CLUS 10-Q Quarterly Report March 31, 2011 | Alphaminr
China Teletech Holding Inc
ALPHAMINR

CLUS 10-Q Quarter ended March 31, 2011

Balance Sheet
Cash Flow
Income Statement
10-Q 1 f10q0311_guangzhou.htm QUARTERLY REPORT f10q0311_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 March 31, 2011
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number: 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)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  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 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 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
As of March 31, 2011, there were 149,475,127 shares outstanding of the registrant’s common stock.

PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements.









Guangzhou Global Telecom, Inc.

Unaudited Consolidated Financial Statements

March 31, 2011 and December 31, 2010

(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 March 31, 2011 and December 31, 2010, and the related consolidated statements of income, stockholders’ equity and cash flows for the three-month periods ended March 31, 2011 and December 31, 2010.  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.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 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 Samuel H. Wong & Co., LLP
December 16, 2011 Certified Public Accountants
1
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of March 31, 2011 and December 31, 2010
(Stated in US Dollars)

ASSETS
3/31/2011
12/31/2010
Note
Current Assets
Cash and Cash Equivalents
$ 385,406 $ 159,930
Short-term Investment
228,307 226,867
Other Receivables
4 213,650 212,170
Due from shareholders
5 776,358 453,734
Inventories
802,912 1,092,029
Total Current Assets
2,406,633 2,144,730
Non-Current Assets
Property, plant & equipment, net
6 10,526 17,594
Other non-current assets
64,522 63,000
Total Non-Current Assets
75,048 80,594
TOTAL ASSETS
$ 2,481,681 $ 2,225,324
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Taxes payable
$ 847,375 $ 807,864
VAT payable
7 1,182,902 1,147,037
Due to shareholders
5 177,102 176,518
Accrued liabilities and other payables
92,475 90,894
Convertible debenture - current portion
9 2,866,323 2,866,323
Total Current Liabilities
5,166,177 5,088,636
TOTAL LIABILITIES
$ 5,166,177 $ 5,088,636
See Notes to Consolidated Financial Statements and Accountants’ Report
2

Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of March 31, 2011 and December 31, 2010
(Stated in US Dollars)
3/31/2011
12/31/2011
STOCKHOLDERS' EQUITY
Common stock US$0.01 par value; 1,000,000,000 authorized, 149,475,127 issued and outstanding as of March 31, 2011 and December 31, 2010, respectively
10 $ 1,494,751 $ 1,494,751
Additional Paid in capital
1,409,399 1,409,399
Other Comprehensive Income
14,822 (5,795 )
Retained Earnings
(5,948,880 ) (6,083,150 )
Minority Interest
345,412 321,483
TOTAL STOCKHOLDERS' EQUITY
$ (2,684,496 ) $ (2,863,312 )
TOTAL LIABILITIES AND STOCKHOLDERS' EUITY
$ 2,481,681 $ 2,225,324
See Notes to Consolidated Financial Statements and Accountants’ Report
3

Guangzhou Global Telecom, Inc
Consolidated Statements of Income
For the three-month periods ended March 31, 2011 and 2010
(Stated in US Dollars)
Note
3/31/2011
3/31/2010
Sales
$ 9,219,946 $ 9,421,121
Cost of sales
8,935,698 9,123,562
Gross profit
284,248 297,559
Operating expenses
Selling expenses
- -
Administrative and general expenses
88,925 1,286,144
Total operating expense
88,925 1,286,144
Gain (Loss) from Operations
195,323 (988,585 )
Other income
35,889
Interest income
5 3
Other expenses
(3,346 ) (310,043 )
Interest expense
- (2 )
Gain (Loss) before taxation on Continuing Operations
191,982 (1,262,738 )
Income tax
(33,783 ) (591 )
Gain (Loss) from Continuing Operations
158,199 (1,263,329 )
Discontinued Operation Income (Loss), net of tax
- (207,191 )
Net Income (Loss)
158,199 (1,470,520 )
Net income attributable to non-controlling interest
(23,929 ) 4,365
Net Income (Loss) Attributable to the Company
$ 134,270 $ (1,466,155 )
Earnings Per Share
Basic-Net Income (Loss)
$ 0.00 $ (0.01 )
-Income (Loss) from Continuing Operations
0.00 (0.01 )
-Income (Loss) from non-controlling interest
(0.00 ) 0.00
-Income (Loss) from Discontinued Operations
0.00 (0.00 )
Diluted- Net Income (Loss)
0.00 (0.01 )
-Income (Loss) from Continuing Operations
0.00 (0.01 )
-Income (Loss) from Non-controlling interest
(0.00 ) 0.00
-Income (Loss) from Discontinued Operations
0.00 $ (0.00 )
Weighted Average Shares Outstanding
-Basic
149,475,127 149,475,127
-Diluted
149,475,127 149,475,127
See Notes to Consolidated Financial Statements and Accountants’ Report
4
Guangzhou Global Telecom, Inc
Consolidated Statements of Changes in Stockholders’ Equity
For the three-month period ended March 31, 2011 and the year ended December 31, 2010
(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, 2010
149,475,127 $ 1,494,751 $ 1,409,399 $ 38,758 $ (3,816,247 ) $ 221,197 $ (652,142 )
Net Income/(Loss)
- - - - (2,266,903 ) - $ (2,266,903 )
Reclassified to profit or loss on disposal of subsidiaries
- - - (56,044 ) - 67,491 11,447
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 $ (5,795 ) $ (6,083,150 ) $ 321,483 $ (2,863,312 )
Balance, January 1, 2011
149,475,127 $ 1,494,751 $ 1,409,399 $ (5,795 ) $ (6,083,150 ) $ 321,483 $ (2,863,312 )
Net Income/(Loss)
- - - - 134,270 - 134,270
Non-controlling Interest
- - - - - 23,929 23,929
Foreign Currency Translation
- - - 20,617 - - 20,617
Balance at March  31, 2011
149,475,127 $ 1,494,751 $ 1,409,399 $ 14,822 $ (5,948,880 ) $ 345,412 $ (2,684,496 )
See Notes to Consolidated Financial Statements and Accountants’ Report
5
Guangzhou Global Telecom, Inc.
Consolidated Statements of Cash Flows
For the three-month periods ended March 31, 2011 and 2010
(Stated in US Dollars)

Cash flow from operating activities
3/31/2011
3/31/2010
Net (Loss)/income
$ 134,270 $ (1,470,520 )
Discontinued Operation Loss, net of tax
- -
Minority interest
23,929 (4,365 )
Depreciation
3,775 2,893
Loss/(Gain) on disposal of property, plant and equipment
3,294 311,529
Decrease/(increase) in other receivables
(1,480 ) 897,586
Decrease/(increase) in amount due from a related party
(322,624 ) 18,377
Decrease/(increase) in purchase deposit
- 861,488
Decrease/(increase) in inventories
289,116 293,627
Increase/(decrease) in tax payables
5,897 121
Increase/(decrease) in accrued liabilities and other payables
2,165 (8,328 )
Increase/(decrease) in VAT payable
35,866 225
Increase/(decrease) in income tax payable
33,613 (8,623 )
Cash Provided by operating activities – continuing operations
207,821 894,010
Net cash provided by/(used in) operating activities
207,821 894,010
Cash flows from investing activities
Sale of Equipment
- 659
Purchase for short-term investment
(1,440 ) -
Payments for deposits
(1,522 ) -
Cash Used in investing activities – continuing operations
(2,962 ) 659
Net cash provided by/(used in) investing activities
$ (2,962 ) $ 659
See Notes to Consolidated Financial Statements and Accountants’ Report
6
Guangzhou Global Telecom, Inc.
Consolidated Statements of Cash Flows
For the three-month periods ended March 31, 2011 and 2010
(Stated in US Dollars)
Cash flows from financing activities
Issuance of Common Stock
$ - $ -
Proceeds of convertible debentures
- -
Cash provided by financing activities – continuing operations
- -
Cash provided by financing activities – discontinued operations
- -
Net cash provided by financing activities
- -
Net Increase/(Decrease) in Cash & Cash Equivalents for the Year – continuing operations
204,859 894,669
Net decrease in cash and cash equivalents  for the Year
204,859 894,669
Effect of Currency Translation – continuing operations
20,617 38,038
20,617 38,038
Cash & Cash Equivalents at Beginning of Year - continuing operations
159,930 377,591
159,930 377,591
Cash & Cash Equivalents at End of Year - continuing operations
385,406 1,310,298
Cash & Cash Equivalents at End of Year
$ 385,406 $ 1,310,298
See Notes to Consolidated Financial Statements and Accountants’ Report
7
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010
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.

Pursuant to a Stock Purchase Agreement dated July 29, 2008, the Company acquired 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$291,833.

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.

(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.
8
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

The company owned the following subsidiaries since the reserve-merger and soon thereafter. As of March 31, 2011, 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
Guangzhou Global Telecommunication Co., Ltd.
PRC
100
RMB 3,030,000
Guangzhou Renwoxing Telecom Co., Ltd.
PRC
51
RMB 3,010,000
(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.

(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.

9

Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

(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
(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.
10
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

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.

(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.
11
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

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
3/31/2011
12/31/2010
3/31/2010
Year end RMB : US$ exchange rate
6.5701 6.6118 6.8361
Average year RMB : US$ exchange rate
6.5894 6.7788 6.8360
Year end HKD : US$ exchange rate
7.7887 7.7832 7.7647
Average year HKD : US$ exchange rate
7.7879 7.7695 7.7639

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.

(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, People’s Republic of China (PRC), and British Virgin Islands (BVI) 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, the taxation of these entities are summarized below:

·
GGT and GRT are located in the PRC, and GTHL is located in the British Virgin Islands; all of these entities are subject to the relevant tax laws and regulations of the PRC and British Virgin Islands in which the related entity domiciled.  The maximum tax rates of the subsidiaries pursuant to the countries in which they domicile are: -
12
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

Subsidiary
Country of Domicile
Income Tax Rate
GGT and GRT
PRC
25.0%
GTHL
British Virgin Islands
0.00%

·
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 three months ended March 31, 2011 and 2010.

(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.
13
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

(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.

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.
14
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

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.
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.
15
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

4.
OTHER RECEIVABLES

Other receivables as of March 31, 2011 and December 31, 2010 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
3/31/2011
Type of Account
Trade financing to business associates
$ 213,650
Allowance for bad debt
-
Other receivable, net
$ 213,650

As of
12/31/2010
Type of Account
Trade financing to business associates
$ 212,170
Allowance for bad debt
-
Other receivable, net
$ 212,170
5.
DUE FROM/TO SHAREHOLDERS

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

As of
3/31/2011
Due from shareholders
$ 776,358
Due to shareholders
(177,102 )
Net due from/(due to)
$ 599,256

As of
12/31/2010
Due from shareholders
$ 453,734
Due to shareholders
(176,518 )
Net due from/(due to)
$ 277,2164
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.

16
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

6.
PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following as of March 31, 2011 and December 31, 2010:

As of
3/31/2011
At cost
Equipment
$
14,239
Furniture & Fixtures
39,762
Motor Vehicles
-
Building
-
Total
$
54,001
Less: Accumulated depreciation
Equipment
$
(11,423)
Furniture & Fixtures
(32,051)
Motor Vehicles
-
Building
-
$
(43,475)
$
10,526

As of
12/31/2010
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

The depreciation expenses were $3,775 and $2,893 for the three months ended March 31, 2011 and 2010, respectively.

17
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010


7.    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 March 31, 2011.  Thus, the VAT payable as of March 31, 2011 included the past due VAT possibly to be waived.
8.    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 three months ended March 31, 2011 and 2010 amounted to $364 and $9,624, 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
$ 4,129
9.    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.
18
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

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.


19
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

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

Continuing Operation
3/31/2011
12/31/2010
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
The Convertible Debenture was classified as current and non-current as follows:

Continuing Operation
3/31/2011
12/31/2010
Current portion
$ 2,866,323 $ 2,866,323
Non - current Portion
- -
$ 2,866,323 $ 2,866,323
20
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

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.

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.

21
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of March 31, 2011 and December 31, 2010
And for the three-month periods ended March 31, 2011 and 2010

10.  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 March 31, 2011 and December 31, 2010, respectively.
The presentation of recapitalization as of March 31, 2011 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 %
11. 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 March 31, 2011, the Company has an accumulated deficit of $5,948,880 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.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the results of operations and financial condition of the Company for the three months ended March 31, 2011 and 2010 shall be read in conjunction with its financial statements and notes. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results of the timing of events could differ materially from those projected in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K for the year ended December 31, 2010. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Company 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 quarterly (unaudited) 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 March 31, 2011, the Company has an accumulated deficit of $5,948,880 due to the fact that the Company incurred 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.
Results of Operations

Results of operations for the period ended March 31, 2011 as compared to the period ended March 31, 2010

The following table presents the statement of operations for the three months ended March 31, 2011 as compared to the comparable period of the three months ended March 31, 2010. The discussion following the table is based on these results.

3/31/2011
3/31/2010
Sales
$
9,219,946
$
9,421,121
Cost of sales
8,935,698
9,123,562
Gross profit
284,248
297,559
Operating expense
Selling expenses
-
-
Administrative and general expenses
88,925
1,286,144
Total operating expense
88,925
1,286,144
Operating loss
195,323
(988,585
)
Other income/(expense)
Other income
-
35,889
Interest income
5
3
Other expenses
(3,346
)
(310,043
)
Interest expenses
-
(2
)
Total other income/(expense)
(3,341
)
(274,153)
Gain/(loss) from continued operation
191,982
(1,262,738
)
Income tax
(33,783)
(591
)
Loss from discontinued operation, net of tax
-
(207,191)
Net income/(loss)
158,199
(1,470,520
)
Net income/(loss) attributable to:
Common stockholders
$
134,270
$
(1,466,155
)
Non-controlling interest
23,929
(4,365)
Earnings Per Share
Basic
$
0.00
$
(0.01
)
Diluted
$
0.00
$
(0.01
)
Weighted Average Shares Outstanding
Basic
149,475,127
149,475,127
Diluted
149,475,127
149,475,127
23
Total Revenue
During the three months ended March 31, 2011, we generated $9,219,946 in revenues as compared to $9,421,121 during the same period in 2010, representing a decrease of $201,175 or approximately 2.2%.  The revenues were roughly the same.

Gross Profit
The gross profit decreased to $284,248 during the three months ended March 31, 2011 from $297,559 in the same period of 2010, representing $13,311 or 4.7% decrease.   The gross margin kept at roughly same level, as it decreased slightly from 3.2% to 3.1%.  The slight decrease in gross profit was mainly due to the slight decrease in revenues.

Expenses
Our general and administrative expenses (“G&A expenses”) were $88,925 during the three months ended March 31, 2011 as compared to $1,286,144 during the same period of 2010, representing a decrease of $1,197,219 or approximately 13 times.  The decrease in G&A expenses was mainly due to the fact that there were special bonus to senior management and the certain lay-off compensation for discontinued operating entities paid in 2010.

Other Expenses
Other expenses during the three months ended March 31, 2010 mainly represented the loss on disposal of property.

Discontinued operations

Loss of discontinued operations, net of tax, in 2010 represented the operating results for the Singapore, Macau and Hong Kong subsidiaries and a Guangzhou subsidiary.  Our Singapore and Hong Kong subsidiaries were not able to start its operation since its inception, so we closed them.  Our Macau and one of our Guangzhou subsidiaries were not able to continue to generate profits, so we closed them to retain our capital.

Net results

Net profit recorded $158,199 during the three months ended March 31, 2011, as compared to a net loss of $1,470,520 during the three months ended March 31, 2010.  The net result turned to profits from loss was mainly due to the decrease of general and administrative expenses, other expenses and loss of discontinued operations, net of tax as explained above.

Liquidity and Capital Resources
Cash provided by operating activities were $207,821 during the three months ended March 31, 2011 as compared to cash provided by operating activities of 894,010 during the three months ended March 31, 2010.   Cash provided by operating activities during the first three months ended March 31, 2011 was mainly resulted from net income $134,270, decrease in current assets (other receivables and inventories) of $287,636 in total, changes in other non-cash expenses of $108,539 in total, by netting off increase in amount due from a related party $322,624.  Cash provided by operating activities during the three months ended March 31, 2010 was mainly resulted from decrease in current assets (other receivables, purchase deposits, inventories) of $2,052,701 in total, changes in other non-cash expenses of $311,829, by netting off net loss of $1,470,520.  The decrease of current assets was mainly due to that the Company adopted certain measures to take back the cash deposits or other non-workable pre-payments to improve our cashflow pressure in 2010 and 2011.
24

The cash flows used in investing activities in the three months ended March 31, 2011 were $2,962 and they were used to purchase short-term investment and payments for deposits.  The cash flows provided by investing activities for the three months ended March 31, 2010 were $659 and they were cash proceeds of disposal of property and equipment.
Cash flows provided by or used in financing activities were zero during the three months ended 2011 and 2010.
Critical Accounting Policies
Our significant accounting policies are summarized in Notes 2 of our financial statements included in this quarter report on Form 10-Q for the three months ended March 31, 2011.  Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”).  GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.  These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition.  We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results may differ materially from these estimates under different assumptions or conditions.  We continue to monitor significant estimates made during the preparation of our financial statements.

Recent Accounting Pronouncements
Please refer to Note (t) to Consolidated Financial Statements for the three-month periods ended March 31, 2011 and 2010.

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 Risk.

Not applicable.
Item 4. 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.
Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
25
PART II – OTHER INFORMATION

Item 1. 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 6. 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.
26
SIGNATURES
Pursuant to the requirements 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 30, 2011
By:
/s/ Yankuan Li
Yankuan Li
President, Chief Executive Officer,
Chief Financial Officer and
Chairman of the Board of Directors

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TABLE OF CONTENTS