UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 6-K

REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

For the month of March 2011

Commission File Number: 001-34578
 
FUNTALK CHINA HOLDINGS LIMITED

21/F, Block D The Place Tower
No. 9 Guanghua Road, Chaoyang District
Beijing, China 100020
Tel: +86-10-5709-1100
(Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x  Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):________________

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):________________

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o  No x
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

82-        N/A      
 
 
1
 
 
Incorporation by Reference

This Form 6-K is being incorporated by reference into the registrant’s Post-Effective Amendment to Form S-4 on Form F-3 Registration Statement (File No. 333-153492).

 
2
 
 
 Fiscal 2011 Third Quarter Financial Results
 
Funtalk China Holdings Limited (the “Company” or “Funtalk China”) reported its unaudited financial results for the third fiscal quarter ended December 31, 2010 (“3Q FY2011”).

The Company reported consolidated net revenue of $300.2 million for 3Q FY2011, representing an 86.6% increase from the third fiscal quarter of 2010 (“3Q FY2010”).  The Company currently generates revenues from two business segments, retail and wholesale distribution of mobile phones and related services and accessories.

Retail revenue for 3Q FY2011 was $170.2 million, representing an 84.2% increase from 3Q FY2010. This growth in the retail segment was primarily driven by the increase in the number of retail subsidiaries, with a total of eleven retail subsidiaries covering 718 locations in 3Q FY2011 compared to seven retail subsidiaries covering 446 locations in 3Q FY2010. Newly acquired subsidiaries contributed approximately $14.3 million to the Company’s retail segment revenue in 3Q FY2011.

Wholesale distribution revenue for 3Q FY2011 was $130.0 million, representing a 90.0% increase from 3Q FY2010.  The increased wholesale distribution revenue was primarily attributable to a 76.7% increase in the total volume of mobile phones sold and an 8.6% increase in average selling prices of mobile phones.

In 3Q FY2011, retail sales volume of 3G products accounted for 20.9% of the total units sold in the Company’s retail sale business, compared to 23.1% in the three months ended September 30, 2010.  In 3Q FY2011, wholesale distribution of 3G products accounted for 54.9% of the total units sold in the Company’s wholesale distribution business, compared to 30.2% in the three months ended September 30, 2010.

Gross profit for 3Q FY2011 increased 74.2% to $50.4 million, or 16.8% of total revenue, compared to $28.9 million, or 18.0% of total revenue, in 3Q FY2010.  Gross margins for the wholesale distribution segment and retail segment were 16.1% and 17.3%, respectively, for 3Q FY2011, compared to 18.6% and 17.5%, respectively, for 3Q FY2010.  The slight decrease in overall consolidated gross margins was primarily driven by the receipt of one-lump-sum annual pre-tax vendor rebates in the distribution segment during 3Q FY2010.  Starting April 2010, such pre-tax vendor rebates will be receivable by the Company on a quarterly basis.

Selling and distribution expenses were $19.6 million for 3Q FY2011 compared to $7.4 million in 3Q FY2010. The increase was primarily due to the increase in rental expenses resulting from the acquisitions of retail chains in FY2011 and the expansion of the Company’s direct sales force for the retail segment in 3Q FY2011. General and administrative expenses were $11.0 million for 3Q FY2011, representing a 111.8% increase from $5.2 million in 3Q FY2010. The increase was primarily due to an increased headcount and an increase in bank service charges associated with the expansion of the Company’s operations.

Income from operations increased by 35.5% to $22.1 million in 3Q FY2011 from $16.3 million in 3Q FY2010. Correspondingly, operating income margin, calculated based on income from operations as a percentage of net revenues, decreased to 7.4% in 3Q FY2011 from 10.1% in 3Q FY2010.

Income tax expense was $5.9 million for 3Q FY2011 compared to a $4.6 million tax expense for 3Q FY2010. The effective tax rate was 31.5% for 3Q FY2011 compared to 30.8% in 3Q FY2010, as certain expenses were not tax deductible in 3Q FY2011.

Net income attributable to the Company was $12.7 million, or 4.2% of total revenue, for 3Q FY2011, representing a 34.5% increase from $9.4 million, or 5.9% of total revenue for 3Q FY2010. 3Q FY2011 diluted earnings per share (“EPS”) was $0.22 based on a diluted share count of 58.9 million shares compared to 3Q FY2010 diluted EPS of $0.19 based on a diluted share count of 50.4 million shares.

As of December 31, 2010, the Company’s cash balance (including pledged deposits) was $61.8 million.  The Company’s accounts receivable was $74.5 million, representing a decrease of 7.4% from the accounts receivable balance of $80.5 million as of March 31, 2010.  The accounts receivable (including notes receivable) turnover days for 3Q FY2011 was 24.8 days compared to 42.7 days in 3Q FY2010.
 
 
3
 
 
Recent Development Initiatives
 
On October 11, 2010, the Company entered into a warrant exchange agreement with each of Capital Ally Investments Limited ("Capital Ally") and ARCH Digital Holdings Limited ("Arch") , pursuant to which each of Capital Ally and Arch exchanged 113,062 of the Company's Class A warrants and 1,700,000 of the Company's Class B redeemable warrants, which represent all of the Class A warrants and Class B redeemable warrants that each Capital Ally and Arch held as of October 11, 2010, for 729,157 of the Company's ordinary shares (an aggregate of 1,458,314 ordinary shares).  No other consideration was paid for the exchange and no third parties were paid any fees in connection with the exchange. 

On October 29, 2010, the Company completed a public offering of 7,000,000 ordinary shares and received proceeds before expenses of approximately $46.6 million.

In November 2010, the underwriters of the public offering exercised their over-allotment option to purchase an additional 373,300 ordinary shares.

In November 2010, the Company acquired 100% equity of Hubei Feon Telecommunications Technology Co., Ltd., a retail chain with 14 outlets in Hubei province.

In December 2010, the Company entered into an agreement on acquiring 100% of equity of Jinan Dawo Technology Co., Ltd., a retail chain with 65 outlets in Shandong province. This retailer benefits from strong cooperation and support from China Unicom, one of the three largest Carriers in China.  This acquisition is expected to be completed in the fiscal fourth quarter 2011.

Financial Information
 
The unaudited condensed consolidated statements of income and balance sheets included herein have been prepared by management using U.S. GAAP.  This financial information is not intended to fully comply with U.S. GAAP because they do not present all of the disclosures required by U.S. GAAP.  The March 31, 2010 balance sheet was derived from audited consolidated financial statements of Pypo Digital Company Limited, the Company's predecessor.
 
Safe Harbor and Informational Statement
 
Certain statement in this Current Report on Form 6-K may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements are statements that are not historical facts. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The Company may not actually achieve the plans, intentions or expectations disclosed in the forward-looking statements, and investors should not place undue reliance on the forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements made by the parties as a result of a number of factors, some of which may be beyond the Company's control. These factors include the risk factors detailed in the Company's filings with the Securities and Exchange Commission. Further, the forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, dividends or investments made by the Company or other parties. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
 
 
(Financial Statements Follow)
 
 
4
 
 
FUNTALK CHINA HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

   
Three Months Ended
   
Nine Months Ended
 
   
Dec. 31, 2010
   
Dec. 31, 2009
   
Dec. 31, 2010
   
Dec. 31, 2009
 
                         
Net revenues
  $ 300,233     $ 160,873     $ 813,680     $ 566,324  
Cost of revenues
    -249,860       -131,951       -681,491       -485,025  
                                 
Gross profit
    50,373       28,922       132,189       81,299  
Operating expenses:
                               
Other operating income
    2,301       —       7,426       1,153  
Selling and distribution expenses
    -19,552       -7,420       -49,884       -28,537  
General and administrative expenses
    -11,045       -5,215       -29,886       -14,061  
Impairment loss on goodwill
    —       —       -18       —  
Total operating expenses
    -28,296       -12,635       72,362       -41,445  
                                 
Income from operations
    22,077       16,287       59,827       39,854  
Others, net
    461       745       272       -1,259  
Interest income
    67       486       173       618  
Interest expense
    -4,031       -2,528       -12,329       -6,647  
                                 
Income before income tax, equity in loss of an affiliated company and non-controlling interests
                               
    18,574       14,990       47,943       32,566  
Income tax expense
    -5,856       -4,614       -14,872       -10,358  
Equity in loss of an affiliated company
    —       -11       —       -11  
                                 
Net income
    12,718       10,365       33,071       22,197  
Net income attributable to non-controlling interests
    -52       -946       -1,077       -4,102  
                                 
Net income attributable to the Company
  $ 12,666     $ 9,419     $ 31,994     $ 18,095  
                                 
Basic net income per share
  $ 0.22     $ 0.20     $ 0.61     $ 0.39  
                                 
Diluted net income per share
  $ 0.22     $ 0.19     $ 0.60     $ 0.37  
                                 
Number of shares used in computing basic net income
    57,938,793       46,959,171       52,689,570       46,859,232  
                                 
Number of shares used in computing diluted net income
    58,852,489       50,383,535       53,727,272       48,850,469  

 
5
 
 
FUNTALK CHINA HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

   
As of Dec. 31, 2010
   
As of Mar. 31, 2010
 
ASSETS
 
 
   
 
 
Current assets:
           
Cash and cash equivalents
  $ 37,399     $ 26,616  
Restricted bank deposits
    24,434       8,860  
Accounts receivable (less allowance for doubtful accounts of $587 for December 31, 2010 and $632 for March 31, 2010)
    74,517       80,457  
Inventories
    104,961       104,800  
Notes receivable
    2,118       5,125  
Value added  tax  receivable
    12,514       7,588  
Receivable from a vendor
    41,220       23,908  
Other receivables
    83,799       33,102  
Amounts due from  related companies
    13,666       —  
Non-current assets held for sale
    6,246       —  
Prepayment and other assets
    31,844       23,388  
Deferred tax assets
    2,253       3,743  
                 
Total current assets
    434,971       317,587  
                 
Non-current assets:
               
Property and equipment, net
    19,756       20,468  
Intangible assets
    23,184       20,761  
Goodwill
    139,679       70,035  
Deposits paid for acquiring new entities
    —       29,480  
Long term deposits
    12,083       —  
Other assets
    3,170       2,869  
                 
Total non-current assets
    197,872       143,613  
                 
TOTAL ASSETS
  $ 632,843     $ 461,200  
 
 
6
 
 
FUNTALK CHINA HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

 
As of Dec. 31, 2010
   
As of Mar. 31, 2010
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
     
 
 
           
Current liabilities:
             
Accounts payable (including trade payable of the consolidated VIEs without recourse to Funtalk China Group of $32,086 and $36,589 as of December 31, 2010 and March 31, 2010, respectively)
  $ 59,502       $ 93,345  
Notes payable (including notes payable of the consolidated VIEs without recourse to Funtalk China Group of $10,606 and $13,140 as of December 31, 2010 and March 31, 2010, respectively)
    67,686         23,394  
Provision for rebates and price protections
    5,012         8,168  
Advance payments from customers (including advance payment from customers of the consolidated VIEs without recourse to Funtalk China Group of $846 and $1,121 as of December 31, 2010 and March 31, 2010, respectively)
    8,011         2,789  
Other payables and accruals  (including other payables and accruals of the consolidated VIEs without recourse to Funtalk China Group of $12,037 and $8,075 as of December 31, 2010 and March 31, 2010 respectively)
    51,260         28,139  
Income taxes payable  (including income taxes payable of the consolidated VIEs without recourse to Funtalk China Group of $5,956 and $4,423 as of December 31, 2010 and March 31, 2010, respectively)
    10,408         10,798  
Amounts due to related parties  (including amounts due  to related parties of the consolidated VIEs without  recourse to Funtalk China Group of nil and $11,719 as of  December 31, 2010 and March 31, 2010, respectively)
    13,032         11,719  
Short term borrowings (including short term borrowings of the consolidated VIEs without recourse to Funtalk China Group of $18,577 and $8,057 as of December 31, 2010 and March 31, 2010, respectively)
    149,482         97,860  
                   
                   
Total current liabilities
    364,393         276,212  
           
Non-current liability
                 
Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without recourse to Funtalk China Group of $1,133 and $830 as of December 31, 2010 and March 31, 2010, respectively)
    6,457         4,296  
                   
Total non-current liability
    6,457         4,296  
                   
Total liabilities
    370,850         280,508  
                   
Total shareholders’ equity
    257,675         170,550  
           
Non-controlling interests
    4,318         10,142  
                   
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 632,843       $ 461,200  

 
7
 
 
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
  Funtalk China Holdings Limited  
     
       
 
By:
/s/ Dongping Fei   
  Name:   Dongping Fei  
  Title: Chief Executive Officer  
 
Date: March 16, 2011
 
 
8
 
 
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