CLUS 10-Q Quarterly Report Sept. 30, 2010 | Alphaminr
China Teletech Holding Inc
ALPHAMINR

CLUS 10-Q Quarter ended Sept. 30, 2010

Balance Sheet
Cash Flow
Income Statement
10-Q 1 f10q0910_guangzhou.htm QUARTERLY REPORT f10q0910_guangzhou.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
_____________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.
GUANGZHOU GLOBAL TELECOM, INC.
(Exact name of registrant as specified in the Charter)
Florida
333-130937
59-3565377
(State or other jurisdiction of
incorporation or organization)
(Commission File No.)
(IRS Employee Identification No.)

c/o CORPORATION SERVICE COMPANY
1201 HAYS STREET
TALLAHASSEE FL 32301-2525 US
(Address of Principal Executive Offices)

(850) 521-1000‎
(Issuer Telephone number)
Indicate by check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.   Yes x No o

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
(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 Exchange Act.    Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 15, 2010: 149,475,127 shares of common stock.
GUANGZHOU GLOBAL TELECOM, INC.

FORM 10-Q

September 30, 2010
TABLE OF CONTENTS

PART I— FINANCIAL INFORMATION
Item 1.
Financial Statements
1
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 4T.
Controls and Procedures
26
PART II— OTHER INFORMATION
Item 1.
Legal Proceedings
27
Item 1A.
Risk Factors
27
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
27
Item 3.
Defaults Upon Senior Securities
27
Item 4.
(Removed and Reserved)
27
Item 5.
Other Information
27
Item 6.
Exhibits
27
27
SIGNATURES
28
PART 1 - FINANCIAL INFORMATION

Item 1.    Financial Statements

Guangzhou Global Telecom, Inc.

Unaudited Consolidated Financial Statements

September 30, 2010 and December 31, 2009

(Stated in US Dollars)

Guangzhou Global Telecom, Inc.

Contents Pages
Report of Independent Registered Public Accounting Firm
1
Consolidated Balance Sheets
2 – 3
Consolidated Statements of Income
4
Consolidated Statements of Changes in Stockholders’ Equity
5
Consolidated Statements of Cash Flows
6 – 7
Notes to Consolidated Financial Statements
8 – 22

Board of Directors and Stockholders
Guangzhou Global Telecom, Inc.

Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying consolidated balance sheets of Guangzhou Global Telecom, Inc. as of September 30, 2010 and December 31, 2009, and the related consolidated statements of income, stockholders’ equity and cash flows for the three and nine-month periods ended September 30, 2010 and 2009.  These interim consolidated financial statements are the responsibility of the Company's management.

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

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


San Mateo, California Samuel H. Wong & Co., LLP
October 18, 2010 Certified Public Accountants
1
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of September 30, 2010 and December 31, 2009
(Stated in US Dollars)
ASSETS
09/30/2010
12/31/2009
Note
Current Assets
Cash and Cash Equivalents
$ 125,384 $ 377,591
Other Receivable
4 943,551 1,418,759
Purchase Deposits
6 - 1,525,935
Inventory
1,228,933 799,480
Total Current Assets
2,297,868 4,121,765
Non-Current Assets
Property, plant & equipment, net
7 70,337 520,149
Goodwill
63,000 63,000
Total Non-Current Assets
133,337 583,149
TOTAL ASSETS
$ 2,431,205 $ 4,704,914
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Taxes payable
$ 730,785 $ 684,043
VAT payable
8 1,429,004 1,399,932
Due to shareholders
5 110,725 59,490
Accrued liabilities and other payable
179,621 347,268
Convertible debenture - current portion
10 2,866,323 2,866,323
Total Current Liabilities
5,316,458 5,357,056
TOTAL LIABILITIES
$ 5,316,458 $ 5,357,056
See Notes to Consolidated Financial Statements and Accountants’ Report
2
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of September 30, 2010 and December 31, 2009
(Stated in US Dollars)
09/30/2010
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 September 30, 2010 and December 31, 2009, respectively
11 $ 1,494,751 $ 1,494,751
Additional Paid in capital
1,409,399 1,409,399
Other Comprehensive Income
64,773 38,758
Retained Earnings
(6,333,742 ) (3,816,247 )
Minority Interest
479,566 221,197
TOTAL STOCKHOLDERS' EQUITY
$ (2,885,253 ) $ (652,142 )
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 2,431,205 $ 4,704,914
See Notes to Consolidated Financial Statements and Accountants’ Report
3

Guangzhou Global Telecom, Inc
Consolidated Statements of Income
For the three and nine-month period ended September 30, 2010 and 2009
(Stated in US Dollars)
3 Months
9 Months
3 Months
9 Months
Ended
Ended
Ended
Ended
Revenues
Note
09/30/2010
09/30/2010
09/30/2009
09/30/2009
Sales
$ 9,182,620 $ 27,789,914 $ 6,395,457 $ 21,213,763
Cost of Sales
8,909,275 26,942,175 5,930,063 20,321,229
Gross Profit
273,345 847,739 465,394 892,534
Operating Expenses
Selling Expenses
- - 2,872 41,209
General and Administrative Expenses
13 107,301 2,868,269 194,490 1,204,136
Total Operating Expense
107,301 2,868,269 197,362 1,245,345
Operating Income/(Loss)
166,044 (2,020,530 ) 268,032 (352,811 )
Other Income & Expenses
Interest Income
2 7 2 22
Other Income
56,542 124,777 154 1,501
Interest Expenses
(51 ) (20,540 ) 24 (2 )
Other Expenses
(776 ) (310,935 ) (328,627 ) (329,104 )
Total other income/(expense)
55,717 (206,691 ) (328,447 ) (327,583 )
Income/(Loss) before taxation
221,761 (2,227,221 ) (60,415 ) (680,394 )
Income tax
(15,328 ) (43,872 ) (3,679 ) (14,843 )
Discontinued operation, net of tax
12 - (210,156 ) (24,944 ) (185,025 )
Net Income/(Loss) attributable to:
Parent
206,433 (2,481,249 ) (89,038 ) (880,262 )
Non-controlling interest
(7,626 ) (36,246 ) 9,090 (44,174 )
198,807 (2,517,495 ) $ (79,948 ) $ (924,436 )
Earnings Per Share
Basic
0.00 (0.02 ) $ (0.00 ) $ (0.01 )
Diluted
0.00 (0.02 ) $ (0.00 ) $ (0.01 )
Weighted Average Shares Outstanding
Basic
149,475,127 149,475,127 115,309,886 92,244,492
Diluted
149,475,127 149,475,127 115,309,886 92,244,492
Accumulated Comprehensive Income
Comprehensive Income
09/30/2010
09/30/2009
Total
Net Income(Loss)
$ (2,517,495 ) $ (924,436 ) $ (3,441,931 )
Foreign Currency Translation  Adjustment
26,015 481,081 507,096
$ (2,491,480 ) $ (443,355 ) $ (2,934,835 )
See Notes to Consolidated Financial Statements and Accountants’ Report
4
Guangzhou Global Telecom, Inc
Consolidated Statements of Changes in Stockholders’ Equity
For the nine-month period ended September 30, 2010 and the year ended December 31, 2009
(Stated in US Dollars)
Additional
Other
Total Number
Common
Paid in
Comprehensive
Retained
Minority
of Shares
Stock
Capital
Income
Earnings
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 Income/(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)
- - - - (2,517,495 ) - (2,517,495 )
Non-controlling Interest
- - - - - 258,369 258,369
Foreign Currency Translation
- - - 26,015 - - 26,015
Balance at September 30, 2010
149,475,127 $ 1,494,751 $ 1,409,399 $ 64,773 $ (6,333,742 ) $ 479,566 $ (2,885,253 )
See Notes to Consolidated Financial Statements and Accountants’ Report
5
Guangzhou Global Telecom, Inc
Consolidated Statements of Cash Flows
For the three- and nine-month periods ended September 30, 2010 and 2009
(Stated in US Dollars)
3 Months
9 Months
3 Months
9 Months
Ended
Ended
Ended
Ended
Cash Flow from Operating Activities
09/30/2010
09/30/2010
09/30/2009
09/30/2009
Cash Received from Customers
$ 8,247,882 $ 28,265,122 $ 7,696,508 $ 25,142,726
Cash Paid to Suppliers
(8,734,896 ) (25,870,046 ) (7,116,820 ) (23,234,918 )
Cash Paid for Selling and G&A expenses (113,309 ) (2,629,953 ) (328,466 ) (1,376,449 )
Cash Received from Other Income
58,759 (10,885 ) 196 1,587
Cash Paid to Director
(129,936 ) 51,235 - -
Cash Paid for Other Expense
7,224 (338,935 ) 477 -
Payments for Deposits
- - (49,986 ) (49,986 )
Interest Received
2 7 2 22
Interest Paid
(51 ) (20,540 ) 15 (20 )
Minority Interest
78,390 222,123 25,274 (598,668 )
Tax Paid
34,644 31,942 (7,950 ) (443,319 )
Cash Sourced from/(Used in) Operating Activities (551,291 ) (299,930 ) 219,250 (559,025 )
Cash Flow from Investing Activities
Sale of Equipment
- 21,708 5,739 19,217
Sale of Intangible Assets
- - - 40,508
Cash Sourced from/(Used in) Investing Activities
21,708 5,739 59,725
Cash Flow from Financing Activities
Issuance of Common Stock
- - 212,136 586,053
Repayment of Notes
- - (154,736 ) (508,828 )
Cash Sourced from/(Used in) Financing Activities
- - 57,400 77,225
Net Increase/(Decrease) in Cash & Cash Equivalents
$ (551,291 ) $ (278,222 ) $ (282,389 ) $ (422,075 )
Effect of Currency Translation
34,784 26,015 (51,815 ) 481,081
Cash & Cash Equivalent at the Beginning of Period
641,891 377,591 1,456,566 1,628,134
Cash & Cash Equivalent at the End of Period
$ 125,384 $ 125,384 $ 1,687,140 $ 1,687,140

See Notes to Consolidated Financial Statements and Accountants’ Report
6
Guangzhou Global Telecom, Inc.
Reconciliation of Net Income to Cash Flow Used in Operating Activities
For the three and nine-month periods ended September 30, 2010 and 2009
(Stated in US Dollars)
3 Months
9 Months
3 Months
9 Months
Ended
Ended
Ended
Ended
09/30/2010
09/30/2010
09/30/2009
09/30/2009
Net income/(loss)
$ 198,807 $ (2,517,495 ) $ (79,948 ) $ (924,436 )
Adjustments to reconcile net income/(loss) to
net cash provided by cash activities
Minority interest
86,015 258,369 16,183 (554,495 )
Depreciation
1,457 8,427 11,765 43,392
Loss on disposal of property, plant and equipment
- 419,676 - -
Decrease/(Increase) in Other Receivable
(588,119 ) 475,208 354,617 408,688
Decrease/(Increase) in  Deposits
169,751 1,525,935 (49,986 ) (49,986 )
Decrease/(Increase) in Related Party Receivable
- - (14,625 ) (15,012 )
Decrease/(Increase) in Inventory
(349,379 ) (429,452 ) 47,541 583,691
Decrease/(Increase) in Advance to Suppliers
- - 95,443 189,511
Increase/(Decrease) in Tax Payable
26,461 59,529 (44,097 ) 345,944
Increase/(Decrease) in Accrued Liabilities and Other Payable
10,141 (167,647 ) (167,645 ) (214,035 )
Increase/(Decrease) in VAT Payable
23,310 29,072 2,105 4,022
Increase/(Decrease) in Due to Shareholders
(129,936 ) 51,235 44,698 -
Increase/(Decrease) in Income Tax Payable
201 (12,787 ) 3,199 (376,309 )
Total of All Adjustments
$ (750,098 ) $ 2,217,565 $ 299,198 $ 365,411
Net Cash Provided by (Used in)/Sourced from Operating Activities
$ (551,291 ) $ (299,930 ) $ (219,250 ) $ (559,025 )
See Notes to Consolidated Financial Statements and Accountants’ Report
7
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 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.
8
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 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 September 30, 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
Zhengzhou Global Telecom Equipment, Ltd.
PRC
100
RMB 500,000
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.
9
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 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

Property, plant and equipment 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
10
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 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 Expense

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

(m)
General & Administrative Expense
11

Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
General and administrative expenses include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office rental and utilities.

(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
09/30/10
12/31/09
09/30/09
Period end RMB : US$ exchange rate
6.6981 6.8372 6.8376
Average period RMB : US$ exchange rate
6.8164 6.8409 6.8411
Period end HKD : US$ exchange rate
7.7582 7.7551 7.7504
Average period HKD : US$ exchange rate
7.7717 7.7522 7.7521
Period end MOP : US$ exchange rate
8.1336 8.1439 8.1229
Average period MOP : US$ exchange rate
8.1588 8.1303 8.1215
Period end SGD : US$ exchange rate
1.3167 1.4054 1.4184
Average period SGD : US$ exchange rate
1.3841 1.4545 1.4393

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.
12
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 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, BLJ 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, BLJ 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 period ended September 30, 2010.
13

Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 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 ) .

14
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
Statement 166 is a revision to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FASB ASC 860 Transfers and Servicing ) , and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. Statement No. 166 (FASB ASC 860 Transfers and Servicing ) must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. This Statement must be applied to transfers occurring on or after the effective date.  The Company has adopted the new accounting standard.  There was no material impact on the financial statements presented herein .
Statement 167 is a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities (FASB ASC 810 Consolidation ) , and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. Statement No. 167 (FASB ASC 810 Consolidation ) shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  Earlier application is prohibited. The Company has adopted the new accounting standard. There was no material impact on the financial statements presented herein.
On June 30, 2009, FASB issued FASB Statement No. 168, Accounting Standards Codification™ ( FASB ASC 105 Generally Accepted Accounting Principles ) a replacement of FASB Statement No. 162 the Hierarchy of Generally Accepted Accounting Principles . On the effective date of this standard, FASB Accounting Standards Codification™ (ASC) became the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission (SEC). This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  If an accounting change results from the application of this guidance, an entity should disclose the nature and reason for the change in accounting principle in their financial statements.  This new standard flattens the GAAP hierarchy to two levels: one that is authoritative (in FASB ASC) and one that is non-authoritative (not in FASB ASC). Exceptions include all rules and interpretive releases of the SEC under the authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, and certain grandfathered guidance having an effective date before March 15, 1992. Statement No. 168 is the final standard that will be issued by FASB in that form.  There will no longer be, for example, accounting standards in the form of statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA Accounting Statements of Position.   The Company does not believe adoption of this standard will have any material on its consolidated financial position and results of operation.

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 RECEIVABLE

Other receivable at September 30, 2010 and December 31, 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.

Type of Account
09/30/2010
12/31/2009
Trade financing to business associates
$ 876,350 $ 1,484,325
Loans to third parties
441,916 -
Allowance for bad debt
(374,715 ) (65,566 )
Other receivable, net
$ 943,551 $ 1,418,759

5.
DUE TO SHAREHOLDERS

The following table presents the balances the Company owed to shareholders.

09/30/2010
12/31/2009
Due to shareholders
$ 110,725 $ (59,490 )
$ 110,725 $ (54,490 )

Amounts owing to the Company’s shareholders are non-interest-bearing and payable on demand.  During the nine-month period ended September 30, 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 $130,191.
15

Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009

6.
PURCHASE DEPOSITS

Purchase deposits consist of advances to suppliers for the purchase of inventories and prepayments for general operating costs as at September 30, 2010 and December 31, 2009.

Type of Account
9/30/2010
12/31/2009
Purchase deposits, gross
$ 1,698,571 $ 3,189,948
Allowance for uncollectible amounts
(1,698,571 ) (1,664,013 )
Purchase deposits, net
$ - $ 1,525,935

The Company has advanced $392,536, $798,052 and $507,983 to suppliers Tangxin Technology Co., Ltd., Guangda Commercial Co., Ltd. and Tianhe Tangxie Co., Ltd. respectively for purchase of operating inventories. However, Tianxin Technology Co. filed for bankruptcy, whereas Guangda Commercial Co. Ltd. and Tianhe Tangxie Co. Ltd. have been closed. The Company has fully provided for these uncollectible purchase deposits.


7.
PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following as of September 30, 2010 and December 31, 2009:

09/30/2010
Category of Asset
Cost
Accumulated Depreciation
Net
Equipment
$ 32,197 $ 20,584 $ 11,613
Furniture & Fixtures
122,624 77,823 44,801
Motor Vehicles
105,840 105,840 -
Building
21,793 7,870 13,923
Total
$ 282,454 $ 212,117 $ 70,337

12/31/2009
Category of Asset
Cost
Accumulated Depreciation
Net
Equipment
$ 36,557 $ 21,596 $ 14,961
Furniture & Fixtures
119,850 66,029 53,821
Motor Vehicles
103,687 103,661 26
Building
492,541 41,200 451,341
Total
$ 752,635 $ 232,486 $ 520,149
16

Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
The depreciation expenses were $8,427 and $43,392 for the nine months ended September 30, 2010 and 2009, respectively.


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 September 30, 2010.  Thus, the VAT payable as of September 30, 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 period ended September 30, 2010 and year ended December 31, 2009 amounted to $792 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.
17
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
·
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.

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: -

09/30/2010
12/31/2009
Convertible Debenture - Principal and interest
Balance as at beginning of period
$ 2,866,323 $ 3,428,751
Addition
- -
Redemption
- (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
18
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
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


The Convertible Debenture was classified as current and non-current as follows:
09/30/2010
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.
19
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
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.


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 September 30, 2010 and December 31, 2009, respectively.
The presentation of recapitalization as of September 30, 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 %

20
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
12. DISCONTINUED OPERATIONS

During the nine-month period ended September 30, 2010, the Company closed the operation of Zhengzhou Global Telecom Equipment Ltd. (“Zhengzhou Global”), Macau Global Telecom Co. Ltd. (“Macau Global”), and Huantong Telecom Singapore Co. PTE Ltd. (“Huantong Telecom:”).  Their operation results, net of tax effect, are reported in detail as follows:

Financial Position
At September 30, 2010
Zhengzhou
Macau
Huantong
Global
Global
Telecom
Total
Assets
Current assets
$ 515,558 $ 518,853 $ 36,689 $ 1,071,100
Non-current assets
- - 17,388 17,388
Total assets
515,558 518,853 54,077 1,088,488
Liabilities
Current liabilities
39,080 183,780 229,683 452,543
Non-current liabilities
- - - -
Total liabilities
39,080 183,780 229,683 452,543
Net Assets/(Liabilities)
476,478 335,073 (175,606 ) 635,945
Total Liabilities & Net Assets
$ 515,558 $ 518,853 $ 54,077 $ 1,088,488

21
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2010 and December 31, 2009
And for the three and nine months ended September 30, 2010 and 2009
Results of Operations
For the nine-month period
September 30, 2010
Zhengzhou Global
Macau Global
Huantong Telecom
Total
Sales
$ - $ 311,369 $ - $ 311,369
Cost of sales
- 283,282 - 283,282
Gross profit (loss)
- 28,087 28,087
Selling expenses
- - - -
General & administrative expenses
- 145,097 93,146 238,243
Total operating expenses
- 145,097 93,146 238,243
Other income
- - - -
Other expense
- - - -
Interest expense
- - - -
Loss before tax
- (117,010 ) (93,146 ) (210,156 )
Income tax
- (2,965 ) - (2,965 )
Net loss
$ - $ (114,045 ) $ (93,146 ) $ (207,191 )


13. BONUS EXPENSE

Included in general and administrative expenses are $2,075,454 of bonus expenses paid to employees for the nine-month period ended September 30, 2010.

14. GOING CONCERN UNCERTAINTIES

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

As of September 30, 2010, the Company has an accumulated deficit of $6,333,742 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.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. 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 report.
BUSINESS OVERVIEW

We were incorporated as Avalon Development Enterprises, Inc. (“Avalon”) on March 29, 1999, under the laws of the State of Florida. From inception, we engaged in the acquisition of commercial property and expanded into building cleaning, maintenance services, and equipment leasing as supporting ancillary services and sources of revenue.  On January 10, 2007, Avalon, Global Telecom Holdings, Ltd., a British Virgin Islands Corporation (“GTHL”), and the shareholders of GTHL, entered into a Share Exchange Agreement. Pursuant to that Agreement, 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 common shares of GTHL common stock. Pursuant to this transaction, on March 27, 2007, GTHL became a wholly-owned subsidiary of Avalon, and the Company changed its name to Guangzhou Global Telecom Holdings, Inc. and succeeded to the business of GTHL.   Now we are a nationally integrated mobile phone handset and pre-paid calling card distributor and provider of mobile handset value-added services. Future products and services include the GTL Lineless Messaging Service and retail sales and customer service operations. We are an independent qualified corporation that serves as a principle distribution agent for China Telecom, China Unicom, and China Mobile. We also maintain and operate the largest prepaid mobile phone card sales and distribution center in Guangdong Province and maintain cooperative distribution relationships with VK, Panasonic, Motorola, LG, GE and Bird corporations, among others.
Results of Operation for the three months ended September 30, 2010 compared with three months ended September 30, 2009
Total Revenue
During the three months ended September 30, 2010, we earned $9,182,620 in revenues as compared to $6,395,457 during the same period in 2009, representing an increase of $2,787,163 or approximately 44%. The increase is mainly resulted from the decrease of the revenue of our subsidiaries, by effect of financial crisis during the three months ended September 30, 2009.  During the three months ended September 30, 2010, the Company adopted several measures to increase its sales.
Gross Profit
The gross profit decreased to $273,345 during the three months ended September 30, 2010 from $465,394 in the same period of 2009, representing $192,049 or 41% decrease. The gross margin decreased from 7.2% to 3.0%.  The decrease in both gross profit and gross margin is mainly due to the reason that the Company adopted certain measures to increase its sales including cutting off its selling price.  In addition, more extensive competition environment in this sector also resulted in the lower gross margin.  The Company has to take measures to keep its market share.
Expenses
23
Our selling, general and administrative expenses ("SG&A expenses") were $107,301 during the three months ended September 30, 2010 as compared to $197,362 during the same period of 2009, representing a decrease of $90,061 or approximately 46%. The decrease in SG&A expenses are generally resulted from following reasons: 1) we did not further incur any expenses for discontinued operations; 2) expense cut-down to fit for the current shrunk market.
Discontinued operations
Discontinued operations $24,944 during the 3 months ended September 30, 2009 represents our 3 branches in mainland China and Beijing Lihe.
Non-controlling interest
Non-controlling interest were $7,626 and ($9,090) during the three months ended September 30, 2010 and 2009 respectively, which resulted from the non-controlling interest generated from Renwoxing, our 51% owned subsidiary.
Net income/(loss)
Net income recorded $198,807 during the three months ended September 30, 2010, as compared to a net loss of $79,948 during the three months ended September 30, 2009.  The net income is mainly resulted from our measures to cut-down of our expenses.
Results of Operation for the nine months ended September 30, 2010 compared with nine months ended September 30, 2009
Total Revenue
During the nine months ended September 30, 2010, we earned $27,789,914 in revenues as compared to $21,213,763 during the same period in 2009, representing an increase of $6,576,151 or approximately 31%. The increase of sales is mainly resulted from the lower sales amount during the nine months ended September 30, 2009, which is mainly resulted from the effect of financial crisis on our business.
Gross Profit
The gross profit decreased to $849,739 during the nine months ended September 30, 2010 from $892,534 in the same period of 2009, representing $42,795 or 5% decrease. The gross margin also decreased from 4.2% to 3.1%.  The decrease in both gross profit and gross margin is mainly due to the reason that the Company decreased its selling price to increase its sales during the nine months ended September 30, 2010.  In addition, more extensive competition environment in this sector also resulted in the lower gross margin.
Expenses
Our selling, general and administrative expenses ("SG&A expenses") were $2,868,269 during the nine months ended September 30, 2010 as compared to $1,245,345 during the same period of 2009, representing a decrease of $1,622,924 or approximately 130%. The increase in SG&A expenses are generally resulted from the special bonus or compensation for laid-off employees.
Other income/expenses
24
Other expenses-net during the six months ended September 30, 2010 were $206,691, which is mainly consist of loss on disposal of fixed assets of $310,159.  Other expenses -net were $327,583 during the nine months ended September 30, 2009 which mainly consist of expenses of settling debt related to discontinued operations of $328,481.
Discontinued operations
During the nine months ended September 30, 2010, discontinued operations represent the operating results for our Singapore subsidiary, Zhengzhou Equipment subsidiary and Macau subsidiary.  Our Singapore subsidiary was not able to start its operation since its inception, so we decided to close it.  Different from Singapore subsidiary, our Zhenzhou Equipment subsidiary and Macau subsidiary generated profit for the Company in the past, even during the financial crisis period.  However, recently, these two subsidiaries were not able to continue to generate profit for the company.  Due to limited capital support, we decided to close these two entities.
During the same period of 2009, we decided to close 3 branches in mainland China and sell 50% equity interest to former Beijing Lihe’s owner to keep our profitability.  These 4 entities resulted $185,025 loss in total during the 9 months ended September 30, 2009.
Non-controlling interest
Non-controlling interest were $36,246 and $44,174 during the nine months ended September 30, 2010 and 2009 respectively, which resulted from the non-controlling interest generated from Renwoxing, our 51% owned subsidiary.
Net loss
Net loss recorded $2,517,495 during the nine months ended September 30, 2010, as compared to a net loss of $924,436 during the nine months ended September 30, 2008. The increase of net loss is mainly due to increase of SG&A expenses as explained above.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities were $299,930 during the nine months ended September 30, 2010 as compared to $559,025 for the nine months ended September 30, 2009.  Cash used in operating activities during the nine months ended September 30, 2010 was mainly resulted from net loss of $2,517,495, increase of inventory of $429,452 and decrease of other liabilities of $167,647, by netting off decrease in deposit of $1,525,935, decrease of other receivables of $419,676, non-controlling interest adjustment and loss on disposal of properties.  Cash used in operating activities during the nine months ended September 30, 2009 was mainly resulted from net loss of $924,436, change of minority interest of $554,495, decrease of liabilities of $590,344, by netting off decrease in inventory of $583,691 and decrease of receivables of $408,688.
Cash flows provided in investing activities were $21,708 for the nine months ended September 30, 2010 as compared to $59,725 for the nine months ended September 30, 2009. Cash provided by investing activities represent the cash proceeds from sale of property and equipment or other intangible assets.
Cash flows provided by financing activities were zero during nine months ended September 30, 2010 as compared to $77,225 during the nine months ended September 30, 2009 which was related to issuance of stock to redeem convertible debt.
25
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 3.    Quantitative and Qualitative Disclosures about Market Risks

Not applicable because we are a smaller reporting company.
Item 4T.  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”),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.

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the latest quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors

Not applicable because we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits.
31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GUANGZHOU GLOBAL TELECOM, INC.
Date: November 16, 2010
By:
/s/ Li YanKuan
Li, Yankuan
President, Chief Executive Officer and
Chairman of the Board of Directors
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TABLE OF CONTENTS