CLUS 10-K Annual Report Dec. 31, 2010 | Alphaminr
China Teletech Holding Inc
ALPHAMINR

CLUS 10-K Fiscal year ended Dec. 31, 2010

Balance Sheet
Cash Flow
Income Statement
10-K 1 f10k2010_guangzhou.htm ANNUAL REPORT f10k2010_guangzhou.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 333-130937
GUANGZHOU GLOBAL TELECOM, INC.
(Exact name of registrant as specified in its charter)
Florida
59-3565377
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
c/o Corporation Service Company
1201 Hays Street
Tallahassee, FL
32301
(Address of principal executive offices)
(Zip Code)
(850) 521-1000
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Title of each class registered:
Name of each exchange on which registered:
None
None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
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 o No x

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 o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K.
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.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
Our common stock is traded thinly on the OTC Bulletin Board.

As of December 31, 2010, the registrant had 149,475,127 shares of its common stock outstanding.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

Page
PART I
ITEM 1.
Business.
1
ITEM 1A.
Risk Factors.
5
ITEM 2.
Properties.
5
ITEM 3.
Legal Proceedings.
5
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
5
ITEM 6.
Selected Financial Data.
6
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
6
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk.
11
ITEM 8.
Financial Statements and Supplementary Data.
11
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
11
ITEM 9A.
Controls and Procedures.
12
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance.
12
ITEM 11.
Executive Compensation.
13
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
14
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence.
14
ITEM 14.
Principal Accounting Fees and Services.
15
PART IV
ITEM 15.
Exhibits, Financial Statement Schedules.
16
SIGNATURES
17

PART I
Item 1. Business.
Corporate History

Guangzhou Global Telecom, Inc. (“we” or “the Company”) is incorporated as Avalon Development Enterprises, Inc. on March 29, 1999, under the laws of the State of Florida.  From inception until January 2007, we engaged in the business of acquiring commercial property and expanding into building cleaning, maintenance services, and equipment leasing as supporting ancillary services and sources of revenue.  On January 10, 2007, the Company, Global Telecom Holdings, Ltd., a British Virgin Islands Corporation (“GTHL”), and the shareholders of GTHL, entered into a Share Exchange Agreement, pursuant to which the Company issued 39,817,500 shares of its restricted common stock to the shareholders of GTHL in exchange for all of the issued and outstanding capital stock of GTHL.  Following the transaction on March 27, 2007, GTHL became our wholly-owned subsidiary and we changed our name to Guangzhou Global Telecom Holdings, Inc. and succeeded to the business of GTHL.   GTHL operates its business through its subsidiary Guangzhou Global Telecommunication Company Limited (“GGT”), a nationally distributor of pre-paid phone calling cards, mobiles and integrated mobile handsets and related communication equipment and a provider of mobile handsets value-added services in Guangzhou City, China.

In 2007, we established 4 subsidiaries; namely, Zhengzhou Global Telecom Equipment Limited (“ZGTE”), Macau Global Telecom Company Limited (“MGT”), Huantong Telecom Hongkong Holding Limited (“HTHKH”), and Huantong Telecom Singapore Company PTE Limited (“HTS”) with capital of RMB 500,000, Macau Dollar 300,000, Hong Kong Dollar 100 and Singapore Dollar 200,000, respectively. Simultaneously, we established a subsidiary; namely, Guangzhou Huantong Telecom Technology and Consultant Services, Ltd (“GHTTCS”) with capital of RMB 8,155,730. Pursuant to a Stock Purchase Agreement dated April 9, 2008 and July 29, 2008, respectively, the Company acquired 50% of the issued and outstanding shares in the capital of Beijing Lihe Jiahua Technology and Trading Company Ltd (“BLJ”) and 51% of the issued and outstanding shares in Guangzhou Renwoxing Telecom (“GRT”), a limited liability company incorporated in China. Pursuant to the terms of the Stock Purchase Agreements, the Shareholders agreed to sell and transfer the proportion of the shares to the Company for a purchase consideration of US$300,000 and US$291,833 respectively.

In order to improve our cash flows from operations and working capital, we decided to redeploy our capital to meet requirements of our business plan. On December 31, 2010, we classified our subsidiaries, Zhengzhou Global Telecom Equipment Ltd. (“Zhengzhou Global”), Guangzhou Global Telecommunication Co., Ltd. (Wuhan Branch), Guangzhou Global Telecommunication Co., Ltd. (Zhengzhou Branch), and Guangzhou Global Telecommunication Co., Ltd. (Beijing Branch), together as discontinued operation entities.  Accordingly, these entities’ operations have been classified as discontinued operations in the consolidated statements of income and cash flows and the assets and associated liabilities have been classified as held for sale in the consolidated balance sheets.

Financing

On July 31, 2007 and January 1, 2008, the Company completed two financing transactions with several investors (the “Holders”) issuing $2,000,000 and $1,000,000, respectively, Fixed Rate Convertible Debenture due in 2009 and a stock purchase warrant to purchase an aggregate of 2,090,592 shares of the Company common stock, subject to adjustments for stock splits or reorganizations as set forth in the warrant, that will expire in 2012 (the “Warrants”).

The Debentures were subscribed at a price equal to 87.5% of their principal amount, which is the issue price of $3,428,571 less a 12.5% discount. The Debentures were issued pursuant to, and are subject to the terms and conditions of, a trust deed dated July 31, 2007 (the “Trust Deed”).

·
Interest Rate. The Debenture bears interest at the rate of 8% per annum of the principal amount of the Debentures.
·
Conversion. Each Debenture is convertible at the option of the holder at any time after July 31, 2007 up to July 31, 2009, into shares of our common stock at a fixed conversion price of $0.82 per share.

On July 31, 2007, the Company also entered into a registration rights agreement with the Holders pursuant to which the Company agreed to include the Debenture, the Warrants, and the shares of common stock underlying the Debenture and Warrants in a pre-effective amendment to a registration statement that the Company have on file with the SEC. The Company intends to have the registration statement cover the resale of the Debenture, the Warrants, and the shares of common stock underlying the Debenture and Warrants.

On November 3, 2008, due to market conditions, the Company re-negotiated the terms of the Debentures and Warrants, and entered into a modification agreement (the “Amendment Agreement”) with the Holders. Pursuant to the Amendment Agreement, the Company agreed to completely remove the monthly interest payment of the Debentures and Increase the annual interest rate to 18%. Therefore, as described in the Schedule A of the Amendment Agreement, the Company will pay an aggregate of $2,151,110.85 and $1,485,714.10 to the Holders that are due on July 31, 2009 and February 21, 2010, respectively.  The Company acknowledged that the conversion price of the Debentures on the conversion date shall be equal to the lesser of (a) $0.015 (subject to adjustment), and (b) 80% of the lowest closing bid price during the 20 Trading Days immediately prior to the applicable conversion date (subject to adjustment).
-1-
The Amendment Agreement further modified the terms of the transaction by reducing the exercise price of the Warrants to $0.015 (subject to further adjustment), and therefore the number of shares underlying Warrants issued to the Holders will be increased to an aggregate of 156,097,534 shares as described in Schedule B of the Amendment Agreement.
The Company further amended the Articles of Incorporation to increase the number of authorized shares of common stock to 1,000,000,000.

On December 29, 2009, the Company entered into a Settlement Agreement with the Holders. Pursuant to the Settlement Agreement, the Company would make a total payment of $1,300,000 to the Holders no later than January 21, 2010. The Convertible Debentures would be deemed satisfied and all outstanding Warrants held by the Holders would be cancelled. In addition, the Holders agreed to cancel all of the Company shares held by them at such time as the payment has been made. However, as of September 30, 2010, the Company has not paid the sum of $1,300,000 to the Holders.

In May 2010, the Holders commenced an action against the Company in the Supreme Court of the State of New York in order to recover the outstanding amount of $1,300,000 under the Settlement Agreement.  The outcome and estimated loss from this lawsuit cannot be determined at this time.

On April 29, 2011, a judgment in the amount of $1,415,306.16 in favor of the Holders and against the Company was entered on August 5, 2011 in the Supreme Court of the State of New York.

On November 23, 2011, the Company and the Holders entered into a Settlement and Amendment Agreement.  As partial consideration for the agreements of the Holders, upon execution of the Agreement, the Company shall pay the Holders, in the aggregate, the sum of $50,000.   Within 20 business days of the execution of the Agreement, the Company shall pay the Holders, in the aggregate, the additional sum of $105,000, including $5,000 for the Holder’s legal fees and expenses as described in Section 10(d) herein. Wire instructions and respective pro-rata amounts shall be provided by the Holders in writing.  Promptly following the payment of an aggregate of $155,000 by the Company, the Holders will surrender their respective Warrants and Restricted Shares to the Company’s counsel for cancellation.  Following the payment of an aggregate of $155,000 by the Company, the Holders shall promptly file a satisfaction of judgment with the Supreme Court of the State of New York.

The amendments to the original debenture agreement are as follows:

(a)
The date included in the definition of “Maturity Date” in the second paragraph of the Debentures is hereby amended to read: November 23, 2013.

(b)
Section 4(b) of the Debentures is hereby amended to read as follows:
“Conversion Price.”  The conversion price in effect on any Conversion Date shall be equal to the lesser of (i) $.10 (the “ Set Price ”) and (ii) 90% of the average of the VWAPs for the 5 Trading Days immediately prior to the applicable Conversion Date (such lower price, as subject to adjustment herein, the “ Conversion Price ”).

(c)
For purposes of Sections 5(a), 5(b), 5(c) and 5(d) of the Debentures, the term “Conversion Price” shall be deemed to be the “Set Price”.

(d)
Reduction in Principal Amount of Debentures .  Subject to the terms and conditions hereunder, the Holders and the Company hereby agree that the principal amount outstanding under the Debentures shall be reduced to, in the aggregate, $1,300,000.  The individual amounts of each Holder’s Debenture, as reduced pursuant to this Section, shall be as set forth on Schedule A hereto.

(e)
Daily Trading Volume of the Conversion Shares .  On any given Trading Day, the Holder shall not sell in open market transactions more than a number of Conversion Shares equal to the greater of (i) 20% of the trading volume on that day, or (ii) 20% of the daily average trading volume over the prior 5 trading days, however, provided that, in either case, the minimum daily trading volume shall be no less than 500,000 shares, subject to adjustment for reverse and forward stock splits and the like.

(f)
Mandatory Conversion . The Company shall have the right to force the Holders to convert the Debenture into Common Stock at such time that the VWAP of the Company’s Common Stock is no less than $1.00 per share (subject to adjustment for reverse and forward stock splits and the like) for a period of ten (10) consecutive trading days (the “ Mandatory Conversion ”); provided, however, during such 10 consecutive trading day period, the Equity Conditions (as defined in the original Debentures (prior to the Amended and Restated Debentures) have been met by the Company  Holders may deliver to the Company at its executive office, or to the Company’s transfer agent, as applicable, the Amended and Restated Debenture (as defined in Section 9(c)) so converted. As promptly as practicable thereafter, the Company shall issue, or shall cause its transfer agent to issue and deliver to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled.
-2-
In additional to the amendment to the Debenture, the Company also agrees to become current with all obligations under the Exchange Act, and shall, at all times thereafter, remain current in accordance with the rules and regulations of the Commission and its obligations under the Exchange Act.   On or before the earlier of (i) December 15, 2011 or (ii) the 30 th calendar day following the date the Company becomes current in its filing obligations under the Exchange Act, the Company shall hire an investor relations firm, specializing in small-cap and micro-cap public companies, with a term of engagement of not less than 12 months.  On or before January 31, 2012 (subject to SEC or any other regulatory approval), the Company and Newco shall have consummated a merger transaction (the “Merger”) whereby the business of Newco is acquired by the Company.  In addition, as a part of the Merger, Newco and its direct and indirect subsidiaries, if any, shall deliver each holder a Guarantee, in the form of the Subsidiary Guarantee attached to the Purchaser Agreement, and shall comply with all terms and conditions of the Security Agreement, including, without limitation, the granting of a first priority lien in their respective assets to the Holders.

Upon compliance with the terms, conditions, and covenants in the Settlement and Amendment Agreement, the Holders shall promptly file a satisfaction of judgment with the Supreme Court of the State of New York.  Such filing is expressly conditioned upon the Company’s performance of such terms, conditions, and covenants.  There shall be no settlement of the Litigation until such time as the Company complies with all of the terms, conditions, and covenants of this Agreement.  The Holders reserve the right to take any and all actions to enforce the Judgment in the event that the Company does not comply with such terms, conditions, and covenants.

Overview

We are a nationally distributor of pre-paid calling card and integrated mobile phone handsets and a provider of mobile handset value-added services.  We are an independent qualified corporation that serves as one of principal distributors of China Telecom, China Unicom, and China Mobile products in Guangzhou City.  We maintain and operate the largest prepaid mobile phone card sales and distribution center in Guangzhou City.  We are developing on-line add-value platform with China Mobile to develop our on-line business.  We work in cooperative distribution relationships with Panasonic, Motorola, LG, GE and Bird corporations.  We started distributing Samsung-branded mobiles. We provide the Lineless Messaging Service and other customer service operations.

Development

Development activities are a fundamental building block to our future financial success.  We will devote significant resources to identifying and developing new software and value-added services through an expanded network of regional and neighborhood service centers, shops and via a virtual store.   We plan to develop our distribution operations and to introduce current, new and innovative software and services through possible expanded network of regional and neighborhood service centers and business partners.

We anticipate building strong customer relationships in the local communities that are served in order to take advantage of future sales from existing loyal customers and through words of mouth advertisement.  Being one of the principal distributors of mobile products and services, it allows us to become part of the community and to enter into exclusive contracts directly with the individual consumers.

We developed GTL Lineless Messaging Service (“LMS ™ ”) entering into the instant messaging market.  The margins for LMS ™ exceed those of our traditional distribution business.  The Company launched a proprietary enhanced instant messaging service software application in concert with its mobile phone distribution agreements.  Our lineless messaging system will primarily serve as an intra-corporate communications system that will enable a company to instantly disseminate routine or time-sensitive information to some or all of its employees.  Messages may also be sent to a particular subset of the organization based on the employee’s role in the company or for something personal such as a “happy birthday” message.  This system will replace a large portion of an organization’s communication overhead traditionally fulfilled by email or courier messages.

In addition to dissemination of information, LMS ™ will facilitate critical company management functions such as meeting reminders, location changes, field reports, etc.  This more intuitive and rapid communication protocol will occur through a device that virtually all people already own and carry with them everywhere - their mobile phone.  The ability for an organization to communicate more efficiently without additional hardware requirements will give any organization an instant competitive operational advantage.

For most messaging service providers, message entry requires accessing the Internet through the line entry of a special service number.  LMS ™ does not require discrete text messaging numbers as in the current and traditional ways of transmitting a message through the Internet, but instead sends messages directly by way of PHS/GSM/CDMA mobile web transmission protocols.  Using the unique hardware address of each mobile device, LMS ™ doesn’t need any special messaging service numbers or an operator to transfer the message - thus the name: lineless messaging service.
-3-
LMS ™ is a complex software application which is deployed by itself on PCs, mobile computers, and mobile telephony.  It can be used to build unattached messages and enter the LMS ™ network at any point and reach any properly configured subscriber device.  With sufficient and prompt capital investment, the Company will promote LMS ™ throughout China within two years.

Besides LMS ™ , we are expanding our services by building an on-line platform with China Mobile to provide on-line add-value platform for mobile users.  We are investing on two sets of machines and software developments for the on-line platform.  They are under pilot test-run in the fourth quarter of 2011 and will be launched in the first quarter of 2012.  The on-line platform can generate sales with lower costs and higher profit margin, compared to retail shops.  This new sales channel can allow us to make direct sales and cross-sales of additional value-added services and add-on products to our customers.

We will make use of our relationships within the distribution network to expand our business from Guangzhou City to major cities in China (Zhuhai, Wuhan, Zhengzhou, Beijing and Shanghai).  After that, we will study the possible expansion of our business into United States and South Korea.

Distributions

We are developing our e-commerce business units in order to build and maintain a high-quality brand and service reputation.  We currently serve as a nationally distributor of pre-paid phone calling cards, mobiles and integrated mobile handsets and related communication equipment and a provider of mobile value-added services in Guangzhou City of China.  We provide value-added services include LMS and on-line add-value platform.

Revenue Sources

Our revenue comes from principal business of GGT and GRT.  As disclosed above, we are enhancing LMS ™ and developing on-line add-value platform for our customers.  During the product and value-added services introduction phase, our product lines and production levels will be kept at current size.

Aside from existing in-house prototype development of future products, we are studying to possible business development related to any specific internal and/or outsourced contractor solutions to produce, deploy, and, on-line platform and associated services.

Marketing

Our new strategy is a natural follow on to our existing telephone distribution operation, which is becoming the largest distribution agreement inside China.  We anticipate the on-line platform can continue distribute current products and provide mobile phone value added services.

In line with the development of mobile communication standards and increasing consumer demand for non-voice communications, network added service will be the new development of mobile communication.  The company is currently seeking and offering globally innovative techniques, products and services to include the following mobile functions including color-message, drawing and ring, chord ring, staying color picture, WAP, Note games, Treasure box, IVR chatting.

The Company aims to become the handset service distributor of China Mobile or China Unicom, by segmenting the market (for example, developing special communicated brands for young women) and through a demographically segmented, distributed cost model.  Using resources from partners higher in the value chain and close agreements with other services, we will realize maximal profit via bundling communication, handset and value-added services within the networks.
Competition
China is the world’s largest mobile telecommunications market in 2010.   According to statistics from Ministry of Industry and Information Technology of China, there were about 859million mobile cellular users in China.  This represented about 66 percent of the population of 1.3 billion people.

As the Chinese population becomes saturated with multiple mobile handsets per person, demand will still exist for upgrade or replacement platforms and value-added services.  One of the important value-added services is on-line add-value services for mobile users and some major distributors are developing, testing and upgrading of their own platforms.

Our new strategy strives to be one of principal distributors and service providers for mobile users in Guangdong Province.  The Company will continue in developing and upgrading its on-line platform for providing mobile phone value-added services and distributing current and new and innovative products to our customers.
-4-
Intellectual Property

We do not own any intellectual property.

Government Approval and Regulation
We do not need government approval for our principal products or services.

Employees
As of December 31, 2010, we have 35 full-time employees.

Item 1A. Risk Factors.

Not applicable because we are a smaller reporting company.

Item 2. Properties.

Our corporate office is located at Room 03/04, 16/F, Jinke Building, No.17/19, Guangwei Road, Guangzhou, PRC 510180. Our Office is free of charge provided by Ms. Yankuan Li, our president and chief executive office.

Item 3. Legal Proceedings.

On May 28, 2010, Enable Growth Partners, LP, Enable Opportunity Partners, LP and Pierce Diversified Strategy Master Fund, LLC Ena (the “Plaintiffs”) commenced an action in the Supreme Court of the State of New York, index number 104262-2010, due to the Company’s failure to make any payment of the payoff amount to the Plaintiffs pursuant to a mutual release and settlement agreement entered into by and among the Plaintiffs and the Company on December 29, 2009. A judgment dated April 29, 2011 in the amount of $1,415,306.16 in favor of the Plaintiffs and against the Company was entered on August 5, 2011 in the Supreme Court of the State of New York.

On November 28, 2011, the Company entered into a settlement and amendment agreement with the Plaintiffs to settle the above judgment and litigation, pursuant to which the Company shall pay the Plaintiffs the sum of $50,000 upon execution of the settlement agreement and an additional sum of $105,000, including $5,000 for the Plaintiffs’ legal fees, within 20 business days of the execution of the settlement agreement. Following the payment of an aggregate of $155,000 by the Company, the Plaintiffs agree to file a satisfaction of judgment with the Supreme Court of the State of New York. As of the date hereof, the Company has paid a total of $155,000 to the Plaintiffs.

Item 4. (Removed and Reserved).

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information

Our common stock was traded on the OTC Bulletin Board system under the symbol “GZGT” until February 22, 2011.  Starting from February 23, 2011, our common stock is trading on the Pink Sheets. There is a limited trading market for our common stock. The following table sets forth the range of high and low bid quotations for each quarter within the last two fiscal years.
High
Low
2009
First Quarter
$
0.015
$
0.007
Second Quarter
$
0.025
$
0.006
Third Quarter
$
0.021
$
0.007
Fourth Quarter
$
0.015
$
0.007
2010
First Quarter
$
0.012
$
0.007
Second Quarter
$
0.009
$
0.003
Third Quarter
$
0.007
$
0.003
Fourth Quarter
$
0.006
$
0.002
These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions. The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
-5-
Holders

As of December 31, 2010, in accordance with our transfer agent records, we had approximately 50 record holders of our 149,475,127 shares of common stock.

Dividends

Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

We do not have in effect any compensation plans under which our equity securities are authorized for issuance.
Item 6. Selected Financial Data.
Not applicable because we are a smaller reporting company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information and financial data discussed below is derived from the audited financial statements of the Company for its fiscal year ended December 31, 2010.  The audited financial statements were prepared and presented in accordance with generally accepted accounting principles in the United States. The information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes contained elsewhere in this 10-K. The financial statements contained elsewhere in this 10-K fully represent the Company’s financial condition and operations; however, they are not indicative of the Company’s future performance. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this 10-K.
Overview

We are a nationally distributor of pre-paid calling card and integrated mobile phone handsets and a provider of mobile handset value-added services.  We are an independent qualified corporation that serves as one of principal distributors of China Telecom, China Unicom, and China Mobile products in Guangzhou City.  We maintain and operate the largest prepaid mobile phone card sales and distribution center in Guangzhou City.  We are developing on-line add-value platform with China Mobile to develop our on-line business.  We work in cooperative distribution relationships with Panasonic, Motorola, LG, GE and Bird corporations.  We started distributing Samsung-branded mobiles. We provide the Lineless Messaging Service and other customer service operations.

Going Concern

The interim consolidated financial statements have been prepared assuming that the 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 December 31, 2010, the Company has an accumulated deficit of $6,138,894 due to the fact that the Company continued to incur losses over the past several years, and has difficulty to pay the PRC government Value Added Tax and past due Debenture Holders Settlement.

As a result, these interim consolidation 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.
-6-
Results of Operations
Results of operations for the year ended December 31, 2010 as compared to the year ended December 31, 2009
Total Revenue
During fiscal year ended December 31, 2010, we generated $34,182,299 in revenues as compared to $30,484,712 (figure adjusted to exclude discontinued operations for comparison) of during the fiscal year ended in 2009, representing an increase of $3,697,587 or approximately 12.1%.  We increased our scale of wholesales business of phone cards and mobile handsets in China in 2010 and sales of phone cards were substantially increased in 2010.  This accounted for the increase of revenue in 2010 from 2009.

Gross Profit
The gross profit increased to $985,563 during the fiscal year ended December 31, 2010 from $880,964 (figure adjusted to exclude discontinued operations for comparison) in 2009, representing $104,599 or 11.9% increase.  The gross margin of 2010 was 2.88%, roughly same as the gross margin 2.89% of 2009.

Other Income
Other Income increased from $82,163 to $574,877 from 2009 to 2010.  The substantial increase by $492,715 or 600% was mainly due to adjustments on VAT payable treated as other income in 2010.

Expenses
Our selling, general and administrative expenses (“SG&A expenses”) were $2,832,570 during the fiscal year ended December 31, 2010 as compared to $3,272,677 (figure adjusted to exclude discontinued operations for comparison) for the fiscal year ended in 2009, representing a decrease of $440,107 or approximately 13.4%.   There was a huge allowance for bad debt related to purchase deposit of amount $1,664,013 in 2009 and this accounted for the greater expenses in 2009.
Other expenses were $22,140 during the year ended December 31, 2010 whereas other expenses were $230,136 (figure adjusted to exclude discontinued operations for comparison) during the year ended December 31, 2009.  The decrease was mainly due to most of other expenses in 2010 were from discontinued operations which were separated from continued operations.

Discontinued Operations
Resulted from unsatisfied operating results, we closed 4 branches in mainland China in 2010 whereas we closed 4 branches and disposed 1 branch in 2009 to keep our core businesses.  The respective discontinued operation losses, net of tax in 2010 and 2009 were $874,981 and $213,315(figure adjusted to include those operations discontinued in 2010 for comparison) respectively.

Net loss
Net loss recorded $2,289,852 during the fiscal year ended December 31, 2010, as compared to net loss of $2,824,003 during the fiscal year ended December 31, 2009.  The reduction of net loss $534,151 was the resulting effects of changes of financial figures mentioned above.
Liquidity and Capital Resources
Cash used in operating activities was $92,031 during the fiscal year ended December 31, 2010 as compared to cash used in operating activities of $2,091,714 for the year ended December 31, 2009.   Cash used in operating activities during year 2010 was mainly resulted from net loss of $2,289,852, increase of amount due from a related party $453,734, increase in inventories $292,548, decrease in VAT payable $223,580, by netting off by decrease of other receivables of $1,205,377 and decrease in purchase deposit $1,525,935.  Cash used in operating activities during year 2009 was mainly resulted from net loss of $2,890,849, increase in inventories $651,633, decrease in income tax payable $402,762, decrease of non-controlling interest of $554,310 netting off by decrease of purchase deposit of $2,057,734, increase of other receivables of $464,715 and increase of tax payable $391,234.

Cash flows used in investing activities were $97,747 for the fiscal year ended December 31, 2010 as compared to $445,843 provided in the fiscal year ended December 31, 2009.  Cash used in investing activities during year 2010 was resulted for purchase for short-term investment $226,867 and purchase of property, plant and equipment $45,876, netting off by the sales proceeds of equipment $174,996.  Cash provided from investing activities during year 2009 was resulted from proceeds from proceeds on disposal of fixed assets and intangible assets of $315,081, proceeds on disposal of discontinued operation of $193,762, netting off the deposit payment of 63,000.
There was no cash used or provided in financing activities during the fiscal year ended December 31, 2010 compared to $153,725 provided in financing activities for the fiscal year ended in 2009.   Cash provided in financing activities during 2009 was mainly due to proceeds from issuance of common stock $746,361 less redemption of convertible debentures $592,636.

Critical Accounting Policies

(a)
Use of Estimates

Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These accounts and estimates include, but are not limited to, the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.
-7-
(b)
Cash and Cash Equivalents

The Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.

(c)
Accounts Receivable – Trade

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of the full amount is doubtful.

(d)
Inventories

Inventories are stated at the lower of cost or market value. Cost is computed using the first-in, first-out method and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business or estimates based on prevailing market conditions. The inventories are telecommunication products such as mobile phone, rechargeable phone cards, smart chips, and interactive voice response cards.

(e)
Property, Plant, and Equipment, net

Property, plant and equipment, net are carried at cost net of accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with no salvage value.  Estimated useful lives of the property, plant and equipment are as follows:
Building 20 years
Equipment 5 years
Furniture and Fixtures 5 years
Motor Vehicles 3 years
(f)
Accounting for Impairment of Long-Lived Assets

The Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Live Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144.SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.  During the reporting periods, there was no impairment loss.

(g)
Revenue Recognition

Revenue from the sale of the products is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed.

(h)
Cost of Sales

The Company’s cost of sales is comprised mainly of cost of goods sold.

(i)
Selling Expenses

Selling expenses are comprised of salaries for the sales force, client entertainment, commissions, advertising, and travel and lodging expenses.
-8-
(j)
General & Administrative Expenses

General and administrative expenses include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office rental and utilities.

(k)
Advertising

The Company expensed all advertising costs as incurred.

(l)
Foreign Currency Translation

The Company maintains its financial statements in the functional currency, which is the Renminbi (RMB).  Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.  Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction.  Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars.  Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates.  Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

Exchange Rates
12/31/2010
12/31/2009
Year end RMB : US$ exchange rate
6.6118 6.8372
Average year RMB : US$ exchange rate
6.7788 6.8409
Year end HKD : US$ exchange rate
7.7832 7.7551
Average year HKD : US$ exchange rate
7.7695 7.7522
Year end MOP : US$ exchange rate
8.1644 8.1439
Average year MOP : US$ exchange rate
8.1535 8.1303
Year end SGD : US$ exchange rate
1.2913 1.4054
Average year SGD : US$ exchange rate
1.3637 1.4545

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$ at the rates used in translation.

(m)
Income Taxes

The Company uses the accrual method of accounting to determine and report its taxable reduction of income taxes for the year in which they are available. The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Income tax liabilities computed according to the United States, Singapore, People’s Republic of China (PRC), Macau SAR, and Hong Kong SAR tax laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for 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 created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.
-9-
In respect of the Company’s subsidiaries domiciled and operated in China, Singapore, Macau and Hong Kong, the taxation of these entities are summarized below:

·
GGT, ZGTG and GRT are located in the PRC, and GTHL is located in the British Virgin Islands, HTHKN is in Hong Kong, MGT is in Macau SAR, and HTS is in Singapore; all of these entities are subject to the relevant tax laws and regulations of the PRC, Hong Kong SAR, Macau SAR, British Virgin Islands, and Singapore in which the related entity domiciled.  The maximum tax rates of the subsidiaries pursuant to the countries in which they domicile are: -

Subsidiary
Country of Domicile
Income Tax Rate
GGT, ZGTG and GRT
PRC
25.0%
HTHKN
Hong Kong SAR
16.5%
MGT
Macau SAR
12.0%
GTHL
British Virgin Islands
0.00%
HTS
Singapore
18.0%

·
Effective January 1, 2008, PRC government implements a new 25% tax rate across the board for all enterprises regardless of whether domestic or foreign enterprise without any tax holiday which is defined as "two-year exemption followed by three-year half exemption" hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25% tax rate, tax holidays terminated as of December 31, 2007. However, PRC government has established a set of transition rules to allow enterprises already started tax holidays before January 1, 2008, to continue enjoying the tax holidays until being fully utilized.

·
Since Guangzhou Global Telecom, Inc. is primarily a holding company without any business activities in the United States, the Company shall not be subject to United States income tax for the year ended December 31, 2010.

(n)
Statutory Reserve

Statutory reserve refers to the amount appropriated from the net income in accordance with PRC 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. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, from its earnings, an amount to the statutory reserve to be used for future company development. Such an appropriation is made until the reserve reaches a maximum equalling 50% of the enterprise’s registered capital.

However, since GGT being an operating company in PRC does not itself have any foreign shareholders and that the Memorandum and Articles do not provide for such appropriation, the Company is therefore not required to fund the Statutory Reserve.

(o)
Other Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards, as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

(p)
Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.

(q)
Discontinued Operations

Certain amounts have been reclassified to present the Company’s Zhengzhou Global Telecom Equipment Ltd. (“Zhengzhou Global”), Guangzhou Global Telecommunication Co., Ltd. (Wuhan Branch), Guangzhou Global Telecommunication Co., Ltd. (Zhengzhou Branch), Guangzhou Global Telecommunication Co., Ltd. (Beijing Branch) operations as discontinued operations. Unless otherwise indicated, information presented in the notes to the financial statements relates only to the Company’s continuing operations. Information related to discontinued operations is included in Note 12 and in some instances, where appropriate, is included as a separate disclosure within the individual footnotes.

Recent Accounting Pronouncements

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.
-10-
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.

In April 2010, the FASB issued an Accounting Standard Update (“ASU”) No.2010-13,”Compensation-Stock Compensation” (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” which address the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.
Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable because we are a smaller reporting company.
Item 8. Financial Statements and Supplementary Data.

The financial statements begin on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.
-11-

Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

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 December 31, 2010.  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 December 31, 2010, the Company’s internal control over financial reporting was effective for the purposes for which it is intended.

This annual 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, fourth quarter of the fiscal year ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III
Item 10. Directors, Executive Officers and Corporate Governance.

Our executive officers and directors and their ages as of December 31, 2010 are as follows:
NAME
AGE
POSITION
Yankuan Li
51
President, Chief Executive Officer, Chief Financial Officer and Director
Yankuan Li, President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board

Yankuan Li has been Chairman of the Board of GTL since 2005. She was appointed as our chief financial officer on April 15, 2010. From 2004-2005, she was the General Manager of Guangzhou YueShen TaiYang Technology Ltd., a subsidiary of Pacificnet Inc. (Nasdaq: PACT). From 2003-2004, she was Managing Director of the phone card division of Guangzhou Trading Center of Renwoxing, responsible for phone cards. From 2000-2003, she was Department Manager of the Industrial and Commercial Bank of China Guangzhou Branch. Ms. Li holds a bachelor degree in Business Management of Beijing United University in 1998.
Board of Directors

Our sole director holds office until the annual meeting of stockholders of the Company following the election or until her successors are duly elected and qualified. Officers are appointed by the Board of Directors and serve at its discretion.
-12-
Family Relationships

No family relationships exist among our directors, executive officers, or persons nominated or chosen by us to become directors or executive officers.

Auditors; Code of Ethics; Financial Expert

We do not have an audit committee financial expert.  We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive.  Furthermore, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.

Involvement in Certain Legal Proceedings
To our knowledge, during the past ten (10) years, none of our directors, executive officers, promoters, control persons, or nominees has been:
§
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
§
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
§
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
§
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
Item 11.  Executive Compensation.

The following executives of the Company received compensation in the amounts set forth in the chart below for the fiscal years ended December 31, 2010 and 2009. All compensation listed is in US dollars. No other item of compensation was paid to any officer or director of the Company other than reimbursement of expenses.
SUMMARY COMPENSATION TABLE
Name and Principal Position
Year
Salary
($)
Bonus
($)
Stock Awards
($)
Option Awards
($)
Non-Equity Incentive Plan Compensation
($)
Non-Qualified Deferred Compensation Earnings
($)
All Other Compensation
($)
Totals
($)
Yankuan Li (1)
2010
$
64,780
125,905
0
0
0
0
0
$
190,685
CEO, CFO and Chairman
2009
$
0
0
0
0
0
0
0
$
0
Richard Yan (2)
2010
$
0
0
0
0
0
0
0
$
0
Former CFO
2009
$
0
0
0
0
0
0
0
$
0
Jingda Ni (3)
2009
$
0
12,551
0
0
0
0
0
$
12,551
Former General Manager
(1) Effective April 15, 2010, Ms. Yankuan Li was appointed as the Chief Financial Officer of the Company.

(2) Effective March 12, 2010, Mr. Richard Yan resigned as the Chief Financial Officer of the Company due to personal reasons.  There were no disagreements between Mr. Yan and us or any officer or director of the Company.

(3) Effective September 21, 2009, Mr. Jingda Ni resigned as the General Manager of the Company due to personal and health reasons.  There were no disagreements between Mr. Ni and us or any officer or director of the Company.
-13-
Outstanding Equity Awards at Fiscal Year-End Table

There were no outstanding equity awards for the year ended December 31, 2010.
Compensation of Directors

The Company has not compensated any of its directors for service on the Board of Directors. Management directors are not compensated for their service as directors, however they may receive compensation for their services as employees of the Company. The compensation received by our management directors is shown in the “Summary Compensation Table” above.
Employment Agreements
We do not have any employment agreements with our officers or directors currently.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information regarding the ownership of our capital stock, as of December 31, 2010, for: (i) each director; (ii) each person who is known to us to be the beneficial owner of more than 5%of our outstanding common stock; (iii) each of our executive officers named in the Summary Compensation Table; and (iv) all of our current executive officers and directors of as a group. Except as otherwise indicated in the footnotes, all information with respect to share ownership and voting and investment power has been furnished to us by the persons listed. Except as otherwise indicated in the footnotes, each person listed has sole voting power with respect to the shares shown as beneficially owned.
Title of Class
Name and Address
Number of Common Shares Beneficially Owned
Percent of Class (1)
Common Stock
Yankuan Li
14,193,934
9.50%
Common Stock
Enable Growth Partners LP (2)
32,704,376
21.88%
Common Stock
All directors and executive officers as a group (1 person)
14,193,934
9.50%
(1)
Based on 149,475,127 shares of common stock issued and outstanding as of December 31, 2010.
(2)
Including 27,798,719 shares of common stock held by Enable Growth Partners LP, 3,270,438 shares held by Enable Opportunity Partners LP and 1,635,219 shares held by Pierce Diversified Strategy Master Fund LLC (collectively, “Enable”). The Company and Enable agreed to cancel these shares.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Parties
The following table presents the balances the Company due to and from shareholders.

As of 12/31/2010
Continuing
Discontinued
Operations
Operations
Due from shareholders
$ 453,734 $ -
Due to shareholders
(176,518 ) -
Net due from/(due to)
$ 277,2164 $ -
As of 12/31/2009
Continuing
Discontinued
Operations
Operations
Due to shareholders
$ 59,490 $ -
$ 59,490 $ -

Amounts owing to the Company’s shareholders are non-interest-bearing and payable on demand. During the year ended December 31, 2010, Guangzhou Huantong Telecom Technology and Consultant Services, Ltd., one of the Company’s wholly owned subsidiaries, sold a property to a shareholder of the Company for $134,608.
-14-
Director Independence

We do not have any independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination.  NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  The NASDAQ listing rules provide that a director cannot be considered independent if:

·
the director is, or at any time during the past three years was, an employee of the company;
·
the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
·
a family member of the director is, or at any time during the past three years was, an executive officer of the company;
·
the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
·
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or
·
the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

Ms. Yankuan Li is not considered independent because she serves as an executive officer of the Company.

We do not currently have a separately designated audit, nominating or compensation committee.
Item 14. Principal Accounting Fees and Services.

Audit Fees
For the Company’s fiscal years ended December 31, 2010 and 2009, we were billed approximately $56,000 and $81,000 for professional services rendered for the audit and review of our financial statements.
Audit Related Fees

There were no fees for audit related services for the years ended December 31, 2010 and 2009.
Tax Fees
For the Company’s fiscal years ended December 31, 2010 and 2009, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
All Other Fees
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2010 and 2009.
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.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

-
approved by our audit committee; or

-
entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular  service,  the  audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

We do not have an audit committee.  Our entire board of directors pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved.  However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
-15-
PART IV

Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:

(1) Financial Statements and Report of Independent Registered Public Accounting Firm, which are set forth in the index to Consolidated Financial Statements on pages F-1 through F-26 of this report.
Report of Independent Registered Public Accounting Firm— Samuel H. Wong & Co., LLP
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Income and Comprehensive Income
F-4
Consolidated Statements of Shareholders’ Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7 to F-26

(2) Financial Statement Schedule: None.

(3) Exhibits
Exhibit No.
Description
3.1
Articles of Incorporation (1)
Amendment to Articles of Incorporation
3.2
Bylaws (1)
10.1
Securities Purchase Agreement (2)
10.2
Registration Rights Agreement (2)
10.3
Subsidiary Guarantee (2)
10.4
Security Agreement (2)
10.5
Form of Senior Secured Convertible Debenture (2)
10.6
Form of Common Stock Purchase Warrant (2)
10.7
Amendment Agreement among the Company and certain investors, dated February 21, 2008 (3)
10.8
Share Transfer Agreement between Huantong Telecom Singapore Company Pte. Ltd. and TCAM Technology Pte.  Ltd., dated February 14, 2008 (4)
10.9
Share Transfer Agreement between Global Telecom Holdings Limited and Guangzhou Renwoxing Telecom, dated July 29, 2008 (5)
10.10
Amendment Agreement between the Company and certain investors, dated November 3, 2008 (6)
10.11
Settlement Agreement, dated December 29, 2009 (7)
10.12
Settlement Agreement, dated November 28, 2011 (8)
31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1
Certification of Chief Executive Officer and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

(1)
Incorporated by reference to Form SB-2 filed on January 6, 2006.
(2)
Incorporated by reference to Form 8-K/A filed on August 8, 2007.
(3)
Incorporated by reference to Form 8-K filed on February 28, 2008.
(4)
Incorporated by reference to Form 8-K filed on March 11, 2008.
(5)
Incorporated by reference to Form 8-K filed on July 31, 2008.
(6)
Incorporated by reference to Form 8-K filed on November 5, 2008.
(7)
Incorporated by reference to the Form 8-K filed on January 4, 2010.
(8)
Incorporated by reference to the Form 8-K filed on December 1, 2011.
*
Filed herewith.
**
Furnished herewith.
-16-
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.
GUANGZHOU GLOBAL TELECOM, INC.
Date: December 29, 2011
By:
/s/ Yankuan Li
Yankuan Li
President, Chief Executive Officer,
Chief Financial Officer and
Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

Name
Title
Date
/s/ Yankuan Li
President, Chief Executive Officer, Chief Financial Officer and Director
December 29, 2011
Yankuan Li

-17-


Guangzhou Global Telecom, Inc.

Audited Consolidated Financial Statements

December 31, 2010 and 2009

(Stated in US Dollars)






Guangzhou Global Telecom, Inc.

Contents Pages
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheets
F-2 – F-3
Consolidated Statements of Income
F-4
Consolidated Statements of Changes in Stockholders’ Equity
F-5
Consolidated Statements of Cash Flows
F-6 – F-7
Notes to Consolidated Financial Statements
F-8 – F-26




Board of Directors and Stockholders
Guangzhou Global Telecom, Inc.

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheets of Guangzhou Global Telecom, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Guangzhou Global Telecom, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company has incurred substantial losses, and has difficulty to pay the PRC government Value Added Tax and past due Debenture Holders Settlement, all of which raise substantial doubt about its ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

San Mateo, California
November 23, 2011
Samuel H. Wong & Co., LLP
Certified Public Accountants
F-1
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of December 31, 2010 and 2009
(Stated in US Dollars)

ASSETS
12/31/2010
12/31/2009
Note
Current Assets
Cash and Cash Equivalents
$ 159,930 $ 377,591
Short-term Investment
226,867 -
Other Receivables
4 212,170 1,418,759
Due from shareholders
453,734 -
Purchase Deposits
6 - 1,525,935
Inventories
1,092,029 799,480
Current assets held for sale
- -
Total Current Assets
2,144,730 4,121,765
Non-Current Assets
Property, plant & equipment, net
7 17,594 520,149
Other non-current assets
63,000 63,000
Long-term assets held for sale
- -
Total Non-Current Assets
80,594 583,149
TOTAL ASSETS
$ 2,225,324 $ 4,704,914
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Taxes payable
$ 736,406 $ 674,285
VAT payable
8 1,147,037 1,370,616
Due to shareholders
5 176,518 59,490
Accrued liabilities and other payables
162,352 347,268
Convertible debenture - current portion
10 2,866,323 2,866,323
Current liabilities associated with assets held for sale
39,074 39,074
Total Current Liabilities
5,127,710 5,357,056
TOTAL LIABILITIES
$ 5,127,710 $ 5,357,056


See Notes to Consolidated Financial Statements and Accountants’ Report
F-2
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of December 31, 2010 and 2009
(Stated in US Dollars)

12/31/2010
12/31/2009
STOCKHOLDERS' EQUITY
Common stock US$0.01 par value; 1,000,000,000 authorized, 149,475,127 issued and outstanding as of December 31, 2010 and 2009, respectively
11 $ 1,494,751 $ 1,494,751
Additional Paid in capital
1,409,399 1,409,399
Other Comprehensive Income
10,875 38,758
Retained Earnings
(6,138,894 ) (3,816,247 )
Minority Interest
321,483 221,197
TOTAL STOCKHOLDERS' EQUITY
$ (2,902,386 ) $ (652,142 )
TOTAL LIABILITIES AND STOCKHOLDERS' EUITY
$ 2,225,324 $ 4,704,914

See Notes to Consolidated Financial Statements and Accountants’ Report
F-3
Guangzhou Global Telecom, Inc
Consolidated Statements of Income
For the years ended December 31, 2010 and 2009
(Stated in US Dollars)

Note
12/31/2010
12/31/2009
Sales
$ 34,182,299 $ 30,484,712
Cost of sales
33,196,736 29,603,748
Gross profit
985,563 880,964
Operating expenses
Selling expenses
82,611 43,521
Administrative and general expenses
2,832,570 3,272,677
Total operating expense
2,915,181 3,316,198
Loss from Operations
(1,929,618 ) (2,435,234 )
Other income
574,877 82,163
Interest income
9 22
Other expenses
(22,140 ) (230,136 )
Loss before taxation on Continuing Operations
(1,376,872 ) (2,583,185 )
Income tax
(37,999 ) (27,503 )
Loss from Continuing Operations
(1,414,871 ) (2,610,688 )
Discontinued Operation Income (Loss), net of tax
(874,981 ) (213,315 )
Net Loss
(2,289,852 ) (2,824,003 )
Net income attributable to non-controlling interest
(32,795 ) (66,846 )
Net Income (Loss) Attributable to the Company
$ (2,322,647 ) $ (2,890,849 )
Earnings Per Share
Basic-Net Loss
$ (0.02 ) $ (0.03 )
-Loss from Continuing Operations
(0.01 ) (0.00 )
-Loss from non-controlling interest
(0.00 ) (0.00 )
-Income(Loss) from Discontinued Operations
(0.01 ) (0.03 )
Diluted- Net Loss
(0.01 ) (0.028 )
- Loss from Continuing Operations
(0.00 ) (0.002 )
-Loss from Non-controlling interest
(0.01 ) (0.001 )
-Income/(Loss) from Discontinued Operations
(0.01 ) (0.025 )
Weighted Average Shares Outstanding
-Basic
149,475,127 104,014,950
-Diluted
149,475,127 104,014,950
See Notes to Consolidated Financial Statements and Accountants’ Report
F-4
Guangzhou Global Telecom, Inc
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2010 and 2009
(Stated in US Dollars)
Total Number
of Shares
Common
Stock
Additional
Paid in
Capital
Other
Comprehensive
Income
Retained
Earnings
Minority
Interest
Total
Balance, January 1, 2009
74,839,071 $ 748,391 $ 1,439,607 $ (202,845 ) $ (925,398 ) $ 775,507 $ 1,835,262
Conversion of convertible debenture to common stock
60,086,056 600,860 (8,333 ) - - - 592,527
Issuance of common stock in relation to management compensation
14,550,000 145,500 (21,875 ) - - - 123,625
Net  Loss
- - - - (2,890,849 ) - (2,890,849 )
Non-controlling Interest
- - - - - (554,310 ) (554,310 )
Foreign Currency Translation
- - - 241,603 - - 241,603
Balance at December 31, 2009
149,475,127 $ 1,494,751 $ 1,409,399 $ 38,758 $ (3,816,247 ) $ 221,197 $ (652,142 )
Balance, January 1, 2010
149,475,127 $ 1,494,751 $ 1,409,399 $ 38,758 $ (3,816,247 ) $ 221,197 $ (652,142 )
Net Income/(Loss)
- - - - (2,322,647 ) - (2,322,647 )
Reclassified to profit or loss on disposal of subsidiaries
- - - (39,374 ) - 67,491 28,117
Non-controlling Interest
- - - - - 32,795 32,795
Foreign Currency Translation
- - - 11,491 - - 11,491
Balance at December  31, 2010
149,475,127 $ 1,494,751 $ 1,409,399 $ 10,875 $ (6,138,894 ) $ 321,483 $ (2,902,386 )
See Notes to Consolidated Financial Statements and Accountants’ Report
F-5
Guangzhou Global Telecom, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2010 and 2009
(Stated in US Dollars)

Cash flow from operating activities
12/31/2010
12/31/2009
Net (Loss)/income
$ (2,289,852 ) $ (2,890,849 )
Discontinued Operation Loss, net of tax
- 213,315
Minority interest
- (554,310 )
Depreciation
38,105 64,643
Loss/(Gain) on disposal of property, plant and equipment
335,330 3,419
Loss on disposal and dissolution of subsidiaries
92,549 (267,912 )
Reclassified to profit or loss on disposal of subsidiaries
(39,374 ) -
Decrease/(increase) in other receivables
1,205,377 464,715
Decrease/(increase) in amount due from a related party
(453,734 ) -
Decrease/(increase) in purchase deposit
1,525,935 2,057,734
Decrease/(increase) in inventories
(292,548 ) (651,633 )
Increase/(decrease) in tax payables
37,761 391,234
Increase/(decrease) in accrued liabilities and other payables
(65,304 ) (51,377 )
Increase/(decrease) in VAT payable
(223,580 ) 3,399
Increase/(decrease) in income tax payable
37,304 (402,762 )
Cash Provided by operating activities – continuing operations
(92,031 ) (1,620,384 )
Cash Provided by operating activities – discontinued operations
- (471,330 )
Net cash provided by/(used in) operating activities
(92,031 ) (2,091,714 )
Cash flows from investing activities
Sale of Equipment
174,996 99,521
Purchases of property, plant and equipment
(45,876 ) -
Sale of intangible asset
- 215,560
Purchase for short-term investment
(226,867 ) -
Payments for deposits
- (63,000 )
Net Cash inflow from disposal of discontinued operation
- 193,762
Cash Used in investing activities – continuing operations
(97,747 ) 445,843
Cash Used in investing activities – discontinued operations
- -
Net cash provided by/(used in) investing activities
$ (97,747 ) $ 445,843
See Notes to Consolidated Financial Statements and Accountants’ Report
F-6
Guangzhou Global Telecom, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2010 and 2009
(Stated in US Dollars)
Cash flows from financing activities
Issuance of Common Stock
$ - $ 746,361
Proceeds of convertible debentures
- (592,636 )
Cash provided by financing activities – continuing operations
- 153,725
Cash provided by financing activities – discontinued operations
- -
Net cash provided by financing activities
- 153,725
Net Increase/(Decrease) in Cash & Cash Equivalents for the Year – continuing operations
(189,778 ) (1,020,816 )
Net Increase/(Decrease) in Cash & Cash Equivalents for the Year – discontinued
- (471,330 )
Net decrease in cash and cash equivalents  for the Year
(189,778 ) (1,492,146 )
Effect of Currency Translation – continuing operations
(27,883 ) 238,564
Effect of Currency Translation – discontinued operations
- 3,039
(27,883 ) 241,603
Cash & Cash Equivalents at Beginning of Year - continuing operations
377,591 1,159,843
Cash & Cash Equivalents at Beginning of Year - discontinued operations
- 468,291
377,591 1,628,134
Cash & Cash Equivalents at End of Year - continuing operations
159,930 377,591
Cash & Cash Equivalents at End of Year - discontinued operations
- -
Cash & Cash Equivalents at End of Year
$ 159,930 $ 377,591
See Notes to Consolidated Financial Statements and Accountants’ Report
F-7
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

1.
ORGANIZATION AND PRINCIPAL ACTIVITIES

Guangzhou Global Telecom, Inc. (the “Company”) formerly Avalon Development Enterprise, Inc. was incorporated in the State of Florida, United States (an OTCBB Company) on March 29, 1999.

On March 27, 2007, the Company underwent a reverse-merger with Global Telecom Holding Limited (GTHL, a British Virgin Islands (BVI) Company incorporated on April 1, 2004 under the British Virgin Islands International Business Companies Act (CAP. 291)) and its wholly-owned subsidiary Guangzhou Global Telecommunication Company Limited (GGT, established on December 4, 2004 in PRC with a registered and paid-up capital of RMB 3,030,000 (approximate $375,307)) involving an exchange of shares whereby the Company issued an aggregate of 39,817,500 shares of common stock in exchange for all of the issued and outstanding shares of GTHL. In connection with the reverse merger, the Company issued 200,000 shares of common stock to Zenith Capital Management LLC in April 2007 at a price of $2.50 per share.

In 2007, the Company established 4 subsidiaries; namely, Zhengzhou Global Telecom Equipment Limited (“ZGTE”), Macau Global Telecom Company Limited (“MGT”), Huantong Telecom Hongkong Holding Limited (“HTHKH”), and Huantong Telecom Singapore Company PTE Limited (“HTS”) with capital of RMB 500,000, Macau Dollar 300,000, Hong Kong Dollar 100 and Singapore Dollar 200,000, respectively. Simultaneously, the Company newly established a subsidiary; namely, Guangzhou Huantong Telecom Technology and Consultant Services, Ltd (“GHTTCS”) with capital of RMB 8,155,730. Pursuant to a Stock Purchase Agreement dated April 9, 2008 and July 29, 2008, respectively, the Company acquired 50% of the issued and outstanding shares in the capital of Beijing Lihe Jiahua Technology and Trading Company Ltd (“BLJ”) and 51% of the issued and outstanding shares in Guangzhou Renwoxing Telecom (“GRT”), a limited liability company incorporated in China. Pursuant to the terms of the Stock Purchase Agreements, the Shareholders agreed to sell and transfer the proportion of the shares to the Company for a purchase consideration of US$300,000 and US$291,833 respectively.

The Company, through its subsidiaries, is principally engaged in the distribution and trading of rechargeable phone cards, cellular phones and accessories within cities in PRC.  Customers of the Company embrace wholesalers, retailers, and final users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Method of Accounting

The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.
F-8
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
(b)
Consolidation

The consolidated financial statements include the accounts of Guangzhou Global Telecom, Inc. and eight wholly and partially owned subsidiaries.  The consolidated financial statements were compiled in accordance with generally accepted accounting principles of the United States of America.  All significant inter-company accounts and transactions have been eliminated in consolidation.

The company owned the following subsidiaries since the reserve-merger and soon thereafter. As of December 31, 2010, detailed identities of the consolidating subsidiaries are as follows:-

Name of Company
Place of
Incorporation
Attributable Equity
Interest %
Registered
Capital
Global Telecom Holding, Ltd.
BVI
100
HKD 7,800
Huantong Telecom Hong Kong Holding, Ltd.
Hong Kong SAR
100
HKD 100
Guangzhou Global Telecommunication Co., Ltd.
PRC
100
RMB 3,030,000
Guangzhou Huantong Telecom Technology and Consultant Services, Ltd.
PRC
100
RMB 8,155,730
Guangzhou Renwoxing Telecom Co., Ltd.
PRC
51
RMB 3,010,000
Macau Global Telecom Co., Ltd.
Macau SAR
100
MOP 300,000
Huantong Telecom Singapore Co. PTE, Ltd.
Singapore
65
SGD 200,000

(c)
Economic and Political Risks

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, 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, restriction on international remittances, and rates and methods of taxation, among other things.


F-9
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

(d)
Use of Estimates

Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These accounts and estimates include, but are not limited to, the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.

(e)
Cash and Cash Equivalents

The Company considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents.

(f)
Accounts Receivable – Trade

Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of the full amount is doubtful.

(g)
Inventories

Inventories are stated at the lower of cost or market value. Cost is computed using the first-in, first-out method and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business or estimates based on prevailing market conditions. The inventories are telecommunication products such as mobile phone, rechargeable phone cards, smart chips, and interactive voice response cards.

(h)
Property, Plant, and Equipment, net

Property, plant and equipment, net are carried at cost net of accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with no salvage value.  Estimated useful lives of the property, plant and equipment are as follows:
Building 20 years
Equipment 5 years
Furniture and Fixtures 5 years
Motor Vehicles 3 years
F-10
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
(i)
Accounting for Impairment of Long-Lived Assets

The Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Live Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144.SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.  During the reporting periods, there was no impairment loss.

(j)
Revenue Recognition

Revenue from the sale of the products is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed.

(k)
Cost of Sales

The Company’s cost of sales is comprised mainly of cost of goods sold.

(l)
Selling Expenses

Selling expenses are comprised of salaries for the sales force, client entertainment, commissions, advertising, and travel and lodging expenses.

(m)
General & Administrative Expenses

General and administrative expenses include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office rental and utilities.
F-11
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

(n)
Advertising

The Company expensed all advertising costs as incurred.

(o)
Foreign Currency Translation

The Company maintains its financial statements in the functional currency, which is the Renminbi (RMB).  Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.  Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction.  Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars.  Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates.  Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

Exchange Rates
12/31/2010
12/31/2009
Year end RMB : US$ exchange rate
6.6118 6.8372
Average year RMB : US$ exchange rate
6.7788 6.8409
Year end HKD : US$ exchange rate
7.7832 7.7551
Average year HKD : US$ exchange rate
7.7695 7.7522
Year end MOP : US$ exchange rate
8.1644 8.1439
Average year MOP : US$ exchange rate
8.1535 8.1303
Year end SGD : US$ exchange rate
1.2913 1.4054
Average year SGD : US$ exchange rate
1.3637 1.4545

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$ at the rates used in translation.

F-12
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

(p)
Income Taxes

The Company uses the accrual method of accounting to determine and report its taxable reduction of income taxes for the year in which they are available. The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Income tax liabilities computed according to the United States, Singapore, People’s Republic of China (PRC), Macau SAR, and Hong Kong SAR tax laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for 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 created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.

In respect of the Company’s subsidiaries domiciled and operated in China, Singapore, Macau and Hong Kong, the taxation of these entities are summarized below:

·
GGT, ZGTG and GRT are located in the PRC, and GTHL is located in the British Virgin Islands, HTHKN is in Hong Kong, MGT is in Macau SAR, and HTS is in Singapore; all of these entities are subject to the relevant tax laws and regulations of the PRC, Hong Kong SAR, Macau SAR, British Virgin Islands, and Singapore in which the related entity domiciled.  The maximum tax rates of the subsidiaries pursuant to the countries in which they domicile are: -

Subsidiary
Country of Domicile
Income Tax Rate
GGT, ZGTG and GRT
PRC
25.0%
HTHKN
Hong Kong SAR
16.5%
MGT
Macau SAR
12.0%
GTHL
British Virgin Islands
0.00%
HTS
Singapore
18.0%

·
Effective January 1, 2008, PRC government implements a new 25% tax rate across the board for all enterprises regardless of whether domestic or foreign enterprise without any tax holiday which is defined as "two-year exemption followed by three-year half exemption" hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25% tax rate, tax holidays terminated as of December 31, 2007. However, PRC government has established a set of transition rules to allow enterprises already started tax holidays before January 1, 2008, to continue enjoying the tax holidays until being fully utilized.
·
Since Guangzhou Global Telecom, Inc. is primarily a holding company without any business activities in the United States, the Company shall not be subject to United States income tax for the year ended December 31, 2010.
F-13
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

(q)
Statutory Reserve

Statutory reserve refers to the amount appropriated from the net income in accordance with PRC 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. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, from its earnings, an amount to the statutory reserve to be used for future company development. Such an appropriation is made until the reserve reaches a maximum equalling 50% of the enterprise’s registered capital.

However, since GGT being an operating company in PRC does not itself have any foreign shareholders and that the Memorandum and Articles do not provide for such appropriation, the Company is therefore not required to fund the Statutory Reserve.

(r)
Other Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards, as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.

(s)
Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.

(t)
Recent Accounting Pronouncements

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.
F-14
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

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 .

In April 2010, the FASB issued an Accounting Standard Update (“ASU”) No.2010-13,”Compensation-Stock Compensation” (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” which address the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.
F-15
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
(u)
Discontinued Operations

Certain amounts have been reclassified to present the Company’s Zhengzhou Global Telecom Equipment Ltd. (“Zhengzhou Global”), Guangzhou Global Telecommunication Co., Ltd. (Wuhan Branch), Guangzhou Global Telecommunication Co., Ltd. (Zhengzhou Branch), Guangzhou Global Telecommunication Co., Ltd. (Beijing Branch) operations as discontinued operations. Unless otherwise indicated, information presented in the notes to the financial statements relates only to the Company’s continuing operations. Information related to discontinued operations is included in Note 12 and in some instances, where appropriate, is included as a separate disclosure within the individual footnotes.

3.
CONCENTRATION

A substantial portion of GGT’s business operations depend on mobile telecommunications in PRC; any loss or deterioration of such relationship may result in severe disruption to the business operations impacting the Company's revenue. GGT relies entirely on the networks and gateways of these phone operators to provide its services. The Company's agreements with these operators are generally for a short period of one year and generally do not have automatic renewal provision. If these providers are unwilling to continue business with the Company, the Company's ability to conduct its existing business would be adversely affected.

4.
OTHER RECEIVABLES

Other receivables as of December 31, 2010 and 2009 pertained to the Company voluntarily extending financing to business associates for purchase of merchandise in return for 60% of gross profit in those transactions, in lieu of interest, as well as loans to third parties with no interest, security and specific terms of repayment.

As of 12/31/2010
Continuing
Discontinued
Type of Account
Operations
Operations
Trade financing to business associates
$ 212,170 $ -
Allowance for bad debt
- -
Other receivable, net
$ 212,170 $ -

As of 12/31/2009
Continuing
Discontinued
Type of Account
Operations
Operations
Trade financing to business associates
$ 1,484,325 $ -
Allowance for bad debt
(65,566 ) -
Other receivable, net
$ 1,418,759 $ -
F-16
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

5.
DUE FROM/TO SHAREHOLDERS

The following table presents the balances the Company due to and from shareholders.

As of 12/31/2010
Continuing
Discontinued
Operations
Operations
Due from shareholders
$ 453,734 $ -
Due to shareholders
(176,518 ) -
Net due from/(due to)
$ 277,2164 $ -
As of 12/31/2009
Continuing
Discontinued
Operations
Operations
Due to shareholders
$ 59,490 $ -
$ 59,490 $ -

Amounts owing to the Company’s shareholders are non-interest-bearing and payable on demand. During the year ended December 31, 2010, Guangzhou Huantong Telecom Technology and Consultant Services, Ltd., one of the Company’s wholly owned subsidiaries, sold a property to a shareholder of the Company for $134,608.

6.
PURCHASE DEPOSITS

Purchase deposits consist of advances to suppliers for the purchase of inventories and prepayments for general operating costs as at December 31, 2010 and 2009.

As of 12/31/2010
Continuing
Discontinued
Type of Account
Operations
Operations
Purchase deposits, gross
$ - $ -
Allowance for uncollectible amounts
- -
Purchase deposits, net
$ - $ -

As of 12/31/2009
Continuing
Discontinued
Type of Account
Operations
Operations
Purchase deposits, gross
$ 3,189,948 $ -
Allowance for uncollectible amounts
(1,664,013 ) -
Purchase deposits, net
$ 1,525,935 $ -
F-17
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
7.
PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following as of December 31, 2010 and 2009:

As of 12/31/2010
Continuing
Operations
Discontinued
Operations
At cost
Equipment
$
14,149
$
-
Furniture & Fixtures
39,511
-
Motor Vehicles
52,514
-
Building
-
-
Total
$
106,174
$
-
Less: Accumulated depreciation
Equipment
$
13,069
$
-
Furniture & Fixtures
27,451
-
Motor Vehicles
48,058
-
Building
-
-
$
88,578
$
-
$
17,594
$
-

As of 12/31/2009
Continuing
Operations
Discontinued
Operations
At cost
Equipment
$
36,557
$
-
Furniture & Fixtures
119,850
-
Motor Vehicles
103,687
-
Building
492,541
-
Total
$
752,635
$
-
Less: Accumulated depreciation
Equipment
$
21,596
$
-
Furniture & Fixtures
66,029
-
Motor Vehicles
103,661
-
Building
41,200
-
$
232,486
$
-
$
520,149
$
-

The depreciation expenses were $38,105 and $64,643 for the year ended December 31, 2010 and 2009, respectively.
F-18
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

8.    VALUE ADDED TAX PAYABLE

The Company has been collecting from its customers Value Added Tax (VAT), on behalf of the government. The Company was granted by the government to pay the balance dues under installments up to the end of 2008. The reason of this special arrangement is that the government may waive past due VAT after decision has been made in accordance with regulations for technology zone on tax-exemption matter. However, the Company has not received the approval notice from the government at December 31, 2010.  Thus, the VAT payable as of December 31, 2010 included the past due VAT possibly to be waived.

9.     LEASE COMMITMENTS

The Company leases office space and retail stores under operating leases with non-cancelable terms of less than a year at fixed monthly rent. None of the leases included contingent rentals. Lease expense charged to operations for the year ended December 31 2010 and 2009 amounted to $1,859 and $21,068, respectively.  Future minimum lease payments under non-cancelable operating leases until termination of the leases amounted to $4,493 distributed as:

Fiscal Year
Minimum Lease Payments
2011
$ 4,493

10.  CONVERTIBLE BONDS AND BOND WARRANTS

On July 31, 2007 and January 1, 2008, the Company completed two financing transactions with several investors (the “Subscriber”) issuing $2,000,000 and $1,000,000, respectively, Fixed Rate Convertible Debenture due in 2009 and a stock purchase warrant to purchase an aggregate of 2,090,592 shares of the Company common stock, subject to adjustments for stock splits or reorganizations as set forth in the warrant, that will expire in 2012 (the “Warrants”).

The Debentures were subscribed at a price equal to 87.5% of their principal amount, which is the issue price of $3,428,571 less a 12.5% discount. The Debentures were issued pursuant to, and are subject to the terms and conditions of, a trust deed dated July 31, 2007 (the “Trust Deed”).
·
Interest Rate. The Debenture bears interest at the rate of 8% per annum of the principal amount of the Debentures.
·
Conversion. Each Debenture is convertible at the option of the holder at any time after July 31, 2007 up to July 31, 2009, into shares of our common stock at a fixed conversion price of $0.82 per share.

On July 31, 2007, the Company also entered into a registration rights agreement with the Subscriber pursuant to which the Company agreed to include the Debenture, the Warrants, and the shares of common stock underlying the Debenture and Warrants in a pre-effective amendment to a registration statement that the Company have on file with the SEC. The Company intends to have the registration statement cover the resale of the Debenture, the Warrants, and the shares of common stock underlying the Debenture and Warrants.
F-19
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
At July 31, 2007 and January 1, 2008, the dates of issuance, the Company determined the fair value of the Debenture to be $2,000,000 and $1,000,000, respectively. The values of the warrants and the beneficial conversion feature as at December 31, 2007 and 2008 determined under the Black-Scholes valuation method were immaterial. Accordingly, the interest discount on the warrants and beneficial conversion feature were recorded, and are being amortized by the straight-line method over 5 years and 2 years, respectively.

Because of the fact that the Fixed Rate Convertible Debenture contain three separate securities and yet merged into one package, the Debenture security must identify its constituents and establish the individual value as determined by the Issuer as follows: -

(1 )
Convertible Debenture (after two rounds)
$ 3,428,571
(2 )
Discount
$ 428,571
(3 )
Warrant
$ -
(4 )
Beneficial Conversion Feature
$ -

The above item (2) is to be amortized to interest expense over the term of the Debenture by the effective interest method.

The Convertible Debentures Payable, net consisted of the following: -

Continuing Operation
12/31/2010
12/31/2009
Convertible Debenture - Principal and interest
Balance as at beginning of period
$ 3,428,751 $ 3,428,751
Addition
- -
Redemption
(562,428 ) (562,428 )
Interest charged for the current year
- -
Repayment of interest in current year
- -
Restructure cost
- -
Balance as at end of year
$ 2,866,323 $ 2,866,323
Less: Interest discount – Beneficial conversion feature
Balance as at beginning of year
$ - $ -
Addition
- -
Amortization
- -
Balance as at end of year
- -
Less: Interest Discount – Warrant
Balance as at beginning of year
- -
Addition
- -
Amortization
- -
Balance as at end of year
- -
Convertible Debenture, net
$ 2,866,323 $ 2,866,323
F-20
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
The Convertible Debenture was classified as current and non-current as follows:

Continuing Operation
12/31/2010
12/31/2009
Current portion
$ 2,866,323 $ 2,866,323
Non - current Portion
- -
$ 2,866,323 $ 2,866,323
On November 3, 2008, due to market conditions, the Company re-negotiated the terms of the Debentures and Warrants, and entered into a modification agreement (the “Amendment Agreement”) with the Holders. Pursuant to the Amendment Agreement, the Company agreed to completely remove the monthly interest payment of the Debentures and Increase the annual interest rate to 18%. Therefore, as described in the Schedule A of the Amendment Agreement, the Company will pay an aggregate of $2,151,110.85 and $1,485,714.10 to the Holders that are due on July 31, 2009 and February 21, 2010, respectively.  The Company acknowledged that the conversion price of the Debentures on the conversion date shall be equal to the lesser of (a) $0.015 (subject to adjustment), and (b) 80% of the lowest closing bid price during the 20 Trading Days immediately prior to the applicable conversion date (subject to adjustment).
The Amendment Agreement further modified the terms of the transaction by reducing the exercise price of the Warrants to $0.015 (subject to further adjustment), and therefore the number of shares underlying Warrants issued to the Holders will be increased to an aggregate of 156,097,534 shares as described in Schedule B of the Amendment Agreement.
The Company further amended the Articles of Incorporation to increase the number of authorized shares of common stock to 1,000,000,000.

On December 29, 2009, the Company entered into a Settlement Agreement with the Holders. Pursuant to the Settlement Agreement, the Company would make a total payment of $1,300,000 to the Holders no later than January 21, 2010. The Convertible Debentures would be deemed satisfied and all outstanding Warrants held by the Holders would be cancelled. In addition, the Holders agreed to cancel all of the Company shares held by them at such time as the payment has been made. However, as of September 30, 2010, the Company has not paid the sum of $1,300,000 to the Holders.
F-21
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

In May 2010, the Holders commenced an action against the Company in the Supreme Court of the State of New York in order to recover the outstanding amount of $1,300,000 under the Settlement Agreement.  The outcome and estimated loss from this lawsuit cannot be determined at this time.

On April 29, 2011, a judgment in the amount of $1,415,306.16 in favor of the Holders and against the Company was entered on August 5, 2011 in the Supreme Court of the State of New York.

On November 23, 2011, the Company and the Holders entered into a Settlement and Amendment Agreement.  As partial consideration for the agreements of the Holders, upon execution of the Agreement, the Company shall pay the Holders, in the aggregate, the sum of $50,000.   Within 20 business days of the execution of the Agreement, the Company shall pay the Holders, in the aggregate, the additional sum of $105,000, including $5,000 for the Holder’s legal fees and expenses as described in Section 10(d) herein. Wire instructions and respective pro-rata amounts shall be provided by the Holders in writing.  Promptly following the payment of an aggregate of $155,000 by the Company, the Holders will surrender their respective Warrants and Restricted Shares to the Company’s counsel for cancellation.  Following the payment of an aggregate of $155,000 by the Company, the Holders shall promptly file a satisfaction of judgment with the Supreme Court of the State of New York.

The amendments to the original debenture agreement are as follows:
(a)
The date included in the definition of “Maturity Date” in the second paragraph of the Debentures is hereby amended to read: November 23, 2013.
(b)
Section 4(b) of the Debentures is hereby amended to read as follows:
“Conversion Price.”  The conversion price in effect on any Conversion Date shall be equal to the lesser of (i) $.10 (the “ Set Price ”) and (ii) 90% of the average of the VWAPs for the 5 Trading Days immediately prior to the applicable Conversion Date (such lower price, as subject to adjustment herein, the “ Conversion Price ”).
(c)
For purposes of Sections 5(a), 5(b), 5(c) and 5(d) of the Debentures, the term “Conversion Price” shall be deemed to be the “Set Price”.
(d)
Reduction in Principal Amount of Debentures .  Subject to the terms and conditions hereunder, the Holders and the Company hereby agree that the principal amount outstanding under the Debentures shall be reduced to, in the aggregate, $1,300,000.  The individual amounts of each Holder’s Debenture, as reduced pursuant to this Section, shall be as set forth on Schedule A hereto.
F-22
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

(e)
Daily Trading Volume of the Conversion Shares .  On any given Trading Day, the Holder shall not sell in open market transactions more than a number of Conversion Shares equal to the greater of (i) 20% of the trading volume on that day, or (ii) 20% of the daily average trading volume over the prior 5 trading days, however, provided that, in either case, the minimum daily trading volume shall be no less than 500,000 shares, subject to adjustment for reverse and forward stock splits and the like.

(f)
Mandatory Conversion . The Company shall have the right to force the Holders to convert the Debenture into Common Stock at such time that the VWAP of the Company’s Common Stock is no less than $1.00 per share (subject to adjustment for reverse and forward stock splits and the like) for a period of ten (10) consecutive trading days (the “ Mandatory Conversion ”); provided, however, during such 10 consecutive trading day period, the Equity Conditions (as defined in the original Debentures (prior to the Amended and Restated Debentures) have been met by the Company  Holders may deliver to the Company at its executive office, or to the Company’s transfer agent, as applicable, the Amended and Restated Debenture (as defined in Section 9(c)) so converted. As promptly as practicable thereafter, the Company shall issue, or shall cause its transfer agent to issue and deliver to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled.

In additional to the amendment to the Debenture, the Company also agrees to become current with all obligations under the Exchange Act, and shall, at all times thereafter, remain current in accordance with the rules and regulations of the Commission and its obligations under the Exchange Act.   On or before the earlier of (i) December 15, 2011 or (ii) the 30 th calendar day following the date the Company becomes current in its filing obligations under the Exchange Act, the Company shall hire an investor relations firm, specializing in small-cap and micro-cap public companies, with a term of engagement of not less than 12 months.  On or before January 31, 2012 (subject to SEC or any other regulatory approval), the Company and Newco shall have consummated a merger transaction (the “Merger”) whereby the business of Newco is acquired by the Company.  In addition, as a part of the Merger, Newco and its direct and indirect subsidiaries, if any, shall deliver each holder a Guarantee, in the form of the Subsidiary Guarantee attached to the Purchaser Agreement, and shall comply with all terms and conditions of the Security Agreement, including, without limitation, the granting of a first priority lien in their respective assets to the Holders.
Upon compliance with the terms, conditions, and covenants in the Settlement and Amendment Agreement, the Holders shall promptly file a satisfaction of judgment with the Supreme Court of the State of New York.  Such filing is expressly conditioned upon the Company’s performance of such terms, conditions, and covenants.  There shall be no settlement of the Litigation until such time as the Company complies with all of the terms, conditions, and covenants of this Agreement.  The Holders reserve the right to take any and all actions to enforce the Judgment in the event that the Company does not comply with such terms, conditions, and covenants.
F-23
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

11.  COMMON STOCK CAPITAL

The Company is authorized by its Memorandum of Association (i.e. equivalent to Articles of Incorporation) to issue a total of 1,000,000,000 shares at a par value of US$0.01 of which 149,475,127 shares have been issued and outstanding as of December 31, 2010 and December 31, 2009, respectively.
The presentation of recapitalization as of December 31, 2010 is depicted in the following table:

Name of Shareholders
Number of Shares
Common Stock Capital
Additional Paid-in Capital
% of Equity Holdings
Shell: Avalon Development of Enterprises Inc. prior to reverse-merger
13,072,500 130,725 - 8.75 %
Shareholders of Shell in exchange of all of GTHL shares upon reverse-merger
39,817,500 398,175 - 26.64 %
Zenith Capital Management LLC
200,000 2,000 498,000 0.13 %
Li Dongming
80,000 800 61,600 0.05 %
Less : Cost of Issue
- - (151,384 ) -
Beijing Lihe
1,500,000 15,000 285,000 1.00 %
Guangzhou Renwoxing
9,727,769 97,278 194,555 6.51 %
Private placement investors
68,027,358 680,273 511,628 45.51 %
Management / Insider
17,050,000 170,500 10,000 11.41 %
149,475,127 1,494,751 1,409,399 100.00 %

12. DISCONTINUED OPERATIONS

In order to improve its cash flows from operations and working capital, the Company decided to redeploy its capital to meet requirements of its business plan. On December 31, 2010, the Company classified its subsidiaries, Zhengzhou Global Telecom Equipment Ltd. (“Zhengzhou Global”), Guangzhou Global Telecommunication Co., Ltd.(Wuhan Branch), Guangzhou Global Telecommunication Co., Ltd.(Zhengzhou Branch), Guangzhou Global Telecommunication Co., Ltd.(Beijing Branch), together as discontinued operation entities.  Accordingly, these entities’ operations have been classified as discontinued operations in the consolidated statements of income and cash flows and the assets and associated liabilities have been classified as held for sale in the consolidated balance sheets. The Company expected to sell these entities before 2011. Proceeds from the sales will be used for working capital for the Company and potentially purchasing of equipment.
F-24
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009
In accordance with SFAS No. 144 (ASC 360-10), “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS 144”), the operation results of discontinued entities have been excluded from continuing operations and reported as discontinued operations for the current and prior periods. On December 31, 2010, the Company assessed its long-lived assets in discontinued operation entities based on the best estimation per the revenue guidance and determined that no write-down is necessary because undiscounted cash flow is more than the carrying values of the assets.

The following table summarizes the amounts included in income/(loss) from discontinued operations for the year ended December 31, 2010 and 2009 presented:

Discontinued Operations
12/31/2010
12/31/2009
For the year ended
Sales
$ 311,144 $ 2,809,879
Cost of sales
283,077 2,871,082
Gross profit (loss)
28,067 (61,203 )
Operating expenses
335,076 141,521
Other Income (Expenses)
567,972 (10,491 )
Earnings before Taxes
(874,981 ) (213,215 )
Taxes
- (100 )
Net loss
$ ( 874,981 ) $ (213,315 )

The following table summarizes the amounts included in financial position from discontinued operations for all periods presented:

Financial Position
12/31/2010
12/31/2009
At
Current Assets
$ - $ -
Non Current Assets
- -
Total Assets
- -
Current Liabilities
39,074 39,074
Total Long Term Liabilities
- -
Total Liabilities
39,074 39,074
Net Assets
(39,074 ) (39,074 )
Total Liabilities & Net Assets
$ - $ -

F-25
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2010 and 2009

13. BONUS EXPENSE

Included in general and administrative expenses are $2,320,147 of bonus expenses paid to employees for the compensation of their contribution to the Company for the year ended December 31, 2010.
14. GOING CONCERN UNCERTAINTIES

These consolidated financial statements have been prepared assuming that the 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 December 31, 2010, the Company has an accumulated deficit of $6,138,894 due to the fact that the Company continued to incur losses over the past several years, and has difficulty to pay the PRC government Value Added Tax and past due Debenture Holders Settlement.

As a result, these consolidation 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.
F-26
TABLE OF CONTENTS