10-Q 1 f10q0309_gzgt.htm QUARTERLY REPORT f10q0309_gzgt.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, 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)
 
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 May 14  2009:  87,412,071 shares of common stock.

 

 
GUANGZHOU GLOBAL TELECOM, INC.

FORM 10-Q

March 31, 2009
 
TABLE OF CONTENTS

PART I— FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements
  
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  
Item 4T.
Controls and Procedures
  
     
PART II— OTHER INFORMATION
  
     
Item 1.
Legal Proceedings
  
Item 1A.
Risk Factors
  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  
Item 3.
Defaults Upon Senior Securities
  
Item 4.
Submission of Matters to a Vote of Security Holders
  
Item 5.
Other Information
  
Item 6.
Exhibits
  
     
SIGNATURES 
  
 
 
 
 
PART 1 - FINANCIAL INFORMATION

Item 1.    Financial Statements


 



Guangzhou Global Telecom, Inc.

Unaudited Consolidated Financial Statements

March 31, 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 – 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, 2009 and December 31, 2008, and the related consolidated statements of income, stockholders’ equity and cash flows for the three-month periods ended March 31, 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 
April 22, 2009 
Samuel H. Wong & Co., LLP
Certified Public Accountants
 
 
 
-1-
 
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of March 31, 2009 and December 31, 2008
(Stated in US Dollars)
 
ASSETS
        
3/31/2009
    
12/31/2008
  
   
Note
              
Current Assets
                  
Cash and Cash Equivalents
         $ 1,323,326     $ 1,628,134  
Other Receivable
    
4
       723,745       920,481  
Purchase Deposits
    
6
       3,289,511       3,583,669  
Inventory
             642,974       849,518  
Total Current Assets
             5,979,557       6,981,802  
                         
Non-Current Assets
                        
Property, plant & equipment, net
    
7
       604,996       624,030  
Goodwill
    
2(t)
       215,560       215,560  
Total Non-Current Assets
             820,555       839,590  
                         
TOTAL ASSETS
           $ 6,800,112     $ 7,821,392  
                         
LIABILITIES & STOCKHOLDERS' EQUITY
                  
                         
Current Liabilities
                        
Taxes payable
           $ 664,002     $ 273,929  
VAT payable
    
8
       1,398,311       1,396,460  
Income tax payable
             35,827       421,758  
Due to shareholder
    
5
       122,469       44,698  
Accrued liabilities and other payable
             145,644       420,535  
Convertible debenture - current portion
    
10
       1,930,037       1,943,037  
Total Current Liabilities
             4,296,291       4,500,416  
                         
Non-Current Liabilities
                        
Convertible debenture – non-current portion
    
10
       1,485,714       1,485,714  
Total Non-Current Liabilities
             1,485,714       1,485,714  
                         
TOTAL LIABILITIES
           $ 5,782,005     $ 5,986,130  
                         
 
 
See Notes to Financial Statements and Accountants’ Report
-2-
 
 
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of March 31, 2009 and December 31, 2008
(Stated in US Dollars)
 
         
3/31/2009
    
12/31/2008
  
STOCKHOLDERS' EQUITY
                  
                   
Common Stock US$0.01 par value; 1,000,000,000 authorized, 77,339,071 and 74,839,071 issued and outstanding as of March 31, 2009 and December 31, 2008, respectively
    
11
     $ 773,391     $ 748,391  
Additional Paid in capital
             1,427,607       1,439,607  
Other Comprehensive Income
             (100,787 )     (202,845 )
Retained Earnings
             (1,681,844 )     (925,398 )
Minority Interest
    
13
       599,739       775,507  
                         
                         
TOTAL STOCKHOLDERS' EQUITY
           $ 1,018,107     $ 1,835,262  
                         
TOTAL LIABILITIES AND
                        
STOCKHOLDERS' EUITY
           $ 6,800,112     $ 7,821,392  

 
See Notes to Financial Statements and Accountants’ Report
-3-

Guangzhou Global Telecom, Inc
Consolidated Statements of Income
For the three-month period ended March 31, 2009 and 2008
 (Stated in US Dollars)
 
   
Note
    
3/31/2009
    
3/31/2008
  
Revenues
                  
Sales
    
2(j)
     $ 11,022,375     $ 7,672,427  
Cost of Sales
             10,846,879       6,987,784  
Gross Profit
             175,496       684,643  
                         
Operating Expenses
                        
Selling Expenses
             46,031       166,466  
Administrative and General Expenses
    
12
       871,235       705,723  
Total Operating Expense
             917,266       872,189  
                         
Operating Income/(Loss)
             (741,769 )     (187,546 )
                         
Other Income & Expenses
                        
Interest Income
             9       11,328  
Other Income
             33,022       1,866  
Interest Expenses
             (171 )     (169,629 )
Other Expenses
             (21 )     (291 )
Total other income/(expense)
             32,840       (156,726 )
                         
Income/(Loss) before taxation
             (708,930 )     (344,272 )
                         
Income tax
    
2(n)
       (4,196 )     -  
                         
Net Income/(Loss) attributable to:
                        
Parent
             (713,126 )     (344,272 )
Non-controlling interest
             (43,320 )     (72,485 )
            $ (756,446 )   $ (416,757 )
Earnings Per Share
                        
Basic
           $ (0.0098 )   $ (0.0078 )
Diluted
           $ (0.0098 )   $ (0.0078 )
                         
Weighted Average Shares Outstanding
                        
Basic
             76,922,404       53,699,100  
Diluted
             76,922,404       53,699,100  
 
   
Accumulated Comprehensive Income
  
Comprehensive Income
  
3/31/2009
    
3/31/2008
    
Total
  
Net Income
   $ (756,446 )   $ (416,757 )   $ (1,173,203 )
Other Comprehensive Income
                        
Foreign Currency Translation Adjustment
     102,058       319,881       421,939  
    $ (654,388 )   $ (96,876 )   $ (751,264 )
                         
 
 
See Notes to 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, 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
  
 
Note
                                          
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
       2,500,000       25,000       (12,000 )     -       -       -       13,000  
Net Income/(Loss)
       -       -       -       -       (756,446 )     -       (756,446 )
Minority Interest
13
     -       -       -       -       -       (175,768 )     (175,768 )
Foreign Currency Translation
       -       -       -       102,058       -       -       102,058  
Balance, March 31, 2009
       77,339,071       773,391       1,427,607       (100,787 )     (1,681,844 )     599,739       1,018,107  
                                                           
 
 
See Notes to Financial Statements and Accountants’ Report
-5-
 
Guangzhou Global Telecom, Inc
Consolidated Statements of Cash Flows
For the three-month periods ended March 31, 2009 and 2008
(Stated in US Dollars)
 
 
   
3/31/2009
    
3/31/2008
  
Cash Flow from Operating Activities
            
Cash Received from Customers
   $ 11,219,111     $ 8,090,569  
Cash Paid to Suppliers
     (10,329,698 )     (6,799,196 )
Cash Paid for Selling and G&A expenses
     (917,266 )     (872,189 )
Cash Received from Other Income
     (61,650 )     1,579  
Cash Paid to Director
     77,771       -  
Cash Paid for Other Expense
     (180,164 )     -  
Interest Received
     9       11,328  
Interest Paid
     (171 )     (169,629 )
Minority Interest
     (219,088 )     185,406  
Tax Paid
     1,799       -  
Cash Sourced from/(Used in) Operating Activities
     (409,347 )     447,868  
                 
Cash Flow from Investing Activities
                
Advance/(repayment) for business development
     -       (228,384 )
Purchase of Property, Plant & Equipment
     -       (411,682 )
Sale of Equipment
     2,480       -  
Purchase of Intangible Assets
     -       (113,288 )
Cash Sourced from/(Used in) Investing Activities
     2,480       (753,354 )
                 
Cash Flow from Financing Activities
                
Issuance of Common Stock
     13,000       190,477  
Repayment of Notes
     (13,000 )     (1,277 )
Repayment of Loan from Shareholder
     -       (4,503 )
Cash Received from Issuance of Convertible Debenture
     -       809,524  
Cash Sourced from/(Used in) Financing Activities
     -       994,221  
                 
Net Increase/(Decrease) in Cash & Cash Equivalents
     (406,867 )     688,735  
                 
Effect of Currency Translation
     102,058       152,890  
                 
Cash & Cash Equivalent at the Beginning of Period
     1,628,134       228,202  
                 
Cash & Cash Equivalent at the End of Period
   $ 1,323,326     $ 1,069,827  
 
 
See Notes to Financial Statements and Accountants’ Report
-6-
 
Guangzhou Global Telecom, Inc.
Reconciliation of Net Income to Cash Flow Used in Operating Activities
For the three-month periods ended March 31, 2009 and 2008
(Stated in US Dollars)
 
   
3/31/2009
    
3/31/2008
  
             
Net (loss)/income
   $ (756,446 )   $ (416,757 )
                 
Adjustments to reconcile net (loss)/income to
                
net cash provided by cash activities
                
                 
Minority interest
     (175,768 )     185,406  
Depreciation
     16,554       8,137  
Decrease/(Increase) in Other Receivable
     196,737       19,128  
Decrease/(Increase) in Purchase Deposit
     294,157       79,983  
Decrease/(Increase) in Related Party
     -       (1,310 )
Decrease/(Increase) in Inventory
     206,544       320,341  
Decrease/(Increase) in Rental Deposit
     -       -  
Increase/(Decrease) in Tax Payable
     390,074       2,402  
Increase/(Decrease) in Accrued Liabilities and Other Payable
     (197,119 )     189,720  
Increase/(Decrease) in VAT Payable
     1,852       52,735  
Increase/(Decrease) in Income Tax Payable
     (385,931 )     8,083  
                 
Total of All Adjustments
     347,098       864,625  
                 
Net Cash Provided by (Used in)/Sourced from Operating Activities
   $ (409,347 )   $ 447,868  
                 
 
 
See Notes to Financial Statements and Accountants’ Report
-7-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 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.
 
 
-8-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 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 March 31, 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
       
Beijing Lihe Jiahua Technology and Trading Co., Ltd.
PRC
50
RMB 500,000
       
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
100
SGD 200,000

(c)  
Economic and Political Risks

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, restriction on international remittances, and rates and methods of taxation, among other things.
 
 
-9-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 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

 
 
-10-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 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.
 
 
-11-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 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
3/31/2009
12/31/2008
3/31/2008
Period end RMB : US$ exchange rate
6.8456
6.8542
7.0222
Average period RMB : US$ exchange rate
6.8466
6.9623
7.1757
       
Period end HKD : US$ exchange rate
7.7505
7.7507
7.7827
Average period HKD : US$ exchange rate
7.7548
7.7874
7.7954
       
Period end MOP : US$ exchange rate
8.1424
8.1823
8.1539
Average period MOP : US$ exchange rate
8.1397
8.1657
8.1648
       
Period end SGD : US$ exchange rate
1.5207
1.4426
1.3813
Average period SGD : US$ exchange rate
1.5109
1.4156
1.4106

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-month periods ended March 31, 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-month periods ended March 31, 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 for the period ended March 31, 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-month periods ended March 31, 2009 and 2008

(u)  
Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 161 requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). Statement 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles."

In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis.

In September 2008, FASB issued FSP No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees”, an amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161. This FSP is intended to improve disclosures about credit derivatives by requiring more information about the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of credit derivatives.  The provisions of the FSP that amend Statement 133 and FIN 45 are effective for reporting periods (annual or interim) ending after November 15, 2008.
 
 
-15-
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2009 and 2008

This FSP amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to require disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. This FSP also amends FASB Interpretation (FIN) No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. The provisions of the FSP that amend Statement 133 and FIN 45 are effective for reporting periods (annual or interim) ending after November 15, 2008.

Finally, this FSP clarifies the effective date in FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The disclosures required by Statement 161 should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. For example, an entity with a March 31 fiscal year-end should provide the disclosures for its fourth quarter interim period ending March 31, 2009, in its 2009 annual financial statements. This clarification of the effective date of Statement 161 is effective upon issuance of the FSP.

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.
 
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.




-16-

Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2009 and 2008

4.    OTHER RECEIVABLE

Other Receivable at March 31, 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
  
3/31/2009
    
12/31/2008
  
Trade financing to business associates
   $ 723,745     $ 920,481  
 
5.    DUE FROM / TO SHAREHOLDER

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

   
3/31/2009
    
12/31/2008
  
Due to other shareholder
   $ (122,469 )   $ (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 $ 3,289,511 and $3,583,669 at March 31, 2009 and December 31, 2008 respectively, consisted of advances to suppliers for the purchase of inventories, and prepayments for general operating costs.
 
7.    PROPERTY, PLANT, AND EQUIPMENT

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

3/31/2009
                  
Category of Asset
  
Cost
    
Accumulated Depreciation
    
Net
  
Equipment
   $ 178,999     $ 94,855     $ 84,144  
Furniture & Fixtures
     32,321       27,034       5,287  
Motor Vehicles
     147,943       98,315       49,628  
Building
     490,413       24,476       465,937  
Total
   $ 849,676     $ 244,680     $ 604,996  
 
 
-17-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2009 and 2008

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 $16,544 and $131,533 for the three months ended March 31, 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 March 31, 2009.  Thus, the VAT payable as of March 31, 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 March 31, 2009 and year ended December 31, 2008 amounted to $21,068 and $199,718, respectively. Future minimum lease payments under non-cancelable operating leases until termination of the leases amounted to $69,013 distributed as:

Fiscal Year
  
Minimum Lease Payments
  
2009
   $ 68,661  
2010
     352  
Total
   $ 69,013  


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”).
 
 
-18-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2009 and 2008

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.

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
For the three-month periods ended March 31, 2009 and 2008

The Convertible Debentures Payable, net consisted of the following: -
 
   
3/31/2009
    
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
     -       (507,936 )
Interest charged for the current year
     -       400,188  
Repayment of interest in current year
     (13,000 )     -  
Restructure cost
     -       413,764  
Balance as at end of year
     3,415,751       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
   $ 3,415,751     $ 3,428,751  

The Convertible Debenture was classified as current and non-current as follows:
 
 
  
             
   
3/31/2009
    
12/31/2008
  
             
Non-current portion
   $ 1,930,037     $ 1,943,037  
Current Portion
     1,485,714       1,485,714  
    $ 3,415,751     $ 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).
 
 
-20-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2009 and 2008
 
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 77,339,071 and 74,839,071 shares have been issued and outstanding as of March 31, 2009 and December 31, 2008, respectively.
 
The presentation of recapitalization as of March 31, 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       -       16.90 %
Shareholders of Shell in exchange of all of GTHL shares upon reverse-merger
     39,817,500       398,175       -       51.48 %
Zenith Capital Management LLC
     200,000       2,000       498,000       0.26 %
Miss. Li Yan Kuan
     80,000       800       61,600       0.10 %
Less: Cost of Issue
     -       -       (151,384 )     -  
Beijing Lihe
     1,500,000       15,000       285,000       1.94 %
Guangzhou Renwoxing
     9,727,769       97,278       194,555       12.58 %
Private placement investors
     10,441,302       104,413       524,836       13.50 %
Management / Insider
     2,500,000       25,000       15,000       3.23 %
      77,339,071       773,391       1,427,607       100.00 %
                                 
 
 
-21-
 
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2009 and 2008
 
 
12.  BONUS EXPENSE

Bonus payments of $511,203 were included in the General and Administrative Expenses for the quarter ended March 31, 2009 and are attributable as follows:
 
▪  Employees
   $ 292,115  
▪  Minority Interests
     219,088  
    $ 511,203  
 
13.  MINORITY INTERESTS

The Cash Flow Statement reported a distribution of $175,768 net to Minority Interests, which was from:
 
▪  Bonus Payment (RMB 1,500,000)
   $ 219,088  
▪  Share of 2009 Q1 Net Loss
     (43,320 )
    $ 175,768  
 
14.  ACQUISITIONS

The Company had two acquisitions during 2008 consisting the 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.

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.

 
-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 FOR THE THREE MONTHS ENDED MARCH 31, 2009 COMPARE TO THE THREE MONTHS ENDED MARCH 31, 2008
 
The following table presents the statement of operations for the three months ended March 31, 2009 as compared to the comparable period of the three months ended March 31, 2008. The discussion following the table is based on these results.

   
3/31/2009
    
3/31/2008
  
Revenues
            
Sales
   $ 11,022,375     $ 7,672,427  
Cost of Sales
     10,846,879       6,987,784  
Gross Profit
     175,496       684,643  
                 
Operating Expenses
                
Selling Expenses
     46,031       166,466  
Administrative and General Expenses
     871,235       705,723  
Total Operating Expense
     917,266       872,189  
                 
Operating Income/(Loss)
     (741,769 )     (187,546 )
                 
Other Income & Expenses
                
Interest Income
     9       11,328  
Other Income
     33,022       1,866  
Interest Expenses
     (171 )     (169,629 )
Other Expenses
     (21 )     (291 )
Total other income/(expense)
     32,840       (156,726 )
                 
Income/(Loss) before taxation
     (708,930 )     (344,272 )
                 
Income tax
     (4,196 )     -  
                 
Net Income/(Loss) attributable to:
                
Parent
     (713,126 )     (344,272 )
Non-controlling interest
     (43,320 )     (72,485 )
    $ (756,446 )   $ (416,757 )
Earnings Per Share
                
Basic
   $ (0.0098 )   $ (0.0078 )
Diluted
   $ (0.0098 )   $ (0.0078 )
                 
Weighted Average Shares Outstanding
                
Basic
     76,922,404       53,699,100  
Diluted
     76,922,404       53,699,100  
 
 
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Accumulated Comprehensive Income
  
Comprehensive Income
  
3/31/2009
    
3/31/2008
    
Total
  
Net Income
   $ (756,446 )   $ (416,757 )   $ (1,173,203 )
Other Comprehensive Income
                        
Foreign Currency Translation Adjustment
     102,058       319,881       421,939  
    $ (654,388 )   $ (96,876 )   $ (751,264 )
 
Results of Operation for the three months ended March 31, 2009 compared with three months ended March 31, 2008

Total Revenue
 
During the three months ended March 31, 2009, we earned $11,022,375 in revenues as compared to $7,672,427 during the same period in 2008, representing an increase of $3,349,948 or approximately 44%.  Renwoxing and Beijing Lihe, our new acquired two subsidiaries, contributed $3,459,333 revenue during the quarter ended March 31, 2009, while only $857,350 during the same period of 2008.

Gross Profit
 
The gross profit decreased to $175,496 during the three months ended March 31, 2009 from $684,643 in the same period of 2008, representing $509,147 or 74% increase.   The gross margin also decreased from 8.9% to 1.6%.  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.

Expenses
 
Our selling, general and administrative expenses (“SG&A expenses”) were $917,266 during the three months ended March 31, 2009 as compared to $872,189 during the same period of 2008, representing an increase of $54,923 or approximately 6%.   The increase in SG&A expenses are generally resulted from the sales increase.
 
Other incomes-net were $32,840 during the three months ended March 31, 2009 as compared to other expenses-net of $156,729 during the same period of 2008 mainly consist of interest expenses of $169,629.

Minority interest were $43,320 during the three months ended March 31, 2009, which resulted from the minority interest generated from Beijing Lihe and Renwoxing, our new acquired 50% and 51% subsidiaries respectively. The minority interest during the three months ended March 31, 2008 was $72,485.  The decrease is mainly due to the decrease of profit from these two subsidiaries.

Net loss

Net loss recorded $756,446 during the three months ended March 31, 2009, as compared to a net loss of $416,757 during the three months ended March 31, 2008.  The increase of net loss is mainly due to decrease of gross profit as explained above.
 
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LIQUIDITY AND CAPITAL RESOURCES
 
Cash used in operating activities were $409,347 during the three months ended March 31, 2009 as compared to cash provided from operating activities of $447,868 for the three months ended March 31, 2008.   Cash used in operating activities during the three months ended March 31, 2009 was mainly resulted from net loss of $756,446, decrease in accrued liabilities of $197,119, by netting off decrease in other receivables, purchase deposits, inventory of $697,437 in total.  The decrease of operating assets and liabilities are mainly due to liquidate our Wuhan, Beijing and Zhenzhou branches.

Cash flows provided in investing activities were $2,480 for the three months ended March 31, 2009 as compared to $753,354 used for the three months ended March 31, 2008.   Cash provided by investing activities represent the cash proceeds from sale of property and equipment. Cash used in investing activities during the three months ended March 31, 2008 was resulted from acquisition of property and equipment and intangible assets of $411,682, and $113,288 respectively and advance for business development of $228,384.  We did not incur any investment cash outflow is due to the bad market status.
 
Cash flows provided by financing activities were $zero during the three months ended March 31, 2009 compared to $994,221 provided from financing activities for the same period of 2008. Cash provided by the financing activities consisted of issuance of stock to redeem convertible debt of $13,000.

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, 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
 
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”.  This statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require; the ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value, entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  SFAS No. 160 affects those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary.  SFAS No. 160 is effective for the three monthss, and interim periods within those the three monthss, beginning on or after December 15, 2008. Early adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for the three monthss and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement.
   
 
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In April 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for the three monthss beginning after December 15, 2008, and interim periods within those the three monthss. Early adoption is prohibited. The Company is currently evaluating the impact of SFAS FSP 142-3, but does not expect the adoption of this pronouncement will have a material impact on its financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162”).  SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States.  This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.  The Company is currently evaluating the impact of SFAS 162, but does not expect the adoption of this pronouncement will have a material impact on its financial position, results of operations or cash flows.
 
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. The adoption of FASB 163 is not expected to have a material impact on the Company’s financial position.
  
OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 3.    Quantitative and Qualitative Disclosures about Market Risks

Not applicable because we are a smaller reporting company.
 
Item 4T.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures 

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

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the latest the 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.
 
Currently we are not aware of any litigation pending or threatened by or against the Company.

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
 
 
-27-

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: May 14, 2009 
By:
/s/ Li YanKuan
   
Li, Yankuan
President, Chief Executive Officer and
Chairman of the Board of Directors
 
 
 
 
 
 
 
 
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