**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-QSB**
| **x**  | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                             |
|   | **For the quarterly three month period ended June 30, 2007**                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                             |
| **o**  | **TRANSITION REPORT UNDER SECTION  13 OR 15(d) OF THE EXCHANGE ACT**                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                             |
|   | **For the transition period from [                     ]  to [                 ]** |

 

**CommissionFile 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. W#, Twelfth Floor**           |   | ** ** |
|------------------------------------------------------|--------|------------|
| **1 East  Chang’an Avenue, Dongcheng District** |   | ** ** |
| **Beijing,  100738 PRC [Shanghai?]**                 |   | **100738** |
| (Address of  principal executive offices)            |   | (Zip Code) |

 

Issuer’stelephone number  **+86 (0)108518 9669**

Securities Registered underSection 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)                            |       |

 

Securities Registeredunder 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)                            |       |

 

This Quarterly Report onForm 10-QSB is the Registrant’s Quarterly Report for the quarter ended June 30,2007 as filed with the Securities and Exchange Commission.

Check whether theRegistrant (1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theRegistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days    x  Yes    o  No

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). o Yes    x No

State the number ofshares outstanding of each of the Registrant’s classes of common stock, as ofthe latest practicable date.

86,993,205 common shares issued and outstandingas of August 20, 2007

Transitional SmallBusiness Disclosure Format (Check one):  o Yes    x  No

 

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**TABLE OF CONTENTS**
| PART I                                                                                               |   |   |
|------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.  Financial Statements                                                                        |   | 3      |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   | 27     |
| Item 3. Controls  and Procedures                                                                     |   | 32     |
| PART II                                                                                              |   |   |
| Item 1. Legal  Proceedings                                                                           |   | 32     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 |   | 32     |
| Item 3.  Defaults Upon Senior Securities                                                             |   | 33     |
| Item 4.  Submissions of Matters to a Vote of Security Holders                                        |   | 33     |
| Item 5. Other  Information                                                                           |   | 33     |
| Item 6.  Exhibits and Reports on Form 8-K                                                            |   | 34     |
| SIGNATURES                                                                                           |   | 35     |
| INDEX TO EXHIBITS                                                                                    |   | 36     |
| EXHIBIT  31.1                                                                                        |   |   |
| EXHIBIT  31.2                                                                                        |   |   |
| EXHIBIT  32.1                                                                                        |   |   |
| EXHIBIT  32.2                                                                                        |   |   |

 

2

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***FORWARDLOOKING 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 this annualreport, the terms “we”, “us”, “our”, and “NXMR” mean NextMart, Inc. and itswholly-owned subsidiaries, including: Sun China Media (Beijing) Technology Co.,Ltd., Suizhou Focus Trading Development Co., Ltd., Shanghai Shengji TechnologyCo., Ltd, Sun China Media (Beijing) International Advertising Co. Ltd, DragonList 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 .

**PART I**

**Item 1.Condensed Consolidated Financial Statements**

**NextMart,Inc.**

**CondensedConsolidated Financial Statements**

**June 30,2007 and 2006**

**(Unaudited)**

(Expressed InUnited States Dollars)

3

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**Condensed Consolidated BalanceSheets**
| ** **                                                                                                                                               | ** ** | ** ** | ** ** | **Unaudited**  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                                                                                                                               | ** ** | ** ** | ** ** | **As of** | ** ** |
| ** **                                                                                                                                               | ** ** | **Note**   | ** ** | **30-Jun-07**  | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** | ** ** | **US$**        | ** ** |
|                                                                                                                                                     |       |       |       |           |       |
| **ASSETS**                                                                                                                                               | ** ** | ** ** | ** ** | ** **     | ** ** |
| **Current  Assets**                                                                                                                                      | ** ** | ** ** | ** ** | ** **     | ** ** |
| Cash and  cashequivalants                                                                                                                                |       |       |       | 1,679,246      |       |
| Accounts receivable,  net of provision for doubtful accounts $30,139                                                                                     |       | 6          |       | 3,278,697      |       |
| Other  receivable, prepayments and deposits                                                                                                              |       | 7          |       | 7,217,657      |       |
| Inventories                                                                                                                                              |       |       |       | 1,698,213      |       |
| Marketable  securities                                                                                                                                   |       | 11         |       | 13,548,437     |       |
| Amounts due from  stockholders                                                                                                                           |       | 8          |       | 937,392        |       |
| Amounts due from  related parties                                                                                                                        |       | 8          |       | 1,045,658      |       |
|                                                                                                                                                     |       |       |       |           |       |
| **Total  current assets**                                                                                                                                |       |       |       | 29,405,300     |       |
| **Investment  in associated company**                                                                                                                    |       |       |       | 0              |       |
| **Goodwill  and intangible assets**                                                                                                                      |       | 4          |       | 23,047,603     |       |
| **Plant  and equipment**                                                                                                                                 |       | 5          |       | 3,818,554      |       |
|                                                                                                                                                     |       |       |       |           |       |
| **Total  Assets**                                                                                                                                        | ** ** | ** ** | ** ** | **56,271,457** | ** ** |
|                                                                                                                                                     |       |       |       |           |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                           | ** ** | ** ** | ** ** | ** **     | ** ** |
| **Current  Liabilities**                                                                                                                                 | ** ** | ** ** | ** ** | ** **     | ** ** |
| Accounts payable                                                                                                                                         |       |       |       | 277,488        |       |
| Other payables  and accruals                                                                                                                             |       | 9          |       | 2,371,851      |       |
| Amounts due to  related parties                                                                                                                          |       | 8          |       | 93,349         |       |
| Factoring loan                                                                                                                                           |       |       |       | —         |       |
|                                                                                                                                                     |       |       |       |           |       |
| **Total  current liabilities**                                                                                                                           |       |       |       | 2,742,688      |       |
|                                                                                                                                                     |       |       |       |           |       |
| **Minority  interest**                                                                                                                                   |       |       |       | 1,557,896      |       |
| **Convertible  notes**                                                                                                                                   |       | 10         |       | 1,500,000      |       |
| **Discount  on convertible notes and warrants**                                                                                                          |       | 10         |       | (852,952       | )          |
| **Commitments  and Contingencies**                                                                                                                       | ** ** | ** ** | ** ** | ** **     | ** ** |
| **STOCKHOLDERS’  EQUITY**                                                                                                                           | ** ** | ** ** | ** ** | ** **     | ** ** |
| Preferred stock,  authorized 150,000,000 shares, US$0.01 par value                                                                                       |       |       |       |           |       |
| None issued  Common stock; authorized 350,000,000 shares, US$0.01 par value 94,393,178  shares of common stock issued and outstanding, US$0.01 par value |       |       |       | 943,932        |       |
| 20,000 shares of  common stock reserved to be issued, US$0.01 par value                                                                                  |       |       |       | 200            |       |
| Additional paid  in capital                                                                                                                              |       |       |       | 100,818,946    |       |
| Accumulated  other comprehensive (loss) income:                                                                                                          |       |       |       |           |       |
| Foreign currency  translation adjustments                                                                                                                |       |       |       | 90,269         |       |
| Unrealized loss  on marketable securities                                                                                                                |       |       |       | (4,419,765     | )          |
| **Total  accumulated comprehensive loss**                                                                                                                |       |       |       | (4,329,496     | )          |
| **Accumulated  deficit**                                                                                                                                 |       |       |       | (46,109,756    | )          |
| **Total  stockholders’ equity**                                                                                                                     |       |       |       | 51,323,825     |       |
|                                                                                                                                                     |       |       |       |           |       |
| **Total liabilities and  stockholders’ equity**                                                                                                     | ** ** | ** ** | ** ** | **56,271,457** | ** ** |

 

4

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**Condensed Consolidated Statementof Operations**
| ** **                                                       | ** ** | ** ** | ** ** | **UnauditedThreee  Months Ended** | ** ** | **UnauditedThreee  Months Ended** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                                       | ** ** | **Note**   | ** ** | **June 30, 2007**       | ** ** | **June 30, 2006**       | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | **US$**                           | ** ** | **US$**                           | ** ** |
|                                                             |       |       |       |                              |       |                              |       |
| **Revenues**                                                     |       |       |       | 1,803,071                         |       | 8,819,429                         |       |
| Costs of revenue                                                 |       |       |       | 1,389,073                         |       | 228,127                           |       |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| **Gross  Profit**                                                |       |       |       | 413,998                           |       | 8,591,302                         |       |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| **Operating  Expenses**                                          | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| General and  administrative                                      |       |       |       |                              |       |                              |       |
| Stock Based Compensation Costs                                   |       |       |       | —                            |       | 33,750                            |       |
| Other General and administrative                                 |       |       |       | 748,814                           |       | 1,542,966                         |       |
| Marketing and  sales                                             |       |       |       | 48,850                            |       | 35,137                            |       |
| Depreciation and  amortization                                   |       |       |       | 578,778                           |       | 509,629                           |       |
| Consulting and  professional fees                                |       |       |       | 184,442                           |       | 494,583                           |       |
| Total operating  expenses                                        |       |       |       | 1,560,884                         |       | 2,616,065                         |       |
| **Operating  loss**                                              | ** ** | ** ** | ** ** | **(1,146,886**                    | **)**      | **5,975,237**                     | ** ** |
| Interest income                                                  |       |       |       | 1,271                             |       | 18,073                            |       |
| Amortization of discount on notes                                |       |       |       | (14,457                           | )          | (2,570,634                        | )          |
| Other income from divestment of non-core assets                  |       |       |       | 5,473                             |       | 11,183,924                        |       |
| Interest expenses                                                |       |       |       | (39,000                           | )          | —                            |       |
| **Loss  before income tax expense and minority interests**       | ** ** | ** ** | ** ** | **(1,193,599**                    | **)**      | **14,606,600**                    | ** ** |
| Income tax  expenses                                             |       |       |       | —                            |       | (12,063                           | )          |
| **Loss  after income tax expense and before minority interests** | ** ** | ** ** | ** ** | **(1,193,599**                    | **)**      | **14,594,537**                    | ** ** |
| Minority  interests                                              |       |       |       | 18,158                            |       | (446,107                          | )          |
| **Net  Loss**                                                    | ** ** | ** ** | ** ** | **(1,175,441**                    | **)**      | **14,148,430**                    | ** ** |
| Other  comprehensive loss – Currency translation adjustment |       |       |       | (11,147                           | )          | (17,316                           | )          |
| **Comprehensive  (loss) income**                                 | ** ** | ** ** | ** ** | **(1,186,588**                    | **)**      | **14,131,114**                    | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | ** **                        | ** ** | ** **                        | ** ** |
| **Basic  (loss) income per share**                               |       |       |       | (0.01                             | )          | 0.14                              |       |
| Shares used in  computing basic loss per share                   |       |       |       | 94,413,178                        |       | 98,488,837                        |       |

 

 

5

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**CONSOLIDATED STATEMENTS OF CASH FLOWS**

For the three month ended June 30,2007 and 2006
| ** **                                                                            | ** ** | **Unaudited**                    | ** ** | **Unaudited**                       | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------------------|------------|
| ** **                                                                            | ** ** | **Three months ended** | ** ** | **Three months ended**    | ** ** |
| ** **                                                                            | ** ** | **June 30, 2007**      | ** ** | **to June 30, 2006** | ** ** |
| ** **                                                                            | ** ** | **US$**                          | ** ** | **US$**                             | ** ** |
| **Cash  flows from operating activities**                                             | ** ** | ** **                       | ** ** | ** **                          |       |
| **Net  (loss) income**                                                                | ** ** | **(1,175,441**                   | **)**      | **14,589,284**                      |       |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities; |       | —                           |       | —                              |       |
| Depreciation and  amortization                                                        |       | 578,778                          |       | 509,629                             |       |
| Share of profits  from affiliate                                                      |       | —                           |       | (356,599                            |       |
| Gain on sale of  non-core assets paid by stock                                        |       | —                           |       | (10,742,791                         | )          |
| Gain on disposal  of subsidiary companies                                             |       | (5,473                           | )          | (74,556                             | )          |
| Non-cash expense  for consultancy services fee                                        |       | —                           |       | 75,000                              |       |
| Amortization of  discount on notes                                                    |       | 14,457                           |       | 2,570,634                           |       |
| Non-cash  interest expenses                                                           |       | 39,000                           |       | —                              |       |
| Currency  translation adjustment                                                      |       | —                           |       | —                              |       |
| **Changes  in operating assets and liabilities:**                                     | ** ** | ** **                       | ** ** | ** **                          |       |
| Accounts  receivable                                                                  |       | 182,461                          |       | (8,334,822                          | )          |
| Other debtor,  deposits and prepayments                                               |       | (463,889                         | )          | (3,038,841                          | )          |
| Inventories                                                                           |       | —                           |       | (15,630                             |       |
| Amounts due from  related parties                                                     |       | —                           |       | (344,316                            | )          |
| Amounts due from  stockholders                                                        |       | —                           |       | 221,358                             |       |
| Accounts payable                                                                      |       | (178,019                         | )          | 21,645                              |       |
| Other payables  and accruals                                                          |       | 121,740                          |       | 558,563                             |       |
| Amounts due to  related parties                                                       |       | —                           |       | 39,317                              |       |
| **Net  cash used in operating activities**                                            | ** ** | **(886,385**                     | **)**      | **(4,322,125**                      | **)**      |
|                                                                                  |       |                             |       |                                |       |
| **Cash  flows from investing activities**                                             | ** ** | ** **                       | ** ** | ** **                          |       |
| Proceeds from  sale of plant and equipment                                            |       | —                           |       | 74,958                              |       |
| Purchase of  plant and equipment                                                      |       | —                           |       | (221,288                            | )          |
| Cash / acquired  in business combination, net                                         |       | —                           |       | 10,814                              |       |
| Disposal of  subsidiary companies, net                                                |       | —                           |       | 23,138                              |       |
| Increase in due  from related parties and stockholders                                |       | (316,433                         | )          | —                              |       |
| **Net  cash used in investing activities**                                            | ** ** | **(316,432**                     | **)**      | **(112,378**                        | **)**      |
|                                                                                  |       |                             |       |                                |       |
| **Cash  flows from financing activities**                                             | ** ** | ** **                       | ** ** | ** **                          |       |
| Issuance of  common stock                                                             |       | —                           |       | 8,955,350                           |       |
| Expenses  incurred on issuance of common stock                                        |       | —                           |       | (874,931                            | )          |
| Decrease in due  to related parties                                                   |       | (145,510                         | )          | —                              |       |
| Repayment of  factoring loans                                                         |       | —                           |       | (54,289                             | )          |
| Minority  interest, net                                                               |       | 262,622                          |       | —                              |       |
| **Net  cash provided by financing activities**                                        | ** ** | **117,112**                      | ** ** | **8,026,130**                       |       |
| **Net  effect of exchange rate changes on consolidating subsidiaries**                | ** ** | **65,000**                       | ** ** | **(6,024**                          | **)**      |
| **Net  increase/(decrease) in cash and cash equivalents**                             | ** ** | **(1,020,705**                   | **)**      | **3,585,603**                       |       |
| **Cash  and cash equivalents, beginning of the period**                               | ** ** | **2,699,949**                    | ** ** | **1,373,715**                       |       |
| **Cash and cash equivalents, end  of the period**                                     | ** ** | **1,679,244**                    | ** ** | **4,959,318**                       |       |

 

6

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 1 — NATURE OF OPERATIONS AND BASIS OFPRESENTATION**

We operate mainly in thewomen’s apparel industry where we derive the bulk of our revenue by acting asan outsourced brand management and production center for foreign apparelbrands. We also possess a portfolio of media and marketing assets that we areleveraging to expand into the online brand management and e-commerce sectorsfor women’s apparel products. We have supporting operations in the handheldelectronics sector. The Company is divided into two principal divisions: theTransactional Services Division and the Marketing & Information ServicesDivision.

During fiscal 2008, weplan to center our business operations around our Shanghai-based apparelsubsidiary, William’s Brand Administer Co. Ltd. Our business developmentefforts will consist of growing existing revenues in the business-to-businesssector and creating new revenues in the business-to-consumer sector. Our goalhere is to build China’s largest shopping community for online wholesaledistribution and retail shopping.

Our activities are basedpredominantly in People’s Republic of China (“PRC”). Our principaloperating subsidiaries include the following:

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’S SIGNIFICANTACCOUNTING POLICIES**

*Basis of Consolidation andPresentation*

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 thatcompany is subject to a majority of the risk of loss for the VIEs or isentitled to receive a majority of the VIE’s residual returns. The consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States.

We have the followingsignificant domestic VIEs:

7

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 2 — SUMMARY OF THE COMPANY’S SIGNIFICANTACCOUNTING POLICIES (CONT’D)**

·               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-executiveemployee of theCompany.

·               SunChina Media (Beijing) International Advertising Co. Ltd, a PRC companycontrolled by us by contract which is engaged in the advertisingbusiness.  It is 70% owned by Qiong Zhou, and 30% owned by Guosheng Wang,both of whom are non-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 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 June 30, 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 

8

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China when permitted byPRC laws and regulations or to our designees at any time for the outstandingamount of injected capital investment, and all voting rights of the VIEs areassigned to us. We have the power to appoint all directors and seniormanagement personnel of the VIEs.  Through our wholly-owned subsidiariesin China, we have also entered into exclusive technical agreements and otherservice agreements with the VIEs, under which these subsidiaries provide technicalservices.

*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 contingentassets and liabilities at the date of the financial statements and the reportedamount of revenue and expenses for the periods that the financial statementsare prepared. Actual amounts could differ from these estimates.

*Financialinstruments*

The Company’s financialinstruments include cash and cash equivalents, accounts receivable, accountspayable, marketable securities, other payable and factoring loan. The fairvalues of these financial instruments approximate their carrying values due tothe short-term maturity of the instruments.

*Businesscombinations*

We are creating thisbusiness through the ongoing acquisition of various entities and assets. TheCompany accounts for its business combinations using the purchase method ofaccounting in line with FASB141. This method requires that the acquisition costbe allocated to the assets and liabilities the Company acquired based on theirfair value. Pursuant to FAB-141, the Company recognizes intangible assetsseparate from goodwill if they meet one of two criteria—the contractual-legalcriterion or the separability criterion. The Company makes estimates andjudgments in determining the fair value of the acquired assets and liabilities,based on independent appraisal reports for material purchases as well as itsexperience with similar assets and liabilities in similar industries. Ifdifferent judgments or assumptions were used, the amounts assigned to theindividual acquired assets or liabilities could be materially different. Whenconsidering whether an acquired assets group constitutes a business, theCompany used the criteria defined by EITF 98-3 determining Whether aNon-monetary Transaction Involves Receipt of Productive Assets or of aBusiness.

9

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 2 — SUMMARY OF THE COMPANY’S SIGNIFICANTACCOUNTING POLICIES (CONT’D)**

*Goodwill and 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 significant 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 measured based on fair values utilizing estimated disounted cashflow, 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 on marketablesecurities.

*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.

10

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*Plant and 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    |       |

 

*Revenue recognition*

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 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.

11

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 2 — SUMMARY OF THE COMPANY’S SIGNIFICANTACCOUNTING POLICIES (CONT’D)**

*Cost of revenues*

Cost of revenues includes the cost of product, salary and other relatedcosts for our management services and technical support staff, as well asthird-party contractor expenses.  Additionally cost of revenues includesfees for hosting facilities, bandwidth costs, and equipment and relateddepreciation costs. Cost of revenues will vary significantly from period toperiod depending on whether we will take title of the product and the level ofmanagement services provided.

*Trade recevible and allowance for Doubtful Accounts*

The Company performs ongoing credit evaluations of its customers tominumize credit risk. The allowance for doubtful accounts is based onmanagement’s estimates of the collectability of its accounts receivable afteranalyzing historical bad debts, customer concentrations, customer creditworthiness, and current economic trends. Specifically, the Company reviews theaged accounts receivable listing for balances that are specificallyidentifiable as credit risks or uncollectible, and may use judgement forcalculation of allowance for doubtful accounts.

Sales to Nature’s Club International Co. Ltd. accounted for the majorityof sales for the quarter ended June 30, 2007. Significant sales to a singlecustomer expose the Company to a concentration of credit risk.

*Earnings (loss) per share*

Basic earnings (loss) per share includes no dilution and is computed bydividing income (loss) available to common stockholders by the weighted averagenumber of common shares outstanding for the year. As the Company has a loss,presenting diluted net earnings (loss) per share is considered anti-dilutiveand not included in the statement of operations.

*Foreign currency transactions*

The financial statements are presented in United States dollars. Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “ForeignCurrency Translation”, since the functional currency of the Company is Renminbi(RMB), the foreign currency financial statements of the Company’s subsidiariesare re-measured into U.S. dollars (USD). Monetary assets and liabilities arere-measured using the foreign rate that prevailed at the balance sheet date. Revenueand expenses are translated at weighted average rates of exchange during theyear and stockholders’ equity accounts and capital asset accounts aretranslated by using historical exchange rates. Any re-measurement gain or lossincurred is reported in the consolidated statement of operations. In 2007, weused 7.9005 RMB per U.S. USD for the weighted average rate, and we used 7.7342RMB per USD as the balance sheet date rate.

*Income taxes*

The Company follows the liability method of accounting for income taxesin accordance with SFAS No. 109. Under this method, future tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax balances. Future tax assets andliabilities are measured using enacted or substantially enacted tax ratesexpected to apply to the taxable income in the years in which those differencesare expected to be recovered or settled. The effect on future tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the date of enactment or substantive enactment. A valuation allowanceis provided for deferred tax assets if it is more likely than not that theCompany will not realize the future benefit, or if the future deductibility isuncertain.

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*Stock-based compensation*

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised2004), “Share Based Payment,”(“SFASNo.123(R)”) which revises SFAS No. 123 andsupersedes APB 25. SFAS No. 123(R) requires that all share-based payments toemployees be recognized in the financial statements based on their fair valuesat the date of grant. The calculated fair value is recognized as expense (netof any capitalization) over the requisite service period, net of estimatedforfeitures, using the straight-line method under SFAS No. 123(R). The Companyconsiders many factors when estimating expected forfeitures, including types ofawards, employee class and historical experience. The statement was adoptedusing 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).

As at 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 Issued toEmployees”, (“APB No. 25”) and comply with the disclosure provisions of SFASNo. 123 as amended by SFAS No. 148.  During the period from September 18,2005 to September 30, 2005, no stock-based employee compensation arrangementshave been effected and accordingly no disclosure of pro forma information isrequired. In accordance with SFAS No. 123 the Company applies the fair valuemethod using the Black-Scholes option-pricing model in accounting for optionsgranted to consultants.

The Company accounts for equity instruments issued in exchange for thereceipt of goods or services from other than employees in accordance with SFASNo. 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 ThanEmployees for Acquiring or in Conjunction with Selling Goods or Services” (“EITF96-18”). Costs are measured at the estimated fair market value of theconsideration received or the estimated fair value of the equity instrumentsissued, whichever is more reliably measurable. The value of equity instrumentsissued for consideration other than employee services is determined on theearlier of a performance commitment or completion of performance by theprovider of goods or services as defined by EITF 96-18.

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 2 — SUMMARY OF THE COMPANY’S SIGNIFICANTACCOUNTING POLICIES (CONT’D)**

*Recently Issued AccountingPronouncements*

In November 2004, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “InventoryCosts”, which clarifies the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material.  SFAS No. 151 will be effective for inventorycosts incurred during fiscal years beginning after June 15, 2005.  We do not believe the adoption of SFAS No.151 will have a material impact on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”,which requires that the compensation cost relating to share-based paymenttransactions (including the cost of all employee stock options) be recognizedin the financial statements.  The costwill be measured based on the estimate fair value of the equity or liabilityinstruments issued.  SFAS 123-R covers awide range of share-based compensation arrangements including share options,restricted share plans, performance-based awards, share appreciation rights,and employee share purchase plans.  Managementbelieves the adoption of this pronouncement will not have a material effect onour consolidated financial statements.

Also, in December 2004, the FASB issued SFAS 153, “Exchanges ofNon-monetary Assets, an amendment of APB Opinion No. 29, Accounting forNon-monetary Transactions”.  Theamendments made by SFAS No. 153 are based on the principle that the exchange ofnon-monetary assets should be measured using the estimated fair market value ofthe assets exchanged. SFAS No. 153 eliminates the narrow exception fornon-monetary exchanges of similar productive assets, and replaces it with abroader exception for exchanges of non-monetary assets do not have commercialsubstance. A non-monetary exchange has “commercial substance” if the futurecash flows of the entity are expected to change significantly as a result ofthe transaction.  This pronouncement iseffective for monetary exchanges in fiscal periods beginning after June 15,2005.  Management believes the adoptionof this pronouncement will not have a material effect on our consolidatedfinancial statements.

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 2 — SUMMARY OF THE COMPANY’S SIGNIFICANTACCOUNTING POLICIES (CONT’D)**

*Recently Issued AccountingPronouncements (cont’d)*

In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”), “Accountingfor Conditional Asset Retirement Obligations”. FIN 47 clarifies that the term “conditional asset retirement obligation,”which as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”,refers to a legal obligation to perform an asset retirement activity in whichthe timing and (or) method of settlement are conditional on a future event thatmay or may not be within the control of the entity.   The entity must record a liability for a “conditional”asset retirement obligation if the fair value of the obligation can bereasonably estimated.   FIN 47 alsoclarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligation.  FIN 47 is effective no later than the end offiscal years ending after December 15, 2005. Management believes the adoption of this statement does not have animmediate material impact on the consolidated financial statements of theCompany.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes andError Corrections”.  This statementrequires entities that voluntarily make a change in accounting principle toapply that change retrospectively to prior periods’ financial statements,unless this would be impracticable.  SFASNo. 154 supersedes APB Opinion No. 20, “Accounting Changes”, which previouslyrequired that most voluntary changes in accounting principle be recognized byincluding in the current period’s net income the cumulative effect of changingto the new accounting principle.  SFASNo. 154 also makes a distinction between “retrospective application” of anaccounting principle and the “restatement” of financial statements to reflectthe correction of an error.  SFAS No. 154applies to accounting changes and error corrections that are made in fiscalyears beginning after December 15, 2005.  Management believes the adoption of this statement will not have animmediate material impact on the consolidated financial statements of theCompany.

The adoption of EITF Issue No. 03-13, “Applying the Conditions inParagraph 42 of FASB Statement No. 144, Accounting for the Impairment orDisposal of Long-Lived Assets, in Determining Whether to Report DiscontinuedOperations” in the first quarter of 2005 did not have a material impact on theCompany’s results of operations and financial condition.

In October 2005, the FASB issued FSP FAS 123(R)-2, “PracticalAccommodation to the Application of Grant Date as Defined in FASB StatementNo. 123(R)”, which provides clarification of the concept of mutualunderstanding between employer and employee with respect to the grant date of ashare-based payment award. This FSP provides that a mutual understanding of thekey terms and conditions of an award shall be presumed to exist on the date theaward is approved by management if the recipient does not have the ability tonegotiate the key terms and conditions of the award and those key terms andconditions will be communicated to the individual recipient within a relativelyshort time period after the date of approval. This guidance shall be appliedupon initial adoption of SFAS 123R. The Company does not expect the adoption ofthe FSP will have a material impact on its consolidated results of operationsand financial condition.

In November 2005, the FASB issued FSP FAS 123(R)-3, “TransitionElection Related to Accounting for the Tax Effects of Share-Based PaymentAwards”, which provides a practical transition election related to accounting forthe tax effects of share-based payment awards to employees. An entity mustfollow either the transition guidance for the APIC pool in SFAS 123R or thealternative transition method described in the FSP. The alternative methodcomprises a computational component that establishes a beginning balance of theAPIC pool and a simplified method to determine the subsequent impact on theAPIC pool of awards that are fully vested and outstanding upon the adoption ofSFAS 123R. The impact on the APIC pool of awards partially vested upon, orgranted after, the adoption of SFAS 123R should be determined in accordancewith the guidance in that statement. The FSP was effective November 10,2005. As described in the FSP, an entity will be permitted to take up to oneyear to determine its transition alternatives to make its one-time election.The Company does not expect the adoption of the FSP will have a material impacton its consolidated results of operations and financial condition.

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 2 — SUMMARY OF THE COMPANY’S SIGNIFICANTACCOUNTING POLICIES (CONT’D)**

*Recently Issued AccountingPronouncements (cont’d)*

In February 2006, the FASB issued SFAS No. 155, “Accounting forCertain Hybrid Financial Instruments-an amendment of FASB StatementsNo. 133 and 140.” SFAS No. 155 amends SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities” to permit fair valueremeasurement for any hybrid financial instrument with an embedded derivativethat otherwise would require bifurcation, provided that the whole instrument isaccounted for on a fair value basis. SFAS No. 155 amends SFASNo. 140, “Accounting for the Impairment or Disposal of Long-Lived Assets”,to allow a qualifying special-purpose entity (“SPE”) to hold a derivativefinancial instrument that pertains to a beneficial interest other than anotherderivative financial instrument. SFAS No. 155 applies to all financialinstruments acquired or issued after the beginning of an entity’s first fiscalyear that begins after September 15, 2006, with earlier applicationallowed. The Company does not expect the adoption of SFAS No. 155 to havea material impact on its consolidated results of operations and financialcondition.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicingof Financial Assets-an amendment of FASB Statement No. 140.” SFAS No. 156requires that all separately recognized servicing rights be initially measuredat fair value, if practicable. In addition, this Statement permits an entity tochoose between two measurement methods (amortization method or fair valuemeasurement method) for each class of separately recognized servicing assetsand liabilities. This new accounting standard is effective January 1, 2007. Theadoption of SFAS 156 is expected to have no material impact on our financialstatements.

Other recent accounting pronouncements issued by the FASB (includingits Emerging Issues Task Force), the AICPA, and the SEC did not or are notbelieved by management to have a material impact on the Company’s present orfuture consolidated financial statements.

In June2006, the Emerging Issues Task Force, or EITF, issued EITF 06-3, “*How Taxes Collected from Customers*and Remitted toGovernmental Authorities Should Be Presented in the Income Statement (That Is,Gross versus Net Presentation),” or EITF 06-3. EITF 06-3 provides guidance onthe presentation in the income statement of any tax assessed by a governmentalauthority that is directly imposed on a revenue-producing transaction between aseller and a customer. EITF 06-3 requires that taxes be presented in the incomestatement either on a gross basis (included in revenues and costs) or a netbasis (excluded from revenues), and that this accounting policy decision bedisclosed. EITF 06-3 should be applied to financial reports for interim andannual reporting periods beginning after December 15, 2006. Adoption ofEITF 06-3 did not have a material impact to our consolidated financialstatements.

In July2006, the FASB issued Interpretation No. 48, or FIN 48, “Accountingfor Uncertainty in Income Taxes,” which clarifies the accounting foruncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes.”FIN 48 provides guidance on the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosures, and transition.FIN 48 is effective for years beginning after December 15, 2006. Wedo not believe the adoption of FIN 48 will have a material impact to ourconsolidated financial statements.

In September 2006, the Securities and Exchange Commissionissued Staff Accounting Bulletin No. 108, “*Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements”*, or SAB 108. SAB 108provides guidance on consideration of the effects of prior year misstatementsin quantifying current year misstatements for the purpose of a materialityassessment. SAB 108 is effective for fiscal years ending afterNovember 15, 2006. The adoption of SAB 108 did not have a materialimpact on our consolidated financial statements.

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In September 2006, the FASB issued Statement of FinancialAccounting Standard No. 157, “*Fair Value Measurements,*”or SFAS 157. This statement defines fair value, establishes a fair valuehierarchy to be used in generally accepted accounting principles and expandsdisclosures about fair value measurements. Although this statement does notrequire any new fair value measurements, the application could change currentpractice. The statement is effective for fiscal years beginning afterNovember 15, 2007. The Company is currently evaluating the impact of thisstatement to its financial position and results of operations. *FSP EITF 00-19-2. *In December 2006, the FASBissued FASB Staff Position EITF 00-19-2*, “Accounting for RegistrationPayment Arrangements,”*or FSP EITF 00-19-2. FSP EITF 00-19-2specifies that the contingent obligation to make future payments or otherwisetransfer consideration under a registration payment arrangement, whether issuedas a separate agreement or included as a provision of a financial instrument orother agreement, should be separately recognized and measured in accordancewith FASB Statement No. 5, “*Accounting forContingencies.*” 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.

In February 2007, the Financial Accounting Standards Board,or FASB, issued Statement of Financial Accounting Standard No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities,” or SFAS 159.SFAS 159 permits companies to choose to measure many financial instruments andcertain other items at fair value. It is expected to expand the use of fairvalue measurements which is consistent with the Financial Accounting StandardsBoard’s long-term measurement objectives for accounting for financialinstruments. SFAS 159 is effective for our first fiscal year that begins afterNovember 15, 2007, which is our fiscal year 2009 that begins in April2008. The Company is currently evaluating the impact of this statement to itsfinancial position and results of operations.

*Related Parties*

Parties are considered to be related if one party has the ability,directly or indirectly, to control the other party, or exercise significantinfluence over the other party in making financial and operatingdecisions.  Parties are also considered to be related if they are subjectto common control or common significant influence.

*Deferred Expenses*

Payments made for future expenses were amortized over the life ofservice received.

*Marketable securities*

The Company accounts for investments in marketable securities underStatement of Financial Accounting Standards (SFAS) No. 115,*Accountingfor Certain Investments in Debt and Equity Securities.* Marketable equity securities are held as available for sale and arereported 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 

17

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assumptions could affect our judgment of whether an identifiedimpairment should be recorded as an unrealized loss in the equity section ofour consolidated balance sheets or as a realized loss in the consolidatedstatements of operations.

*Convertible Notes and Notes Issued with StockWarrants*

The Company accounts for convertible notes and notes issued with stockwarrants in accordance with APB No. 14, *Accounting for ConvertibleDebt and Debt Issued with Stock Purchase Warrants*. The proceeds fromthe issuance of convertible notes are allocated between the debt and theequity. The Company books a discount on convertible notes for the conversionfeature of the notes and waarants and amortizes the discount over the life ofthe debt.

*Segment Information*

The Company accounts for segment information in accordance to FASB 131,*Disclosures about 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 Services.

The Transactional Services include primarily the apparels verticalbusiness and electronics component vertical business. We recognize revenue forthe transactional business when the goods have been shipped or delivered andpurchase order exists. The Marketing and Information Services include ourmarketing and services. The Company recognizes revenue for the Marketing andInformation Services when the services have been rendered.

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**NEXTMART INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 3  — BUSINESS COMBINATIONS**

On June 25, 2007, we entered into an agreement with Asia PremiumTelevision Group Limited (OTCBB:ATVG) to sell Sun New Media TransactionServices Limited (SNMTS), our wholly-owned subsidiary, for a consideration of$1.00. As a result of this transaction, we experienced a loss of $0.47 million.

On May 28, 2007 we entered into an agreement with Wuxi Guangxin Movieand Carton Technology Limited to form a joint venture company called Wuxi SunNet Technology Limited. We hold 60% of the shares in the joint venture and WuxiGuangxin Movie and Cartoon Technology Limited holds 40% of the shares. The joint venture’s main business is to developand distribute electronic magazines for consumers to download on their personalcomputers.

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**SUN NEW MEDIA INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**NOTE 4 — GOODWILL AND INTANGIBLE ASSETS**

The following table summarizes goodwill from the Company’sacquisitions:
|                          | ** ** | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|--------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **               | ** ** | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **               | ** ** | **US$’000**           | ** ** | **US$’000**           | ** ** |
|                     |       |                       |       |                       |       |
| Focus                    |       | 7,800                      |       | 7,800                      |       |
| Beijing CEAC             |       | 181                        |       | —                     |       |
| Accumulated amortization |       | (30                        | )          | (65                        | )          |
| Impairment loss          |       | (7,800                     | )          | —                     |       |
|                     |       | 151                        |       | 7,735                      |       |

 

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

The following table summarizes intangible assets:
|                                                   | ** **               | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|---------------------------------------------------|--------------------------|----------------------------|------------|----------------------------|------------|
| ** **                                        | ** **               | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **                                        | ** **               | **US$’000**           | ** ** | **US$’000**           | ** ** |
|                                              |                     |                       |       |                       |       |
| Service agreements                                |                     | 25,000                     |       | 25,000                     |       |
| Magazines mastheads                               |                     | —                     |       | 2,562                      |       |
| License                                           |                     | 24,452                     |       | 23,245                     |       |
| Non-compete agreements and customer  relationship |                     | 2,905                      |       | —                     |       |
| Database                                          |                     | 2,500                      |       | —                     |       |
| Program rights                                    |                     | 1,792                      |       | —                     |       |
| Technology                                        |                     | 2,367                      |       | 1,980                      |       |
| Partnership agreement license                     |                     | 1,056                      |       | —                     |       |
|                                              |                     | 60,072                     |       | 52,787                     |       |
| Less:                                             | Accumulated amortization |                       | (1,514     | )                          | (300       | ) |
|                                              | Sold                     |                       | (1,208     | )                          | —     |   |
|                                              | Impairment loss          |                       | (34,505    | )                          | —     |   |
|                                              | Translation difference   |                       | 52         |                       | —     |   |
|                                              |                     | 22,897                     |       | 52,487                     |       |

 

On April 9, 2007, we entered into an agreement with Sun MediaInvestment Holdings Limited (“SMIH”) pursuant to which we sold LifestyleMagazines Publishing Pte Ltd. to SMIH. As a result of this transaction, ourintangible assets (Magazine mastheads) decreased by $2,562,308for the period ended June 30, 2007. The amortisation expenses of intangibleassets and goodwill for the quarters ended June 30, 2007 and June 30, 2006 were$419,168 and $360,241, respectively.

**NOTE 5 — PLANT AND EQUIPMENT, NET**

Plant and equipment is summarized as follows:

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|                                    | ** ** | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **                         | ** ** | **US$’000**           | ** ** | **US$’000**           | ** ** |
| Cost                               |       |                       |       |                       |       |
| Motor vehicles                     |       | 670                        |       | —                     |       |
| Leasehold building and improvement |       | 1,968                      |       | 1,506                      |       |
| Furniture, fixtures and equipments |       | 2,206                      |       | 1,163                      |       |
|                               |       | 4,844                      |       | 2,669                      |       |
| Accumulated depreciation           |       | (1,025                     | )          | (454                       | )          |
|                               |       | 3,819                      |       | 2,215                      |       |

 

Equipment includes a net book value of $1.3 millionfor the reverse auction purchase software purchased by the Company last year.The software is similar to the software deployed by the China state auctioningplatform. It is expected to be used by the Company for online sales operationsonce the Company further develops its online e-commerce capabilities. Depreciationexpenses for our fixed assets were $159,661 for the quarter ended June 30, 2007and $232,843 for the quarter ended June 30, 2006.

**NOTE 6 —ACCOUNT RECEIVABLES**

Account receivables are summarized as follow:
|                         | ** ** | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|-------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **              | ** ** | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **              | ** ** | **US$’000**           | ** ** | **US$’000**           | ** ** |
| Nature’s Club Inc. |       | 1,895                      |       | —                     |       |
| Jines International     |       | 254                        |       | —                     |       |
| CEAC’s Client      |       | 1,117                      |       | —                     |       |
| Others                  |       | 43                         |       | 3,754                      |       |
| Bad account provision   |       | (30                        | )          | (68                        | )          |
|                    |       | 3,279                      |       | 3,686                      |       |

 

The majority of our account receivables are fromWilliam Brand’s clients which contribute 65% of receivables total accountreceivables and Beijing Trans Global Logistics’s clients which contribute 34%of total account receivables. The bad account provision is for the accountreceivables of Beijing Trans Global Logistics.

**NOTE 7— OTHER RECEIVABLES, PREPAYMENTS AND DEPOSITS**

Other receivables, prepayments and deposits are summarized as follow:
|                                        | ** ** | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|----------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                             | ** ** | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **                             | ** ** | **US$’000**           | ** ** | **US$’000**           | ** ** |
| Other receivables                      |       | 5,693                      |       | 783                        |       |
| Staff advances                         |       | 34                         |       | 12                         |       |
| Prepaid Advances for Purchase          |       | 339                        |       | —                     |       |
| Prepaid Interest expense               |       | 741                        |       | —                     |       |
| Deferred expenses                      |       | 96                         |       | 2                          |       |
| Rental deposits                        |       | 42                         |       | 9                          |       |
| Prepaid consideration for acquisitions |       | —                     |       | 2,375                      |       |
| Prepaid administrative expenses        |       | 273                        |       | 505                        |       |
|                                   |       |                       |       |                       |       |
|                                   |       | 8,870                      |       | 3,686                      |       |

 

Other receivables relate to outstanding consideration for The LexiconGroup Ltd. (“TLG”)(formerly “Sun Business Network Ltd.”) shares saletransaction. Pursuant to a Sales and Purchase Agreement by and between us andMaxi Surplus Investment Limited (the Purchaser), in March 2007, the Purchaseracquired 150 million shares of TLG from us on March 26, 2007. The considerationfor the purchase was approximately $5.88 million to be satisfied by way of a 

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transfer of 20 million shares in Sun 3C Media PLC (AIM:SCCC), anIreland corporation (Consideration Shares). As of June 30, 2007, theConsideration Shares were still in the process of being transferred to theCompany.

Prepaid advances for purchase represents an advance paid to Mr. RenHuiliang for purchases of materials and products as well as contingent needsfor supporting operations of William Brand Administer Limited, our apparelsubsidiary. Mr. Ren Huiliang became our director in February 2007 and becameour Chief Executive Officer on August 1 2007. On June 18, 2007, our subsidiaryand Mr. Ren Huiliang signed an agreement pursuant to which Mr. Ren Huiliangwill return the advances by way of purchasing apparel materials for oursubsidiary.

Prepaid interest relates to the 1.5 million shares of our common stockprepaid as interest for the senior convertible promisory notes that we issuedto certain accredited investors on March 22, 2007. The prepaid interest expenseis to be amortized over the term of the respective notes.

**NOTE 8— AMOUNTS DUE FROM/ (TO) STOCKHOLDERS/ RELATED PARTIES**

The amounts are non-trade, interest free and with no fixed terms ofrepayment.
|                                | ** ** | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|--------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                     | ** ** | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **                     | ** ** | **US$’000**           | ** ** | **US$’000**           | ** ** |
| Sun Business  Network          |       | 973                        |       | 1,168                      |       |
| Global Women                   |       | 47                         |       | (501                       | )          |
| Sun 3C Media                   |       | (93                        | )          | 54                         |       |
| Sun Media  Investment Holdings |       | 874                        |       | 8                          |       |
| Sun Culture  Fundation         |       | 26                         |       | 15                         |       |
| CAG                            |       | 63                         |       | 63                         |       |
| Others                         |       | —                     |       | (28                        | )          |
|                           |       | 1,890                      |       | 779                        |       |

 

**NOTE 9 — OTHER PAYABLES AND ACCRUALS**

Other payables and accruals are summarized as follow:
|                             | ** ** | **Unaudited**              | ** ** | **Unaudited**              | ** ** |
|-----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **June 30 2007** | ** ** | **June 30 2006** | ** ** |
| ** **                  | ** ** | **US$’000**           | ** ** | **US$’000**           | ** ** |
| Other payables              |       | 841                        |       | 968                        |       |
| Accrued  operating expenses |       | 1,142                      |       | 6,261                      |       |
| Prepayment from  customers  |       | 389                        |       | 59                         |       |
|                        |       |                       |       |                       |       |
|                        |       | 2,372                      |       | 7,288                      |       |

 

Other payables mainly include $0.5 million payables for acquiring theanti-auction software. Included in accrued operating expenses were variousprofessional fees and $0.2 million of committed investment in our subsidiary.

**NOTE 10 — CONVERTIBLE NOTES WITH DETACHABLEWARRANTS**

**Convertible Notes with Detachable Warrants**

On March 22, 2007, we executed a subscription agreement with certainaccredited investors pursuant to which we agreed to issue $1,500,000 ofprincipal amount of senior convertible promissory notes and warrants topurchase shares of our common stock. The financing was closed on March 29,2007.

The aggregate gross proceeds from the sale of the notes and warrantswas $1,500,000.  The convertible notes are due three years from the dateof issuance. We prepaid all interest due under the convertible notes throughthe issuance of 1.5 million shares of our common stock (the “Interest Shares”). The notes are initially convertible our common shares at a conversion price of$1.00 per share.  After the occurrence of an event of default under thenotes, the 

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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.

Commencing on the fifteenth month of the notes, we must make a paymentof one-twenty first (1/21st) of the principal amount****ofeach note, either in cash or by conversion of such amount into our commonshares.  If, on the payment date, the market price for our common sharesare equal to or  $1.00 per share, we may make this payment in our commonshares at the then existing  conversion rat.  However, if, on thepayment date, either (i) the market price for our common shares are less than$1.00 per share or (ii) the Registration Statement covering the common stockunderlying the notes and warrants is not effective, then we must make thispayment in cash in an amount equal to 135% of the Principal Amount component ofthe Monthly Amount. Subject to certain terms and conditions set forth therein,the notes are redeemable by us at a rate of between 120% to 150% of theoutstanding principal amount of the notes plus interest.

The notes are being issued with Class A warrants to purchase up to1,500,000 shares of our common stock at an exercise price of $1.00 per shareand Class B warrants to purchase up to 1,500,000 shares of our common stock atan exercise price of $1.50 per share.  Upon exercise of any Class A orClass B warrant, the respective warrantholder will receive a Class C warrant topurchase that number of shares for which such Class A warrant or Class Bwarrant is exercised at an exercise price of $2.00 per share. Accordingly, if the Class A and Class B warrants are exercised in full, we willissue Class C warrants to purchase 3,000,000 shares of our common stock.

In accordance with the guidelines of APB No. 14, “Accounting forConvertible Debt and Debt Issued with Stock Purchase Warrants”, EITF Issue No.98-5, “Accounting for Convertible Securities with Beneficial ConversionFeatures or Contingently Adjustable Conversion Ratios” and EITF Issue No.00-27, “Application of issue No. 98-5 to Certain Convertible Instruments”, theCompany has determined that the above rights were issued with beneficialconversion feature. The value of the rights was calculated at the date ofissue using the Black-Scholes pricing model, limited by the face amount of thenote, and was booked as a discount to the convertible note.  Uponconversion of all or a portion of the note, the proportionate share ofunamortized discount will be charged to interest expense.

On February 1, 2007, we entered into a supplementary agreement withBarron Partners LLP (“Barron”) (the “Supplementary Agreement”) to modify theterms of their original stock purchase agreement (the “Agreement”) datedDecember 31, 2005.

As of the date immediately prior to the SupplementaryAgreement, Barron possessed the following series of warrants to purchase ourcommon 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” for 3,445,977common shares at $4.80 exercise price

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

Following the Supplementary Agreement, only 3 million of the original11,545,977 million unexercised warrants remain, and Barron has agreed to limitselling of the shares underlying the warrants to 10% per month for the first 10months following the date of the agreement.

Specifically, we andBarron 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).                                             |

 

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|  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 quarter ended June 30, 2007, we issued securities tothe following shareholders:

·       OnApril 11 2007, we issued a total of 99,998 shares to Barron Partners L.P. (“Barrons”)to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.

·       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.

·       OnMay 10, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (“Barrons”)to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.

·       OnJune 7, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (“Barrons”)to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.

·  On June29, 2007, we cancelled 6,000,000 shares of our own stock returned to us by SunMedia Investment Holdings (“SMIH”), our largest shareholder. The shares werereturned to us pursuant to a Sale and Purchase Agreement dated April 9, 2007.

We did not receive anyproceeds from the exercise of warrants by Barrons because the warrants wereexercised on a cashless basis.

We assessed our derivative liabilities pursuant to EITF BO. 00-19,Accounting for Derivative Financial Instruments Indexed to, and PotentiallySettled in, a Company’s Own Stock. The management team has determined that wedo not have derivative liabilities as of the filing date of this report.

**Evaluationof Disclosure Controls and Procedures**

Under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we evaluated the effectivenessof our disclosure controls and procedures, as such term is defined underRule 13a-15(e) promulgated under the Securities Exchange Act of 1934, asamended. The Company is evaluating its disclosure controls in light ofcompliance with SOX 404 in its next annual report, and if necessary, will makeany changes needed to comply with SOX 404.

**Changesin internal control over Financial Reporting**

There hasbeen no change in our internal control over financial reporting during thequarter ended June 30, 2007 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

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**NOTE 11 — MARKETABLE SECURITIES**

As of June 30, 2007, we own marketable securities worth an aggregate of$13,548,437 (2007: $14,158,600). Among our securities are 32,633,233 shares,representing a 6.9% interest in Sun 3C Media (AIM:SCCC), an Irish companylisted on the Alternative Investment Market in London. These shares have beenplaced in escrow since July 2006 pursuant to an escrow agreement by and amongvarious parties including Sun 3C Media and us. According to the escrowagreement, our shares can be released subject to the orderly marketarrangements in place, which state that any decision to sell these ordinaryshares within 12 months of their release must be approved by Blue OarSecurities Plc, our agent. The shares are eligible for release in two tranches;50% of the 32,633,233 shares on June 30, 2007 and 50% of the 32,633,233 on June30, 2008.

In the year ended March 31, 2007, we sold150,000,000 shares, representing approximately a 16% interest in The LexiconGroup (“TLG”) (formerly “Sun Business Network Ltd.”), to Maxi Surplus Ltd, aSingaporean company. The consideration for the sale of shares was approximately$5.88 million (9 million Singaporean dollars) to be satisfied by way of atransfer of 20 million shares in Sun 3C Media PLC. As of June 30, 2007, thestated shares were still in the process of being transferred to us. We used thepurchase price as the cost of the security sold. As of the date of the filingof this report, we have completed this transaction.

The Company recognised an unrealised loss for its marketablesecurities, calculated as the difference between the historical cost price ofthe securities and the current price of the securities. The securities relatedto public companies registered with the U.S. Securities and ExchangeCommission.

**NOTE12 — FACTORING LOAN**

Thefactoring loan was contributed by Lifestyle Magazines Publishing Pte Ltd. whichthe Company sold to Sun Media Investment Holdings, our largest shareholder.

**NOTE13 — SHAREHOLDERS’ EQUITY**

On April 11 2007, we issued a total of 99,998 shares to Barron PartnersL.P. (“Barrons”) to satisfy a cashless exercise of 100,000 Class D Warrantsheld by Barron.

On April 27, 2007, we issued 6.9 million shares of its common stock toPanpac Tech Strategic Limited, a wholly-owned subsidiary of Sun BusinessNetwork (“SBN”) to satisfy a contractual obligation to SBN relating to the Saleand Purchase Agreement (“the Agreement”) between the parties, dated November21, 2005.

On May 10, 2007, we issued a total of 99,998 shares to Barron PartnersL.P. (“Barrons”) to satisfy a cashless exercise of 100,000 Class D Warrantsheld by Barron.

On June 7, 2007, we issued a total of 99,998 shares to Barron PartnersL.P. (“Barrons”) to satisfy a cashless exercise of 100,000 Class D Warrantsheld by Barron.

On June 29, 2007, we cancelled 6,000,000 shares of paid back by SunMedia Investment Holdings, our largest shareholders pursuant to our agreementsigned on April 9, 2007.

**NOTE14 — SUBSEQUENT EVENTS**

The following is a list of events that occurred after the fiscalquarter ended June 30, 2007.

On August 7, 2007,we entered into an agreement with Her Shop Ltd., an affiliate of Sun MediaInvestment Holdings, our largest shareholder, to trade 99,629 shares ofAsia Premium Television Group (OTC:ATVG) held by us for 231,939 shares ofBroadcast International Inc. (OTC:BI) held by Her Shop Ltd. The approximatevalue of the transaction was $260,000, whereby the ATVG shares were valued atapproximately $2.65 per share and the Broadcast International shares werevalued at approximately $1.10 per share. The agreement is expected to close onor before September 1, 2007.

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OnAugust 6, 2007, we entered into an agreement with Mr. Jiancai Zhou to acquirethe Peeress clothing brand and the Peeress Design and Management Center(collectively, “Peeress”). Based in Shanghai, China, Peeress is an establishedwomen’s clothing brand with over 3,000 patented clothing designs. The considerationfor the acquisition is $2.17 million of which $1 million is to be paid in cashand $1.17 million is to be paid with 5 million shares of Sun 3C Media Plc (AIMSCCC) held by us. We will satisfy $500,000 of the cash consideration and SunMedia Investment Holdings (“SMIH”), our largest shareholder, will satisfy theother $500,000 of the consideration on our behalf. As of the filing of thisReport, this acquisition has not been completed.

OnAugust 6, 2007, we entered into an agreement with Sun Media InvestmentHoldings, our largest shareholder, to grant SMIH perpetual, non-exclusive usagerights to our reverse-auction purchasing software. The consideration for thislicensing agreement is a $500,000 to be satisfied through a one-time cashpayment. As of the filing of this Report, this transaction has not beencompleted.

On August6, 2007, we entered into a strategic partnership agreement with ShanghaiGuifuren Garment Co. Ltd (“Guifuren Garment”), a producer of mature urban women’ssuits in Mainland China. According to the terms of agreement, NextMart willgain from Guifuren Garment usage rights to the *Guifuren 2.0*mature urban professional women’s brand and access to 1/3 of Guifuren Garment’ssales space in nearly 60 retail stores in Mainland China. As consideration,NextMart will grant Guifuren a commission on its in-store sales of NextMartproduct. Guifuren Garment will provide the necessary logistics and inventorysupport to NextMart at no cost.

OnAugust 7, 2007, we entered into an agreement with Yang Lan Studio Ltd, anaffiliate of Sun Media Investment Holdings, our largest shareholder, to sellcertain non-core assets, including five used automobiles. The consideration forthe arreement is $294,867.35 to be satisfied with 268,062 shares of BroadcastInternational (OTC BCST) valued at $1.10 per share. The agreement is expectedto close on or before September 1, 2007.

On July6, 2007, we completed the cancellation of 7.6 million Company shares that werereturned to us through an agreement with Sun Culture Foundation dated March 26,2007. Pursuant to this agreement, we gained 7.6 million Company shares held bySun Culture in exchange for 20 million shares of Sun 3C Media Plc (AIM:SCCC)held by us.

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results****of Operations.**

The followingdiscussion should be read in conjunction with our Financial Statements and thenotes thereto presented in “Item 1 — Financial Statements.” The mattersdiscussed in this report on Form 10-QSB include “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, as amended,and Section 21E of the Securities Exchange Act of 1934, as amended, Anystatements contained in this Form 10-QSB that are not statements of historicalfact may be deemed to be forward-looking statements. Words such as “may”, “will”,“expect”, “believe”, “anticipate”, “intend”, “could”, “plan”, “estimate” or “continue”or similar words are intended to identify forward-looking statements, althoughnot all forward-looking statements are identified by those words. Whileforward-looking statements are sometimes presented with numerical specificity,they are based on current expectations and various assumptions made bymanagement regarding future circumstances over which we may have little or nocontrol. These statements are inherently predictive, speculative and subject torisk and uncertainties, and it should not be assumed that they will prove to becorrect. A number of important factors, including those identified under thecaption “Risk Factors” in our annual report on Form 10-KSB for theperiod ended March 31, 2007 filed with the SEC, which is hereby incorporated byreference, as well as factors discussed elsewhere in this Form 10-QSB, couldcause our actual results to differ materially from those in forward-lookingstatements or forward-looking financial information. Actual results may differfrom forward-looking results for a number of reasons, including marketacceptance of our services, adverse market conditions affecting the Internetsector, retention of major clients, competitive factors, failure to keep pacewith changing technologies and failure to protect our intellectual property.Should one or more of these risks or uncertainties materialize, or shouldunderlying assumptions prove incorrect, our actual results may vary materiallyfrom those anticipated, estimated or projected. These forward lookingstatements are made only as of the date hereof, and we undertake no obligationto update or revise these forward looking statements, whether as a result ofnew information, future events or otherwise.

***Overview***

Our principal focus isthe expansion of our business-to-business brand and apparel productionmanagement business, which is located in Shanghai, China. Our goal is todevelop into China’s largest online shopping community for wholesaledistribution and retail shopping in the apparel and women’s fashion industry.We are working toward a smaller organizational structure centered aroundWilliam Brand Administer Limited (“William Brand”), our key women’s apparelsubsidiary and transactional service provider. In fiscal 2008, we plan to buildrevenues by leveraging our core competency in online marketing, design,production and channel management in the area of women’s fashion and apparel.

Duringthe last half of fiscal year ended March 31, 2007 and continuing through thequarter ended June 30, 2007 we completed several acquisitions, anddivested certain assets that are unrelated to the women’s fashion industry. Wealso completed  initiatives that werelaunched in the latter half of fiscal 2007 to reduce total overhead,rationalize non-core assets or operations and reduce the number of issued andoutstanding shares of our common stock. Particularly, we divested of ourbeverage business in the fourth quarter of fiscal year ended March 31, 2007which we operated during the prior three fiscal quarters. We also divestedcertain real estate holdings and announced our intentions to move our corporateheadquarters to Shanghai, China, which is expected to occur in the comingmonths.

As a result of theseinitiatives, we expect that our results of operations for future periods willbe materially different and that our principal sources of revenue, operatingexpenses and profits will be derived from our apparel and women’s fashionbusiness.

Because our results ofoperations for the quarter ended June 30, 2006 were derived from operationsthat have since been discontinued, we have not presented a thorough period(June 30, 2007) to period (June 30, 2006) comparison of our results ofoperations.

***Resultsof Operations***

**Three Months Ended June 30, 2007**

**Revenue**. Ourrevenue for the three months ended June 30, 2007 was $1,803,071, of which$1,790,596 (or 99.3% of total revenue) was derived from our TransactionalServices and $12,475 (or 0.7% of total revenues) was derived from our Marketingand Information Services. Transactional Services revenues relate principally toincome generated by our William Brand apparel subsidiary, which had revenue of$1,353,177. During the three months ended June 30, 2007, Transactional 

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Services was negativelyimpacted by an approximate 4.46% decrease in quarter-to-quarter revenues fromWilliam Brand (William Brand’s revenue for the quarter ended March 31, 2007 was$1,416,319). This decrease in revenues is attributed to slow market conditionsin the US apparel industry which affected the number of orders coming fromWilliam Brand’s main business client in the Southern United States. Thisbusiness client accounts for approximately 90% of William Brand’s revenues.

**Costs of Revenue.**Costs of revenue for the three months ended June 30, 2007 were $1,389,073.Transactional Services costs accounted for 100% of the total cost of revenue.Cost of revenues includes purchase goods, purchase services and labor costs.

**Operating Expenses.**Total operating expenses for the three months ended June 30, 2007 were$1,560,884. These expenses included $748,814 in general administration expenseswhich includes employee salaries, entertainment, communication, and travelexpenses, $48,850 in marketing and sales expenses related to our TransactionalServices and Marketing and Information Service, $578,778 in depreciation andamortization expenses, and $184,442 in consulting and professional fees, whichincludes legal, accounting and audit fees.

Other Income (Loss). Forthe three months ended June 30, 2007, we experienced a gain of $5,473 relatingto the sale of Sun New Media Transaction Service Limited to Asia PremiumTelevision Group (OTCBB: ATVG); and a loss of $14,457 relating to theamortization of the discount on subordinated notes assued during the period. Wealso had interest income of $1,271 and interest expenses of $39,000 for theperiod.

**Net Loss Before Taxes.**Our net loss before taxes for the three months ended June 30, 2007 was 1,193,599for the reasons discussed above.

**Comprehensive Loss**.For the three months ended June 30, 2007, we experienced a gain of $18,158 dueto minority interest and a loss of currency adjustment of $11,147 resulting ina comprehensive loss of $1,186,588 or a loss of $0.01 per share basic.

**Three Months Ended June 30, 2006**

**Revenue**Ourrevenues for the quarter under review was $ 8.8 million, of which 95% werederived from our Transactional Services and the remaining 5% from our Marketingand Information Services. Prior to the quarter ended June 30, 2006 we hadno revenue from either of these operations.

**Costs ofRevenues**Cost of revenues of $0.23 million comprisemainly direct costs, such as printing costs, editorial costs and distributioncosts that associated with our marketing and information services. Cost ofservices revenues will vary significantly from period to period depending onthe whether we will take title of the product and the level of managementservices we provided.

**OperatingExpenses**Total operating expenses for the three months endedJune 30, 2006 were approximately $2.6 million. These include expensesrelated to general & administrative and marketing & sales of$1.6 million, depreciation and amortization of $0.5 million,consulting and professional fees of $0.5 million, and warrant valuationexpense of $0.2 million.

**OtherIncome**Other income of $10.9 million comprise mainly$10.7 million arising from the sale of non-core business-to-consumer (“B2C”)business assets to Sun TV Shop. Of the $10.7 million, approximately 94% isattributed to the divestments of our interests in the digital mail ordercatalogue publishing and merchandising that we have been recently developingwith two parties. On June 30, 2006, we entered into a Sale and PurchaseAgreement with Sun TV Shop, Plc (“STVS”, a related party) to sell certain ofour assets in exchange for 32.6 million shares in STVS. These sharesaccount for approximately 9% of STVS’ shares outstanding and as of July 6,2006 were valued at approximately US$11.9 million based upon the lasttraded price.

The remaining 6%of the recognized gain is related to the disposal of the digital publishing rightsof our magazines.

**Loss fromdiscontinued operations**This relates to the loss from ourlegacy online brokerage business which was disposed of during the quarter.

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**Net Income**Thenet income for the three months ended June 30, 2006 was approximately $14.1million. This comprised operating income of approximately $5.9 million andother income of approximately $11.2 million with an offset ofapproximately $2.5 million in other expenses.

***Liquidityand Capital Resources***

As of June 30, 2007, wehad $1,679,247 in cash, all of which was available for general working capitalpurposes. Our working capital as of June 30, 2007 was $26,162,613. Workingcapital as of June 30, 2006 was $29,119,911. The increase in working capital isdue to the appreciation of our marketable securities and increases in ouraccounts receivable, partially offset by the loss occasioned during the recentfiscal quarter.

We anticipate needingadditional liquidity over the next 12 months in order to assist the company inexecuting its current business plan. We anticipate raising capital throughadditional private placements of our equity securities, proceeds received fromthe exercise of outstanding warrants and options, and, if available onsatisfactory terms, debt financing.

***Off-BalanceSheet Arrangements***

As of June 30, 2007, wehad no off-balance sheet arrangements.

***CapitalExpenditure Commitments***

As at June 30, 2007, wehad no outstanding commitments for capital expenditures.

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**Critical Accounting Policies andEstimates**

Our unaudited financialstatements and accompanying notes are prepared in accordance with generallyaccepted accounting principles 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.

**Revenue recognition**

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.

**Goodwill and 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 assesses 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 

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significant decrease inoperating results, significant changes in its use of assets, competitivefactors and the strategy of it business, and significant negative industry oreconomic trends. The company cannot predict the occurrence of futureimpairment-triggering events nor the impact such events might have on thereported asset values. Such events may include strategic decisions made inresponse to the economic conditions relative to product lines, operations and theimpact of the economic environment on our customer base.  When the Company determine that the carryingvalue of long-lived may not be recoverable based on as assessment of futureundiscounted cash flows from the use of those assets, an impairment charge toreord the assets at fair value may be recorded. Impairment is measured based onfair values utilizing estimated discounted cash flow, published thirty-partysources, 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 include currency translation adjustments and unrealized loss onmarketable securities.

**Foreign currency 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.

**Marketable securities**

The Company accounts forinvestments in marketable securities under Statement of Financial AccountingStandards (SFAS) No. 115,*Accounting for CertainInvestments in Debt and Equity Securities.*   Marketable equity securities are heldas available for sale and are reported at fair value any unrealized gains andlosses are included in accumulated other comprehensive income or loss withinstockholders’ equity.  The treatment of a decline in the fair value of anindividual 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.

**Stock-based compensation**

Effective January 1,2006, the company adopted SFAS No. 123 (revised 2004), “*Share Based Payment*,” (“SFAS No. 123(R)”) which revisesSFAS No. 123 and supersedes APB 25. SFAS No. 123(R) requires that allshare-based payments to employees be recognized in the financial statementsbased on their fair values at the date of grant. The calculated fair value isrecognized as expense (net of any capitalization) over the requisite serviceperiod, net of estimated forfeitures, using the straight-line method under SFASNo. 123(R). The Company considers many factors when estimating expectedforfeitures, 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).

     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 the 

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Company applies the fairvalue method using the Black-Scholes option-pricing model in accounting foroptions 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.

**Item 3. Controls and Procedures.**

**Evaluationof Disclosure Controls and Procedures**

Under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we evaluated the effectivenessof our disclosure controls and procedures, as such term is defined underRule 13a-15(e) promulgated under the Securities Exchange Act of 1934, asamended. The Company is evaluating its disclosure controls in light ofcompliance with SOX 404 in its next annual report, and if necessary, will makeany changes needed to comply with SOX 404.

**Changesin internal control over Financial Reporting**

There hasbeen no change in our internal control over financial reporting during thequarter ended June 30, 2007 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

**PART II**

**Item 1.Legal Proceedings**

None.

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

During the quarter endedJune 30, 2007, we issued shares in the following transactions pursuant toexemptions from the registration requirements of the Securities Act of 1933, asamended (the “Act”).

·      OnApril 11 2007, we issued a total of 99,998 shares to Barron Partners L.P. (“Barrons”)to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.

·      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.

·      OnMay 10, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (“Barrons”)to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.

·      OnJune 7, 2007, we issued a total of 99,998 shares to Barron Partners L.P. (“Barrons”)to satisfy a cashless exercise of 100,000 Class D Warrants held by Barron.

·  On June29, 2007, we cancelled 6,000,000 shares of our own stock returned to us by SunMedia Investment Holdings (“SMIH”), our largest shareholder.  The shares were returned to us pursuant to aSale and Purchase Agreement dated April 9, 2007.

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**Item 3.Defaults Upon Senior Securities.**

On March 22, 2007, weexecuted 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. At closing, we paid the Selling Stockholders a totalof 1,500,000 shares of our common stock as full consideration of all interestdue under the Notes. We have not completed our registration rights convenantsin the agreement with the Selling Stockholders. As a result, we are in defaultunder the terms of such agreement with the Selling Shareholders. We arecurrently in negotiations with the Selling Shareholders in an effort to remedy thesituation.

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

None.

**Item 5.Other Information.**

**Events Subsequent to the QuarterEnded June 30, 2007**

The following is a listof events that occurred after the fiscal quarter ended June 30, 2007.

On August 7, 2007,we entered into an agreement with Her Shop Ltd., an affiliate of Sun MediaInvestment Holdings, our largest shareholder, to trade 99,629 shares ofAsia Premium Television Group (OTC:ATVG) held by us for 231,939 shares ofBroadcast International Inc. (OTC:BI) held by Her Shop Ltd. The approximatevalue of the transaction was $260,000, whereby the ATVG shares were valued atapproximately $2.65 per share and the Broadcast International shares werevalued at approximately $1.10 per share. The agreement is expected to close onor before September 1, 2007.

OnAugust 6, 2007, we entered into an agreement with Mr. Jiancai Zhou to acquirethe Peeress clothing brand and the Peeress Design and Management Center(collectively, “Peeress”). Based in Shanghai, China, Peeress is an establishedwomen’s clothing brand with over 3,000 patented clothing designs. Theconsideration for the acquisition is $2.17 million, of which $1 million is tobe paid in cash and $1.17 million is to be paid with 5 million shares of Sun 3CMedia Plc (AIM:SCCC) held by us. We will satisfy $500,000 of the cashconsideration, and Sun Media Investment Holdings (“SMIH”), our largestshareholder, will satisfy the other $500,000 of the consideration on our behalf.As of the filing of this Report, this acquistion has not been completed.

OnAugust 6, 2007, we entered into an agreement with Sun Media InvestmentHoldings, our largest shareholder, to grant SMIH perpetual, non-exclusive usagerights to our reverse-auction purchasing software. The consideration for thislicensing agreement is a $500,000 to be satisfied through a one-time cashpayment. As of the filing of this Report, this transaction has not beencompleted.

OnAugust 6, 2007, we entered into a strategic partnership agreement with ShanghaiGuifuren Garment Co. Ltd (“Guifuren Garment”), a producer of mature urban women’ssuits in Mainland China. According to the terms of agreement, NextMart willgain from Guifuren Garment usage rights to the *Guifuren 2.0*mature urban professional women’s brand and access to 1/3 of Guifuren Garment’ssales space in nearly 60 retail stores in Mainland China. As consideration,NextMart will grant Guifuren a commission on its in-store sales of NextMartproduct. Guifuren Garment will provide the necessary logistics and inventorysupport to NextMart at no cost.

On July6, 2007, we completed the cancellation of 7.6 million Company shares that werereturned to us through an agreement with Sun Culture Foundation dated March 26,2007. Pursuant to this agreement, we gained 7.6 million Company shares held bySun Culture in exchange for 20 million shares of Sun 3C Media Plc (AIM:SCCC)held by us.

**Recent Developments during theQuarter Ended June 30, 2007**

On June 29, 2007, we cancelled6,000,000 shares of our own stock returned to us by Sun Media InvestmentHoldings (“SMIH”), our largest shareholder. The shares were returned to us pursuant to a Sale and Purchase Agreementdated April 9, 2007

On June 25, 2007, weentered into an agreement with Asia Premium Television Group Limited(OTCBB:ATVG) to sell Sun New Media Transaction Services Limited (SNMTS), ourwholly-owned subsidiary, for a consideration of $1.00. As a result of thistransaction, we experienced a loss of $0.47 million.

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On May 28, 2007 weentered into an agreement with Wuxi Guangxin Movie and Carton TechnologyLimited to form a joint venture company called Wuxi Sun Net Technology Limited.We hold 60% of the shares in the joint venture and Wuxi Guangxin Movie andCartoon Technology Limited  holds 40% ofthe shares. The joint venture’s main business is to develop and distributeelectronic magazines for consumers to download on their personal computers.

On May 2, 2007, wereincorporated in the State of Delaware which changed our corporate domicilefrom Minnesota to Delaware. On that same date, we changed our name from “SunNew Media Inc.” to “NextMart, Inc.”  andmodified our Bylaws. These revised Bylaws are incorporated by reference in ourlast Proxy Statement filed on June 12, 2006 with the exception of a change toour total number of authorized shares. On May 2, 2007, we modified our Bylawssuch that the total number of shares of all classes which the Corporation shallhave authority to issue is Five Hundred Million (500,000,000) consisting ofThree 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”). [tentatively take entire para but to check on total authorised shares]

On April 27, 2007, weissued 6.9 million shares of our common stock to Panpac Tech Strategic Limited,a wholly-owned subsidiary of The Lexicon Group Ltd (“TLG”)(formerly “SunBusiness Network Ltd.”) to satisfy a contractual obligation to TLG relating tothe Sale and Purchase Agreement (“the Agreement”) between the parties datedNovember 21, 2005. In the original Sale and Purchase Agreement, we purchasedcertain assets, including various on-line publishing rights, from TLG for anaggregate consideration of the issuance of 13.8 million of our shares. Theconsideration was to be satisfied in two installments of 6.9 million shares.The first installment was issued at the closing. This most recent issuancecompletes our obligations under the agreement.

On April 11, 2007, weentered into a partnership agreement with Her Village Co. Ltd (‘Her Village’),a related party of Sun Media Investment Holdings (SMIH), our largestshareholder, for certain 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 filing ofthis Report, we have not completed this transaction.

On April 9, 2007, weentered into agreement with SMIH to sell certain non-core assets in exchangefor a total consideration of $4.15 million dollars. The assets to be sold are:Two real estate properties in Beijing; a 30% investment stake in Global WomanMultimedia Co. Ltd; and 100% of the share capital of Lifestyle MagazinesPublishing Co. Ltd. According to the terms of the agreement, SMIH will satisfythe $4.15 million consideration by transferring to us 1 million shares ofValidian Corp. (OTCBB:VLDI)(“Validian’) and (ii) a promissory note of Validianin favor of SMIH with a principal amount of $500,000; and by returning to us 6million of our common shares held by SMIH. As of the filing of this Report, wehave not completed this transaction, however, we have already received andcancelled the 6 million shares returned to us from SMIH.

**Item 6.Exhibits and Reports on Form 8-K**

Exhibit 31 –Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002.

Exhibit 32 – Certification Pursuant To Section 906 OfThe Sarbanes-Oxley Act Of 2002.

(b) Reports on Form 8-K.

We filed the following reports withthe Securities and Exchange Commission on Form 8-K:

1. On April 5, 2007, we filed a Report on Form 8-K toreport events under Item 5.01.

2. On April 13, 2007, we filed a Report on Form 8-K toreport events under Items 1.01 and 9.02.

3. On May 10, 2007, we filed a Report on Form 8-K toreport events under Items 1.01, 3.02, 3.03, and 5.03.

4. On June 8, 2007, we filed a Reporton Form 8-K to report events under Item 2.02.

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**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
| **NEXTMART, INC.**     | ** **                     | ** **       | ** ** | ** ** |
|------------------------|--------------------------------|------------------|------------|------------|
|                   |                           |             |       |       |
| Date: August 20,  2007 | By:                            | /s/ Ren Huiliang |
|                   | Ren Huiliang                   |             |       |
|                   | Chief Executive Officer        |             |       |
|                   |                           |             |       |       |
|                   | By:                            | /s/ Ren Huiliang |
|                   | Ren Huiliang                   |             |       |
|                   | Acting Chief Financial Officer |             |       |

 

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| No.    | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                  |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1    |       | Sale and Purchase Agreement dated June 30, 2006 to  sell certain of the Registrant’s assets to Sun TV Shop, Plc. (incorporated by  reference from our Current Report on Form 8-K filed on July 7, 2006)                                                                                                                                                                     |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.2    |       | Updated letter from Moores Rowland Mazars, the  Registrant’s former accountant (incorporated by reference from our Current  Report on Form 8-K/A filed on July 11, 2006)                                                                                                                                                                                                    |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.3    |       | Financials for the Sale  and Purchase Agreement to Acquire Magzone Asia Pte Ltd, dated January 4,  2006 by and among Sun New Media, Inc. (the “Company”), Seeds Capital Pte Ltd,  Wong Sing Lam, Tay Koon Chuan, and Wang Jian (collectively, the “Sellers”)  (incorporated by reference from our Current Report on Form 8-K/A filed on  July 21, 2006) |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.4    |       | Financials for the Sale and Purchase Agreement to  acquire Lifestyle Magazines Publishing Pte. Ltd (“Lifestyle Magazine”). dated  February 14, 2006 by and between Sun New Media, Inc. and United Home  Limited (incorporated by reference from our Current Report on Form 8-K/A  filed on August 7, 2006)                                                        |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.5    |       | Announcement of operating and financial results for  the three months ended June 30, 2006 (incorporated by reference from our  Current Report on Form 8-K filed on August 7, 2006),                                                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.6    |       | Financials for the Sale and Purchase agreement to  acquire of Telefaith Holdings Ltd. dated December 8, 2005 by and among  Sun New Media, Inc., Yan Hui, Lin Min, and Luan Kezhou (incorporated by reference  from our Current Report on Form 8-K/A filed on August 8, 2006)                                                                                                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.7    |       | Resignation of Mr. Qi Yang as Director of the  Registrant (incorporated by reference from our Current Report on Form 8-K  filed on August 24, 2006)                                                                                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.8    |       | Appointment of Grant Thornton HK as independent  auditor for the fiscal period ending March 31, 2007 (incorporated by  reference from our Current Report on Form 8-K filed on September 19, 2006)                                                                                                                                                                                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 2.9    |       | Appointment of Thomas A. Schuler as Chief Financial  Officer (incorporated by reference from our Current Report on Form 8-K filed  on September 25, 2006)                                                                                                                                                                                                                        |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.0    |       | Completion of the acquisition of William Brand  Administer Limited and its subsidiary William Textiles Limited (incorporated  by reference from our Current Report on Form 8-K filed on September 30, 2006)                                                                                                                                                                      |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.1    |       | Resignation of Mr. Ricky Ang as CEO of the Company  and Appointment of Dr. Bruno Wu as CEO of the Company (incorporated by  reference from our Current Report on Form 8-K filed on October 5, 2006)                                                                                                                                                                              |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.2    |       | Resignation of Dr. Herbert Kloiber as a member of  the Board of Directors (incorporated by reference from our Current Report on  Form 8-K filed on October 11, 2006)                                                                                                                                                                                                             |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.3    |       | Resignation of Mr. William Adamopoulos as a member  of the Board of Directors (incorporated by reference from our Current Report  on Form 8-K filed on November 3, 2006)                                                                                                                                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.5    |       | Sale and Purchase Agreement with the Sellers of  Hubei Zhengyuan Co., Ltd, dated November 21, 2006 (incorporated by reference  from our Current Report on Form 8-K filed on November 27, 2006)                                                                                                                                                                                   |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.6    |       | Resignation of Grant Thornton HK as independent  auditor for the fiscal period ending March 31, 2007, and Reappointment of  Bernstein & Pinchuk as independent auditor for the fiscal period ending  March 31, 2007 (incorporated by reference from our Current Report on Form 8-K  filed on December 6, 2006)                                                               |
|   |       |                                                                                                                                                                                                                                                                                                                                                                             |
| 3.7    |       | Appointment of Mr. Walter Beach as a member of the  Board of Directors (incorporated by reference from our Current Report on Form  8-K filed on December 6, 2006)                                                                                                                                                                                                                |

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| 3.8    |   | Supplementary Agreement with Barron Partners LLP  (“Barron”) to modify the terms of a Stock Purchase Agreement between Barron  and the Company, dated December 31, 2007 (incorporated by reference from our  Current Report on Form 8-K filed on February 6, 2007) |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                         |
| 14.1   |   | Next Mart Code of Ethics                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                         |
| 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) (17 CFR 240.15d-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) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title  18 of the United States Code                                                                                                            |

 

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