f10q063008_ea3gzgt.htm

Guangzhou Global Telecom, Inc.

Unaudited Consolidated Financial Statements

June 30, 2008 and December 31, 2007

(Stated in US Dollars)

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

Reconciliation of Net Income to Cash Flow Used in Operating Activities	7

Notes to Consolidated Financial Statements	8-26

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 June 30, 2008 and December 31, 2007, and the related consolidated statements of income, stockholders’ equity and cash flows for the three-month and six-month periods ended June 30, 2008 and 2007. 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 /s/ Samuel H. Wong & Co. LLP

July 12, 2008 Certified Public Accountants

Guangzhou Global Telecom, Inc

Consolidated Balance Sheets

As of June 30, 2008 and December 31, 2007

(Stated in US Dollars)

			6/30/2008		12/31/2007
ASSETS
	Notes
Current Assets
Cash and cash equivalent			$	1,376,968	$	228,202
Other receivable		4		814,185		515,862
Notes receivable		5		33,751		31,751
Due from related party				-		32,560
Due from shareholder				86,207		118,047
Purchase deposits		6		2,642,082		2,380,375
Advance for business development				192,217		192,329
Inventory				194,409		430,398
Total Current Assets				5,339,819		3,929,524

Non-Current Assets
Property, plant & equipment, net		7		614,219		168,679
Goodwill				389,416		173,958
Total Non-Current Assets				1,003,635		342,637

TOTAL ASSETS			$	6,343,454	$	4,272,161

LIABILITIES & STOCKHOLDERS' EQUITY

Current Liabilities
Taxes payable			$	272,023	$	60,535
VAT payable		8		1,392,883		1,310,395
Income tax payable				5,992		200,961
Accrued liabilities and other payable				379,726		259,326
Convertible debenture - current portion		10		1,373,560		1,373,560
Total Current Liabilities				3,424,185		3,204,777

Non-Current Liabilities
Convertible debenture - non current		10		1,241,239		749,175
Total Non-Current Liabilities				1,241,239		749,175

TOTAL LIABILITIES			$	4,665,424	$	3,953,952

Minority interest				263,269		-

See Notes to Financial Statements

Guangzhou Global Telecom, Inc

Consolidated Balance Sheets

As of June 30, 2008 and December 31, 2007

(Stated in US Dollars)

STOCKHOLDERS' EQUITY	6/30/2008			12/31/2007

Common Stock US$0.01 par value; 75,000,000
authorized, 57,811,302 and 53,170,000 issued
and outstanding as of June 30, 2008 and
December 31, 2007 , respectively	$	578,113		$	531,700
Additional paid in capital		1,230,692			408,216
Other comprehensive income		162,166			20,101
Retained earnings		(556,210	)		(641,808	)

TOTAL STOCKHOLDERS' EQUITY	$	1,414,761		$	318,209

TOTAL LIABILITIES AND
STOCKHOLDERS' EUITY	$	6,343,454		$	4,272,161

See Notes to Financial Statements

Guangzhou Global Telecom, Inc

Consolidated Income Statements

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2008			2007			2008			2007
	Notes
Sales		$	8,745,541		$	4,789,850		$	16,417,968		$	8,552,268
Cost of sales			7,897,083			4,524,602			14,884,867			8,173,861
Gross Profit			848,458			265,248			1,533,101			378,407

Operating expense
Selling expenses			(14,626	)		116,241			151,840			140,910
Administrative and general expenses			268,717			106,864			974,440			179,917
Total Operating Expense			254,091			223,105			1,126,280			320,827

Operating Income / (Loss)			594,367			42,143			406,821			57,580

Other income			(8,796	)		(10,536	)		2,532			-
Interest income			29,853			-			31,719			10,536
Other expenses			(1,967	)		(5	)		(2,258	)		(927	)
Interest expenses			(59,320	)		-			(228,949	)		-

Total other income/(expense)			(40,230	)		(5	)		(196,956	)		9,609

Income/(Loss) before tax			554,138			42,138			209,866			67,189

Income tax			-			(26,016	)		-			(38,653	)
Minority Interest			(51,782	)		-			(124,267	)		-

Net Income/(Loss)		$	502,355		$	16,122		$	85,598		$	28,536

Earnings Per Share
Basic		$	0.0085		$	0.0003		$	0.0015		$	0.0005
Diluted		$	0.0085		$	0.0003		$	0.0015		$	0.0005

Weighted Average Shares Outstanding
Basic			59,419,812			53,090,000			56,754,341			52,890,000
Diluted			59,419,812			53,090,000			56,754,341			52,890,000

See Notes to Financial Statements

Guangzhou Global Telecom, Inc

Consolidated Statements of Changes in Stockholders' Equity

As of Jun 30, 2008 and December 31, 2007

(Stated in US Dollars)


					Additional					Other
	Total number		Common		paid in		Subscription			comprehensive			Retained
	of share		stock		capital		receivable			income			earnings			Total

Balance, January 1, 2007		52,890,000		528,900		-		(86,384	)		25,664			268,322			736,502
Issuance of new share		280,000		2,800		408,216		86,384			-			-			497,400
Net income/(loss)		-		-		-		-			-			(910,130	)		(910,130	)
Foreign currency translation		-		-		-		-			(5,563	)		-			(5,563	)
Balance, December 31, 2007		53,170,000		531,700		408,216		-			20,101			(641,808	)		318,209


Balance, January 1, 2008		53,170,000		531,700		408,216		-			20,101			(641,808	)		318,209
New issuance of common stock		4,641,302		46,413		822,476		-			-			-			868,889
Net income/(loss)		-		-		-		-			-			85,598			85,598
Foreign currency translation		-		-		-		-			142,065			-			142,065
Balance, June 30, 2008		57,811,302		578,113		1,230,692		-			162,166			(556,210	)		1,414,761

	Accumulated Comprehensive Income
	12/31/2007			6/30/2008		Total
Comprehensive Income
Net Income		(910,130	)		85,598		(824,532	)

Other Comprehensive Income
Foreign Currency Translation Adjustment		(5,563	)		142,065		136,502

		(915,693	)		227,663		(688,030	)

See Notes to Financial Statements

Guangzhou Global Telecom, Inc

Consolidated Statements of Cash Flow

For the three months and six months periods ended June 30, 2008 and 2007


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Cash Flow from Operating Activities
Cash received from customers	$	8,565,921		$	5,082,114		$	16,653,957		$	8,727,114
Cash paid to suppliers		(9,642,564	)		(4,738,211	)		(15,313,222	)		(8,355,130	)
Cash Paid for Selling, Administrative, and General Expenses		872,189			(287,422	)		(1,126,280	)		(287,422	)
Cash received from other income		(1,579	)		-			2,532
Cash Paid to Director		-			(250,221	)		-			(250,221	)
Cash Paid for Other Expenses		-			(927	)		(2,258	)		(927	)
Interest received		20,391			-			31,719			-
Interest paid		(59,320	)		-			(228,949	)		-
Minority interest		77,863			-			263,269			-
Cash Sourced from/(Used in) Operating Activities		(167,099	)		(194,667	)		280,769			(166,586	)

Cash Flow from Investing Activities
Settlement of / (investment in ) Notes Receivable		-			144,363			-			144,363
Advance for business development		228,384			-			-			-
Purchase of property, plant & equipment		(70,280	)		(42,951	)		(481,962	)		(53,592	)
Purchase of intangible assets		(102,170	)		-			(215,458	)		-
Cash Sourced from/(Used in) Investing Activities		55,934			101,412			(697,420	)		90,771

Cash Flow from Financing Activities
Private investor's deposit for purchase of common stock		-			475,000			-			475,000
Issuance of common stock		678,412			(89,740	)		868,889			10,260
Proceed from notes		(723	)		(4,632	)		(2,000	)		-
Repayment to shareholders		4,503			-			-			-
Due from related party		32,560			-			32,560			-
Loan from shareholders		31,840			(10,260	)		31,840			-
Cash received from issuance of convertible debenture		(317,460	)		-			492,064			-
Cash Sourced from/(Used in) Financing Activities		429,132			370,368			1,423,353			485,260

Net Increase/(Decrease) in Cash & Cash Equivalents		317,966			277,113			1,006,701			409,445
Effect of Currency Translation		(10,825	)		3,979			142,065			4,467

Cash & Cash Equivalent at the Beginning of Year		1,069,827			175,535			228,202			42,715

Cash & Cash Equivalent at the End of Year	$	1,376,968		$	456,627		$	1,376,968		$	456,627

See Notes to Financial Statements

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007

Net (loss)/income	$	502,355		$	16,122		$	85,598		$	28,536

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

Minority interest		77,863			-			263,269			-
Depreciation		28,285			12,251			36,422			18,490
Decrease/(increase) in other receivable		(317,451	)		27,415			(298,323	)		(100,541	)
Decrease/(increase) in due from director		-			(250,221	)		-			(250,221	)
Decrease/(increase) in purchase deposit		(341,578	)		-			(261,595	)		-
Decrease/(increase) in related party		1,310			-			-			-
Decrease/(increase) in inventory		(84,352	)		(41,252	)		235,989			(47,383	)
Decrease/(increase) in rental deposit		-			16,406						16,406
Increase/(decrease) in tax payable		209,086			10,062			211,488			26,012
Increase/(decrease) in accrued liabilities and other payable		(69,320	)		(52,512	)		120,400			(48,148	)
Increase/(decrease) in VAT payable		29,753			41,070			82,488			151,658
Increase/(decrease) in income tax payable		(203,052	)		25,992			(194,969	)		38,605

Total of all adjustments		(669,454	)		(210,789	)		195,171			(195,122	)


Net Cash Provided by (Used in)/Sourced from Operating Activities	$	(167,099	)	$	(194,667	)	$	280,769		$	(166,586	)

See Notes to Financial Statements

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

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 $375,307 (RMB 3,030,000)) 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. For financial reporting purposes, these two transactions are classified as a recapitalization of Guangzhou Global Telecom, Inc. and the historical financial statements of GTHL. The accompanying consolidated financial statements were adjusted to reflect the effects of the recapitalization at December 31, 2007, as well as retroactively at December 31, 2006, as if these two transactions occurred at the beginning of the year ended December 31, 2006 in wake of the reverse-merger presentation.

During the year, the Company newly 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 100,000 and Singapore Dollar 200,000, 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.

The Company operates in a leased facility located at Room 29D, Block E, Zhu Jiang Di Jing Hao Jing Qian, Haizhu Qu, City of Guangzhou, PRC.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

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, which are compiled on the accrual basis of accounting.

(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 June 30, 2008, detailed identities of the consolidating subsidiaries are as follows:

Name of Company	Place of Incorporation	Attributable Equity interest %
Global Telecom Holding Ltd.	BVI	100
Guangzhou Global Telecommunication Company Ltd.	PRC	100
Zhengzhou Global Telecom Equipment Limited	PRC	100
Huantong Telecom Hong Kong Holding Ltd.	Hong Kong SAR	100
Macau Global Telecom Company Ltd.	Macau SAR	100
Huantong Telecom Singapore Company PTE Ltd.	Singapore	100
Guangzhou Huantong Telecom Technology and Consultant Services, Ltd.	PRC	100
Beijing Lihe Jiahua Technology and Trading Company Ltd.	PRC	50

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

(c)	Economic and Political Risks

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

(d)	Use of Estimates

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

(e)	Cash and Cash Equivalents

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

(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.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

(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:

Equipment	5 years
Furniture and Fixtures	5 years
Leasehold Improvement	5 years
Motor Vehicles	3 years

(i)	Accounting for Impairment of Long-Lived Assets

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

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

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)	Advertising

The Company expensed all advertising costs as incurred.

(l)	Research and Development

All research and development costs are expensed as incurred.

(m)	Foreign Currency Translation

The Company maintains its financial statements in the functional currency. The functional currency of the Company is the Renminbi (RMB). However, the accompanying financial statements are presented in United States dollars. Monetary assets and liabilities are translated at year-end exchange rates whereas revenues and expenses are translated at average exchange rates of the period.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

Capital accounts and fixed Assets/Long Term Assets are translated at the actual historical exchange rates when the capital transactions occurred. Any translation adjustments resulting are not included in determining net income, but are included in foreign exchange adjustment to other comprehensive income, as a component of stockholders’ equity.

Exchange Rates	6/30/2008	12/31/2007	6/30/2007
Period end RMB : US$ exchange rate	6.8718	7.3141	7.6248
Average period RMB : US$ exchange rate	7.0726	7.6172	7.7300

Period end HKD : US$ exchange rate	7.8037	7.8049	7.8172
Average period HKD : US$ exchange rate	7.7975	7.8026	7.8129

Period end MOP : US$ exchange rate	8.1733	8.1594	8.1662
Average period MOP : US$ exchange rate	8.1594	8.2166	8.2750

Period end SGD : US$ exchange rate	1.3635	1.4467	1.5321
Average period SGD : US$ exchange rate	1.3884	1.5072	1.5286

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.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

(n)	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 and ZGTG 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 and ZGTG	PRC	25.0%
HTHKN	Hong Kong SAR	17.5%
MGT	Macau SAR	12.0%
GTHL	British Virgin Islands	0.00%
HTS	Singapore	18.0%

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

Effective January 1, 2008, PRC government implements a new 15% 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 15% 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: -

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 year ended December 31, 2007, the Company shall not be subject to income tax.

(o)	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.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

Such an appropriation is made until the reserve reaches a maximum equalling 50% of the enterprise’s 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.

(p)	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.

(q)	Related party transactions

A related party is generally defined as (i) any person that holds 10% or more of the Company's securities including such person's immediate families, (ii) the Company's management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. (See Note 11)

(r)	Accounting for Derivative instruments

The Company designates its derivatives based upon the criteria established by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, as amended by SFAS 138 and SFAS 149, requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for the changes in the fair value of the derivative depends on the intended use of the derivative and the resulting designation. For a derivative designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item due to the risk being hedged.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

For a derivative designated as a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and is subsequently reclassified to earnings when the hedge exposure affects earnings. The ineffective portion of the hedge is reported in earnings immediately. For a derivative that does not qualify as a fair value hedge or cash flow hedge, the change in fair value is recognized in net income in the current period. It is the Company's policy to classify all of its derivative instruments for cash flow purposes as operating activities.

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.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

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.

(s)

Goodwill

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

(t)	Recent accounting pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of SFAS 115” (SFAS No. 159), which allows for the option to measure financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The objective of SFAS 159 is to provide opportunities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations, (‘‘SFAS 141(R)’’). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations, but also provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired and liabilities assumed arising from contingencies, the capitalization of in-process research and development at fair value, and the expensing of acquisition-related costs as incurred. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

In the event that the Company completes acquisitions subsequent to its adoption of SFAS 141 (R), the application of its provisions will likely have a material impact on the Company’s results of operations, although the Company is not currently able to estimate that impact.

3.	CONCENTRATION

(a) Significant Relationships

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 with the Company, the Company's ability to conduct its existing business would be adversely affected.

4.	OTHER RECEIVABLE

Other Receivable at June 30, 2008 and December 31, 2007 pertained to the Company voluntarily extended 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		6/30/2008				12/31/2007
Trade financing to business associates		$	814,185			$	515,862

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

5.	NOTE RECEIVABLE

Note receivable at June 30, 2008 and December 31, 2007 pertained to the Company’s financing of two unrelated business associates without collateral on the following terms:

Borrower	Terms	Interest			6/30/2008		12/31/2007

(a) Wai Zhou Wong Choy Cable Factory	On Demand		12	%	$	-	$	-
(b) Kit Yeung Twilight Telecommunication & Cable Factory	On Demand		12	%		33,751		31,751
					$	33,751	$	31,751

6.	PURCHASE DEPOSITS

Purchase Deposits of $2,642,082 and $2,380,375 at June 30, 2008 and December 31, 2007 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 June 30, 2008 and December 31, 2007:

	6/30/2008			12/31/2007
Category of Asset
Equipment	$	127,498		$	30,839
Furniture & Fixtures		22,615			16,734
Leasehold Improvement		39,450			125,991
Motor Vehicles		187,417			91,708
Building		370,254			-
		747,234			265,272

Less: Accumulated Depreciation		(133,015	)		(96,593	)
	$	614,219		$	168,679

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

The depreciation expenses were $ 36,422 and $6,239 for the period ended June 30, 2008 and the year ended December 31, 2007, respectively.

8.	VAT PAYABLE

The Company has been collecting from its customers Value Added Tax (VAT), on behalf of the government. The Company has been granted to pay the balance dues under installments up to June 30, 2008, by the government. 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.

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 June 30, 2008 and the year ended December 31, 2007 amounted to $ 85,502 and $143,772, respectively. Future minimum lease payments under non-cancelable operating leases until termination of the leases amounted to $233,291 distributed as:

Fiscal Year	Minimum Lease Payments

2008	$	85,502
2009		100,609
2010		4,428
Total	$	190,539

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

10.	CONVERTIBLE BONDS AND BOND WARRANTS

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

The Debenture were subscribed at a price equal to 87.25% of their principal amount, which is the issue price of $2,285,714 less a 12.5% discount. The Debenture 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 Debenture.

·	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, the date of issuance, the Company determined the fair value of the Debenture to be $2,000,000. The values of the warrants and the beneficial conversion feature as at December 31, 2007 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:

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

(1	)	Convertible Debenture	$	2,285,714
(2	)	Discount	$	285,714
(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 as disclosed in the table below.

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

The Convertible Debentures Payable, net consisted of the following:

	6/30/2008		12/31/2007
Convertible Debenture - Principal and interest
Balance as at beginning of year	$	2,122,735	$	-
Addition		492,064		2,000,000
Redemption		-		-
Interest Charged for the current year		-		168,448
Repayment of interest in current year		-		-45,713
Balance as at end of year		2,614,799		2,122,735

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	$	2,614,799	$	2,122,735

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

	6/30/2008		12/31/2007

Non-current portion	$	1,241,239	$	749,175
Current Portion		1,373,560		1,373,560
	$	2,614,799	$	2,122,735

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

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 75,000,000 shares at a par value of US$0.01 of which 53,170,000 and 52,890,000 shares at a par value of US$0.01 per share have been issued and outstanding as of December 31, 2007 and 2006, respectively.

The presentation of recapitalization as of June 30, 2008 is being depicted in the following table:

Date	Name of Shareholders	Number of Shares		Common Stock Capital			Additional Paid-in Capital			% of Equity Holdings
3/7/2007	Shell: Avalon Development of Enterprises Inc. prior to reverse-merger		13,072,500	$	130,725		$	-			22.61	%
3/7/2007	Shareholders of Shell in exchange of all of GTHL shares upon reverse-merger		39,817,500		398,175			-			68.87	%
4/2/2007	Zenith Capital Management LLC		200,000		2,000			498,000			0.35	%
7/1/2007	Miss Li, Yan Kuan		80,000		800			61,600			0.14	%
	Less: Cost of Issue		-		-			-151,384			0.00	%
3/14/2008	Issuance of New Shares		793,651		7,937			269,521			1.37	%
3/10/2008	TCAM(SPORE)		3,500,000		35,000			502,993.25			6.05	%
4/9/2008	BEIJING LIHE		1,500,000		15,000			215,568.54			2.59	%
4/10/2008	Issuance of New Shares		649,112		6,491			93,285.42			1.12	%
5/9/2008	Issuance of New Shares		1,698,539		16,985			244,101.05			2.94	%
6/6/2008	Shares cancelled: TCAM(SPORE)		-3,500,000		(35,000	)		(502,993.25	)		-6.05	%

			57,811,302	$	578,113		$	1,230,692			100.00	%

Guangzhou Global Telecom, Inc

Reconciliation of Net Income to Cash Flow Used in Operating Activities

For the three months and six months periods ended June 30, 2008 and 2007

(Stated in US Dollars)

12.	RELATED PARTY TRANSACTIONS

The following material transactions with related parties during the periods were in the opinion of the directors, carried out in the ordinary course of business and on normal commercial terms:

(a) The due from related party at June 30, 2008 and December 31, 2007 were $0 and $32,560, respectively.

(b) The due from shareholder at June 30, 2008 and December 31, 2007 were $86,207 and $118,047, respectively.

(c) On July 1, 2007, the Group acquired the entire equity shares of Macau Global Telecom Co., Ltd. from a shareholder of the Company at a consideration of $150,000 cash plus new issuance of 80,000 common shares of the Company.

Florida		333-130937		59-3565377
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

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

	GUANGZHOU GLOBAL TELECOM, INC.

Date: August 8, 2008	By:	/s/ Li Yankuan
		Li YanKuan
		President, Chief Executive Officer and Director