Northport Network Systems Inc. - Form 10-Q

10-Q 1 form10q.htm QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2010 Northport Network Systems Inc. - Form 10-Q - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED March 31, 2010

Commission File Number: #000-52728

NORTHPORT NETWORK SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)

Washington
(State or other jurisdiction of incorporation or organization)

76-0674579
(IRS Employer Identification Number)

Suite #4200, 601 Union Street, Seattle, Washington, 98101
(Address of principal executive offices)(Zip Code)

(206) 652-3451
(Registrant's telephone no., including area code)

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.
Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

The number of shares of the Company's common stock issued and outstanding on March 31, 2010 was 34,200,012.

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [X]

Table of Contents

PART I FINANCIAL INFORMATION
	Item 1 – Financial Statements - Unaudited
	Item 2 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations
	Item 3—Quanitative and Qualitative Disclosure about Market Risk
	Item 4T – Controls and Procedures

PART II OTHER INFORMATION
	Item 1 – Legal Proceedings
	Item 1A – Risk Factors
	Item 2 – Unregistered Sales of Equity Securities
	Item 3 – Default Upon Senior Securities
	Item 4 – Submission of Matters to a Vote of Security Holders
	Item 5 – Other Information
	Item 6 – Exhibits and Filings on Form 8-K

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements- Unaudited

NORTHPORT NETWORK SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2010 (UNAUDITED)

NORTHPORT NETWORK SYSTEMS, INC. AND SUBSIDIARIES

CONTENTS

	Pages
Condensed Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009	F1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2010 and 2009 (Unaudited)	F2
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (Unaudited)	F3
Notes to Condensed Consolidated Financial Statements as of March 31, 2010 (Unaudited)	F4 - F9

NORTHPORT NETWORK SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,			December 31,
		2010			2009
		(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	7,476		$	29,834
Prepaid expenses and other current assets		150,405			151,487
Assets held in discontinued operations		1,021,372			927,089
Total Current Assets		1,179,253			1,108,410

PROPERTY AND EQUIPMENT, NET		315,257			319,700.00
TOTAL ASSETS	$	1,494,510		$	1,428,110


LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES
Other payables and accrued expenses	$	422,532		$	350,719
Due to a stockholder		247,714			251,312
Income and other taxes payable		457			463
Liabilities of discontinued operations		700,728			630,059
Total Current Liabilities		1,371,431			1,232,553

NON-CONTROLLING INTEREST IN DISCONTINUED OPERATIONS		155,879			144,308

COMMITMENTS AND CONTINGENCIES		-			-

SHAREHOLDERS' (DIFICIT) EQUITY
Preferred stock, $0.001 par value, 100,000,000 shares authorized,
None share issued and outstanding		-			-
Common stock, $0.001 par value, 100,000,000 shares authorized,
34,200,012 shares issued and outstanding
as of March 31, 2010 and December 31, 2009		34,200			34,200
Stock subscription receivable		(224,641	)		(224,641	)
Additional paid-in capital		5,864,381			5,862,090
Retained earnings (Accumulated deficit)
Unappropriated		(5,764,812	)		(5,678,857	)
Appropriated		146,648			146,648
Accumulated other comprehensive loss		(88,576	)		(88,191	)
Total Stockholders' (Deficit) Equity		(32,800	)		51,249

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$	1,494,510		$	1,428,110

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements

NORTHPORT NETWORK SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)

		Three months ended March 31,
		2010			2009

NET SALES
Color photo printing	$	1		$	2,440
Total net sales		1			2,440

COST OF SALES
Color photo printing		(1,241	)		(12,708	)
Total cost of sales		(1,241	)		(12,708	)

GROSS PROFIT		(1,240	)		(10,268	)

OPERATING EXPENSES
Selling, general and administrative		73,401			88,447
Impairment of goodwill		-			-
Research and development expenses		20,196			25,441
Depreciation		2,998			-
Total Operating Expenses		96,595			113,888

LOSS FROM OPERATIONS		(97,835	)		(124,156	)

OTHER INCOME (EXPENSES)
Other income		2,037			124
Interest income		59			25
Imputed interest expense on due to stockholders		(2,291	)		(2,038	)
Other expenses		(402	)		(39	)
Total Other Expenses, net		(597	)		(1,928	)

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(98,432	)		(126,084	)
Income tax benefit (expense)		-			-
NET LOSS FROM CONTINUING OPERATIONS		(98,432	)		(126,084	)

NET INCOME FROM DISCONTINUED OPERATIONS		24,025			180,679
Less: net income attributable to noncontrolling interests		(11,548	)		(92,394	)
		12,477			88,285

NET LOSS		(85,955	)		(37,799	)

NET LOSS FROM CONTINUING OPERATIONS		(98,432	)		(126,084	)
NET INCOME FROM DISCONTINUED OPERATIONS		12,477			88,285
		(85,955	)		(37,799	)

OTHER COMPREHENSIVE LOSS
Foreign currency loss of continuing operations		(409	)		(1,083	)
Foreign currency gain of discontinued operations		46			549
Less: foreign currency gain attributable to noncontrolling interests		22			269
		24			280
Total other comprehensive loss		(385	)		(803	)

COMPREHENSIVE (LOSS) INCOME
From continuing operations		(98,841	)		(127,167	)
From discontinuing operations		12,501			88,565
	$	(86,340	)	$	(38,602	)

Net loss per share-basic and diluted
From continuing operations	$	(0.00	)	$	(0.00	)
From discontinued operations		0.00			0.00
Total net loss per share	$	0.00		$	0.00

Weighted average number of shares outstanding during the period-basic and diluted		34,200,012			32,700,012

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements

NORTHPORT NETWORK SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the three months ended March 31,
		2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations	$	(98,432	)	$	(126,084	)
Adjusted to reconcile net loss to cash used in operating activities:
Depreciation - cost of sales		749			3,632
Depreciation		2,998			3,433
Gain on disposals of property and equipment		(1,886	)		-
Imputed interest expense on due to stockholders		2,291			2,038
Changes in operating assets and liabilities
(Increase) Decrease in:
Prepaid expenses and other current assets		1,106			10,861
Increase (Decrease):
Other payables and accrued expenses		71,757			20,368
Income tax and other taxes payable		(6	)		(135	)
Net cash used in operating activities of continuing operations		(21,423	)		(85,887	)
Net cash used in operating activities of discontinued operation
Net profit from discontinued operation		12,477			88,285
Depreciation - cost of sales		2,249			3,635
Depreciation		3,418			1,822
Non controlling interests		11,548			92,394
Assets held in discontinued operation net of depreciation charge		(99,802	)		(38,968	)
Liabilities of discontinued operation		70,568			(111,923	)
		458			35,245
Net cash used in operating activities		(20,965	)		(50,642	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		-			(432	)
Transferred of property and equipment from discontinued operations		-			(37,573	)
Proceeds from disposals of property and equipment		2,633			-
Net cash provided by (used in) investing activities		2,633			(38,005	)

CASH FLOWS FROM FINANCING ACTIVITIES
Due to a stockholder		(3,638	)		89,474
Net cash (used in) provided by financing activities		(3,638	)		89,474

EFFECT OF EXCHANGE RATES ON CASH		(388	)		(4,500	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(22,358	)		(3,673	)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		29,834			9,269

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,476		$	5,596

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income tax expense	$	7,073		$	-

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements

NORTHPORT NETWORK SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS AS OF MARCH 31, 2010 (UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments consisting only of normal recurring accruals considered necessary to present fairly the Company's consolidated financial position at March 31, 2010, the consolidated results of operations and comprehensive loss for the three months ended March 31, 2010 and 2009 and consolidated statements of cash flows for the three months ended March 31, 2010 and 2009. The consolidated results for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2010. These financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2009, previously filed with the Securities and Exchange Commission on April 15, 2010.

NOTE 2 GENERAL ORGANIZATION AND BUSINESS

Northport Network Systems, Inc. (“Northport Network”) was incorporated under the laws of the State of Colorado on July 25, 2000 as Dotcom-netmgmt.com Inc. (“Dotcom”). The name was changed from Dotcom to Northport Capital Inc. on April 28, 2004. On October 9, 2009, the Company was reincorporated in Washington State and changed its name to Northport Network Systems, Inc.

Dalian Beigang Information Industry Development Company Limited (“Dalian Beigang”) was incorporated in the People’s Republic of China (“PRC”) on September 20, 1997 with its principal place of business in Dalian, PRC.

Dalian Beigang is principally engaged in color photo printing business in the PRC. The Company owns a trade name “Colorstar” which was registered with the China State Administration for Industry and Commerce in China as well as a Chinese patent which was applied for on the color photo printing technology. The Company is also developing an online shopping website known as UrMart.net which the Company intends to launch in the second quarter of 2010 and generate revenues from sales made through the site. In accordance with the business permit, the Company’s right of operation expires on September 20, 2026 and is renewable.

On September 23, 2005, Northport Network entered into a definitive agreement with the stockholders of Dalian Beigang in which Northport Network exchanged 100% of the registered and fully paid up capital of Dalian Beigang for $150,000 satisfied by the issue of 1,500,000 shares of common stock of $0.001 par value to the stockholders of Dalian Beigang. As both companies are under common management, the exchange of shares has been accounted for as a reorganization of entities under common control.

On October 9, 2009, Dalian Beigang entered into a definitive agreement with the stockholders of Shenyang Ling Xiao Aviation Services Co., Ltd (“Ling Xiao”) to acquire 51% equity interest of Ling Xiao for 2,700,000 treasury shares of common stock of the Company at a fair value of $3,240,000. Ling Xiao is engaged in air-ticketing agency services.

Northport Network, Dalian Beigang and Ling Xiao are hereafter referred to as (“the Company”).

NOTE 3 PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2010 and 2009 consolidate the unaudited financial statements of Northport Network and its wholly owned subsidiary company, Dalian Beigang and 51% equity interest owned subsidiary, Ling Xiao.

The noncontrolling interests represent the minority stockholders’ 49% share of the results of Ling Xiao.

All significant inter-company accounts and transactions have been eliminated in consolidation.

NOTE 4 DISCONTINUED OPERATIONS

On May 11, 2010, Dalian Beigang entered into a definitive agreement with the 49% stockholder of Ling Xiao to divest its 51% equity interest in Ling Xiao in which the 49% stockholder returned to the Company 2,500,000 shares of common stock of the Company for nominal consideration. Pursuant to the agreement, the effective date of the divestiture is April 1, 2010. The operating results of Ling Xiao for the three months ended March 31, 2010 are classified as discontinued operations, and prior period’s operating results have been reclassified to discontinued operations as follows:

		Three months ended March 31,
		2010			2009
		Unaudited			Unaudited

Revenues	$	234,543		$	488,909
Cost of sales		(121,965	)		(157,591	)
Gross profit		112,578			331,318
Operating expenses		(80,697	)		(79,907	)
Income from discontinued operations		31,881			251,411
Other expenses, net		(7,856	)		(70,732	)
Net income from discontinued operations		24,025			180,679
Less: net income attributable to noncontrolling interests		(11,548	)		(92,394	)
	$	12,477		$	88,285

The assets and liabilities of discontinued operations as of March 31, 2010 and December 31, 2009 are summarized as follows:

		Three months ended		Year ended
		March 31,		December 31,
		2010		2009
		(Unaudited)
Assets
Current assets	$	890,327	$	748,247
Property and equipment, net		131,045		178,842
Total assets related to discontinued operations	$	1,021,372	$	927,089

Liabilities
Current liabilities	$	700,728	$	630,059
Noncontrolling interest in discontinued operations		155,879		144,308
Total liabilities related to discontinued operations	$	856,607	$	774,367

2008

Net cash flow of the discontinued operations from the categories of investing and financing activities was not significant for the three months ended March 31, 2010 and 2009.

NOTE 5 COMMITMENTS AND CONTINGENCIES

The Company leases office spaces from certain third parties under five operating leases which expire on dates between April 9, 2010 and September 30, 2013 at monthly rentals of between $341 and $2,926.

As of March 31, 2010, the Company has outstanding commitments of with respect to the above operating leases, which are due as follows:

2010		36,908
2011		36,077
2012		35,108
2013		26,331
		134,424

NOTE 6 RELATED PARTY TRANSACTIONS

As of March 31, 2010, a stockholder loaned $247,714 to the Company as an unsecured loan and imputed interest is computed at 5% per annum on the amount due. The balance is repayable on demand.

Total imputed interest expenses recorded as additional paid-in capital amounted to $2,291 for the three months ended March 31, 2010.

NOTE 7 CONCENTRATIONS AND RISKS

During the three months ended March 31, 2010, 100% of the Company’s assets were located in the PRC and 100% of the Company’s revenues were derived from companies located in the city of Dalian and Shenyang which are both located in the PRC.

The Company has a diversified base of customers. No individual customer contributed to more than 10% of total revenues for the three months ended March 31, 2010. No individual customer accounted for more than 10% of accounts receivable as of March 31, 2010.

The business of Ling Xiao is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines and exposure to risks associated with online commerce security. Agency commission from an airline accounted for 46% and 69% of the Company’s total revenues for the three months ended March 31, 2010 and 2009 respectively. As of March 31, 2010 and December 31, 2009, accounts receivable from this airline were $113,328 and $272,678 respectively.

NOTE 8 SEGMENTS

The Company operates in two reportable segments: color photo printing and online shopping. The Company evaluates segment performance based on income from operations. All inter-company transactions between segments have been eliminated. As a result, the components of operating income for one segment may not be comparable to another segment. The following is a summary of the Company’s segment information for the three months ended March 31, 2010 and 2009:

		Three months ended March 31,
		2010			2009

Revenues
Color photo printing	$	1		$	2,440
Online shopping		-			-
Total revenues	$	1		$	2,440

Gross loss
Color photo printing	$	(1,240	)	$	(10,268	)
Online shopping		-			-
Total gross profit loss	$	(1,240	)	$	(10,268	)

Net loss from operations
Color photo printing	$	(63,860	)	$	(91,343	)
Online shopping		(27,046	)		(25,441	)
Total loss from operations		(90,906	)		(116,784	)
Unallocated amounts relating to corporate operations:
Legal and professional fees		(6,200	)		(6,000	)
Others		(1,326	)		(3,300	)
Net loss before income tax	$	(98,432	)	$	(126,084	)

The following table sets forth identifiable assets by segment as of the dates indicated:

		March 31,		December 31,
		2010		2009
Identifiable assets		(Unaudited)
Color photo printing	$	471,975	$	499,687
Online shopping		1,163		1,334
Discontinued operation		1,021,372		927,089
	$	1,494,510	$	1,428,110

NOTE 9 THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual

periods ending after June 15, 2010. The Company does not expect the standard to have any impact on the Company’s financial position.

In January 2010, FASB issued ASU 2010-2 Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification ("ASU 2010-2"). ASU 2010-2 addresses implementation issues related to the changes in ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB Accounting Standards Codification , originally issued as FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. ASU 2010-2 is effective for the Company starting January 3, 2010. The Company does not expect the standard to have any impact on the Company’s financial position.

In December 2009, FASB issued ASU 2009-17 Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities ("ASU 2009-17"). ASU 2009-17 amends the FASB ASC for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) . The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. ASU 2009-17 also requires additional disclosures about an enterprise's involvement in variable interest entities. ASU 2009-17 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009. The Company does not expect the standard to have any impact on the Company’s financial position.

In December 2009, FASB issued ASU 2009-16 Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets ("ASU 2009-16"). ASU 2009-16 amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 . The amendments in ASU 2009-16 improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. ASU 2009-16 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009. The Company does not expect the standard to have any impact on the Company’s financial position.

In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. The Company does not expect the standard to have any impact on the Company’s financial position.

In October 2009, the FASB issued ASU 2009-14, “Certain Arrangements That Include Software Elements, now codified under FASB ASC Topic 985, “Software”, (“ASU 2009-14”). ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the standard to have any impact on the Company’s financial position.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially

modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect the standard to have any impact on the Company’s financial position.

In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”) (not part of the codification yet). SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003) “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51” (FIN 46(R)) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 will be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is not permitted. This guidance will be codified under FASB ASC Topic 810, “Consolidation” when it becomes effective. The Company does not expect the standard to have any impact on the Company’s financial position.

In June 2009, the FASB issued SFAS No. 166 “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”) (ASC Topic 810). SFAS 166 (not part of the codification yet) amends various provisions of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125” by removing the concept of a qualifying special-purpose entity and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. SFAS 166 will be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Early adoption is not permitted. This guidance will be codified under FASB ASC Topic 860, “Transfers and Servicing” when it becomes effective. The Company does not expect the standard to have any impact on the Company’s financial position.

In December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”) (ASC Topic 715-20-65). FSP FAS 132(R)-1 (ASC Topic 715-20-65) requires more detailed disclosures about employers’ plan assets in a defined benefit pension or other postretirement plan, including employers ’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and inputs and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 (ASC Topic 715-20-65) also requires, for fair value measurements using significant unobservable inputs (Level 3), disclosure of the effect of the measurements on changes in plan assets for the period. The disclosures about plan assets required by FSP FAS 132(R)-1 (ASC Topic 715-20-65) must be provided for fiscal years ending after December 15, 2009. As this pronouncement is only disclosure-related, it will not have an impact on the financial position and results of operations.

NOTE 10 RECLASSIFICATIONS

Certain reclassifications have been made in prior period’s unaudited condensed consolidated financial statements to conform to the classifications used in the current period.

NOTE 11 GOING CONCERN

As reflected in the accompanying unaudited condensed financial statements, the Company has an accumulated deficit of $5,618,164 at March 31, 2010 that includes a net loss of $85,955 for the three months ended March 31, 2010. The Company’s total current liabilities exceed its total current assets by $192,178 and the Company used cash in operations of $20,965. These factors raise substantial doubt about its ability to continue as a going concern. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed balance sheet is dependent upon continued 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.

implement its business plan. Management believes that these actions as successful will allow the Company to continue its operations through the next fiscal year.

NOTE 12 SUBSEQUENT EVENT

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

The following Management’s Discussion and Analysis or Plan of Operations is intended to help the reader understand our operations and our present business environment. The following discussion of our plans, results of operations and financial condition as at and for the three month period ended March 31, 2010 should be read in conjunction with our unaudited interim financial statements and related notes for the three month period ended March 31, 2010 included in this quarterly report.

As used in this quarterly report: (i) the terms “we”, “us”, “our” and the “Company” mean Northport Network Systems, Inc.; and all dollar amounts refer to United States dollars unless otherwise indicated.

Critical Accounting Policies

Our significant accounting policies are discussed in the notes to the unaudited interim financial statements included in Item 1. Financial Statements. Please also refer to our annual report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2010 for a more detailed discussion of our critical accounting estimates.

These policies have been consistently applied in all material respects and address such matters as revenue recognition and depreciation methods. The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. The accounting treatment of a particular transaction is specifically dictated by accounting principles, generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any viable alternative would not produce a materially different result.

Overview
We conduct business in North America under the name of Northport Network Systems, Inc. We own a Chinese company, Dalian Beigang Information Industry Development Company Limited (“Dalian Beigang”), that operates two separate businesses- (1) the Company has developed a digital photo processing kiosk technology, which operates under the trade name “Colorstar”, and which business is now ready to be fully commercialized in China. The technology has been developed on a “platform” basis and this initial application is presented in a modular kiosk format. This application is presented as a stand-alone, digital photo processing kiosk, allowing users to select and print standard size photos for a fee. Other applications are currently being developed; and (2) during 2009, we commenced development of an e-commerce website known as UrMart.net which we intend to launch in second quarter 2010 and generate revenues from sales made through the site. The website UrMart.net was at its trial stage during the quarter, and the revenue derived there from was insignificant. UrMart.net is an online trading platform designed for registered shopping guide members and is also an online shopping platform for the general buying public. Shopping guide members can make decisions such as analyzing and evaluating merchants’ product information and price strategies, which are released by merchants on our platform. General shopping guide members can operate their own business by using our no-cost and zero-risk platform located at www.urmart.net.

During the quarter, Dalian Beigang owned a 51% equity interest in Shenyang Ling Xiao Aviation Service Company Limited, (“Ling Xiao”), which operates online and call center travel booking operations in the Chinese cities of Dalian and Shenyang and which will use a terminal version of the Colorstar platform in their travel booking locations. Subsequent to the close of this quarter, on May 11, 2010, Dalian Beigang entered into a definitive agreement with the 49% stockholder of Ling Xiao to divest its 51% equity interest in Ling Xiao in which the 49% stockholder returned to the Company 2,500,000 shares of common stock of the Company for nominal consideration. Pursuant to the agreement, the effective date of the divestiture is April 1, 2010. The operating results of Ling Xiao for the three months ended March 31, 2010 are classified as discontinued operations, and prior period’s operating results have been reclassified to discontinued operations.

The Company’s Dalian Colorstar business operates from an office facility located at Suite #512, A. No. 1 Huoju Road Qixianlinq Industrial Base – High-Tech Zone in Dalian, China.

The Ling Xiao business in Dalian operates from leased office space in the central area of Dalian at Rooms 2704, 2705, 2706, and 1101 in the Yue Xiu Building, No.82 Xin Kai Road, Xi Gang District, Dalian, China. Ling Xiao in Shenyang operates from office and dormitory facilities located at No. 109- 6-1 Nanjing North Street, Peace District, Shenyang, China.

Corporate History

We were originally incorporated in Colorado as dotcom.netmgmt.com Inc. on July 25, 2000. The authorized number of common shares was set at 25,000,000 at a par value of $0.001 with no preferred shares authorized.

The original planned business was an Internet website designed to assist small business owners. From formation until 2004, we engaged in no significant operations other than organizational activities. We received no revenues during this period.

On April 28, 2004, we held a special shareholder’s meeting at which our authorized capital was increased from 25,000,000 common shares, $0.001 par value to 100,000,000 common shares, $0.001 par value. At the same meeting the two original directors and officers resigned and Zhao Yan, Zhong Bo Jia and James Wang were elected as new directors. Zhao Yan was appointed president and James Wang appointed as secretary/treasurer. At the same meeting the issued common shares of 6,250,000 were split on a four to one basis resulting in a new total of 25,000,000 issued common shares and retained the same par value of $0.001. At the same meeting our name was changed from dotcom-netmgmt.com Inc to Northport Capital Inc.

We entered into an agreement dated June 23, 2005, to acquire 100% of Dalian Beigang, an existing Chinese tax software and data processing business. The June 23, 2005 agreement required Company shareholder approval as well as PRC government approval by way of the issuance of a business license for the revised corporate structure, which would be a Wholly Owned Foreign Enterprise (“WOFE”). Pursuant to Chinese laws, within one year after approval of a business license for a WOFE by the Chinese government, the Purchaser must pay the full purchase price to the Sellers.

The Chinese government approved the business license for the WOFE on May 17, 2006, at which time the acquisition closed. A total of 1,500,000 treasury shares of the Company were issued as the purchase price for the acquisition. Subsequently on January 10, 2008, 1,000,000 restricted, common shares were authorized to be issued to Xiao Jun, an employee of the Company and the original developer of the Company’s Colorstar digital photo technology, as an employment incentive. We registered certain of our shares by way of a Form SB2 filing which was declared effective by the Securities and Exchange Commission (the “SEC”) on July 13, 2007. Our common shares began trading on the OTCBB on January 16, 2008 under the symbol NPCA.

On October 9, 2009, the Company was re-incorporated in Washington State and changed its name to Northport Network Systems, Inc. Our stock trading symbol became NNWS.

Our authorized capital consists of 100,000,000 shares of common stock, $0.001 par value per share, of which 34,200,012 shares have been issued and outstanding, fully paid and non-assessable as of March 31, 2010. We also have 100,000,000 preferred shares authorized at a par value of $0.001 of which none are currently issued. There are no outstanding options, warrants or calls pursuant to which any person has the right to purchase any of our authorized and unissued common or other securities.

Exchange conversion rates used for the financial statements and in the body of this report are US$1= RMB 6.8361. for Balance Sheet items, except for share capital, additional paid-in capital and retained earnings, as of period end. For items related to the statements of operations and cash flows for the period, a conversion rate of US$1= RMB 6.83603 was used. Comparable 2008 figures were converted at rates already disclosed in prior filings.

The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions, and significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting.

Dalian Beigang is duly organized, validly existing and in good standing under the laws of the People’s Republic of China. The original business enterprise was incorporated in the PRC on June 20, 1997. The original business license issued to Dalian Beigang ended on June 19, 2007 and has been renewed until June 8, 2026.

On October 9, 2008, the Company acquired 51% equity interest of Ling Xiao for 2,700,000 shares of treasury stock of the Company at a fair value of $3,240,000 based on the closing price of the Company’s common stock

as quoted on the Over-the-Counter Bulletin Board as of the date of the closing of the transaction. According to the terms of the definitive agreement, the consideration amount is determined on the basis of a formula of 51% of 5 times of the estimated Ling Xiao’s net earnings for the year ended March 31, 2009 and additional treasury shares will be issued if the actual net earnings are in excess of the net earnings projected in the formula. The unaudited financial statements of Ling Xiao as of March 31, 2009 showed that the net earnings was below the projected net earnings and, therefore, the management considered no additional contingent purchase consideration was to be paid.

Facilities

The Company maintains its primary office in North America at #4200, 601 Union Street, Seattle, Washington, 98101. The telephone numbers used at the location are 206-508-3689, 206-652-3451 and the facsimile number is 206-652-3205. The lease is a month-to month arrangement with the option to increase space as needs require. The current monthly rent is $225.

The Company leases office spaces in Dalian and Shenyang from certain third parties under five operating leases which expire on dates between April 9, 2010 and September 30, 2013 at monthly rentals of between $341 and $2,926.

As of March 31, 2010, the Company has outstanding commitments of with respect to the above operating leases, which are due as follows:

2010	$	36,908
2011	$	36,077
2012	$	35,108
2013	$	26,331
	$	134,424

.China Operations

(A.) Graphic Printing Technology-Colorstar

In mid 2005, management of Dalian Beigang was introduced to a digital photo processing technology being developed by a Beijing engineer. The project required funding and the Company’s management approved a decision to invest funds to develop the technology to a level where it could be commercially analyzed. Key aspects of the technology that differentiate it from other kiosk digital photo systems include silver halide print technology instead of thermal print processes, reduced print times and lower cost per processed photo- this allowing for lower price points. A trade name of Colorstar was registered with the China State Administration for Industry and Commerce in China as well as a Chinese patent applied for on the technology. Total expenditures on research and development undertaken by Dalian Beigang on this project were charged to general and administrative expenses for the periods ended March 31, 2009 and 2010, and such expenditures amounted to $25,441 and $20,196, respectively.

The project has involved the development of a digital “platform” with an initial application to be a user-operated, stand alone, digital photo developing and printing network operating system controlled through a proprietary network server with terminals and self serve digital photo developing printers- with user interfaces contained in a kiosk format. The stand-alone devices provide users with print images equivalent to regular photographic pictures.

Over the past two years various test units were developed and installed in commercial locations in Dalian so as to generate consumer response and also to measure unit operating characteristics. Twelve units of the latest test

model have been installed in various locations in and around Dalian since June 2007, including malls, hotels, telephone retail shops, etc and three units were in operation as at March 31, 2010.

An enhanced “modular” version of the kiosk design is near completion but commercial production awaits availability of funding to cover manufacturing costs.

The design and manufacture of the network and the self-help digital photo-developing printer are the most important components of the project, and various test machines were developed. The original model, although capable of operation, had no promotion value; a second model was unusable because of low output speed and long waiting times; and a third model machine realized all design functions but because of large volume requirements, high cost and questionable intellectual property rights, it was not suitable for commercial development. The fourth design also proved unsuccessful due to manufacturing costs. The fifth version, based upon a modular design, is near completion..

The Digital Photo Processing Market in Northeast China

Dalian Beigang retained the services of independent research companies in northeast China in order to assist management in determining the present status of the northeast China digital printing market as well as determination of possible market acceptance and development of the Colorstar project.

The research was undertaken in Beijing, Shenyang and Dalian and included sampling from consumers (local citizens, tourists and professionals), imaging shop proprietors (color film processing shops and photo-printing collection agencies), as well as convenience stores, lottery shops and advertising agencies and companies.

Management determined that the Chinese market is in a stage of rapid increase of sales of digital cameras. Since the end of 2005, increases of 30% to 50% in demand for digital printing have been shown in larger cities – in fact, higher than for traditional film printing. In addition, there are now a total of over 550 million cellular telephones in use in China, of which 70% of these mobile phones come with a camera function. Colorstar units allow for print operations from Cellular telephones.

Traditional digital color printing shops in the Chinese domestic market utilize equipment technology of one of four brands including Kodak, Fuji, Konica and Lucky. Kiosk models in use in China include those developed by Kodak and Sony, both models that have been introduced in the North American marketplace as well.

Fuji digital printing machine technology has also been in a leading position in the China industry, enjoying the capability for producing stand alone devices and establishing network platforms, as well as providing customer financing. Doli, a China domestic manufacturer of production-type digital printing machines, has good quality equipment but has little strength in providing additional functions and network operating management platforms.

Analysis of data collected showed that both the operational mode and technological advantages of the Colorstar project were recognized by the China market. However, the project needed to improve its technological level, perfect its equipment quality, and also establish and implement detailed and effective marketing plans, in order for it to be commercially viable. Dalian Beigang has now completed these.

Colorstar Operations

In China, management has entered into negotiations with a number of organizations that operate retail facilities. Agreement relationships are planned to entail Dalian Beigang manufacturing and installing kiosk units in partner locations and revenues split on an 85/15 percentage basis between the partners. A typical agreement is expected to be initially two years in length and renewable if agreed to by both parties. All Colorstar units will remain in the ownership of the Company. All unit operations, repairs, maintenance, cash handling and accounting functions are handled by Dalian Beigang. The kiosk design currently produces only a 4 inch by 6 inch size photo.

Based on results of test units installed in various retail locations in Dalian city, average usage has been 35% and each user averages 20 photos per session. Average retail purchase pricing has been set at $.085 per photo. The current design has an initial processing period for each user order followed by a much faster production time for the individual photos. Each 20 photo order takes approximately 8 minutes to complete after adding times for selection, payment and production.

To date, units have had a Company staff person in attendance at all times to ensure customer familiarity with Colorstar operational features and to explain questions or issues that users may have. The plan is for these

attendant functions to be handled by the retail partner staff after an initial operating period, likely 90 days. Since each unit is always connected to the Colorstar central server, management will always be able to identify maintenance, usage numbers or repair issues that arise for each individual unit.

Revenue from the sale of color photo printing services is derived from its own and affiliate operations, which consist of franchise agency and licensing programs.

The franchise agent acts as the Company's agent in a similar manner as a branch manager in the Company-owned locations. In the franchise arrangement, the Company has the direct contractual relationships with its customers and contracts with customers are binding to the Company. The Company is also obligated for the employee payroll, electricity and related overheads regardless of customer acceptance of the services.

The Company also has a licensing program whereby the licensee had the direct contractual relationships with the customers, held title to the related customer receivables and was the legal employer of the employees. Accordingly, net sales and costs of services generated by the license operation are included in the Company's consolidated financial statements. Fees are paid to the Company based on a fixed price for each of the photo printed and such license fees are recorded by the Company as revenue. For sales from its own operation, revenue is recognized after the photos are printed and delivered to the customers and cash has been collected.

Currently we have two Colorstar units located in Vancouver, Canada where they are being analyzed to determine any and all issues that could affect performance and regulatory compliance if the units were to be introduced into the North American marketplace. We are currently awaiting the adaptation of these units to the new modular design prior to completing a full analysis. We expect that such adaptations and analysis will be completed by the end of 2010, after which the North American Colorstar business plan is expected to be finalized.

Sales and Marketing

In China, marketing of Colorstar to date has involved Company personnel making direct sales calls to potential joint venture partners such as China Netcom and others. In addition, there are a number of potential franchise-type relationships being discussed with individuals in Dalian city itself. These franchise-type arrangements await completion of formal documentation and availability of manufacturing financing. A total of 4 test units have been installed at locations under an informal franchise arrangement. Agreements with other potential partners await various approvals.

(B.) UrMart.Net

Commencing during 2009, we began development of an e-commerce website known as UrMart.net which we intend to launch in second quarter 2010 and generate revenues from sales made through the site. The website UrMart.net was at its trial stage during the quarter, and the revenue derived there from was insignificant.. UrMart.net will be an online trading platform designed for registered shopping guide members and is also an online shopping platform for the general buying public. Shopping guide members can make decisions such as analyzing and evaluating merchants’ product information and price strategies, which are released by merchants on our platform. General shopping guide members can operate their own business by using our no-cost and zero-risk platform located at www.urmart.net.

(C.) Ling Xiao Aviation Booking Operations

Ling Xiao was registered with the Shenyang Industrial and Commercial Administration on September 26, 2007 and its business term is approved until September 2017. Ling Xiao is principally engaged in the air-ticketing agency business. In addition to its operation in the city of Shenyang, Liaoning Province in the PRC, Ling Xiao assumed all of the business operations of Dalian Ling Xiao Aviation Service Co., Ltd (“Dalian Ling Xiao”) on October 10, 2008. Dalian Ling Xiao is owned by the stockholders of Ling Xiao and is principally engaged in an air-ticketing agency business in the City of Dalian.

Since we provide travel-related services through our website, we are subject to all of the PRC laws and regulations relating to the telecommunications industry and Internet, and regulated by various government authorities, including the Ministry of Information Industry and the State General Administration of Industry and Commerce.

The travel industry in China is subject to the supervision of the China National Tourism Administration and local tourism administrations. The principal regulatory regulations governing travel agencies in China include:

- Administration of Travel Agencies Regulations (1996), as amended;

-Telecommunications Regulations (2000);
-The Administrative Measures for Telecommunications Business Operating Licenses (2001)

Under these regulations, a travel agency must obtain a license from the China National Tourism Administration to conduct cross-border travel business, and a license from the provincial-level tourism administration to conduct domestic travel agency business.

In China, the business of air ticket bookings being conducted online still remains in its early stages. Currently, it is only promoted in the larger cities and not in medium and smaller cities. Published statistics show that in 2008, there were some 192 million passenger flights that were booked online in China, among them 8.22 million in Dalian and 6.80 million in Shenyang. The quantity of booking air ticket online in Liaoning Province accounted for 7.82% of total China bookings. To start up an online booking service in a particular city, it is necessary to obtain a business license and a franchise license (or special permits) issued by the China Air Transportation Association. Typically the business license is valid for 10 years and the franchise license is valid for 1 year, after which the enterprise must pass a rigid evaluation and examination. If successful, a new license will be issued. Ling Xiao is a leading retailer of air tickets in northeast China. We aggregate information on flights and enable our customers to make informed and cost-effective flight bookings. We also sell charter flight seating. We target our services primarily at business and individual travelers in our area of focus in northeast China. We act as agent in substantially all of our transactions . We derive our air-ticketing revenues mainly through commissions. The business of Ling Xiao is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines and exposure to risks associated with online commerce security.

We believe that we are the largest air ticket booking facility in Dalian in terms of the number of air tickets booked and sold and are rapidly expanding our business in Shenyang. Once established there, we intend to expand elsewhere in other northeast China urban areas. Our airline ticket suppliers include all major Chinese airlines and many international airlines that operate flights originating from China. We are among the few airline ticket booking entities in China that maintain a centralized reservation system and ticket fulfillment infrastructure. Our customers can make flight reservations on their chosen routes and arrange ticket payment and delivery through us directly or third-party agencies located in northeast China.

We offer our services to customers through an advanced transaction and service platform consisting of our centralized toll-free, 24 hour customer service center and website. In 2009, transactions effected through our customer service center accounted for over 90% of our transaction volume.

We sell air tickets for all major domestic Chinese airlines, including Air China, China Eastern Airlines, China Southern Airlines, Hainan Airlines and Shanghai Airlines and a number of international airlines operating flights that originate from cities in China.

In air-ticketing transactions, a customer generally pays the ticket delivery agent upon delivery of the ticket. The customer has the option of picking up a ticket at a Ling Xiao ticketing office or obtaining an electronic ticket. In 2008, China has mandated, full scale use of electronic ticketing, or E-ticketing, systems for all air travel. We believe that E-ticketing allows us to execute air-ticketing transactions more efficiently. E-ticketing also makes our business expansion into other northeastern China cities easier and more efficient. The airline industry, including airline ticket pricing, is regulated. Therefore, we have no discretion in offering discounts on the air tickets we sell. Our commission rate per ticket usually increases as the total number of tickets we sell for an airline increases.

Other products and services accounted for a small portion of our total revenue during the period ended March 31, 2010.

Our customers can reach us for their travel-related needs through either our toll-free customer service center or our website.

Our centralized toll-free customer service center is located in Dalian, China and is operated 24 hours a day and seven days a week. Customers can call our toll free number to consult with customer service representatives, receive flight information and make travel bookings. As of March 31, 2010, we employed 99 customer service representatives, all of whom participated in formal training programs before commencing work.

However, we ceased equity interest in Ling Xiao as of April 1, 2010

Employees and Staffing

We had 138 full-time employees as of March 31, 2010. Our employees are not covered by any collective bargaining agreement and we have never experienced a work stoppage. We believe that our relations with our employees are good. The Company currently operates with a staff of 38 in Dalian. The Ling Xiao subsidiary operates with 75 staff in Dalian and 24 in Shenyang. One director operates from North American offices located in Seattle, Washington.

All of our management personnel have university degrees. Customer support personnel require a junior college or technical college degree. Software engineers require a minimum of a computer science degree.

The 138 current staff members are employed as follows:

Management	5
Accounting	3
Marketing	4
Software Design/R and D	20
Colorstar Operations	6

Ling Xiao Dalian	75
Ling Xiao Shenyang	24
North American Seattle Office	1

Total	138

Results of Operations

SELECTED FINANCIAL INFORMATION

The following is a summary of the Company’s segment information for the three months ended March 31, 2010 and 2009:

		Three months ended March 31,
		2010			2009

Revenues
Color photo printing	$	1		$	2,440
Online shopping		-			-
Total revenues	$	1		$	2,440

Gross loss
Color photo printing	$	(1,240	)	$	(10,268	)
Online shopping		-			-
Total gross profit loss	$	(1,240	)	$	(10,268	)

Net loss from operations
Color photo printing	$	(63,860	)	$	(91,343	)
Online shopping		(27,046	)		(25,441	)
Total loss from operations		(90,906	)		(116,784	)
Unallocated amounts relating to corporate operations:
Legal and professional fees		(6,200	)		(6,000	)
Others		(1,326	)		(3,300	)
Net loss before income tax	$	(98,432	)	$	(126,084	)

The following table sets forth identifiable assets by segment as of the dates indicated:

		March 31,		December 31,
		2010		2009
Identifiable assets		(Unaudited)
Color photo printing	$	471,975	$	499,687
Online shopping		1,163		1,334
Discontinued operation		1,021,372		927,089
	$	1,494,510	$	1,428,110

Revenues

Revenues from Colorstar installations take the form of a revenue charge to users of the kiosks, and such revenues are typically split between the Company and the retail location on an 85/15 basis. As of March 31, 2010, there were a total of 3 Colorstar kiosks in operation and Colorstar related revenues during the three month period were $1 as compared to Colorstar revenues of $2,440 during the similar period in 2009.

Discontinued Operations

		Three months ended March 31,
		2010			2009
		Unaudited			Unaudited

Revenues	$	234,543		$	488,909
Cost of sales		(121,965	)		(157,591	)
Gross profit		112,578			331,318
Operating expenses		(80,697	)		(79,907	)
Income from discontinued operations		31,881			251,411
Other expenses, net		(7,856	)		(70,732	)
Net income from discontinued operations		24,025			180,679
Less: net income attributable to noncontrolling interests		(11,548	)		(92,394	)
	$	12,477		$	88,285

The assets and liabilities of discontinued operations as of March 31, 2010 and December 31, 2009 are summarized as follows:

		Three months ended		Year ended
		March 31,		December 31,
		2010		2009
		(Unaudited)
Assets
Current assets	$	890,327	$	748,247
Property and equipment, net		131,045		178,842
Goodwill on acquisition of subsidiary, net of impairment		-		-
Total assets related to discontinued operations	$	1,021,372	$	927,089

Liabilities
Current liabilities	$	700,728	$	630,059
Noncontrolling interest in discontinued operations		155,879		144,308
Total liabilities related to discontinued operations	$	856,607	$	774,367

Net cash flow of the discontinued operations from the categories of investing and financing activities was not significant for the three months ended March 31, 2010 and 2009.

Results of the Three Month Period Ended March 31, 2010

Total revenues for the quarter ended March 31, 2010 were $1 as compared to $2,440 in the similar period in 2009. Gross profit for the period was $1,240 and the loss from operations was $97,835. The overall net loss for the quarter was $85,955. The gross profit for the similar period in 2009 was $10,268 and loss from operations for that period was $124,156. The overall net loss for the 2009 comparable period was $37,799. The primary reasons for the difference from the prior period related to reduced overhead costs and the reclassification of all Ling Xiao related costs to discontinued operations.

During the three month period, a total of 3 Colorstar kiosks were operational. Revenues received from user operations of such kiosks were $1.

Selling, general and administrative expenses were $73,401 for the quarter ended March 31, 2010 as compared to $88,447 in the comparable 2009 period. We have instituted cost savings and expense review actions with the intent to reduce our expenses to a break even basis and so as to maintain continued service level capabilities. A total of $20,196was expended on research on the UrMart.net website design and setup during the quarter.

Liquidity and Capital Resources

For the three months ended March 31, 2010, our cash and cash equivalents decreased by $22,358 to $ 7,476. The decrease in cash was due primarily to an increase in payments related primarily to work on the e-Commerce website www.urmart.net. As at March 31, 2010, our cash resources were such that we had a negative working capital position of $192,178.

As of March 31, 2010, a stockholder loaned $247,714 to the Company as an unsecured loan and imputed interest is computed at 5% per annum on the amount due. The balance is repayable on demand. Total imputed interest expenses recorded as additional paid-in capital amounted to $2,291 for the three months ended March 31, 2010.

The Company has developed an online e-Commerce website which may have potential in the China market. The site, known as UrMart.com, is expected to become fully operational during the second quarter of 2010. The potential of this site in terms of longer term revenue generating capability is currently unknown.

Management believes that receipt of additional shareholder loans, combined with expense reduction programs being initiated, will allow us to continue operations for the remainder of 2010. The Company is actively pursuing a number of private placement fundings which would further ensure continued operations.

Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and strategic partners, which will enable the Company to implement its business plan. Management believes that these actions as successful will allow the Company to continue its operations through the next fiscal year.

Recent Accounting Pronouncements

reporting entity's first annual reporting period that begins after November 15, 2009. The Company does not expect the standard to have any impact on the Company’s financial position.

In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”) (not part of the codification yet). SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003) “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51” (FIN 46(R)) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 will be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is not permitted. This guidance will be codified under FASB ASC Topic 81“Consolidation” when it becomes effective. The Company does not expect the standard to have any impact on the Company’s financial position.

amends various provisions of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125” by removing the concept of a qualifying special-purpose entity and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. SFAS 166 will be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Early adoption is not permitted. This guidance will be codified under FASB ASC Topic 860, “Transfers and Servicing”when it becomes effective. The Company does not expect the standard to have any impact on the Company’s financial position.

In December 2008, the FASB issued Staff Position No. FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”) (ASC Topic 715-20-65). FSP FAS 132(R)-1 (ASC Topic 715-20-65) requires more detailed disclosures about employers’ plan assets in a defined benefit pension or other postretirement plan, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and inputs and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 (ASC Topic 715-20-65) also requires, for fair value measurements using significant unobservable inputs (Level 3), disclosure of the effect of the measurements on changes in plan assets for the period. The disclosures about plan assets required by FSP FAS 132(R)-1 (ASC Topic 715-20-65) must be provided for fiscal years ending after December 15, 2009. As this pronouncement is only disclosure-related, it will not have an impact on the financial position and results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of the end of the period covered by this report, based on their evaluation of these controls and procedures required by paragraph (b) of Rules 13a-15 and 15d-15, due to certain weaknesses in our internal control over financial reporting.

Internal Control Over Financial Reporting

During the quarter ended March 31, 2010, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures and, based on this evaluation, management concluded that our disclosure controls and procedures were not effective due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. Specifically, we have identified a number of cost and expense control procedures that are not effective with respect to our Ling Xiao subsidiary which we acquired in October 2008. During this period, we began implementing changes and it is our intention to have resolved all such procedural concerns during the fourth quarter. However, during this period ended March 31, 2010 through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct. In addition, subsequent to the end of this quarter period, the Company entered into an agreement to dispose of its 51% equity interest in Ling Xiao with effect as at April 1, 2010. A form 8-K in this regard was filed on May 15, 2010.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable and not absolute assurance, of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to

be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Limitations on Effectiveness of Disclosure Controls and Procedures.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We currently are not a party to any material legal proceedings and, to our knowledge, no such proceedings are threatened or contemplated.

Item 1A. Risk Factors

There has been no material change in the Company's risk factors as previously disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2009.

Item 2. Unregistered Sales of Equity Security 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 Filings on Form 8-K

(a) The following exhibits are filed with this Quarterly Report on Form 10-Q:

Exhibit
Number	Description of Exhibit
31.1	Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer
32.1	18 U.S.C. Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

(b) Filings on Form 8-K during the Period

Filing on February 18, 2010

On February 18, 2010 the Company filed a form 8-K advising that on February 16, 2010, the Company was notified that, effective January 29, 2010, the US Audit Practice of Jimmy CH Cheung & Co., the Company’s independent registered public accounting firm (“JCHC”), merged with Baker Tilly Hong Kong Limited (“BTHK”). In connection with the merger, JCHC had resigned as the Company’s independent registered public accounting firm and the Company with the approval of its Board of Directors has engaged BTHK to continue as the Company’s independent registered public accounting firm.

The form 8-K stated that the audit reports of JCHC on the financial statements of the Company as of and for the years ended December 31, 2008 and December 31, 2007 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

Also in the form 8-K, we included statements that during the Company’s two most recent fiscal years ended December 31, 2008 and 2007 and through January 29, 2010, the Company did not consult with BTHK on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company’s financial statements, and BTHK did not provide either a written report or oral advice to the Company that was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

In addition, the form 8-K also stated that, in connection with the audits of the Company’s financial statements for the fiscal years ended December 31, 2008 and 2007 and through to December 31, 2009, there were: (i) no disagreements between the Company and JCHC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of JCHC, would have caused JCHC to make reference to the subject matter of the disagreement in their reports on the Company’s financial statements for such years, and (ii) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

The form 8-K stated that the Company had provided JCHC with a copy of the disclosures in the Form 8-K and had requested that JCHC furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not JCHC agrees with the Company’s statements in this Item 4.01(a) . A copy of the letter dated February 16, 2010, furnished by JCHC in response to that request, was filed as Exhibit 16.1 to the Form 8-K.

Filing on March 4, 2010

An amendment to the February 18, 2010 Form 8-K filing was filed on March 4, 2010. The Company amended the original 8-K to add additional disclosure regarding our prior auditors’ comments in our December 31, 2008 audited financial statements in which they indicated uncertainty as to the Company’s ability to continue as a going concern because the Company had working capital and stockholders’ deficit.

Subsequent Event

On May 11, 2010, Dalian Beigang entered into a definitive agreement with the 49% stockholder of Ling Xiao to divest its 51% equity interest in Ling Xiao in which the 49% stockholder returned to the Company 2,500,000 shares of common stock of the Company for nominal consideration. Pursuant to the agreement, the effective date of the divestiture is April 1, 2010. A form 8-K with respect to this transaction was filed on May 17, 2010.

SIGNATURES

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

NORTHPORT NETWORK SYSTEMS INC.

Per: /s/ Jim H. Qian

Jim H. Qian

Chief Executive Officer and a director

Date: May 15, 2010

Per: /s/ James Wang

James Wang

Chief Financial Officer and a director

Date: May 15, 2010

Per:	/s/ Jim H. Qian

	Jim H. Qian
	Chief Executive Officer and a director
	Date: May 15, 2010




Per:	/s/ James Wang

	James Wang
	Chief Financial Officer and a director
	Date: May 15, 2010