focus our business to participate in the health club industry in China, specifically cancer treatment is subject to substantial risks and uncertainties. We can not predict whether we will be successful in identifying, selecting and investing in business, technologies, or treatments that will prove successful in our new business efforts. Our efforts will be subject to our ability to raise additional funds (which in turn will cause dilution to existing shareholders), formal agreements with numerous parties, certain asset valuations, and various approvals including, but not limited to, debt holder approval, approval of professionals, and other regulatory approval.  Therefore, we can not predict with certainty whether we will be successful in our re-structuring efforts. As this time, we can not predict the exact combination of efforts required to achieve our strategy. As of the date of this report, we are in the process of formulating our plan, and have not entered into any formal agreements regarding any of the forgoing. It is conceivable that we may enter into merger, share exchange, direct investment, consulting, joint venture, or licensing agreements or a combination thereof, with targeted companies.  If we are required to issue our common stock in connection with our strategy, it is likely that significant dilution will result to existing shareholders. Moreover, as a result of one or more such transactions, a change of control of our company may result due to the issuance of our common stock.  Prior to fiscal year 2008, we had planned to develop an integrated online-offline direct sales platform for the ladies' apparel sector in China. However, our business and business strategy were adversely impacted in a material manner due to the appreciation of the Chinese currency (yuan) against the US dollar (which resulted in US consumers paying higher prices for products manufactured in China), coupled with an already weak US retail market. Accordingly, we were unable to meet our projected operating results and milestones for the various periods. The lack of operating results adversely impacted our stock price during the applicable periods. Due to the depressed price of our common stock together with the overall world-wide financial market turmoil, we were unable to raise the necessary funds to support our expansion strategy.  16   Consequently in May 2008, as indicated above, we determined to change our business focus initially attempting to focus on the financial advisory/direct investments. As mentioned above, we have redirected this focus towards the healthcare industry in China.  Results of Operations The following discussion relates to our existing internet and marketing consulting businesses. We provide internet based marketing and web-site development services to other companies in China. The discussions below exclude the results of operations of our businesses held for sale discussed elsewhere herein, except for the (Loss) Income from held for sale operations discussion below. As a result of our recent transaction with Hua Hui, the results of operations discussed below may not be meaningful in potentially assessing future operations of the Company.  Three Months Ended June 30, 2009 compared with Three Months Ended June 30, 2008  Sales.During the three months ended June 30, 2009, we had $57,215 in sales while there was no revenue from operations for the comparable period in 2008.  Cost of Sales. Our costs of sales for the 2009 period and 2008 period were $18,593 and $0 respectively. Cost of Sales represents personnel cost of the consulting business.  Gross Margin. As a result of the foregoing, our gross margins for the three months ended June 30, 2009 and 2008 were  $38,622 and $0, respectively.  Operating Expenses. Operating expenses (which includes general and administrative expenses, consulting and professional fees, and depreciation and amortization) for the three months ended June 30, 2009 totaled $232,799, a decrease of $ 882,190 or 79.12% from $1,114,989 for the corresponding 2008 period. General and administrative expenses were $174,209 for the 2009 period, a decrease of $560,795 or 76.3% from $735,004 for the 2008 comparable period. The decrease for the 2009 period is due to reduced salaries and related expenses at our corporate office as a result of our scaled down operations. Depreciation and amortization totaled $40,195 for the 2009 period, a decrease of $170,091 or 80.89% from $210,286 for the comparable 2008 period. The decrease for the 2009 period is due to mainly to reduction in amortization resulting from the disposition of intangible assets that occurred during the 12 month period ended June 30, 2009. Consulting and professional fees for the 2009 period totaled $18,395, a decrease of $151,304 or 89.16% from $169,699 for the comparable period in 2008. The decrease in consulting fees reflects our reduced operations.  Operating Loss. We had an operating loss of $194,177 for the 2009 period compared with an operating loss of $1,114,989 for the comparable period in 2008. The decrease of $920,812or 82.58% from the prior period is due to the factors discussed above.  Other Income (Expense). We had other expenses of $610,168 during the 2009 period compared with an interest income of $338 for the comparable period in 2008. The expense in 2009 period was for the interests and default penalties related to the convertible bonds.  Interest Expense. For the 2009 period, we had interest expense of $290,000 compared with $151,871 for the comparable period in 2008, due to the balance of the unamortized prepaid interest on convertible bonds was fully charged to interest expense during 2009.  Loss from continuing operations. Our loss from continuing operations for the three months ended June 30, 2009 and 2008 was $1,094,345 and $1,266,522, respectively due to the reasons discussed above.  (Loss) Income from discontinued operations and Net Loss.  Our loss from discontinued operations for the three months ended June 30, 2009 was $64,189 compared with a gain of $113,289 in 2008. We have a net loss of $1,158,534 in 2009 and a net loss of $1,153,233 for the comparable period in 2008.  Other Comprehensive Income(Loss). We had a foreign currency translation adjustment loss of $149,101 for the 2009 period compared with a loss of $167,023 for the comparable period in 2008. The increase is due to the value of the US dollar in comparison to the RMB. In 2008, we had an unrealized loss of $1,096,828 due to the write down of securities held during the period due to the market delisting of such securities. For the three months ended June 30, 2009, we had a comprehensive loss of $1,298,067 compared with a comprehensive loss of $2,417,084 for the comparable period in 2008 for the reasons  17   discussed above.  Nine Months Ended June 30, 2009 compared with Nine Months Ended June 30, 2008  Sales. During the nine months ended June 30, 2009 and 2008, we had sales of $98,852 and $0, respectively. These sales were primarily due to the operation of consulting service business.  Cost of Sales. Our cost of sales for the nine months ended June 30, 2009 and 2008 were $20,675 and $0, respectively. Cost of Sales represents personnel cost of the consulting business.  Gross Margin. As a result of the foregoing, our gross margins for the nine months ended June 30, 2009 and 2008 were $78,177 and $0, respectively.  Operating Expenses. Our operating expenses (which includes general and administrative expenses, consulting and professional fees, and depreciation and amortization) for the nine months ended June 30, 2009 and 2008 were $619,437 and $2,018,245, respectively. General and administrative expenses were $386,114 for the 2009 period, a decrease of $639,627 or 62.36% from $1,025,741 for the 2008 period.  The decrease for the 2009 period was due to reduced salaries and related expenses at our corporate office due to our scaled down operations. The depreciation and amortization expenses were $120,441 for the 2009 period, a decrease of $510,028 or 80.90%, from $630,469 for the 2008 period. The decrease for the 2009 period is due mainly to reduction in amortization resulting from the disposition of intangible assets that occurred during the 12 month period ended June 30, 2009. Consulting and professional fees were $112,882 and $362,035, for the 2009 and 2008 periods, respectively. The decrease in the 2009 period reflects our reduced operations and revenues.  Operating Loss. We had an operating loss of $541,260 for the 2009 period compared with an operating loss of $2,018,245 for the comparable period in 2008. The decrease from prior period is due to the factors discussed above.  Other Income (Expense). We had other expense of $610,313 during the 2009 period compared with other income of $960 for the comparable period in 2008. For the 2009 period, the expense was for the interests and default penalties related to the convertible bonds.  Interest Expense. For the 2009 period, we had interest expense on of $420,000 compared with $413,613 for the comparable period in 2008.  Loss from continuing operations. Our loss from continuing operations for the nine months ended June 30, 2009 and 2008 was $2,134,468 and $2,430,898, respectively. The difference is due to the reasons discussed above.  (Loss)Income from discontinued operations. We had a loss from discontinued operations for the nine months ended June 30, 2009 of $590,978 compared with income of $209,065 from discontinued operations for the nine months ended June 30, 2008. The difference was due to reduced revenues for the 2009 period coupled with increased marketing and sales expenses and other office related expenses.  Other Comprehensive Income (Loss). We had a foreign currency translation adjustment loss of $147,222 for the 2009 period compared with a loss of $179,788 for the comparable period in 2008. The increase is due to the value of the US dollar in comparison to the RMB. In 2009 and 2008, we had an unrealized loss of $447,306 and $2,342,934 respectively, due to the write down of securities held during the period due to the market suspension of such securities. For the nine months ended June 30, 2009, we had a comprehensive loss of $3,309,974 compared with a comprehensive loss of $4,744,555 for the comparable period in 2008.   Liquidity and Capital Resources  We have financed our operations primarily through cash generated from equity investments, operating activities and a mixture of short and long-term loans for affiliated and non-affiliated parties.      18   The following table summarizes our cash flows for the nine months ended June 30, 2009 and 2008:  UnauditedNine Months Ended June 30,20092008Net cash used in operating activities from continuing operations$(176,888)(280,413)Net cash (used in) provided by investing activities from continuing operations(68,322)364,985Net cash provided by financing activities from continuing operations382,20967,144Net effect of exchange rate fluctuations on cash and cash equivalents(270,308)(244,533)Net decrease in cash and cash equivalents from continuing operations(133,309)(92,817)Net increase in cash and cash equivalents from discontinued operations126,3535,525Cash and cash equivalents at beginning of period106,171139,723Cash and cash equivalents at end of period99,21552,431  Our total assets as of June 30, 2009 were $10,335,408. Our total liabilities as of June 30, 2009 were $5,772,563. As of June 30, 2009, we had working capital of $(603,763) compared with $1,501,687 as of September 30, 2008. The decrease is due to cash used in operations, the reduction in marketable securities, and increases in other payables, accrued expenses.  We continue to experience significant losses from operations. We are uncertain as to when we will achieve profitable operations. We have an immediate need for capital to conduct our ongoing operations and to advance the planned venture investment strategy. We anticipate raising capital through additional private placements of our equity securities, proceeds received from the exercise of outstanding warrants and options, and, if available on satisfactory terms, debt financing. We can not guarantee that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may forced us to restructure, file for bankruptcy, sell assets or cease operations,  any of which could adversely impact our business and business strategy, and the value of our capital stock. Due to the current price of our common stock, any common stock based financing may create significant dilution to the then existing shareholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future which also may create significant dilution to existing shareholders.  The Company's new business plan has two interelated models: 1) developing a network of Demao Tang branded health clubs; 2) Initiating a direct sales business for Demao Tang branded health products. The company plans to roll out its new business plan by initially focusing on developing its network of Demao Tang health clubs. To the end, in 2009 and 2010 we are planning to open up three Demao Tang clubs in Beijing, Shanghai, and Huangshan Mountain respectively. For these three clubs, the Company plans to partner with Chinas most elite members clubs to embed its Demao Tang clubs and related health services and products into their existing operations. In order to launch the development and marketing of these initial Demao Tang Clubs, we anticipate that we will incur at total of RMB20,000,000 (or approximately US$ 2,925,516) expenditures during the fiscal years 2009 and 2010 . The Company expects that most of the incurred costs for developing the health club business will be financed by our major shareholders Beijing Hua Hui Hengye Investment Ltd. and Redrock Capital Venture Ltd, with any additional funds to be raised through third parties. However, presently, we do not have any commitments for such funds. The issuance of our common stock to riase funds will likely cause significant dilution to existing shareholders.  In 2010 we plan to develop our direct sales model. For direct sales business, we plan to partner with established producers to self-brand already developed and government approved supplements, herbal medicines, and general health products. To begin with, we plan to sell these health products through online direct sales platforms.our network of Demao Tang clubs and other partnered elite members clubs. At this time we expect that the operational capital for our initial direct sales business would be RMB5,000,000 (or US$731,379) a year. We expected that the majority of these operational costs can be funded by selling our Demao Tang Club membership cards for the three clubs mentioned above. The initial price of membership cards are expected to vary between RMB50,000 to RMB 500,000 (US$7,313 to US$73,138), depending on the services purchased  19   by club member.  Contractual Obligations  The majority of our operations are in China, where we have leased offices in Beijing. Our Beijing office consists of 8,740 square feet. The lease extends for a period of two years terminating on July 31, 2011. Our annual rent is $192,569. At June 30, 2009, the total future commitments for minimum rentals payment are $48,142 for fiscal 2009.  Off-Balance Sheet Commitments and Arrangements  We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder's equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.  Application of Critical Accounting Policies  Our significant accounting policies are described in Note 1 to our audited consolidated financial statements previously included in our Annual Report on Form 10-K for the year ended September 30, 2008. We prepare our financial statements in conformity with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period.  Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demand on our management's judgment.  Revenue Recognition  We generate revenue through consulting services and recognize such revenues from consulting 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 providing consulting services; or services have been rendered; the Companys consulting fee received from the clients is fixed or determinable pursuant to the terms of the consulting agreement  Income Taxes  We account for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes," as described in Note 12 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2008. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income using the balance sheet liability method at the effective rate applicable in China in our consolidated statements of operations and comprehensive income.  Item 3.  Quantitative and Qualitative Disclosures about Market Risks   Not applicable     20   Item 4. Controls and Procedures  Evaluation of Disclosure Controls and Procedures  Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we undertook an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934, Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that such disclosure controls and procedures were effective to ensure (a) that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) that information required to be disclosed is accumulated and communicated to management to allow timely decisions regarding disclosure.  There were no changes in our internal controls over financial reporting during the nine month ended June 30, 2009 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.      PART II - OTHER INFORMATION    Item 3. Defaults Upon Senior Securities.  We were obligated to make a $250,000 payment on May 9, 2009 to certain investors under a settlement agreement. We made a payment of $150,000 in July 2009 and $100,000 of the May payment remains outstanding. We also agreed to pay these investors $610,126 in interest and penalties in the form of common shares of CEC Unet Plc. on May 9, 2009  provided that the shares of CEC Unet were trading on the AIM market, otherwise the payment is to be made in cash or cash equivalents. We have not satisfied the payment of the stated amount (see Note 5 of our Financial Statements herein).  Item 6. Exhibits and Reports of Form 8-K.  (a) Exhibits  31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002  31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002  32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002         21   SIGNATURES    Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.    NextMart, Inc.Date: August 13, 2009/s/ Liu MenghuaLiu MenghuaChief Executive OfficerDate: August 13, 2009By:/s/ Carla ZhouCarla Zhou
Chief Financial Officer       22