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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended December 31, 2007

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

	For the transition period from [ ] to [ ]

Commission File Number: 000-26347

NextMart, Inc. (f/k/a Sun New Media, Inc.)

(Exact name of small business issuer as specified in its charter)


DELAWARE		410985135
(State or other jurisdiction of incorporation)		(IRS Employer
		Identification No.)


Oriental Plaza Bldg. W3, Twelfth Floor
1 East Chang’an Avenue, Dongcheng District
Beijing, 100738 PRC		100738
(Address of principal executive offices)		(Zip Code)


Issuer’s telephone number +86 (0)10 8518 9669

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

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

87,073,170 common shares issued and outstanding as of January 13, 2008

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

TABLE OF CONTENTS


PART I
	Item 1. Financial Stateme nts	3
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3. Controls and Procedures	48
PART II
	Item 1. Legal Proceedings	49
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
	Item 3. Defaults Upon Senior Securities	49
	Item 4. Submissions of Matters to a Vote of Security Holders	49
	Item 5. Other Information	49
	Item 6. Exhibits and Reports on Form 8-K	50
SIGNATURES		53
INDEX TO EXHIBITS		54
EXHIBIT 31.1
EXHIBIT 32.1

FORWARD LOOKING INFORMATION

This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. 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 statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. 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, including: Sun China Media (Beijing) Technology Co., Ltd., Suizhou Focus Trading Development Co., Ltd., Shanghai Shengji Technology Co., Ltd, Sun China Media (Beijing) International Advertising Co. Ltd, Dragon List Co. Ltd, Sun Trade Media (Beijing) Co. Ltd, Sun Asia (Beijing) Investments Consultants Ltd, NextMart Technology (Beijing) Co. Ltd, Wuhan Xinda Weiye Trade and Development Co. Ltd, Beijing Trans Global Logistics, Naixiu Exhibition (Beijing) Co. Ltd .

PART I

Item 1. Condensed Consolidated Financial Statements


NEXTMART INC. (f/k/a Sun New Media Inc.)
CONSOLIDATED BALANCE SHEETS
	Unaudited	Audited
	December 31, 2007	September 30, 2007
	US$	US$
ASSETS
Current Assets
Cash and cash equivalents	864,054	482,762
Accounts receivable, net of provision for doubtful debts $31,478	2,953,873	3,464,400
Other current assets	7,152,227	6,721,710
Inventories	47,977	46,618
Marketable securities	4,226,871	4,225,158
Amounts due from stockholders	632,111	421,453
Amounts due from related parties	-	472,287
	-	-
Total current assets	15,877,113	15,834,389
Goodwill and intangible assets	3,448,635	3,643,781
Plant and equipment, net	2,722,420	2,713,589
	22,048,168	22,191,759
	-	-
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	189,546	184,756
Other payables and accruals	2,527,798	2,302,035
Amounts due to related parties	347,685	197,255
	-	-
Total current liabilities	3,065,029	2,684,046

Minority interest	1,601,720	1,592,077
Convertible notes	1,500,000	1,500,000
Discount on convertible notes and warrants	(677,808)	(717,679)
Commitments and Contingencies	-	-
STOCKHOLDERS’ EQUITY
Preferred stock; authorized 250,000,000 shares, par value US$0.01; none issued	-	-
Common stock; authorized 750,000,000 shares, par value US$0.01;
issued and outstanding, 87,093,170 shares	870,932	870,932
20,000 shares of common stock reserved to be issued	200	200
Additional paid in capital	94,978,415	94,978,415
Accumulated other comprehensive (loss) income:
Foreign currency translation adjustments	(170,763)	47,150
Deficit	(79,119,557)	(78,763,382)
Total stockholders’ equity	16,559,227	17,133,315
	22,048,168	22,191,759

See notes to consolidated financial statements.


NEXTMART INC. (f/k/a Sun New Media Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
	Unaudited
	Three Months Ended December 31,
	2007	2006
	US$	US$
Revenues	1,396,337	3,950,568
Costs of revenue	1,083,430	2,057,983
Gross Margin	312,906	1,892,585

Operating Expenses
General and administrative expenses	252,760	1,516,069
Stock Based Compensation Costs	—	(537,000)
Marketing and sales	39,691	68,816
Depreciation and amortization	235,631	664,782
Consulting and professional fees	65,541	305,656
Impairment loss on intangible assets	—	32,503,843
	593,624	34,522,166
Operating loss before other income (expense), income tax expense, minority interest and discontinued operations	(280,719)	(32,629,581)

Other Income (expense)
Interest income	4,630	10,645
Amortization of discount on notes	(78,871)	—
Other income	—	37,775
Net income from affiliates	—	(84,784)
	(74,241)	(36,364)
Loss before income tax expense, minority interest and discontinued operations	(354,961)	(32,665,945)

Income tax expense	378	(53,366)
Loss before minority interest and discontinued operations	(355,339)	(32,719,311)

Minority interest	(837)	(67,452)
Loss from continuing operations	(356,176)	(32,786,763)

Income from discontinued operations	—	5,932,947
NET LOSS	(356,176)	(26,853,816)

Other comprehensive loss – Currency translation adjustment	(12,765)	(5,510)
Comprehensive loss	(343,411)	(26,859,326)

Basic and diluted loss per share:
Continuing operations	(0.00)	(0.32)
Discontinued operations	(0.00)	0.06


	—	(0.26)

Weighted average number of shares outstanding	87,113,203	102,922,000

See notes to consolidated financial statements.


NEXTMART INC. (f/k/a Sun New Media Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS	Unaudited
	Three months ended December 31,
	2007	2006
	US$	US$
Cash flows from operating activities
Net loss	-356,176	-26,853,816
Adjustments to reconcile net loss to net cash used in operating activities;	-
Depreciation and amortization	235,631	664,782
Impairment loss on intangible assets	—	26,570,896
Share of profits from affiliate	—	84,784.00
Minority interest	837	67,452.00
Gain on disposal of non-core assets	—	1,084
Stock-based compensation	—	(537,000)
Interest Expense	78,871	—

Changes in operating assets and liabilities:
Accounts receivable	510,524	-1,329,231
Other current assets	-469,516	1,870,358
Inventories	—	526,768
Amounts due from related parties	—	-83,772
Amounts due from stockholders	583,995	17,096
Accounts payable	4,790	-932,967
Other payables and accruals	225,763	-1,595,666
Amounts due to related parties	-171,937	(27,941)
Net cash provided by (used in) operating activities	642,783	-1,557,173

Cash flows from investing activities
Proceeds from sale of plant and equipment	—	1,793
Purchase of plant and equipment	-55,034	-556,172
Cash used in business combination, net	—	(374,909)
Net cash used in investing activities	-55,034	-929,288

Cash flows from financing activities	—	—

Net effect of exchange rate changes on consolidating subsidiaries	-206,459	52,037
Net increase (decrease) in cash and cash equivalents	381,292	-2,019,344
Cash and cash equivalents, beginning of the period	482,762	3,609,729
Cash and cash equivalents, end of the period	864,054	1,590,385

Suplemental disclosure of cash flow information:


Interest paid	0.00	0.00
Income taxes paid	0.00	0.00

See notes to consolidated financial statements.

NEXTMART INC. (f/k/a Sun New Media Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We operate mainly in the ladies' apparel industry where we derive the bulk of our revenue by acting as an outsourced brand management and production center for foreign apparel brands through our Shanghai-based apparel subsidiary, William Brand Administer Co. Ltd ("William Brand"). We also possess a portfolio of media and marketing assets that we are leveraging to expand into the online brand management and e-commerce sectors for ladies' apparel products. We have supporting operations in the handheld electronics sector. The Company is divided into two principal divisions: the Transactional Services Division and the Marketing & Information Services Division.

Going forward, we plan to center our business operations around William Brand. Our business development efforts will consist of growing existing revenues in the business-to-business sector and creating new revenues in the business-to-consumer sector. Our goal is to build China’s largest shopping community for online wholesale distribution and retail shopping of women's fashion.

Our activities are based predominantly in People’s Republic of China (“PRC”). :

Our principal operating subsidiaries include the following:

Sun New Media Group Limited;

William Brand Administer Limited; and

Beijing Trans Global Logistics.

SUMMARY OF THE COMPANY’S SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

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

We have the following significant domestic VIEs:

· Sun China Media (Beijing) Technology Co., Ltd., a PRC company controlled through us by contract and is owned equally by Qiong Zhou and Jacob Di, both of whom are non-executive employees of the Company.

· Suizhou Focus Trading Development Co., Ltd., a PRC company controlled by us by contract and is engaged in marketing, information and technology services to beverage and electronic device distributors. It is 60% owned by Qi

Yang, one of our officers and 25% and 15% owned by Bingwei Wu and Quanyi Mao respectively, two non-executive employees of the Company.

· Shanghai Shengji Technology Co., Ltd, a PRC company controlled by us by contract, and is engaged in wireless mobile services. It is 40% owned by Hui Yan, 40% owned by Min Lin and 20% owned by Kezhou Luan, each a non-executive employee of the Company.

· Sun China Media (Beijing) International Advertising Co. Ltd, a PRC company controlled by us by contract which is engaged in the advertising business. It is 70% owned by Qiong Zhou, and 30% owned by Guosheng Wang, both of whom are non-executive employees of the Company.

· Dragon List Co. Ltd, a PRC company controlled by us by contract and is engaged in digital publishing business. It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.

· Sun Trade Media (Beijing) Co. Ltd, a PRC company controlled by us by contract and is engaged in digital publishing business. It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.

· Sun Asia (Beijing) Investments Consultants Ltd, a PRC company controlled by us by contract and is engaged in the provision of consultancy services. It is 60% owned by Qiong Zhou, and 40% owned by Bryan Li, both of whom are non-executive employees of the Company.

· NextMart Technology (Beijing) Co. Ltd, a PRC company controlled by us by contract and is engaged in software development. It is 70% owned by Qiong Zhou, and 30% owned by Jacob Di, both of whom are non-executive employees of the Company.

· Wuhan Xinda Weiye Trade and Development Co. Ltd, a PRC company controlled by us by contract and engaged in trading. It is 40% owned by Jin Liu, 30% owned by Wanzhi Zhu and 30% owned by Mingde Jiang, all of whom are non-executive employees of the Company.

· Beijing Trans Global Logistics, a PRC company 80% by us by contract and engaged in trading. It is 80% owned by Qiong Zhou, 10% owned by Yong Li and 10% owned by Mianchun Wang, Qiong Zhou is a non-executive employees of the Company.

· Naixiu Exhibition (Beijing) Co. Ltd, a PRC company that is controlled by us and owned 50% Li Yong and 50% by Wang Jinghchun. Li Yong and Wang Jingchun are non-executive employees of the Company.

The capital investment in these VIEs is funded by the Company and transferred to the VIEs via contractual agreements between the Company (or its non-PRC subsidiary) and the PRC employees who own the VIEs. As of March 31, 2007, the total amount of capital investment that was transferred to the VIEs listed above was US$3,451,000. Under various contractual agreements, employee shareholders of the VIEs are required to transfer their ownership in these entities to our subsidiaries in China when permitted by PRC laws and regulations or to our designees at any time for the outstanding amount of injected capital investment, and all voting rights of the VIEs are assigned to us. We have the power to appoint all directors and senior management personnel of the VIEs. Through our wholly-owned subsidiaries in China, we have also entered into exclusive technical agreements and other service agreements with the VIEs, under which these subsidiaries provide technical services.

Use of estimates

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

Financial instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, marketable securities, other payables, and factoring in loans. The fair values of these financial instruments approximate their net carrying values due to the short-term maturity of the instruments.

Business combinations

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

Goodwill and intangible assets, net

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

The Company applies the criteria specified in SFAS No.141, Business Combinations to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the contractual-legal or separability criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

Impairment of Long-lived Assets

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

Comprehensive Income (Loss)

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

Inventories

Inventories are stated at the lower of cost (first-in, first out method) or market. Certain inventory goods purchased are subject to spoilage within a short period of time while in possession of the Company. Inventory costs do not exceed net realizable value.

Plant and equipment

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


		Years
Furniture, fixtures and equipment		3 – 10
Motor vehicles		5 – 10
Leasehold buildings and improvements		5 – 40

Revenue recognition

We generate revenue through the provision of marketing & information services, and transactional services. The Company recognizes revenues from transaction and marketing & information services in accordance with Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” when all of the following conditions exist: persuasive evidence of an arrangement exists in the form of an accepted purchase order; delivery has occurred, based on shipping terms, or services have been rendered; the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order; and collectability is reasonably assured.

The Transactional Services business primarily includes activity from the apparel vertical and electronics components business. We recognize revenue for the transactional business when the goods have been shipped or delivered and purchase order exists. The Marketing and Information Services includes the newspaper and magazine business and marketing consulting services. The Company recognizes revenue for the Marketing and Information Services when the services have been rendered.

Cost of revenues

Cost of revenues includes the cost of product, 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 whether we will take title to the product and the level of management services provided.

Trade receivables and allowances for Doubtful Accounts

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

Sales to Nature's Club International Co. Ltd. were $877,889 and $1,877,532 for the three months ended December 31, 2007 and 2006, respectively. Significant sales to a single customer expose the Company to a concentration of credit risk.

Earnings (loss) per share

Basic earnings (loss) per share 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, fully diluted earnings per share is considered equivalent to basic earnings per share because consideration of common stock equivalent would be anti dilutive.

Foreign currency transactions

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are re-measured 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 re-measurement gain or loss incurred is reported in the

consolidated statement of operations. In 2007, 7.4281 RMB per U.S. USD was the weighted average rate, and 7.3046 RMB per USD at December 31, 2007..

Income taxes

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

Stock-based compensation

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share Based Payment,” (“SFASNo.123(R)”) which revises SFAS No. 123 and supersedes APB 25. SFAS No. 123(R) requires that all share-based payments to employees be recognized in the financial statements based on their fair values at the date of grant. The calculated fair value is recognized as expense (net of any capitalization) over the requisite service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. The statement was adopted using the modified prospective method of application which requires compensation expenses to be recognized in the financial statements for all unvested stock options beginning in the quarter of adoption. There were no unvested stock options at the beginning of this reporting period therefore no compensation expense was recognized in the period. No adjustments to prior periods have been made as a result of adopting SFAS No. 123(R).

As at September 30, 2005 the Company elected to account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and comply with the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148. During the period from September 18, 2005 to September 30, 2005, no stock-based employee compensation arrangements have been effected and accordingly no disclosure of pro forma information is required. In accordance with SFAS No. 123 the Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to consultants.

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

Related Parties

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

Deferred Expenses

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

Convertible Notes and Notes Issued with Stock Warrants

The Company accounts for convertible notes and notes issued with stock warrants in accordance with APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. The proceeds from the issuance of

convertible notes are allocated between the debt and the equity. The Company books a discount on convertible notes for the conversion feature of the notes and warrants and amortizes the discount over the life of the debt.

Segment Information

The Company accounts for segment information in accordance to FASB 131, Disclosures about Segments of an Enterprise and Related Information. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s operations segments include Transactional Services and Marketing Services.

3 GOODWILL AND INTANGIBLE ASSETS

The following table summarizes goodwill from the Company’s acquisitions:


	Unaudited	Audited
	December 31, 2007	September 30, 2007
	US$	US$

Focus	7,800,000	7,800,000
Beijing CEAC	180,763	180,763
Accumulated amortization	(53,664)	(45,191)
Impairment loss	(7,867,786)	(7,867,786)
	59,313	67,786

The following table summarizes intangible assets:







Service agreements		25,000,000	25,000,000
Magazines mastheads		2,562,308	2,562,308
License		24,452,368	24,452,368
Non-compete agreements and customer relationship		2,904,709	2,904,709
Database		2,499,999	2,499,999
Program rights		1,912,080	1,912,080
Technology		2,366,703	2,366,703
Partnership agreement license		1,056,122	1,056,122
		62,754,289	62,754,289
Less:	Accumulated amortization	(2,160,494)	(1,974,268)
	Sold	(3,788,873)	(3,788,873)
	Impairment loss	(53,402,828)	(53,402,828)
	Translation difference	(12,773)	(12,325)
		3,389,322	3,575,995
		$3,448,635	$3,643,781

PLANT AND EQUIPMENT, NET

Plant and equipment is summarized as follows:


	Unaudited	Audited
	December 31, 2007	September 30 2007
	US$	US$
Cost
Motor vehicles	680,021	672,976
Leasehold building and improvement	417,783	352,758
Furniture, fixtures and equipments	8,849	8,605
Buildings	1,619,368	1,619,368


Computer Software	539,593	521,815
	3,265,614	3,175,522
Accumulated depreciation	(543,193)	(461,933)
	2,722,420	2,713,589

The buildings include a book value of $1.4 million house located in Shanghai, China.

ACCOUNTS RECEIVABLE

The major amounts of account receivable are William Brand’s clients which at December 31, 2007 contribute 73.7% and CEAC’s client which contribute 26.9%. The bad account provision is for the account receivable of CEAC.

OTHER CURRENT ASSETS

Other receivables, prepayments and deposits are summarized as follow:


	Unaudited	Audited
	December 31, 2007	September 30 2007
	US$	US$
Other receivables	1,273,815	1,258,705
Staff advances	40,586	40,201
Prepaid Advances for Purchase	563,830	227,049
Prepaid interest expenses	702,000	702,000
Prepaid Acquisition	1,816,982	1,697,730
Rental deposits	1,383	1,346
Prepaid administrative expenses	2,753,631	2,794,680
	7,152,227	6,721,710

On December 30, 2007, we entered an agreement with Ren Huiliang and Zhou Jiancai for an amendment of the agreement signed on September 28, 2007. The main change is that Ren Huiliang will pay the consideration of the acquisition to Zhou Jiancai as of $1.8 million in cash from the prepayment amount for purchasing inventory.

AMOUNTS DUE FROM/ (TO) STOCKHOLDERS/ RELATED PARTIES

The amounts are non-trade, interest free and with no fixed terms of repayment.

OTHER PAYABLES AND ACCRUALS

Other payables and accruals are summarized as follow:


	Unaudited	Audited
	December 31, 2007	September 30 2007
	US$	US$
Other payables	1,790,539	1,223,568
Accrued operating expenses	548,159	917,187
Prepayment from customers	189,100	161,280
	2,527,798	2,302,035

Other payables mainly include $1.5 million for professional fees, rental fees for our New York office, other deposit, and other office expenses. Included in accrued operating expenses are business tax, VAT, and $0.5 million of committed investment in a subsidiary of the Company.

CONVERTIBLE NOTES WITH DETACHABLE WARRANTS

Convertible Notes with Detachable Warrants

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

The aggregate gross proceeds from the sale of the notes and warrants were $1,500,000. The convertible notes are due three years from the date of issuance. We prepaid all interest due under the convertible notes through the issuance of 1.5 million shares of NextMart common stock (the “Interest Shares”). The notes are initially convertible into NextMart 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 shall be adjusted to eighty percent (80%) of the volume weighted average price of NextMart common shares for the five trading days prior to a conversion date.

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

The notes are being issued with Class A warrants to purchase up to 1,500,000 shares of NextMart common stock at an exercise price of $1.00 per share and Class B warrants to purchase up to 1,500,000 shares of NextMart 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. Accordingly, if the Class A and Class B warrants are exercised in full, we will issue Class C warrants to purchase 3,000,000 shares of NextMart common stock.

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

On February 1, 2007, NextMart, Inc. (the “Registrant”) and Barron Partners LLP (“Barron”) entered into a supplementary agreement (the “Supplementary Agreement”) to modify the terms of their original stock purchase agreement (the “Agreement”) dated December 31, 2005.

As of the date immediately prior to the Supplementary Agreement, Barron possessed the following series of warrants to purchase NextMart stock (the “Warrants”):

· Warrant “A” for 1,500,000 common shares at $2.04 exercise price

· Warrant “B” for 1,500,000 common shares at $2.80 exercise price

· Warrant “C” for 4,000,000 common shares at $3.60 exercise price

· Warrant “D” for 3,445,977 common shares at $4.80 exercise price

· Warrant “E” for 1,100,000 common shares at $2.10 exercise price

Following the Supplementary Agreement, only 3 million of the original 11,545,977 million unexercised warrants remain, and Barron has agreed to limit selling of the shares underlying the warrants to 10% per month for the first 10 months following the date of the agreement.

Specifically, the Company and Barron made the following amendments to the Warrants held by Barron:


1.		Exercise Price. The exercise price per share for 1,100,000 “E” Warrants and 900,000 “D” Warrants was reduced to $0.80. (collectively, “$0.80” Warrants).

2.		Exercise Price. The exercise price per share for 1,000,000 “D” Warrants was reduced to $0.00001. (“$0.00001” Warrants).

3.		Exercise of Warrants.

a)		Barron can exercise up to 10% of the “$0.80” Warrants in each 30 day period for the first 10 months following the date of this amendment, provided that the market price of the common stock is below $1.25 for the 30 days period proceeding the exercise date. After ten months from the date of this agreement OR if the market stock price is above $1.25 Barron can exercise the “$0.80” Warrants without limitation.

b)		Barron can exercise up to 10% of the “$0.00001” Warrants in each 30 day period for the first 10 months following the date of this amendment. These amounts shall be cumulative, so for example if Barron does not exercise any “0.00001” Warrants in the first 30 day period, Barron may exercise up to 200,000 “0.00001” Warrants in the second thirty day period.

4.		Call provisions. Call provisions have been cancelled on all warrants.

5.		Termination. All remaining warrants except for the warrants addressed above in Sections 1 and 2 have been terminated.

During the fiscal year ended March 31, 2007, warrants for 3,654,023 shares were exercised and the Company received net proceeds of $8.7 million.

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

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

The following discussion should be read in conjunction with our Financial Statements and the notes thereto presented in “Item 1 — Financial Statements.” The matters discussed in this report on Form 10-QSB include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this Form 10-QSB that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, “could”, “plan”, “estimate” or “continue” or similar words are intended to identify forward-looking statements, although not all forward-looking statements are identified by those words. While forward-looking statements are sometimes presented with numerical specificity, they are based on current expectations and various assumptions made by management regarding future circumstances over which we may have little or no control. These statements are inherently predictive, speculative and subject to risk and uncertainties, and it should not be assumed that they will prove to be correct. A number of important factors, including those identified under the caption “Risk Factors” in our Transitional Report on Form 10-KSB for the period ended September 30, 2007 as filed with the Securities and Exchange Commission, as well as factors discussed elsewhere in this Form 10-QSB, could cause our actual results to differ materially from those in forward-looking statements or forward-looking financial information. Actual results may differ from forward-looking results for a number of reasons, including market acceptance of our services, adverse market conditions affecting the Internet sector, retention of major clients, competitive factors, failure to keep pace with changing technologies and failure to protect our intellectual property. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated or projected. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Our principal focus is our business-to-business brand and apparel production management business in Shanghai, China. Our goal is to develop China’s largest online shopping community for wholesale distribution and retail shopping in the apparel and ladies’ fashion industry. We are working toward a smaller organizational structure centered around William Brand, our key ladies’ apparel subsidiary and transactional service provider. In fiscal 2008, we plan to build revenues by leveraging our core competency in apparel fashion, design, apparel production and brand management to launch our private label brand “Peeress” and develop an integrated online-offline direct sales model.

As a result of these initiatives, we expect that our results of operations for future periods will be materially different and that our principal sources of revenue, operating expenses and profits will be derived from our apparel and women’s fashion business

Results of Operations

Three Months Ended December 31, 2007 compared with the Three Months Ended December 31, 2006

Revenue. Our revenue for the three months ended December 31, 2007 was $1.40 million compared with $3.95 million for the comparable three month period in 2006. The decrease in revenues for the 2007 period of $2.6 million (or 64.7%) from the prior period is attributable to our shift in business focus to the women’s apparel industry coupled with the negative impact of US economic conditions on our women’s apparel business. Of the total revenue for the 2007 period, 96.0% were derived from our Transactional Services and the remaining 4.0% from our Marketing and Information Services. This compares with the 2006 period, wherein 69% were derived from our Transactional Services and the remaining 31% from our Marketing and Information Services. During the three months ended December 31, 2007, Transactional Services was positively impacted by the contribution of revenue from our business in the electronic components vertical and our increased revenue from our women’s apparel business.

Costs of Revenue. Costs of revenue for the three months ended December 31, 2007 were $1.08 million compared with $2.1 million for the comparable three month period in 2006. The decrease of costs for the 2007 period of $0.9 million (or 47.4%) from the prior period is attributable to a reduction in revenues for the 2007 period. Costs of revenue include women;s apparel cost and service buying cost. Transactional Services costs accounted for 100% of the total costs during the 2007 period compared with the 2006 period, wherein Transactional Services costs were 90% of the total costs or approximately $1.9 million. with the balance attaributable to Marketing and Information Services.

Operating Expenses. Total operating expenses for the three months ended December 31, 2007 were $0.6 million compared with $28.6 million for the comparable three month period in 2006. The significant decrease for the 2007 period of $28 million (or 97.9%) from the prior period is due mainly to an impairment loss recorded during the 2006 period in the amount of $26.5 million for the intangibles and goodwill arising out of the Focus acquisition, along with a reductions in office overhead, depreciation and amortization, and consulting and professional fees which occurred during the 2007 period.

Loss from Continuing Operations. Loss from continuing operations for the three months ended December 31, 2007 was $280,719 compared with a net of loss of $26,697,000 for the comparable 2006 period. The decrease for the 2007 period of $26,416,281 (or 98.9%) from the prior period is due to the reasons discussed above.

Comprehensive Loss. Comprehensive loss for the 2007 period was $343,176 compared with a loss of $26,859,000 for the comparable 2006 period.

Liquidity and Capital Resources

As of December 31, 2007, we had $12,812,084 in working capital, of which $864,054 consisted of cash on hand.

We anticipate needing additional liquidity over the next 12 months in order to assist the company in executing its current business plan. We anticipate raising capital through additional private placements of our equity securities, proceeds received from the exercise of outstanding warrants and options, and, if available on satisfactory terms, debt financing.

Off-Balance Sheet Arrangements

As of December 31, 2007, we had no off-balance sheet arrangements.

Capital Expenditure Commitments

As at December 31, 2007, we had no outstanding commitments for capital expenditures.

Critical Accounting Policies and Estimates

Our unaudited financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. In preparing financial statements, management has made certain estimates and assumptions that affected the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions were made consistent with standard accounting policies and practices. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.

Revenue recognition

We generate revenue through the provision of marketing, information, and transactional services. The Company recognizes revenues from transaction and information services in accordance with Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” when all of the following conditions exist: persuasive evidence of an arrangement exists in the form of an accepted purchase order; delivery has occurred, based on shipping terms, or services have been rendered; the Company’s price to the buyer is fixed or determinable, as documented on the accepted purchase order; and collectability is reasonably assured.

The Transactional Services include primarily the apparel vertical business and electronic components business. We recognize revenue for the transactional business when the goods have been shipped or delivered and a purchase order exists. The Marketing and Information Services includes newspaper and magazine business and marketing consulting services. The Company recognize revenue for the Marketing and Information Services when the services have been rendered.

Trade receivables and allowance for Doubtful Accounts

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

Goodwill and intangible assets, net

Impairment of Long-lived Assets

The Company assesses the carrying value of long-lived assets in accordance with SFAS No.144, accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include significant decrease in operating results, significant changes in its use of assets, competitive factors and the strategy of it 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 may not be recoverable based on as assessment of future undiscounted cash flows from the use of those assets, an impairment charge to record the assets at fair value may be recorded. Impairment is measured based on fair values utilizing estimated discounted cash flow, published thirty-party sources, and third-party offers.

Comprehensive Income (Loss)

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

Foreign currency transactions

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”, since the functional currency of the Company is Renminbi, the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars. Monetary assets and liabilities are re-measured 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 re-measurement gain or loss incurred is reported in the consolidated statement of operations.

Marketable securities

The Company accounts for investments in marketable securities under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Marketable equity securities are held as available for sale and are reported at fair value any unrealized gains and losses are included in accumulated other comprehensive income or loss within stockholders’ equity. The treatment of a decline in the fair value of an individual security is based on whether the decline is other-than-temporary. Significant judgment is required to assess whether the impairment is other-than-temporary, particularly for marketable equity securities that provide limited public information. Our judgment of whether impairment is other-than-temporary is based on an assessment of factors including our ability and intent to hold the individual security, severity of the impairment, expected duration of the impairment and forecasted recovery of fair value. Changes in the estimates and assumptions could affect our judgment of whether an identified impairment should be recorded as an unrealized loss in the equity section of our consolidated balance sheets or as a realized loss in the consolidated statements of operations.

Stock-based compensation

Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), “Share Based Payment,” (“SFAS No. 123(R)”) which revises SFAS No. 123 and supersedes APB 25. SFAS No. 123(R) requires that all share-based payments to employees be recognized in the financial statements based on their fair values at the date of grant. The calculated fair value is recognized as expense (net of any capitalization) over the requisite service period, net of estimated forfeitures, using the straight-line method under SFAS No. 123(R). The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. The statement was adopted using the modified prospective method of application which requires compensation expense to be recognized in the financial statements for all unvested stock options beginning in the quarter of adoption. There were no unvested stock options at the beginning of this reporting period therefore no compensation expense was recognized in the period. No adjustments to prior periods have been made as a result of adopting SFAS No. 123(R).

As at September 30, 2005 the Company elected to account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, (“APB No. 25”) and comply with the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148. During the period from September 18, 2005 to September 30, 2005, no stock-based employee compensation arrangements have been effected and accordingly no disclosure of pro forma information is required. In accordance with SFAS No. 123 the Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to consultants.

Item 3. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. The Company is evaluating its disclosure controls in light of compliance with SOX 404 in its next annual report, and if necessary, will make any changes needed to comply with SOX 404.

Changes in internal control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

None.

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

None

Item 3. Defaults Upon Senior Securities.

On March 22, 2007, we executed subscription agreements with five accredited investors (the “Selling Stockholders”) for the purchase of an aggregate of $1,500,000 of our senior convertible promissory notes (“Notes”) and Class A, Class B, and Class C common stock purchase warrants. At closing, we paid the Selling Stockholders a total of 1,500,000 shares of our common stock as full consideration of all interest due under the Notes. We were unable to complete our registration rights covenants in the agreement with the Selling Stockholders. As a result, we are in default under the terms of such agreement. We are currently in negotiations with the Selling Shareholders in an effort to remedy the situation.

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

None.

Item 5. Other Information.

None

Item 6. Exhibits

None

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


NEXTMART, INC.

Date: February 19, 2008	By:	/s/ Ren Huiliang
	Ren Huiliang
	Chief Executive Officer