NEXTMART, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED March 31, 20102011

Table of Contents

INDEX

3

PART I   FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See notes to consolidated financial statements.

statements

4

See notes to consolidated financial statements

5

See notes to consolidated financial statements.  

6

See notes to consolidated financial statements

7

See notes to consolidated financial statements.

8

NEXTMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations.

On March 3, 2010, Next Mart,NextMart, Inc. (herein referred to as “NextMart”, “we” or the “Company”), was originally incorporated under the laws of Minnesota in 1972 and was previously known as SE Global Equity. In September 2005, the Company acquired 100% of the issued and outstanding share capital of Sun New Media Group Limited and changed the company name to Sun New Media, Inc. In May 2007, the Company reincorporated into the State of Delaware and changed our name to NextMart, Inc.

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

On March 31, 2010, NextMart entered into an asset exchange and subscription agreement (the “Agreement”) with MissMs. Wang Yihan (“Ms. Wang”) and Beijing Chinese Art Exposition's Media Co., Ltd. (“CIGE”), a leading Chinese art services, events and media company located in Beijing, China. CIGE’s main business operations includes operating and managing the China International Gallery Exposition, the largest exhibition of art galleries in China, and operating and managing China’s “Gallery Guide” magazine, a monthly magazine featuring news and events targeting top Chinese art collectors and galleries with a monthly distribution rate of over 10,000 copies. Ms. Wang Yihan is the ownersole shareholder of 100% of CIGE and is the President of our Company.CIGE. The Agreementagreement was disclosed in our Form 8-K filed oneffective March 31, 2010. Subsequently2010 and was amended on May 10, 2010, NextMart, Beijing Chinese Art Exposition Media Co. Ltd., a PRC company (“CIGE”), and Miss Wang Yihan, the controlling sharehold er of CIGE, agreed to amend the Agreement. The amendment was made effective as of March 31, 2010.

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

The parties placed a valuation of $5,391,255 on the above described assets, which amount is based on a third party valuation report of the assets prepared as of March 31, 2010. As considerationIn exchange for the transfer of the above described assets,Transferred Assets, Ms. Wang agreed to transfer to NextMart certain land use rights for commercial real estate property within 24 months from date of the amended agreement certain land usage rights for commercial real estate property valued at no less than $5,390,000.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 in the PRC.ownership. Rather, land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, theThe 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 periodLand use right, or land ownership may be renewed at the expiration of t hethe initial term 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 usageuse rights for adequate real estate property within the 24 monthmonths period, she is obligated to provide NextMart with common stock of a publicly traded company acceptable to NextMart of equivalent amount.

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

Under the terms of the Acquisition Agreement, NextMart acquired 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" magazine 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, NextMart shall have the right to buy those exhibitions and “Gallery Guide” brand name for the price of $1 each from CIGE.

98

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

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

As a result, of these transactions,  NextMart’s currentplanned business operations for 2011 will consists of developing,1) the sale of marketing solutions through 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.

On June 22, 2010, NextMart also entered into strategic cooperative agreements (“Strategic Agreements”) 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 Agreements, Redrock Land will provide NextMart a $1,000,000 interest free, unsecured loan in 12 months. Any amounts loaned will be due on demand any time after the first anniversary of the loan. As of March 31, 2011, the loan has not been provided to the Company. Redrock Land also agreed that within the next 24 months, it will partner with NextMart on three of its real estate development projects that are art related.  For each such project, NextMart will act as the project’s concept, marketing, and selling high endsales consultant. Redrock Land is a BVI registered company engaged in land investment and development in China and it 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 three art productsrelated developments for which NextMart will provide consulting service to the developers. Under the Strategic Agreements, 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 co-branded art-themed luxuryonline websites and e-magazines owned by SMIH or its affiliates each year. 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. The CompanyAs of March 31, 2011, no advertising space has undertaken its art themed product sales business under a newly created “Artslux” brand and we will create and/or sell high end art products and co-branded art-themed luxury products by developing partnerships with well known artists and luxury goods producers.yet to be allocated to NextMart.  

Basis of Consolidation and Presentation

The accompanying unaudited consolidated financial statements include the financial statements of Nextmart, Inc. (the “Company”)the Company and its subsidiaries named Cancer Institute of China Ltd. and variable interest entities or VIEsChina Cancer Institute Beijing Ltd. All significant inter-company transactions and balances have been eliminated in consolidation.

The consolidated interim financial information as of March 31, 2011 and for the three-month periods and six-month periods ended March 31, 2011 and 2010 have been prepared by the Companywithout audit, pursuant to the rules and regulations of the Securities and Exchange Commission. All significant inter-company accountsCommission (the “SEC”).  Certain information and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, butfootnote disclosures, which are less than majority owned and not otherwise controlled by the Company, are accounted for under the equity method. The Company has adopted FASB Interpretation No.46R consolidation of Variable Interest Entities, FIN 46R, an Interpretation of Accounting Research Bulletin No.51. FIN 46R requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIE’s residual returns. Thenormally included in consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.America (“U.S. GAAP”) have not been included. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, previously filed with the SEC.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of March 31, 2010, and2011, its consolidated results of operations and cash flows for the three monththree-month periods and six monthssix-month periods ended March 31, 20102011 and 2009,2010, 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.

Fair value measurements

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the

9

financial statements.  ASC Subtopic 820-10 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. 

ASC Subtopic 820-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Subtopic 820-10 establishes three levels of inputs that may be used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s financial instruments consist of cash, other receivables, marketable securities, other payables, amounts due to related parties and amounts due to shareholders.  Other receivables carried at estimated net realizable values net of provisions for uncollectible amounts. Uncollectible accounts are charged off when determined to be unrecoverable. Marketable securities are carried at market value with any unrealized gain or loss is recorded in comprehensive income or loss. The carrying values of the remaining financial instruments reflected in these financial statements approximate their fair values due to the short-term maturity of the instruments.

Financial instruments

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

10

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

Impairment of Long-lived Assets

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

Comprehensive Income (Loss)

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

Recently Issued Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued amended revenue recognition guidance for arrangements with multiple deliverables (ASU No. 2009-13) (ASC No. 605). The 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 year. Full retrospective application of the new guidance is optional. The Company is currently assessing its implementation of this new guidance, but does not expect a material impact on the Consolidated Financial Statements.

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

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

11

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

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

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

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

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

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

12

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:

10

Revenue recognition

We generate revenue through the provision of consulting services. We recognize revenues from consulting services in accordance with Staff Accounting Bulletin (“SAB”) No. 104 (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.

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.

Trade receivables and allowances for Doubtful AccountsConvertible Note

The Company performs ongoing credit evaluations of its customers to minimize credit risk.accounts for convertible note in accordance with ASC 470-20, Debt with Conversion and Other Options. The allowanceCompany booked a discount on convertible note for doubtful accounts is based on management’s estimatesthe conversion feature of the collectabilitynote and is amortizing the discount over the life 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.convertible note.

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

13

(“SFAS”)ASC No. 52 (ASC No. 830),830, “Foreign Currency Translation”, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are translated using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and capital asset accounts are translated by using historical exchange rates. Any translation gain or loss incurred is reported in the consolidated statement of operations. In this period, we used 6.83603 RMB per USD for the weighted average rate, and we used 6.8372 RMB per USD as the balance sheet date rate (March 31, 2010).

Income taxes

The Company follows the liability method of accounting for income taxes in accordance with SFASASC No. 109 (ASC No. 740).740. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. The tax loss arising from PRC can be carried forward for five years. Agreed tax losses by respective local tax authorities can be offset against future taxable profits of the respective companies. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain.

Stock-based compensation

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

Related Parties

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

Deferred Charges

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

Convertible Notes and NotesRecently Issued with Stock WarrantsAccounting Pronouncements

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

14

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

Reclassification

The comparative figuresstandards that have been reclassifiedissued or proposed by the Financial Accounting Standards Board (“FASB”) recently are not applicable to conform to current period presentation.the Company.

NOTE 2 – MARKETABLE SECURITIES

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

11

The 3,000 shares of

Due to the fact that the market for China Grand Resorts, Inc common stock at March 31, 2010 reflectson the Over the Counter Bulletin Board has been limited or non-existent for a 20 for 1 reverse splitsignificant period of the issued and outstanding common stocktime, management determined to recognize an impairment loss on marketable securities of the issuer.$120,000 in this quarter.

NOTE 3 – PROPERTY AND EQUIPMENT

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

Property and equipment is summarized as follows:

15

Amortization for the three months ended March 31, 2011 and 2010 was $0 compared with three months ended March 31, 2009 $14,815,$48 and nil, respectively. Amortization for the six months ended March 31, 2011 and 2010 was $48 and $195, compared with six months ended March 31, 2009 $29,506, respectively. The difference between the 2010 and 2009 periods is due to the sale of certain office equipment owned by the Company on March 3, 2010.

NOTE 4 - CONVERTIBLE NOTES, WARRANTS AND STOCK OPTIONS

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

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. We also amended the Warrants to remove any registration rights and purchase price reset provisions, among other changes. As additional consideration, limited mutual releases were given by the parties. 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. In addition to the payment made at closing, we also made a payment of $150,000, $100,000 and $250,000 on the obligation due in July, October and December 2009, respectively. We also agreed to pay interest and penalties of $6 10,126 within 90 days from the closing. Payment of the stated amount may be in the form of common shares of CEC Unet Plc. (AIM: CECU) which we held on the agreement date or if the shares of CECU were 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 the date of this report, as mentioned above, we made payments of $750,000 in principal to date, and we have not made any payments on the interest and default penalty amount. 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 balance of $1.36 million which is due to these investors is included in other payables.

On March 9, 2009, we completed a Subscription Agreement with Redrock Capital Venture Ltd (“Redrock”), a BVI company, under which we issued up to $1,500,000 of our senior convertible notes (“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

16

on the Senior Note.

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

o

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

other current and future indebtedness of the Company.

o

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

o

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

o

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

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

o

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

o

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

o

If there is a default in the payment 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.

Warrants

At March 31, 2010, the Company had no warrants outstanding.

NOTE 54 - OTHER PAYABLES AND ACCRUALS

Other payables and accruals are summarized as follows:

Other payables are amounts dueOn March 22, 2007, NextMart Inc. executed a subscription agreement with certain accredited investors, including Professional Offshore Opportunity Fund Ltd, pursuant to the investors who originally heldsubscription agreement, the Company agreed to issue a principal amount worth $1,500,000 in senior convertible promissory notes and warrants to purchase shares of our common stock. The financing was closed on March 29, 2007. The aggregate gross proceeds from the sale of the notes and warrants were $1,500,000.  The convertible notes and accrued expenses represents professional fees, and other office expenses.

were due three years from the date of issuance. We prepaid all interest due under the convertible notes through the issuance of 1.5 million shares of our common stock.  The notes were initially convertible into our common shares at a conversion price of $1.00 per

1712

NOTE 6 — COMMITMENTS AND CONTINGENCIESshare.  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.

CommitmentsOn February 6, 2009, we closed a Convertible Debt Settlement Agreement with these accredited investors (“Settlement Agreement”) pursuant to which we have re-purchased all of the outstanding senior convertible notes. Under the Settlement Agreement, in exchange for canceling the senior convertible promissory notes and underlying agreements, we agreed to pay back the principal amount of the notes of $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. In addition to the payment made at closing, we made principal payments of $250,000 and $150,000 during fiscal year 2009. We also agreed to pay interest and penalties of $610,126 within 90 days from the closing. Payment of the interest and penalties of $610,126 may be in the form of common shares of CEC Unet Plc. (AIM: CECU) which we held on the agreement date or if the shares of CECU were not trading on the AIM Market, then in cash or cash equivalents.

During fiscal year 2010, we made $100,000, $250,000, $165,000 and $67,000 in principal payments. As we disposed our holdings of CECU shares in the CIGE transaction, we were required to pay the $610,126 of interest and penalty due in cash or cash equivalents.

On October 22, 2010, an amendment to convertible debt settlement agreement was made. Pursuant to such amendment, the Company was required to pay $500,000 no later than 5 business days following the execution of the amendment and the payment for the remaining balance of $627,126 is extended to March 1, 2011. As of March 2010,31, 2011 the Company terminated its office lease. Sincehas paid the termination$500,000 principal amount in full and the remaining outstanding balance is $627,126. We are in default of its office lease, the Company maintains a representative office through the officeamendment as of its shareholder Redrock Venture Capital Ltd. As a result the Company currently has no capital commitments in this regard.

The lease expense for the six months ended March 31, 2010 amounted2011. Management plans to $10,811.resolve this issue in next few months.

NOTE 75 -AMOUNTS DUE TO STOCKHOLDERS

The amounts due stockholders are summarized as follows:

The amounts due to Redrock Capital Venture Limited are due on demand and bear no interest. Due to the termination of the

NOTE 6— CONVERTIBLE NOTE

On March 26, 2010, we completed a Convertible Debt Settlement Agreement with Hua Hui transaction, the amountsto convert RMB 2,255,000 (approximately $329,866) outstanding loans due to Hua Hui have been reclassifiedinto a convertible promissory note with a principal amount of RMB 2,255,000 (approximately $341,057 as of December 31, 2010) and will due on September 3, 2011. The convertible notes onpromissory is 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.

·

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 affected 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 any funding provided by Redrock Capital Group andRedrock 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 RMB0.11

·

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.

13

As the market price of the common shares was higher than the conversion price at the date of issuance, the company recognized a beneficial conversion feature as a discount to the convertible note. The beneficial conversion feature discount needs to be amortized using the effective interest method over the life of the convertible note of 18 months. The Company credited $79,185 to additional paid-in capital and debited the same amount to the discount to the convertible note on March 26, 2010. The amortization of discount on convertible notes was $13,652 for the three months ended March 31, 2011. The interest expense on the convertible note for the three months ended March 31, 2011 is $5,135. The amortization of discount on convertible notes was $27,146 for the six months ended March 31, 2011. The interest expense on the convertible note for the six months end March 31, 2011 was $10,127. Convertible note as of March 31, 2011 consists of the following:

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into a building lease for our office located in Beijing. The lease is from September 27, 2010 to July 31, 2011. The lease expense for the period ended March 31, 2011 amounted to $8,112. Future minimum lease payments under non-cancellable operating lease agreements at March 31, 2011 were as follows:

NOTE 8 —STOCKHOLDERS’ EQUITY

On June 22, 2010, the Company entered into an asset acquisition agreement (the “Acquisition Agreement”) with CIGE and its sole owner and director Ms. Wang, who is also NextMart’s Chairman and CEO. Under the terms of the Acquisition Agreement, NextMart is going to acquire from CIGE the Assets for an agreed price of $750,000 (the “Consideration”). NextMart paid the Consideration by issuing 75,000,000 shares of its common stock to Ms. Wang on July 8, 2010. As a result of this transaction, Ms. Wang is NextMart’s second largest shareholder with a 27.96% ownership of the company. As of March 31, 2011, the balance of subscription receivable was $750,000 due to the Company did not receive the assets from CIGE.

On October 24, 2010, the Company entered into a subscription agreement with Mr. Yang Lin under which the Company agreed to issue to Mr. Yang Lin 53,651,553 shares of its common stock at a price of $0.01 per share or a total of $536,516. On October 25, 2010 the Company received the funds from Mr.Yang Lin. The shares were issued to Mr. Yang Lin on November 17, 2010. After the transaction, Mr. Yang Lin owns 16.67% of the total issued and outstanding shares of the Company. Mr. Yang Lin used personal funds to acquire the shares of common stock.

On October 28, 2010, the Company entered into a subscription agreement with Mr. Xu Baiqun under which the Company agreed to issue to Mr. Xu Baiqun14,979,254 shares of its common stock at a price of $0.01 per share which is a total of $149,793 or equivalent amount in RMB as determined by the Bank of China foreign exchange rate. The shares were issued to Mr. Xu Baiqun on November 17, 2010.  After the transaction, Mr. Xu Baiqun owns 4.45% of the total issued and outstanding shares of the Company. On October 25, 2010 the Company received the funds from Mr. Xu Baiqun.

The cash fund received was mainly used to repay portion of the borrowings from Mr. Wu Bruno Zheng, our former Chairman and husband of our largest shareholder and the principal liabilities due to the creditors who originally held our convertible notes (See Note 4. -Convertible Notes, Warrants And Stock Options).4)

NOTE 8—9 — RELATED PARTIES TRANSACTIONS

14

We have the following transactions with related parties during the period ended March 31, 2011.

The amounts due to related parties are summarized as follows:

The amounts of $180,215 and $539,549 as of March 31, 2011 due to Redrock Thinktank (Group) Limited and Wu Bruno, respectively are due on demand after one-year and bear no interest. The amounts due to Redrock Thinktank (Group) Limited and Mr. Wu Bruno Zheng were mainly used to make payments to investors who originally held our convertible notes.

NOTE 10 —ASSETS AND LIABILITIES HELD FOR SALE

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

These assets and liabilities had previously been sold to Beijing Hua Hui Investment Ltd. under a subscription and asset sale agreement signed ondated 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 back on to the Company's balance sheet and canceling the shares issued to Hua Hui such that the company's share count will not include the shares issued to Hua Hui.

18

Consequently, the following assets and liabilities, which reflect these businesses, have been segregated and included in assets and liabilities of held for sale operations, as appropriate, in the consolidated balance sheet as of March 31, 2010:2011:

Moreover, the following income and expense items, attendant to these 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 six months ended March 31, 2010 and 2009.

1915

NOTE 9— COMMON STOCK

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

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

NOTE 10—11— GOING 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 March 31, 2010,2011, the Company had an accumulated deficit totaling $96,523,272$100,691,457 and its current assetsliabilities exceeded its current liabilitiesassets by $(563,799)$1,779,386. In addition, the Company was in default of the amendment to the Convertible Debt Settlement Agreement (See Note 4). In view of the matters described above, the appropriateness of the going concern basis is dependent upon continuing operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In September 2008, due to market conditions, the Company determined to divest itselfAs a result of the William Brand Administer Ltd’s women apparelCompany’s recent transactions with CIGE and Wang Yihan, as amended, its future business strategy is art event and other non-material businesses. In keeping that intent,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 art event and art media advertising and marketing channels acquired in August 2009, as disclosed elsewhere herein, it effected an agreement with Beijing Hua Hui Hengye Investment Lt. which was subsequently rescinded by the parties terminated on March 3, 2010.Acquisition Agreement to offer unique art related marketing and advertising services targeting China’s wealthiest consumers.  

On March 31,June 22, 2010 NextMartthe Company also entered into an asset exchange and subscription agreement (the “Agreement”)a Strategic Agreement with Ms. Wang Yihan and

20

Beijing Chinese Art Exposition'sits shareholder Sun Media Co.,Investment Holdings Ltd. (“CIGE”SMIH”) and with Redrock Land Investment Ltd. (“Redrock Land”), a leading Chinese art services, events, and media company located in Beijing, China. CIGE’s main business operations includes operating and managingan affiliate of the China International Gallery Exposition, the largest exhibition of art galleries in China, and operating and managing China’s “Gallery Guide” magazine, a monthly magazine featuring news and events targeting top Chinese art collectors and galleries with a monthly distribution rate of over 10,000 copies. Miss Wang Yihan is the owner of 100% of CIGE. Under the Agreement, CIGE agreed to inject into NextMart certain assets and in exchange, NextMartCompany major shareholder Redrock Capital Venture Ltd. (“Redrock”). Redrock Land has agreed to issue to CIGE warrants representing 50,000,000 shares of the Company’s common stock as well as assign certain Company assets described below. The assets which CIGEprovide NextMart a $1,000,000 interest free loan due on demand after one year. SMIH has agreed to inject intoprovide NextMart were as follows: 1) the CIGE member database, which is a database developedwith approximately $6,000,000 worth of advertising space over the last six year s that contains the names and data for over 10,000 individuals and companies; 2) exclusive ownership of the sales rights for the advertising space at every CIGE exhibition locatednext five years in greater China (including Hong Kong and Macao, but excluding Taiwan) for the next 30 years, as well as control the commercial and editorial rights (meaning the right to control the content and advertising space but not ownership of the magazinevarious media outlets owned by it or its day to day control), of its Gallery Guide magazine for the next 30 years; and 3) within 24 months CIGE agreed to transfer to NextMart at its discretion either; land usage rights acceptable to NextMart for property capable of being developed or used for the purpose holding art exhibitions with a valuation of $3,650,000, or common stock of a publicly traded company acceptable to NextMart which shall have a value of no less than US$3,650,000. In addition, the Company received the right of first refusal to participate in any future sale of CIGE’s common stock by CIGE or its control ling shareholder, Ms. Wang Yihan, to any third party. Ms. Wang Yihan also is the President of the Company.

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

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

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

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

21

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 property within the 24 month period, she is obligated to provide NextMart with tangible assets acceptable to NextMart which shall have a value of no less than $5,390,000.

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

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

The Company is actively pursuing additional funding includingand arrangements with third parties and potential strategic partners in an effort to fund its ongoing working capital requirements. The Company’s expects that its working capital requirements for the next 12 month will be12-month period of Fiscal Year 2011 is estimated at approximately $2,100,000.$2 million. Management is hopeful that the above actions will allow the Company to continue its operations through the current fiscal year.

NOTE 11— 12—SUBSEQUENT EVENTS

As described above, on May 10, 2010,Management has considered all events occurring through the Company amendeddate the asset exchangefinancial statements have been issued, and subscription agreement entered into by NextMart, CIGE, and Ms. Wang Yihan on March 31, 2010. The amended agreement is effective as of March 31, 2010. On May 14, 2010,has determined that there are no such events that are material to the Company filed a Form 8-K to disclose the amended agreement.

At the time of signing the amended agreement on May 15, 2010, Miss Wang Yihan was the CEO and President of NextMart as well as a party the amended agreement and the sole shareholder of CIGE. We believe that the amended agreement is the result of arms' length negotiation between the parties and the terms of the amended agreement are fair and reasonable.

financial statements, or all such material events have been fully disclosed.

2216

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

Forward-Looking Statements

This quarterly report on Form 10Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include statements other than historical information or statements of current condition, but instead represent only our belief regarding future events, many of which by their nature are inherently uncertain and outside of our control. Important factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to, those described in the section titled “Risk Factors” previo uslypreviously disclosed in our Annual Report on Form 10-K for the period ended September 30, 2009.2010. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

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

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

Overview

Prior to fiscal year 2008, we had planned to develop an integrated online-offline direct sales platform for the ladies' apparel sector in 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. Consequently in May 2008, we determined to change our business focus initially attempting to focu sfocus on the financial advisory/direct investments, and thereafter, redirecting this focus towards the healthcare industry in China.

After Following 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, howeverPRC. However as noted above, on March 3, 2009 the Company and Hua Hui rescinded the transaction.

As a result of our recent transaction with CIGE and Ms. Wang Yihan, as amended, our future business strategy is develop, market,art event and sellart media direct marketing, direct sales of art products and art-themed luxury goods. The Company is currently setting upgoods, and marketing and sales for art related real estate development projects. (Please refer to a PRC operating companydetailed description of our proposed business contained in orderour Form 8-K filing dated June 23, 2010, as amended on July 1, 2010). As mentioned herein, we intend to operate itscapitalize on our CIGE relationship as well as the experience, brand recognition, and resource integration capacities of our major shareholders, including Ms. Wang, Redrock Capital Venture, Ltd., and Sun Media Investment Holdings Limited. We will begin developing our business in 2011 by launching the “Artslux” branded products.

Going forward, our business operations will include: art event and art media direct marketing; design and marketing of art-themed product sales division. Under the brand name of “Artslux”,products lines created for existing luxury and high-end goods and brands and art themed real estate developments

On or about October 25, 2010, the Company completed a transaction with Mr. Yang Lin under which the Company issued to Mr. Yang Lin 53,651,553 shares of its common stock at a price of $0.01 per share or a total of $536,516. Mr. Yang Lin currently owns 15.93% of the total issued and outstanding shares of the Company.

On or about October 28, 2010, the Company completed a transaction with Mr. Xu Baiqun under which the Company issued to Mr. Xu Baiqun 14,979,254 shares of its common stock at a price of $0.01 per share which is a total of $149,793 or equivalent amount in RMB as determined by the Bank of China foreign exchange rate. Mr. Xu Baiqun currently owns 4.45% of the total issued and outstanding shares of the Company.

We remind investors that our plans to leverage its shareholder resourcesre-focus our business to form partnerships withparticipate in the world’s most recognized artistsart and high-end luxury goods providersindustry in China are subject to create and/substantial risks and uncertainties. We have not made substantial progress in reaching our objectives. We can not predict whether we will be successful in identifying, selecting and investing in business, technologies, or sell art products and co-branded art-themed luxury products. Art productstreatments that the Company is considering selling include items such as lithographs and professional replicas of various art pieces produced by partnered artists. The Company is currently working to begin producing and selling art-themed products which would include limited edition wines and liquors produced by internationally acclaimed producers with customized labels featuring the works of renowned Chinese and inter national artists, or other luxury goods like watches, jewelry, etc. produced by thewill prove successful in our new

2317

leading brands but featuring designs by partnered artists. We expect that the Artslux operation will consist of a team initially of 5 employees, including a head of operations, sales manager, marketing manager, product developer, and product designer. This team is already in place and is currently being supported by an affiliate of our major shareholders SMIH and Redrock. Upon the completing the registration of the PRC operational company by NextMart, the Artslux team will operate under the new company. We expect that the total costs for the company’s product sales divisionbusiness efforts. Our efforts will be approximately US$2,100,000 forsubject to our ability to raise additional funds (which in turn will cause dilution to existing stockholders), formal agreements with numerous parties, and various approvals. Therefore, we can not predict with certainty whether we will be successful in our re-structuring efforts and the first year of operations. Of the $2,100,000 amount, $1,242,000 is allocated to cost of sales which includes product purchasing and artist licensing fees, $640,000 is allocated to selling expenses including marketing and logistics, and $248,000 is allocated to general and administrative expenses including rent, salaries of 5 employees mentioned above, office expenses, an d miscellaneous expenses. The Company is hopeful to initially fund a majority of the required expenses from shareholder loans, with the remainder of the required capital for the business expected to come from aexact combination of revenues from operations and from a planned round of fundraising from third parties. We expectefforts required to generate sales in the first quarter of fiscal 2010. Please refer to our Form 8-K filed on May 14, 2010, for a description of the amended agreement with the CIGE and Ms. Wang Yihan. Ms. Wang is the Company’s President and CEO.achieve success.

Results of Operations  

Three Months Ended March 31, 20102011 compared with Three Months Ended March 31, 2009 (Unaudited)2010

Sales.  We do not have any salesThe following discussion reflects our results from operations for the three months ended March 31, 2010 and 2009.

Sales and Cost of Sales.  During2011 compared with the three months ended March 31, 20102010. Although there are no revenues from the sale of luxury goods and 2009, our costs of sales were both $0.

Gross Margin. As a result of the foregoing, our gross marginservices for the three months ended March 31, 2010 and 2009 were both $02011, we will continue to maintain the luxury sales business for the foreseeable future. However, it is not expected to be a significant focus of future business efforts.

Operating ExpensesExpenses.. Operating Our operating expenses which include(which includes general and administrative expenses, depreciation and amortization and consulting and professional fees, and depreciation and amortization,fees) for the three months ended March 31, 2011 and 2010 totaledwere $25,866 and $77,430, a decrease of $189,791 or 71% from $267,221 for the corresponding 2009 period.respectively. General and administrative expenses were $12,560 for the three months ended March 31, 2011, a decrease of $19,028 or 60% from $31,588 for the 2010comparable period a decrease of $91,894 or74% from $123,482 for the 2009 comparable period.in 2010.  The decrease iswas due to reduced salaries and related expenses at our corporate office.office due to our scaled down operations. Depreciation and amortization totaledwere $52 and $0 for the three months ended March 31, 2011 and 2010, period,respectively. Consulting and professional fees were $13,254 for the three months ended March 31, 2011, a decrease of $94,815$32,588 or 71% from $94,815$45,842 for the comparable 2009 period.period in 2010. The decrease is due the property and equipment soldreduction in the asset exchange and subscription agreement of March 31, 2010 and amended on May 10, 2010. Consultingconsulting and professional fees for the 2010current period totaled $45,842, a decreasealso reflects our scaled down operations.

Other income (expense).For the three months ended March 31, 2011, we had interest expenses of $3,082 or 6% from $48,924$5,135 compared with interest expenses of $3,747 for the comparable period in 2009. The decrease2010. We had an amortization on convertible notes of $13,652 and a loss from marketable securities of $120,000 for the curren t period is due to a decrease in the use of such professional services during the 2010 period.

Operating Loss. As wethree months ended March 31, 2011 and did not have no sales and cost of sales, the operating loss is the same as operation expenses. The decrease of $189,791 or 71% from the prior period is becausesimilar charges of the factors discussed above.

Other Income (Expense). Wecomparable period in 2010.We had an impairment loss of assets held for sale of $5,670,506 interest expense onand a senior convertible note We had impairment loss of assets held for sale of $5,670,506, interest expense – senior convertible note of $1,518 and gain on disposal of fixed assets of $165 during the 2010 period and we did not have these items in 2009. We had an amortization of discount on convertible note of $35,741 and interest expense –warrants option of $65,000 in 2009 and we did not have these items in 2010.We had an interest expenses of $2,229 and $24 in 2010 and 2009 respectively.

24

for the comparable period for 2011.

(Loss) IncomeLoss from continuing operations before income tax expense. Our loss from operations for the three months ended March 31, 2011 and 2010 was $164,653 and $5,751,518 respectively. The difference was due to the reasons discussed above.

Loss from the operations held for sale.  We had a loss from the sale of operations of $352,368 for the three months ended March 31, 2010 and we did not have such item in 2009 we had income held for sale was $48,156.2011.

Other Comprehensive Income (Loss)income (loss). Our We had a foreign currency translation adjustment loss of $4,673 for the three months ended March 31, 2010 and 2009 were2011 compared with a translation income of $7,431 and $(83,921) respectively.for the comparable period in 2010. The difference is due to the value of the US dollar in comparison to the RMB and HK dollar. OurWe had an unrealized gain of $ 119,400 and unrealized loss of $0 for the three months ended March 31, 2011 and 2010, and 2009 were $0 and $40,664 respectively. respectively, due to the recognition of the loss of marketable securities held during the period.

Total Comprehensive Loss.For the three months ended March 31, 2010,2011, we had a comprehensive loss of $6,096,455$49,926 compared with a comprehensive loss of $444,367$6,096,455 for the comparable period in 2009 for the reasons discussed above.2010.

Six Months Ended March 31, 2010 compared2011compared with Six Months Ended March 31, 2009 (Unaudited)2010

The following discussion reflects our results from operations for the six months ended March 31, 2011compared with the six months ended March 31, 2010. Although there are no revenues from the sale of luxury goods and services for the 2011 first quarter, we will continue to maintain the luxury sales business for the foreseeable future, however, it is not expected to be a significant focus of future business efforts.

SalesOperating Expenses.. Our operating expenses (which includes general and administrative expenses, depreciation and amortization and consulting and professional fees) for the six months ended March 31, 2011 and 2010 were $110,601 and $155,475, respectively. General and administrative expenses were $24,716 for the six months ended March 31, 2011, a decrease of $46,442or 65% from $71,158 for the comparable period in 2010.  The decrease was due to reduced salaries and related expenses at our corporate office due to our scaled down operations. Depreciation and amortization were $52 and $195, for the six months ended March 31, 2011 and 2010, respectively.  Consulting and professional fees were $85,833 for the six months ended March 31, 2011, an increase of $1,711 or 2%

18

from $84,122 for the comparable period in 2010. As stated above, the reduction in consulting and professional fees for the current period also reflect our scaled down operations.

Other income (expense). For the six months ended March 31, 2011, we had interest expenses of $10,127 compared with interest expense of $8,062 for the comparable period in 2010. We had an amortization on convertible notes of $27,146 for the six months ended March 31, 2011 compared with the similar charges of $0 for the comparable period in 2010. We had a loss from marketable securities of $120,000 and the other expense of $136 for the six months ended March 31, 2011 and did not have similar charges of the comparable period in 2010. We had a gain on disposal of assets of $165 and an impairment loss of assets held for sales of $5,670,506 for the six months ended March 31, 2010 and 2009 were $0 and $41,637 respectively. These sales were primarily due todid not have the operation of consulting service business occurringsimilar charges for the comparable period in the first fiscal quarter of 2009 period.2011.

Cost of salesLoss from operations before income tax expense.. Our cost of salesloss from operations for the six months ended March 31, 2011 and 2010 was $268,010 and 2009 were $0 and $2,082 respectively. This was primarily due to the operation of consulting service business.

Gross Margin. As a result of the foregoing, our gross margin for the six months ended March 31, 2010 and 2009 were $0 and $39,555 respectively.

Operating Expenses. Our operating expenses for the six months ended March 31, 2010 and 2009 were $155,475 and $415,892 respectively. General and administrative expenses for the 2010 and 2009 periods were $71,158 and $211,899,$5,833,878 respectively. The decrease in the 2010 perioddifference was due to the assets exchange and reduced salaries and related expenses at our corporate office. The depreciation and amortization expenses were $195 and $109,506 respectively. The decrease in the 2010 period is mainly due to the property and equipment is dealt in the asset exchange and subscription agreement. Consulting and professional fees were $84,122 and $94,487, for the 2010 and 2009 periods, respectively.

Operating Loss. We had an operating loss of $155,475 for the 2010 period compared with an operating loss of $ 376,337 for the comparable period in 2009. The decrease from prior period is due to the factorsreasons discussed above.

Other Income (Expense). We had impairment loss of assets held for sale of $5,670,506, interest expense – senior convertible note of $1,518, gain on disposal of fixed assets of $165 duringLoss from the 2010 period and we did not have these items in 2009. We had an interest expense of $6,544 for the 2010 period compared with an interest expense of $153 for the comparable period in 2009. For the 2009 period, we had an amortization of discount on convertible note of $71,482 and interest expense –warrants option of $130,000 and we did not have these items in 2010.

(Loss) Income from operations held for sale. We had a loss from operationsoperation held for salesales of $352,368 and $978,942 for the six months ended March 31, 2010 and 2009, respectively.did not have the similar charges of the comparable period in 2011.

Other Comprehensive Income (Loss)income (loss). OurWe had a foreign currency translation adjustment loss of $12,250 for the six months ended March 31, 2010 and 2009 were2011 compared with a translation gain of $6,625 and $(165,029) respectively.for the comparable period in 2010. The difference is due to the value of the US dollar in comparison to the RMB and HK dollar. OurWe had an unrealized gain of $119,100 for the six months ended March 31, 2011due to the recognition of the loss of marketable securities held during the period and an unrealized loss of $11,520 f for the six months ended March 31, 2010 and 2009 were $11,520 and $456,873 respectively. due to the change of the fair value of the marketable securities held during the period.

Total Comprehensive Loss.For the six months

25

ended March 31, 2010,2011, we had a comprehensive loss of $6,191,141$161,160 compared with a comprehensive loss of $2,178,816$6,191,141 for the comparable period in 2009 for the reasons discussed above.2010.

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 from affiliates (some of which have been converted to equity) and non-affiliates.

The following table summarizes our cash flows for the six months ended March 31, 20102011 and 2009:2010:

As of March 31, 2011, we had total assets of $1,377,741, total liabilities of $3,094,505 and a working capital deficit of $1,779,386.

On October 22, 2010, an amendment to convertible debt settlement agreement was made. Pursuant to such amendment, the Company was required to pay $500,000 no later than 5 business days following the execution of the amendment, and the payment for the remaining balance of $627,126 is extended to March 1, 2011. As of March 31, 2011 the Company has paid the $500,000 principal amount in full. The remaining outstanding balance is $627,126, we are in default of the amendment as of March 31, 2011.  

19

We continue to experience significant losses from operations. We are uncertain as to when we will achieve profitable operations. We have an immediate need for capital to conduct our ongoing operations and to advance the planned venture investment strategy. Our independent auditors included an explanatory paragraph in their report on the accompanying consolidated financial statements regarding concerns about our ability to continue as a going concern. As of March 31, 2010, we had total assets of $3,814,412, total liabilities of $4,037,173 and a working capital deficitdeficiency of $(563,799).$1,779,386; we had a net loss of $268,010 for the six months ended March 31, 2011. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

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

The Company expectsWe expect that the total costs for the company’s product sales divisionCompany’s branded Artslux products and services will be approximately $2,100,000$250,000 for the first yearoperation in the 12-months period of operations.fiscal 2011. Of the $2,100,000$250,000 amount, $1,242,000it is estimated that $190,000 will be allocated to cost of sales which includes product purchasing and artist licensing fees, $640,000 is$60,000 will be allocated to sellingG&A expenses including marketing and logistics and $248,000 is allocated to general and administrative expenses includingfor services, rent, salaries, of 5 employees mentioned above, office expenses, and miscellaneous expenses. The Company is hopeful to initially fund approximately $500,000expects that a substantial portion of the required expensescosts will be funded by the Redrock Land loan. We initially expected revenues from loansour marketing efforts for our Artslux products and services would commence in the second calendar quarter of 2011, however, we now believe that revenues from shareholders or their affiliates, withsuch efforts will commence at the

26

remainder end of the required capitalfourth calendar quarter of 2011. We also believe that such revenues, along with the Redrock Land loan, will enable the Company to fund this aspect of its operations for the remaining of the year. The delay in the business expectedhas been due to come from a combination of revenues from operationsongoing negotiations and from a planned round of fundraising from third parties. We expect to generate sales fromdiscussions with potential partners that have progressed slower than originally expected. Based on the sale of our art themed products during the third quarter of fiscal 2010. Thereafter,current progress, the Company now believes that revenues from itsour marketing efforts will begin later in the fourth calendar quarter of 2011.

We originally expected the total costs for the company’s design and marketing of Artslux products and services would approximate $570,000 for 12-months of operations will support its ongoing operational needs. Presently,during fiscal 2011. Based on our new assessment of the business, we currently are re-evaluating are assessing this business and expect to have no arrangement or understanding with any party, including any shareholder or their affiliates, regardingmore definitive plans during the raisingthird calendar quarter of required capital. year 2011.  

We cannot provide assurances that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may forced us to restructure, file for bankruptcy, sell assets or cease operations, any of which co uldcould adversely impact our business and business strategy, and the value of our capital stock. Due to the current price of our common stock, any common stock based financing including transactions with affiliates which may entail the equity conversion of existing loans, will create significant dilution to the then existing stockholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future which also may create significant dilution to existing stockholders.

NextMart reminds investors that its plans to re-structure its business and adopt a new business in art related industry will be subject to various conditions and requirements. These conditions and requirements include but are not limited to the ability to obtain capital in the near term, formal agreements with numerous parties including artists, luxury goods manufacturers, and real estate developers, certain asset valuations, and various approvals including potentially other regulatory approvals, none of which can be affirmed as of the date of this report. The Company also reminds investors that even if it is able to meet the various conditions and requirements indicated above, it can not predict whether it will be successful with its new business initiatives.

Contractual Obligations

 None.

The majority of our operations are in China, where we have leased an office in Beijing. Our Beijing office consists of 90 square meters. The lease extends for a period of three years terminating on July 31, 2011. Our monthly rent is $33,200. 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.

New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB)standards that have been 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 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 year. Full retrospective application of the new guidance is optional. The Company is currently assessing its implementation of this new guidance, but doesproposed by FASB recently are not expect a material impact on the Consolidated Financial Statements.

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

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

27

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

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

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

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

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

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

28

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

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as stockholder’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, 2009.2010. 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,

20

disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period.

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

Revenue Recognition

We generate revenue through consulting services and recognize such revenues from consulting services in accordance with Staff Accounting Bulletin (“SAB”)ASC No. 104 (ASC No. 605),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

We account for income taxes under the provisions of SFASASC No. 109 (ASC No. 740),740, "Accounting for Income Taxes," as described in Note 8 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the period ended September 30, 2009.2010. 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

29

deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income using the balance sheet liability method at the effective rate applicable in China in our consolidated statements of operations and comprehensive income.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable

ItemITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

UnderWe maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the supervisionExchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and withreported within the participation oftime period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and our Chief Financial Officer, we undertook an evaluation ofevaluated 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 March 31, 2011 and identified the endmaterial weaknesses described below. On our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, we reported these material weaknesses which continue to be material weakness as of March 31, 2011.   Based on that evaluation, we concluded that, because of the period covered by this report. Based on this evaluation,material weaknesses described below, as of March 31, 2011, our Principal Executive Officer and Principal Financial Officer have concluded that such disclosure controls and procedures were effectiveineffective. 

·    Lack of Internal Audit Function - We lack qualified resources to ensure (a)perform our internal audit functions properly. In addition, we have not yet fully developed the scope and effectiveness of our internal audit function.

·    Insufficient U.S. GAAP Accounting Skills and Experience - We found that information requiredour accounting staff lacked sufficient accounting skills and experience necessary to be disclosed by us in reports thatfulfill our public reporting obligations according to U.S. GAAP and the SEC’s rules and regulations.

At the present time, we file or submit underare currently developing our art related business. Thus, our current operations and financial transactions are limited. At such time as business develops, we intend to hire additional personnel with sufficient US GAAP Accounting Skills and Experience to fulfill our public reporting obligations according to U.S. GAAP and the Securities Exchange Act of 1934,SEC’s rules and regulations. In addition, as amended, is recorded, processed, summarizedthe

21

Company’s business develops, it also will begin searching and reportednegotiating with several qualified candidates to serve as the audit committee members so as to establish an audit committee within the timeBoard of Directors of the Company.  

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods specifiedare subject to the risk that controls may become inadequate because of changes in Securitiesconditions, or that the degree of compliance with the policies and Exchange Commission rules and forms and (b) that information required to be disclosed is accumulated and communicated to management to allow timely decisions regarding disclosure.procedures may deteriorate.

ThereManagement remains committed to improving its internal control over financial reporting and will continue to work to put effective controls in place.

Changes in Internal Control over Financial Reporting

Other than described above there were no changes in our internal controls over financial reporting during the three monthmonths and the six months ended March 31, 20102011 that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.

PART II - OTHER INFORMATION

ItemITEM 6. Exhibits and Reports of FormEXHIBITS AND REPORTS OF FORM 8-K.

(a) Exhibits

31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

30

22

 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

3123