f10q0909_guangzhou.htm

10-Q 1 f10q0909_guangzhou.htm QUARTERLY REPORT f10q0909_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, 2009

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.)

Room 03/04, 16/F, Jinke Building,

No.17/19, Guangwei Road

Guangzhou, PRC 510180

(Address of Principal Executive Offices)

(86) 20-8317-2821

(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 September 30, 2009: 134,275,127 shares of common stock.

GUANGZHOU GLOBAL TELECOM, INC.

FORM 10-Q

September 30, 2009

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
		27
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.	Submission of Matters to a Vote of Security Holders	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, 2009 and December 31, 2008

(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 – 23

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, 2009 and December 31, 2008, and the related consolidated statements of income, stockholders’ equity and cash flows for the three and nine-month periods ended September 30, 2009 and 2008. These interim consolidated financial statements are the responsibility of the Company's management.

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

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

South San Francisco, California

October 30, 2009

Samuel H. Wong & Co., LLP

Certified Public Accountants

-1-

Guangzhou Global Telecom, Inc

Consolidated Balance Sheets

As of September 30, 2009 and December 31, 2008

(Stated in US Dollars)

ASSETS	Notes		09/30/2009		12/31/2008
Current Assets
Cash and Cash Equivalents			$	1,687,140	$	1,628,134
Other Receivable		4		511,500		920,481
Related Party Receivable				15,012
Purchase Deposits		6		3,394,158		3,583,669
Inventory				265,827		849,518
Total Current Assets				5,873,637		6,981,802

Non-Current Assets
Property, plant & equipment, net		7		561,422		624,030
Deposit				49,986
Goodwill		2(t)		175,052		215,560
Total Non-Current Assets				786,460		839,590

Discontinued Operations
Other Receivable		14		293		-
TOTAL ASSETS			$	6,660,390	$	7,821,392

LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Taxes payable			$	664,571	$	273,929
VAT payable		8		1,400,482		1,396,460
Income tax payable				45,449		421,758
Due to shareholder		5		45,339		44,698
Accrued liabilities and other payable				161,161		420,534
Convertible debenture - current portion		10		1,930,037		1,943,037
Total Current Liabilities				4,247,039		4,500,416

Non-Current Liabilities
Convertible debenture – non-current portion		10		989,886		1,485,714
Total Non-Current Liabilities				989,886		1,485,714


TOTAL LIABILITIES			$	5,236,925	$	5,986,130

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

-2-

Guangzhou Global Telecom, Inc

Consolidated Balance Sheets

As of September 30, 2009 and December 31, 2008

(Stated in US Dollars)

		09/30/2009			12/31/2008
STOCKHOLDERS' EQUITY

Common Stock US$0.01 par value; 1,000,000,000 authorized, 134,275,127 and 74,839,071 issued and outstanding as of September 30, 2009 and December 31, 2008, respectively	11	$	1,342,752		$	748,391
Additional Paid in capital			1,431,299			1,439,607
Other Comprehensive Income			278,236			(202,845	)
Retained Earnings			(1,849,834	)		(925,398	)
Minority Interest			221,012			775,507


TOTAL STOCKHOLDERS' EQUITY		$	1,423,465		$	1,835,262

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY		$	6,660,390		$	7,821,392

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

-3-

Guangzhou Global Telecom, Inc

Consolidated Statements of Income

For the three- and nine-month periods ended September 30, 2009 and 2008

(Stated in US Dollars)

				3 Months			9 Months			3 Months			9 Months
				Ended			Ended			Ended			Ended
Revenues	Note			09/30/2009			09/30/2009			09/30/2008			09/30/2008
Sales		2(j)	(j)	$	6,395,457		$	21,213,763		$	13,037,014		$	29,454,982
Cost of Sales					5,930,063			20,321,229			12,131,830			27,016,697
Gross Profit					465,394			892,534			905,184			2,438,285

Operating Expenses
Selling Expenses					2,872			41,209			69,215			221,055
Administrative and General Expenses		12			194,490			1,204,136			231,582			1,206,022
Total Operating Expense					197,362			1,245,345			300,797			1,427,077
Operating Income/(Loss)					268,032			(352,811	)		604,387			1,011,208

Other Income & Expenses
Interest Income					2			22			1,047			32,766
Other Income					154			1,501			24,524			27,056
Interest Expenses					24			(2	)		(58,414	)		(287,362	)
Other Expenses					(328,627	)		(329,104	)		1,093			(1,165	)
Total other income/(expense)					(328,447	)		(327,583	)		(31,750	)		(228,705	)

Income/(Loss) before taxation					(60,415	)		(680,394	)		572,637			782,503
Income tax		2(n)			(3,679	)		(14,843	)		(277,330	)		(277,330	)
Discontinued Operation, net of tax		14			(24,944	)		(185,025	)		-			-
Net Income/(Loss) attributable to:
Parent					(89,038	)		(880,262	)		295,307			505,173
Non-controlling interest					9,090			(44,174	)		(9,980	)		(134,247	)
				$	(79,948	)	$	(924,436	)	$	285,327		$	370,926
Earnings Per Share
Basic				$	(0.0007	)	$	(0.0100	)	$	0.0044		$	0.0058
Diluted				$	(0.0007	)	$	(0.0100	)	$	0.0044		$	0.0058
Weighted Average Shares Outstanding
Basic					115,309,886			92,244,492			64,155,499			64,155,499
Diluted					115,309,886			92,244,492			64,155,499			64,155,499

	Accumulated Comprehensive Income
Comprehensive Income	09/30/2009			09/30/2008		Total
Net Income	$	(924,436	)	$	370,926	$	(553,510	)
Other Comprehensive Income
Foreign Currency Translation Adjustment		481,081			65,573		546,654
	$	(443,355	)	$	436,499	$	(6,856	)

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

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Guangzhou Global Telecom, Inc

Consolidated Statements of Changes in Stockholders’ Equity

For the nine-month period ended September 30, 2009 and the year ended December 31, 2008

(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, 2008		53,170,000	$	531,700	$	408,216		$	20,101		$	(641,808	)	$	-		$	318,209
Conversion of bond debenture to common stock		7,941,302		79,413		541,836			-			-			-			621,249
Issuance of common stock to acquire BJ Lihe		1,500,000		15,000		285,000			-			-			-			300,000
Issuance of common stock to acquire Renwoxing		9,727,769		97,278		194,555			-			-			-			291,833
Issuance of common stock in relation to management compensation		2,500,000		25,000		10,000			-			-			-			35,000
Net Income/(Loss)		-		-		-			-			(283,590	)		-			(283,590	)
Minority Interest		-		-		-			-			-			775,507			775,507
Foreign Currency Translation		-		-		-			(222,946	)		-			-			(222,946	)
Balance, December 31, 2008		74,839,071	$	748,391	$	1,439,607		$	(202,845	)	$	(925,398	)	$	775,507		$	1,835,262

Balance, January 1, 2009		74,839,071	$	748,391	$	1,439,607		$	(202,845	)	$	(925,398	)	$	775,507		$	1,835,262
Conversion of bond debenture to common stock		53,386,056		533,861		5,067			-			-			-			538,928
Issuance of common stock in relation to management compensation		6,050,000		60,500		(13,375	)		-			-			-			47,125
Net Income/(Loss)		-		-		-			-			(924,436	)		-			(924,436	)
Minority Interest		-		-		-			-			-			(554,495	)		(554,495	)
Foreign Currency Translation		-		-		-			481,081			-			-			481,081
Balance, September 30, 2009		134,275,127	$	1,342,752	$	1,431,299		$	278,236		$	(1,849,834	)	$	221,012		$	1,423,465

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

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Guangzhou Global Telecom, Inc.

Consolidated Statements of Cash Flow

For the three- and nine-month periods ended September 30, 2009 and 2008

(Stated in US Dollars)

	3 Months			9 Months			3 Months			9 Months
	Ended			Ended			Ended			Ended
Cash Flow from Operating Activities	09/30/2009			09/30/2009			09/30/2008			09/30/2008
Cash Received from Customers	$	7,696,508		$	25,142,726		$	13,036,932		$	29,690,889
Cash Paid to Suppliers		(7,116,820	)		(23,234,918	)		(12,477,166	)		(27,790,388	)
Cash Paid for Selling and G&A expenses		(328,466	)		(1,376,449	)		(300,797	)		(1,427,077	)
Cash Received from Other Income		196			1,587			24,524			27,056
Cash Paid for Other Expense		477			-			1,093			(1,165	)
Payments for Deposits		(49,986	)		(49,986	)		-			-
Interest Received		2			22			1,047			32,766
Interest Paid		15			(20	)		(58,413	)		(287,361	)
Minority Interest		25,274			(598,668	)		346,351			609,620
Tax Paid		(7,950	)		(443,319	)		-			-
Cash Sourced from/(Used in) Operating Activities		219,250			(559,025	)		573,571			854,339

Cash Flow from Investing Activities
Investment		-			-			122,975			122,975
Purchase of Property, Plant & Equipment		-			-			(131,863	)		(613,825	)
Sale of Equipment		5,739			19,217			-			-
Purchase of Intangible Assets		-			-			-			(192,261	)
Sales of Intangible Assets		-			40,508			23,197			-
Cash Sourced from/(Used in) Investing Activities		5,739			59,725			14,309			(683,111	)

Cash Flow from Financing Activities
Issuance of Common Stock		212,136			586,053			291,833			1,160,722
Repayment of Notes		(154,736	)		(508,828	)		(265	)		(2,265	)
Repayment to Shareholder		-			-			(65,975	)		(34,135	)
Due from related party		-			-			-			32,560
Cash Received from Issuance of Convertible Debenture		-			-			-			492,064
Cash Sourced from/(Used in) Financing Activities		57,400			77,225			225,593			1,648,946

Net Increase/(Decrease) in Cash & Cash Equivalents		282,389			(422,075	)		813,473			1,820,174
Effect of Currency Translation		(51,815	)		481,081			(76,492	)		65,573
Cash & Cash Equivalent at the Beginning of Period		1,456,566			1,628,134			1,376,968			228,202

Cash & Cash Equivalent at the End of Period	$	1,687,140		$	1,687,140		$	2,113,949		$	2,113,949

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

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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, 2009 and 2008

(Stated in US Dollars)

	3 Months			9 Months			3 Months			9 Months
	Ended			Ended			Ended			Ended
	09/30/2009			09/30/2009			09/30/2008			09/30/2008

Net (loss)/income	$	(79,948	)	$	(924,436	)	$	285,328		$	370,926

Adjustments to reconcile net (loss)/income to
net cash provided by cash activities

Minority interest		16,183			(554,495	)		346,350			609,620
Depreciation		11,765			43,392			77,431			113,853
Decrease/(Increase) in Other Receivable		354,617			408,688			(37,480	)		(335,803	)
Decrease/(Increase) in Deposit		(49,986	)		(49,986	)		(463,337	)		(724,932	)
Decrease/(Increase) in Related Party Receivable		(14,625	)		(15,012	)		-			-
Decrease/(Increase) in Inventory		47,541			583,691			(82	)		235,907
Decrease/(Increase) in Advance to Suppliers		95,443			189,511			-			-
Increase/(Decrease) in Tax Payable		(44,097	)		345,944			2,190			213,678
Increase/(Decrease) in Accrued Liabilities and Other Payable		(167,645	)		(214,035	)		73,581			193,981
Increase/(Decrease) in VAT Payable		2,105			4,022			10,929			93,417
Increase/(Decrease) in Shareholders Payable		44,698			-			-			-
Increase/(Decrease) in Income Tax Payable		3,199			(376,309	)		278,659			83,691

Total of All Adjustments	$	299,198		$	365,411		$	288,241		$	483,412

Net Cash Provided by (Used in)/Sourced from Operating Activities	$	219,250		$	(559,025	)	$	573,569		$	854,339

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

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Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

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.

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Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

(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, 2009, 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.

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Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

(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 chip, 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

Leasehold Improvement 5 years

Motor Vehicles 3 years

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Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

(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 of raw materials, factory worker salaries and related benefits, machinery supplies, maintenance supplies, depreciation, utilities, inbound freight, purchasing and receiving costs, inspection and warehousing costs.

(l)	Selling Expense

Selling expenses are comprised of outbound freight, salary for the sales force, client entertainment, commissions, depreciation, advertising, and travel and lodging expenses.

(m)	General & Administrative Expense

General and administrative expenses include outside consulting services, research & development, executive compensation, quality control, and general overhead such as the finance department, administrative staff, and depreciation and amortization expense.

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Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

(n)	Advertising

The Company expensed all advertising costs as incurred.

(o)	Research and Development

All research and development costs are expensed as incurred.

(p)	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	09/30/09	12/31/08	09/30/08
Period end RMB : US$ exchange rate	6.8376	6.8542	6.8183
Average period RMB : US$ exchange rate	6.8411	6.9623	6.8402

Period end HKD : US$ exchange rate	7.7504	7.7507	7.7701
Average period HKD : US$ exchange rate	7.7521	7.7874	7.8001

Period end MOP : US$ exchange rate	8.1229	8.1823	8.1941
Average period MOP : US$ exchange rate	8.1215	8.1657	8.1790

Period end SGD : US$ exchange rate	1.4184	1.4426	1.4307
Average period SGD : US$ exchange rate	1.4393	1.4156	1.3969

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

For the three and nine-month periods ended September 30, 2009 and 2008

(q)	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	17.5%
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.

·	The Company is subject to United States Tax according to Internal Revenue Code Sections 951 and 957. Corporate income tax is imposed on progressive rates in the range of: -

-13-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

Taxable Income
Rate	Over	But Not Over	Of Amount Over
15%	0	50,000	0
25%	50,000	75,000	50,000
34%	75,000	100,000	75,000
39%	100,000	335,000	100,000
34%	335,000	10,000,000	335,000
35%	10,000,000	15,000,000	10,000,000
38%	15,000,000	18,333,333	15,000,000
35%	18,333,333	-	-

Based on the consolidated net income/(loss) for the period ended September 30, 2009, the Company shall not be subject to income tax.

(r)	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.

(s)	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.

(t)

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.

-14-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

(u)	Recent Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009.

In June 2009, FASB issued FASB Statement No. 166, Accounting for Transfers for Financial Assets and FASB Statement No. 167, a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities.

Statement 166 is a revision to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, 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 167 is a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities, 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.

On July 1, 2009, FASB issued FASB Statement No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles. The ASC has become the source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities and provides that all such guidance carries an equal level of authority. The ASC is not intended to change or alter existing GAAP. The ASC is effective for interim and annual periods ending after September 15, 2009.

The Company is currently evaluating the potential impact, if any, of the adoption of the above recent accounting pronouncements on its consolidated results of operations and financial condition.

-15-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

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, 2009 and December 31, 2008 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.

Type of Account	09/30/2009		12/31/2008
Trade financing to business associates	$	511,500	$	920,481
	$	511,500	$	920,481

5. DUE FROM / TO SHAREHOLDER

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

		09/30/2009				12/31/2008
Due to other shareholder		$	45,339			$	44,698

Due to shareholder

Payables owed to the Company’s shareholders are non-interest-bearing and, payable on demand. There is no impact to the statement of operations as a result of the payables to the shareholder.

6. PURCHASE DEPOSITS

Purchase Deposits of $3,394,158 and $3,583,669 at September 30, 2009 and December 31, 2008 respectively, consisted of advances to suppliers for the purchase of inventories, and prepayments for general operating costs.

-16-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

7. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following as of September 30, 2009 and December 31, 2008:

09/30/2009
Category of Asset	Cost		Accumulated Depreciation		Net
Equipment		59,874		43,406		16,468
Furniture & Fixtures		98,439		86,319		12,120
Motor Vehicles		182,300		104,949		77,351
Building		492,326		36,843		455,483
Total	$	832,939		271,518		561,422

12/31/2008
Category of Asset	Cost		Accumulated Depreciation		Net
Equipment	$	179,176	$	89,244	$	89,932
Furniture & Fixtures		34,380		27,417		6,963
Motor Vehicles		147,757		92,758		54,999
Building		490,843		18,707		472,136
Total	$	852,156	$	228,126	$	624,030

The depreciation expenses were $43,392 and $131,533 for the nine months ended September 30, 2009 and year ended December 31, 2008, respectively.

8. VAT 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, 2009. Thus, the VAT payable as of September 30, 2009 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, 2009 and year ended December 31, 2008 amounted to $26,659 and $199,718, respectively. Future minimum lease payments under non-cancelable operating leases until termination of the leases amounted to $199,833 distributed as:

-17-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

Fiscal Year	Minimum Lease Payments
2009	$	28,643
2010		109,667
2011		56,861
2012		3,726
2013		936
Total	$	199,833

10. CONVERTIBLE BONDS AND BOND WARRANTS

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

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

·	Interest Rate. The Debenture bears interest at the rate of 8% per annum of the principal amount of the Debentures.

·	Conversion. Each Debenture is convertible at the option of the holder at any time after July 31, 2007 up to July 31, 2009, into shares of our common stock at a fixed conversion price of $0.82 per share.

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

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.

-18-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

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: -

	09/30/2009			12/31/2008
Convertible Debenture - Principal and interest
Balance as at beginning of year	$	3,428,751		$	2,122,735
Addition		-			1,000,000
Redemption		(508,828	)		(507,936	)
Interest charged for the current year		-			400,188
Repayment of interest in current year		-			-
Restructure cost		-			413,764
Balance as at end of year		2,919,923			3,428,751

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	$	2,919,923		$	3,428,751

-19-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

The Convertible Debenture was classified as current and non-current as follows:



	09/30/2009		12/31/2008

Non-current portion	$	989,886	$	1,485,714
Current Portion		1,930,037		1,943,037
	$	2,919,923	$	3,428,751

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.

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 134,275,127 and 74,839,071 shares have been issued and outstanding as of September 30, 2009 and December 31, 2008, respectively.

The presentation of recapitalization as of September 30, 2009 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		-			9.74	%
Shareholders of Shell in exchange of all of GTHL shares upon reverse-merger		39,817,500		398,175		-			29.65	%
Zenith Capital Management LLC		200,000		2,000	$	498,000			0.15	%
Miss. Li Yan Kuan		80,000		800		61,600			0.06	%
Less: Cost of Issue		-		-		(162,059	)		-
Beijing Lihe		1,500,000		15,000		285,000			1.12	%
Guangzhou Renwoxing		9,727,769		97,278		194,555			7.24	%
Private placement investors		61,327,358		613,274		546,903			45.67	%
Management / Insider		8,550,000		85,500		7,300			6.37	%
		134,275,127	$	1,342,752	$	1,431,299			100.00	%

-20-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

12. BONUS EXPENSE

Bonus payments of $473,997 were included in the General and Administrative Expenses for the quarter ended September 30, 2009.

13. ACQUISITIONS

The Company had two acquisitions during 2008 consisting of acquisitions of (1) Beijing Lihe Jiahua Technology and Trading Co., Ltd. (“Beijing Lihe”) and (2) Guangzhou Renwoxing Telecom (“GRT”).

On April 7, 2008, Global Telecom Holdings, Ltd. (“GTHL”), a wholly-owned subsidiary of Guangzhou Global Telecom, Inc. entered into a Share Transfer Agreement (the “Agreement”) with the majority shareholder of Beijing Lihe Jiahua Technology and Trading Company Ltd. (“Beijing Lihe”), Li Han Guang, whereby the GTHL agreed to provide 1.5 million shares of Guangzhou Global Telecom, Inc. common stock and invest RMB 200,000 into Beijing Lihe in exchange of 50% of the total equity interest of Beijing Lihe. However, Beijing Lihe was subsequently sold back to the original owner at book value during the quarter ended June 30, 2009.

On July 29, 2008, the Company, through its wholly owned subsidiary, Global Telecom Holdings Limited (“GTHL”), completed the acquisition of Guangzhou Renwoxing Telecom (“GRT”), a company incorporated under the laws of the People’s Republic of China. Pursuant to the Share Transfer Agreement (the “Agreement”) between GTHL and GRT, the Company issued 9,727,769 shares of common stock to certain assigners designated by GRT for 51% equity interest of GRT.

-21-

Guangzhou Global Telecom, Inc.

Notes to Consolidated Financial Statements

For the three and nine-month periods ended September 30, 2009 and 2008

14. DISCONTINUED OPERATION

During the quarter ended June 30, 2009, the Company closed operation of one subsidiary “Beijing Lihe” and three branches namely “Beijing, Wuhan, and Zhengzhou” of Guangzhou Global Telecom Company Limited. Their operation results, net of tax effect and the sales of Beijing Lihe are reported in detail as follow:


Financial Position
At September 30, 2009	Beijing Lihe		Beijing Branch		Wuhan Branch		Zhengzhou Branch		Total
Current assets
Other receivable		-		-		293		-		293
Total current assets		-		-		293		-		293

Non-current assets
Total assets		-		-		293		-		293

Current liabilities
Total liabilities	-	-	-	-	-

Net assets	-	-	293	-	293

Results of Operations
for the nine months ended
September 30, 2009
	Beijing Lihe			Beijing Branch			Wuhan Branch			Zhengzhou Branch			Total
Revenue		1,920,514			689,247			480,530			444,996			3,535,287
Cost of revenue		1,862,488			698,977			505,261			462,629			3,529,355
Gross profit		58,026			(9,730	)		(24,731	)		(17,633	)		5,932

Selling expenses		1,316			8,771			2,193			6,578			18,858
General and administrative expenses		6,990			60,765			27,525			16,968			112,248
Total operating expenses		8,306			69,536			29,718			23,546			131,106

Other income		86			-			-			-			86
Other expense		(42,320	)		-			(513	)		(9,618	)		(52,451	)
Interest expense		(18	)		-			-			-			(18	)

Earnings/(Losses) before tax		49,773			(79,266	)		(54,962	)		(50,797	)		(177,557	)
Income tax		7,468			-			-			-			7,468
		-			(79,266	)		(54,962	)		(50,797	)		(185,025	)

-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 OPERATIONS

Results of Operation for the three months ended September 30, 2009 compared with three months ended September 30, 2008

Total Revenue

During the three months ended September 30, 2009, we earned $6,395,457 in revenues as compared to $13,037,014 during the same period in 2008, representing a decrease of $6,641,557 or approximately 51%. The decrease is mainly resulted from the revenue of discontinued operation of 4 entities were not included in the 3 months ended September 30, 2009, while these entities contributed revenue of $3,691,806 during the same period of 2008. Furthermore, by the effect of financial crisis, our revenue of other subsidiaries decreased as well.

Gross Profit

The gross profit decreased to $465,394 during the three months ended September 30, 2009 from $905,184 in the same period of 2008, representing $439,790 or 49% decrease. The gross margin slightly increased from 6.9% to 7.2%. The decrease in gross profit is mainly due to the decreased revenue as explained above. While, the slight increase of gross margin was contributed to the reason that certain thin margin business in our branches was discontinued during the quarter ended September 30, 2009.

Expenses

Our selling, general and administrative expenses ("SG&A expenses") were $197,362 during the three months ended September 30, 2009 as compared to $300,797 during the same period of 2008, representing a decrease of $103,435 or approximately 34%. The decrease in SG&A expenses are generally resulted from following reasons: 1) the exclusive of discontinued operations, which contributed SG&A expenses of $46,896 during the 3 months ended September 30, 2008; 2) expense cut-down to fit for the current shrunk market.

Discontinued operations

Facing to shrunk market, 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 $24,944 loss in total during the 3 months ended September 30, 2009.

Non-controlling interest

Non-controlling interest were $9,090 during the three months ended September 30, 2009, which resulted from the non-controlling interest generated from Renwoxing, our 51% owned subsidiary. The non-controlling interest during the three months ended September 30, 2008 was $9,980 negative, which represents the non-controlling interest generated from Renwoxing and Beijing Lihe.

-23-

Net loss

Net loss recorded $79,948 during the three months ended September 30, 2009, as compared to a net gain of $285,327 during the three months ended September 30, 2008. The decrease of net loss is mainly due to decrease of gross profit and discontinued operation loss as explained above. In addition, one-off other expenses of $328,627 related to discontinued operations draw down the profitability during this quarter.

Results of Operation for the nine months ended September 30, 2009 compared with nine months ended September 30, 2008

Total Revenue

During the nine months ended September 30, 2009, we earned $21,213,763 in revenues as compared to $29,454,982 during the same period in 2008, representing a decrease of $8,241,219 or approximately 28%. The decrease is mainly resulted from the revenue of discontinued operation of 4 entities amounting $7,225,993 were not included in the 9 months ended September 30, 2009, while their revenue were included during the same period of 2008. Exclusive of this effect, our revenue decreased by $1,015,226 or 4.8% which is mainly due to the effect of financial crisis.

Gross Profit

The gross profit decreased to $892,534 during the nine months ended September 30, 2009 from $2,438,285 in the same period of 2008, representing $1,545,751 or 63% decrease. The gross margin also decreased from 8.3% to 4.2%. The decrease both in gross profit and gross margin contributed to the reasons as follows: (1) financial crisis take effect to the cell phone and calling cards demand in China; (2) selling our products at negative margin to close our Wuhan Branch, Beijing Branch and Zhengzhou Branches due to their un-expected performance; (3) exclusive of discontinued operations.

Expenses

Our selling, general and administrative expenses ("SG&A expenses") were $1,245,345 during the nine months ended September 30, 2009 as compared to $1,427,077 during the same period of 2008, representing a decrease of $181,732 or approximately 12.7%. The decrease in SG&A expenses are generally resulted from the sales decrease.

Other income/expenses

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 as compared to other expenses-net of $228,705 during the same period of 2008 mainly consist of interest expenses of $287,362.

Discontinued operations

Facing to shrunk market, 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 -$44,174 during the nine months ended September 30, 2009, which resulted from the non-controlling interest generated from Renwoxing, our 51% owned subsidiary. The non-controlling interest during the nine months ended September 30, 2008 was -$134,247, which represents the non-controlling interest generated from Renwoxing and Beijing Lihe.

Net loss

Net loss recorded $924,436 during the nine months ended September 30, 2009, as compared to a net gain of $370,926 during the nine months ended September 30, 2008. The decrease of net loss is mainly due to decrease of gross profit as explained above.

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities were $559,025 during the nine months ended September 30, 2009 as compared to cash provided from operating activities of $854,339 for the nine months ended September 30, 2008. 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. Our working capital decreased in line with the decrease of revenue and business, however, we expect our operation will keep stable through beginning of 2010.

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Cash flows provided in investing activities were $59,725 for the nine months ended September 30, 2009 as compared to $683,111 used for the nine months ended September 30, 2008. Cash provided by investing activities represent the cash proceeds from sale of property and equipment and other intangible assets. Cash used in investing activities during the nine months ended September 30, 2008 was resulted from acquisition of property and equipment and intangible assets of $613,825, and $192,261 respectively and investment of $122,975. We did not incur any investment cash outflow is mainly due to the bad market status.

Cash flows provided by financing activities were $77,225 during the nine months ended September 30, 2009 compared to $1,648,946 provided from financing activities for the same period of 2008. Cash provided by the financing activities mainly consisted of issuance of stock to redeem convertible debt.

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 nine months ended September 30, 2009. 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

The Company is currently evaluating the potential impact, if any, of the adoption of the above recent accounting pronouncements on its consolidated results of operations and financial condition.

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).

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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. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer

31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer

32.1 Section 1350 Certification of Chief Executive Officer

32.1 Section 1350 Certification of 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, 2009	By:	/s/ Li YanKuan
		Li, Yankuan President, Chief Executive Officer and Chairman of the Board of Directors

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