NEXTMART, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED June 30, 20092010

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.  

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See notes to consolidated financial statements.

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NEXTMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations.

On March 31, 2010, NextMart, Inc. (“NextMart” or “Company”) entered into an Asset Exchange and Subscription 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. The agreement was amended on May 10, 2010 but effective March 31, 2010. Under the amended agreement NextMart agreed to sell directly to Ms. Wang the following assets (“Transferred Assets”) (”see NOTE 9 HELD FOR SALE OPERATIONS): 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 Ex hibition Ltd., a PRC registered company; 4) the net assets of NextMart’s 100% owned subsidiary Sun New Media Group Ltd. (a BVI registered company) and its 100% owned subsidiary China Cancer Institute Ltd. (a PRC registered company) and 5) certain other miscellaneous non material assets. The Transferred Assets excluded cash in the subsidiaries, certain office furniture and equipment and certain securities.

About the Transferred Assets, Ms. Wang agreed to transfer to NextMart certain land usage rights for commercial real estate property within 24 months from date of the amended agreement. 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. 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. Land use rights are granted for specific purposes and for limited periods. Each period may be renewed at the expiration of the 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 prope rty within the 24 month period, she is obligated to provide NextMart with equivalent common stock of a publicly traded company acceptable to NextMart.

On June 22, 2010, the Company entered into an asset acquisition agreement (the “Acquisition Agreement”) with CIGE and Ms. Wang Yihan, the sole owner and director of CIGE who is also our Chairman and CEO. Under the terms of the Acquisition Agreement, NextMart acquired from CIGE the below described Assets for an agreed price of $750,000 (the “Consideration”). NextMart agreed to pay the Consideration by issuing to Ms. Wang Yihan 75,000,000 shares of its common stock. As a result of this transaction, Ms. Wang will become NextMart’s second largest shareholder with a 27.96% ownership of the company.

Under the terms of the Acquisition Agreement, CIGE sold to NextMart the following assets (the “Assets”):

1)

 ownership of CIGE’s 10,000 member consumer database,

2)

 exclusive ownership of all advertising space for every art exhibition event held by CIGE in greater China (including Hong Kong and Macao, and Taiwan) for the next 30 years, and

3)

 exclusive ownership of the "Gallery Guide" brand name and all gross revenues generated by the magazine publication for the next 30 years, including but not limited to advertising revenue and sponsorship revenue.

The agreement further provides that if for any reason or under any circumstance during the next 30 years CIGE ceases holding any of its exhibitions or ceases publishing the Gallery Guide, NXMR shall have the right to buy those exhibitions and “Gallery Guide” brand name for the price of $1 each from CIGE.

As a result, NextMart’s current business operations consists of 1) the sale of marketing solutions through our art events and art media marketing channels, and 2) the design and marketing of art-themed products lines for existing luxury and high-end goods and services, and art themed real estate developments.

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On June 22, 2010, NextMart also entered into a strategic cooperative agreement (“Strategic Agreement”) with its shareholder Sun Media Investment Holdings Ltd. (“SMIH”) and with Redrock Land Investment Ltd. (“Redrock Land”), an affiliate of the Company’s major shareholder Redrock Capital Venture Ltd. (“Redrock”).

Under the Strategic Agreement, Redrock Land will provide NextMart a $1,000,000 interest free, unsecured loan. The loan is due on demand any time after the first anniversary of the loan. As of the date of this report, the loan has not been provided to the Company. Redrock Land also has agreed that within the next 24 months, it will partner with NextMart on three of its real estate development projects that will be art related.  For each such project, NextMart will act as the project’s concept, marketing, and sales consultant (see below for details on the Company’s planned Real Estate Marketing and Sales business). Redrock Land is a PRC registered company engaged in land investment and development in China. The company typically co-invests with real estate developers to acquire land and launch development projects. As part of its cooperation with NextMart, Redrock Land will secure land and developing partners for thr ee art related developments that NextMart will supply paid consulting service. SMIH has agreed to provide NextMart with approximately $6,000,000 worth of advertising space over the next five years in various media outlets owned by it or its affiliates. The $6,000,000 worth of advertising space will be allocated to NextMart such that every year for 5 succeeding years NextMart will have access to $1,200,000 in advertising space in various print magazines and online websites and e-magazines owned by SMIH or its affiliates. Such advertising space will be subject to availability and market prices, and the Company intends to limit the use of the advertising space to market its Artslux products.

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 consolidationASC No. 810consolidation of Variable Interest Entities, FIN 46R, an Interpretation of Accounting Research Bulletin No.51. FIN 46REntities. ASC No. 810 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 nited StatesUnited St ates 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 June 30, 2010, and consolidated results of operations, and cash flows for the three month periods and nine months periods ended June 30, 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 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 ASC No 360 (formerly SFAS No.144,No.144), accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include a significant decrease in operating results, a significant change in its use of assets, competitive factors, strategy of its business, and significant negative industry or economic trends. The company cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on the reported asset values. Such events may include strategic decisions made in response to the economic conditions relative to product lines, operations and the impact of the economic environment on our customer base.  When the Company determines that the carrying value of long-lived assets may not be recoverable based on as assessment of future cash flows from the use of those assets, an impairment chargechar ge 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 ASC No. 220 (formerly FASB No. 130,130), “Reporting Comprehensive Income (Loss)”. The comprehensive loss for the Company includes currency translation adjustments and unrealized loss on marketable securities.

InventoriesRecently Issued Accounting Pronouncements Affecting the Company

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 exceed net realizable value.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 expect a material impact on the Consolidated Financial Statements.

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 StaffASC No. 605 (Staff Accounting Bulletin (“SAB”) No. 104,104) “Revenue Recognition,” when all of the following conditions exist: persuasive evidence of an arrangement exists in the form of providing consulting services; or

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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 (“SFAS”)ASC No. 52,830 ( formerly SFAS No. 52), “Foreign Currency Translation”, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are translated using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and capital asset accounts are translated by using historical exchange rates. Any translation gain or loss incurred is reported in the consolidated statement of operations. In 2009,this period, we used 6.82686.83603 RMB per USD for the weighted average rate, and we used 6.83536.8086 RMB per USD as the balance sheet date rate (June 30, 2009)2010).

Income taxes

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

Stock-based compensation

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

Related Parties

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

Deferred Charges

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

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Convertible Notes and Notes Issued with Stock Warrants

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The Company accounts for convertible notes and notes issued with stock warrants in accordance with ASC 470-20 (formerly APB No. 14,14), Accounting for 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 Septembercommon stock at June 30, to January 18, 2009, the shares of CEC Unet, PLC were suspended from trading on AIM Market. Having reviewed the valuation2010 reflect 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.issuer.

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).

NOTE 43 – PROPERTY, PLANT AND EQUIPMENT

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

Property and equipment is summarized as follows:

DepreciationAmortization for thethree months ended June 30, 2010 was $0 compared with three months ended June 30, 2009 $40,195, respectively. Amortization for nine months ended June 30, 2010 was $195 compared with nine months ended June 30, 2009 was 441 compared withof $120,441, respectively. The difference between the nine months ended June 30, 2008 $71,791, respectively.2010 and 2009 periods is due to the sale of certain office

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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 warrant holder will receive a “Class C” warrant to purchase that number of shares for which such Class A warrant or Class B warrant is exercised at an exercise price of $2.00 per share. 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), 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. AsIn addition to the payment made at closing, we also made principal payments of May 9, 2009, an additional $250,000 was due$250,000and $150,000 during fiscal 2009. During fiscal 2010, we made $100,000, $ 250,000, $165,000 and payable.$67,000 i n principal payments. We made a payment of $150,000 of the amount due in July 2009 and $100,000 of the May payment remains outstanding. Wealso agreed to pay interest and penalties of $610,126 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 $982,000 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 approximately $1.13 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 500,000 shares of our common stock issuable as prepaid interest on the Senior Note.

On March 26, 2010, we used these fundscompleted 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 $331,199 as of June 30, 2010 and will due in 18 months since issued date. The convertible promissory as effective as of March 3, 2010 and has the following features:

·

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.

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·

If the Company has not affected 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").  

·

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.

·

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.

·

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

·

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

·

If there is a default in the payment after a Qualified Funding, then default interest will accrue on the amount of the Qualified Funding a rate of one percent (1%) per day until paid.

makeThe interest of the initial payment under the Settlement Agreement. Dr. Bruno Wu, our former Chairmanthree months and an influential person of our company,nine months ended June 30, 2010 is the Chairman of Redrock, however, Dr. Wu has no ownership interest in Redrock. Dr. Wu’s wife, Ms. Yang Lan, is the majority shareholder of Redrock. She is also the controlling shareholder of Sun Media Investment Holdings, one of our shareholders. The loan from Redrock is due on demand$ 4,880 and bears no interest.$ 6,398, respectively.

NOTE 65 - OTHER PAYABLES AND ACCRUALS

Other payables and accruals are summarized as follows:

Other payables mainly includeare amounts due to the principal and interests payment to some certain accredited investors who originally held our convertible notes (See Note 4. -Convertible Notes, Warrants And Stock Options), professional fees, other deposit, and other office expenses. Included in accrued operating expenses are business tax, VAT and consulting expenses.

NOTE 6 — COMMITMENTS AND CONTINGENCIES

Commitments

As of March 2010, the Company terminated its office lease without penalty. Since the termination of its office lease, the Company maintains an office under an oral arrangement with its shareholder Sun Media Investment Holdings Limited. The arrangement is month to month, on a rent free basis. As a result the Company currently has no capital commitments in this regard.

NOTE 7 – OPERATING LEASES-AMOUNTS DUE TO STOCKHOLDERS

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

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The amounts due to Redrock Capital Venture Limited are due on demand and bear no interest. Due to the termination of 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 8 -AMOUNTS DUE FROM/ (TO) SHAREHOLDERS/TO RELATED PARTIES

The amounts due related parties are summarized as follows:

The amounts $ 77,000 and $ 165,000 due fromto Redrock Thinktank (Group) Limited and Wu Bruno, respectively are due on demand after one-year and bear an annual interest of 5%. The amounts due to shareholdersRedrock Thinktank (Group) Limited and other related parties are non-trade, non interest bearing and with no fixed terms of repayment.

Mr Wu Bruno Zheng were mainly used to pay the convertible notes investors in 2010 (see NOTE 4CONVERTIBLE NOTES, WARRANTS AND STOCK OPTIONS).

NOTE 9- DISCONTINUEDHELD FOR SALE OPERATIONS

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 Sun New Media Group Ltd. (a BVI registered company) and its 100% owned subsidiary China Cancer Institute Ltd. (a PRC registered company) and 5) certain other non-material businesses. In keeping with that intent, on August 1, 2009,miscellaneous non material assets. These assets excluded cash in all the Company entered intosubsidiaries certain office furniture a nd equipment and certain other securities. (“Transferred Assets”)

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

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11-Subsequent Events). 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, 2009:2010:

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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 three months and nine months ended June 30, 20092010 and 2008.2009.

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NOTE 10- COMMON STOCKGOING CONCERN AND MANAGEMENT PLAN

The 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 June 30, 2010, the Company had an accumulated deficit totaling $96,576,316 and its current liabilities exceeded its current assets by $608,213. 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.

On March 9, 2009, as previously reported, we completed a Subscription Agreement with Redrock Venture Capital Ltd (“Redrock”), a BVI company, under which we agreed to issue up to $1,500,000 of our senior convertible notes (“Senior Notes”) to Redrock. At closing, we issued $1,250,000 in Senior Notes in exchange for the cancellation of demand notes for the same principal amount held by Redrock. As a result a total of $250,000 remained unsubscribed under the Subscription Agreement. On April 15, 2009, Redrock converted the $1,250,000 Senior Note into 83,333,333 shares of our common stock. We also issued Redrock 2,500,000 shares of our common stock as prepaid interest for the $1,250,000 Senior Note.

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

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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 sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”), an unaffiliated PRC company (See Note 11-Subsequent Events). Under the terms of the Agreement, the Company received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel located in the city of Changde in China’s Hunan Province (“Project”). As consideration, the Company shall pay RMB100,000,000 (US$14,627,811), to be satisfied by issuing to Hua Hui 250,000,000 shares of its common stock valued at US$0.024 per share (the closing price of the Company’s common stock onrecent transactions with CIGE and Wang Yihan, as amended, its future business strategy is art event and art media direct marketing, direct sales of art products and art-themed luxury goods, and providing marketing and sales for art related real estate development projects. The Company plans to leverage the transaction date) for a total stock value of approximately RMB41,000,000 (or US$6,000,000).  Upon completion ofart event and art media advertising and marketing channels acquired in the transaction, Hua Hui will become the Company’s majority shareholderAcquisition Agreement to offer unique art related marketing and will own approximately 56.41% Company’s o utstanding shares.advertising services targeting China’s wealthiest consumers.  

The transaction will be executed throughCompany also entered into a strategic cooperative agreement (“Strategic Agreement”) with its shareholder Sun Media Investment Holdings Ltd. (“SMIH”) and with Redrock Land Investment Ltd. (“Redrock Land”), an escrow agreement (“Escrow Agreement”) in which Hua Hui will receive 30%affiliate of the SharesCompany major shareholder Redrock Capital Venture Ltd. (“Redrock”). Redrock Land has agreed to provide NextMart a $1,000,000 interest free loan due on demand after one year. SMIH has agreed to provide NextMart with approximately $6,000,000 worth of advertising space over the next five years in various media outlets owned by it or its affiliates.

In addition to its arrangement with Redrock Land, the Company is actively pursuing additional funding and allarrangements with third parties and potential strategic partners in an effort to fund its ongoing working capital requirements. The Company’s working capital requirements for the Assets within 90 days of signingnext 12 month is estimated at approximately $1.5 million. Management is hopeful that the Agreement. The other 70% ofabove actions will allow the Shares will be held in escrow untilCompany to continue its operations through the completion of the Construction.current fiscal year.

NOTE 11- SUBSEQUENT EVENTSEVENT

On August 1, 2009,July 8, 2010, 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 rightsissued 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 250,000,000Ms. Wang Yihan 75,000,000 shares of its common stock valued at US$0.024 per share (the closing pricein fulfillment of its obligation under 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.Acquisition Agreement.

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.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the " Securities Act ") and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the " Exchange Act "). Such statements relate to, among other things, our future plans of operations, business strategy, operating results and financial position and are often, though not always, indicated by words or phrases such as "anticipate," "estimate," "plan," "project," "outlook," "continuing," "ongoing," "expect," "believe," "intend," and similar words or phrases. These forward-looking statements include statements other than historical information or statements of current condition, but instead represent only our belief 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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disclosed in our Annual Report on Form 10-K for the year ended September 30, 2008:

Our short operating history and rapidly evolving business history makes it difficult for us to accurately forecast revenues and expenses;

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

We have no agreements for our new business endeavors and we have not  established standards for such transactions.model is largely untested; ;

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

Consequently, readers of this Report should not rely upon these forward-looking statements as predictions of future events.Certain risks also exist with respect to our newly developed and developing art themed product and services and  marketing business. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update or revise any forward-looking statements in this Report to reflect any new events or any change in conditions or circumstances. All of the forward-looking statements in this Report are expressly qualified by these cautionary statements.

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

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

Overview

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

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

15Overview

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)(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 attemptingat tempting to focus on the financial advisory/direct investments. As mentioned above, we have redirectedinvestments, and thereafter, redirecting this focus towards the healthcare industry in China.

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

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As a result of our recent transaction with CIGE and Wang Yihan, as amended, its future business strategy is art event and art media direct marketing, direct sales of art products and art-themed luxury goods, and marketing and sales for art related real estate development projects. (Please refer to a detailed description of our proposed business contained in our Form 8-K filing dated June 23, 2010, as amended on July 1, 2010). It intends to capitalize on its CIGE relationship as well as the experience, brand recognition, and resource integration capacities of its major shareholders, including Ms. Wang Yihan, Redrock Capital Venture, Ltd., and Sun Media Investment Holdings Limited. We began developing our business in March 2010 when Ms. Wang became the Company’s Chairman and CEO and soon thereafter, the Company launched its “Artslux” branded products.

Going forward, our business operations will include:

o

art event and art media direct marketing;

o

design and marketing of art-themed products lines created for existing luxury and high-end goods and brands and art themed real estate developments,

Art Event And Art Media Direct Marketing

NextMart plans to leverage the art event and art media advertising and marketing channels acquired from CIGE to offer unique art related marketing and advertising services targeting China’s wealthy consumers. Prospective clients will include any luxury brand goods and/or services companies targeting China’s sophisticated and wealthy classes. In addition, we expect to provide marketing channels for its Artslux branded products. Client advertisers will be provided with a detailed description of services and a budget for its specialized advertising or marketing program. The program may include brand consulting, direct mail pieces and advertising space in our art events and/or our media advertising channels which will be tailored to meet the specific needs of each client. For our services, we will charge a negotiated fee dependent on the parameters of the marketing effort. We intend to use the following art related advert ising and marketing channels:

-The 10,000 member CIGE Consumer Database,

-All advertising rights forChina International Gallery Exposition,

-All advertising rights forGREEN Exhibition,

-All advertising rights toGallery Guide Magazine, and

-$1,200,000 in advertising space in various print magazines and online websites and e-magazines owned by SMIH or its affiliates for five consecutive years.

We expect that the total costs for the company’s direct advertising and marketing will be approximately $250,000 for the first year of operations. Of the $250,000 amount, $190,000 is allocated to selling expenses including marketing and logistics for services, and $60,000 is allocated to general and administrative expenses including rent, salaries, office expenses, and miscellaneous expenses.

Art Themed Products and Services Design and Development

The Company will use Oxas Beijing Limited to operate its art-themed product and services division. Under the brand name of “Artslux”, the Company plans to leverage its shareholder resources to form partnerships with the world’s most recognized artists and Chinese and international high-end luxury goods providers, financial institutions, and real estate developers to create and design value added art themed products and services for existing product lines. Art products and services that the Company is planning to create and design include:

1. Art Branded High-End and Luxury Goods

The company has already begun to develop art themed wines and spirits by creating limited edition artist labels that would be printed for select high-end wines and spirits. We also plan to create watches, cigar boxes, jewelry, furniture, electronics, etc. designed by famous artists or featuring their artworks. We have already partnered with Chinese artist Cheng Yifei and Chateau Pey La Tour to produce and launch a limited edition artist collection of Chateau Pey La Tour. It is estimated that the total costs for the company’s product sales division will be approximately $270,000 for the next 12 months of operations. Of the $270,000 amount, $80,000 is allocated to cost of sales which includes artist licensing and design fees, $190,000 is allocated to selling and

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general expenses including marketing and logistics, support staff, among other items.

2. Financial Institution Products and Services

We plan to begin developing art themed products and services for major financial institution. The products and services could include credit cards for high-net individual customers, art themed luxury goods as special gifts for high value clients, art themed luxury goods for loyalty rewards programs and for sale in product catalogues. While the company expects to begin producing such products and services sometime in the next 12 months, the company at this time has not yet engaged in serious negotiations with any parties, and we are therefore still unsure of the costs that will be associated with such products and services.

3. Art Branded Real Estate

NextMart is offering unique art based real estate consulting, marketing, and sales services to real estate developers in China under its brand “Artslux”. We plan to leverage our art industry know-how, reputation in the art community, and extensive art related marketing and sales channels to assist developers to successfully develop art-themed real estate developments. Under our model, NextMart will act as strategic advisor to real estate developers to create unique development concepts centered on art facilities and artistic communities. Art themed real estate development projects would include artist living/work spaces, galleries, exhibition spaces, multi-function art galleries, museums, auction houses and other facilities. The Company is currently in final status negotiations with certain real estate developers and local governments to produce and art development just outside Beijing. We target to close the deal sometime in the fourth quarte r of fiscal 2010. The Company estimates that the total costs for its art themed real estate development business will be approximately $300,000 for the next 12 months of operations. Of the $300,000 amount, $90,000 will be allocated to cost of sales which includes government lobbying, and professional services fees for feasibility reports and concept designers, and $210,000 is allocated to G&A such as selling costs, rent, and salaries, among other costs.

For the next 12 months of its “Artslux Branded” art themed products and services design and development business, NextMart expects that the total costs associated with the business will be approximately $570,000. Of the $570,000 amount, $170,000 will be allocated to cost of sales, which includes design and development costs, third party outsourcing costs, etc, while $400,000 will be attributed to G&A.

Results of Operations       

The following discussion relates to our existing internet and marketing consulting businesses. We provide internet based marketing and web-site development services to other companies in China. The discussions below exclude the results of operations of our businesses held for sale discussed elsewhere herein, except for the (Loss) Income from held for sale operations discussion below. As a result of our recent transaction with Hua Hui, the results of operations discussed below may not be meaningful in potentially assessing future operations of the Company.

Three Months Ended June 30, 20092010 compared with Three Months Ended June 30, 20082009

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

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

Gross Margin. As a result of the foregoing, our gross margins for the three months ended June 30, 2009 and 2008was $57,215. These sales from the 2009 period were $38,622 and $0, respectively.primarily due to the operation of consulting service business. We did not have any similar revenues for the comparable period in 2010.

Gross Margin. Our cost of sales for the three months ended June 30, 2009 was $18,593. This was primarily due to the operation of consulting service business. The costs of sales for the 2009 period were due to the operation of consulting service business.

Operating 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, 20092010 totaled $232,799,$48,215, a decrease of $ 882,190184,584 or 79.12%79% from $1,114,989$232,799 for the corresponding 20082009 period. General and administrative expenses were $20,955 for the 2010 period, a decrease of $153,254 or 88% from $174,209 for the 2009 period, a decrease of $560,795 or 76.3% from $735,004 for the 2008 comparable period. The decrease for the 2009 period is due to reduced head count and related salaries and related expenses at our corporate office as a result of our scaled down operations.office. Depreciation and amortization totaled $0 and $40,195 for the 2010 period and 2009 period, a decrease of $170,091 or 80.89% from $210,286 for the comparable 2008 period.respectively. The decrease for the 2009 period is due to mainly to reduction in amortization resulting from the disposition of intangible assets that occurred during the 12 month period ended June 30, 2009.assets. Consulting and prof essionalprofessional fees for the 20092010 period totaled $18,395, a decrease$27,260, an increase of $151,304$8,865 or 89.16%48% from $169,699$18,395 for the comparable period in 2008.2009. The decrease in consultingincrease reflects higher legal fees reflectsi n connection with launching our reduced operations.new art based business.

Operating Loss. We had an operating loss of $194,177$48,215 for the 20092010 period compared with an operating loss of $1,114,989$194,177 for

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the comparable period in 2008.2009. The decrease of $920,812or 82.58%$145,962 or 75% from the prior period is due tobecause of the factors discussed above.

Other Income (Expense). We had other expensesan Interest expense of $610,168 during$4,880 for the 20092010 period compared with an interest incomeexpense of $338$290,000 for the comparable period in 2008. The expense in 2009 period was for the interests and default penalties related to the convertible bonds.

Interest Expense.2009. For the 2009 period, we had interest expensepenalty of $290,000 compared with $151,871 for the comparable periodcancelling convertible notes of $ 610,168 and we did not have these items in 2008, due to the balance of the unamortized prepaid interest on convertible bonds was fully charged to interest expense during 2009.2010.

Loss from continuing operations. Our loss from continuing operations for the three months ended June 30, 2010 and 2009 was $53,044 and 2008 was $1,094,345, and $1,266,522, respectivelyrespectively. The reason of the differences is due to the reasons discussed above.

(Loss) IncomeLoss from discontinued operations and Net Loss.held for sale operations. Our loss from discontinuedheld for sale operations for the three months ended June 30, 2009 was $64,189$64,189.

Net loss. We had a net loss of $53,044 for the 2010 period compared with a gain of $113,289 in 2008. We have a net loss of $1,158,534 in 2009 and a net loss of $1,153,233 for the comparable period in 2008.2009.

Other Comprehensive Income(Loss)Income (Loss). We had a foreign currency translation adjustment loss of $149,101$1,971 for the 20092010 period compared with a loss of $167,023$149,101 for the comparable period in 2008.2009. The increasedifference is due to the value of the US dollar in comparison to the RMB.RMB and HK dollar. In 2008,2010, we had an unrealized gain of $420 compared with a loss of $1,096,828 due to$9,568 for the write down of securities held during thecomparable period due to the market delisting of such securities.in 2009.

Total comprehensive loss. For the three months ended June 30, 2009,2010, we had a comprehensive loss of $1,298,067$54,595 compared with a comprehensive loss of $2,417,084$1,298,067 for the comparable period in 20082009 for the reasons

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discussed above.

Nine Months Ended June 30, 20092010 compared with Nine Months Ended June 30, 20082009

Sales. DuringOur sales for the nine months ended June 30, 2009 and 2008, we had sales of $98,852 and $0, respectively.was $98,852. These sales were primarily due to the operation of consulting service business. We did not have any similar revenues for the comparable period in 2010.

Cost of Sales.sales. Our cost of sales for the nine months ended June 30, 2009 and 2008 were $20,675 and $0, respectively. Costwas $20,675. This was primarily due to the operation of Sales represents personnel cost ofconsulting service business. The decrease is in line with the consulting business.drop in sales.

Gross Margin. As a result of the foregoing, our gross marginsmargin for the nine months ended June 30, 2001 and 2009 was $0 and 2008 were $78,177 and $0, respectively.

Operating Expenses. Our operatingOperating expenses (which includeswhich included general and administrative expenses, consulting and professional fees, and depreciation and amortization)amortization, for the nine months ended June 30, 2010 totaled $203,690, a decrease of $ 415,747 or 76% from $619,437 for the corresponding 2009 and 2008 were $619,437 and $2,018,245, respectively.period. General and administrative expenses were $92,113 for the 2010 period, a decrease of $ 294,001 or 76% from $386,114 for the 2009 period, a decrease of $639,627 or 62.36% from $1,025,741 for the 2008comparable period. The decrease for the 2009 period wasis due to reduced headcount and related salaries and related expenses at our corporate office due to our scaled down operations. The depreciationoperations.. Depreciation and amortization expenses weretotaled $195 and $120,441 for the 20092010 period a decrease of $510,028 or 80.90%, from $630,469 for the 2008and 2009 period. The decrease for the 2009 period is due mainly to reduction in amortization resulting from the disposition of intangible assets that occurred during the 12 month period ended June 30, 2009.assets. Consulting and professional fees were $112,882 and $362,035, for the 2009 and 2008 periods, respectively.2010 period totaled $111,382, a decrease of $1,500 or 1% from $112,882 for the comparable period in 2009. The decrease reflects lo wer consulting fees in the 2009 period reflects our reducedfirst and second quarters of the year due to the scaled down operations and revenues.during such periods.  

Operating Loss. We had an operating loss of $541,260$203,690 for the 20092010 period compared with an operating loss of $2,018,245$541,260 for the comparable period in 2008. The decrease from prior period is due to the factors discussed above.

Other Income (Expense). We had other expensegain on disposal of $610,313fixed assets of $165 and exchange gain of $51 during the 2009 period compared with other income of $9602010 period. We did not have similar items for the comparable period in 2008. For the 2009 period, the2009. We had an interest expense wasof $12,942 for the interests and default penalties related to2010 period compared with an interest expense of $420,000 for the convertible bonds.

Interest Expense.comparable period in 2009. For the 2009 period, we had interest expense onpenalty of $420,000 compared with $413,613 for the comparable periodcancelling convertible notes of $ 610,313, and change in 2008.fair value of CN & warrants option of $562,895 and we did not have these items in nine months ended by June 30, 2010.

Loss from continuing operations. Our loss from continuing operations for the nine months ended June 30, 2010 and 2009 was $5,886,922 and 2008 was $2,134,468, and $2,430,898, respectively. The difference is due to the reasons discussed above.

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(Loss)IncomeLoss from discontinuedheld for sale operations. We had impairment loss of assets held for sale of $5,670,506 and  a loss from discontinuedheld for sale operations of $352,368 for the nine months ended June 30, 2010 compared with loss of $580,978 from held for sale operations for the nine months ended June 30, 20092009.

Net loss. We had a net loss of $590,978$6,239,290 for the 2010 period compared with incomea net loss of $209,065 from discontinued operations$2,715,446 for the nine months ended June 30, 2008. The difference was due to reduced revenues for the 2009comparable period coupled with increased marketing and sales expenses and other office related expenses.in 2009.

Other Comprehensive Income (Loss). We had aOur foreign currency translation adjustment loss of $147,222 for the nine months ended June 30, 2010 and 2009 period compared with a loss of $179,788 for the comparable period in 2008.were $8,558 and$(147,222). 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 offor the nine months ended June 30, 2010 and 2009 were $11,100 and $447,306 and $2,342,934 respectively, due to the write down of securities held during the period due to the market suspension of such securities.respectfully.

Total comprehensive loss. For the nine months ended June 30, 2009,2010, we had a comprehensive loss of $3,309,974$6,241,793 compared with a comprehensive loss of $4,744,555$3,309,974 for the comparable period in 2008.

2009 for the reasons discussed above.

 Liquidity and Capital Resources

We have financed our operations primarily through cash generated from equity investments, operating activities and a mixture of short and long-term loans for affiliated and non-affiliated parties.

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The following table summarizes our cash flows for the nine months ended June 30, 20092010 and 2008:2009:

Our total assets as ofThe net cash used in operating activities forthe nine months ended June 30, 2009 were $10,335,408. Our total liabilities as2010 was $(248,691), compared with net cash used in operating activities of $(176,888) for the nine months ended June 30, 2009. The difference is due to the assets stripping occurred during the nine months ended June 30, 2010.

The net cash used in investing activities for the nine month ended June 30, 2010 was $49,072, compared with net cash provided by investing activities of $(68,322) for the nine month ended June 30, 2009. The decrease of $19,250 is primarily caused by the loans from the related parties in the 2010 period.

The net cash provided by financing activities for the nine month ended June 30, 2010 was $170,339, compared with net cash provided by financing activities of $382,309 for the nine month ended June 30, 2009. The difference of $211,970 is mainly due to the high payments to original convertible notes holders.The effect of the exchange rate on cash was a loss of $3,386 for the nine months ended June 30, 2010, compared with a loss of $144,034 for the nine months ended June 30, 2009. The difference is due to reduction in foreign currency transactions.

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The difference between the closing balance of cash and cash equivalents for the nine months ended June 30, 2010 and 2009 were $5,772,563. is due to the reasons mentioned above.

As of June 30, 2009,2010, we had total assets of $3,809,593, total liabilities of $4,083,006 and working capital deficit of $(603,763) compared with $1,501,687 as of September 30, 2008. The decrease is due to cash used in operations, the reduction in marketable securities, and increases in other payables, accrued expenses.$(608,213)

We continue to experience significant losses from operations. We are uncertain as to when we will achieve profitable operations. We haveOn March 26, 2010, with an immediate need for capital to conduct our ongoing operations and to advance the planned venture investment strategy. We anticipate raising capital through additional private placementseffective date of our equity securities, proceeds received from the exercise of outstanding warrants and options, and, if available on satisfactory terms, debt financing. We can not guarantee that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may forced us to restructure, file for bankruptcy, sell assets or cease operations,  any of which could adversely impact our business and busines s strategy, and the value of our capital stock. Due to the current price of our common stock, any common stock based financing may create significant dilution to the then existing shareholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future which also may create significant dilution to existing shareholders.

The Company's new business plan has two interelated models: 1) developing a network of Demao Tang branded health clubs; 2) Initiating a direct sales business for Demao Tang branded health products. The company plans to roll out its new business plan by initially focusing on developing its network of Demao Tang health clubs. To the end, in 2009 andMarch 3, 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 partnercompleted a Convertible Debt Settlement Agreement 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.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 $331,199 as of June 30, 2010. The issued notes were due on demand 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 issuanceaccrue interest at the rate of our common stock to riase funds will likely cause significant dilution to existing shareholders.  6% per annum until paid.

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 weWe expect that the operationaltotal costs for the company’s direct advertising and marketing will be approximately $1,000,000 for the next 12 months of operations. Of the $1,000,000 amount, it is estimated that $400,000 will be allocated to cost of sales and $600,000 will be allocated to G&A for expenses including marketing and logistics for services, rent, salaries, office expenses, and miscellaneous expenses. The Company expects that a substantial portion of the required costs will funded by the Redrock Land loan. We expect that revenues from our marketing efforts will commence in the fourth fiscal quarter of 2010, and that such revenues, along with the Redrock Land loan, will enable the Company to fund this aspect of its operations for the next 12 months.

We expect that the total costs for the company’s product and services design and development division will be approximately $570,000 over the next 12 months of operations. Of the $570,000 amount, it is estimated that $170,000 will be allocated to cost of sales, which includes mainly design and development costs and third party outsourcing costs, etc, while $400,000 will be attributed to G&A for marketing, staff, rent, among other items. The Company plans to initially fund a portion of the required expenses through the Redrock Land loan, with the remainder of the required capital for our initial directthe business expected to come from a combination of revenues from operations and from a planned round of fundraising from third parties. We expect to undertake a fundraising effort in the first calendar quarter of 2011. At the current time, we have no commitments from any third party in respect of the proposed fundraising effort. We expect to generate sales business would be RMB5,000,000 (or US$731,379) a year. in the fourth quarter of fiscal 2010.

We expectedexpect that the majority of these operationaltotal costs can be funded by selling our Demao Tang Club membership cards for the three clubs mentioned above.ArtChina art related marketing and product design business will be approximately $1,570,000 for the next 12 months of operations. Of the $1,570,000 amount, $570,000 will be allocated to cost of sales which includes government lobbying, and professional services fees for feasibility reports and concept designer, $300,000 will be allocated to selling expenses including marketing and sales, and $700,000 will be allocated for general and administrative expenses including rent, and salaries, among other costs. The Company expects the required capital for this business to come from a planned round of fundraising from third parties which we expect to undertake in the fourth quarter of 2010 or first calendar quarter of 2011. At the current time, we have no commitments from any third party in respect of the proposed fundraising effort. Prior to such fundraising, the Company may develop the initial aspects of i ts business using funds from the Redrock Land loan, and from revenues generated from other business to the extent that such revenues are available.

NextMart reminds investors that its plans to develop its business as described herein will be subject to numerous risks and uncertainties, including its ability to raise the necessary capital to implement its business plan. Presently, the Company has no arrangement with any third party, other than as disclosed herein, to provide any capital to the Company. Its new business also will be subject to formal agreements with numerous parties, asset valuations, fairness opinions, and various approvals including, but not limited to regulatory approval. The Company also reminds investors that even if it is able to meet the various requirements and regulations indicated above, it cannot predict whether it will be successful with its new business initiatives.

Contractual Obligations

On June 22, 2010, NextMart Inc. (“NextMart” or the “Company”) entered into an asset acquisition agreement (the “Acquisition Agreement”) with Beijing Chinese Art Exposition Media Co. Ltd (“CIGE), a Chinese art exhibition and media company, and Ms. Wang Yihan, the sole owner and director of CIGE who is also our Chairman and CEO. Under the terms of the Acquisition Agreement, NextMart acquired from CIGE the below described Assets for an agreed price of membership cards are expected$750,000 (the “Consideration”). NextMart is obligated to vary between RMB50,000pay the Consideration by issuing to RMB 500,000 (US$7,313 to US$73,138), depending on the services purchasedMs. Wang Yihan 75,000,000 shares of its common stock. As a result of this transaction, Ms. Wang will become NextMart’s second largest

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19shareholder with a 27.96% ownership of the company. The effective date of the transaction is July 1, 2010.

by club member.New Accounting Pronouncements

Contractual Obligations

The majority of our operations are in China, where we have leased offices in Beijing. Our Beijing office consists of 8,740 square feet. The lease extends for a period of two years terminating on July 31, 2011. Our annual rent is $192,569. At June 30,In October 2009, the total future commitmentsFinancial Accounting Standards Board (FASB) issued amended revenue recognition guidance for minimum rentals payment are $48,142arrangements with multiple deliverables (ASU No. 2009-13) (ASC No. 605). The new guidance eliminates the residual method of 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 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 2009.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 expect a material impact on the Consolidated Financial Statements.

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.

Revenue Recognition

We generate revenue through consulting services and recognize such 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 and these amounts appear to be collectible.

Income Taxes

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We account for income taxes under the provisions of SFAS No. 109 (ASC No. 740), "Accounting for Income Taxes," as described in Note 128 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the yearperiod ended September 30, 2008.2009. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income usingusi ng the balance sheet liabilit yliability method at the effective rate applicable in China in our consolidated statements of operations and comprehensive income.

Item 3.  Quantitative and Qualitative Disclosures about Market Risks

Not applicable

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Item 4.3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we undertook an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934, Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that such disclosure controls and procedures were effective to ensure (a) that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) that information required to be disclosed is accumulated and communicated to management to allow timely decisions regar ding disclosure.