NEXTMART, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED June 30, 2009March 31, 2010

Table of Contents

INDEX

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PART I   FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See notes to consolidated financial statements.

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See notes to consolidated financial statements.  3

PART I   FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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See notes to consolidated financial statements.

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5

See notes to consolidated financial statements.  

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See notes to consolidated financial statements.

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NEXTMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations.

On March 3, 2010, Next Mart, Inc. (herein referred to as “NextMart” or the “Company”), entered into a transaction termination agreement with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”), wherein both companies agreed to terminate and rescind the subscription and asset sale agreement previously entered into by the parties on August 1, 2009 (the “Original Agreement”). All considerations received by each party under the Original Agreement were returned to the issuing party.

On March 31, 2010, NextMart entered into an asset exchange and subscription agreement (the “Agreement”) with Miss Wang Yihan and Beijing Chinese Art Exposition's Media Co., Ltd. (“CIGE”), a leading Chinese art services, events, and media company located in Beijing, China. CIGE’s main business operations includes operating and managing the China International Gallery Exposition, the largest exhibition of art galleries in China, and operating and managing China’s “Gallery Guide” magazine, a monthly magazine featuring news and events targeting top Chinese art collectors and galleries with a monthly distribution rate of over 10,000 copies. Ms. Wang Yihan is the owner of 100% of CIGE and is the President of our Company. The Agreement was disclosed in our Form 8-K filed on March 31, 2010. Subsequently on May 10, 2010, NextMart, Beijing Chinese Art Exposition Media Co. Ltd., a PRC company (“CIGE”), and Miss Wang Yihan, the controlling sharehold er of CIGE, agreed to amend the Agreement. The amendment was made effective as of March 31, 2010.

Under the terms of the amended agreement, NextMart agreed to sell directly to Ms. Wang the following assets: 1) 100% of the shares of William Brand Administer Ltd, a BVI registered company and a wholly owned subsidiary of NextMart; 100% of the shares of Credit Network 114 Limited, a BVI registered company and a wholly owned subsidiary of NextMart;  2) 100% of NextMart’s 60% shareholdings in Wuxi Sun Network Technology Ltd., a PRC registered company; 3) 100% of NextMart’s 80% shareholdings in Naixiu Exhibition Ltd., a PRC registered company; 4) the net assets of NextMart’s 100% owned subsidiary Cancer Institute of China Ltd. (a BVI registered company) and its 100% owned subsidiary China Cancer Institute Ltd. (a PRC registered company). The net assets being sold do not include the subsidiaries cash, office furniture and equipment, and third party creditor’s rights and third party debts, which shall remain the subsidiary’s property; 5) any other net assets and liabilities belonging to NextMart, with the exception of its 3,000 shares of China Grand Resorts Inc. common stock and its remaining US$750,000 liability under the convertible bond settlement agreement.

The parties placed a valuation of $5,391,255 on the above described assets, which amount is based on a third party valuation report of the assets prepared as of March 31, 2010. As consideration for the transfer of the above described assets, Ms. Wang agreed to transfer to NextMart within 24 months from date of the amended agreement certain land usage rights for commercial real estate property valued at no less than $5,390,000. The value of the land use rights will be determined by an appraisal conducted by a licensed third party appraiser acceptable to both parties. In the PRC there is no private land ownership in the PRC. Rather, land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants or allocates landholders a “land use right,” which is sometimes referred to informally as land ownership. Land use rights are granted for specific purposes and for limited periods. Each period may be renewed at the expiration of t he initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.

In the event Ms. Wang fails to provide land usage rights for adequate real estate property within the 24 month period, she is obligated to

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provide NextMart with tangible assets acceptable to NextMart which shall have a value of no less than $5,390,000.

Additionally, under the terms of the amended agreement, (i) CIGE will not transfer to NXMR ownership of its member database and the advertising sales rights for its CIGE art exposition events or Gallery Guide magazine, (ii), NextMart will not issue to CIGE the stock purchase warrants for 50,000,000 shares of its common stock, and (iii) the right of first refusal originally granted to NexMart has been rescinded. Separately, CIGE and SMIH and Redrock have agreed that SIMH and Redrock will not be transferring 8,775,086 and 65,386,214 shares of the Company’s common stock held by such parties, respectively, to CIGE as reported in the original Form 8-K.

As a result of these transactions,  NextMart’s current business operations consists of developing, marketing, and selling high end art products and co-branded art-themed luxury products. The Company has undertaken its art themed product sales business under a newly created “Artslux” brand and we will create and/or sell high end art products and co-branded art-themed luxury products by developing partnerships with well known artists and luxury goods producers.

Basis of Consolidation and Presentation

The accompanying unaudited consolidated financial statements include the accounts of Nextmart, IncInc. (the “Company”), and its subsidiaries and variable interest entities or VIEs for whichhave been prepared by the Company ispursuant to the primary beneficiary.rules and regulations of the Securities and Exchange Commission. All significant inter-company accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but which are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted FASB Interpretation No.46R consolidation of Variable Interest Entities, FIN 46R, an Interpretation of Accounting Research Bulletin No.51. FIN 46R requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIE’s residual returns. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U nitedUnited States of America.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of consolidated financial position as of March 31, 2010, and consolidated results of operations, and cash flows for the three month periods and six months periods ended March 31, 2010 and 2009, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses for the periods that the financial statements are prepared. Actual amounts could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Financial instruments

The Company’s financial instruments include cash and cash equivalents, accountsother receivable, accountsother payable and marketable securities, other payables, and factoring in loans.securities. The

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fair values of these financial instruments approximate their carrying values due to the short-term maturity of the instruments.

Business combinations

We are creating this business through the ongoing acquisition of various entities and assets. The Company accounts for its business combinations using the purchase method of accounting in line with FASB141. This method requires that the acquisition cost be allocated to the assets and liabilities the Company acquired based on their fair value. Pursuant to FAB-141, the Company recognizes intangible assets separate from goodwill if they meet one of two criteria—the contractual-legal criterion or the separability criterion. The Company makes estimates and judgments in determining the fair value of the acquired assets and liabilities, based on independent appraisal reports for material purchases as well as its experience with similar assets and liabilities in similar industries. If different judgments or assumptions were used, the amounts assigned to the individual acquired assets or liabilities could be materially different. When considering whether an acquired assets g roup constitutes a business, the Company used the criteria defined by EITF 98-3 determining Whether a Non-monetary Transaction Involves Receipt of Productive Assets or of a Business.

Goodwill and intangible assets, net

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

The Company applies the criteria specified in SFAS No.141, Business Combinations to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the contractual-legal or separability criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in

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circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

Impairment of Long-lived Assets

The Company assesses the carrying value of long-lived assets in accordance with SFAS No.144 (ASC No. 360), accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include a significant decrease in operating results, a significant change in its use of assets, competitive factors, strategy of its business, and significant negative industry or economic trends. The company cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on the reported asset values. Such events may include strategic decisions made in response to the economic conditions relative to product lines, operations and the impact of the economic environment on our customer base.  When the Company determines that the carrying value of long-lived assets may not be recoverable based on as assessment of future cash flows from the use of those assets, an impairment charge to record the assets at fair valu evalue may be recorded. Impairment is measured based on fair values utilizing estimated discounted cash flow, published thirty-partythird-party sources, and third-party offers.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) in accordance with FASB No. 130 (ASC No. 220), “Reporting Comprehensive Income (Loss)”. The comprehensive loss for the Company includes currency translation adjustments and unrealized loss on marketable securities.

InventoriesRecently Issued Accounting Pronouncements

Inventories are stated atIn October 2009, the lowerFinancial Accounting Standards Board (FASB) issued amended revenue recognition guidance for arrangements with multiple deliverables (ASU No. 2009-13) (ASC No. 605). The new guidance eliminates the residual method of cost (first-in, first out method)revenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or market.  Certain inventory goods purchased are subject to spoilage within a short period of time while in possessionthird-party evidence (TPE) is unavailable. For the Company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the Company.  Inventory costs dobeginning of a fiscal year. Full retrospective application of the new guidance is optional. The Company is currently assessing its implementation of this new guidance, but does not exceedexpect a material impact on the Consolidated Financial Statements.

In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting (ASU No. 2009-14) (ASC No. 985). Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. For the Company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the Company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. The Company is currently assessing its implementation of this new guidance, but does not ex pect a material impact on the Consolidated Financial Statements.

In September 2009, the FASB issued amended guidance concerning fair value measurements of investments in certain entities that calculate net realizable value.asset value per share (or its equivalent) (ASU No. 2009-12) (ASC No. 820). If fair value is not readily determinable, the amended guidance permits, as a practical expedient, a reporting entity to measure the fair value of an investment using the net asset value per share (or its equivalent) provided by the investee without further adjustment. The amendments are effective for interim and annual

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periods ending after December 15, 2009. The Company does not expect a material impact on the Consolidated Financial Statements due to the adoption of this amended guidance.

In August 2009, the FASB issued guidance on the measurement of liabilities at fair value (ASU No. 2009-5) (ASC No. 820). The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted this guidance in the year ended November 30, 2009 and there was no material impact on the Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2009-02. “Amendments to Various Topics for Technical corrections.” ASU No. 2009-2 is an omnibus update that is effective for financial statements issued for interim and annual periods ending after July 1, 2009. This Statement did not impact the Company’s Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASC No. 105), “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted this Statement for its year ended November 30 , 2009. There was no change to the Company’s Consolidated Financial Statements due to the implementation of this Statement.

In June 2009, the FASB issued SFAS No. 167 (ASC No. 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 166 (ASC No. 860), “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 (ASC No. 860).” SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The Company will adopt these Statements for interim and annual reporting periods beginning on January 1, 2010. The Company does not expect the adoption of these standards to have any material impact on the Consolidated Financial Statements.

In May 2009, the FASB issued SFAS No. 165 (ASC No. 855), “Subsequent Events.” This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. The Company adopted this Statement in the year ended November 30, 2009. This Statement did not impact the consolidated financial results.

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Property, Plant and equipment

Property, Plant and equipment are stated at cost, net of accumulated depreciation.  Depreciation is computed primarily on the straight-line method for financial reporting purposes over the following estimated useful lives:

Revenue recognition

We generate revenue through the provision of consulting services. We recognize revenues from consulting services in accordance with Staff Accounting Bulletin (“SAB”) No. 104 (ASC No. 605), “Revenue Recognition,” when all of the following conditions exist: persuasive evidence of an arrangement exists in the form of providing consulting services; or services have been rendered; the Company’s consulting fee received from the clients is fixed or determinable pursuant to the terms of the consulting agreement.agreement and these amounts appear to be collectible.

Cost of revenues

Cost of revenues includes salary and other related costs for our management services and technical support staff, as well as third-party contractor expenses.  Additionally cost of revenues includes fees for hosting facilities, bandwidth costs, and equipment and related depreciation costs. Cost of revenues will vary significantly from period to period depending on the level of management services provided.

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Trade receivables and allowances for Doubtful Accounts

The Company performs ongoing credit evaluations of its customers to minimize credit risk. The allowance for doubtful accounts is based on management’s estimates of the collectability of its accounts receivable after analyzing historical bad debts, customer concentrations, customer credit worthiness, and current economic trends. Specifically, the Company reviews the aged accounts receivables listing for balances that are specifically identifiable as credit risks or uncollectible, and may use its judgment for calculation of allowances for doubtful accounts.

Earnings (loss) per share

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

Foreign currency translation

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards

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(“SFAS”) No. 52 (ASC No. 830), “Foreign Currency Translation”, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are translated using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and capital asset accounts are translated by using historical exchange rates. Any translation gain or loss incurred is reported in the consolidated statement of operations. In 2009,this period, we used 6.82686.83603 RMB per USD for the weighted average rate, and we used 6.83536.8372 RMB per USD as the balance sheet date rate (June 30, 2009)(March 31, 2010).

Income taxes

The Company follows the liability method of accounting for income taxes in accordance with SFAS No. 109.109 (ASC No. 740). Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. The tax loss arising from PRC can be carried forward for five years. Agreed tax losses by respective local tax authorities can be offset against future taxable profits of the respective companies. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain.

Stock-based compensation

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 (ASC No. 505) and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services” (“EITF 96-18”). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.

Related Parties

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

Deferred Charges

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Payments made for future expenses wereare amortized over the life of service received.

Convertible Notes and Notes Issued with Stock Warrants

The Company accounts for convertible notes and notes issued with stock warrants in accordance with APB No. 14, Accounting for

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Convertible Debt and Debt Issued with Stock Purchase Warrants.Warrants. The proceeds from the issuance of convertible notes are allocated between the debt and the equity. The Company booksbooked a discount on convertible notes for the conversion feature of the notes and warrants and amortizesis amortizing the discount over the life of the debt.

Reclassification

The comparative figures have been reclassified to conform to current period presentation.

NOTE 2 – MARKETABLE SECURITIES AND OTHER ASSETS

Marketable securities are considered as available for sale and are recorded at market value. The marketable securities are summarized as follow:

The Company holds 16,821,254 common3,000 shares of CEC Unet, PLC, subject to the disclosures below. The Company has been informed that on January, 19, 2009, the shares of CEC Unet, PLC were delisted on the AIM Market (London Exchange). From September 30 to January 18, 2009, the shares of CEC Unet, PLC were suspended from trading on AIM Market. Having reviewed the valuationcommon stock at March 31, 2010 reflects a 20 for 1 reverse split of the CECU shares as stated in the Company’s Form 10-K for the period ended September 30, 2008, management believes that there is no material changes to the valueissued and outstanding common stock of the shares as CEC Unet’s operations have not undergone any material changes when compared with the time of delisting. The management of the Company was informed by CEC Unet that CEC Unet is considering splitting CEC Unet into two entities, separating the core top up business from its other non-performing assets and injecting it into a shell company, that could be listed. CEC Unet may also consider relisting its curr ent shell company on the AIM market after undergoing a restructuring and acquiring other performing assets. However, at this time we have not received any detailed information or confirmation about the relisting plan. The Directors of CEC Unet Plc have promised to provide further information about their plan once they decide on the best course of action to enhance shareholder’s value. As such, management will continue to closely monitor the situation and will make a further assessment based on the expected disclosure of their plans. The shares of CEC Unet, PLC were reclassified to Other Assets due to the delisting situation.

Of the total amount of shares stated above;

The Company holds 1,009,275 shares of CEC Unet Plc. (AIM: CECU) in escrow which will be transferred to Arum Island Ltd, an unaffiliated third party, when these shares are free from restriction as a consulting fee.

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The Company holds 4,000,000 shares of CECU in escrow which will be transferred to Professional Offshore Opportunity Fund Ltd when these shares are free from restriction under a consulting agreement with the third party.

On January 23, 2008, Evenstar Master Fund SPC (“Evanstar”) subscribed convertible bonds of CEC Unet PLC in the amount of US$10,000,000. In connection with this transaction, on April 29, 2008, the Company entered into an agreement with Evenstar, on behalf of CECU, to lend to Evenstar 10,821,254 ordinary shares of CEC Unet PLC (AIM:CECU).  Evenstar has the legal and beneficial title to these shares until the redemption date of convertible bonds.

The Company also holds 60,000 shares of Asia Premium TV Inc (OTC BB: ATVG).

issuer.

NOTE 43 – PROPERTY PLANT AND EQUIPMENT

The following is a summary of property and equipment, at cost, less accumulated depreciation:

Depreciation

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Amortization for the ninethree months ended June 30, 2009March 31, 2010 was 441$0 compared with the ninethree months ended June 30, 2008 $71,791,March 31, 2009 $14,815, respectively. Amortization for six months ended March 31, 2010 was $195 compared with six months ended March 31, 2009 $29,506, respectively. The difference between the 2010 and 2009 periods is due to the sale of certain office equipment owned by the Company on March 3, 2010.

NOTE 54 - CONVERTIBLE NOTES, WARRANTS AND STOCK OPTIONS

On March 22, 2007, we executed a subscription agreement with certain accredited investors, including Professional Offshore Opportunity Fund Ltd, pursuant to which we agreed to issue a principal amount worth $1,500,000 in senior convertible promissory notes and warrants to purchase shares of our common stock. The notes were issued with “Class A” warrants to purchase up to 1,500,000 shares of common stock at an exercise price of $1.00 per share and “Class B” warrants to purchase up to 1,500,000 shares of common stock at an exercise price of $1.50 per share.  Upon exercise of any Class A or Class B warrant, the respective warrantholder will receive a “Class C” warrant to purchase that number of shares for which such Class A warrant or Class B warrant is exercised at an exercise price of $2.00 per share. The Class A and Class B warrants expire five years from the issue date. The financing was closed on March 29, 2007.

The2007.The aggregate gross proceeds from the sale of the notes and warrants werewas $1,500,000.  The convertible notes arewere due and payable three years from the date of issuance. We prepaid all interest due under the convertible notes through the issuance of 1.5 million shares of our common stock.  The notes arewere initially convertible into our common shares at a conversion price of $1.00 per share.  After the occurrence of an event of default under the notes, the conversion price adjusts to eighty percent (80%) of the volume weighted average price of our common shares for the five trading days prior to a conversion date. The discount on warrants fair value increases from $(500,379) as at September 30, 2008 to $62,516 as at March 31, 2009.

On February 6, 2009, we closed a Convertible Debt Settlement Agreement with these accredited investors (“Settlement Agreement”) pursuant to which we have re-purchased all of the outstanding senior convertible notes. UnderWe also amended the Settlement Agreement, inWarrants to remove any registration rights and purchase price reset provisions, among other changes. As additional consideration, limited mutual releases were given by the parties. In exchange for canceling the notes and underlying agreements, we agreed to pay back the principal amount of the Notes ($1,500,000)$(1,500,000), and $610,126 in interest and default penalties. We paid $250,000 of the $1,500,000 in the principal amount at closing, and are obligated to pay $250,000 every 90 days from closing until the principal is paid in full. As of May 9, 2009, an additional $250,000 was due and payable. WeIn addition to the payment made at closing, we also made a payment of $150,000, of$100,000 and $250,000 on the amountobligation due in July, October and December 2009, and $100,000 of the May payment remains outstanding.respectively. We also agreed to pay interest and penalties of $610,126$6 10,126 within 90 days from the closing. Payment of the stated amount may be in the form of common shares of CEC Unet Plc. (AIM: CECU) which we hold. The payment is due 90 days from closing date. The amountheld on the agreement date or if the shares of CECU shares payable to the investors is calculated by using the lowest bid price of the CECU shares for the five days prior to the payment date minus 10%. The securities of CECU are currently subject to a trading suspension on the AIM Market. If on the stated payment date, the CECU Shares arewere not trading on the AIM Market, then in cash or cash equivalents. We disposed our holdings of CECU shares in the CIGE transaction. As such, we are now required to pay the interest and penalty amount due in cash or cash equivalents. As of the date of this report, as mentioned above, we made payments of $750,000 in principal to date, and we have not made any payments on the interest and default penalty paymentamount. We are in default of our obligations to these investors. It is possible the investors could initiate litigation against us which cause us to incur additional costs and expenses. The parties also amended the Warrantsbalance of $1.36 million which is due to remove any registration rights and purchase price reset provisions, amongthese investors is included in other changes. As additional consideration, limited mutual releases were given by the parties. We receivedpayables.

On March 9, 2009, we completed a loan in the amount of $250,000 fromSubscription Agreement with Redrock Capital Venture Limited,Ltd (“Redrock”), a BVI company, under which we issued up to $1,500,000 of our senior convertible notes (“Redrock”Senior Notes”), to Redrock. On April 15, 2009, Redrock converted the $1,250,000 Senior Note into 83,333,333 shares of our common stock. We also issued Redrock 2,500,000 shares of our common stock as prepaid interest for the $1,250,000 Senior Note. On June 17, 2009, we received a notice of conversion from Redrock converting the $250,000 Senior Note into 16,666,667 shares of our common stock at a conversion price is $0.015 per share. On June 23, 2009, we issued 17,166,667 shares of our common stock to Redrock Capital Venture Limited. The amount represents 16,666,667 shares of our common stock issuable on conversion of the $250,000 Senior Note and we used these funds to500,000 shares of our common stock issuable as prepaid interest

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make

on the initialSenior Note.

On March 26, 2010, we completed a Convertible Debt Settlement Agreement with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”) to convert RMB 2,255,000 (approximately $329,866 USD) in outstanding loans due to Hua Hui into a convertible promissory note with a principal amount of $331,385 and will due in 18 months since issued date. The convertible promissory as effective as of March 3, 2010 and has the following features:

o

The Convertible Note is subordinate to an outstanding Convertible Debt Settlement Agreement and is senior to all

other current and future indebtedness of the Company.

o

If the Company has not effected a “Qualified Funding” (as defined below) prior to August 31, 2011, then the entire Principal Amount will be due and payable on August 31, 2011 (the "Maturity Date").  

o

If the Company has effected a Qualified Funding prior to August 31, 2011, then (i) an amount equal to the Qualified Funding will be due and payable within five (5) working days from the closing of the funding, and (ii) any unpaid Principal Amount will be due and payable on the Maturity Date.

o

A Qualified Funding means any debt or equity funding received by the Borrower (after deducting all fees),

excluding however, any funding provided by Redrock Capital Group and Redrock Capital Ventures, Ltd., or any of their respective subsidiaries.

o

Except for default interest, interest on the unpaid balance accrues at the rate of 6% payable on the Maturity Date,

o

Hua Hui at its option may convert the Convertible Note to common stock of the Company at a conversion price of $0.11

o

If there is a default in the payment underafter a Qualified Funding, then default interest will accrue on the Settlement Agreement. Dr. Bruno Wu, our former Chairman and an influential personamount of our company, is the ChairmanQualified Funding a rate of Redrock, however, Dr. Wu hasone percent (1%) per day until paid.

Warrants

At March 31, 2010, the Company had no ownership interest in Redrock. Dr. Wu’s wife, Ms. Yang Lan, is the majority shareholder of Redrock. She is also the controlling shareholder of Sun Media Investment Holdings, one of our shareholders. The loan from Redrock is due on demand and bears no interest.warrants outstanding.

NOTE 65 - OTHER PAYABLES AND ACCRUALS

Other payables and accruals are summarized as follows:

Other payables mainly includeare amounts due to the principalinvestors who originally held our convertible notes and interests payment to some certain accredited investors,accrued expenses represents professional fees, other deposit, and other office expenses. Included in accrued operating expenses are business tax, VAT and consulting expenses.

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NOTE 7 – OPERATING LEASES6 — COMMITMENTS AND CONTINGENCIES

Commitments

As of March 2010, the Company terminated its office lease. Since the termination of its office lease, the Company maintains a representative office through the office of its shareholder Redrock Venture Capital Ltd. As a result the Company currently has no capital commitments in this regard.

The majority of our operations are in China, where we have leased offices in Beijing. Our Beijing office consists of 8,740 square feet. The lease extendsexpense for a period of two years terminating on Julythe six months ended March 31, 2011. Our annual rent is $192,569.  We believe that our existing facilities are adequate2010 amounted to meet our current requirements, and that future growth can be accommodated by leasing additional or alternative space.  At June 30, 2009, the total future commitments for minimum rentals payment were as follows:

$10,811.

NOTE 87 -AMOUNTS DUE FROM/ (TO) SHAREHOLDERS/ RELATED PARTIESTO STOCKHOLDERS

The amounts due fromstockholders are summarized as follows:

The amounts due to Redrock Capital Venture Limited are due on demand and bear no interest. Due to shareholders and other related parties are non-trade, non interest bearing and with no fixed termsthe termination of repayment.

the Hua Hui transaction, the amounts due to Hua Hui have been reclassified as convertible notes on March 3, 2010 (See Note 4. -Convertible Notes, Warrants And Stock Options).

NOTE 9- DISCONTINUED OPERATIONS8— HELD FOR SALE

The Company intends

In connection with the CIGE and Ms. Wang Yihan transaction of March 31 2010, and which was subsequently amended on May 10, 2010, NextMart has agreed to divest itselftransfer to CIGE the following assets: 1) 100% of the shares of William Brand’s women apparel businessBrand Administer Ltd, a BVI registered company and a wholly owned subsidiary of NextMart; 100% of the shares of Credit Network 114 Limited, a BVI registered company and a wholly owned subsidiary of NextMart;  2) 100% of NextMart’s 60% shareholdings in Wuxi Sun Network Technology Ltd., a PRC registered company; 3) 100% of NextMart’s 80% shareholdings in Naixiu Exhibition Ltd., a PRC registered company; 4) the net assets of NextMart’s 100% owned subsidiary Cancer Institute of China Ltd. (a BVI registered company) and its 100% owned subsidiary China Cancer Institute Ltd. (a PRC registered company). The net assets being sold do not include the subsidiaries cash, office furniture and equipment, and third party creditor’s rights and third party deb ts, which shall remain the subsidiary’s property; 5) any other non-material businesses. In keepingnet assets and liabilities belonging to NextMart, with that intent, on August 1, 2009, the Company entered intoexception of its 3,000 shares of China Grand Resorts Inc. common stock and its remaining US$750,000 liability under the convertible bond settlement agreement.

These assets and liabilities had previously been sold to Beijing Hua Hui Investment Ltd. under a subscription and asset sale agreement (the “Agreement”) with Beijingsigned on August 1, 2009 (see the Company’s Form 8-K filing dated August 4, 2009), and which arrangement was subsequently rescinded on March 3, 2010. All considerations were returned to the delivering party. NextMart accounted for the termination by adding the sum value of the assets originally sold to Hua Hui Hengye Investment Lt. (“back on to the Company's balance sheet and canceling the shares issued to Hua Hui”), an unaffiliated PRC company (See Note

12Hui such that the company's share count will not include the shares issued to Hua Hui.

11-Subsequent Events). 18

Consequently, the following assets and liabilities, which reflect these businesses, have been segregated and included in assets and liabilities of discontinuedheld for sale operations, as appropriate, in the consolidated balance sheet as of June 30, 2009:March 31, 2010:

Moreover, the following income and expense items, attendant to these businesses,subsidiaries, have been segregated and included in income (loss) from held for sale operations, as appropriate, in the consolidated income statement for the ninethree months and six months ended June 30, 2009March 31, 2010 and 2008.2009.

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NOTE 9— COMMON STOCK

Pursuant to the transaction termination agreement with Hua Hui, 250,000,000 shares previously issued to Hua Hui were cancelled on March 22, 2010.

On March 3, 2010, we completed a Convertible Debt Settlement Agreement with Beijing Hua Hui to convert RMB 2,255,000 (approximately $329,866 USD) in outstanding loans due to Hua Hui into a convertible promissory note with a principal amount of $331,385. The convertible promissory note is convertible into common stock at the $0.11 per share (see Note 4 - Convertible Notes, Warrants And Stock Options).

NOTE 10- COMMON STOCK10— GOING CONCERN AND MANAGEMENT PLAN

OnThe Company’s consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of March 9,31, 2010, the Company had an accumulated deficit totaling $96,523,272 and its current assets exceeded its current liabilities by $(563,799). In view of the matters described above, the appropriateness of the going concern basis is dependent upon continuing operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In September 2008, due to market conditions, the Company determined to divest itself of the William Brand Administer Ltd’s women apparel business and other non-material businesses. In keeping that intent, in August 2009, as previously reported, we completed a Subscription Agreement with Redrock Venture Capital Ltd (“Redrock”), a BVI company, under which we agreed to issue up to $1,500,000 of our senior convertible notes (“Senior Notes”) to Redrock. At closing, we issued $1,250,000 in Senior Notes in exchange for the cancellation of demand notes for the same principal amount held by Redrock. As a result, a total of $250,000 remained unsubscribed under the Subscription Agreement. On April 15, 2009, Redrock converted the $1,250,000 Senior Note into 83,333,333 shares of our common stock. We also issued Redrock 2,500,000 shares of our common stock as prepaid interest for the $1,250,000 Senior Note.

Redrock has since paid the $250,000 to us under the terms of the Subscription Agreement. In connection with that payment, on June 1, 2009, we issued a Senior Note in the amount of $250,000. This Senior Note is due and payable on November 1, 2010. We also are required to issue 500,000 shares of our common stock to Redrock as prepaid interest for the Senior Note as provided under the Subscription Agreement.

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On June 17, 2009, we received a notice of conversion from Redrock converting the $250,000 Senior Note into 16,666,667 shares of our common stock at a conversion price is $0.015 per share. On June 23, 2009, we issued 17,166,667 shares of our common stock to Redrock Capital Venture Limited. The amount represents 16,666,667 shares of our common stock issuable on conversion of the $250,000 Senior Note and 500,000 shares of our common stock issuable as prepaid interest on the Senior Note. Redrock is our largest shareholder, holding approximately 53.3% of our outstanding common stock.

On August 1, 2009, the Company entered into a subscription and asset saledisclosed elsewhere herein, it effected an agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. which was subsequently rescinded by the parties terminated on March 3, 2010.

On March 31, 2010, NextMart entered into an asset exchange and subscription agreement (the “Agreement”) with Ms. Wang Yihan and

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Beijing Chinese Art Exposition's Media Co., Ltd. (“Hua Hui”CIGE”), a leading Chinese art services, events, and media company located in Beijing, China. CIGE’s main business operations includes operating and managing the China International Gallery Exposition, the largest exhibition of art galleries in China, and operating and managing China’s “Gallery Guide” magazine, a monthly magazine featuring news and events targeting top Chinese art collectors and galleries with a monthly distribution rate of over 10,000 copies. Miss Wang Yihan is the owner of 100% of CIGE. Under the Agreement, CIGE agreed to inject into NextMart certain assets and in exchange, NextMart has agreed to issue to CIGE warrants representing 50,000,000 shares of the Company’s common stock as well as assign certain Company assets described below. The assets which CIGE agreed to inject into NextMart were as follows: 1) the CIGE member database, which is a database developed over the last six year s that contains the names and data for over 10,000 individuals and companies; 2) exclusive ownership of the sales rights for the advertising space at every CIGE exhibition located in greater China (including Hong Kong and Macao, but excluding Taiwan) for the next 30 years, as well as control the commercial and editorial rights (meaning the right to control the content and advertising space but not ownership of the magazine or its day to day control), of its Gallery Guide magazine for the next 30 years; and 3) within 24 months CIGE agreed to transfer to NextMart at its discretion either; land usage rights acceptable to NextMart for property capable of being developed or used for the purpose holding art exhibitions with a valuation of $3,650,000, or common stock of a publicly traded company acceptable to NextMart which shall have a value of no less than US$3,650,000. In addition, the Company received the right of first refusal to participate in any future sale of CIGE’s common stock by CIGE or its control ling shareholder, Ms. Wang Yihan, to any third party. Ms. Wang Yihan also is the President of the Company.

As consideration for the CIGE assets listed above and the Right of First Refusal, NextMart agreed to issue to CIGE stock purchase warrants for 50,000,000 shares of the Company’s common stock (the “Warrants”). The Warrants shall have an unaffiliated PRC company (See Note 11-Subsequent Events).exercise price of US$0.016 and must be exercised within 24 months of being issued. Under the terms of the Agreement,issuance, NextMart shall issue the Company receivedwarrants to CIGE within 10 days of signing the Agreement.

In addition to issuing the Warrants as consideration for the assets listed above, NextMart has agreed to transfer to CIGE the following assets: 1) 100% of the shares of William Brand Administer Ltd, a BVI registered company and a wholly owned subsidiary of NextMart; 100% of the shares of Credit Network 114 Limited, a BVI registered company and a wholly owned subsidiary of NextMart;  2) 100% of NextMart’s 60% shareholdings in Wuxi Sun Network Technology Ltd., a PRC registered company; 3) 100% of NextMart’s 80% shareholdings in Naixiu Exhibition Ltd., a PRC registered company; 4) the net assets of NextMart’s 100% owned subsidiary Cancer Institute of China Ltd. (a BVI registered company) and its 100% owned subsidiary China Cancer Institute Ltd. (a PRC registered company). The net assets being sold do not include the subsidiaries cash, office furniture and equipment, and third party creditor’s rights and third party debts, which shall remain the subsidiary’s pr operty; 5) any other net assets and liabilities belonging to NextMart, with the exception of its 3,000 shares of China Grand Resorts Inc. common stock and its remaining US$750,000 liability under the convertible bond settlement agreement (the “Transferred Assets”).

The agreement between the parties was subsequently amended on May 10, 2010, with the amendment made effective as of March 31, 2010. Under the terms of the amended agreement, NextMart agreed to sell directly to Ms. Wang the Transferred Assets. The parties placed a valuation of $5,391,255 on the above described assets which amount is based on a third party valuation report of the assets prepared as of March 31, 2010.  

As consideration for the sale of the Transferred Assets, Ms. Wang agreed to transfer to NextMart within 24 months from Hua Huidate of the amended agreement certain land usage rights for commercial incomereal estate property valued at no less than $5,390,000. The value of the land use rights will be determined by an appraisal conducted by a licensed third party appraiser acceptable to 10,000 square metersboth parties. In the Huadun Changde International Hotel locatedPRC, there is no private land ownership in the cityPRC. Rather, land in the PRC is owned by the government and cannot be sold to any individual or entity. The government grants or allocates landholders a “land use right,” which is sometimes referred to informally as land ownership.

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Land use rights are granted for specific purposes and for limited periods. Each period may be renewed at the expiration of Changde in China’s Hunan Province (“Project”). As consideration, the Companyinitial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations. In the event Ms. Wang fails to provide land usage rights for adequate real estate property within the 24 month period, she is obligated to provide NextMart with tangible assets acceptable to NextMart which shall pay RMB100,000,000 (US$14,627,811)have a value of no less than $5,390,000.

Additionally, under the terms of the amended agreement, (i) CIGE will not transfer to NXMR ownership of its member database and the advertising sales rights for its CIGE art exposition events orGallery Guide magazine, (ii), NextMart will not issue to be satisfied by issuing to Hua Hui 250,000,000CIGE the stock purchase warrants for 50,000,000 shares of its common stock, valued at US$0.024 per share (the closing priceand (iii) the right of first refusal originally granted to NextMart has been rescinded. Separately, CIGE and SMIH and Redrock have agreed that SIMH and Redrock will not be transferring 8,775,086 and 65,386,214 shares of the Company’s common stock onheld by such parties, respectively, to CIGE as reported in the transaction date) fororiginal Form 8-K.

As a total stock valueresult of approximately RMB41,000,000 (or US$6,000,000).  Upon completionthese transactions, NextMart’s current business operations consists of developing, marketing, and selling high end art products and co-branded art-themed luxury products. The Company has undertake its art themed product sales business under a newly created “Artslux” brand and is developing partnerships with well known artists and luxury goods producers to create the transaction, Hua Hui will become the Company’s majority shareholderart products and will own approximately 56.41% Company’s o utstanding shares.co-branded art themed luxury goods it plans to sell.

The transactionCompany is actively pursuing additional funding including arrangements with potential strategic partners in an effort to fund its ongoing working capital requirements. The Company’s expects that its working capital requirements for the next 12 month will be executedapproximately $2,100,000. Management is hopeful that the above actions will allow the Company to continue its operations through an escrowthe current fiscal year.  

NOTE 11— SUBSEQUENT EVENTS

As described above, on May 10, 2010, the Company amended the asset exchange and subscription agreement (“Escrow Agreement”) in which Hua Hui will receive 30%entered into by NextMart, CIGE, and Ms. Wang Yihan on March 31, 2010. The amended agreement is effective as of March 31, 2010. On May 14, 2010, the Shares and allCompany filed a Form 8-K to disclose the Assets within 90 daysamended agreement.

At the time of signing the Agreement. The other 70%amended agreement on May 15, 2010, Miss Wang Yihan was the CEO and President of NextMart as well as a party the amended agreement and the sole shareholder of CIGE. We believe that the amended agreement is the result of arms' length negotiation between the parties and the terms of the Shares will be held in escrow until the completion of the Construction.amended agreement are fair and reasonable.

NOTE 11- SUBSEQUENT EVENTS

On August 1, 2009, the Company entered into a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”), an unaffiliated PRC company. Hua Hui is part of The Beijing Hua Hui Corporation, a PRC real estate construction and development conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within China.

Under the terms of the Agreement, the Company received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel located in the city of Changde in China’s Hunan Province (“Project”). The Project is currently under development by Hua Hui. The parties have valued the commercial income rights at RMB115,000,000 (US$16,821,719). As consideration, the Company shall pay RMB100,000,000 (US$14,627,812), to be satisfied by issuing Hua Hui 250,000,000 shares of its common stock valued at US$0.024 per share (the closing price of the Company’s common stock on the transaction date) for a total stock value of approximately RMB41,000,000 (or US$6,000,000),and the transfer of certain company assets valued at approximately RMB59,000,000 (US$8,630,273).  Upon completion of the transaction, Hua Hui will become the Company’s majority shareholder and will own approximately 56.41% Company’s outs tanding shares.22

The transaction will be executed through an escrow agreement (“Escrow Agreement”) in which Hua Hui will receive 30% of the Shares and all the Assets within 90 days of signing the Agreement. The other 70% of the Shares will be held in escrow until the completion of the Construction.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Reportquarterly report on Form 10-Q10Q contains "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the " Securities Act ") and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the " Exchange Act "). Suchforward-looking statements. These statements relate to among other things,future events or our future plans of operations, business strategy, operating results and financial position and are often, though not always, indicatedperformance. In some cases, you can identify forward-looking statements by words or phrasesterminology such as "anticipate," "estimate," "plan," "project," "outlook," "continuing," "ongoing," "expect," "believe," "intend," and similar words“may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or phrases.“continue” or the negative of these terms or other comparable terminology. These forward-looking statements include statements other than historical information or statements of current condition, but instead represent only our belief regardin gregarding future events, many of which by their nature are inherently uncertain and outside of our control. Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to, those described in the section titled "Risk Factors" previously

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“Risk Factors” previo usly disclosed in our Annual Report on Form 10-K for the yearperiod ended September 30, 2008:

       Our business history makes it difficult for us to accurately forecast revenues and expenses ;

Our strategy of acquiring businesses, assets and technologies may fail;

We have no agreements for our new business endeavors and2009. Although we have not  established standards for such transactions. ;

 Our need for additional capital (and concomitant dilution effect);

Consequently, readers of this Report should not rely upon thesebelieve that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as predictionsrequired by applicable law, including the securities laws of future events. New risk factors emerge from time to time and it isthe United States, we do not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligationintend to update or revise any forward-looking statements in this Report to reflect any new events or any change in conditions or circumstances. All of the forward-looking statements in this Report are expressly qualified byto conform these cautionary statements.statements to actual results.

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

As used in this quarterannual report, the terms “we”, “us”, “our”, and “NXMR” mean NextMart, Inc. and its wholly-owned subsidiaries.subsidiaries

Overview

As reported on our Form 8-K filed on August 5, 2009, we entered into a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”), an unaffiliated PRC company. Hua Hui is part of The Beijing Hua Hui Corporation, a PRC real estate construction and development conglomerate that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within China.

Under the terms of the Agreement, the Company received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel located in the city of Changde in China’s Hunan Province (“Project”). The Project is currently under development by Hua Hui. The parties have valued the commercial income rights at RMB115,000,000 (US$16,821,719). As consideration, the Company shall pay RMB100,000,000 (US$14,627,812), to be satisfied by issuing Hua Hui 250,000,000 shares of its common stock valued at US$0.024 per share (the closing price of the Company’s common stock on the transaction date) for a total stock value of approximately RMB41,000,000 (or US$6,000,000),and the transfer of certain company assets valued at approximately RMB59,000,000 (US$8,630,273).  Upon completion of the transaction, Hua Hui will become the Company’s majority shareholder and will own approximately 56.41% Company’s outs tanding shares.

As a result of this transaction,our new business strategy is to offer private member health club memberships to wealthy Chinese and to sell self-branded health products via direct sales channels. This product and services model will be rolled out in two phases. Phase One is to establish its Demao Tang Clubs as private member health clubs that offer specialized health services and products to its members. These clubs would provide first class preventative and recovery care using the most modern methods and products. We plan to develop this club concept in cooperation with top tier membership clubs and health care services companies specializing in preventative and recovery care. To begin, the Company plans to partner with China’s most elite members clubs to embed its Demao Tang clubs and related health services and products into these existing operations. To that end, we are in final discussions with existing elite clubs in Beijing and Shanghai and expect to enter into partnership with these clubs sometime during the second half of calendar 2009. The Company also plans to develop its own Demao Tang clubs at independent locations, as in the case of the Hunan Club. Revenues from the planned clubs would be derived from the sale of memberships to its clubs and the sale of private label and third party health products and services within the clubs.

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In order to provide its planned health services and products to club members, we plan to selectively partner with leading health service and technology providers to provide our members with state of the art medical screening and certain treatment procedures. We are currently in final stage discussions with potential partners that would provide: 1) an infrared automatic screening system, which is used to identify various ailments and diseases at an early stage; 2) DNA testing for cervical cancer; 3) cancer recovery and anti-aging treatments; 4) stem cell based recovery and restorative treatments. These services would be complimented by a range of leading health products including herbal medicines. The health services and product partnerships would be managed by us at each of the planned health clubs, which will allow Demao Tang clubs to offer its high-end members with holistic health solutions and a comfortable environment in which to undergo their desir ed health treatment.

Phase Two involves the direct sales for Demao Tang branded or third party health products. These products would include certain types of supplements and herbal and homeopathetic medicines as well as general health and anti-aging products designed to restore and maintain health and well-being.  We will partner with established producers to self-brand already developed and government approved supplements, herbal medicines, and general health products. We do not intend to develop and manufacture its own health products, but rather carefully select and brand existing products with the Demao Tang brand name. In order to minimize product costs, product partnerships will be done through profit sharing agreements. This light weight product sales model eliminates many of the costs associated with the development and sale of health products. The direct sales channel would initially include our private member health clubs and our own online direct sales platf orm. The Company is also considering launching a small network of self-owned retail stores in major Chinese cities to sell our Demao Tang products in the second half of 2010, after which the Company plans to expand the network through franchising.  

We expect to successfully sell club memberships and Demao Tang branded health products through its access (via its various affiliates) to a network of media channels which includes over 70 print media and 700 online media channels including online sales channels, many of which target our desired market: China’s rich and influential. Existing data indicates that China now has 900,000 people with over RMB10,000,000 in assets, of which 100,000 have over RMB100,000,000 in assets. We believe that as China’s economy continues its explosive growth, the number of Chinese consumers able and willing to access top quality health services will grow exponentially. Our health services and product business model is based on our assessment of the needs of the emerging Chinese healthcare market as it seeks to increase care capacity. We believe that lack of access to top-quality preventative treatments and particularly recovery care for major diseases like canc er is inversely matched by the demand among an ever expanding class of affluent Chinese consumers. By providing private, high-class health clubs and direct sales channels through which our branded health products and are directly provided to affluent customers, we believe we will be well placed to meet that demand.

We remind investors that our plans to re-focus our business to participate in the health club industry in China, specifically cancer treatment is subject to substantial risks and uncertainties. We can not predict whether we will be successful in identifying, selecting and investing in business, technologies, or treatments that will prove successful in our new business efforts. Our efforts will be subject to our ability to raise additional funds (which in turn will cause dilution to existing shareholders), formal agreements with numerous parties, certain asset valuations, and various approvals including, but not limited to, debt holder approval, approval of professionals, and other regulatory approval.  Therefore, we can not predict with certainty whether we will be successful in our re-structuring efforts. As this time, we can not predict the exact combination of efforts required to achieve our strategy. As of the date of this report, we are in the process of formulating our plan, and have not entered into any formal agreements regarding any of the forgoing. It is conceivable that we may enter into merger, share exchange, direct investment, consulting, joint venture, or licensing agreements or a combination thereof, with targeted companies.  If we are required to issue our common stock in connection with our strategy, it is likely that significant dilution will result to existing shareholders. Moreover, as a result of one or more such transactions, a change of control of our company may result due to the issuance of our common stock.

Prior to fiscal year 2008, we had planned to develop an integrated online-offline direct sales platform for the ladies' apparel sector in China.China involving William Brand Administer Co. Ltd. However, our business and business strategy were adversely impacted in a material manner due to the appreciation of the Chinese currency (yuan) against the US dollar (which resulted in US consumers paying higher prices for products manufactured in China), coupled with an already weak US retail market. Accordingly, we were unable to meet our projected operating results and milestones for the various periods. The lack of operating results adversely impacted our stock price during the applicable periods. Due to the depressed price of our common stock together with the overall world-wide financial market turmoil, we were unable to raise the necessary funds to support our expansion strategy.

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Consequently in May 2008, as indicated above, we determined to change our business focus initially attempting to focusfocu s on the financial advisory/direct investments. As mentioned above, we have redirectedinvestments, and thereafter, redirecting this focus towards the healthcare industry in China.

ResultsAfter our transaction with Hua Hui in August 2009, our business strategy was to develop a network of Operations       upscale, private member health clubs in the PRC, however as noted above, on March 3, 2009 the Company and Hua Hui rescinded the transaction.

The following discussion relates to our existing internet and marketing consulting businesses. We provide internet based marketing and web-site development services to other companies in China. The discussions below exclude the results of operations of our businesses held for sale discussed elsewhere herein, except for the (Loss) Income from held for sale operations discussion below.

As a result of our recent transaction with Hua Hui,CIGE and Wang Yihan, as amended, our future business strategy is develop, market, and sell art products and art-themed luxury goods. The Company is currently setting up a PRC operating company in order to operate its art-themed product sales division. Under the resultsbrand name of “Artslux”, the Company plans to leverage its shareholder resources to form partnerships with the world’s most recognized artists and high-end luxury goods providers to create and/or sell art products and co-branded art-themed luxury products. Art products that the Company is considering selling include items such as lithographs and professional replicas of various art pieces produced by partnered artists. The Company is currently working to begin producing and selling art-themed products which would include limited edition wines and liquors produced by internationally acclaimed producers with customized labels featuring the works of renowned Chinese and inter national artists, or other luxury goods like watches, jewelry, etc. produced by the

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leading brands but featuring designs by partnered artists. We expect that the Artslux operation will consist of a team initially of 5 employees, including a head of operations, discussed below may not be meaningfulsales manager, marketing manager, product developer, and product designer. This team is already in potentially assessing future operationsplace and is currently being supported by an affiliate of our major shareholders SMIH and Redrock. Upon the completing the registration of the Company.PRC operational company by NextMart, the Artslux team will operate under the new company. We expect that the total costs for the company’s product sales division will be approximately US$2,100,000 for the first year of operations. Of the $2,100,000 amount, $1,242,000 is allocated to cost of sales which includes product purchasing and artist licensing fees, $640,000 is allocated to selling expenses including marketing and logistics, and $248,000 is allocated to general and administrative expenses including rent, salaries of 5 employees mentioned above, office expenses, an d miscellaneous expenses. The Company is hopeful to initially fund a majority of the required expenses from shareholder loans, with the remainder of the required capital for the business expected to come from a combination of revenues from operations and from a planned round of fundraising from third parties. We expect to generate sales in the first quarter of fiscal 2010. Please refer to our Form 8-K filed on May 14, 2010, for a description of the amended agreement with the CIGE and Ms. Wang Yihan. Ms. Wang is the Company’s President and CEO.

Results of Operations 

Three Months Ended June 30, 2009March 31, 2010 compared with Three Months Ended June 30, 2008March 31, 2009 (Unaudited)

Sales.  We do not have any sales for the three months ended March 31, 2010 and 2009.

Sales and Cost of Sales.  During the three months ended June 30,March 31, 2010 and 2009, we had $57,215 in sales while there was no revenue from operations for the comparable period in 2008.

Cost of Sales. Ourour costs of sales for the 2009 period and 2008 period were $18,593 and $0 respectively. Cost of Sales represents personnel cost of the consulting business.both $0.

Gross Margin.Margin. As a result of the foregoing, our gross marginsmargin for the three months ended June 30,March 31, 2010 and 2009 and 2008 were $38,622 andboth $0 respectively.

Operating Expenses.Expenses. Operating expenses (which includeswhich include general and administrative expenses, consulting and professional fees, and depreciation and amortization)amortization, for the three months ended June 30, 2009March 31, 2010 totaled $232,799,$77,430, a decrease of $ 882,190$189,791 or 79.12%71% from $1,114,989$267,221 for the corresponding 20082009 period. General and administrative expenses were $174,209$31,588 for the 20092010 period, a decrease of $560,795 or 76.3%$91,894 or74% from $735,004$123,482 for the 20082009 comparable period. The decrease for the 2009 period is due to reduced salaries and related expenses at our corporate office as a result of our scaled down operations.office. Depreciation and amortization totaled $40,195$0 for the 20092010 period, a decrease of $170,091 or 80.89%$94,815 from $210,286$94,815 for the comparable 20082009 period. The decrease for the 2009 period is due to mainly to reductionthe property and equipment sold in amortization resulting from the dispositionasset exchange and subscription agreement of intangible assets that occurred during the 12 month period ended June 30, 2009.March 31, 2010 and amended on May 10, 2010. Consulting and prof essionalprofessional fees for the 20092010 period totaled $18,395,$45,842, a decrease of $151,304$3,082 or 89.16%6% from $169,699$48,924 for the comparable period in 2008.2009. The decrease for the curren t period is due to a decrease in consulting fees reflects our reduced operations.the use of such professional services during the 2010 period.

Operating LossLoss.. We had an As we have no sales and cost of sales, the operating loss of $194,177 foris the 2009 period compared with an operating loss of $1,114,989 for the comparable period in 2008.same as operation expenses. The decrease of $920,812or 82.58%$189,791 or 71% from the prior period is due tobecause of the factors discussed above.

Other Income (Expense(Expense).). We had otheran impairment loss of assets held for sale of $5,670,506, interest expense on a senior convertible note We had impairment loss of assets held for sale of $5,670,506, interest expense – senior convertible note of $1,518 and gain on disposal of fixed assets of $165 during the 2010 period and we did not have these items in 2009. We had an amortization of discount on convertible note of $35,741 and interest expense –warrants option of $65,000 in 2009 and we did not have these items in 2010.We had an interest expenses of $610,168 during the$2,229 and $24 in 2010 and 2009 period compared with an interest income of $338 for the comparable period in 2008. The expense in 2009 period was for the interests and default penalties related to the convertible bonds.respectively.

Interest Expense. For the 2009 period, we had interest expense of $290,000 compared with $151,871 for the comparable period in 2008, due to the balance of the unamortized prepaid interest on convertible bonds was fully charged to interest expense during 2009.24

Loss from continuing operations. Our loss from continuing operations for the three months ended June 30, 2009 and 2008 was $1,094,345 and $1,266,522, respectively due to the reasons discussed above.

(Loss) Income from discontinuedthe operations and Net Loss.held for sale  Our.  We had a loss from discontinuedthe sale of operations of $352,368 for the three months ended June 30, 2009 was $64,189 compared with a gain of $113,289 in 2008. We have a net loss of $1,158,534March 31, 2010 and in 2009 and a net loss of $1,153,233we had income held for the comparable period in 2008.sale was $48,156.

Other Comprehensive Income(Loss)Income (Loss).. We had a Our foreign currency translation adjustment loss of $149,101 for the three months ended March 31, 2010 and 2009 period compared with a loss of $167,023 for the comparable period in 2008.were $7,431 and $(83,921) respectively. The increasedifference is due to the value of the US dollar in comparison to the RMB. In 2008, we had anRMB and HK dollar. Our unrealized loss of $1,096,828 due tofor the write down of securities held during the period due to the market delisting of such securities.three months ended March 31, 2010 and 2009 were $0 and $40,664 respectively. For the three months ended June 30, 2009,March 31, 2010, we had a comprehensive loss of $1,298,067$6,096,455 compared with a comprehensive loss of $2,417,084$444,367 for the comparable period in 20082009 for the reasons

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discussed above.

NineSix Months Ended June 30, 2009March 31, 2010 compared with NineSix Months Ended June 30, 2008March 31, 2009 (Unaudited)

Sales.Sales During. Our sales for the ninesix months ended June 30,March 31, 2010 and 2009 were $0 and 2008, we had sales of $98,852 and $0,$41,637 respectively. These sales were primarily due to the operation of consulting service business.business occurring in the first fiscal quarter of 2009 period.

Cost of Sales.sales. Our cost of sales for the ninesix months ended June 30,March 31, 2010 and 2009 were $0 and 2008 were $20,675 and $0,$2,082 respectively. CostThis was primarily due to the operation of Sales represents personnel cost of the consulting service business.

Gross Margin. As a result of the foregoing, our gross marginsmargin for the ninesix months ended June 30,March 31, 2010 and 2009 were $0 and 2008 were $78,177 and $0,$39,555 respectively.

Operating Expenses.Expenses. Our operating expenses (which includes general and administrative expenses, consulting and professional fees, and depreciation and amortization) for the ninesix months ended June 30,March 31, 2010 and 2009 were $155,475 and 2008 were $619,437 and $2,018,245,$415,892 respectively. General and administrative expenses were $386,114 for the 2010 and 2009 period, a decrease of $639,627 or 62.36% from $1,025,741 for the 2008 period.periods were $71,158 and $211,899, respectively. The decrease forin the 20092010 period was due to the assets exchange and reduced salaries and related expenses at our corporate office due to our scaled down operations.office. The depreciation and amortization expenses were $120,441 for the 2009 period, a decrease of $510,028 or 80.90%, from $630,469 for the 2008 period.$195 and $109,506 respectively. The decrease forin the 20092010 period is mainly due mainly to reductionthe property and equipment is dealt in amortization resulting from the disposition of intangible assets that occurred during the 12 month period ended June 30, 2009.asset exchange and subscription agreement. Consulting and professional fees were $112,882$84,122 and $362,035,$94,487, for the 20092010 and 20082009 periods, respectively. The decrease in the 2009 period reflects our reduced operations and revenues.

Operating LossLoss.. We had an operating loss of $541,260$155,475 for the 20092010 period compared with an operating loss of $2,018,245$ 376,337 for the comparable period in 2008.2009. The decrease from prior period is due to the factors discussed above.

Other Income (Expense(Expense).). We had otherimpairment loss of assets held for sale of $5,670,506, interest expense – senior convertible note of $1,518, gain on disposal of fixed assets of $165 during the 2010 period and we did not have these items in 2009. We had an interest expense of $610,313 during$6,544 for the 20092010 period compared with other incomean interest expense of $960$153 for the comparable period in 2008. For the 2009 period, the expense was for the interests and default penalties related to the convertible bonds.

Interest Expense.2009. For the 2009 period, we had an amortization of discount on convertible note of $71,482 and interest expense on–warrants option of $420,000 compared with $413,613 for the comparable period$130,000 and we did not have these items in 2008.

Loss from continuing operations. Our loss from continuing operations for the nine months ended June 30, 2009 and 2008 was $2,134,468 and $2,430,898, respectively. The difference is due to the reasons discussed above.2010.

(Loss)Income from discontinued operations.operations held for sale. We had a loss from discontinued operations held for sale of $352,368 and $978,942 for the ninesix months ended June 30,March 31, 2010 and 2009, of $590,978 compared with income of $209,065 from discontinued operations for the nine months ended June 30, 2008. The difference was due to reduced revenues for the 2009 period coupled with increased marketing and sales expenses and other office related expenses.respectively.

Other Comprehensive Income (Loss).. We had a Our foreign currency translation adjustment loss of $147,222 for the six months ended March 31, 2010 and 2009 period compared with a loss of $179,788 for the comparable period in 2008.were $6,625 and $(165,029) respectively. The increasedifference is due to the value of the US dollar in comparison to the RMB. In 2009RMB and 2008, we had anHK dollar. Our unrealized loss of $447,306for the six months ended March 31, 2010 and $2,342,934 respectively, due to the write down of securities held during the period due to the market suspension of such securities.2009 were $11,520 and $456,873 respectively. For the ninesix months

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ended June 30, 2009,March 31, 2010, we had a comprehensive loss of $3,309,974$6,191,141 compared with a comprehensive loss of $4,744,555$2,178,816 for the comparable period in 2008.2009 for the reasons discussed above.

Liquidity and Capital ResourcesResources.

We have financed our operations primarily through cash generated from equity investments, operating activities and a mixture of short and long-term loans for affiliatedfrom affiliates (some of which have been converted to equity) and non-affiliated parties.non-affiliates.

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The following table summarizes our cash flows for the ninesix months ended June 30, 2009March 31, 2010 and 2008:2009:

Our total assets as of June 30, 2009 were $10,335,408. Our total liabilities as of June 30, 2009 were $5,772,563. As of June 30, 2009, we had working capital of $(603,763) compared with $1,501,687 as of September 30, 2008. The decrease is due to cash used in operations, the reduction in marketable securities, and increases in other payables, accrued expenses.

We continueAs of March 31, 2010, we had total assets of $3,814,412, total liabilities of $4,037,173 and a working capital deficit of $(563,799).

On March 26, 2010, effective however on March 3, 2010, we completed a Convertible Debt Settlement Agreement with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”) to experience significant lossesconvert RMB 2,255,000 (approximately $329,866 USD) in outstanding loans due to Hua Hui into a convertible promissory note with a principal amount of $331,385. The issued notes were due on demand and interest accrued at the rate of 6% per annum until paid.

The Company expects that the total costs for the company’s product sales division will be approximately $2,100,000 for the first year of operations. Of the $2,100,000 amount, $1,242,000 is allocated to cost of sales which includes product purchasing and artist licensing fees, $640,000 is allocated to selling expenses including marketing and logistics, and $248,000 is allocated to general and administrative expenses including rent, salaries of 5 employees mentioned above, office expenses, and miscellaneous expenses. The Company is hopeful to initially fund approximately $500,000 of the required expenses from operations. We are uncertain asloans from shareholders or their affiliates, with the

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remainder of the required capital for the business expected to when we will achieve profitable operations. We have an immediate need for capital to conduct our ongoingcome from a combination of revenues from operations and from a planned round of fundraising from third parties. We expect to advancegenerate sales from the planned venture investment strategy. We anticipate raising capital through additional private placementssale of our equity securities, proceeds receivedart themed products during the third quarter of fiscal 2010. Thereafter, the Company believes that revenues from its operations will support its ongoing operational needs. Presently, we have no arrangement or understanding with any party, including any shareholder or their affiliates, regarding the exerciseraising of outstanding warrants and options, and, if available on satisfactory terms, debt financing.required capital. We can not guaranteecannot provide assurances that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may forced us to restructure, file for bankruptcy, sell assets or cease operations, any of which couldco uld adversely impact our business and busines sbusiness strategy, and the value of our capital stock. Due to the current price of our common stock, any common stock based financing, including transactions with affiliates which may entail the equity conversion of existing loans, will create significant dilution to the then existing shareholders.stockholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future, which also may create significant dilution to existing shareholders.stockholders.

The Company'sNextMart reminds investors that its plans to re-structure its business and adopt a new business plan has two interelated models: 1) developing a networkin art related industry will be subject to various conditions and requirements. These conditions and requirements include but are not limited to the ability to obtain capital in the near term, formal agreements with numerous parties including artists, luxury goods manufacturers, and real estate developers, certain asset valuations, and various approvals including potentially other regulatory approvals, none of Demao Tang branded health clubs; 2) Initiating a direct sales business for Demao Tang branded health products.which can be affirmed as of the date of this report. The company plansCompany also reminds investors that even if it is able to roll outmeet the various conditions and requirements indicated above, it can not predict whether it will be successful with its new business plan by initially focusing on developing its network of Demao Tang health clubs. To the end, in 2009 and 2010 we are planning to open up three Demao Tang clubs in Beijing, Shanghai, and Huangshan Mountain respectively. For these three clubs, the Company plans to partner with China’s most elite members clubs to embed its Demao Tang clubs and related health services and products into their existing operations. In order to launch the development and marketing of these initial Demao Tang Clubs, we anticipate that we will incur at total of RMB20,000,000 (or approximately US$ 2,925,516) expenditures during the fiscal years 2009 and 2010 . The Company expects that most of the incurred costs for developing the healt h club business will be financed by our major shareholders Beijing Hua Hui Hengye Investment Ltd. and Redrock Capital Venture Ltd, with any additional funds to be raised through third parties. However, presently, we do not have any commitments for such funds. The issuance of our common stock to riase funds will likely cause significant dilution to existing shareholders.  

In 2010 we plan to develop our direct sales model. For direct sales business, we plan to partner with established producers to self-brand already developed and government approved supplements, herbal medicines, and general health products. To begin with, we plan to sell these health products through online direct sales platforms.our network of Demao Tang clubs and other partnered elite members clubs. At this time we expect that the operational capital for our initial direct sales business would be RMB5,000,000 (or US$731,379) a year. We expected that the majority of these operational costs can be funded by selling our Demao Tang Club membership cards for the three clubs mentioned above. The initial price of membership cards are expected to vary between RMB50,000 to RMB 500,000 (US$7,313 to US$73,138), depending on the services purchased

19

by club member.initiatives.

Contractual Obligations

 None.

New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued amended revenue recognition guidance for arrangements with multiple deliverables (ASU No. 2009-13) (ASC No. 605). The majoritynew guidance eliminates the residual method of our operationsrevenue recognition and allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. For the Company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. The Company is currently assessing its implementation of this new guidance, but does not expect a material impact on the Consolidated Financial Statements.

In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting (ASU No. 2009-14) (ASC No. 985). Tangible products containing software components and non-software components that function together to deliver the product’s essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. For the Company, this guidance is effective for all new or materially modified arrangements entered into on or after January 1, 2011 with earlier application permitted as of the beginning of a fiscal year. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that the Company adopts the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. The Company is currently assessing its implementation of this new guidance, but does not ex pect a material impact on the Consolidated Financial Statements.

In September 2009, the FASB issued amended guidance concerning fair value measurements of investments in certain entities that

27

calculate net asset value per share (or its equivalent) (ASU No. 2009-12) (ASC No. 820). If fair value is not readily determinable, the amended guidance permits, as a practical expedient, a reporting entity to measure the fair value of an investment using the net asset value per share (or its equivalent) provided by the investee without further adjustment. The amendments are effective for interim and annual periods ending after December 15, 2009. The Company does not expect a material impact on the Consolidated Financial Statements due to the adoption of this amended guidance.

In August 2009, the FASB issued guidance on the measurement of liabilities at fair value (ASU No. 2009-5) (ASC No. 820). The guidance provides clarification that in China, where we have leased officescircumstances in Beijing. Our Beijing office consistswhich a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of 8,740 square feet.an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The lease extendsCompany adopted this guidance in the year ended November 30, 2009 and there was no material impact on the Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2009-02. “Amendments to Various Topics for Technical corrections.” ASU No. 2009-2 is an omnibus update that is effective for financial statements issued for interim and annual periods ending after July 1, 2009. This Statement did not impact the Company’s Consolidated Financial Statements.

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASC No. 105), “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a periodreplacement of two years terminatingFASB Statement No. 162” (the Codification). The Codification, which was launched on July 31, 2011. Our1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual rent is $192,569. Atperiods ending after September 15, 2009. The Company adopted this Statement for its year ended November 30 , 2009. There was no change to the Company’s Consolidated Financial Statements due to the implementation of this Statement.

In June 30, 2009, the total future commitmentsFASB issued SFAS No. 167 (ASC No. 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 166 (ASC No. 860), “Accounting for minimum rentals payment are $48,142Transfers of Financial Assets—an amendment of FASB Statement No. 140 (ASC No. 860).” SFAS No. 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for fiscaldetermining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (QSPEs). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The Company will adopt these Statements for interim and annual reporting periods beginning on January 1, 2010. The Company does not expect the adoption of these standards to have any material impact on the Consolidated Financial Statements.

In May 2009, the FASB issued SFAS No. 165 (ASC No. 855), “Subsequent Events.” This Statement sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or

28

transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. The Company adopted this Statement in the year ended November 30, 2009. This Statement did not impact the consolidated financial results.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder'sstockholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Application of Critical Accounting Policies

Our significant accounting policies are described in Note 1 to our audited consolidated financial statements previously included in our Annual Report on Form 10-K for the year ended September 30, 2008.2009. We prepare our financial statements in conformity with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period.

Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demand on our management'smanagement’s judgment.