NXMR NextMart Inc (CE)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

 

FORM 10-Q

_______________

 

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

 

For the quarterly period ended December 31, 2008

 

 

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

  For the transition period from ______to______.

 

NextMart, Inc.

 (Exact name of registrant as specified in Charter)

 

DELAWARE		000-26347		410985135
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

Oriental Plaza Bldg. W3, Twelfth Floor

1 East Chang’an Avenue, Dongcheng District

Beijing, 100738 PRC

  (Address of Principal Executive Offices)

 _______________

 

 +86 (0)10 8518 9669

 (Issuer Telephone number)

_______________

 

 (Former Name or Former Address if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer o     Smaller Reporting Company T

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

Yes x No T

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 90,204,734 shares of common stock outstanding as of February 16, 2009.

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NEXTMART, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED December 31, 2008

 

 

Table of Contents

INDEX

PART I FINANCIAL INFORMATION
Item 1.		Financial Statements		3
Item 2.		Management Discussion and Analysis of Financial Condition and Results of Operations.		13
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.		17
Item 4.		Controls and Procedures.		17
PART II OTHER INFORMATION
Item 1.		Legal Proceedings.		19
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.		19
Item 3.		Defaults Upon Senior Securities.		19
Item 4.		Submission of Matters to a Vote of Security Holders.		19
Item 5.		Other Information.		19
Item 6.		Exhibits.		19
Signatures.				20

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PART I   FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NEXTMART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		December 31, 2008		September 30, 2008
		(Unaudited)		(Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	120,249	$	107,253
Accounts receivable, net of allowance for doubtful accounts		-		43,999
Amount due from shareholders		771,363		946,891
Other receivables, net of allowance for doubtful accounts		-		1,177
Marketable securities		602,345		1,018,554
Current assets of held for sale operations		3,414,299		3,921,348
Total Current Assets		4,908,256		6,039,222
Deferred charges		1,751,666		1,816,666
Property, plant and equipment, net		225,524		240,411
Other long-term assets		1,731,401		1,731,401
Long-term Assets of held for sale operations		1,988,477		1,989,760
Total Assets	$	10,605,324	$	11,817,460
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	47,219	$	47,219
Other payables and accrued expenses		1,760,232		1,857,632
Amount due to shareholders		428,504		429,571
Amount due to related parties		563,488		546,133
Current liabilities of held for sale operations		1,318,381		1,241,611
Total Current Liabilities		4,117,824		4,122,166
Convertible notes		1,500,000		1,500,000
Discount on warrants fair value, net		26,775		(500,379)
Minority interest		414,871		415,370
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, 90,204,734 shares		902,048		902,048
Reserved to be issued , 53,029 shares		530		530
Additional paid-in capital		95,337,626		95,337,626
Accumulated deficit		(88,731,008)		(87,493,877)
Accumulated other comprehensive loss-Unrealized loss on marketable securities		(2,577,728)		(2,161,519)
Accumulated other comprehensive loss-Other		(385,614)		(304,505)
Total stockholders' equity		4,545,854		6,280,303
	$	10,605,324	$	11,817,460

See notes to consolidated financial statements.

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NEXTMART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
		Unaudited
		Three Months Ended December 31,
		2008		2007
Sales	$	41,637	$	49,811
Cost of sales		2,082		2,813
Gross Margin		39,555		46,998
Operating expenses
General and administrative expenses		89,666		314,704
Marketing and sales		-		1,346
Depreciation and amortization		14,692		24,150
Consulting and professional fees		45,562		57,230
		149,920		397,430
Operating loss		(110,365)		(350,432)
Other income
Interest income/(expense)		(172)		3,835
Change in fair value of convertible note & warrants option		(527,154)		-
Interest expense		(65,000)		(78,871)
Loss from continuing operations before income tax expense  and minority interest		(702,691)			(425,468)
Income tax expense		-			-
Minority interest		498			2,490
Loss from continuing operations		(702,193)			(422,978)
(Loss) income from held for sale operations		(534,938)			66,802
Net Loss		(1,237,131)			(356,176)
Other comprehensive income (loss)
Foreign currency translation adjustment		(81,109)			12,765
Unrealized loss		(416,209)			--
Total comprehensive loss	$	(1,734,449)	$		(343,411)
Weighted average number of common shares outstanding – basic and diluted		90,204,734			87,113,203
Loss per share
Continuing operations – basic and diluted	$	(0.01)	$		(0.00)
Held for sale operations – basic and diluted	$	(0.01)	$		(0.00)

See notes to consolidated financial statements.  

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NEXTMART, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Unaudited Three Months Ended December 31,
		2008		2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,237,131)	$	(356,176)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		14,692		24,151
Impairment loss on long term liability		527,154
Minority interest		(497)		(2,490)
Interest expense		65,000		78,871
Change in operating assets and liabilities
Accounts receivable		43,999		41,070
Other current assets		1,178		(74,872)
Accounts payable		-		(504,791)
Other payables and accruals		(32,843)		167,770
Net Cash Used in Operating Activities		(618,448)		(626,467)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(348)		(55,034)
Amounts due from related party		(39,501)		(804,393)
Amounts due from shareholders		178,160		203,815-
Net proceeds from disposal of subsidiary		-		-
Net Cash provided by (used in) Investing Activities		138,311		(655,612)
CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due to shareholders		-		-
Amounts due to related parties		996		(171,937)
Net Cash Provided by (used in) Financing Activities		996			(171,937)
Effect of exchange rate fluctuations on cash		(81,110)			12,765
Net decrease in cash and cash equivalents from continuing operations		(560,251)			(1,441,251)
Net increase in cash and cash equivalents from held for sale operations		573,247			1,822,542
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		107,253			482,762
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	120,249	$		864,053

 

Supplemental disclosure of cash flow information
Interest paid	$	65,000	$	78,871
Income taxes paid	$	-	$	-

See notes to consolidated financial statements.

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Consolidation and Presentation

The consolidated financial statements include the accounts of Nextmart, Inc (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 of America.

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 carrying values due to the short-term maturity of the instruments.

Business combinations

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

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flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

Impairment of Long-lived Assets

The Company assesses the carrying value of long-lived assets in accordance with SFAS No.144, 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 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.

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:

		Years
Furniture, fixtures and equipment		3-10
Computer software		3-5

Revenue recognition

We generate revenue through the provision of marketing & information services. The Company recognizes revenues from transaction, marketing 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 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

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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 of 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.

Earnings (loss) per share

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

Foreign currency translation

The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are translated using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and capital asset accounts are translated by using historical exchange rates. Any translation gain or loss incurred is reported in the consolidated statement of operations. In 2008, we used 7.0927 RMB per U.S. USD for the weighted average rate, and we used 6.8183 RMB per USD as the balance sheet date rate (September 30, 2008).

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,” (“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 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

8

arrangements have been effected and accordingly no disclosure of pro forma information is required.

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.

Reclassification

 

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

NOTE 2 – ACCOUNTS RECEIVABLE

 

Accounts receivable consisted of the following:

 

		December 31, 2008		September 30, 2008
Accounts receivable - trade	$	-	$	43,999
Allowance for doubtful accounts		-		-
Accounts receivable, net	$	-	$	43,999

NOTE 3 – MARKETABLE SECURITIES

		Unaudited				Audited
		December 31, 2008				September 30,2008
		Number of shares		Amount		Number of shares			Amount
CEC Unet Pte		16,821,254	$	2,562,469		16,821,254	$		2,562,469
Asia Premium TV Inc		239,201		617,604		239,201			617,604
Unrealized loss				(2,577,728)					(2,161,519)
Net balance			$	602,345			$		1,018 ,554

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

9

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

The Company holds 139,201 shares of Asia Premium TV Inc (OTC BB: ATVG) for the benefit of Wuxi Guangxin Movie and Carton Ltd, who is the minority shareholder of Wuxi Sun Network Technology Ltd.

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

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

 

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

 

		Unaudited		Audited
		December 31, 2008		September 30, 2008
Office equipment	$	7,549	$	7,165
Computer software		292,600		293,328
		300,149		300,493
Less: accumulated depreciation		74,625		60,082
	$	225,524	$	240,411

 

Depreciation for the three months ended December 31, 2008 was $14,692 compared with the three months ended December 31, 2007 $24,150, respectively.

 

NOTE 5 - 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 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 our common stock.  The notes are initially convertible into our common shares at a conversion price of $1.00 per share.  After the occurrence of an event of default under the notes, the conversion price adjusts to eighty percent (80%) of the volume weighted average price of our common shares for the five trading days prior to a conversion date. The discount on warrants fair value increases from $(500,379) as at September 30, 2008 to $26,775 as at December 31, 2008. 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. Under the Settlement Agreement, 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. We agreed to pay interest and penalties of $610,126 in the form of common shares of CEC Unet Plc. (AIM: CECU) which we hold. The payment is due 90 days from closing date. The amount of CECU shares payable to the investors is calculated by using the lowest bid price of the CECU shares for the five days prior to the payment date minus 10%. The securities of CECU are currently subject to a trading suspension on the AIM Market. If on the stated payment date, the CECU Shares are not trading on the AIM Market, then we are required to pay the amount in cash or cash equivalents. The parties 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. We received $250,000 in funds from Redrock Capital Venture Limited, a BVI company (“Redrock”).

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We used these funds to make the initial payment under the Settlement Agreement. Dr. Bruno Wu, who is our Chairman and a control person of our company, also is the Chairman of Redrock, however, Dr. Wu has no ownership interest in Redrock. Mr. Wu’s spouse, Ms. Yang Lan, is the majority shareholder of Redrock. She also is controlling shareholder of Sun Media Investment Holdings, one of our largest shareholders. The loan from Redrock is due on demand and bears no interest.

NOTE 6 - OTHER PAYABLES AND ACCRUALS

Other payables and accruals are summarized as follows:

		Unaudited		Audited
		December 31,2008		September 30, 2008
Other payable	$	1,485,595	$	1,472,630
Accrued expenses		273,594		384,095
Taxes payable		1,043		907
	$	1,760,232	$	1,857,632

Other payables mainly include $1.5 million for professional fees, other deposit, and other office expenses. Included in accrued operating expenses are business tax, VAT and consulting expenses.

NOTE 7 – OPERATING LEASES

 

The majority of our operations are in China, where we have leased offices in Beijing. Our Beijing office consists of 8,740 square feet. The lease extends for a period of two years terminating on July 31, 2009. Our annual rent is $192,569.  We believe that our existing facilities are adequate to meet our current requirements, and that future growth can be accommodated by leasing additional or alternative space.  At December 31, 2008,  minimum rentals of $112,332 were due in 2009.

NOTE 8 -AMOUNTS DUE FROM/ (TO) SHAREHOLDERS/ RELATED PARTIES

The amounts due from and to shareholders and other related parties are non-trade, non interest bearing and with no fixed terms of repayment.

NOTE 9- HELD FOR SALE OPERATIONS

The Company intends to divest itself of the William Brand’s  women apparel business and other non-material businesses. 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 December 31, 2008:

		Unaudited		Audited
		December 31, 2008		September 30, 2008
Cash and bank	$	449,363	$	373,494
Accounts receivable-net		2,108,086		2,500,662
Due from shareholders		680,763		680,763
Other receivable, prepayments, and deposit		176,087		366,429
Property plant and equipment - net		1,360,408		1,360,471
Intangible assets-net and goodwill		628,069		629,289
Assets of held for sale operations	$	5,402,776	$	5,911,108
Accounts payable	$	186,717	$	184,151
Other payables		638,147		563,431
Minority interest		493,517		494,029

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Liabilities of held for sale operations	$	1,318,381	$	1,241,611

Moreover, the following income and expense items, attendant to these businesses, have been segregated and included in income (loss) from held for sale operations, as appropriate, in the consolidated income statement for the three months ended December 31, 2008 and 2007.

	Unaudited
	Three months ended December 31,
		2008		2007
Net sales	$	555,552	$	1,346,525
Cost of sales		923,149		1,080,617
Gross margin		(367,597)		265,908
Consulting and professional fees		33,895		30,816
General and administrative		57,246		(84,447)
Marketing and sales		73,521		38,345
Depreciation and amortization		3,221		211,481
1794 Income(Loss) from operations		(535,480)		69,713
Other income (expenses)Interest income (expenses)		542		794
Income tax		-		(378)
Minority interest		-		(3,327)
Net income (loss) from held for sale operations	$	(534,938)	$	66,802

NOTE 10- SUBSEQUENT EVENT

 

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. Under the Settlement Agreement, 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. We agreed to pay interest and penalties of $610,126 in the form of common shares of CEC Unet Plc. (AIM: CECU) which we hold. The payment is due 90 days from closing date. The amount of CECU shares payable to the investors is calculated by using the lowest bid price of the CECU shares for the five days prior to the payment date minus 10%. The securities of CECU are currently subject to a trading suspension on the AIM Market. If on the stated payment date, the CECU Shares are not trading on the AIM Market, then we are required to pay the amount in cash or cash equivalents. The parties 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. We received $250,000 in funds from Redrock Capital Venture Limited, a BVI company (“Redrock”). We used these funds to make the initial payment under the Settlement Agreement. Dr. Bruno Wu, who is our Chairman and a control person of our company, also is the Chairman of Redrock, however, Dr. Wu has no ownership interest in Redrock. Mr. Wu’s spouse, Ms. Yang Lan, is the majority shareholder of Redrock. She also is controlling shareholder of Sun Media Investment Holdings, one of our largest shareholders. On January 14, 2009, we entered into a loan agreement with Redrock. The loan from Redrock is due on demand and bears no interest. Please refer to our Form 8-K filed with the Securities and Exchange Commission on February 19, 2009 for a more detailed information with respect to the Settlement Agreement.

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

Forward-Looking Statements

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

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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" previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2008:

§

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

§

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

§

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

§

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

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

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

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

Overview

 

In fiscal year 2009 we plan to continue with the development of financial services and venture investment strategy previously announced by us on May 22, 2008 (see our Form 8-K of May 22, 2008). In this regard, we will seek to acquire equity stakes or establish other arrangements in high margin business (es) located in China. In order to accomplish our strategy, we will attempt to leverage the experience of our affiliates, our available cash albeit limited, and our common stock to acquire business interest(s) in high growth sectors of the Chinese economy. In addition, we may seek to raise funds for such acquisitions or arrangements. As this time, we can not predict the exact combination of efforts required to achieve our strategy. As of the date of this report, we are in the process of formulating our plan, and have not entered into any formal agreements regarding any of the forgoing. It is conceivable that we may enter into merger, share exchange, direct investment, consulting, joint venture, or licensing agreements or a combination thereof, with targeted companies.  If we are required to issue our common stock in connection with our strategy, it is likely that significant dilution will result to existing shareholders. Moreover, as a result of one or more such transactions, a change of control of our company may result due to the issuance of our common stock.

Prior to fiscal year 2008, we had planned to develop an integrated online-offline direct sales platform for the ladies' apparel sector in China. However, our business and business strategy were adversely impacted in a material manner due to the appreciation of the Chinese currency (yuan) against the US dollar(which resulted in US consumers paying higher prices for products manufactured in China), coupled with an already weak US retail market. Accordingly, we were unable to meet our projected operating results and milestones for the 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, as indicated above, we determined to change our business focus.

In fiscal year 2009, we plan to aggressively pursue this strategy while seeking to divest the William Brand’s  women

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apparel business, and other non-material businesses. As of the date of this report, we have not finalized the manner of such divestitures, however, we intend to transfer the William Brand subsidiary to its original owners in exchange for the common stock previously issued to such owners. Any such transaction will be subject to approval of the board of directors, a fairness evaluation, and approval from our existing shareholders and debtholders.  We can not predict whether will be successful in divesting of the William Brand operations. Our plans to adopt a new business strategy in financial advisory/direct investment will be subject to formal agreements with numerous parties, certain asset valuations, fairness opinions, and various approvals including, but not limited to, shareholder approval, debt holder approval, auditor approval, and other regulatory approval. Moreover, even if it is able to meet the various requirements and regulations indicated above, we can not predict whether we will be successful with our new business initiatives or whether they will generate profitable operations.

NextMart’s Venture Investment Business in 2009

We believe that in the pursuit of our new business strategy in the financial advisory and venture investment business, we can draw on the experience and success of our affiliates in the financial services industry to identify and execute high value business investments in the Chinese market. We intend to initially target investments in bio-medical and clean energy related businesses, both high growth sectors of the Chinese economy. These companies could be either state owned or privately held. The exact nature and extent of our proposed investment in these industries is not know at this time. We expect to receive strong support in its advisory and investment business from both Sun Media Investment Holdings Ltd. (“Sun Media”), our largest shareholder, and Sun Media’s related investment firm, Redrock Capital Group Ltd., a British Virgin Island company located in Beijing (“Redrock”), to source and identify investment opportunities.

Results of Operations       

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

Three Months Ended December 31, 2008 compared with Three Months Ended December 31, 2007

 

Sales. Our sales for the three months ended December 31, 2008 and 2007 were $41,637 and $49,811 respectively. These sales were primarily due to the operation of consulting service business.

Cost of sales. Our cost of sales for the three months ended December 31, 2008 and 2007 were $2,082 and $2,813 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 three months ended December 31, 2008 and 2007 were $39,555 and $46,998 respectively.

 

Operating Expenses. Our operating expenses for the three months ended December 31, 2008 and 2007 were $149,920 and $397,430 respectively, which consisted primarily of administrative expenses in the amount of $89,666 and $314,704 respectively.

 

Loss from continuing operations before income taxes expenses. Our loss from continuing operations before income taxes expenses for the three months ended December 31, 2008 and 2007 was $702,691 and $425,468. The reason of the differences is mentioned above.

(Loss)Income from held for sale operations. Our loss from held for sale operations for the three months ended December 31, 2008 was $534,938 and income from held for sale operations for the three months ended December 31, 2007 was $66,802. There was increase 0.47 million of it for the three months ended December 31, 2008 compared the same period 2007, that is because the marketing and sales expenses and other office related expenses.

 

  Liquidity and Capital Resources

 

We have financed our operations primarily through cash generated from equity investments, operating activities and a mixture of short and long-term loans for affiliated and non-affiliated parties. The following table summarizes our cash flows for the three months ended December 31, 2008 and 2007:

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		Unaudited
		Three Months Ended December 31,
		2008		2007
Net cash used in operating activities	$	(618,448)	$	(626,467)
Net cash provided by (used in) investing activities		138,311		(655,612)
Net cash  provided by (used in) financing activities		996		(171,937)
Net effect of exchange rate changes on consolidation		(81,110)		12,765
Net decrease in cash and cash equivalents from continuing operations		(560,251)		(1,441,251)
Net increase in cash and cash equivalents from held for sale operations		573,247		1,822,542
Cash and cash equivalents at end of period		120,249		864,053

 Our total assets as of December 31 2008 were $10,605,324. Our total liabilities as of December 31, 2008 were $6,059,470.

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 development of financial services and venture investment strategy our planned. 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. We can not guarantee that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may forced us to restructure, file for bankruptcy, sell assets or cease operations,  any of which could adversely impact our business and business strategy, and the value of our capital stock. Due to the current price of our common stock, any common stock based financing may create significant dilution to the then existing shareholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future which also may create significant  dilution to existing shareholders.

 

Contractual Obligations

 

The majority of our operations are in China, where we have leased offices in Beijing. Our Beijing office consists of 8,740 square feet. The lease extends for a period of two years terminating on July 31, 2009. Our annual rent is $192,569. The combined lease expense for the three months ended December 31, 2008 amounted to $23,324 and 55,952 for the nine months.

 

Off-Balance Sheet Commitments and Arrangements

 

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

 

Application of Critical Accounting Policies

 

Our significant accounting policies are described in Note 1 to our audited consolidated financial statements previously included in our Annual Report on Form 10-K for the year ended September 30, 2008. We prepare our financial statements in conformity with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period.

  

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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 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 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.  

 

Income Taxes

 

We account for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes," as described in Note 9 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2007. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income 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

Interest Rates . Our exposure to market risk for changes in interest rates relates primarily to our short-term investments and short-term obligations; thus, fluctuations in interest rates would not have a material impact on the fair value of these securities. At December 31, 2008, we had approximately $120,249 in cash and cash equivalents.  A hypothetical 10% increase or decrease in interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

Foreign Exchange Rates . The majority of our revenues derived and expenses and liabilities incurred are in Renminbi (the currency of the PRC). Thus, our revenues and operating results may be impacted by exchange rate fluctuations in the currency of Renminbi.  We have not tried to reduce our exposure to exchange rate fluctuations by using hedging transactions.  However, we may choose to do so in the future.  We may not be able to do this successfully.  Accordingly, we may experience economic losses and negative impacts on earnings and equity as a result of foreign exchange rate fluctuations.  

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

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

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Commission rules and forms and (b) that information required to be disclosed is accumulated and communicated to management to allow timely decisions regarding disclosure.

Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.  A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In making its assessment, our management, including the Chief Executive Officer and Chief Financial Officer, used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  We have not identified any material weaknesses in our internal controls over financial reporting as of the end of the fiscal year ended September 30, 2008.

There were no changes in our internal controls over financial reporting during the three month ended December 31, 2008 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

This annual report on Form 10-K for the fiscal year ended September 30, 2008 does not include an auditor attestation report on our internal controls over financial reporting inasmuch as no attestation report was required under the rules of the Securities and Exchange Commission applicable to us as in effect at that time.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 

We are not aware of any pending legal proceedings against us. We may in future be party to litigation arising in the course of our business. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

 

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

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None

 

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

 

None

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits and Reports of Form 8-K.

 

(a) Exhibits

 

31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

 

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

 

  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.

 

 

	NextMart, Inc.
Date: February 23, 2009	By:	/s/ Ren Huiliang
		Ren Huiliang
Date：February 23, 2009		Chief Executive Officer /s/ Ren Huiliang Ren Huiliang Acting Chief Financial Officer