Northport Network Systems, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - Northport Network Systems, Inc.	ex32_1.htm
EX-31.1 - Northport Network Systems, Inc.	ex31_1.htm
EX-32.2 - Northport Network Systems, Inc.	ex32_2.htm
EX-31.2 - Northport Network Systems, Inc.	ex31_2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2011

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-52728

NORTHPORT NETWORK SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Washington		76-0674579
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

601 Union Street, Suite #4200, Seattle, Washington 98101

(Address of principal executive offices) (Zip Code)

(206) 652-3451

(Registrant’s telephone number, 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] 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). Yes [ ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an 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]

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

As of June 30, 2011, the registrant had 33,700,012 shares of its common stock issued and outstanding.

TABLE OF CONTENTS

		PAGE
	PART I
Item 1.	Consolidated Financial Statements - Unaudited	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

	PART II
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
	Signature	40

NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “intend,” and other variations of these words or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events, circumstances or trends and that do not relate to historical matters are forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and you are cautioned not to place undue reliance on such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.

AVAILABLE INFORMATION

Northport Network Systems, Inc. files annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy documents referred to in this Quarterly Report on Form 10-Q that have been filed with the SEC at the SEC’s Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also obtain copies of our SEC filings by going to the SEC’s website at http://www.sec.gov.

REFERENCES

Unless the context indicates otherwise, as used in this Quarterly Report: (i) the terms “we”, “us”, “our”, “ Northport Network”, “Northport” and the “Company” mean Northport Network Systems, Inc.; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Northport Network Systems, Inc.

Consolidated Financial statements

June 30, 2011 and December 31, 2010

(Stated in US Dollars)

Northport Network Systems, Inc.

Contents Pages


Report of Independent Registered Public Accounting Firm	5

Consolidated Balance Sheets	6 – 7

Consolidated Statements of Income	8

Consolidated Statements of Cash Flows	9

Consolidated Statements of Stockholders’ Equity	10

Notes to Financial Statements	11 – 23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To: The Board of Directors and Stockholders of

Northport Network Systems, Inc.

We have reviewed the accompanying interim consolidated Balance Sheets of Northport Network Systems, Inc. ("the Company") as of June 30, 2011 and December 31, 2010, and the related statements of income, stockholders' equity, and cash flows for the three months and six months ended June 30, 2011. These interim consolidated financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the consolidated financial statements, the Company has incurred substantive losses, which raise substantial doubt about its ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

	/s/Samuel H. Wong & Co., LLP
San Mateo, California	Samuel H. Wong & Co., LLP
August 8, 2011	Certified Public Accountants

Northport Network Systems, Inc.

Consolidated Balance Sheets

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

	Note		06/30/2011		12/31/2010
Assets
Current assets
Cash and cash equivalents		2D	$	5,562	$	4,400
Other receivables		3		224,352		226,584
Related party receivable		7(A)		59,617		59,617
Inventory				—		2,195
Advance to suppliers		4		267,045		791,137
Total current assets				556,576		1,083,933
Non-current assets
Plant and equipment, net		2F,5		224,382		259,852
Deposits				56,439		68,420
Total non-current assets				280,821		328,272
Total Assets			$	837,397	$	1,412,205
Liabilities and Stockholders' Equity
Liabilities
Current liabilities
Accounts payable			$	24,796	$	36,712
Other payables and accruals		6		285,925		485,497
Taxes payable				339		273
Related party payable		7(B)		506,465		933,098
Total current liabilities				817,525		1,455,580
Total Liabilities			$	817,525	$	1,455,580

See Accompanying Notes to the Financial Statements and Accountant's Report

Northport Network Systems, Inc.

Consolidated Balance Sheets

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

	Note		6/30/2011			12/31/2010
Stockholders' Equity
Preferred stock, $0,001 par value, 100,000,000
shares authorized; nil shares issued and outstanding as of June 30, 2011 and December 31,			$	—		$	—
2010, respectively
Common stock, $0,001 par value, 100,000,000
shares authorized; 33,700,012 and 31,700,012 shares issued and outstanding as of June 30, 2011				33,700			31,700
and December 31, 2010, respectively
Additional paid in capital - common stock				2,850,144			2,812,144
Treasury Stock, $0,001 par value, 2,500,000 shares
issued and outstanding as of June 30, 2011 and				2,500			2,500
December 31, 2010
Additional paid in capital - treasury stock				2,997,500			2,997,500
Statutory reserves		2/		58,985			58,985
Retained earnings (accumulated deficits)				(6,223,984	)		(6,273,030	)
Accumulated other comprehensive income		2N		301,027			326,826
Total stockholders' equity				19,872			(43,375	)

Total Liabilities and Stockholders' Equity			$	837,397		$	1,412,205

See Accompanying Notes to the Financial Statements and Accountant's Report

Northport Network Systems, Inc.

Consolidated Statements of Income

For the three months and six months ended June 30, 2011 and 2010

(Stated in US Dollars)


	Note		Three months ended						Six months ended
				6/30/2011			6/30/2010			6/30/2011		6/30/2010
Revenue		2K	$	1,058,539		$	26,924		$	1,058,632	$	26,925
Cost of revenue				535,225			13,708			535,230		14,949
Gross profit				523,314			13,216			523,402		11,976
Selling expenses				75,854			—			102,321		—

General and administrative expenses		16		181,531			955,712			372,204		1,052,307
Impairment loss				(2,203	)		—			—		—
Total operating expenses				255,182			955,712			474,525		1,052,307

Operating income (loss)				268,132			(942,496	)		48,877		(1,040,331	)

Other income				—			395			—		2,432
Interest income				162			91			169		150
Other expense				—			(1	)		—		(403	)
Interest expense				—			(3,164	)		—		(5,455	)
Total other income (expenses)				162			(2,679	)		169		(3,276	)
Income (loss) from continued operation				268,294			(945,175	)		49,046		(1,043,607	)

Provisions for income tax		21,8		—			—			—		—
Net income (loss) from continued operation				268,294			(945,175	)		49,046		(1,043,607	)
Gain (loss) from discontinued operation, net of tax		12		—			1,209,776			—		1,222,253
Net income (loss)			$	268,294		$	264,601		$	49,046	$	178,646
Net income (loss) attributable to:
- Common stockholders			$	268,294		$	264,118		$	49,046	$	178,163
- Non-controlling interest						$	483				$	483

Earnings (loss) per share		2L, 9
Basic			$	0.01		$	0.01		$	0.00	$	0.01
Diluted			$	0.01		$	0.01		$	0.00	$	0.01

Weighted average shares outstanding
Basic				33,700,012			34,804,408			33,700,012		34,505,568
Diluted				33,700,012			34,804,408			33,700,012		34,505,568

See Accompanying Notes to the Financial Statements and Accountant's Report

Northport Network Systems, Inc.

Consolidated Statements of Cash Flows

For the three months and six months ended June 30, 2011 and 2010

(Stated in US Dollars)

	Three months ended June 30						Six months ended June 30
	2011			2010			2011			2010
Net lncome/(loss)	$	268,294		$	264,601		$	49,046		$	178,646
Adjustments to reconcile net income to net cash provided by / (used
in) operating activities
Gain(Loss) on disposal of property and equipment		—			—			—			(1,886	)
Impairment of inventory		—			—			2,195			—
Depreciation		28,445			9,229			52,850			12,976
Imputed interest expense on due to stockholders		—			3,164			—			5,455
(lncrease)/decrease in other receivable		2,256			—			2,231			—
(IncreaseJ/decrease in prepayments		529,114			(37,717	)		524,092			(36,611	)
Increase/fdecrease) in accounts payables and accruals		(36,286	)		(148,649	)		(211,488	)		(76,892	)
lncrease/(decrease) in related party payable		(767,664	)		116,071			(426,631	)		116,071
Increase/fdecrease) in taxes payables		(183	)		849			66			843
lncrease/(decrease) in Deferred revenue		—			200,785			—			200,785
Net cash used in operating activities of discontinued operation		—			(1,198,216	)		—			(1,210,235	)
Net cash provided by / (used in (operating activities		23,976			(789,883	)		(7,639	)		(810,848	)
Cash flows from investing activities
Net cash inflow from acquisition of subsidiary		—			104,881						104,881
Net cash outflow from disposal of subsidiary		—			(237,053	)					(237,053	)
(Increasej/decrease of deposits		5,750			—			11,980			—
(Increasej/decrease of plant and equipment		(11,963	)		(1,242	)		(17,380	)		1,391
Net cash used in investing activities		(6,213	)		(133,414	)		(5,400	)		(130,781	)
Cash flows from financing activities
Issuance of Common Stock		—			903,638			40,000			900,000
Net cash used in financing activities		—			903,638			40,000			900,000
Net increase (decrease) of cash and cash equivalents		17,763			(19,659	)		26,961			(41,629	)
Effect of foreign currency translation on cash		(16,071	)		217,700			(25,799	)		217,312
Cash & cash equivalents at beginning of year		3,870			7,476			4,400			29,834
Cash & cash equivalents at end of year	$	5,562		$	205,517		$	5,562		$	205,517
Non-cash flow transaction:
Issuance of shares for consultant service 16				$	900,000		$	40,000		$	900,000
Supplementary information
Interest received	$	162		$	91		$	169		$	150
Income taxes paid	$	-		$	-		$	-		$	(6,888	)

Northport Network Systems, Inc.

Consolidated Statements of Stockholders' Equity

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

	Number Of Shares			Common Stock			Additional Paid in Capital - Common Stock			Stock Subscription Receivable			Treasury Stock		Additional Paid in Capital - Treasury Stock		Statutory Reserve			Non-Controlling Interest			Retained Earnings/ (Accumulated Deficit)			Accumulated Other Comprehensive Income			Total
Balance at January 1, 2010		34200012		$	34,200		$	5,862,090		$	(224,641	)	$	—	$	—	$	146648		$	144,308		$	(5,678,857	)	$	(88,191	)	$	195,557
Net loss		—			—			—			—			—		—		—						(681835	)		—			(681835	)
Reallocation of statutory reserve to retained earnings																		(87663	)					87663
Cancellation of Lingxiao Acquisition		(2500000	)		(2500	)		(2997500	)					2500		2997500					(144308	)								(144308	)
Compensation Receipt		—			—			—			224641			—		—		—						—			—			224641
Adjustment of prior year APIC		—			—			(52446	)		—			—		—		—						—			—			(52446	)
Foreign currency translation adjustment																											415016			415016
Balance at December 31, 2010		31700012		$	31,700		$	2,812,144		$	—		$	2,500	$	2,997,500	$	58,985		$	—		$	(6,273,030	)	$	326,825		$	(43,375	)

Balance at January 1, 2011		31700012		$	31,700		$	2,812,144		$	—		$	2,500	$	2,997,500	$	58,985		$	—		$	(6,273,030	)	$	326,825		$	(43,375	)
Net Income		—			—			—			—			—		—		—						49046			—			49046
Shares compensation		2000000			2000			38000			—			—		—		—			—			—			—			40000
Foreign currency translation adjustment																											(25799	)		(25799	)
Balance at June 30, 2011		33700012		$	33,700		$	2,850,144		$	—		$	2,500	$	2,997,500	$	58,985		$	—		$	(6,223,984	)	$	301,027		$	19,872

Comprehensive Income	12/31/2010			6/30/2011			Total
Net Income	$	(681,835	)	$	49,046		$	(632,789	)
Other Comprehensive Income
Foreign Currency Translation Adjustment		415,016			(25,799	)		389,217
Total	$	(266,819	)	$	23,247		$	(243,572	)

See Accompanying Notes to the Financial Statements and Accountant's Report

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

The Company and Principal Business Activities

A. Organization and Structure

Northport Network Systems, Inc. (the "Company") was originally incorporated under the laws of the State of Colorado on July 25, 2000 as Dotcom-netmgmt.com Inc. The Company changed its name to Northport Capital Inc. on April 28, 2004. On October 9, 2008, the Company re- incorporated in Washington State and changed its name to current name, Northport Network Systems, Inc. The Company was incorporated as an investment and general trading company.

On June 23, 2005, the Company entered into a definitive agreement with the shareholders of Dalian Beigang Information Industry Development Company Limited ("Dalian Beigang"), to which the Company issued 1,500,000 shares with $0,001 par value to Dalian Beigang shareholders in exchange of all issued and outstanding shares of Dalian Beigang. Since both companies were under common management, the exchange of shares had been accounted for as a reorganization of entities under common control.

The Company conducts its operations through its wholly owned subsidiary Dalian Beigang, which was incorporated in the People's Republic of China ("PRC") on June 20, 1997 with its principal place of business in Dalian, PRC.

B. Products and Operations

Dalian Beigang is principally engaged in color photo printing business. Dalian Beigang owns a trade name "Colorstar", which was registered with the Industrial and Commercial Administration of PRC, as well as a patent applied for the color photo printing technology. During the year 2010, the Company developed an online shopping website known as UrMart.net. However this website has not been launched. No revenue has been generated from sales through the site. For the year 2011, the Company developed a spilled oil clean up business on the specified seaboard for the Dalian government, the revenue for the six months ended in June 30, 2011 is all from the spilled oil clean up business.

Significant Accounting Policies

A. Method of accounting

The Company maintains its general ledger and journals with the accrual method of accounting. The financial statements and accompanying notes are representations of management. The Company's financial statements have been prepared in accordance to generally accepted accounting principles in the United States of America.

B. Principles of consolidation

On June 18, 2010, the Company and Dalian Beigang entered into a purchase agreement with the stockholders of Beijing Xin Lu Zheng Bao Cheng Education Technology Co., Ltd. ("Xin Lu Zheng"), in which the Company would issue 3,000,000 shares of common stock at a fair market value of $2,700,000 to acquire 65% equity interest of Xin Lu Zheng. Xin Lu Zheng registered its business license with Beijing City Industrial and Commercial Administration on December 21, 2009. Xin Lu Zheng was principally engaged in professional training services business.

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

In compliance with the PRC Foreign Corporation Investment rule, which prohibits foreign owned entity to directly acquire domestic enterprise within the territory of China, the acquisition structure will be classified as the acquiree Xin Lu Zheng being 65% equity owned subsidiary of Dalian Beigang upon the closing of this acquisition. However, as of June 30, 2011, The Company, Dalian Beigang and Xin Lu Zheng have not finished the equity transfer procedure with Beijing City Industrial and Commercial Administration.

Therefore, the accompanying consolidated financial statements as of and for the six months ended June 30, 2011 include only the accounts of the Company and its wholly owned subsidiary Dalian Beigang, but not the accounts of Xin Lu Zheng. All significant inter-company balances such as due to/due from, investment in subsidiaries, and subsidiaries' capitalization have been eliminated.

C. Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America 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 reporting periods. Significant estimates and assumptions are used for, but not limited to: (1) allowance for trade receivables, (2) economic lives of property, plant and equipment, (3) asset impairments, and (4) contingency reserves. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates

D. Cash and cash equivalents

The Company classifies the following instruments as cash and cash equivalents: cash on hand, unrestricted bank deposits, and all highly liquid investments purchased with original maturities of three months or less.

E. Accounts receivable

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. Accounts receivable are disclosed at the net value of all outstanding invoice amounts less management's estimate for doubtful accounts. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts. When collection of the original invoice amount is no longer probable, the Company will either partially or fully write-off the balance against the allowance for doubtful accounts.

F. Plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:

Color printing machine			4 years
Motor vehicles			5 -10 years
Furniture, fixtures and equipment			2 - 5 years

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred.

G. Accounting for impairment of long lived Assets

The Company has adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), ASC 360-10-35. The Company evaluates its long lived assets for impairment when indicators of impairment are present or annually, whichever occurs sooner. In the event that there are indications of impairment, the Company will record a loss to statements of income equal to the difference between the carrying value and the fair value of the long lived asset. The Company typically, but not exclusively uses the expected future discounted flows method to determine fair value of long lived asset subject to impairment. The fair value of long lived assets that held for disposition will include the cost of disposal.

The Company's long-lived assets are grouped by their presentation on the consolidated balance sheets, and further segregated by their operating and asset type. The Company makes its determinations based on various factors that impact those assets.

At June 30, 2011, the Company assessed its color printing machine, motor vehicle and equipment for production and has concluded that its long-lived assets have not experienced any impairment losses.

H. Income taxes

The Company uses the accrual method of accounting to determine income taxes for the year. The Company has implemented FASB ASC 740 Accounting for Income Taxes. Income tax liabilities computed according to the United States and PRC tax laws provide for the tax effects of transactions reported in the financial statements and consists of taxes currently due, plus deferred taxes, related primarily to differences arising from the recognition of expenses related to the depreciation of plant and equipment and provisions for doubtful accounts between financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.

A valuation allowance is recognized for deferred tax assets if it is more likely than not, that the deferred tax assets will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

I. Statutory reserves

Statutory reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used to recover losses and increase capital, as approved, and are to be used to expand production or operations.

J. Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of Dalian Beigang is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US Dollar at the rates used in translation.

K. Revenue recognition

The Company recognizes revenues under the provisions of FASB Codification Topic 605 ("ASC Topic 605"), Revenue Recognition when all of the following have occurred: persuasive evidence of arrangement with the customer, services have been performed, fees are fixed or determinable and collectability of the fees is reasonably assured. These criteria as related to the Company's revenues are considered to have been met asfollows:-

(1) Color photo printing services

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 Company follows the guidance of ASC Topic 605, "Recording Revenue Gross as a Principal versus Net as an Agent" for its presentation of revenue and direct costs. This guidance requires the Company to assess whether it acts as a principal in the transaction or as an agent acting on behalf of others. Where the Company is the principal in the transaction and has the risks and rewards of ownership, the transactions are recorded gross in the statements of income. Revenue and related costs of services generated by the franchise agents are included as part of the Company's consolidated revenue and costs of services, respectively, since the Company has the direct contractual relationships with the customers, holds title to the related customer receivables and is the legal employer of the employees.

The Company also has a licensing program whereby the licensee has direct contractual relationships with the customers, held title to the related customers' receivables and is the legal employer of the employees. Accordingly, net sales and costs of services generated by the licensee are not 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. Fees received from licensees were $0 for the six months ended June 30, 2011 and 2010 respectively.

For sale from its own operations, revenue is recognized after the photos are printed and delivered to the customers and cash has been collected.

(2) Online shopping

The website UrMart.net is at its trial stage, the revenue derived from is insignificant and recorded on receipt of subscription fees from members. The management will review this policy on official launch of this website.

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

(3) Air-ticketing agency services

The Company receives commissions from travel suppliers for air-ticketing services through the Company's transaction and service platform under various services agreements. Commissions from air-ticketing services rendered are recognized after air tickets are issued, net of estimated cancellations. The Company presents revenues from such transactions on a net basis in the statements of operations as the Company does not assume inventory risks and has no obligations for cancelled airline ticket reservations. Contracts with certain airlines contain discretionary escalating commissions that are paid to the Company subject to achieving specific performance targets. Such discretionary escalating commissions are recognized when the air tickets are issued and performance guarantees, if any, are achieved.

Since the Company has divested the acquisition of Ling Xiao in 2010, the air-ticketing agency services are no longer applicable.

(4) Spilled oil clean up business

The Company engaged contract with PRC government for oil clean up service. Government retained the environmental protection agent to assess the work process and approve the completion of spilled oil cleanup project. Revenue is recognized only upon the receipt of protection agency's report, which used the percentage of completion method to evaluate the completeness assertion. For the six months ended June 30, 2011, total 67% of contract revenue was recognized and approved by the government's agent.

L. Earnings per share

The Company computes earnings per share ("EPS") in accordance with FASB ASC 260 "Earnings per share". SFAS No. 128 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., contingent shares, convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

M. Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company presents components of comprehensive income with equal prominence to other financial statements. The Company's current component of other comprehensive income is the foreign currency translation adjustment.

N. Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

O. Subsequent events

The Company evaluates subsequent events that have occurred after the consolidated balance sheet date but before the consolidated financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. The Company has evaluated subsequent events, and based on this evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustments to the consolidated financial statements.

P. Recent accounting pronouncements

No New Pronouncement issued since FASB issued in October 2009 ASU No. 2009-13 "Revenue Recognition (Topic 605) that management adopted on January 1, 2011.

Other receivables

Other receivables consisted of the follows as of June 30, 2011 and December 31, 2010:-

	6/30/2011		12/31/2010
Office lease security deposit	$	1,677	$	3,879
Employee borrowings		222,705		222,705
	$	224,382	$	226,584

Advance to Suppliers

On July 16, 2010, in the northeastern port city of Dalian, a blast hit two oil pipelines and spread an estimated 1,500 metric tons of crude oil (462,000 gallons) into the Yellow Sea. The PRC government closed the beaches and port facility, and retained environment protection companies to clean up the spill.

Dalian Beigang was authorized as a legal representative of BioRangers, Inc. (Oppenheimer Technology Japan, Inc.) to act as sole agent of TerraZyme and other enzymatic products in the territory of China. TerraZyme was recognized by the United States Environmental Protection Agency ("EPA") for the environment program as a safer oil spill treatment. TerraZyme was designed to be used to absorb spilled material. Full absorption of the spill took as little as few minutes for light diesel fuel or up to 1 hour for heavy oil. Dalian Beigang was selected by the Dalian government to use TerraZyme products to clean up the spill. The engagement contract is formalized with the government in 2011.

The balance of advance to suppliers was related to the payment deposit of TerraZyme products and other spill clean cost, which will be converted into cost of revenue when Dalian Beigang recognizes oil spill treatment revenue.

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

	6/30/2011		12/31/2010
Prepayment for TerraZyme products	$	116,902	$	346,328
Project related cost		150,143		444,809
	$	267,045	$	791,137

Plant and Equipment

Plant and equipment consisted of the follows as of June 30, 2011 and December 31, 2010:

At			Accumulated
June 30, 2011:		Cost	Depreciation				Net
Motor Vehicles	$	149,004		$	136,431	$	12,573
Color Photo Printing Machines		402,713			229,862		172,851
Furniture and Equipment		69,445			30,487		38,958
	$	621,162		$	396,780	$	224,382
At			Accumulated
December 31, 2010:		Cost	Depreciation				Net
Motor Vehicles	$	145,673		$	131,742	$	13,931
Color Photo Printing Machines		417,248			190,115		227,133
Furniture and Equipment		40,861			22,073		18,788
	$	603,782		$	343,930	$	259,852

Depreciation expenses were $52,850 and $115,299 for the six months and year ended June 30, 2011 and December 31, 2010 respectively.

Other Payables and Accruals

Other payables and accruals at June 30, 2011 and December 31, 2010 consisted of the follows:-

Description	6/30/2011		12/31/2010
Deposits received	$	19,378	$	16,636
Advanced payment received		142,785		139,593
Accrued expenses		—		208,270
Others		123,762		120,998
	$	285,925	$	485,497

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

Related Party Transactions

A. Related party receivable

The Company's director Mr. Yu Jianhua subscribed 3,000,000 shares of the Company's common stock at a price of $0.75 on August 11, 2009. On August 28, 2009, the Company issued 1,500,000 shares valued at $1,125,000 to the subscriber. Mr. Yu Jianhua has paid $1,065,383 to the Company. The remaining balance of $59,617 was still unpaid at June 30, 2011 and was accordingly recorded as related party receivable.

B. Related party payable

Since the Company incurred accumulated operation deficits, it had difficulty to generate sufficient working capital for business activities. The Company borrowed additional capital from the shareholder and chairman Ms. Zhao Yan to maintain its daily operation. As of June 30, 2011, the Company totally recorded related party payable to Ms. Zhao Yan of $ 506,465.

Income Taxes

In respect of the Company and its subsidiary domiciled and operated in United States and the People's Republic of China, the taxation of these entities is summarized below:-

Entities	Countries of Domicile	Income Tax Rate
Northport Network Systems, Inc.	United States	34.00%
Dalian Beigang	PRC	25%

Since the Company is primarily a holding company without any business activities in United States, the Company did not incur any tax for the six months ended June 30, 2011 and 2010.

The following tabulation presents the income tax and deferred tax of the Company and its individual subsidiary:-

Description	6/30/2011			6/30/2010
Income (loss) before taxes:
US Federal	$	(164,005	)	$	(7,629	)
PRC		213,051			185,792
Total income before taxes	$	49,046		$	178,163
Provision for taxes:
Current:
U.S. Federal	$	—		$	—
State		—			—
China		53,263			—
	$	53,263		$	—
Deferred:
U.S. Federal	$	—		$	—

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)


China		(53,263	)		—
Valuation Allowance		—			—
Deferred tax:		(53,263	)		—
Total provision for taxes	$	—		$	—
Effective tax rate		N/A			N/A

The differences between the U.S. federal statutory income tax rates and the Company's effective tax rate for the six months ended June 30, 2011 and 2010 are shown in the following table:-

	6/30/2011	6/30/2010
U.S. federal statutory income tax rate	N/A	N/A
Lower rates in PRC, net	N/A	N/A
Accruals in foreign jurisdictions	N/A	N/A
Effective tax rate	N/A	N/A

Earnings per Share

	6/30/2011		6/30/2010
Basic earnings per share numerator Net income (loss)	$	49,046	$	178,646
Net income (loss) attributable to common stockholders	$	49,046	$	178,163
Diluted earnings per share numerator	$	49,046	$	178,163
Original shares:		31,700,012		34,200,012
- Weighted issuance of common stock		2,000,000		305,556
Basic weighted average shares outstanding		33,700,012		34,505,568
Dilutive shares:		—			_
Diluted weighted average shares outstanding:		33,700,012		34,505,568
Earnings (loss) per share - Basic	$	0.00	$	0.01
-Diluted	$	0.00	$	0.01
Weighted average shares outstanding - Basic		33,700,012		34,505,568
-Diluted		33,700,012		34,505,568

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

10.

Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition, and results of operations may be influenced by changes in the political, economic, and legal environments in the PRC.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

11.

Financial Instruments

The Company's financial instruments consist of cash and cash equivalents, accounts and other receivables, accounts and other payables, accrued liabilities, and amounts due from and due to related parties. The fair values of these financial instruments approximate their carrying values due to the relatively short-term maturity of these instruments.

Interest Rate and Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risks consist principally of accounts receivable and amounts due from related parties.

The Company's accounts receivable are from repeat customers. The Company extends credits to its customer and has accrued an allowance for doubtful accounts to account for the risk of default by its customers. Management regularly monitors the level of accounts receivable attributable to each customer and the length of time taken for amounts to be settled and where necessary, takes appropriate action to collect on past due balances.

Management does not believe that there is a concentration of credit risk arising from any one customer related to accounts receivables. In the event that a customer becomes unable to pay its balance due, the maximum loss would be the carrying value of the accounts receivable. Management does believe there is significant concentration of risk from related parties and if any of the related parties as detailed in Note 5 become insolvent, the Company may suffer material losses.

Currency Risk

The Company generates revenues and incurs expenses and expenditures primarily in China and is exposed to risk from changes in foreign currency rates if it were to actually convert its RMB into USD. The Company has not hedged its exposure to currency fluctuations.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's objective to managing liquidity risk is to ensure that it has sufficient cash available to meet its liabilities when they become due. The ability to settle it obligations is reliant on the Company collecting its accounts receivables and amounts due from related parties in a timely manner and by maintaining sufficient cash on hand

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

12.

Discontinued Operation

On April 1, 2010, the Company and Dalian Beigang entered into an agreement with the 49% stockholder of Ling Xiao to divest its 51% equity interest in Ling Xiao. For exchange, the 49% stockholder returned 2,500,000 shares of the Company's common stock to the Company. The agreement was finalized on May 11, 2010. Pursuant to the agreement, the divestiture was effective on April 1, 2010. The value of the 200,000 shares common stock and the operation loss of Ling Xiao for the six months ended June 30, 2010 were classified as discontinued operation loss. The following table is a summary of Ling Xiao's financial position and result of operations as of and for the twelve months ended December 31, 2010.

Shenyang Ling Xiao Aviation Services Co., Ltd

Condensed Balance Sheet		Condensed Statement of Income
Assets		Sales revenue	$	-
Current assets	$	Cost of sales		-
Non-current assets	-	Gross Profit		-
Total assets	-
		Operating Income		-
Liabilities
Current liabilities	-	Income tax		-
Non-current liabilities		Loss from discontinued
Total liabilities	-	operation, net of tax		(125,062)

Net Assets	$	Net Income	$	(125,062)

13.

Going Concern

These consolidated financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As of June 30, 2011, the Company has an accumulated deficit of $6,223,984 due to the fact that the Company incurred losses over the past few years.

As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company's ability to continue as a going concern.

Northport Network Systems, Inc.

Notes to Financial Statements

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

14.

Operating Lease Commitments

The Company leases office spaces from external parties under 4 operating agreements, which will expire on August 1, 2011, August 12, 2012, July 19, 2013, and November 26, 2013 at monthly rentals of $451, $1,936, $4,397 and $255. The impact to the Company's results of operations, in the form of rent expense, for the six months ended June 30, 2011 was $14,623. The Company's lease contracts with the third parties calls for non-cancellable operating lease commitment as follow:

For the year ending December 31:-

Fiscal Years	Commitments
2011	$	76,087
2012		71,255
2013		56,760
	$	204,102

15.

Segment Information

The Company reports its primary segment information based on its principal operating activities. For management purpose, during six months ended June 30, 2011, the Company was organized into three major operating divisions and reporting segments based on product line: (1) Color photo printing, (2) Online shopping, (3) Air-ticketing agency services, and (4) Spilled oil clean service.

However, the Company only generated revenue from the oil clean service in the current year. Therefore, management concludes that segment reporting is not applicable as of and for the six months ended June 30, 2011

16.

Share Compensation

Pursuant to the consultant agreement, the Company granted 2,000,000 shares of common stock to a consultant for the compensation of consulting service with a market price of $0.02 per share. A total cost of $40,000 was charged to general and administrative expense, and credited into common stock and additional paid in capital. The incorporation of this stock transaction has the impact of decreasing the current year's net income by $40,000 or $0.0012 per share using the weighted average of shares. No U.S. tax is affected since the Company has not repatriated its earnings to the United States. No tax benefit has yet to be accrued or realized for the six months ended June 30, 2011.

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

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

Northport Network Systems, Inc. conducts business in China through a Wholly Owned Foreign Enterprise (“WOFE”) subsidiary, Dalian Beigang Information Industry Development Company Limited (“Dalian Beigang”), which developed a digital photo processing kiosk technology, which operates under the trade name “Colorstar”. We entered into an agreement dated June 23, 2005, to acquire 100% of Dalian Beigang and obtained Chinese government approval of the WOFE business license on May 17, 2006. We have installed a limited number of test units in commercial locations in Dalian, PRC during the past four years. 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.

In addition, during 2010 we commenced development of an e-commerce website known as UrMart.net which we intend to test launch as early as in the summer of 2012 and generate revenues from sales made through the site. The website UrMart.net was at its trial stage at the end of 2010. UrMart 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 2010, we discontinued operations of our Tenet, tax filing software division as a result of changes to the China National Tax Bureau filing access procedures. In May 2010, we divested our 51% equity interest in Shenyang Ling Xiao Aviation Services Co., Ltd (“Ling Xiao”), which operates online and call center travel booking operations in the Chinese cities of Dalian and Shenyang.

Current Status of Colorstar Operations.

Currently, all operations of Colorstar are suspended. We are re-evaluating our digital photo processing technology business and considering ways to re-shape our technology and business model with view towards long term commercial success. However, we will require addition capital to re-shape our technology, and we can not provide assurances that we will be successful in our endeavors.

Other Business Activities

We took on two government oil contamination clean up projects in September 2010. These projects involve the use of biological cleaning methods to clean up oil spill in the Jinzhou district in Dalian. The first project involved the clean up of approximately 1.3 kilometers of shore line or an area of 95,159.6 square meters and the second project involved the clean up of approximately 180 meters of shore line or an area of 7,800 square meter. Both contracts are with the MaQiaoZi street office of the Development Zone of Dalian. As of June 30, 2011, we have completed both projects. We expect to receive up to RMB7,340,000 or US$1,118,902 for the first project and RMB2,995,200 or US$456,585 for the second project. On April 11, 2011, we received the payment of RMB5,140,000 or US$787,462 for the first project and RMB1,790,000 or US$274,233 for the second project. We anticipate receiving the remaining amounts due during third quarter of 2011. We plan to use the proceeds from these projects for to repay loans totaling $506,465 as of June 30, 2011 from our chairman and largest shareholder, Yan Zhao and for working capital purposes.

We used a product manufactured by Oppenheimer Biotechnology Incorporated (OBI), which specializes in Bioremediation for over 20 years. The OBI Formula I and TerraZyme are OBI manufactured products with naturally occurring microorganisms that recycle simple, complex and chlorinated hydrocarbons into natural compounds. These naturally occurring hydrocarbon digesting microbes convert pollutants into environmentally beneficial products. The application of OBI products effectively cleaned up the oil spill along the seashore line with clear visual and actual results. The Oppenheimer Formula has been listed on U.S. EPA National Contingency Plan Product Schedule since 1991.

Dalian Beigang Biotech

In June, 2010, Dalian Beigang acquired a series of Chinese patents focused on health diagnostic applications and products. The Company plans to establish a 90% owned subsidiary corporation, Dalian Beigang Biotech Inc., which will be located in Dalian, China. The company will develop, commercialize and popularize advanced In Vitro Diagnostic (IVD) kits/devices to improve health of human beings. Its primarily business is to design, develop, patent and market home-applicable diagnostic test papers and portable diagnostic devices related to human cardiovascular diseases. The company plans to initially develop up to 4 IVD products. The company needs to raise approximately $2,000,000 additional capital in order to begin the product development.

Online Education Services (Acquisition to be completed upon completion of due diligence)

On June 18, 2010, a wholly owned subsidiary of Northport entered into an equity agreement in accordance with Company Law of the People's Republic of China with Jia Yi, Wu Peng and Yuan Huixiong in regards to Northport Dalian acquiring a 65% equity interest in Beijing XinLu Zheng Bao Cheng Education Technology Co. Ltd. (“Beijing Bao Cheng”), an existing education business headquartered in Beijing China. The consideration for the 65% equity interest is 3,000,000 shares in the Company being issued as follows: 1.2 million shares to Jia Yi; 0.9 million shares to Wu Peng; and 0.9 million shares to Yuan Huixiong, the shareholders of Beijing Bao Cheng.

Beijing Bao Cheng was incorporated in the People’s Republic of China (“PRC”) on December 21, 2009. Beijing Bao Cheng is engaged in professional training services. They provide professional training programs and services to students taking legal services, construction inspections and nursing examinations through the classroom and online training programs. Students can enroll at their training facilities in Beijing and Guangzhou and at over 100 franchisee network locations throughout China, or enroll for online courses. Tuition fees are generally paid in advance and are recognized when earned, ratably over the service period on a straight line basis, net of business taxes and related surcharges. Beijing Bao Cheng also sells reference materials to students and revenue is recognized upon delivery of the reference materials to the students over the subscription period the classroom or online course is available.

As of the date of this filing, the Company is conducting due diligence on Beijing Bao Cheng and expects to complete the acquisition before end of calendar 2011.

The discussions below reflect the comparisons between the Company’s current business operations, the oil clean-up project in Dalian (which will not be continued), and the Company’s prior business operations, of providing professional training services, which have been terminated. Therefore, the year to year comparisons below may not be meaningful for an understanding of our business operations.

In addition, we remind investors that our plans to re-focus our business operations 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

The following is a summary of the Company’s statement of operations for the three months and six months ended June 30, 2011 and 2010:

	Three months ended						Six months ended
	6/30/2011			6/30/2010			6/30/2011		6/30/2010
Revenue	$	1,058,539		$	26,922424		$	1,058,632	$	26,925
Cost of revenue		535,225			13,708			535,230		14,949
Gross profit		523,314			13,216			523,402		11,976

Selling expenses		75,854			—			102,321		—
General and administrative expenses		181,531			955,712			372,204		1,052,307
Impairment loss		(2,203	)		—			—		—
Total operating expenses		255,182			955,712			474,525		1,052,307

Operating income (loss)		268,132			(942,496	)		48,877		(1,040,331	)

Other income		—			395			—		2,432
Interest income		162			91			169		150
Other expense		—			(1	)		—		(403	)
Interest expense		—			(3,164	)		—		(5,455	)
Total other income (expenses)		162			(2,679	)		169		(3,276	)

Income (loss) from continued operation before income tax		268,294			(945,175	)		49,046		(1,043,607	)

Provisions for income tax		—			—			—		—

Net income (loss) from continued operation		268,294			(945,175	)		49,046		(1,043,607	)

Gain (loss) from discontinued operation, net of tax		—			1,209,776			—		1,222,253

Net income (loss)	$	268,294		$	264,601		$	49,046	$	178,646

For the Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010

Revenues

Revenues for the three months ended June 30, 2011 were $1,058,539 compared with $26,924 for the comparable period in 2010. All of the revenues for the current period are due to the oil spill clean-up project in Dalian. Revenues for the 2010 period are consisting of professional training services.

Cost of revenue for the three months ended June 31, 2011 were $535,225 compared with $13,708 for the comparable period in 2010. All of the costs for the current period reflect costs associated with the oil spill clean up project. These costs include product and labor cost. Costs for the 2010 period are associated with the professional training services.

Operating Expenses.

Selling, general and administrative and impairment loss expenses were $255,182 for the three months ended June 30, 2011 as compared to $955,712 for the comparable 2010 period; an decrease of $700,530 or 73.3%. Selling, general and administrative expenses represent payroll and related costs, professional fees, depreciation, travel and offices rental expenses. The $700,530 decrease is mainly due to decrease in consulting fees of $900,000 in 2010 period, which was the value of the common shares issued to Honglin Qian for certain patent acquisitions, offset by an increase in selling expenses of $75,854 in 2011 period.

Net Income (Loss)

Net income for the three months ended June 30, 2011 were $268,294 compared with $264,601 for the comparable 2010 period. The 2011 period net income is contributed by the oil clean-up project in Dalian and the 2010 period net income was the result of a one time gain from the disposal of a subsidiary of $1,209,776 offset by net loss from continued operation of $945,175.

Net Income (Loss) and earnings (Loss) per Share

Basic loss per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed on a similar basis to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The increase in loss per share was primarily the result of increases in expenses discussed above.

For the Six Months Ended June 30, 2011 Compared to the Six Months Ended June 30, 2010

Revenues

Revenues for the six months ended June 30, 2011 were $1,058,632 compared with $26,925 for the comparable period in 2010. All of the revenues for the current period are due to the oil spill clean-up project in Dalian. Revenues for the 2010 period are consisting of professional training services.

Cost of revenue for the three months ended June 30, 2011 were $535,230 compared with $14,949 for the comparable period in 2010. All of the costs for the current period reflect costs associated with the oil spill clean up project. These costs include product and labor cost. Costs for the 2010 period are associated with the professional training services.

Operating Expenses.

Selling, general and administrative expenses were $474,525 for the six months ended June 30, 2011 as compared to $1,052,307 for the comparable 2010 period; a decrease of $577,782 or 54.9%. Selling, general and administrative expenses represent payroll and related costs, professional fees, depreciation, travel and offices rental expenses. The $577,782 decrease is mainly due to decrease in consulting fees of $900,000 in 2010 period, which was the value of the common shares issued to Honglin Qian for certain patent acquisitions, offset by an increase in selling expenses of $102,321 in 2011 period.

Net Income (Loss)

Net income for the six months ended June 30, 2011 were $49,046 compared with $178,646 for the comparable 2010 period. The 2011 period net income is contributed by the oil spill clean-up project in Dalian and the 2010 period net income was the result of a one time gain from the sale of a subsidiary of $1,222,253 offset by net loss from continued operation of $1,043,607.

Net Income (Loss) and earnings (Loss) per Share

Liquidity and Capital Resources

As reflected in the accompanying financial statements, the Company has an accumulated deficit of $6,223,984 at June 30, 2011. The Company’s current liabilities also exceed its current assets by $260,949 and the Company used net cash in operations during the six months period ended June 30, 2011 of $7,639.

Contractual cash commitments for the fiscal years subsequent to June 30, 2011, are summarized as follows:

The Company leases office spaces from external parties under 4 operating agreements, which will expire on August 1, 2011, August 12, 2012, July 19, 2013, and November 26, 2013 at monthly rentals of $451, $1,936, $4,397 and $255, respectively. The impact to the Company’s results of operations, in the form of rent expense, for the six months ended June 30, 2011 was $14,623. The Company’s lease contracts with the third parties calls for non-cancellable operating lease commitment as follow:

For the year ending December 31:

Fiscal Years	Commitments
2011	$	76,087
2012		71,255
2013		56,760
	$	204,102

As of June 30, 2011, the Company owed $506,465 to the Company’s President as unsecured loan and imputed interest is computed at 5% per annum on the amount due. The balance is repayable on demand. During the three month period ended June 30, 2011, The Company did not repay any of the outstanding debt.

Going Concern

As reflected in the accompanying financial statements, we had an accumulated deficit of $6,223,984 at June 30, 2011. Our auditors stated in their report on our audited financial statements for the year ended December 31, 2010 that they have substantial doubt we will be able to continue as a going concern. In view of the matters described above, continued operation of the Company is dependent upon the Company’s ability to raise additional capital, reduce its operating expenses, obtain financing and succeed in its future Colorstar operations. Management is taking steps to revise our operating and financial requirements, which we believe will be sufficient to provide us with the ability to continue as a going concern.

We are now pursuing additional funding and potential merger or acquisition candidates, which would enhance stockholders’ investment. Management believes that the above actions will allow us to continue operations through the next fiscal year. However, there are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, our business may fail.

Cash Used in Operating Activities

Cash used in operating activities was $7,639 during the six months ended June, 2011, as compared to $810,848 during the six months ended June, 2010.

Cash Used in Investing Activities

Cash used in investing activities was $5,400 for the six months ended June 30, 2011 compared to $130,781 during comparable period in 2010.

Cash from Financing Activities

We have funded our business to date primarily from sales of our common stock and by way of shareholder loans. During the six months ended June 30, 2011, we had no cash from financing activities.

As of June 30, 2011, a related party owed $59,617 to the Company in connection with a stock subscription in 2009.

As of June 30, 2011 and June 30, 2010, the Company owed $506,465 and $398,281 respectively to the Company’s President as unsecured loan and imputed interest is computed at 5% per annum on the amount due. The balance is repayable on demand.

Future Financings

We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned exploration activities.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial conditions and results of operations are based upon the Company's consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles 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 period. Actual results could differ from those estimates.

Revenue Recognition

We have no revenue from the sale of color photo printing services. The Company follows the guidance of Emerging Issues Task Force (EITF) 99-19, "Recording Revenue Gross as a Principal versus Net as an Agent", for its presentation of revenue and direct costs. This guidance requires the Company to assess whether it acts as a principal in the transaction or as an agent acting on behalf of others. Where the Company is the principal in the transaction and has the risks and rewards of ownership, the transactions are recorded gross in the statements of income. Revenue and related costs of services generated by the franchise agents are included as part of the Company's consolidated revenue and costs of services, respectively, since the Company has the direct contractual relations.

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. These factors, among others, designate the Company as principal with respect to its franchise agent operations. 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, sales and costs of services generated by the license operation are not 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.

Allowance for Doubtful Accounts

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on managements’ assessment of the credit history with the customer and current relationships with them.

Foreign currency translation

Northport Network maintains its accounting records in its functional currencies of United States Dollars (“US$”) while Dalian Beigang maintain its accounting records in their functional currencies of Renminbi (“RMB”).

Foreign currency transactions during the period are translated to the functional currency at the approximate rates of exchange on the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the approximate rates of exchange at that date. Non-monetary assets and liabilities are translated at the rates of exchange prevailing at the time the asset or liability was acquired. Exchange gains or losses are recorded in the statement of operations.

The financial statements of Dalian Beigang whose functional currencies are RMB are translated into US$ using the closing rate method. The balance sheet items are translated into US$ using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the year. All exchange differences are recorded within Other Comprehensive Income.

The translation difference recorded for the six months ended 2011 and 2010 was a loss of $25,799 and a loss of $4,936, respectively.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amount could have been, or could be, converted into US Dollar at the rates used in translation.

Long-lived assets

In accordance with FASB Codification Topic 360 (“ASC Topic 360”), “Accounting for the impairment or disposal of Long-Lived Assets", long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long- lived assets. The Company reviews long-lived assets to determine that carrying values are not impaired. During the six months ended June 30, 2011 and June 30, 2010, the company recorded impairment loss of $2,203 and $0, respectively.

Goodwill

Goodwill represents the excess purchase price of net tangible and intangible assets acquired in business combinations over their estimated fair value. The Company accounts for goodwill in accordance with FASB Codification Topic 350 (“ASC Topic 350”), “Accounting for Goodwill and Other Intangible Assets” and FASB Codification Topic 805 (”ASC Topic 805”), “Business Combinations”. ASC Topic 350 requires goodwill to be tested for impairment on an annual basis or more frequently, if impairment indicators arise, and written down when impaired. In accordance with ASC Topic 350, the Company tests goodwill for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events. The annual test of goodwill impairment is performed in the fourth quarter using a two-step process in accordance with ASC Topic 350. First, the Company determines if the carrying amount of its reporting unit exceeds the fair value of the reporting unit, which would indicate that goodwill may be impaired. If the Company determines that goodwill may be impaired, the Company compares the implied fair value of the goodwill, as defined by ASC Topic 350, to its carrying amount to determine if there is an impairment loss.

Disclosure about Fair value of Financial Instruments

FASB Codification Topic 825 (“ASC Topic 825”), "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. Fair value of financial instrument is made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgments, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

The carrying value of cash and cash equivalents, accounts receivable (trade and others), accounts payable (trade and related party) and accrued liabilities approximate their fair values because of the short-term nature of these instruments. The management of the Company is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Income and Other Taxes and Obligatory Payments

The Company accounts for income taxes under the FASB Codification Topic 740-10-25, “Accounting for Income Taxes” (“ASC 740-10-25”). Under ASC 740-10-25, deferred 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 bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.

On January 1, 2007, the Company adopted the provisions of FASB Codification Topic 740, “Accounting for Uncertainty in Income Taxes” (“ASC 740”). ASC 740 prescribes a more-likely-than-not threshold for financial statements recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This Interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The adoption of ASC 740 has not resulted in any material impact on the Company’s financial position or results.

Recently Issued Accounting Standards

In June 2009, FASB issued FASB Statement No. 166, Accounting for Transfers for Financial Assets (FASB ASC 860 Transfers and Servicing) and FASB Statement No. 167 (FASB ASC 810 Consolidation), a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities (FASB ASC 810 Consolidation). The Company has adopted the new accounting policies and has determined that there is no material impact to the financial statements presented herein.

On June 30, 2009, FASB issued FASB Statement No. 168, Accounting Standards Codification™ (FASB ASC 105 Generally Accepted Accounting Principles) a replacement of FASB Statement No. 162 the Hierarchy of Generally Accepted Accounting Principles. On the effective date of this standard, FASB Accounting Standards Codification™ (ASC) became the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission (SEC). This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. If an accounting change results from the application of this guidance, an entity should disclose the nature and reason for the change in accounting principle in their financial statements. This new standard flattens the GAAP hierarchy to two levels: one that is authoritative (in FASB ASC) and one that is non-authoritative (not in FASB ASC). Exceptions include all rules and interpretive releases of the SEC under the authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, and certain grandfathered guidance having an effective date before March 15, 1992. Statement No. 168 is the final standard that will be issued by FASB in that form. There will no longer be, for example, accounting standards in the form of statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA Accounting Statements of Position. The Company has adopted and implemented the new accounting policy.

In October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force”. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this ASU on the Company’s financial statements.

The FASB issued ASU-2010-09 (Topic 855) to amend guidance on subsequent events to remove the requirement for SEC filers (as defined in ASU 2010-09) to disclose the date through which an entity has evaluated subsequent events. This change alleviates potential conflicts with current SEC guidance. An SEC filer is still required to evaluate subsequent events through the date financial statements are issued, but disclosure of that date is no longer required. The amendments in ASU 2010-09 became effective upon issuance of the guidance. Management adopted this pronouncement as of July 1, 2010.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

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. The evaluation of our disclosure controls and procedures included a review of our processes and implementation and the effect on the information generated for use in this Quarterly Report on Form 10-Q. As a result of such evaluation, Chief Executive Officer and the Chief Financial Officer have concluded that, as of the evaluation date, our disclosure controls and procedures are effective.

The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management's Annual Report on Internal Control Over Financial Reporting.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of August 15, 2011. The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of August 15, 2011, the Company’s internal control over financial reporting was effective.

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

As of the date of this filing, there have been no material changes from the risk factors previously disclosed in our “Risk Factors” in the Form 10-K for the period ended December 31, 2010. An investment in our common stock involves various risks. When considering an investment in our common stock, you should consider carefully all of the Risk Factors described in our most recent Form 10-K. These risks and uncertainties are not the only ones facing us and there may be additional matters that we are unaware of or that we currently consider immaterial. All of these could adversely affect our business, financial condition, results of operations and cash flows and, thus, the value of an investment in our Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

(a)		Exhibits

31.1		Rule 13a-14(a)/15d-14(a) Certification (CEO)

31.2		Rule 13a-14(a)/15d-14(a) Certification (CFO)

32.1		Section 1350 Certification (CEO)

32.2		Section 1350 Certification (CFO)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NORTHPORT NETWORK SYSTEMS INC.

Per:	/s/ Yan Zhao

	Yan Zhao
	Chief Executive Officer, President and Director
	Date: August 15, 2011

Per:	s/ Jim H. Qian

	Jim H. Qian
	Chief Financial Officer and Director
	Date: August 15, 2011

Northport Network Systems, Inc. - FORM 10-Q - August 19, 2011

Attached files

Northport Network Systems, Inc. Reports