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EX-32 - NextMart Inc.q1exhibit32.htm
EX-31 - NextMart Inc.q1exhibit311.htm



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, 2009

 

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes [X] 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 [X]


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



1





Yes x No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 443,257,763 shares of common stock outstanding as of February 10, 2010.


















2





NEXTMART, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED December 31, 2009

 

 

Table of Contents


INDEX


  

  Page

PART I FINANCIAL INFORMATION

  

  

  

  

  

Item 1.

  

Financial Statements

  4

 

  

  

  

Item 2.

  

Management Discussion and Analysis of Financial Condition and Results of Operations.

13

 

  

  

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk.

 19

 

  

  

 

Item 4.

  

Controls and Procedures.

19

 

  

 

PART II OTHER INFORMATION

19

 

  

  

 

Item 6.

  

Exhibits.

 19

 

  

  

Signatures.

20

 







3





PART I   FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


NEXTMART, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

December 31,   2009

 

September 30,

2009

 

 

(Unaudited)

 

 

ASSETS

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

$

33,941

$

34,958

Other receivables, net of allowance for doubtful accounts

 

8,489

 

8,503

Marketable securities

 

480

 

12,000

Amount due from related parties

 

5,061

 

49,072

Total Current Assets

 

47,971

 

104,533

 

 

 

 

 

Property and equipment, net

 

7,147

 

7,354

 

$

55,118

$

111,887

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

 

CURRENT LIABILITIES:

 

 

 

 

Other payables and accrued expenses

$

1,407,641

$

1,791,421

Amount due to stockholders

 

860,256

 

440,786

Amount due to related parties

 

2,226

 

-

Total Current Liabilities

 

2,270,123

 

2,232,207

 

 

 

 

 

STOCKHOLDERS' DEFICIENCY

 

 

 

 

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, 443,204,734 shares

 

4,432,047

 

4,432,047

Reserved to be issued , 53,029 shares

 

530

 

530

Additional paid-in capital

 

89,720,850

 

89,720,850

Accumulated deficit

 

(96,469,377)

 

(96,387,017)

Accumulated other comprehensive loss-Unrealized loss on marketable securities

 

(119,520)

 

(108,000)

Accumulated other comprehensive income-Other

 

220,465

 

221,270

Total stockholders' deficiency

 

(2,215,005)

 

(2,120,320)

 

$

55,118

$

111,887

See notes to consolidated financial statements.



4






NEXTMART, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 

Unaudited

 

 

 

Three Months Ended  December 31,

 

 

 

2009

 

$

2008

 

Sales                                              

$

-

 41,637

 

Cost of sales                                           

 

-

 

2,082

 

Gross Margin                                       

 

-

 

39,555

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

   General and administrative expenses                       

 

39,570

 

88,416

 

   Depreciation and amortization                          

 

195

 

14,692

 

   Consulting and professional fees                       

 

38,280

 

45,562

 

 

 

78,045

 

148,670

 

Loss from operations                           

 

(78,045)

 

(109,115)

 

Other income (expense)

 

 

 

 

 

Other expense                                 

 

-

 

(177)

 

Amortization of discount on convertible note

 

-

 

(35,741)

 

Interest expense                                 

 

(4,315)

 

(65,000)

 

    Loss from continuing operations before income tax expense

 

(82,360)

 

(210,033)

 

Income tax expense

 

-

 

-

 

    Loss from continuing operations                  

 

(82,360)

 

(210,033)

 

    Loss from discontinued operations

 

-

 

(1,027,098)

 

      Net Loss                                   

 

(82,360)

 

(1,237,131)

 

Other comprehensive loss

 

 

 

 

 

Foreign currency translation adjustment                   

 

(806)

 

(81,109)

 

Unrealized loss on investment                                 

 

(11,520)

 

(416,209)

 

     Total comprehensive loss                      

$

(94,686)

$

(1,734,449)

 


 

 

 

 

 

Weighted average number of common shares outstanding – basic and diluted

 

443,204,734

 

90,204,734

 

Loss per share

 

 

 

 

 

Continuing operations – basic and diluted

$

(0.0002)

$

(0.002)

 

Discontinued operations – basic and diluted

$

-

$

(0.011)

 

 

 

 

 

 

 

See notes to consolidated financial statements.  










5






NEXTMART, INC. AND SUBSIDIARIES

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

               Unaudited

 

 

        Three months Ended December 31,

 

 

2009

 

2008

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net loss

$

(82,360)

 $

(1,237,131)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

Depreciation and amortization

 

195

 

50,433

Loss from discontinued operation-net

 

-

 

         990,367

 

 

 

 

 

    Change in operating assets and liabilities

 

 

 

 

      Accounts receivable & other receivables

 

14

 

43,999

      Other current assets

 

-

 

(41)

      Other payables & accruals

 

(29,465)

 

32,157

Net Cash Used in Operating Activities

 

(111,616)

 

(120,216)

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES :

 

 

 

 

Acquisition of property and equipment

 

-

 

(348)

Collection of amounts due from shareholders

 

-

 

178,160

Collection (payments) of amounts due from related party

 

                44,011

 

         (39,501)

Net Cash provided by Investing Activities

 

44,011

 

138,311

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES :

 

 

 

 

Payments to original convertible notes holders

 

(350,000)

 

-

Borrowings from shareholders

 

419,470

 

-

Borrowings from related parties

 

2,226

 

143

Net Cash Provided by Financing Activities

 

71,696

 

143

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

(5,108)

 

(81,111)

Net decrease in cash and cash equivalents from continuing operations

 

(1,017)

 

(62,873)

 

 

 

 

 

Net increase in cash and cash equivalents from discontinued operations

 

-

 

75,869

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

34,958

 

107,253

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

33,941

 $

120,249

Supplemental disclosure of cash flows information

 

 

 

 

Interest Paid

$

-

$

-

Income Taxes Paid

$

-

$

-


See notes to consolidated financial statements.






6





NEXTMART, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations.


On August 1, 2009, we entered into a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”), an unaffiliated PRC company. Hua Hui is part of The Beijing Hua Hui Corporation, a PRC real estate construction and development group that specializes in constructing and developing travel, resort, hotel, and apartment properties in popular tourist and other destinations within China. Under the Agreement, we received from Hua Hui the commercial income rights to 10,000 square meters the Huadun Changde International Hotel (“Hotel”) located in the city of Changde in China’s Hunan Province (“Project”), which is currently under construction.


As a result of this transaction, we intend to develop a network of upscale, private member health clubs in the PRC, with the initial location being within the Hotel. These clubs would provide first class preventative and recovery care using the most modern methods and products. This product and services model will be rolled out in two phases. In phase one, we will seek to establish a network of health clubs, called “Demao Tang” which means health through the harmony of people and the heavens. In phase two, we will package and market our own branded health products. We expect to market our products and services to affluent individuals and business in the general vicinity of each location.


Basis of Consolidation and Presentation



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

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of consolidated financial position as of December 31, 2009, and consolidated results of operations, and cash flows for the three month periods ended December 31, 2009 and 2008, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.


Use of estimates


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


Cash and Cash Equivalents


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


Financial instruments


The Company’s financial instruments include cash and cash equivalents, 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.




7





Impairment of Long-lived Assets


The Company assesses the carrying value of long-lived assets in accordance with SFAS No.144 (ASC No. 360), accounting for the Impairment or Disposal of Long-lived Assets. Factors considered important which could trigger this review include a significant decrease in operating results, a significant change in its use of assets, competitive factors, strategy of its business, and significant negative industry or economic trends. The company cannot predict the occurrence of future impairment-triggering events nor the impact such events might have on the reported asset values. Such events may include strategic decisions made in response to the economic conditions relative to product lines, operations and the impact of the economic environment on our customer base.  When the Company determines that the carrying value of long-lived assets may not be recoverable based on as assessment of future cash flows from the use of those assets, an impairment charge to record the assets at fair 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 (ASC No. 220), “Reporting Comprehensive Income (Loss)”. The comprehensive loss for the Company includes currency translation adjustments and unrealized loss on marketable securities.


Recently Issued Accounting Pronouncements


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


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


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


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


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


In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASC No. 105), “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (the Codification). The Codification, which was launched on July 1, 2009, became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants



8





(AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification eliminates the GAAP hierarchy contained in SFAS No. 162 and establishes one level of authoritative GAAP. All other literature is considered non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted this Statement for its year ended November 30, 2009. There was no change to the Company’s Consolidated Financial Statements due to the implementation of this Statement.


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


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


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

 

Computer Software

 

3-5

 


Revenue recognition


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


Cost of revenues


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


Trade receivables and allowances for Doubtful 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.



9






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 (ASC No. 830), “Foreign Currency Translation”, since the functional currency of the Company is Renminbi (RMB), the foreign currency financial statements of the Company’s subsidiaries are re-measured into U.S. dollars (USD). Monetary assets and liabilities are translated using the foreign rate that prevailed at the balance sheet date. Revenue and expenses are translated at weighted average rates of exchange during the year and stockholders’ equity accounts and capital asset accounts are translated by using historical exchange rates. Any translation gain or loss incurred is reported in the consolidated statement of operations. In this period, we used 6.8360 RMB per USD for the weighted average rate, and we used 6.8282 RMB per USD as the balance sheet date rate (December 31, 2009).


Income taxes


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


Stock-based compensation


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


Related Parties


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


Deferred Charges


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.




10





Reclassification

 

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


NOTE 2 – MARKETABLE SECURITIES


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


 

 December 31, 2009

September 30, 2009

 

 Number of shares

 Amount

 Number of shares

 Amount

 

 

 US $

 

 US $

 

 

 

 

 

CHINA GRAND RESORTS, INC AT COST

3,000

120,000

60,000

120,000

 Unrealized loss

 

(119,520)

 

(108,000)

 Net balance

 

480

 

12,000


The 3,000 shares of common stock at December 31, 2009 reflects a 20 for 1 reverse split of the issued and outstanding common stock of the issuer.


NOTE 3 – PROPERTY AND EQUIPMENT

 

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

 

Property and equipment is summarized as follows:


 

 

 

 

December 31, 2009

September 30, 2009

 

US$

US$

Cost

 

 

Computer Software

9,224

9,224

 

 

 

Less: accumulated amortization

2,077

1,870

 

 

 

Net

7,147

7,354


Amortization for three months ended December 31, 2009 was $195 compared with three months ended December 31, 2008 $50,433, respectively.

 

NOTE 4 - CONVERTIBLE NOTES, WARRANTS AND STOCK OPTIONS


On March 22, 2007, we executed a subscription agreement with certain accredited investors, including Professional Offshore Opportunity Fund Ltd, pursuant to which we agreed to issue a principal amount worth $1,500,000 in senior convertible promissory notes and warrants to purchase shares of our common stock. The notes were issued with “Class A” warrants to purchase up to 1,500,000 shares of common stock at an exercise price of $1.00 per share and “Class B” warrants to purchase up to 1,500,000 shares of common stock at an exercise price of $1.50 per share.  Upon exercise of any Class A or Class B warrant, the respective warrantholder will receive a “Class C” warrant to purchase that number of shares for which such Class A warrant or Class B warrant is exercised at an exercise price of $2.00 per share. The Class A and Class B warrants expire five years from the issue date. The financing was closed on March 29, 2007.The aggregate gross proceeds from the sale of the notes and warrants was $1,500,000.  The convertible notes were due and payable three years from the date of issuance. We prepaid all interest due under the convertible notes through the issuance of 1.5 million shares of our common stock.  The notes were initially convertible into our common shares at a conversion price of $1.00 per share.  After the occurrence of an event of default under the notes, the conversion price adjusts to eighty percent (80%) of the volume weighted average price of our common shares for the five trading days prior to a conversion date.



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On February 6, 2009, we closed a Convertible Debt Settlement Agreement with these accredited investors (“Settlement Agreement”) pursuant to which we have re-purchased all of the outstanding senior convertible notes. We also amended the Warrants to remove any registration rights and purchase price reset provisions, among other changes. As additional consideration, limited mutual releases were given by the parties. In exchange for canceling the notes and underlying agreements, we agreed to pay back the principal amount of the Notes ($1,500,000), and $610,126 in interest and default penalties. We paid $250,000 of the $1,500,000 in the principal amount at closing, and are obligated to pay $250,000 every 90 days from closing until the principal is paid in full. In addition to the payment made at closing, we also made a payment of $150,000, $100,000 and $250,000 on the obligation due in July, October and December 2009, respectively. We also agreed to pay interest and penalties of $610,126 within 90 days from the closing. Payment of the stated amount may be in the form of common shares of CEC Unet Plc. (AIM: CECU) which we held on the agreement date or if the shares of CECU were not trading on the AIM Market, then in cash or cash equivalents. We disposed our holdings of CECU shares in the Hua Hui transaction. As such, we are now required to pay the amount due in cash or cash equivalents. As the date of this report, as mentioned above, we made payments of $750,000 in principal to date, and we have not made any payments on the interest and default penalty amount.. We are in default of our obligations to these investors. It is possible the investor could initiate litigation against us which cause us to incur additional costs and expenses. The balance of $1.36 million is included in other payables.


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


Warrants

At December 31, 2009, as discussed above, the Company had 3,000,000 warrants outstanding.



NOTE 5 - OTHER PAYABLES AND ACCRUALS


Other payables and accruals are summarized as follows:

 

 

 

 

 

 

 

Unaudited

 

 

 

 

December 31, 2009

 

September 30, 2009

 

 

 

 

 

Other payable

 $

1,403,263

$

1,736,421

Accrued expenses

 

4,378

 

   55,000

 

 $

1,407,641

$

1,791,421


Other payables represent $1.36 million due to the creditors who originally held our convertible notes and the balance represents professional fees, and other office expenses.



NOTE 6 — COMMITMENTS AND CONTINGENCIES


Commitments


We have entered into a building lease for our office located in Beijing. The term of the lease is from September 27, 2007 to July 31, 2011. The lease expense for the three months ended December 31, 2009 amounted to $7,917. Future minimum lease payments under the operating lease agreements at December 31, 2009 were as follows:

 

Year ended

 

Amount

September 30, 2010

$

24,350

September 30, 2011

 

27,056



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Total

$

51,406



NOTE 7 -AMOUNTS DUE TO STOCKHOLDERS


The amounts due stockholders are summarized as follows:

 

Unaudited

 

 

December 31, 2009

September 30, 2009

 

 US$

 US$

 

 

 

Redrock Capital Venture Limited

293,936

294,106

Beijing Hua Hui Hengye Investment Limited

566,320

146,680

 

 

 

 

860,256

440,786


The amounts due to Redrock Capital Venture Limited are due on demand and bear no interest. The amounts due to Beijing Hua Hui Hengye Investment Limited are due on demand and bear interest at the prevailing rate charged by the PRC Central Bank on the payment date.


NOTE 8— GOING CONCERN AND MANAGEMENT PLAN


The Company’s consolidated financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2009, the Company had an accumulated deficit totaling $96,469,377 and its current liabilities exceeded its current assets by $2,222,152. The Company suffered significant loss is due to the disposal of subsidiaries in 2009. In view of the matters described above, the appropriateness of the going concern basis is dependent upon continuing operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.


In September 2008, due to market conditions, the Company determined to divest itself of the William Brand Administer Ltd’s women apparel business and other non-material businesses. In keeping that intent, on August 1, 2009, as mentioned above, we entered into a subscription and asset sale agreement (the “Agreement”) with Beijing Hua Hui Hengye Investment Lt. (“Hua Hui”). Pursuant to the Agreement, the Company divest itself of William Brand Administer Ltd’s women apparel business, Beijing Niceshow Exhibition Limited, Wuxi Sun Network Technology Ltd., and transferred other non-material assets to Hua Hui in exchange for obtaining the commercial income rights to 10,000 square meters the Huadun Changde International Hotel (“Hotel”) located in the city of Changde in China’s Hunan Province (“Project”), which is currently under construction.


As a result of the transaction with Hua Hui, the Company’s new business goal is to develop a network of upscale, private member health clubs in the PRC.


The Company is actively pursuing additional funding and arrangements with potential strategic partners in an effort to fund its ongoing working capital requirements. The Company’s working capital requirements for the next 12 month is approximately $5.3 million. Management is hopeful that the above actions will allow the Company to continue its operations through the current fiscal year.



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


Forward-Looking Statements

This quarterly report on Form 10Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include statements other than historical information or statements of current condition,



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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 period ended September 30, 2009. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.


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


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


Overview


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


As a result of our transaction with Hua Hui, our new business strategy is to develop a network of upscale, private member health clubs in the PRC. This product and services model will be rolled out in two phases. Phase one is to establish private member health clubs that offer specialized health services and products to its members. These clubs would provide first class preventative and recovery care using the most modern methods and products. We plan to develop this club concept in cooperation with top tier membership clubs and health care services companies specializing in preventative and recovery care. We intend to establish our own independent locations, as well as partner with China’s most elite members clubs to embed our Demao Tang concept and related products into these existing operations. Revenues from the planned clubs would be derived from the sale of memberships to its clubs and the sale of private label and third party health products and services within the clubs. Phase two involves the direct sales for Demao Tang branded health products. These products would include certain types of supplements and herbal and homeopathetic medicines as well as general health and anti-aging products designed to restore and maintain health and well-being. We intend to private label. The Company will continue to maintain the consulting services for the foreseeable future, although it will not devote significant attention to this business. These consulting services related to investment, merger and acquisition services. During the three months ended December 31, 2009, we had no revenues from the consulting services.


We remind investors that our plans to re-focus our business to participate in the health club industry in China, specifically cancer treatment are subject to substantial risks and uncertainties. We have not made substantial progress in reaching our objectives. We can not predict whether we will be successful in identifying, selecting and investing in business, technologies, or treatments that will prove successful in our new business efforts. Our efforts will be subject to our ability to raise additional funds (which in turn will cause dilution to existing stockholders), formal agreements with numerous parties, and various approvals.  Therefore, we can not predict with certainty whether we will be successful in our re-structuring efforts and the exact combination of efforts required to achieve success.


Results of Operations       


Three Months Ended December 31, 2009 compared with Three Months Ended December 31, 2008


The following discussion reflects our results from operations for the three months ended December 31, 2009 compared with the three months ended December 31, 2008. Although there are no revenues from consulting services for the 2009 period, we will continue to maintain the consulting services business for the foreseeable future, however, it is not expected to be a significant focus of future business efforts.


Revenues.  During the three months ended December 31, 2009 and 2008, we had revenues of $0 and $41,637, respectively. The  revenues for the 2008 period were primarily due to the operation of consulting service business. We had no revenues for the 2009 period from our consulting business due to the reduction of clients’ demands for this period.




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Cost of Sales. Our cost of revenue for the three months ended December 31, 2009 and 2008 were $0 and $2,082, respectively. Cost of Sales represents a portion of the personnel cost of the consulting business.

 

Gross Margin. As a result of the foregoing, our gross margins for the three months ended December 31, 2009 and 2008 were $0 and $39,555, respectively.

 

Operating Expenses. Our operating expenses (which includes general and administrative expenses, depreciation and amortization and consulting and professional fees) for the three months ended December 31, 2009 and 2008 were $78,045 and $109,115, respectively. General and administrative expenses were $39,570 for the three months ended December 31, 2009, a decrease of $48,846 or 55.25% from $88,416for the 2008 period.  The decrease for the 2009 period was due to reduced salaries and related expenses at our corporate office due to our scaled down operations. Depreciation and amortization were $195 and $50,433, for the 2009 and 2008 periods, respectively. The decrease in the 2009 period in depreciation and amortization for the 2009 period reflects our reduced asset base which was disposed of in the Hua Hui transaction.


Other Income (Expense). For the 2009 period, we had interest expense of $4,315 compared with interest expense of $65,000 for the comparable period in 2008. The interest expense for 2009 period was due to the accrued expense to the loan from Hua Hui, and the interest expense for 2008 period was due to interest paid to the convertible notes holders. We had an amortization on convertible notes of $35,741 for the 2008 period and did not have a similar charge of the comparable 2009 period.


Loss from operations. We had an operating loss from operations of $78,045 for the three months ended December 31, 2009 compared with an operating loss of $109,115 for the comparable period in 2008. The decrease was due to the factors discussed above.


Loss from continuing operations before income tax expense. Our loss from continuing operations for the three months ended December 31, 2009 and 2008 was $82,360 and $210,033 respectively. The difference was due to the reasons discussed above.


Loss from discontinued operations. We had a loss from discontinued operations for the three months ended December 31, 2008 of $1,027,098 attributable to the divestiture of William Brand’s women apparel business and other non-material businesses. We did not have a similar loss for the comparable 2009 period.


Other Comprehensive Loss. We had a foreign currency translation adjustment loss of $806 for the 2009 period compared with a translation loss of $81,109 for the comparable period in 2008. The difference is due to the value of the US dollar in comparison to the RMB and HK dollar. In 2009 and 2008, we had an unrealized loss of $ 11,520 and loss of $416,209 respectively, due to the change of the fair value of the marketable securities held during the period.


Total Comprehensive Loss

For the three months ended December 31, 2009, we had a comprehensive loss of $94,686 compared with a comprehensive loss of $1,734,449 for the comparable period in 2008.

 

Liquidity and Capital Resources.  


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

 

The following table summarizes our cash flows for the three months ended December 31, 2009 and 2008:


 

 

 

 

For the Three Months Ended December 31,

 

2009

2008

 

US $

US $

Net cash used in operating activities from continuing operations

(111,616)

(120,216)

Net cash provided by investing activities from continuing operations

44,011

138,311

Net cash provided by financing activities from continuing operations

71,696

143

Net effect of exchange rate fluctuations on cash and cash equivalents

(5,108)

(81,111)



15







Net decrease in cash and cash equivalents from continuing operations

(1,017)

(62,873)

Net increase in cash and cash equivalents from discontinued operations

-

(75,869)

Cash and cash equivalents at beginning of period

34,958

107,253

Cash and cash equivalents at end of period

33,941

120,249



As of December 31, 2009, we had total assets of $55,118, total liabilities of $2,270,123 and a working capital deficit of $2,222,152.


On February 6, 2009, we closed a Convertible Debt Settlement Agreement with a group of private investors (“Settlement Agreement”) pursuant to which we re-purchased $1,500,000 of our outstanding senior convertible notes. Under the Settlement Agreement, in exchange for canceling the Notes and certain underlying agreements, we agreed to re-pay 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 were obligated to pay $250,000 every 90 days from closing until the principal is paid in full. To date, we have paid $ 750,000 to the investors in principal and have not made any interest and default penalty payments.


We continue to experience significant losses from operations. We are uncertain as to when we will achieve profitable operations. We have an immediate need for capital to conduct our ongoing operations and to advance the planned venture investment strategy. In our audited financial statements for fiscal year ended September 30, 2009, our auditors have expressed an opinion about our recurring losses from operations; stockholders’ deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern.


Our capital budget for the next 12 months is as follows:


O $610,000 for our executive offices expenditures, which includes $250,000 in salaries and related costs of non health club and hotel personnel, $250,000 in professional fees, $100,000 in executive office rent, and $10,000 in miscellaneous office expenditures.   


O $2.75 million for costs related to furniture, fixtures, and related items with respect to our rooms at the Hotel.    


O 1.3 million, of which $1 million represents start up costs related to the opening of the Hunan Club at the Hotel and $0.3 million represents operational costs of the Hunan Club for 12 months.


O $630,000 for start up and operational costs for three embedded clubs which we project to open during the next 12 month (at approximately $213,000 per club.


The Company expects to generate revenues from the operation of the Project, which is expected to occur in the first quarter of calendar year 2011. Thereafter, the Company believes that revenues from the Project will be sufficient to support our new business model.


We anticipate raising capital through additional private placements of our equity securities, and, if available on satisfactory terms, debt financing. Presently, we have no arrangement or understanding with any party regarding the raising of required capital. It is conceivable that funding of all or part of the budget required above may come from either or both Hua Hui, our largest shareholder, or Redrock Capital Venture Limited, a controlling stockholder. However, we do not have any agreements, arrangements or commitments with or guarantees from either party to provide funding to us. We can not provide assurances that we will be successful in our efforts to enhance our liquidity. If we are unable to raise sufficient funds to meet our cash requirements as described above, we may be required to curtail, suspend, or discontinue our current and/or proposed operations. Our inability to raise additional funds as described above may forced us to restructure, file for bankruptcy, sell assets or cease operations,  any of which 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, including transactions with affiliates which may entail the equity conversion of existing loans, will create significant dilution to the then existing stockholders. In addition, in order to conserve capital and to provide incentives for our employees and service providers, it is conceivable that we may issue stock for services in the future which also may create significant dilution to existing stockholders.


Contractual Obligations

 

Virtually all of our operations are in China, where we have leased an office in Beijing. Our Beijing office consists of 963 square feet. The lease period is from September 27, 2007 to July 31, 2011. . Our annual rent is $32,467. At December 31, 2009, the total future commitments for minimum rentals payment are $24,350 for fiscal 2010.


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New Accounting Pronouncements


In September 2006, the FASB issued Statement No. 157, Fair Value Measurement (FAS 157) (ASC No. 820).  While this statement does not require new fair value measurements, it provides guidance on applying fair value and expands required disclosures.  FAS 157 is effective for the Company beginning in the first quarter of fiscal 2009.  This pronouncement should not have a material impact on our financial statements.


In February 2008, the FASB issued “Effective Date of FASB Statement No.157” FASB Staff Position (FSP) No. 157-2 (FSP No. 157-2).  FSP No.157-2 delays the effective date of SFAS No. 157 until fiscal years beginning after November 15, 2008, for fair value measurements of non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually).

 

In February 2007, the FASB issued Statement No. 159 (ASC No. 825), The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159).  The statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain others items at fair value.  FAS 159 is effective for us beginning in the first quarter of 2009.  This pronouncement should not have a material impact on our financial statements.


In March 2008, the FASB issued SFAS No. 161 (ASC No. 815), “Disclosures about Derivative Instruments and Hedging Activities.”  The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows.  It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  We do not expect the adoption of SFAS No.161 to have a material impact on our financial statements.


In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007) (“SFAS 141R”) (ASC No. 805), “Business Combinations”, which applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in an acquiree and the goodwill acquired. The Company will apply SFAS 141R to any business combinations subsequent to adoption.


In April 2009, the FASB issued FASB Staff Position Financial Accounting Standard 141R-1 (“FSP FAS 141R-1”), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP FAS 141R-1 amends SFAS 141R to require that an acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value of such an asset acquired or liability assumed cannot be determined, the acquirer should apply the provisions of SFAS 5, “Accounting for Contingencies”, to determine whether the contingency should be recognized at the acquisition date or after such date. FSP FAS 141R-1 is effective for business combinations whose acquisition date is on or after the first reporting period beginning after December 15, 2008. The Company does not anticipate the adoption of this FSP will have a material impact on the Company’s Consolidated Financial Statements.


In December 2008, the FASB issued FASB Staff Position FAS 132(R)-1 (“FSP FAS 132(R)-1”) (ASC No. 715), “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The FSP expands the disclosure requirements about plan assets for defined benefit pension plans and postretirement plans. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009, for disclosures about plan assets. The Company does not anticipate the adoption of this FSP will have a material impact on the Company’s Consolidated Financial Statements.


In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 (ASC No. 825)and APB 28-1 (“FSP FAS 107-1 and APB 28-1”), “Interim Disclosures about Fair Value of Financial Instruments.” The FSP amends SFAS 107, “Disclosure about Fair Value of Financial Instruments,” and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009in the second quarter of 2009. The Company does not currently believe that adopting this FSP will have a material impact on the Company’s Consolidated Financial Statements.




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 In April 2009, the FASB issued FASB Staff Position No. FSP FAS 115-2 (ASC No. 320)and FAS 124-2 (ASC No. 958) (“FSP FAS 115-2 and FAS 124-2”), ”Recognition and Presentation of Other-Than-Temporary Impairments.” The FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009.  The Company does not currently believe that adopting this FSP will have a material impact on the Company’s Consolidated Financial Statements.

In April 2009, the FASB issued FASB Staff Position No. FAS 157-4 (ASC No. 820) ("FSP FAS 157-4"), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009.  The Company does not currently believe that adopting this FSP will have a material impact on the Company’s Consolidated Financial Statements.

 

Off-Balance Sheet Commitments and Arrangements

 

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

 

Application of Critical Accounting Policies

 

Our significant accounting policies are described in Note 1 to our audited consolidated financial statements previously included in our Annual Report on Form 10-K for the year ended September 30, 2009. We prepare our financial statements in conformity with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period.

  

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

 

Revenue Recognition

 

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

 

Income Taxes

 

We account for income taxes under the provisions of SFAS No. 109 (ASC No. 740), "Accounting for Income Taxes," as described in Note 8 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the period ended September 30, 2009. 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.



18





 

Item 3.  Quantitative and Qualitative Disclosures about Market Risks


Not applicable


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


There were no changes in our internal controls over financial reporting during the three month ended December 31, 2009 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


PART II - OTHER INFORMATION


 

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

 

(a) Exhibits

 

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


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


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








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 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 11, 2010

 

/s/ Liu Menghua

 

 

Liu Menghua

 

 

Chief Executive Officer

 

 

 

Date: February 11, 2010

By:  

/s/ Carla Zhou  

  

  

Carla Zhou

Chief Financial Officer








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